-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HIxVnUTHPHVGp6A2itHJXsx3ku7XBRosg/gor84gAIJ8pID9Q1NNdZzzlQLs2Bdl 4H5hb+/54CvHm3a8zu51WA== 0000949111-95-000012.txt : 19951119 0000949111-95-000012.hdr.sgml : 19951119 ACCESSION NUMBER: 0000949111-95-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OREGON METALLURGICAL CORP CENTRAL INDEX KEY: 0000074856 STANDARD INDUSTRIAL CLASSIFICATION: ROLLING DRAWING & EXTRUDING OF NONFERROUS METALS [3350] IRS NUMBER: 930448167 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01339 FILM NUMBER: 95592688 BUSINESS ADDRESS: STREET 1: 530 W 34TH AVE STREET 2: P O BOX 580 CITY: ALBANY STATE: OR ZIP: 97321 BUSINESS PHONE: 5039264281 MAIL ADDRESS: STREET 1: 530 34TH AVENUE SW STREET 2: PO BOX 580 CITY: ALBANY STATE: OR ZIP: 97321 10-Q 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1995 __________________ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File NO. 0-1339 ______ OREGON METALLURGICAL CORPORATION (Exact name of registrant as specified in its charter) Oregon 93-0448167 _______________________________ ______________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 530 West 34th Avenue 97321 _______________________________________ __________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (541) 967-9000 ______________ None ______________________________________________________ (Former name or address, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ ______ Indicate the number of shares of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding as of November 10, 1995 _____________________________ ___________________________________ Common stock, $1.00 par value 10,963,377 =============================================================================== OREGON METALLURGICAL CORPORATION _______________________________________________________________________________ PART 1: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) Unaudited
Three Months Nine Months FOR THE PERIOD ENDED SEPTEMBER 30, 1995 1994 1995 1994 ____ ____ ____ ____ Net sales $ 41,236 $ 16,980 $107,199 $ 44,777 Cost of sales 37,146 15,283 92,486 42,331 ________ ________ ________ ________ GROSS PROFIT 4,090 1,697 14,713 2,446 Research, technical and product development expenses 444 384 1,163 1,064 Selling, general and administrative expenses 3,536 1,935 10,480 4,622 ________ ________ ________ ________ INCOME (LOSS) FROM OPERATIONS 110 (622) 3,070 (3,240) Interest income --- 115 --- 362 Interest expense (596) (106) (1,636) (288) Minority interest in subsidiary (123) --- (341) --- ________ ________ ________ ________ INCOME (LOSS) BEFORE INCOME TAXES (609) (613) 1,093 (3,166) Provision (benefit) for income taxes (170) (213) 544 (1,080) ________ ________ ________ ________ NET INCOME (LOSS) $ (439) $ (400) $ 549 $ (2,086) ======== ======== ======== ======== NET INCOME (LOSS) PER SHARE $ (0.04) $ (0.03) $ 0.05 $ (0.19) ======== ======== ======== ======== WEIGHTED AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING 11,281 10,893 11,186 10,891 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. -2- OREGON METALLURGICAL CORPORATION _______________________________________________________________________________ CONSOLIDATED BALANCE SHEETS (in thousands)
Unaudited September 30 December 31 1995 1994 ____________ ___________ ASSETS Current Assets Cash and cash equivalents $ 855 $ 1,636 Accounts receivable, net 29,390 20,444 Inventories 55,739 49,023 Income taxes receivable --- 321 Prepayments and other current assets 534 1,031 Deferred income taxes 525 517 ________ ________ TOTAL CURRENT ASSETS 87,043 72,972 Property, plant and equipment, net 35,427 37,520 Other assets, net 1,638 1,480 ________ ________ TOTAL ASSETS $124,108 $111,972 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 15,939 $ 16,860 Accrued payroll and employee benefits 5,636 2,944 Other accrued expenses 6,029 4,073 Note payable to bank 607 --- Current portion of long-term debt 86 13 ________ ________ TOTAL CURRENT LIABILITIES 28,297 23,890 Other Liabilities Note payable to bank 18,519 12,496 Long-term debt, less current portion 5,555 4,668 Deferred income taxes 936 1,098 Deferred compensation payable 678 881 Accrued postretirement benefit 1,550 1,457 Minority interest 634 200 TOTAL LIABILITIES 56,169 44,690 ________ ________ Shareholders' Equity Common stock, $1.00 par value; 25,000 shares authorized, shares issued: 1995 - 10,911; 1994 - 10,893 10,911 10,893 Additional paid-in capital 37,463 37,445 Retained earnings 19,509 18,960 Cumulative foreign currency translation adjustment 56 (16) ________ ________ TOTAL SHAREHOLDERS' EQUITY 67,939 67,282 ________ ________ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $124,108 $111,972 ======== ========
