form_10q.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the quarterly period ended September 30,
2007
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
Commission
file number 1-14368
|
Titanium
Metals Corporation
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
|
13-5630895
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
5430
LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697
|
(Address
of principal executive offices) (Zip
Code)
|
Registrant’s
telephone number, including area code:
|
(972) 233-1700
|
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 þ
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated” filer in Rule 12b-2 of the Exchange
Act.
þLarge
accelerated
filer o Accelerated
filer o Non-accelerated
filer
Indicate
by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o
No þ
Number of shares of common stock outstanding on November 1, 2007:
162,190,755
|
|
Page
|
|
|
Number
|
|
|
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
December
31, 2006; September 30, 2007 (unaudited)
|
2
|
|
|
|
|
|
|
|
Three
and nine months ended September 30, 2006 and 2007
(unaudited)
|
4
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2006 and 2007 (unaudited)
|
5
|
|
|
|
|
|
|
|
Nine
months ended September 30, 2007 (unaudited)
|
6
|
|
|
|
|
|
7
|
|
|
|
Item
2.
|
|
14
|
|
|
|
Item
3.
|
|
25
|
|
|
|
Item
4.
|
|
25
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
|
26
|
|
|
|
Item
1A.
|
|
26
|
|
|
|
Item
6.
|
|
26
|
Items
2,
3, 4 and 5 of Part II are omitted because there is no information to
report.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
millions)
|
|
December
31,
|
|
|
September
30,
|
|
ASSETS
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(unaudited)
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$ |
29.4
|
|
|
$ |
78.8
|
|
Accounts
and other receivables,
less allowance of $1.4 and $2.0, respectively
|
|
|
213.0 |
|
|
|
205.2 |
|
Inventories
|
|
|
501.5
|
|
|
|
570.2
|
|
Refundable
income
taxes
|
|
|
-
|
|
|
|
12.5
|
|
Prepaid
expenses and
other
|
|
|
4.6
|
|
|
|
6.9
|
|
Deferred
income
taxes
|
|
|
9.1
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
Total
current
assets
|
|
|
757.6
|
|
|
|
882.8
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
56.8
|
|
|
|
55.4
|
|
Property
and equipment, net
|
|
|
329.8
|
|
|
|
360.8
|
|
Pension
asset
|
|
|
17.9
|
|
|
|
21.3
|
|
Deferred
income taxes
|
|
|
3.5
|
|
|
|
2.3
|
|
Prepaid
expenses and other
|
|
|
51.3
|
|
|
|
59.8
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,216.9
|
|
|
$ |
1,382.4
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
TITANIUM
METALS CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In
millions)
|
|
December
31,
|
|
|
September
30,
|
|
LIABILITIES,
MINORITY INTEREST AND
|
|
2006
|
|
|
2007
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
87.8
|
|
|
$ |
66.2
|
|
Accrued
liabilities
|
|
|
82.0
|
|
|
|
71.9
|
|
Customer
advances
|
|
|
18.7
|
|
|
|
17.4
|
|
Income
taxes
payable
|
|
|
22.0
|
|
|
|
2.1
|
|
Deferred
income
taxes
|
|
|
0.6
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
Total
current
liabilities
|
|
|
211.1
|
|
|
|
158.7
|
|
|
|
|
|
|
|
|
|
|
Accrued
OPEB cost
|
|
|
28.0
|
|
|
|
29.1
|
|
Accrued
pension cost
|
|
|
52.2
|
|
|
|
50.7
|
|
Deferred
income taxes
|
|
|
17.8
|
|
|
|
17.4
|
|
Other
|
|
|
7.6
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
316.7
|
|
|
|
265.2
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
21.3
|
|
|
|
22.1
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Series
A Preferred
Stock
|
|
|
75.0
|
|
|
|
73.4
|
|
Common
stock
|
|
|
1.6
|
|
|
|
1.6
|
|
Additional
paid-in
capital
|
|
|
484.4
|
|
|
|
487.7
|
|
Retained
earnings
|
|
|
340.3
|
|
|
|
543.7
|
|
Accumulated
other comprehensive
loss
|
|
|
(22.4 |
) |
|
|
(11.3 |
) |
|
|
|
|
|
|
|
|
|
Total
stockholders’
equity
|
|
|
878.9
|
|
|
|
1,095.1
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities, minority
interest and stockholders’ equity
|
|
$ |
1,216.9
|
|
|
$ |
1,382.4
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(In
millions, except per share data)
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
271.8
|
|
|
$ |
297.3
|
|
|
$ |
859.6
|
|
|
$ |
980.3
|
|
Cost
of sales
|
|
|
174.0
|
|
|
|
199.3
|
|
|
|
547.2
|
|
|
|
613.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
97.8
|
|
|
|
98.0
|
|
|
|
312.4
|
|
|
|
366.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, administrative and development expense
|
|
|
17.2
|
|
|
|
16.7
|
|
|
|
49.8
|
|
|
|
51.7
|
|
Other
income, net
|
|
|
4.0
|
|
|
|
-
|
|
|
|
10.7
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
84.6
|
|
|
|
81.3
|
|
|
|
273.3
|
|
|
|
315.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
non-operating (expense) income, net
|
|
|
(0.2 |
) |
|
|
0.9
|
|
