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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the fiscal year ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-28538
Titanium Metals Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-5630895
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1999 Broadway, Suite 4300, Denver, Colorado 80202
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 296-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on Which Registered
Common Stock New York Stock Exchange
($.01 par value per share)
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K _ _
As of March 12, 2001, 31,827,405 shares of common stock were outstanding. The
aggregate market value of the 17 million shares of voting stock held by
nonaffiliates of Titanium Metals Corporation as of such date approximated $158
million.
Documents incorporated by reference:
The information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Commission pursuant
to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
Forward-Looking Information
The statements contained in this Annual Report on Form 10-K that are
not historical facts, including, but not limited to, statements found in the
Notes to Consolidated Financial Statements and in Item 1 - Business, Item 2 -
Properties, Item 3 - Legal Proceedings and Item 7 - 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 Annual 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 The Boeing Company and other 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.
PART I
ITEM 1: BUSINESS
General. Titanium Metals Corporation ("TIMET" or the "Company") is one
of the world's leading integrated producers of titanium sponge, melted and mill
products. The Company is the only integrated producer with major titanium
production facilities in both the United States and Europe, the world's
principal markets for titanium. The Company estimates that in 2000 it accounted
for approximately 24% of worldwide industry shipments of mill products and
approximately 10% of worldwide sponge production.
Titanium was first manufactured for commercial use in the 1950's.
Titanium's unique combination of corrosion resistance, elevated-temperature
performance and high strength-to-weight ratio makes it particularly desirable
for use in commercial and military aerospace applications in which these
qualities are essential design requirements for certain critical parts such as
wing supports and jet engine components. While aerospace applications have
historically accounted for a substantial portion of the worldwide demand for
titanium and were approximately 40% of industry mill product shipments in 2000,
the number of non-aerospace end-use markets for titanium has expanded
substantially. Today, numerous industrial uses for titanium exist, including
chemical and industrial power plants, desalination plants and pollution control
equipment. Demand for titanium is also increasing in emerging markets with such
diverse uses as offshore oil and gas production installations, geothermal
facilities, military armor, automotive and architectural applications.
TIMET's products include: titanium sponge, the basic form of titanium
metal used in processed titanium products; melted products comprised of titanium
ingot and slab, the result of melting sponge and titanium scrap, either alone or
with various other alloying elements; and forged and rolled products produced
from ingot or slab, including long products (billet and bar), flat products
(plate, sheet and strip), pipe and pipe fittings. The Company believes it is
among the lower cost producers of titanium sponge and melted products due in
part to its manufacturing expertise and technology. The titanium industry is
comprised of several manufacturers which, like the Company, produce a relatively
complete range of titanium products and a significant number of producers
worldwide that manufacture a limited range of titanium mill products. The
Company is presently the only active titanium sponge producer in the U.S.
The Company's long term strategy is to maximize the value of its core
aerospace business and, at the same time, develop new markets, applications and
products to help reduce its traditional dependence on the aerospace industry.
The Company's focus in the short-term is to return to profitability and generate
positive cash flow. To accomplish its short-term goals, the Company is
attempting to reduce costs, improve quality and streamline its overall business
and manufacturing processes as well as maximize its participation in the
increasing demand for aerospace quality titanium during this business cycle.
Industry. The titanium industry historically has derived a substantial
portion of its business from the aerospace industry. The cyclical nature of the
aerospace industry has been the principal driver of the historical fluctuations
in the performance of titanium companies. Over the past 20 years, the titanium
industry had cyclical peaks in mill product shipments in 1980, 1989 and 1997 and
cyclical lows in 1983, 1991 and 1999. During the 1996 to 1998 period, the
Company reported aggregate net income of $176 million which more than offset the
aggregate net losses of $93 million it reported during the difficult 1991 to
1995 period. The Company also reported net losses in 1999 and 2000 aggregating
$70 million. The Company currently expects to report a net loss in 2001;
however, it expects that its loss in 2001 will be substantially reduced from
2000 levels as a result of the recent upturn in its business cycle. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Demand for titanium reached a peak in 1997 when worldwide industry mill
product shipments reached an estimated 60,000 metric tons. Industry mill product
shipments subsequently declined approximately 5% to an estimated 57,000 metric
tons in 1998, with a further 16% decline to an estimated 48,000 metric tons in
1999 and 2000. The Company expects that worldwide industry mill product
shipments will increase in 2001 by approximately 10% to about 53,000 metric
tons. The expected increase is primarily attributable to stronger demand
resulting from an increase in forecasted aircraft build rates, as well as a
substantial decrease in the amount of excess titanium inventory throughout the
aerospace supply chain.
The present business environment is substantially different from that
in 1996 to 1998. During the second half of 1998 it became evident that the
anticipated record rates of aircraft production would not be reached, and that a
decline in overall production rates would begin earlier than forecast,
particularly in titanium-intensive wide body planes. This resulted in
considerable excess inventory throughout the supply chain. During 1999,
aerospace customers continued to focus on reducing inventories and a significant
number of the Company's aerospace customers canceled or delayed previously
scheduled orders. The aerospace supply chain is fragmented and decentralized
making it difficult to quantify excess inventories. However, customer actions
such as order delays (i.e. pushouts) and cancellations, combined with other data
provide limited visibility. During 2000, the Company experienced no significant
customer pushouts or cancellations of deliveries. Late in 2000 and early 2001,
the Company experienced an increase in orders for aerospace quality titanium
products and certain customers requested advanced delivery of existing orders
and its order backlog increased substantially. Although quantitative information
is not readily available, these factors and others lead the Company to believe
that the excess titanium inventory throughout the supply chain has been
substantially reduced and is unlikely to be a significant factor in 2001 in most
areas.
Mill product shipments to the aerospace industry in 2000 represented
about 40% of total industry demand and about 85% of the Company's annual mill
product shipments. Aerospace demand for titanium products, which includes both
jet engine components (i.e. blades, discs, rings and engine cases) and air frame
components (i.e. bulkheads, tail sections, landing gears, wing supports and
fasteners) can be broken down into commercial and military sectors. The
commercial aerospace sector has a significant influence on titanium companies,
particularly mill product producers such as TIMET. Industry shipments of mill
products to the commercial aerospace sector in 2000 accounted for approximately
85% of aerospace demand and 35% of aggregate titanium mill product demand. The
Company believes that demand for mill products for the commercial aerospace
sector will be the principal driver of the expected 10% increase in industry
mill product shipments during 2001. Demand growth for these markets and sectors
is expected to exceed the 10% aggregate growth in titanium mill product
shipments while other markets are expected to experience lesser growth.
Shipments to the commercial aerospace sector represented approximately 80% of
the Company's sales volume in 2000. Accordingly, the Company believes its sales
volume in 2001 may increase more than the expected 10% increase in titanium
industry mill product shipments.
According to The Airline Monitor, a leading aerospace publication, the
commercial airline industry reported operating income of approximately $15
billion (estimated) in 2000, compared to $13 billion in 1999 and $16 billion in
1998. According to The Airline Monitor, large commercial aircraft deliveries for
the 1996 to 2000 period peaked in 1999 with 889 aircraft including 254 wide body
aircraft. Wide body aircraft use substantially more titanium than narrow body
aircraft. Commercial aircraft deliveries are currently expected to be 905
(including 230 wide bodies) in 2001 and 825 (including 220 wide bodies) in 2002.
The demand for titanium generally precedes aircraft deliveries by about one
year, although this varies considerably by titanium product. Accordingly, the
Company's cycle historically precedes the cycle of the aircraft industry and
related deliveries. The Company can give no assurance as to the extent or
duration of the current commercial aerospace cycle or the extent to which it
will affect demand for the Company's products.
Since titanium's initial applications in the aerospace sector, the
number of end-use markets for titanium has expanded. Established industrial uses
for titanium include chemical plants, industrial power plants, desalination
plants, and pollution control equipment. Titanium is also experiencing increased
customer demand in several emerging markets with diverse uses such as offshore
oil and gas production installations, geothermal facilities, military armor, and
automotive and architectural applications. While shipments to emerging markets
represented less than 5% of the Company's sales volume in 2000, the Company
believes these emerging applications represent potential growth opportunities.
If titanium usage in these markets continues to develop, they may, over time,
reduce the industry's and the Company's dependence on the aerospace industry.
For example, titanium manufactured by the Company is being used to produce the
exhaust system for the 2001 model of the Chevrolet Corvette Z06, the first
significant titanium component selected for a production automobile. Volkswagen
is using titanium supplied by the Company in the suspension springs on the 2001
model year Lupo FSI automobile. In a separate market, the Company delivered
titanium production casing during 2000 for one of the largest geothermal wells
in the world.
Customer Agreements. The Company has long-term agreements ("LTA's")
with certain major aerospace customers, including The Boeing Company ("Boeing"),
Rolls-Royce plc, United Technologies Corporation (and related companies) and
Wyman-Gordon Company (a unit of Precision Castparts Corporation). These
agreements, which became effective in 1998 and 1999, generally provide for (i)
minimum market shares of the customers' titanium requirements (generally at
least 70%) for extended periods (nine to ten years) and (ii) fixed or
formula-determined prices generally for at least the first five years. The LTA's
were structured to provide incentives to both parties to lower TIMET's costs and
share in the savings. These contracts and others represent the core of the
Company's long-term aerospace strategy. These agreements were designed to limit
pricing volatility (both up and down) for the long-term benefit of both parties,
while providing TIMET with a solid base of aerospace volume.
The LTA with Boeing requires Boeing to purchase a minimum percentage of
its and its suppliers titanium requirements from TIMET commencing in 1999.