The accompanying notes are an integral part of these financial statements. -3- OREGON METALLURGICAL CORPORATION _______________________________________________________________________________ CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Unaudited
Nine Months _______________________ FOR THE PERIOD ENDED SEPTEMBER 30, 1995 1994 ________ ________ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 549 $ (2,086) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation and amortization 3,608 3,356 Deferred income taxes (170) (1,080) Minority interest 341 --- DECREASE (INCREASE) IN: Accounts receivable (8,921) (3,116) Inventories (6,673) (4,021) Income taxes receivable 321 1,338 Prepayments 497 388 INCREASE (DECREASE) IN: Accounts payable (935) 4,319 Accrued payroll and employee benefits 2,692 1,129 Other accrued expenses 1,956 (735) Other (76) 635 ________ ________ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,811) 127 ________ ________ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of business, net of cash acquired (8,223) Additions to properties (1,173) (1,265) Short-term investments - purchased --- (1,228) Short-term investments - redeemed --- 8,811 Other (404) (216) ________ ________ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,577) (2,121) ________ ________ CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings, note payable to bank 6,630 3,633 Borrowings, long-term debt 990 --- Repayment of long-term debt (30) (1,775) Payment on note receivable - ESOP --- 1,669 Other --- (250) ________ ________ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,590 3,277 ________ ________ Effect of exchange rates on cash and cash equivalents 17 --- ________ ________ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (781) 1,283 CASH AND CASH EQUIVALENTS: Beginning of period 1,636 37 ________ ________ End of period $ 855 $ 1,320 ======== ========
The accompanying notes are an integral part of these financial statements. -4- OREGON METALLURGICAL CORPORATION _______________________________________________________________________________ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) NOTE 1. BASIS OF PRESENTATION The interim consolidated financial statements have been prepared by Oregon Metallurgical Corporation (the Company) without audit. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 1995, and December 31, 1994; the results of operations for the three months and the nine months ended September 30, 1995 and 1994; and the cash flows of the Company for the nine months ended September 30, 1995 and 1994. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto appearing in the Company's Annual Report to Shareholders. The results for the third quarter of 1995 are not necessarily indicative of future financial results. NOTE 2. ORGANIZATION AND OPERATIONS The Company is a major producer and distributor of titanium sponge, ingot, mill products and castings for aerospace, industrial and recreation applications. As of December 31, 1994, the Company is 41% owned by the Oregon Metallurgical Corporation Employee Stock Ownership Plan (the ESOP). On September 20, 1994, the Company completed the acquisition of the net operating assets and subsidiaries of Titanium Industries Distribution Group from Kamyr, Inc. The acquired business is being operated under the name of Titanium Industries, Inc. (TI), an eighty percent (80%) owned subsidiary of OREMET. Titanium Industries, Inc. is a full-line service titanium metals distributor with facilities in the United States, Canada and the United Kingdom. NOTE 3. BASIS OF CONSOLIDATION The consolidated financial statements of the Company include the accounts of its majority-owned subsidiary, Titanium Industries, Inc. (since date of acquisition) and the Company's wholly-owned subsidiary, OREMET France S.a.r.l. Titanium Industries, Inc.'s accounts reflect the activities of its wholly-owned subsidiaries, Titanium International, LTD. and Titanium Wire Corporation. All material intercompany accounts and transactions have been eliminated in consolidation. NOTE 4. STATEMENT OF CASH FLOWS In accordance with Statement of Financial Accounting Standards No. 95, STATEMENT OF CASH FLOWS, cash flows from the Company's operations in foreign countries are calculated based on their reporting currencies. As a result, amounts related to assets and liabilities reported on the Consolidated Statement of Cash Flows will not necessarily agree to changes in the corresponding balances on the Consolidated Balance Sheets. The effect of exchange rate changes on cash balances held in foreign currencies is reported on a separate line below Cash Flows From Financing Activities. -5- OREGON METALLURGICAL CORPORATION _______________________________________________________________________________ NOTE 5. INVENTORIES Inventories are comprised of the following:
September 30, December 31, 1995 1994 _____________ ____________ Finished goods $ 19,155 $ 14,656 Work-in-process 17,033 15,288 Raw materials 19,551 19,079 ________ ________ $ 55,739 $ 49,023 ======== ========
NOTE 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are comprised of the following:
September 30, December 31, 1995 1994 _____________ ____________ Land $ 1,189 $ 1,189 Buildings and improvements 11,112 11,087 Machinery and equipment 41,405 39,940 Integrated sponge facility 45,641 45,309 Construction in progress 1,366 1,976 ________ ________ 100,713 99,501 Less accumulated depreciation (65,286) (61,981) ________ ________ $ 35,427 $ 37,520 ======== ========
Machinery and equipment includes items acquired under capital leases having a cost of $969 and accumulated amortization of $63 as of September 30, 1995. The Company had no capital leases outstanding as of December 31, 1994. NOTE 7. NOTES PAYABLE TO BANK The Company may borrow up to $25 million under the terms of a revolving credit agreement at an interest rate of prime (8.75% on September 30, 1995) plus either 1 or 1.5 percent. The terms of the credit agreement provide for a LIBOR-based borrowing option which the Company has exercised. Borrowings under the agreement are collateralized by accounts receivable, inventories and other intangible assets, including the Company's stock in TI. The Company must pay a nonuse fee of .5% annually on the unused portion of the commitment. The credit agreement matures September 1997 -6- OREGON METALLURGICAL CORPORATION _______________________________________________________________________________ and can be renewed for one year periods with consent of both parties. The credit agreement contains various restrictive covenants including (i) a requirement to maintain a minimum net worth; (ii) a ratio limiting liabilities to a percentage of net worth; (iii) maintenance of an interest expense coverage ratio; (iv) annual limit on capital expenditures; and (v) limit on the payment of dividends. Annual cash dividends are limited to the lesser of fifty percent (50%) of net income or $1.8 million. As of September 30, 1995, the Company met its financial covenants under the credit agreement, except for the interest coverage ratio. The Company has obtained written consent from the lender pursuant to the credit agreement and is now in compliance. The Company believes that it will meet its future financial covenants or it will seek to negotiate to amend the credit agreement. Titanium Industries, LTD. (T.I.L.), a foreign subsidiary (United Kingdom) maintains a credit facility of approximately $2,300, a foreign exchange facility for $900, and other guarantees of approximately $250. The amount of borrowing is subject to 70% of eligible accounts receivable plus 60% of appraised value of building. The credit facility is collateralized by certain assets of T.I.L. Interest is to be charged at the rate of 1.5% over lender's base rate. The credit facility has financial covenants pertaining to net worth and repayment of loan to parent. The Bank has the option of terminating the funds at its discretion and is subject to review on December 31, 1995. NOTE 8. LONG-TERM DEBT Long-term debt consists of the following:
September 30, December 31, 1995 1994 _____________ ____________ Subordinate note due to Kamyr, Inc. $ 4,500 $ 4,500 Obligations under capital leases 970 --- County Industrial Development Authority Loan 171 181 ________ ________ 5,641 4,681 Less current maturities (86) (13) ________ ________ $ 5,555 $ 4,668 ======== ========
SUBORDINATED NOTE DUE TO KAMYR, INC.: On September 19, 1994, as part of the Company's acquisition (see Note 2), TI entered into a subordinated debt agreement with Kamyr, Inc. for $4,500, interest at 8%, payable quarterly commencing December 1994. The initial principal payment of $300 is due March 1997, and payable thereafter in quarterly installments of $350 through March 2000. The subordinated debt agreement includes covenants relative to shareholders' equity, maximum amount of senior debt, relative financial ratios and restrictions on dividends, new borrowings and guarantees and liens. The loan is collateralized by a second lien on the accounts receivable, inventories, and general intangibles of TI. -7- OREGON METALLURGICAL CORPORATION _______________________________________________________________________________ OBLIGATIONS UNDER CAPITAL LEASES: The obligations under capital leases are payable in aggregate monthly installments of $12 including interest at 6.9%, through July 2002, with a residual payment of $264 due August 2002. The capital leases are collateralized by specific items of machinery and equipment. Aggregate maturities of long-term debt approximate the following at September 30, 1995: 1995 $ 21 1996 99 1997 1,453 1998 1,511 1999 1,517 2000 476 Thereafter 564 ________ $ 5,641 ========