|
|
(3.2 |
) |
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes and
minority interest
|
|
|
84.4
|
|
|
|
82.2
|
|
|
|
270.1
|
|
|
|
316.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
28.6
|
|
|
|
27.2
|
|
|
|
94.7
|
|
|
|
101.5
|
|
Minority
interest in after-tax earnings
|
|
|
1.6
|
|
|
|
1.3
|
|
|
|
6.2
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
54.2
|
|
|
|
53.7
|
|
|
|
169.2
|
|
|
|
207.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on Series A Preferred Stock
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
5.4
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to
common
stockholders
|
|
$ |
52.7
|
|
|
$ |
52.3
|
|
|
$ |
163.8
|
|
|
$ |
203.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share attributable tocommonstockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.33
|
|
|
$ |
0.32
|
|
|
$ |
1.07
|
|
|
$ |
1.26
|
|
Diluted
|
|
$ |
0.29
|
|
|
$ |
0.29
|
|
|
$ |
0.92
|
|
|
$ |
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
161.1
|
|
|
|
162.2
|
|
|
|
152.9
|
|
|
|
162.0
|
|
Diluted
|
|
|
184.2
|
|
|
|
184.3
|
|
|
|
183.8
|
|
|
|
184.3
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
millions)
|
|
Nine
months ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
169.2
|
|
|
$ |
207.8
|
|
Depreciation
and
amortization
|
|
|
25.5
|
|
|
|
30.1
|
|
Equity
in earnings of joint
ventures, net of distributions
|
|
|
(7.7 |
) |
|
|
0.1
|
|
Deferred
income
taxes
|
|
|
9.8
|
|
|
|
1.7
|
|
Excess
tax benefit of stock option
exercises
|
|
|
(10.0 |
) |
|
|
(0.8 |
) |
Minority
interest
|
|
|
6.2
|
|
|
|
7.3
|
|
Other,
net
|
|
|
0.3
|
|
|
|
2.6
|
|
Change
in assets and
liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(29.9 |
) |
|
|
12.2
|
|
Inventories
|
|
|
(114.8 |
) |
|
|
(60.1 |
) |
Accounts
payable and accrued
liabilities
|
|
|
2.7
|
|
|
|
(32.8 |
) |
Income
taxes
|
|
|
9.4
|
|
|
|
(31.7 |
) |
Other,
net
|
|
|
(3.2 |
) |
|
|
(6.7 |
) |
Net
cash provided by operating
activities
|
|
|
57.5
|
|
|
|
129.7
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(62.4 |
) |
|
|
(60.6 |
) |
Other,
net
|
|
|
(0.7 |
) |
|
|
(10.0 |
) |
Net
cash used in investing
activities
|
|
|
(63.1 |
) |
|
|
(70.6 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Indebtedness:
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
505.2
|
|
|
|
-
|
|
Repayments
|
|
|
(502.6 |
) |
|
|
-
|
|
Dividends
paid on Series A
Preferred Stock
|
|
|
(5.7 |
) |
|
|
(4.2 |
) |
Dividends
paid to minority
shareholder
|
|
|
(3.0 |
) |
|
|
(8.1 |
) |
Issuance
of common
stock
|
|
|
10.7
|
|
|
|
0.9
|
|
Excess
tax benefit of stock option
exercises
|
|
|
10.0
|
|
|
|
0.8
|
|
Other,
net
|
|
|
(0.8 |
) |
|
|
(0.1 |
) |
Net
cash provided by (used in)
financing activities
|
|
|
13.8
|
|
|
|
(10.7 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by operating, investing and financing
activities
|
|
|
8.2
|
|
|
|
48.4
|
|
Effect
of exchange rate changes on
cash
|
|
|
0.9
|
|
|
|
1.0
|
|
|
|
|
9.1
|
|
|
|
49.4
|
|
Cash
and cash equivalents at
beginning of period
|
|
|
17.6
|
|
|
|
29.4
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end
of period
|
|
$ |
26.7
|
|
|
$ |
78.8
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest,
net of amounts
capitalized
|
|
$ |
1.8
|
|
|
$ |
2.2
|
|
Income taxes, net
|
|
$ |
75.0
|
|
|
$ |
130.7
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
AND
COMPREHENSIVE INCOME
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(In
millions)
|
|
Series
A Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other Comprehensive Loss
|
|
|
Total
|
|
|
Comprehensive
Income
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
|
$ |
75.0
|
|
|
$ |
1.6
|
|
|
$ |
484.4
|
|
|
$ |
340.3
|
|
|
$ |
(22.4 |
) |
|
$ |
878.9
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
207.8
|
|
|
|
-
|
|
|
|
207.8
|
|
|
$ |
207.8
|
|
Other
comprehensive
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11.1
|
|
|
|
11.1
|
|
|
|
11.1
|
|
Issuance
of common
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.9
|
|
|
|
-
|
|
Conversion
of Series
A
Preferred
Stock
|
|
|
(1.6 |
) |
|
|
-
|
|
|
|
1.6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Tax
benefit of stock
options
exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
0.8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.8
|
|
|
|
-
|
|
Dividends
declared
on
Series
A Preferred
Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4.2 |
) |
|
|
-
|
|
|
|
(4.2 |
) |
|
|
-
|
|
Change
in Accounting -
FIN
48
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.2 |
) |
|
|
-
|
|
|
|
(0.2 |
) |
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2007
|
|
$ |
73.4
|
|
|
$ |
1.6
|
|
|
$ |
487.7
|
|
|
$ |
543.7
|
|
|
$ |
(11.3 |
) |
|
$ |
1,095.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
218.9