Although Boeing placed orders and accepted delivery of certain volumes in 1999
and 2000, the level of orders placed by Boeing in 1999 and 2000 was
significantly below the contractual volume requirements for those years. Boeing
informed the Company in 1999 that it was unwilling to commit to the contract
beyond the year 2000. The Company presently expects to receive less than the
minimum contractual order volume from Boeing in 2001.
In March 2000, the Company filed a lawsuit against Boeing in a Colorado
state court seeking damages for Boeing's repudiation and breach of the Boeing
contract. TIMET's complaint seeks damages from Boeing that TIMET believes could
be in excess of $600 million and a declaration from the court of TIMET's rights
under the contract. In June 2000, Boeing filed its answer to TIMET's complaint
denying substantially all of TIMET's allegations and making certain
counterclaims against TIMET. TIMET believes such counterclaims are without merit
and intends to vigorously defend against such claims. The litigation is in the
discovery phase, with a trial date currently set for January 2002. The Company
continues to have discussions with Boeing about possible settlement of the
matter. There can be no assurance that the Company will achieve a favorable
outcome to this litigation.
As a complement to the LTA's entered into with the Company's key
customers, the Company has also entered into agreements with certain key
suppliers that are intended to assure anticipated raw material needs to satisfy
production requirements for the Company's key customers. Certain provisions of
these contracts, such as minimum purchase commitments and prices, have been
renegotiated in the past and may be renegotiated in the future to meet changing
business conditions and to address Boeing's underperformance under its LTA.
Acquisitions and Capital Transactions During the Past Five Years. At
the beginning of 1996, the Company was 75%-owned by Tremont Corporation
("Tremont") and its operations were conducted primarily in the United States.
During 1996, the Company expanded both geographically and operationally as a
result of the acquisition of the titanium business of IMI plc, the acquisition
of certain assets from Axel Johnson Metals, Inc. and certain smaller
acquisitions in Europe.
In 1998, TIMET (i) acquired Loterios S.p.A. to increase market share in
industrial markets, and provide increased geographic sales coverage in Europe,
(ii) purchased for cash $80 million of non-voting and non-marketable preferred
securities of Special Metals Corporation, a U.S. manufacturer of wrought
nickel-based superalloys and special alloy long products, and (iii) entered into
a castings joint venture with Wyman-Gordon. In January 2000, the Company sold
its interest in the castings joint venture for $7 million and realized a gain of
$1.2 million on the sale. These transactions are more fully described in Notes
3, 4 and 5 to the Consolidated Financial Statements.
In 1998, Tremont purchased additional TIMET common stock in market
transactions. In 1999, Tremont exercised an option to purchase approximately two
million shares of the Company's common stock. At December 31, 2000, Tremont held
approximately 39% of TIMET's outstanding common stock. An additional 8% of
TIMET's outstanding common stock is owned by the Combined Master Retirement
Trust, a trust formed by Valhi, Inc. ("Valhi"), an affiliate of Tremont, to
permit the collective investment by trusts that maintain the assets of certain
employee benefit plans adopted by Valhi and related entities. See Note 15 to the
Consolidated Financial Statements.
Products and Operations. The Company is a vertically integrated
titanium producer whose products include: titanium sponge, the basic form of
titanium metal used in processed titanium products; melted products comprised of
titanium ingot and slab, the result of melting sponge and titanium scrap, either
alone or with various other alloying elements; and forged and rolled products
produced from ingot or slab, including long products (billet and bar), flat
products (plate, sheet and strip), pipe and pipe fittings. In 2000, all of
TIMET's sales were generated by the Company's integrated titanium operations
(its "Titanium melted and mill products" segment). The titanium product chain is
described below.
Titanium sponge (so called because of its appearance) is the
commercially pure, elemental form of titanium metal. The first step in sponge
production involves the chlorination of titanium-containing rutile ores, derived
from beach sand, with chlorine and coke to produce titanium tetrachloride.
Titanium tetrachloride is purified and then reacted with magnesium in a closed
system, producing titanium sponge and magnesium chloride as co-products. The
Company's titanium sponge production capacity in Henderson, Nevada, incorporates
vacuum distillation process ("VDP") technology, which removes the magnesium and
magnesium chloride residues by applying heat to the sponge mass while
maintaining vacuum in the chamber. The combination of heat and vacuum boils the
residues from the reactor mass into the condensing vessel. The titanium mass is
then mechanically pushed out of the original reactor, sheared and crushed, while
the residual magnesium chloride is electrolytically separated and recycled.
Titanium ingots and slabs are solid shapes (cylindrical and
rectangular, respectively) that weigh up to 8 metric tons in the case of ingots
and up to 16 metric tons in the case of slabs. Each is formed by melting
titanium sponge or scrap or both, usually with various other alloying elements
such as vanadium, aluminum, molybdenum, tin and zirconium. Titanium scrap is a
by-product of the forging, rolling, milling and machining operations, and
significant quantities of scrap are generated in the production process for
finished titanium products. The melting process for ingots and slabs is closely
controlled and monitored utilizing computer control systems to maintain product
quality and consistency and to meet customer specifications. Ingots and slabs
are both sold to customers and further processed into mill products.
Titanium mill products result from the forging, rolling, drawing,
welding and/or extrusion of titanium ingots or slabs into products of various
sizes and grades. These mill products include titanium billet, bar, rod, plate,
sheet, strip, pipe and pipe fittings. The Company sends certain products to
outside vendors for further processing before being shipped to customers or to
the Company's service centers. The Company's customers usually process the
Company's products for their ultimate end-use or for sale to third parties.
During the production process and following the completion of
manufacturing, the Company performs extensive testing on its products, including
sponge, ingot and mill products. Testing may involve chemical analysis,
mechanical testing and ultrasonic and x-ray testing. The inspection process is
critical to ensuring that the Company's products meet the high quality
requirements of customers, particularly in aerospace components production.
The Company is reliant on several outside processors to perform certain
rolling and finishing steps in the U.S., and certain melting, forging and
finishing steps in France. In the U.S., one of the processors that performs
these steps in relation to strip production and another as relates to plate
finishing are owned by a competitor. These processors are currently the sole
source for these services. Other processors used in the U.S. are not
competitors. In France the processor is also a joint venture partner in the
Company's 70%-owned subsidiary, TIMET Savoie. Although the Company believes that
there are other metal producers with the capability to perform these same
processing functions, arranging for alternative processors, or possibly
acquiring or installing comparable capabilities, could take several months and
any interruption in these functions could have a material and adverse effect on
the Company's business, results of operations, financial condition and cash
flows in the short term.
Raw Materials. The principal raw materials used in the production of
titanium mill products are titanium sponge, titanium scrap and alloying
elements. The Company processes rutile ore into titanium tetrachloride and
further processes the titanium tetrachloride into titanium sponge. During 2000,
approximately 25% of the Company's melted and mill product production was made
from internally produced sponge, 29% from purchased sponge, 39% from titanium
scrap and 7% from alloying elements.
The primary raw materials used in the production of titanium sponge are
titanium-containing rutile ore, chlorine, magnesium and petroleum coke.
Titanium-containing rutile ore is currently available from a number of suppliers
around the world, principally located in Australia, South Africa, India and the
United States. A majority of the Company's supply of rutile ore is currently
purchased from Australian suppliers. The Company believes the availability of
rutile ore will be adequate for the foreseeable future and does not anticipate
any interruptions of its raw material supplies, although political or economic
instability in the countries from which the Company purchases its raw materials
could materially and adversely affect availability. Although the Company
believes that the availability of rutile ore is adequate in the near-term, there
can be no assurance that the Company will not experience interruptions. Chlorine
is currently obtained from a single supplier near the Company's sponge plant.
The Company believes that this supplier is experiencing certain financial
difficulties and, accordingly, there can be no assurances the chlorine supply
from this provider may not be interrupted. The Company is in the process of
evaluating whether to make certain equipment modifications to enable it to
utilize alternative chlorine suppliers or to purchase an intermediate product
which will allow the Company to bypass the purchase of chlorine if needed.
Magnesium and petroleum coke are generally available from a number of suppliers.
Various alloying elements used in the production of titanium ingot are available
from a number of suppliers.
While the Company was one of six major worldwide producers of titanium
sponge in 2000, it cannot supply all of its needs for all grades of titanium
sponge internally and is dependent, therefore, on third parties for a
substantial portion of its sponge requirements. Titanium mill and melted
products require varying grades of sponge and/or scrap depending on the
customers' specifications and expected end use. Recently, Allegheny
Technologies, Inc. announced that it was idling its titanium sponge production
facility, making TIMET the only active U.S. producer of titanium sponge. As a
consequence, the Company believes the availability of certain grades of titanium
sponge, principally premium quality sponge, used for certain aerospace
applications currently is tight. Presently, TIMET and certain suppliers in Japan
are the only producers of premium quality sponge. Historically, the Company has
purchased sponge predominantly from producers in Japan and Kazakhstan. In 2001
the Company expects to purchase sponge principally from Japan, Kazakhstan, and
from the U.S. Defense Logistics Agency's stockpile of sponge.
TIMET has a ten year LTA for the purchase of titanium sponge produced
in Kazakhstan to support demand for both aerospace and non-aerospace
applications. The sponge contract runs through 2007, with firm pricing through
2002 (subject to certain possible adjustments and possible early termination in
2004). The contract provides for annual purchases by the Company of 6,000 to
10,000 metric tons. The Company agreed to reduced minimums of 1,000 metric tons
for 2000 and 3,000 metric tons for 2001. The Company has no other long-term
sponge supply agreements.