NOTE 9. ENVIRONMENTAL MATTERS The Company has determined that it must obtain a federal operating permit under the new federal permitting requirements of Title V of the Clean Air Act, and the Company expects to submit a Title V permit application to the Oregon Department of Environmental Quality by November 15, 1995. In the course of preparing this comprehensive permit application, the Company has identified several parts of its Oregon operations where it intends to make improvements to ensure continued compliance with air quality laws. The Company does not believe these matters will have a material effect on its capital expenditures, earnings or competitive position. NOTE 10. FORWARD FOREIGN EXCHANGE CONTRACTS At September 30, 1995, the Company had forward foreign exchange contracts, approximating $200, for the purchase of U.S. dollars at fixed rates. The Company is exposed to certain losses in the event of non-performance by the counterparties to these agreements. However, management believes the risk of incurring such losses is remote, as the contracts are entered into with major financial institutions. The contracts expire between October and May, 1996. -8- PART 1: FINANCIAL INFORMATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW After three consecutive quarters of positive earnings the Company incurred a net loss for the quarter of $439, or $0.04 per share, on sales of $41,236. A combination of increased raw material costs, production inefficiencies and an unfavorable mix of low margin aerospace shipments are responsible for the downturn in results. The Company has been using more expensive raw materials to replace titanium chips and turnings which it has not been able to procure at a cost or in quantities needed to support the higher production levels. Despite the Company's efforts to counter these problems, these factors are expected to also affect results for the fourth quarter. The Company has been adjusting prices to reflect higher costs and market conditions. The Company's net sales continued to grow at a brisk pace. Net sales in the third quarter of 1995 increased 17% to $41.2 million, compared to $35.1 million for the second quarter of 1995. The sales order backlog was $65 million on September 30, 1995, up slightly from $64 million at June 30, 1995. The sales backlog was affected by increased shipments, extended delivery dates, and the Company's emphasis of short-term orders in light of rising raw material prices. The twelve-month sales order backlog reflects recent customer order placements, but may not be an accurate indicator of annual or quarterly sales volume. Stimulated by a variety of programs, the traditionally cyclical commercial aerospace market has been displaying signs of increased activity. The recreation market, which began to exert itself in the later half of 1994, continues to demonstrate a strong level of demand. While the market for military aerospace applications is expected to remain flat into the foreseeable future, the non-aerospace military sector has taken a strong interest in utilizing titanium plate for armor. We believe that the developing market for armor may evolve into a viable application for the titanium industry. Over the last eighteen months, the titanium industry has been faced with an abrupt increase in demand coupled with raw material shortages and rapidly escalating costs. In the face of increased demand, the Company, as well as other major titanium producers, have continued to extend delivery dates. Additionally, the emergence on the world market of the titanium producers from within the Former Soviet Union (FSU) has further affected the supply and pricing of titanium products. The mid-term and long-term markets for titanium products and applications appears to be favorable. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1994: NET SALES: Net sales were $41.2 million for the third quarter of 1995, an increase of 143% over the third quarter of 1994 sales of $17.0 million. The growth in sales reflects both a higher level of demand for Company products and the results of Titanium Industries, Inc. (TI), a majority owned subsidiary. TI was acquired by the Company in September 1994. -9- THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1994: CONTINUED... TITANIUM SPONGE: Sales of titanium sponge remained fairly constant for the third quarter of 1995 compared to the third quarter of 1994. Sponge shipments decreased 12% and average sponge price per pound increased 14%. The increase in the average price per pound of 14% is attributable to sales of our high purity sponge which the Company has recently started producing in limited quantities. Sales of titanium sponge are below historical averages due to competition from lower-priced material which has been available from producers in the FSU. The present ability of titanium producers in the FSU to be reliable long-term suppliers of titanium sponge is uncertain. During the first three quarters of 1995, the Company's integrated sponge facility operated at near capacity, primarily supplying the Company's internal demand for titanium sponge and sales to RMI Titanium Company under our long-term titanium sponge supply agreement. INGOT: Sales of ingot increased 40% for the third quarter of 1995 compared to the third quarter of 1994. Ingot shipments increased 19% and average ingot price per pound increased 17% from the comparable period in 1994. MILL PRODUCTS: The OREMET Titanium Division of the Company directly produces or contracts for outside production a variety of mill products, including billet, bar, plate, sheet and engineered parts. OREMET Titanium Division mill product sales increased 202% for the third quarter of 1995 compared to the third quarter of 1994. Shipments of mill products increased 160% and the average price per pound increased 16%. TI markets a wide variety of mill products including engineered parts, manufactured by various producers. Since the acquisition, both shipments and pricing for TI's products have trended upward. CASTINGS: Sales of castings remained fairly constant for the third quarter of 1995 compared to the third quarter of 1994. COST OF SALES: Cost of sales as a percentage of net sales remained constant at 90% for the third quarter of 1995 when compared to the comparable period in 1994. As a result of increased shipments, gross profit increased $2.4 million to $4.1 million for the third quarter of 1995 from $1.7 million for the comparable period in 1994. RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES: Research, technical and product development expenses (RT&D) increased 16% for the third quarter of 1995 compared to the comparable quarter of 1994. RT&D's salaries and related costs have increased compared to the third quarter of 1994, reflecting an increase in technical personnel which is designed to support the Company's long-term commitment towards research and the development of new products and improvements in operating processes. -10- THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1994: CONTINUED... SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expense (SG&A) increased 82% for the third quarter of 1995 to $3.5 million from $1.9 million in the comparable quarter of 1994. The acquisition of TI is the primary reason for the increase in SG&A. INTEREST INCOME: For the third quarter of 1994, the Company reported interest income of $.1 million, derived from earnings on short-term investments and the ESOP note receivable. The Company liquidated its portfolio of short-term investments in the third quarter of 1994 and the ESOP note receivable matured in December 1994. The Company expects that interest income for 1995 and the foreseeable future will be negligible. INTEREST EXPENSE: Interest expense increased to $.6 million in the third quarter of 1995 compared to $.1 million in the comparable quarter of 1994. The increase in interest expense is the direct result of an increase in the borrowings related to the purchase of TI and increased levels of working capital needed to support increased operating levels. MINORITY INTEREST IN SUBSIDIARY: The amounts reported as minority interest in subsidiary removes the minority shareholder's 20% interest in the net income of TI from the Company's Consolidated Statements of Operations. PROVISION FOR INCOME TAXES: The Company reported a tax benefit of $.2 million (effective rate of 35%) for the third quarter of 1995 compared to a tax benefit of $.2 million, or an effective tax rate of 34% for the comparable period in 1994. NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1994: NET SALES: Net sales were $107.2 million for the first nine months of 1995, an increase of 139% over sales of $44.8 million for the comparable period of 1994. The growth in sales reflects a higher level of demand for Company products and the results of TI. TI was acquired by the Company in September 1994. TITANIUM SPONGE: Sales of titanium sponge decreased 16% for the first