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
TITANIUM
METALS
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
(Unaudited)
Note
1 – Basis of presentation and organization
Basis
of presentation. The unaudited Condensed Consolidated
Financial Statements contained in this Quarterly Report have been prepared
on
the same basis as the audited Consolidated Financial Statements in our Annual
Report on Form 10-K for the year ended December 31, 2006 that we filed with
the
Securities and Exchange Commission (“SEC”) on February 28, 2007 (“2006 Annual
Report”), except as disclosed below. They include the accounts of
Titanium Metals Corporation and its majority owned subsidiaries (collectively
referred to as “TIMET”). Unless otherwise indicated, references in
this report to “we”, “us” or “our” refer to TIMET and its subsidiaries, taken as
a whole. All material intercompany transactions and balances with
consolidated subsidiaries have been eliminated. In our opinion, we
have made all necessary adjustments (which include only normal recurring
adjustments) in order to state fairly, in all material respects, our
consolidated financial position, results of operations and cash flows as of
the
dates and for the periods presented. We have condensed the
Consolidated Balance Sheet at December 31, 2006 contained in this Quarterly
Report as compared to our audited Consolidated Financial Statements at that
date, and we have condensed or omitted certain information and footnote
disclosures (including those related to the Consolidated Balance Sheet at
December 31, 2006) normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of
America. Our results of operations for the interim period ended
September 30, 2007 may not be indicative of our operating results for the full
year. The Condensed Consolidated Financial Statements contained in
this Quarterly Report should be read in conjunction with the 2006 Consolidated
Financial Statements contained in our 2006 Annual Report. Our first
three fiscal quarters reported are the approximate 13-week periods ending on
the
Saturday generally nearest to March 31, June 30 and September 30. Our
fourth fiscal quarter and fiscal year always end on December 31. For
presentation purposes, our financial statements and the accompanying notes
have
been presented as ended on March 31, June 30, September 30 and December 31,
as
applicable.
Organization. At
September 30, 2007, Contran Corporation and its subsidiaries held 32.5% of
our
outstanding common stock, and the Combined Master Retirement Trust (“CMRT”), a
trust sponsored by Contran to permit the collective investment by trusts that
maintain the assets of certain employee benefit plans adopted by Contran and
certain related companies, held an additional 9.5% of our common
stock. Substantially all of Contran's outstanding voting stock is
held by trusts established for the benefit of certain children and grandchildren
of Harold C. Simmons, of which Mr. Simmons is sole trustee, or is held by Mr.
Simmons or persons or other entities related to Mr. Simmons. In
addition, Mr. Simmons is the sole trustee of the CMRT and a member of the trust
investment committee for the CMRT. At September 30, 2007, Mr. Simmons
directly owned 3.2% of our outstanding common stock and Mr. Simmons’ spouse
owned 94.5% of our outstanding Series A Preferred Stock and a nominal number
of
shares of our common stock. Consequently, Mr. Simmons may be deemed
to control each of Contran and us.
Recent
accounting pronouncements. On January 1, 2007, we adopted
Financial Accounting Standards Board Interpretation (“FIN”) No. 48,
Accounting for Uncertain Tax Positions. FIN 48 clarifies
when and how much of a benefit we can recognize in our consolidated financial
statements for certain positions taken in our income tax returns under Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes,
and enhances the disclosure requirements for our income tax policies and
reserves. Among other things, FIN 48 prohibits us from recognizing
the benefits of a tax position unless we believe it is more-likely-than-not
our
position will prevail with the applicable tax authorities and limits the amount
of the benefit to the largest amount for which we believe the likelihood of
realization is greater than 50%. FIN 48 also requires companies to
accrue penalties and interest on the difference between tax positions taken
on
their tax returns and the amount of benefit recognized for financial reporting
purposes under the new standard. We are required to classify
any future reserves for uncertain tax positions in a separate current
or noncurrent liability, depending on the nature of the tax
position. Our adoption of FIN 48 did not have a material impact on
our consolidated financial position or results of operations.