Markets and Customer Base. About 55% of the Company's 2000 sales were
to customers within North America, with about 40% to European customers and the
balance to other regions. During 1999 and 2000, Precision Castparts Corporation
("PCC") acquired Wyman-Gordon Company and a forging company in the U.K. Sales to
PCC and these related entities aggregated 10% of the Company's net sales in
2000. Approximately 85% of the Company's mill product sales were used by the
Company's customers to produce parts and other materials for the aerospace
industry. Sales under the Company's LTA's with certain major aerospace customers
accounted for approximately 50% of its aerospace sales in 2000. The Company
expects that while a majority of its 2001 sales will be to the aerospace
industry, other markets will continue to represent a significant portion of
sales.
The primary market for titanium products in the commercial aerospace
industry consists of two major manufacturers of large (over 100 seats)
commercial aircraft, European Aeronautic Defence and Space Company (parent
company of the Airbus consortium) and Boeing Commercial Airplane Group, and four
major manufacturers of aircraft engines: Rolls-Royce, Pratt & Whitney (a unit of
United Technologies Corporation), General Electric and SNECMA. The Company's
sales are made both directly to these major manufacturers and to companies
(including forgers such as Wyman-Gordon) that use the Company's titanium to
produce parts and other materials for such manufacturers. If any of the major
aerospace manufacturers were to significantly reduce aircraft build rates from
those currently expected, there could be a material adverse effect, both
directly and indirectly, on the Company.
The Company's order backlog was approximately $245 million at December
31, 2000, compared to $195 million at December 31, 1999 and $350 million at
December 31, 1998. Substantially all of the 2000 year end backlog is scheduled
to be shipped during 2001. Although the Company believes that the backlog is a
reliable indicator of near-term business activity, conditions in the aerospace
industry could change and result in future cancellations or deferrals of
existing aircraft orders and materially and adversely affect the Company's
existing backlog, orders, and future financial condition and operating results.
As of December 31, 2000, the estimated firm order backlog for Boeing
and Airbus, as reported by The Airline Monitor, was 3,224 planes versus 2,943
planes at the end of 1999 and 3,095 planes at the end of 1998. The newer wide
body planes, such as the Boeing 777 and the Airbus A-330 and A-340, tend to use
a higher percentage of titanium in their frames, engines and parts (as measured
by total fly weight) than narrow body planes. "Fly weight" is the empty weight
of a finished aircraft with engines but without fuel or passengers. The Boeing
777, for example, utilizes titanium for approximately 9% of total fly weight,
compared to between 2% to 3% on the older 737, 747 and 767 models. The estimated
firm order backlog for wide body planes at year end 2000 was 751 (23% of total
backlog) compared to 679 (23% of total backlog) at the end of 1999. Although
Airbus has announced that it intends to build the new wide body A380, no orders
for the A380 were included in The Airline Monitor's backlog figures at December
31, 2000 as firm order agreements were unconfirmed. Additionally, the A380 is
still being designed, therefore, reliable estimates of titanium usage on the
A380 are not available at this time.
Through various strategic relationships, the Company seeks to gain
access to unique process technologies for the manufacture of its products and to
expand existing markets and create and develop new markets for titanium. The
Company has explored and will continue to explore strategic arrangements in the
areas of product development, production and distribution. The Company also will
continue to work with existing and potential customers to identify and develop
new or improved applications for titanium that take advantage of its unique
qualities.
Competition. The titanium metals industry is highly competitive on a
worldwide basis. Producers of mill products are located primarily in the United
States, Japan, Europe, Former Soviet Union ("FSU") and China. With the idling of
Allegheny Technologies' sponge manufacturing facility discussed above, the
Company will be one of four integrated producers in the world, with "integrated
producers" being considered as those that produce at least both sponge and
ingot. There are also a number of non-integrated producers that produce mill
products from purchased sponge, scrap or ingot.
The Company's principal competitors in aerospace markets are Allegheny
Technologies Inc., RTI International Metals, Inc. and Verkhanya Salda
Metallurgical Production Organization ("VSMPO"). These companies, along with the
Japanese producers and other companies, are also principal competitors in
industrial markets. The Company competes primarily on the basis of price,
quality of products, technical support and the availability of products to meet
customers' delivery schedules.
In the U.S. market, the increasing presence of non-U.S. participants
has become a significant competitive factor. Until 1993, imports of foreign
titanium products into the U.S. had not been significant. This was primarily
attributable to relative currency exchange rates, tariffs and, with respect to
Japan and the FSU, existing and prior duties (including antidumping duties).
However, imports of titanium sponge, scrap, and mill products, principally from
the FSU, have increased in recent years and have had a significant competitive
impact on the U.S. titanium industry. To the extent the Company has been able to
take advantage of this situation by purchasing such sponge, scrap or
intermediate mill products from such countries for use in its own operations
during recent years, the negative effect of these imports on the Company has
been somewhat mitigated.
Generally, imports into the U.S. of titanium products from countries
designated by the U.S. Government as "most favored nations" are subject to a 15%
tariff (45% for other countries). Titanium products for tariff purposes are
broadly classified as either wrought or unwrought. Wrought products include bar,
sheet, strip, plate and tubing. Unwrought products include sponge, ingot, slab
and billet. Starting in 1993, imports of titanium wrought products from Russia
were exempted from this duty under the "generalized system of preferences" or
"GSP" program designed to aid developing economies.
In 1997, GSP benefits to these products were suspended when the level
of Russian wrought products imports reached 50% of all imports of titanium
wrought products. A petition was filed in 1997 to restore duty-free status to
these products, and that petition was granted in June 1998. In addition, a
petition was also filed to bring unwrought products under the GSP program, which
would allow such products from the countries of the FSU (notably Russia and, in
the case of sponge, Kazakhstan and Ukraine) to be imported into the U.S. without
the payment of regular duties. This petition concerning unwrought products has
not been acted upon pending further investigation of the merits of such a
change. In addition to regular duties, titanium sponge imported from countries
of the FSU (Russia, Kazakhstan and Ukraine) had for many years been subject to
substantial antidumping penalties. Titanium sponge imports from Japan were also
subject to a standing antidumping order, but no penalties had been attached in
recent years. In 1998, the International Trade Commission ("ITC") revoked all
outstanding antidumping orders on titanium sponge based upon a determination
that changed circumstances in the industry did not warrant continuation of the
orders. TIMET has appealed that decision and the matter is still pending.
Further reductions in, or the complete elimination of, all or any of
these tariffs could lead to increased imports of foreign sponge, ingot, and mill
products into the U.S. and an increase in the amount of such products on the
market generally, which could adversely affect pricing for titanium sponge and
mill products and thus the business, financial condition, results of operations
and cash flows of the Company. However, the Company has, in recent years, been a
large importer of foreign titanium sponge and mill products into the U.S. To the
extent the Company remains a substantial purchaser of these products, any
adverse effects on product pricing as a result of any reduction in, or
elimination of, any of these tariffs would be partially ameliorated by the
decreased cost to the Company for these products to the extent it currently
bears the cost of the import duties.
Producers of other metal products, such as steel and aluminum, maintain
forging, rolling and finishing facilities that could be modified without
substantial expenditures to process titanium products. The Company believes,
however, that entry as a producer of titanium sponge would require a significant
capital investment and substantial technical expertise. Titanium mill products
also compete with stainless steels, nickel alloys, steel, plastics, aluminum and
composites in many applications.
Research and Development. The Company's research and development
activities are directed toward expanding the use of titanium and titanium alloys
in all market sectors. This is achieved through developments in process
technology, development of new alloys and products and enhancing the performance
of the Company's existing products. Applications for TIMET's proprietary alloys,
such as TIMETAL(R)834, TIMETAL 5111 and TIMETAL LCB, continue to develop. The
Company conducts the majority of its research and development activities at its
Henderson, Nevada laboratory, which the Company believes is one of the largest
titanium research and development centers in the world. Additional research and
development activities are performed at the Witton facility in Birmingham,
England.
Patents and Trademarks. The Company holds U.S. and non-U.S. patents
applicable to certain of its titanium alloys and manufacturing technology. The
Company continually seeks patent protection with respect to its technical base
and has occasionally entered into cross-licensing arrangements with third
parties. However, most of the titanium alloys and manufacturing technology used
by the Company do not benefit from patent or other intellectual property
protection. The Company believes that the trademarks TIMET(R) and TIMETAL(R),
which are protected by registration in the U.S. and other countries, are
significant to its business.
Employees. The historic cyclical nature of the aerospace business and
its impact on the Company's business is the principal reason that the Company
periodically implements cost reduction, reorganization and other changes that
impact the Company's employment levels. The following table shows the
significant reduction in the number of employees over the past 3 years. The 14%
reduction in employees from 1998 to 1999 was principally in response to a
reduction in market demand. During 2000, the Company reduced employment by an
additional 130 people, or approximately 6% of TIMET's worldwide workforce.
However, in the third quarter of 2000 the Company began increasing production
levels and employment at certain facilities in response to an increase in demand
for its products. During 2001, the Company expects to add approximately 100
people, principally in its manufacturing operations.
Employees at December 31,
-----------------------------------------------------------
1998 1999 2000
------------------ ---------------- -----------------
U.S. 1,715 1,490 1,333
Europe 1,025 860 887
------------------ ---------------- -----------------
Total 2,740 2,350 2,220
================== ================ =================
The Company's production and maintenance workers in Henderson, Nevada
and its production, maintenance, clerical and technical workers in Toronto, Ohio
are represented by the United Steelworkers of America ("USWA") under contracts
expiring in October 2004 and June 2002, respectively. In September 2000, the
Company entered into a new, four-year collective bargaining agreement with the
USWA representing approximately 300 hourly workers at its Henderson, Nevada
facility. Employees at the Company's other U.S. facilities are not covered by
collective bargaining agreements.