nine months of 1995 compared to the comparable period of 1994. Sponge shipments decreased 25% and average sponge price per pound increased 14%. The increase in the average price per pound of 14% is attributable to sales of our -11- NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1994: CONTINUED... high purity sponge which the Company has recently started producing in limited quantities. During the first nine months of 1995, the Company's integrated sponge facility operated at a significant level of capacity, primarily supplying the Company's internal demand for titanium sponge and sales to RMI Titanium Company under our long-term titanium sponge supply agreement. INGOT: Sales of ingot increased 37% for the first nine months of 1995 compared to the comparable period of 1994. Ingot shipments increased 21% and average ingot price per pound increased 13% from the comparable period in 1994. MILL PRODUCTS: The OREMET Titanium Division of the Company directly produces or contracts for outside production a variety of mill products, including billet, bar, plate, sheet and engineered parts. OREMET Titanium Division mill product sales increased 144% for the first nine months of 1995 compared to the comparable period of 1994. Shipments of mill products increased 129% and the average price per pound increased 6% from the comparable period of 1994. TI markets a wide variety of mill products including engineered parts, manufactured by various producers. Since the acquisition, both shipments and pricing for TI's products have trended upward. CASTINGS: Sales of castings increased 10% for the first nine months of 1995 compared to the comparable period of 1994. COST OF SALES: Cost of sales as a percentage of net sales decreased for the first nine months of 1995 to 86.3% from 94.5% for the comparable period of 1994. The positive change is due to both increases in volume and pricing of products sold. As a result, gross profit increased $12.3 million to $14.7 million for the first nine months of 1995 from $2.4 million for the comparable period in 1994. Cost of sales for the first nine months of 1995 includes a charge of approximately $1.3 million, reflecting the impact of higher than anticipated material and conversion costs on certain orders. Difficulties encountered in achieving increased operating levels coupled with a larger number and complexity of end products accounts for a significant portion of this charge. During 1995, the Company has been using more expensive raw materials to replace titanium chips and turnings which it has not been able to procure at a cost or in quantities needed to support the higher production levels. RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES: Research, technical and product development (RT&D) expenses increased 9% for the first nine months of 1995 to $1.2 million. RT&D's salaries and related costs have increased compared to the first three quarters of 1994, reflecting an increase in technical personnel which is designed to support the Company's long-term commitment towards research and the development of new products and improvements in operating processes. -12- NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1994: CONTINUED... SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative (SG&A) expense increased 127% for the first three quarters of 1995 to $10.5 million from $4.6 million in the comparable period of 1994. The acquisition of TI is the primary reason for the increase in SG&A. INTEREST INCOME: For the first nine months of 1994, the Company reported interest income of $.4 million, derived from earnings on short-term investments and the ESOP note receivable. The Company liquidated its portfolio of short-term investments in the third quarter of 1994 and the ESOP note receivable matured in December 1994. The Company expects that interest income for 1994 and the foreseeable future should be negligible. INTEREST EXPENSE: Interest expense increased to $1.6 million in the first nine months of 1995 compared to $.3 million in the comparable period of 1994. The increase in interest expense is the direct result of an increase in the borrowings related to the purchase of TI and working capital needed for the increased operating levels. MINORITY INTEREST IN SUBSIDIARY: The amounts reported as minority interest in subsidiary removes the minority shareholder's 20% interest in the net income of TI from the Company's Consolidated Statements of Operations. PROVISION FOR INCOME TAXES: The Company reported a provision for income taxes of $.5 million (effective tax rate of 38%) for the first nine months of 1995 compared to a tax benefit of $1.1 million, or an effective tax rate of 