We
accrue
interest and penalties on our uncertain tax positions as a component of our
provision for income taxes. The amount of interest and penalties we
accrued at September 30, 2007 was not material, and at January 1, 2007, we
had
no accrued interest and penalties for our uncertain tax positions.
At
September 30, 2007 we had approximately $2.4 million accrued for uncertain
tax
positions, which did not change significantly from the January 1, 2007
accrual. Of this amount, $1.5 million was reclassified from deferred
income tax liabilities (where we classified such reserve before we adopted
FIN
48), $0.7 million was provided for during the first nine months of 2007 which
is
included in our provision for income taxes and the remainder was accounted
for
as a reduction in our retained earnings in accordance with the transition
provisions of the new standard. In addition, the benefit associated
with approximately $0.7 million of our reserve for uncertain tax positions
at
September 30, 2007, if recognized, would affect our effective income tax
rate. We currently estimate that our unrecognized tax benefits will
decrease by approximately $0.7 million during the next twelve months due to
the
resolution of certain examination and filing procedures related to one or more
of our subsidiaries.
We
file
income tax returns in various U.S. federal, state and local
jurisdictions. We also file income tax returns in various foreign
jurisdictions, principally in the United Kingdom, Italy, France and
Germany. Our domestic income tax returns prior to 2004 are generally
considered closed to examination by applicable tax authorities. Our
foreign income tax returns are generally considered closed to examination for
years prior to 2000 for the United Kingdom, 2002 for Italy, 2003 for France
and
2002 for Germany.
Note
2 – Inventories
|
|
December
31,
2006
|
|
|
September
30,
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
134.0
|
|
|
$ |
130.2
|
|
Work-in-process
|
|
|
239.4
|
|
|
|
265.7
|
|
Finished
products
|
|
|
93.5
|
|
|
|
130.7
|
|
Inventory
consigned to customers
|
|
|
16.9
|
|
|
|
21.6
|
|
Supplies
|
|
|
17.7
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
Total
inventories
|
|
$ |
501.5
|
|
|
$ |
570.2
|
|
Note
3 – Marketable securities
Our marketable securities consist of investments in related
parties. CompX International, Inc., NL Industries, Inc. and Kronos
Worldwide, Inc. are each majority owned subsidiaries of Contran. The
aggregate cost basis of our marketable securities was $36.9 million at December
31, 2006 and September 30, 2007. The following table summarizes the
market value of our marketable securities:
|
|
December
31, 2006
|
|
|
September
30, 2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
CompX
|
|
$ |
54.3
|
|
|
$ |
52.8
|
|
NL
|
|
|
2.3
|
|
|
|
2.5
|
|
Kronos
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Total
marketable
securities
|
|
$ |
56.8
|
|
|
$ |
55.4
|
|
On
October 26, 2007, after approval by the independent members of our board of
directors, CompX acquired all of our minority common stock ownership position
in
CompX for $19.50 per share, a recent price at which CompX had been repurchasing
its stock in open market transactions, or an aggregate of $52.6
million. As consideration for the shares, CompX issued $52.6 million
in subordinated promissory notes to us. The notes bear interest at
LIBOR plus 1%, require quarterly principal payments of $0.3 million beginning
September 30, 2008 and are subordinate to any outstanding balance under CompX’s
U.S. revolving bank credit facility. CompX may make principal
prepayments at any time, in any amount, without penalty. Any
outstanding principal balance becomes due upon maturity in September
2014. As a result, we will realize an $18.3 million after-tax capital
gain ($0.10 per diluted share) on the disposition of these CompX shares in
the
fourth quarter of 2007.