Approximately 65% of the salaried and hourly employees at the Company's
European facilities are represented by various European labor unions, generally
under annual agreements.
In March 2001, the Company was notified that certain workers at CEZUS'
plant in Ugine, France were engaged in a work slowdown related to wage and
benefit issues. CEZUS performs certain melting and forging operations on a
contract basis for TIMET Savoie. While this slowdown may adversely impact
shipments by TIMET Savoie to its customers in the near term, based upon the
Company's current understanding of the situation, the Company does not presently
anticipate that this action will have a material adverse effect on the business
or operations of the Company.
While the Company currently considers its employee relations to be
satisfactory, it is possible that there could be future work stoppages that
could materially and adversely affect the Company's business, financial
condition, results of operations or cash flows.
Regulatory and Environmental Matters. The Company's operations are
governed by various Federal, state, local and foreign environmental and worker
safety laws and regulations. In the U.S., such laws include the Occupational,
Safety and Health Act, the Clean Air Act, the Clean Water Act and the Resource
Conservation and Recovery Act. The Company uses and manufactures substantial
quantities of substances that are considered hazardous or toxic under
environmental and worker safety and health laws and regulations. In addition, at
the Company's Henderson, Nevada facility, the Company produces and uses
substantial quantities of titanium tetrachloride, a material classified as
extremely hazardous under Federal environmental laws. The Company has used such
substances throughout the history of its operations. As a result, risk of
environmental damage is inherent in the Company's operations. The Company's
operations pose a continuing risk of accidental releases of, and worker exposure
to, hazardous or toxic substances. There is also a risk that government
environmental requirements, or enforcement thereof, may become more stringent in
the future. There can be no assurances that some, or all, of the risks discussed
under this heading will not result in liabilities that would be material to the
Company's business, results of operations, financial condition or cash flows.
The Company's operations in Europe are similarly subject to foreign
laws and regulations respecting environmental and worker safety matters, which
laws have not had, and are not presently expected to have, a material adverse
effect on the business, financial condition, results of operations or cash flow
of the Company.
The Company believes that its operations are in compliance in all
material respects with applicable requirements of environmental and worker
health and safety laws. The Company's policy is to continually strive to improve
environmental, health and safety performance. From time to time, the Company may
be subject to environmental regulatory enforcement under various statutes,
resolution of which typically involves the establishment of compliance programs.
Occasionally, resolution of these matters may result in the payment of
penalties. The Company incurred capital expenditures for health, safety and
environmental compliance matters of approximately $4 million in each of 1998 and
1999 and $2.6 million in 2000. The Company's capital budget provides for
approximately $2.7 million of such expenditures in 2001. However, the imposition
of more strict standards or requirements under environmental, health or safety
laws and regulations could result in expenditures in excess of amounts estimated
to be required for such matters. See Note 16 to the Consolidated Financial
Statements - "Commitments and Contingencies - Environmental Matters," which
information is incorporated herein by reference.
ITEM 2: PROPERTIES
Set forth below is a listing of the Company's manufacturing facilities.
In addition to its U.S. sponge capacity discussed below, the Company's worldwide
melting capacity in 2001 aggregates approximately 45,000 metric tons (estimated
30% of world capacity), and its mill products capacity aggregates approximately
20,000 metric tons (estimated 16% of world capacity). Approximately 35% of
TIMET's worldwide melting capacity is represented by electron beam cold hearth
melting ("EB") furnaces, 63% by vacuum arc remelting ("VAR") furnaces and 2% by
a vacuum induction melting ("VIM") furnace.
The Company has operated its major production facilities at varying
levels of practical capacity during the past three years. In 1998, the plants
operated at 80% of practical capacity, decreasing to 55% in 1999 and increasing
to approximately 60% in 2000. In 2001, the Company's plants are expected to
operate at 70% to 75% of practical capacity. However, practical capacity and
utilization measures can vary significantly based upon the mix of products
produced. During 1998, the Company closed 2,500 metric tons of melting capacity
by permanently shutting down facilities in Verdi, Nevada and Millbury,
Massachusetts. In 1999, the Company temporarily idled its Kroll-leach process
sponge facility in Nevada due to changing market conditions for certain grades
of titanium sponge.
Annual Practical
Capacities (3) (4)
-----------------------------
Manufacturing Location Products Manufactured Melting Mill Products
----------- -----------------
(metric tons)
Henderson, Nevada(1) Sponge, Ingot 12,250 -
Morgantown, Pennsylvania(1) Slab, Ingot, Raw Materials Processing 20,000 -
Vallejo, California(2) Ingot (including non-titanium superalloys) 1,600 -
Toronto, Ohio(1) Billet, Bar, Plate, Sheet, Strip - 9,900
Witton, England(2) Ingot, Billet, Bar 8,700 8,000
Ugine, France(2) Ingot, Bar, Billet, Wire, Extrusions 2,450 2,000
Waunarlwydd (Swansea), Wales(1) Bar, Plate, Sheet - 3,900
- ----------------
(1) Owned facilities
(2) Leased facilities
(3) Practical capacities are variable based on production mix
(4) Practical capacities are not additive
TIMET UK's Witton, England facilities are leased pursuant to long-term
capital leases expiring in 2026. TIMET Savoie has the right to utilize portions
of Compagnie Europeene du Zirconium-CEZUS, S.A., ("CEZUS") plant in Ugine,
France pursuant to an agreement expiring in 2006.
United States Production. The Company's VDP sponge facility is expected
to operate at approximately 90% of its annual practical capacity of 8,600 metric
tons during 2001, which is up from approximately 65% in 2000. VDP sponge is used
principally as a raw material for the Company's ingot melting facilities in the
U.S. The Company has expanded the use of VDP sponge to its European facilities
and approximately 1,100 metric tons of VDP production from the Company's
Henderson facility was used in Europe during 2000, which represented
approximately 20% of the sponge consumed in the Company's European operations.
The Company expects the consumption of Henderson produced VDP sponge in its
European operations to be 25% of their sponge requirements in 2001. The raw
materials processing facilities in Morgantown primarily process scrap used as
melting feedstock, either in combination with sponge or separately.
The Company's U.S. melting facilities produce ingots and slabs both
sold to customers and used as feedstock for its mill products operations. These
melting facilities are expected to operate at approximately 75% of aggregate
capacity in 2001.
Titanium mill products are produced by TIMET in the U.S. at its forging
and rolling facility in Toronto, Ohio, which receives intermediate titanium
products principally from the Company's U.S. melting facilities. The Company's
U.S. forging and rolling facilities are expected to operate at approximately 80%
of practical capacity in 2001. Capacity utilization across the Company's product
lines varies.
European Production. TIMET UK's melting facility in Witton, England
produces VAR ingots used primarily as feedstock for its forging operations, also
in Witton. The forging operations process the ingots principally into billet
product for sale to customers or into an intermediate for further processing
into bar and plate at its facility in Waunarlwydd, Wales. U.K. melting and mill
products production in 2001 is expected to be approximately 83% and 70%,
respectively, of capacity.
Capacity of 70%-owned TIMET Savoie in Ugine, France is to a certain
extent dependent upon the level of activity in CEZUS' zirconium business, which
may from time to time provide TIMET Savoie with capacity in excess of that
contractually required to be provided by CEZUS (the 30% minority partner in
TIMET Savoie). During 2001, TIMET Savoie expects to operate close to the maximum
capacity required to be provided by CEZUS.
Sponge for melting requirements in both the U.K. and France that is not
supplied by the Company's U.S. Henderson plant, is purchased principally from
suppliers in Japan and Kazakhstan.
Distribution. The Company sells its products through its own sales force
based in the U.S. and Europe, and through independent agents worldwide. The
Company's marketing and distribution system also includes eight Company-owned
service centers (five in the U.S. and three in Europe), which sell the Company's
products on a just-in-time basis.
The Company believes that it has a competitive sales and cost advantage
arising from the location of its production plants and service centers, which
are in close proximity to major customers. These centers primarily sell
value-added and customized mill products including bar and flat-rolled sheet and
strip. The Company believes its service centers give it a competitive advantage
because of their ability to foster customer relationships, customize products to
suit specific customer requirements and respond quickly to customer needs.
ITEM 3: LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. See Note
16 of the Consolidated Financial Statements, which information is incorporated
herein by reference.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 2000.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
TIMET's common stock is traded on the New York Stock Exchange (symbol:
"TIE"). On March 12, 2001, the closing price of TIMET common stock was $9.30 per
share. The high and low sales prices for the Company's common stock are set
forth below.
Year ended December 31, 1999: High Low
First Quarter $ 9.88 $ 5.69
Second Quarter 12.13 5.81
Third Quarter 13.06 7.13
Fourth Quarter 6.88 4.12
Year ended December 31, 2000: High Low
First Quarter $ 5.50 $ 4.19
Second Quarter 5.00 3.13
Third Quarter 8.94 4.50
Fourth Quarter 8.19 6.00
As of March 12, 2001, there were approximately 7,500 common
shareholders of record.
Starting in the third quarter of 1999, the Company suspended payment of
the regular quarterly common stock dividend. The Company's U.S. credit facility,
which was entered into after the suspension, presently prohibits both the
payment of common stock dividends and common stock repurchases.