34% for the comparable period in 1994. NET INCOME: The Company reported net income of $.5 million ($0.05 per share) for the first three quarters of 1995 compared to a net loss of $2.1 million ($0.19 per share) for the comparable period in 1994. NON-U.S. OPERATIONS AND MONETARY ASSETS The Company has two foreign subsidiaries which operate titanium service and distribution centers located in the United Kingdom and France. Approximately 13% of the Company's revenues for the nine-month period ended September 30, 1995 were derived from the Company's European operations. The Company acquired the service center in the United Kingdom in September 1994, and established the service center in France in the second quarter of 1994. The service center in France became operational in January 1995. Changes in the value of non-U.S. currencies relative to the U.S. dollar cause fluctuations in U.S. dollar financial position and operating results. The impact of currency fluctuations, while slightly unfavorable for the nine-month period ended September 30, 1995, was not significant. -13- The Company enters into forward exchange contracts to hedge foreign currency transactions for inventory purchases and product sales on a continuing basis for periods consistent with its committed exposures. Hedging minimizes the impact of foreign exchange rate movements on the Company's operating results. The Company's foreign exchange contracts do not subject the Company's results of operations to risk due to exchange rate movements because gains and losses on these contracts offset losses and gains on the assets and liabilities being hedged. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW Cash flows used in operating activities totaled $6.8 million for the first nine months of 1995 compared with $.1 million provided by operating activities in the comparable period of 1994. The net cash flow decrease between the two periods of $6.9 million is the result of a significant increase in working capital to support the Company's higher shipment and production levels. The decrease in the amount of cash flow provided by operating activities is a trend which began in the second quarter of 1994, the timing of this trend is consistent with the Company's experience of increasing sales, sales order backlog and production activity. Inventories increased $6.7 million, or 14%, to $55.7 million at September 30, 1995, compared to $49.0 million as of December 31, 1994. The increase is in support of higher production levels in addition to an increase in finished goods inventory of $4.5 million. In response to a growing sales backlog, the Company is continuing to raise its production levels. The Company is also experiencing higher raw material and conversion costs which, when combined, have increased the value of inventory the Company has on hand. Accounts receivable increased $8.9 million, or 44% to $29.4 million at September 30, 1995, compared to $20.4 million as of December 31, 1994. The increase in accounts receivable is consistent with the Company's increase in sales volume. Accounts payable and other current liabilities increased $4.4 million, or 18%, to $28.3 million at September 30, 1995, compared to $23.9 million as of December 31, 1994. The increase in current liabilities is a result of the Company's higher production levels. The Company's investing activities used $1.6 million of cash in the first three quarters of 1995. Additions to properties totaled $1.2 million. The Company also made an investment of $.3 million in a start-up company, which will perform sonic testing on behalf of the Company and its other two investors. During the first three quarters of 1994, investing activities used $2.1 million in cash, principally from the net redemption of short-term investments which were liquidated to fund the acquisition of TI and to meet the operating requirements of the Company. The Company's financing activities for the first three quarters of 1995 principally consisted of net borrowings on its revolving credit agreements of $6.6 million. The net borrowings were used to fund the Company's increased levels of operations. In September 1995, the Company entered into a capital lease obligation, receiving long-term funding of $990. For the first nine months of 1994, the Company's financing activities provided $3.3 million in cash, principally consisting of net borrowings. WORKING CAPITAL: Working capital increased $9.7 million to $58.7 million as of September 30, 1995, compared to $49.1 million as of December 31, 1994. The growth in working capital is principally attributable -14- to increases in accounts receivable and inventories during the first nine months