Note
4 – Property and equipment
|
|
December
31, 2006
|
|
|
September
30, 2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
Land
and improvements
|
|
$ |
9.3
|
|
|
$ |
11.5
|
|
Buildings
and improvements
|
|
|
41.6
|
|
|
|
54.3
|
|
Information
technology systems
|
|
|
66.0
|
|
|
|
67.4
|
|
Manufacturing
equipment and other
|
|
|
376.2
|
|
|
|
443.5
|
|
Construction
in progress
|
|
|
103.4
|
|
|
|
77.3
|
|
|
|
|
|
|
|
|
|
|
Total
property and equipment
|
|
|
596.5
|
|
|
|
654.0
|
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
266.7
|
|
|
|
293.2
|
|
|
|
|
|
|
|
|
|
|
Total
property and equipment, net
|
|
$ |
329.8
|
|
|
$ |
360.8
|
|
Note
5 – Prepaid expenses and other noncurrent assets
|
|
December
31, 2006
|
|
|
September
30, 2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
Prepaid
conversion services
|
|
$ |
49.7
|
|
|
$ |
47.8
|
|
Other
|
|
|
1.6
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
Total
prepaid expenses and other noncurrent assets
|
|
$ |
51.3
|
|
|
$ |
59.8
|
|
Note
6 – Accrued liabilities
|
|
December
31,
2006
|
|
|
September
30, 2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
Employee
related
|
|
$ |
46.4
|
|
|
$ |
37.6
|
|
Deferred
revenue
|
|
|
6.9
|
|
|
|
6.7
|
|
Scrap
purchases
|
|
|
8.9
|
|
|
|
5.2
|
|
Taxes,
other than income
|
|
|
6.7
|
|
|
|
6.2
|
|
Other
|
|
|
13.1
|
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
|
Total
accrued
liabilities
|
|
$ |
82.0
|
|
|
$ |
71.9
|
|
Defined
benefit pension
plans. The components of the net periodic
pension expense are set forth below:
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
1.2
|
|
|
$ |
1.4
|
|
|
$ |
3.4
|
|
|
$ |
4.0
|
|
Interest
cost
|
|
|
3.5
|
|
|
|
4.2
|
|
|
|
10.3
|
|
|
|
12.6
|
|
Expected
return on plan assets
|
|
|
(4.6 |
) |
|
|
(5.5 |
) |
|
|
(13.6 |
) |
|
|
(16.3 |
) |
Amortization
of net losses
|
|
|
0.8
|
|
|
|
0.9
|
|
|
|
2.4
|
|
|
|
2.6
|
|
Amortization
of prior service cost
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
pension
expense
|
|
$ |
1.0
|
|
|
$ |
1.1
|
|
|
$ |
2.9
|
|
|
$ |
3.3
|
|
Postretirement
benefits other than pensions (“OPEB”). The
components of net OPEB expense are set forth below:
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
0.2
|
|
|
$ |
0.2
|
|
|
$ |
0.6
|
|
|
$ |
0.7
|
|
Interest
cost
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
1.3
|
|
|
|
1.3
|
|
Amortization
of net losses
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
1.1
|
|
|
|
0.6
|
|
Amortization
of prior service cost
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
OPEB
expense
|
|
$ |
0.9
|
|
|
$ |
0.8
|
|
|
$ |
2.7
|
|
|
$ |
2.3
|
|
Note
8 – Income taxes
|
|
Nine
months ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
Expected
income tax expense, at 35%
|
|
$ |
94.5
|
|
|
$ |
111.0
|
|
Non-U.S.
tax rates
|
|
|
(1.7 |
) |
|
|
(2.0 |
) |
U.S.
state income taxes, net
|
|
|
4.6
|
|
|
|
5.7
|
|
Nontaxable
income
|
|
|
(1.0 |
) |
|
|
(9.0 |
) |
Domestic
manufacturing credit
|
|
|
(1.4 |
) |
|
|
(4.7 |
) |
Other,
net
|
|
|
(0.3 |
) |
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Provision
for income
taxes
|
|
$ |
94.7
|
|
|
$ |
101.5
|
|
Note
9 – Commitments and contingencies
Environmental
matters. We are continuing assessment work with respect
to our plant site in Henderson, Nevada. As of September 30, 2007, we
have $2.0 million accrued which represents our current estimate of the probable
costs of the remediation expected to be required at the site under the current
order with the state department of environmental protection. We
expect these accrued expenses to be paid over the remediation period of up
to
thirty years. We estimate the upper end of the range of reasonably
possible costs related to this matter, including the current accrual, to be
approximately $4.1 million.
We
accrue
liabilities related to environmental remediation obligations when estimated
future costs are probable and estimable. We evaluate and adjust our
estimates as additional information becomes available or as circumstances
change. Estimated future costs are not discounted to their present
value. In the future, if the standards or requirements under
environmental laws or regulations become more stringent, if our testing and
analysis at our operating facilities identify additional environmental
remediation, or if we determine that we are responsible for the remediation
of
hazardous substance contamination at other sites, then we may incur additional
costs in excess of our current estimates. We do not know if actual
costs will exceed our current estimates, if additional sites or matters will
be
identified which require remediation or if the estimated costs associated with
previously identified sites requiring environmental remediation will become
estimable in the future.