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Years Ended December 31,
-------------------------------------------------------------------------
1996(1) 1997 1998 1999 2000
($ in millions, except per share and selling price data)
STATEMENT OF OPERATIONS DATA:
Net sales $ 507.1 $ 733.6 $ 707.7 $ 480.0 $ 426.8
Operating income (loss) 59.8 133.0 82.7 (31.4) (41.7)
Interest expense 9.0 2.0 2.9 7.1 7.7
Net income (loss) 47.6 83.0 45.8 (31.4) (38.9)
Earnings per share (2):
Basic $ 1.72 $ 2.64 $ 1.46 $ (1.00) $ (1.24)
Diluted (3) 1.72 2.49 - - -
Cash dividends per share - - .12 .12 -
BALANCE SHEET DATA:
Cash and cash equivalents $ 86.5 $ 69.0 $ 15.5 $ 20.7 $ 9.8
Total assets 703.0 793.1 953.2 883.1 759.1
Indebtedness (4) 10.5 5.0 105.6 117.4 44.9
Net Debt (7) $ - $ - $ 90.1 $ 96.7 $ 35.1
Capital lease obligations 11.6 11.2 10.3 10.1 8.8
Minority interest - Convertible
Preferred Securities 201.2 201.2 201.2 201.2 201.2
Stockholders' equity 326.2 408.9 448.4 408.1 357.5
OTHER OPERATING DATA:
Cash flows provided (used):
Operating activities $ (.7) $ 72.6 $ 76.1 $ 19.5 $ 63.3
Investing activities (131.4) (79.8) (223.2) (21.7) (4.2)
Financing activities 215.1 (9.8) 92.2 8.6 (70.7)
------------- ----------- ----------- ------------ ----------
Net provided (used) $ 83.0 $ (17.0) $ (54.9) $ 6.4 $ (11.6)
Mill product shipments (6) 12.4 15.1 14.8 11.4 11.4
Average mill product prices (6) $ 32.00 $ 35.00 $ 35.25 $ 33.00 $ 28.70
Melted product shipments (6) 6.0 7.1 3.6 2.5 3.5
Average melted product prices (6) $ 12.55 $ 15.55 $ 18.50 $ 14.20 $ 13.65
Active employees at year end 2,950 3,025 2,740 2,350 2,220
Order backlog at year end (5) $ 440.0 $ 530.0 $ 350.0 $ 195.0 $ 245.0
Capital expenditures $ 21.7 $ 66.3 $ 115.2 $ 24.8 $ 11.2
Notes
(1) Significant acquisitions accounted for by the purchase method were made
during 1996, which included the acquisitions of the titanium metals
businesses of IMI plc and affiliates, Axel Johnson Metals, Inc.
(including the remaining 50% interest in Titanium Hearth Technologies)
and a 70% interest in TIMET Savoie.
(2) Common shares used to compute earnings per share have been adjusted to
reflect the 65-for-1 split of the Company's common stock effected in
connection with TIMET's June 1996 initial public offering of common
stock.
(3) Antidilutive in 1998, 1999 and 2000.
(4) Bank and other debt including loans payable to related parties of $1.0
million in 1996.
(5) "Order backlog" is defined as firm purchase orders (which are generally
subject to cancellation by the customer upon payment of specified
charges).
(6) Shipments in thousands of metric tons; average selling prices stated
per kilogram.
(7) Net debt represents notes payable including long and short term debt,
less cash and cash equivalents.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General. The aerospace industry in recent history has accounted for
approximately 75% of U.S. and 40% to 50% of worldwide titanium mill product
consumption. Accordingly, the aerospace industry has a significant effect on the
overall sales and profitability of the titanium metals industry. The aerospace
industry, and consequently the titanium metals industry, is highly cyclical. The
Company estimates that worldwide industry shipments of titanium mill products
peaked in 1997 at approximately 60,000 metric tons. Industry mill product
shipments subsequently declined approximately 5% in 1998 to an estimated 57,000
metric tons; with a further 16% decline to an estimated 48,000 metric tons in
1999 and 2000. The Company expects that worldwide industry mill product
shipments will increase in 2001 by approximately 10% to about 53,000 metric
tons. The expected increase is primarily attributable to stronger demand
resulting from an increase in forecasted commercial aircraft build rates as well
as a decrease in the amount of excess titanium inventory throughout the
aerospace supply chain.
Mill product shipments to the aerospace industry in 2000 represented about
40% of total industry demand and about 85% of the Company's annual mill product
shipments. Aerospace demand for titanium products, which includes both jet
engine components (i.e. blades, discs, rings and engine cases) and air frame
components (i.e. bulkheads, tail sections, landing gears, wing supports and
fasteners) can be broken down into commercial and military sectors. The
commercial aerospace sector has a significant influence on titanium companies,
particularly mill product producers such as TIMET. Industry shipments of mill
products to the commercial aerospace sector in 2000 accounted for approximately
85% of aerospace demand and 35% of aggregate titanium mill product demand. The
Company believes that demand for mill products for the commercial aerospace
sector will be the principal driver of the expected 10% increase in industry
mill product shipments during 2001. Demand growth for these markets and sectors
is expected to exceed the 10% aggregate growth in titanium mill product
shipments while other markets are expected to experience lesser growth.
Shipments to the commercial aerospace sector represented approximately 80% of
the Company's sales volume in 2000. Accordingly, the Company believes its sales
volume in 2001 may increase more than the expected 10% increase in titanium
industry mill product shipments.
The present business environment is substantially different from that
in 1996 to 1998. During the second half of 1998 it became evident that the
anticipated record rates of aircraft production would not be reached and that a
decline in overall production rates would begin earlier than forecast,
particularly in titanium-intensive wide body planes. This resulted in
considerable excess inventory throughout the aerospace supply chain. During
1999, aerospace customers continued to focus on reducing inventories, and a
significant number of the Company's aerospace customers canceled or delayed
previously scheduled orders. The aerospace supply chain is fragmented and
decentralized making it difficult to quantify excess inventories. However,
customer actions such as order delays (i.e. pushouts) and cancellations,
combined with other data provide limited visibility.
During 2000, the Company experienced no significant customer pushouts
or cancellations of deliveries. Late in 2000 and early 2001, the Company
experienced an increase in orders for aerospace quality titanium products, and
certain customers requested advanced delivery of existing orders and its order
backlog increased substantially. Although quantitative information is not
readily available, these factors and others lead the Company to believe that the
excess titanium inventory throughout the supply chain has been substantially
reduced and is unlikely to be a significant factor in 2001 in most areas.
The Company's order backlog increased to approximately $245 million at
December 31, 2000 from $195 million at December 31, 1999 and $350 million at
December 31, 1998. Substantially all of the 2000 year end backlog is scheduled
to be shipped during 2001.
The Company announced selling price increases on new orders for certain
grades of titanium products, principally aerospace quality products, late in
2000 and early in 2001. The 2000 announced price increases ranged from 6% to 12%
while the 2001 announced price increases ranged from 7% to 15%. The price
changes were intended to reflect increases in certain manufacturing costs,
including raw materials and energy, as well as the Company's need to improve
financial performance. The price increases did not apply to certain industrial
products or to orders under LTA's and other agreements with customers that
contain specific provisions governing selling prices. Accordingly, about 40% of
the Company's annual sales are expected to be eligible for these price
increases. Several other titanium companies have also recently announced price
increases, particularly for aerospace quality titanium products. Actual selling
price increases are subject to negotiations with customers and may differ
materially from announced increases.
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 16 to the Consolidated Financial Statements -
"Commitments and Contingencies" 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 revenue in 2001 is expected to approximate $500 million,
reflecting the combined effects of increased sales volume, price increases on
certain products and changes in product mix. The Company expects its mill
products sales volume to increase 15% to 20% in 2001 compared to 2000 levels,
while melted product sales volume is expected to remain near 2000 levels. The
Company believes its mill products sales volume may grow more than the
forecasted 10% increase in titanium industry shipments because the proportion of
the Company's sales to the commercial aerospace sector (approximately 80% of the
Company's sales) exceeds the total industry mill product shipments to that
sector (approximately 35% of industry mill shipments). Demand growth for the
commercial aerospace sector is expected to exceed the 10% aggregate growth in
titanium industry shipments of mill products while other markets and sectors are
expected to experience lesser growth. Selling prices (expressed in U.S. dollars
using actual currency exchange rates during the respective periods) on aerospace
product shipments, while difficult to forecast, are expected to rise gradually
during 2001. However, the recently announced price increases are expected to
principally affect the second half of 2001 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, customer and
product mix. Accordingly, average selling prices are not necessarily indicative
of any one factor.
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 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. See
Note 6 to the Consolidated Financial Statements.
Gross margins as a percent of sales are presently expected to increase
over the year, however, energy and other cost increases could substantially
offset expected realized selling price increases in 2001. TIMET is experiencing
increases in energy costs as a result of recent increases in natural gas and
electricity prices in the U.S. The largest portion of the cost increases are
presently associated with electrical power at the Company's Henderson, Nevada
facility where titanium sponge is produced and melted. The Company purchases
electricity from both hydro and fossil fuel sources, with hydropower being
substantially less costly. The Company purchases fossil fuel power to supplement
its electricity needs above the amount it can buy from hydro sources. As the
Company increases production rates during 2001 at its Nevada facility, more
fossil fuel power is required as a percentage of total power consumed. Energy
costs in 2000 comprised about 4% of the Company's cost of sales. Energy costs
may fluctuate substantially from period to period and may adversely affect the
Company's gross margins causing actual results to differ significantly from
expected amounts.
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 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 a single ingot that
has 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 whether the Company might incur
any 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
currently intends to seek full recovery from the silicon supplier for any
liability the Company 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. At December 31, 2000, the Company had not recorded any liability
related to this matter. The amount of liability the Company may ultimately incur
related to this matter is not reasonably estimable at this time.