of 1995. The increase in working capital was partially funded by a $6.0 million increase in the note payable to bank which is reported as a long-term liability on the Company's Consolidated Balance Sheets. CREDIT AGREEMENT (NOTE PAYABLE TO BANK): The Company may borrow up to $25 million under the terms of a revolving credit agreement with BankAmerica Business Credit, Inc. (BABC). The credit agreement expires in September 1997. The balance outstanding under the credit agreement as of September 30, 1995 is $17.9 million. As of September 30, 1995, the Company met its financial covenants under the credit agreement, except for the interest coverage ratio. The noncompliance was primarily due to lower than expected Company earnings. The Company has obtained written consent from the lender pursuant to the credit agreement and is now in compliance. The Company believes that it will meet its future financial covenants or it will seek to negotiate to amend the credit agreement. As of September 30, 1995, interest charged under the credit agreement is at BABC's reference rate (8.75%) plus 1%. The terms of the credit facility provide for a LIBOR based borrowing option which the Company has exercised. CAPITAL EXPENDITURES: The Company has no material open commitments which obligate it to make future capital expenditures. The Company's capital plan anticipates that 1995 capital expenditures may approximate $3 million. The Company's capital expenditures will be funded by a combination of internally generated cash and external financings. The Company's recent capital expenditure history is as follows (dollars in millions):
Nine Months Ended Year Ended September 30, December 31, _________________ ________________________ 1995 1994 1994 1993 1992 ____ ____ ____ ____ ____ Additions to Properties $1.2 $1.3 $1.9 $1.2 $4.4
The Company's revolving credit facility with BABC provides that capital expenditures may not exceed $5 million for any fiscal year. ADEQUACY OF LIQUIDITY AND CAPITAL RESOURCES: The Company's access to borrowing facilities, internally generated cash and to capital markets are expected to be sufficient to provide the resources necessary to support increased operating needs and to finance continued growth, capital expenditures and repayment of long-term debt obligations. -15- PART 2: OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS 11.1 Statement re: computation of per share earnings. 27.1 Financial Data Schedule B. FORMS 8-K No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1995. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OREGON METALLURGICAL CORPORATION ________________________________ Registrant Date: November 10, 1995 /s/ Dennis P. Kelly _________________ __________________________________________ Dennis P. Kelly Vice President, Finance and Chief Financial Officer Signing on behalf of the Registrant and as Chief Accounting Officer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000074856 OREGON METALLURGICAL CORPORATION 1,000 9-MOS DEC-31-1995 JUL-01-1995 SEP-30-1995 855 0 30,328 (938) 55,739 87,043 100,713 (65,286) 124,108 28,297 24,160 10,911 0 0 57,028 124,108 107,199 107,199 92,486 92,486 11,643 0 1,636 1,093 544 549 0 0 0 549 0.05 0.05
EX-11.1 3 OREGON METALLURGICAL CORPORATION EXHIBIT 11.1 Earnings per share computation
Three Months Ended September 30, __________________ (in thousands except per share data) 1995 1994 ____ ____ Net income (loss) $ (439) $ (400) ======== ======== Weighted average shares outstanding 10,911 10,893 Weighted average share equivalents assumed issued from Excess Benefit Plan 114 --- Weighted average share equivalents assumed issued from exercise of warrants 89 --- Weighted average share equivalents assumed issued as part of Employee Compensation Policy 167 --- ________ ________ Weighted average share and share equivalents outstanding 11,281 10,893 Net income (loss) per share $ (0.04) $ (0.03) ======== ======== Nine Months Ended September 30, __________________ (in thousands except per share data) 1995 1994 ____ ____ Net income (loss) $ 549 $ (2,086) ======== ======== Weighted average shares outstanding 10,905 10,891 Weighted average share equivalents assumed issued from Excess Benefit Plan 123 --- Weighted average share equivalents assumed issued from exercise of warrants 58 --- Weighted average share equivalents assumed issued as part of Employee Compensation Policy 100 --- ________ ________ Weighted average share and share equivalents outstanding 11,186 10,891 Net income (loss) per share $ (0.05) $ (0.19) ======== ======== Earnings per share computed on both the primary and fully diluted bases are the same.
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