Legal proceedings. From time to time, we are involved
in various employment, environmental, contractual, intellectual property,
product liability, general liability and other claims, disputes and litigation
relating to our business. In certain instances, we have insurance
coverage for these items to eliminate or reduce our risk of loss (other than
standard deductibles, which are generally $1 million or less). We
currently believe that the outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on our financial position,
results of operations or liquidity beyond any accruals for which we have already
provided. However, all such matters are subject to inherent
uncertainties, and were an unfavorable outcome to occur with respect to several
of these matters in a given period, it is possible that it could have a material
adverse impact on our results of operations or cash flows in that particular
period.
Note
10 – Earnings per share
Basic
earnings per share is based on
the weighted average number of unrestricted common shares outstanding during
each period. Diluted earnings per share attributable to common
stockholders reflects the dilutive effect of common stock options and the
assumed conversion of our Series A Preferred Stock, if applicable. A
reconciliation of the numerator and denominator used in the calculation of
basic
and diluted earnings per share is presented below:
|
|
Three
months ended September 30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
(In
millions)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to
common stockholders
|
|
$ |
52.7
|
|
|
$ |
52.3
|
|
|
$ |
163.8
|
|
|
$ |
203.6
|
|
Dividends
on Series A
Preferred
Stock
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
5.4
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income attributable
to
common stockholders
|
|
$ |
54.2
|
|
|
$ |
53.7
|
|
|
$ |
169.2
|
|
|
$ |
207.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares
outstanding
|
|
|
161.1
|
|
|
|
162.2
|
|
|
|
152.9
|
|
|
|
162.0
|
|
Average
dilutive stock
options
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.1
|
|
Series
A Preferred
Stock
|
|
|
22.9
|
|
|
|
22.0
|
|
|
|
30.4
|
|
|
|
22.2
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
shares
|
|
|
184.2
|
|
|
|
184.3
|
|
|
|
183.8
|
|
|
|
184.3
|
|
Note
11 – Business segment information
Our
production facilities are located
in the United States, United Kingdom, France and Italy, and our products are
sold throughout the world. Our Chief Executive Officer functions as our chief
operating decision maker (“CODM”), and the CODM receives consolidated financial
information about us. He makes decisions concerning resource
utilization and performance analysis on a consolidated and global
basis. We have one reportable segment, our worldwide “Titanium melted
and mill products” segment. The following table provides segment
information supplemental to our Condensed Consolidated Financial
Statements:
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
(In
millions, except product shipment data)
|
|
Titanium
melted and mill products:
|
|
|
|
|
|
|
|
|
|
|
|
|
Melted
product net
sales
|
|
$ |
49.7
|
|
|
$ |
41.6
|
|
|
$ |
156.0
|
|
|
$ |
156.1
|
|
Mill
product net
sales
|
|
|
188.2
|
|
|
|
227.0
|
|
|
|
600.6
|
|
|
|
727.4
|
|
Other
product
sales
|
|
|
33.9
|
|
|
|
28.7
|
|
|
|
103.0
|
|
|
|
96.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
271.8
|
|
|
$ |
297.3
|
|
|
$ |
859.6
|
|
|
$ |
980.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melted
product shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(metric
tons)
|
|
|
1,275
|
|
|
|
1,045
|
|
|
|
4,280
|
|
|
|
3,685
|
|
Average
selling price (per
kilogram)
|
|
$ |
38.95
|
|
|
$ |
39.85
|
|
|
$ |
36.45
|
|
|
$ |
42.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
product shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(metric
tons)
|
|
|
3,150
|
|
|
|
3,350
|
|
|
|
10,575
|
|
|
|
10,665
|
|
Average
selling price (per
kilogram)
|
|
$ |
59.75
|
|
|
$ |
67.75
|
|
|
$ |
56.80
|
|
|
$ |
68.20
|
|
Item
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
statements contained in this
Quarterly Report on Form 10-Q (“Quarterly Report”) that are not historical
facts, including, but not limited to, statements found in Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”), are forward-looking statements that represent management’s beliefs
and assumptions based on currently available
information. Forward-looking statements can generally 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 we believe that the
expectations reflected in such forward-looking statements are reasonable, we
do
not know if 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 we disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Among the factors that could cause actual
results to differ materially are the risks and uncertainties discussed in this
Quarterly Report, including risks and uncertainties in those portions referenced
above and those described from time to time in our other filings with the SEC
which include, but are not limited to:
·
|
the
cyclicality of the commercial aerospace
industry;
|
·
|
the
performance of aerospace manufacturers and us under our long-term
agreements;
|
·
|
the
existence or renewal of certain long-term
agreements;
|
·
|
the
difficulty in forecasting demand for titanium
products;
|
·
|
global
economic and political
conditions;
|
·
|
global
production capacity for
titanium;
|
·
|
changes
in product pricing and costs;
|
·
|
the
impact of long-term contracts with vendors on our ability to reduce
or
increase supply;
|
·
|
the
possibility of labor
disruptions;
|
·
|
fluctuations
in currency exchange rates;
|
·
|
fluctuations
in the market price of marketable
securities;
|
·
|
uncertainties
associated with new product or new market
development;
|
·
|
the
availability of raw materials and
services;
|
·
|
changes
in raw material prices and other operating costs (including energy
costs);
|
·
|
possible
disruption of business or increases in the cost of doing business
resulting from terrorist activities or global
conflicts;
|
·
|
competitive
products and strategies; 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.