In March 2001, the Company was notified that certain workers at CEZUS'
plant in Ugine, France were engaged in a work slowdown related to wage and
benefit issues. CEZUS performs certain melting and forging operations on a
contract basis for TIMET Savoie. While this slowdown may adversely impact
shipments by TIMET Savoie to its customers in the near term, based upon the
Company's current understanding of the situation, the Company does not presently
anticipate that this action will have a material adverse effect on the business
or operations of the Company.
Depreciation and amortization expense for 2001 is expected to
approximate 2000 levels. The Company intends to maintain selling, general,
administrative, and development costs relatively constant as a percent of sales,
however, this is dependent on, among other things, how the business cycle
develops. Interest expense and minority interest expense on the Company's
Convertible Preferred Securities in 2001 is also expected to approximate 2000
levels for the full year. The Company's effective consolidated tax benefit 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 the
Company's overall effective tax rate. For financial reporting purposes, the
Company has recognized the tax benefit of substantially all of its net operating
loss carryforwards, and expects that tax benefits to be recognized during 2001
will principally be deferred income tax benefits with cash income tax payments
expected in certain foreign jurisdictions. 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. See Note 13 to the Consolidated Financial Statements. The
Company presently expects to report both an operating loss and a net loss in
2001; however, the Company believes the losses in 2001 will be substantially
reduced from 2000 levels.
The Company expects to generate positive cash flow from operations in
2001, but at levels substantially reduced from 2000. Receivables and inventory
levels are expected to increase in 2001 to support the anticipated increase in
sales whereas both receivables and inventories decreased in 2000. The Company
presently intends to continue to defer dividends on its Convertible Preferred
Securities during 2001. The Company may consider resuming the payment of
dividends on the Convertible Preferred Securities or purchase the securities if
the outlook for TIMET's operating results improves substantially or a favorable
result in the Boeing-related litigation is achieved, or both. Dividends on the
Company's common stock are prohibited under the Company's U.S. credit agreement.
Capital spending for 2001 is currently expected to be $15 million, covering
principally capacity enhancements, capital maintenance, and safety and
environmental projects. Net debt is expected to increase in 2001 as compared to
year end 2000 levels. At December 31, 2000, the Company had approximately $117
million of borrowing availability under its various worldwide credit agreements.
The Company believes its cash, cash flow from operations, and borrowing
availability will satisfy its expected working capital, capital expenditures and
other requirements in 2001.
Historical Operating Information.
Year ended December 31,
-------------------------------------------
1998 1999 2000
----------- ----------- ------------
($ in millions)
Net sales $707.7 $480.0 $426.8
Operating income (loss) 82.7 (31.4) (41.7)
Percent change in:
Mill product sales volume -23 -1
Mill product selling prices (1) -8 -9
Melted product sales volume -31 +39
Melted product selling prices (1) -17 -10
(1) Change expressed in U.S. dollars
Net Sales and Operating Loss - 2000 Compared to 1999. Sales of mill
products in 2000 declined 13% from $376.2 million in 1999 to $326.3 million in
2000. This decrease is due to a 9% decline in mill product selling prices
(expressed in U.S. dollars using actual foreign currency exchange rates
prevailing during the respective periods), a less than 1% decrease in sales
volume, and changes in product mix. In billing currencies (which exclude the
effects of foreign currency translation), mill product selling prices declined
7% from 1999. Melted product sales increased 33% from $35.5 million in 1999 to
$47.4 million in 2000 due to the net effects of a 39% increase in melted product
sales volume, a 10% decline in melted product selling prices and changes in
product mix. The decrease in the selling prices was principally due to greater
price competition in the Company's non-LTA business.
Early in 2000, the Company implemented a plan to address then-current
market and operating conditions, which resulted in the recognition of a net $2.8
million restructuring charge in 2000. The restructuring charge is included in
the operating loss of the "Titanium melted and mill products" segment and is
principally related to personnel severance and benefits for the approximately
170 employees terminated as part of the restructuring. Additionally, the Company
recorded net special charges of $3.5 million, consisting of $3.4 million of
equipment related impairment charges, $3.3 million of environmental remediation
charges, a special income item of $2.0 million related to the termination of the
Company's 1990 agreement to sell titanium sponge to Union Titanium Sponge
Corporation, and the $1.2 million gain on the sale of the Company's castings
joint venture.
Total cost of sales in 2000 was 99% of sales compared to 95% in 1999.
The increase in the percentage is principally the result of lower average
selling prices and a shift in product mix, partially offset by lower raw
material costs and lower operating expenses. Selling, general, administrative
and development expenses decreased 9% in 2000 compared to 1999 principally due
to the impact of the restructuring plan implemented in early 2000 as well as
reduced expenses related to the business-enterprise information system project
that was completed in early 1999 and "Year 2000" computer systems expenses which
were incurred in 1999 but not 2000.
Equity in earnings (losses) of joint ventures of the "Titanium melted
and mill products" segment in 2000 decreased by $1.4 million from 1999
principally due to the decline in earnings of Valtimet, the Company's 46%-owned
welded tube joint venture.
Sales and Operating Income - 1999 Compared to 1998. The "Titanium
melted and mill product" segment net sales in 1999 decreased 30% compared to
1998 primarily due to a 23% decrease in mill products shipment volume resulting
primarily from reduced demand in the aerospace market. Mill product selling
prices (expressed in U.S. dollars using actual foreign currency exchange rates
prevailing during the respective periods) for 1999 were approximately 8% lower
than 1998 reflecting both the price effect of long-term agreements and increased
price competition on non-LTA business. In billing currencies, mill product
selling prices declined 7% from 1998. As described in Note 9 to the Consolidated
Financial Statements, the Company produced approximately $16 million of titanium
ingots in 1999, for which the customer was billed but income recognition was
deferred. Approximately 72% of this material was shipped in 2000.
The decrease in net sales of the "Other" segment is a result of the
Company's ceasing to consolidate its castings business after July 1998. See Note
4 to the Consolidated Financial Statements.
Total cost of sales in 1999 was 95% of sales compared to 77% in 1998.
The increase in the percentage is a result of the lower selling prices, lower
production volumes, higher depreciation, and increased reserves for slow-moving
inventory. Yield, rework and deviated material costs were also higher and plant
operating rates were lower. Selling, general, administrative and developmental
expenses in 1999 were lower than 1998 in dollar terms due in large part to the
completion of the implementation of the initial phase of the Company's
business-enterprise system during the first half of 1999. These costs as a
percentage of sales, however, increased to approximately 10% primarily due to
the decline in sales.
In the fourth quarter of 1999, the Company recorded $6.8 million of
special charges consisting of $4.5 million of restructuring charges and $2.3
million of write-downs associated with the Company's investment in certain
start-up joint ventures. During the same quarter, the Company also recorded a
$4.3 million charge to cost of sales for slow-moving inventory. Approximately
half of the restructuring charges were non-cash, primarily related to the
disposition of a Germany subsidiary, with the cash component relating to the
termination of 100 people. The $4.3 million charge for slow-moving inventory and
$4.7 million of the $6.8 million of special charges are included in the
operating loss of the "Titanium melted and mill products" segment in 1999.
Operating income of the "Titanium melted and mill products" segment in 1998
included special charges of $19.5 million. Operating losses of the "Other"
segment included $4.5 million and $2.1 million of special charges in 1998 and
1999, respectively. See Note 6 to the Consolidated Financial Statements.
Equity in earnings (losses) of joint ventures of the "Titanium melted
and mill products" segment decreased by $1.3 million from 1998 principally due
to the decline in earnings of Valtimet. Equity in losses of the "Other" segment
were higher in 1999 due to the Company's recording a higher share of the losses
for a full year in 1999 as a result of increased ownership in certain of these
ventures in mid-1998.
Other Income, net. Other income, net, consists of the following:
1998 1999 2000
--------------- --------------- --------------
Dividends and interest income $ 6,303 $ 6,034 $ 6,154
General corporate income (expense), net (243) (1,246) 67
Other 799 164 2,156
--------------- --------------- --------------
$ 6,859 $ 4,952 $ 8,377
=============== =============== ==============
In 1999 and 2000, dividends and interest income consisted principally
of dividends on $80 million of non-voting preferred securities of Special Metals
Corporation, which were purchased by the Company in October 1998. In 1998, the
amount represented primarily earnings on corporate cash equivalents. General
corporate income (expense) consisted principally of currency transaction
gains/losses. In 2000, net currency losses of $1.1 million were offset by a $1.2
million gain on the sale of the Company's castings joint venture. In 2000, other
income consisted principally of $2 million received from UTSC in connection with
the termination of the sponge purchase agreement between the Company and UTSC as
more fully described in Note 15 to the Consolidated Financial Statements.
European Operations. The Company has substantial operations and assets
located in Europe, principally the United Kingdom, with smaller operations in
France, Italy and Germany. Titanium is a worldwide market and the factors
influencing the Company's U.S. and European operations are substantially the
same.
Approximately 60% of the Company's European sales are 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 which may
impact reported earnings and may affect the comparability of period-to-period
operating results. Borrowings of the Company's European operations may be in
U.S. dollars or in functional currencies. The Company's export sales from the
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. Net currency transaction gains/losses included in earnings were
losses of $1.2 million and $1.1 million in 1999 and 2000, respectively, and a
$.4 million gain in 1998. At December 31, 2000, consolidated assets and
liabilities denominated in currencies other than functional currencies were
approximately $21 million and $19 million, respectively, consisting primarily of
U. S. dollar cash, accounts receivable, accounts payable and borrowings.
Exchange rates among 11 European currencies (including the French franc, Italian
lira and German mark, but excluding the British pound) became fixed relative to
each other as a result of the implementation of the euro effective in 1999.