SUMMARY
General
overview. We are a vertically integrated producer of
titanium sponge, melted products and a variety of mill products for commercial
aerospace, military, industrial and other applications. We are one of
the world’s leading producers of titanium melted products (ingot, electrodes and
slab) and mill products (billet, bar, sheet and strip). We are the
only producer with major titanium production facilities in both the U.S. and
Europe, the world’s principal markets for titanium.
The
following discussion and analysis should be read in conjunction with our
Condensed Consolidated Financial Statements and related notes included elsewhere
in this Quarterly Report and with our Consolidated Financial Statements and
the
information under the heading “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” which are included in our 2006 Annual
Report.
RESULTS
OF OPERATIONS
Quarter
ended September 30, 2007 compared to quarter ended September 30,
2006
Summarized
financial information. The following table summarizes
certain information regarding our results of operations for the three months
ended September 30, 2006 and 2007. Our reported average selling
prices are a reflection of actual selling prices after the effects of currency
exchange rates, customer and product mix, and other related factors throughout
the periods presented.
|
|
Three
months ended September 30,
|
|
|
|
2006
|
|
|
%
of Total Net Sales
|
|
|
2007
|
|
|
%
of Total Net Sales
|
|
|
|
(In
millions, except product shipment data)
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Melted
products
|
|
$ |
49.7
|
|
|
|
18%
|
|
|
$ |
41.6
|
|
|
|
14%
|
|
Mill
products
|
|
|
188.2
|
|
|
|
69%
|
|
|
|
227.0
|
|
|
|
76%
|
|
Other
products
|
|
|
33.9
|
|
|
|
13%
|
|
|
|
28.7
|
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
|
271.8
|
|
|
|
100%
|
|
|
|
297.3
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(174.0 |
) |
|
|
64%
|
|
|
|
(199.3 |
) |
|
|
67%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
97.8
|
|
|
|
36%
|
|
|
|
98.0
|
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, administrative and development
expense
|
|
|
(17.2 |
) |
|
|
6%
|
|
|
|
(16.7 |
) |
|
|
6%
|
|
Other
income, net
|
|
|
4.0
|
|
|
|
1%
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
84.6
|
|
|
|
31%
|
|
|
$ |
81.3
|
|
|
|
27%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melted
product shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(metric
tons)
|
|
|
1,275
|
|
|
|
|
|
|
|
1,045
|
|
|
|
|
|
Average
selling price (per
kilogram)
|
|
$ |
38.95
|
|
|
|
|
|
|
$ |
39.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
product shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(metric
tons)
|
|
|
3,150
|
|
|
|
|
|
|
|
3,350
|
|
|
|
|
|
Average
selling price (per
kilogram)
|
|
$ |
59.75
|
|
|
|
|
|
|
$ |
67.75
|
|
|
|
|
|
Net
sales. We experienced higher sales during the third
quarter of 2007 compared to the third quarter of 2006, as net sales increased
9%
to $297.3 million. Overall industry fundamentals and outlook continue
to support a long-term favorable trend in demand for titanium across all major
market sectors which has favorably impacted melted and mill titanium prices
in
recent years. As a result of these factors, titanium prices have
recently reached historically high levels, and average selling prices for melted
and mill products increased 2% and 13%, respectively, from the third quarter
of
2006 to the third quarter of 2007. However, adjustments or delays in
certain commercial aircraft build-out schedules, as well as recent declines
in
raw material costs, have contributed to lower prices for our products during
the
third quarter of 2007 compared to the second quarter of 2007, particularly
melted products which require less processing compared to mill
products. Aggregate volumes of melted and mill products sold were
comparable for the third quarter of 2006 and 2007. Although the
outlook for long-term demand trends continue to be favorable, temporary factors,
such as adjustments in build-out schedules for certain commercial aircraft,
fluctuations in customer inventory levels and product mix, may result in
unanticipated short-term fluctuations in demand, sales volume and
prices.
Cost
of sales. Our cost of sales increased $25.3 million, or
15%, in the third quarter of 2007 as compared to the third quarter of 2006
due
primarily to increases in certain raw material costs, including titanium sponge
and scrap, higher production costs associated with the shift in our product
mix
to a greater percentage of mill products, including a higher mix of aerospace
plate and sheet products, as well as the impact of higher costs associated
with
additional equipment maintenance during the third quarter of
2007. With increased availability of titanium sponge and scrap, our
raw material costs have declined, however, over the next several quarters,
our
cost of sales will continue to reflect higher cost raw materials we have already
purchased. Once the higher cost raw materials we currently have in
inventory are consumed over the next several quarters, we expect our cost of
sales will begin to reflect the current lower raw material costs.