Costs associated with modifications of systems to handle euro-denominated
transactions are not expected to be significant.
Interest Expense. Interest expense for 2000 increased over 1999 due to
the net effect of increased interest rates related to U.S. credit facilities
entered into in early 2000, lower average borrowings outstanding during the year
and a lower level of capitalized interest. Interest expense for 1999 more than
doubled from the levels of 1998 primarily due to higher levels of average debt
and increased interest rates. Also contributing to the higher comparative
interest expense was a lower level of interest capitalized in 1999 compared to
1998 as major capital projects were completed.
Income Taxes. 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 the Company's overall effective tax rate. For financial
reporting purposes, the Company has recognized the tax benefit of substantially
all of its net operating loss carryforwards and expects that tax benefits to be
recognized during 2001 will be deferred income tax benefits. The Company expects
to make cash income tax payments in certain foreign jurisdictions in 2001. See
Note 13 to the Consolidated Financial Statements.
Minority Interest. Annual dividend expense related to the Company's
6.625% Convertible Preferred Securities approximates $13 million and is reported
as minority interest net of allocable income taxes. Other minority interest
relates primarily to the 30% interest in TIMET Savoie held by CEZUS.
Extraordinary Item. During 2000, the deferred financing costs associated
with the Company's prior U.S. credit facility were written off and reflected as
an extraordinary item of $.9 million after taxes in the Consolidated Statements
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows provided by operating, investing
and financing activities for each of the past three years are presented below.
Year ended December 31,
----------------------------------------------------
1998 1999 2000
--------------- -------------- ---------------
(In thousands)
Cash provided (used) by:
Operating activities:
Excluding changes in assets and liabilities $108,660 $ 23,958 $ (4,119)
Changes in assets and liabilities (32,543) (4,415) 67,447
--------------- -------------- ---------------
76,117 19,543 63,328
Investing activities (223,215) (21,663) (4,218)
Financing activities 92,232 8,563 (70,678)
--------------- -------------- ---------------
Net cash provided (used) by operating,
investing and financing activities $(54,866) $ 6,443 $(11,568)
=============== ============== ===============
Operating Activities. Cash provided by operating activities was
approximately $63 million in 2000, $19 million in 1999 and $76 million in 1998.
Cash provided by operating activities, excluding changes in assets and
liabilities, during the past three years generally follows the trend in
operating results. Changes in assets and liabilities reflect the timing of
purchases, production and sales, and can vary significantly from period to
period. Accounts receivable provided cash in 1998, 1999 and 2000 reflecting the
decrease in sales levels as well as an improvement, particularly in 2000, in
collections as reflected by a decrease in the average number of days that
receivables are outstanding. The significant reduction in receivables in 2000
was also attributable to $16 million of customer payments received in the first
quarter of 2000 related to a bill-and-hold arrangement near the end of 1999. See
Note 9 to the Consolidated Financial Statements.
Inventories increased significantly in 1998, reflecting material
purchases and production rates that were based on expected sales levels higher
than the actual sales level turned out to be. The Company reduced inventories
during 1999 and 2000 as excess raw materials and other inventory items were
consumed and inventory reduction and control efforts were put in place.
Changes in net current income taxes payable decreased in 1998 in part
due to the delayed timing of cash payments for taxes in Europe relative to
earnings. In 1999, income taxes payable decreased as the 1999 losses were
carried back to recover a portion of prior years' taxes paid. Changes in income
taxes in 2000 primarily reflects net tax refunds of $8 million. Changes in
accounts with related parties resulted primarily from relative changes in
receivable levels with joint ventures in 1998, 1999 and 2000.
In April 2000, the Company exercised its right to defer future dividend
payments on its outstanding 6.625% Convertible Preferred Securities for a period
of 10 quarters (subject to possible further extension for up to an additional 10
quarters), although interest continues to accrue at the coupon rate on the
principal and unpaid dividends. Changes in accrued dividends on Convertible
Preferred Securities reflects accrued but unpaid dividends.
Restructuring and other special items are described in Note 6 to the
Consolidated Financial Statements.
Investing Activities. The Company's capital expenditures were $11 million
in 2000, down from $25 million in 1999 and $115 million in 1998. Capital
spending for 2000 was principally for capacity enhancements, capital
maintenance, and safety and environmental projects. Capital expenditures in 1999
were primarily related to the expansion of forging capacity at the Toronto, Ohio
facility, the installation of the business-enterprise system in Europe and
various environmental and other projects. About one-half of capital expenditures
during 1998 related to capacity expansion projects associated with long-term
customer agreements.
Approximately 10% of the Company's capital spending in 1999 related to
the major business-enterprise information systems and information technology
project implemented at various sites throughout the Company. Approximately
one-fourth of the 1998 capital spending related to this project. The new system
was implemented in stages in the U.S. during 1998, with initial implementation
substantially completed with the rollout to the U.K. in February 1999. Certain
costs associated with the business-enterprise information systems project,
including training and reengineering, were expensed as incurred.
Cash used for business acquisitions and joint ventures in 1998 related
primarily to the Loterios and Wyman-Gordon transactions more fully described in
Notes 3 and 4 to the Consolidated Financial Statements.
Proceeds from sale of joint venture in 2000 represents the proceeds
from the Company's sale to Wyman-Gordon of the Company's 20% interest in
Wyman-Gordon Titanium Castings, LLC. This transaction is more fully described in
Note 4 to the Consolidated Financial Statements.
In October 1998, the Company purchased for cash $80 million of Special
Metals Corporation 6.625% convertible preferred stock (the "SMC Preferred
Stock") in conjunction with, and concurrent with, SMC's acquisition of the Inco
Alloys International high performance nickel alloys business unit of Inco
Limited ("Inco"). Dividends on the SMC Preferred Stock had previously been
deferred by SMC due to limitations imposed by SMC's bank credit agreements.
During 2000, TIMET received three quarterly dividends from SMC and received a
fourth dividend in January 2001; however, there can be no assurances that TIMET
will continue to receive regular quarterly dividends. SMC has filed a lawsuit
against Inco alleging that Inco made fraudulent misrepresentations in connection
with SMC's acquisition, which action is still pending.
Financing Activities. At December 31, 2000, the Company's net debt was
approximately $35.1 million ($44.9 million of notes payable and debt,
principally borrowings under the Company's U.S. and U.K. credit agreements less
$9.8 million of cash and equivalents). At December 31, 2000, the Company had
about $117 million of borrowing availability under its various worldwide credit
agreements.
Early in 2000, the Company completed a $125 million, three-year
U.S.-based revolving credit agreement replacing its previous U.S. bank credit
facility. Borrowings under the credit agreement are limited to a
formula-determined borrowing base derived from the value of accounts receivable,
inventory and equipment. The credit agreement limits additional indebtedness,
prohibits the payment of common stock dividends, and contains other covenants
customary in lending transactions of this type. The Company also increased its
U.K. credit agreement from (pound)18 million ($29 million) to (pound)30 million
($48 million) with its existing U.K. lender in 2000. The Company believes that
its U.S. and U.K. credit facilities will provide it with the liquidity necessary
for current market and operating conditions.
Net repayments of $70 million in 2000 reflect reductions of outstanding
borrowings principally in the U.S. resulting from collection of receivables,
reduction in inventories, tax refunds, the sale of the Company's casting joint
venture and deferral of dividend payments on the Company's Convertible Preferred
Securities. Net borrowings of $13 million in 1999 and $97 million in 1998 were
primarily to fund capital expenditures and the 1998 Loterios acquisition.
In November 1999, the Company's Board of Directors voted to suspend the
regular quarterly dividend on its common stock in view of, among other things,
the continuing weakness in overall market demand for titanium metal products.
The Company's U.S. credit agreement, entered into in early 2000, after such
suspension, prohibits the payment of dividends on the Company's common stock and
the repurchase of common shares.
The Company's Convertible Preferred Securities do not require principal
amortization, and TIMET 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 (subject to possible further extension
for up to an additional 10 quarters), although interest will continue to accrue
at the coupon rate on the principal and unpaid dividends. The Company may
consider resuming payment of dividends on the Convertible Preferred Securities
or purchase the securities if the outlook for TIMET's results from operations
improves substantially or a favorable result in the Boeing-related litigation is
achieved, or both. As of December 31, 2000, accrued dividends on the Company's
Convertible Securities are reflected as noncurrent liabilities in the
consolidated balance sheet.
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements, the cost of debt and
equity capital, and estimated future operating cash flows. As a result of this
process, the Company has in the past and, in light of its current outlook, may
in the future 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
related industries. In the event of any future acquisition or joint venture
opportunities, the Company may consider using then-available liquidity, issuing
equity securities or incurring additional indebtedness.
Environmental Matters.
See Item 1 - "Business--Regulatory and Environmental Matters" and Note
16 to the Consolidated Financial Statements for a discussion of environmental
matters.
ITEM 7A: 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. The Company is exposed to market risk from changes in
interest rates related to indebtedness. At December 31, 2000 substantially all
of the Company's indebtedness was denominated in U.S. dollars or the British
pound sterling and bore interest at variable rates, primarily related to spreads
over LIBOR, as summarized below.
Contractual maturity date (1)
--------------------------------------------------------------------- Interest
2001 2002 2003 2004 2005 rate (2)
----------- ---------- ----------- ---------- ----------- ------------
(In millions)
Variable rate debt:
U. S. dollars $ 22.1 $ - $ 5.4 $ - $ - 8.70%
British pounds 1.5 1.5 1.5 1.5 8.9 7.85%
Italian lira 1.8 .2 - - - 5.60%
French francs .5 - - - - 6.60%
(1) Non-U. S. dollar denominated amounts are translated at year-end rates of exchange.
(2) Weighted average.
At December 31, 1999, substantially all of the Company's outstanding
indebtedness consisted of U.S. dollar-denominated variable rate debt.
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 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations -Results of Operations - European
Operations," which information is incorporated herein by reference.
Other. The Company holds $80 million of preferred securities that are
not publicly traded, are accounted for by the cost method and are considered
"held-to-maturity" securities. See Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Investing Activities" and Note 5 to the Consolidated
Financial Statements.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is contained in a separate
section of this Annual Report. See "Index of Financial Statements and Schedules"
on page F.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
TIMET's definitive proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this Annual Report (the "TIMET Proxy Statement").
ITEM 11: EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the TIMET Proxy Statement.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the TIMET Proxy Statement.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the TIMET Proxy Statement. See also Note 15 to the Consolidated Financial
Statements.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d) Financial Statements and Schedules
The consolidated financial statements and schedules listed by
the Registrant on the accompanying Index of Financial Statements and Schedules
(see page F) are filed as part of this Annual Report.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended December 31, 2000 and the months
of January and February 2001:
Date of Report Items Reported
------------------------------------- ----------------------------------
October 2, 2000 - 5 and 7
October 19, 2000 - 5 and 7
January 11, 2001 - 5 and 7
January 12, 2001 - 5 and 7
January 29, 2001 - 5 and 7
(c) Exhibits
Included as exhibits are the items listed in the Exhibit
Index. TIMET will furnish a copy of any of the exhibits listed below upon
payment of $4.00 per exhibit to cover the costs to TIMET of furnishing the
exhibits. Instruments defining the rights of holders of long-term debt issues
which do not exceed 10% of consolidated total assets will be furnished to the
Commission upon request.
Item No. Exhibit Index
3.1 Amended and Restated Certificate of Incorporation of Titanium
Metals Corporation, incorporated by reference to Exhibit 3.1
to Titanium Metals Corporation's Registration Statement on
Form S-1 (No. 333-2940).
3.2 Bylaws of Titanium Metals Corporation as Amended and
Restated, dated February 23, 1999, incorporated by reference
to Exhibit 3.2 to Titanium Metals Corporation's Annual Report
on Form 10-K (No. 1-14368) for the year ended
December 31, 1998.
4.1 Certificate of Trust of TIMET Capital Trust I, dated
November 13, 1996, incorporated by reference to Exhibit 4.1
to Titanium Metals Corporation's Current Report on Form 8-K
filed with the Commission on December 5, 1996.
4.2 Amended and Restated Declaration of Trust of TIMET Capital
Trust I, dated as of November 20, 1996, among Titanium Metals
Corporation, as Sponsor, the Chase Manhattan Bank, as
Property Trustee, Chase Manhattan Bank (Delaware), as
Delaware Trustee and Joseph S. Compofelice, Robert E.
Musgraves and Mark A. Wallace, as Regular Trustees,
incorporated by reference to Exhibit 4.2 to the Registrant's
Current Report on Form 8-K filed with the Commission on
December 5, 1996.
4.3 Indenture for the 6 5/8% Convertible Junior Subordinated
Debentures, dated as of November 20, 1996, among Titanium
Metals Corporation and The Chase Manhattan Bank, as Trustee,
incorporated by reference to Exhibit 4.3 to the Registrant's
Current Report on Form 8-K filed with the Commission on
December 5, 1996.
4.4 Form of 6 5/8% Convertible Preferred Securities (included in
Exhibit 4.2 above), incorporated by reference to Exhibit 4.4
to the Registrant's Current Report on Form 8-K filed with
the Commission on December 5, 1996.
4.5 Form of 6 5/8% Convertible Junior Subordinated Debentures
(included in Exhibit 4.3 above), incorporated by reference
to Exhibit 4.6 to the Registrant's Current Report on Form 8-K
filed with the Commission on December 5, 1996.
4.6 Form of 6 5/8% Trust Common Securities (included in
Exhibit 4.2 above), incorporated by reference to Exhibit 4.5
to the Registrant's Current Report on Form 8-K filed with
the Commission on December 5, 1996.
4.7 Convertible Preferred Securities Guarantee, dated as of
November 20, 1996, between Titanium Metals Corporation, as
Guarantor, and The Chase Manhattan Bank, as Guarantee
Trustee, incorporated by Reference to Exhibit 4.7 to the
Registrant's Current Report on Form 8-K filed with the
Commission on December 5, 1996.
9.1 Shareholders' Agreement, dated February 15, 1996, among
Titanium Metals Corporation, Tremont Corporation, IMI plc,
IMI Kynoch Ltd., and IMI Americas, Inc., incorporated by
reference to Exhibit 2.2 to Tremont Corporation's Current
Report on Form 8-K (No. 1-10126) filed with the Commission
on March 1, 1996.
9.2 Amendment to the Shareholders' Agreement, dated
March 29, 1996, among Titanium Metals Corporation,
Tremont Corporation, IMI plc, IMI Kynoch Ltd., and
IMI Americas, Inc., incorporated by reference to Exhibit
10.30 to Tremont Corporation's Annual Report on Form 10-K
(No. 1-10126) for the year ended December 31, 1995.
10.1 Lease Agreement, dated January 1, 1996, between Holford
Estates Ltd. and IMI Titanium Ltd. related to the building
known as Titanium Number 2 Plant at Witton, England,
incorporated by reference to Exhibit 10.23 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for
the year ended December 31, 1995.
10.2 Purchase Agreement, dated November 20, 1996, between Titanium
Metals Corporation, TIMET Capital Trust I, Salomon Brothers
Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley & Co. Incorporated, as Initial Purchasers,
incorporated by reference to Exhibit 99.1 to the Registrant's
Current Report on Form 8-K filed with the Commission on
December 5, 1996.
10.3 Registration Agreement, dated November 20, 1996, between
TIMET Capital Trust I and Salomon Brothers Inc, as
Representative of the Initial Purchasers, incorporated by
reference to Exhibit 99.2 to the Registrant's Current Report
on Form 8-K filed with the Commission on December 5, 1996.
10.4 Loan and Security Agreement by and among Congress Financial
Corporation (Southwest) as Lender and Titanium Metals
Corporation and Titanium Hearth Technologies, Inc. as
borrowers, dated February 25, 2000, incorporated by reference
to Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999.
10.5 Investment Agreement dated July 9, 1998, between Titanium
Metals Corporation, TIMET Finance Management Company and
Special Metals Corporation, incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K
dated July 9, 1998.
10.6 Amendment to Investment Agreement, dated October 28, 1998,
among Titanium Metals Corporation, TIMET Finance Management
Company and Special Metals Corporation, incorporated by
reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
10.7 Registration Rights Agreement, dated October 28, 1998,
between TIMET Finance Management Company and Special Metals
Corporation, incorporated by reference to Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
10.8 Certificate of Designations for the Special Metals
Corporation Series A Preferred Stock, filed on October 28,
1998, with the Secretary of State of Delaware, incorporated
by reference to Exhibit 4.5 of a Current Report on Form 8-K
dated October 28, 1998, filed by Special Metals Corporation
(No. 000-22029).
10.9 Intercorporate Services Agreement between Titanium Metals
Corporation and Tremont Corporation, effective as of January
1, 2000, incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000.
10.10 Intercorporate Services Agreement between Titanium Metals
Corporation and NL Industries, Inc. effective as of January
1, 2000, incorporated by reference to Exhibit 10.4 to a
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000 filed by NL Industries, Inc. (No. 1-640).
10.11* 1996 Long Term Performance Incentive Plan of Titanium
Metals Corporation, incorporated by reference to Exhibit
10.19 to Titanium Metals Corporation's Amendment No. 1 to
Registration Statement on Form S-1 (No.333-18829).
10.12* Titanium Metals Corporation Amended and Restated 1996
Non-Employee Director Compensation Plan, as amended and
restated effective February 28, 2001.
10.13* Senior Executive Cash Incentive Plan, incorporated by
reference to Appendix B to Titanium Metals Corporation's
proxy statement included as part of a statement on Schedule
14A dated April 17, 1997.
10.14* Executive Severance Policy, as amended and restated effective
May 17, 2000, incorporated by reference to Exhibit 10.3
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.
10.15* Severance Agreement between Titanium Metals Corporation and
Andrew R. Dixey dated February 25, 2000, incorporated by
reference to Exhibit 10.19 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1999.
10.16* Executive Agreement dated as of September 27, 1996, between
Titanium Hearth Technologies, Inc. and Charles H.
Entrekin, Jr., incorporated by reference to Exhibit 10.22
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.
10.17* Titanium Metals Corporation Executive Stock Ownership Loan
Plan, as amended and restated effective February 28, 2001.
10.18* Form of Loan and Pledge Agreement by and between Titanium
Metals Corporation and individual TIMET executives under the
Corporation's Executive Stock Ownership Loan Program.
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
99.1 Complaint and Jury Demand filed by Titanium Metals
Corporation against The Boeing Company in District Court,
City and County of Denver, State of Colorado, on March 21,
2000, Case No. 00CV1402, including Exhibit A, Purchase and
Sale Agreement (for titanium products) dated as of November
5, 1997 by and between The Boeing Company, acting through its
division, Boeing Commercial Airplane Group, and Titanium
Metals Corporation, incorporated by reference to Exhibit 99.2
to the Registrant's Current Report on Form 8-K dated M