Gross
margin. During the third quarter of
2007, our gross margin of $98.0 million was comparable to the same period in
2006, but our gross margin percentage decreased from 36% in the third quarter
of
2006 to 33% in the third quarter of 2007. Our cost of sales increases
associated with our higher raw material costs and higher cost of production,
as
discussed above, were not completely offset by the increase in average selling
prices, which negatively impacted our gross margin percentage.
Operating
income. Our operating income for the third quarter of
2007 was $81.3 million compared to $84.6 million during the same period in
2006. In addition to the impact from gross margin, operating income
also decreased as a result of the December 2006 sale of our interest in the
VALTIMET joint venture that provided $4.8 million of equity in earnings in
the
third quarter of 2006.
Income
taxes. Our effective income tax rate was 34% in the third quarter
of 2006 and 33% in the third quarter of 2007. We operate in multiple
tax jurisdictions and, as a result, the geographic mix of our pre-tax income
or
loss can impact our overall effective tax rate.
First
nine months of 2007 compared to first nine months of 2006
Summarized
financial information. The following table summarizes
certain information regarding our results of operations for the nine months
ended September 30, 2006 and 2007. Our reported average selling
prices are a reflection of actual selling prices after the effects of currency
exchange rates, customer and product mix, and other related factors throughout
the periods presented.
|
|
Nine
months ended September 30,
|
|
|
|
2006
|
|
|
%
of Total Net Sales
|
|
|
2007
|
|
|
%
of Total Net Sales
|
|
|
|
(In
millions, except product shipment data)
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Melted
products
|
|
$ |
156.0
|
|
|
|
18%
|
|
|
$ |
156.1
|
|
|
|
16%
|
|
Mill
products
|
|
|
600.6
|
|
|
|
70%
|
|
|
|
727.4
|
|
|
|
74%
|
|
Other
products
|
|
|
103.0
|
|
|
|
12%
|
|
|
|
96.8
|
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
|
859.6
|
|
|
|
100%
|
|
|
|
980.3
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
(547.2 |
) |
|
|
64%
|
|
|
|
(613.4 |
) |
|
|
63%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
312.4
|
|
|
|
36%
|
|
|
|
366.9
|
|
|
|
37%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, administrative and development
expense
|
|
|
(49.8 |
) |
|
|
5%
|
|
|
|
(51.7 |
) |
|
|
5%
|
|
Other
income, net
|
|
|
10.7
|
|
|
|
1%
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
$ |
273.3
|
|
|
|
32%
|
|
|
$ |
315.4
|
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melted
product shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(metric
tons)
|
|
|
4,280
|
|
|
|
|
|
|
|
3,685
|
|
|
|
|
|
Average
selling price (per
kilogram)
|
|
$ |
36.45
|
|
|
|
|
|
|
$ |
42.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
product shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
(metric
tons)
|
|
|
10,575
|
|
|
|
|
|
|
|
10,665
|
|
|
|
|
|
Average
selling price (per
kilogram)
|
|
$ |
56.80
|
|
|
|
|
|
|
$ |
68.20
|
|
|
|
|
|
Net
sales. We experienced significant sales growth during
the first nine months of 2007 compared to the first nine months of 2006, as
net
sales increased 14% to $980.3 million. Overall industry fundamentals
and outlook continue to support a long-term favorable trend in demand for
titanium across all major market sectors which has favorably impacted melted
and
mill titanium prices. As a result of these market factors, average
selling prices for melted and mill products increased 16% and 20%, respectively,
in the first nine months of 2007 compared to the same period in
2006. We expect the current trend in customer demands to continue to
influence a shift of our product mix toward an increased proportion of mill
products, including a higher mix of aerospace plate and sheet products, which
require additional processing and resources as compared to melted products,
but
which also command higher sales prices. While aggregate volumes of
melted and mill products declined somewhat compared to the same period of the
prior year, the overall outlook for long-term demand continues to be favorable
despite the near-term effects of certain commercial aircraft production delays
and other adjustments to build-out schedules, fluctuations in customer inventory
levels and product mix. Overall, increased pricing on our products
and the favorable shift in product mix more than offset the effects of the
decline in aggregate sales volume for the first nine months of 2007 compared
to
the prior year period.
Cost
of sales. Our cost of sales increased $66.2 million, or
12%, in the first nine months of 2007 as compared to the first nine months
of
2006 due to an increase in certain raw material costs, including titanium sponge
and scrap, and higher production costs associated with our shift in product
mix
to a greater percentage of mill products, including a higher mix of aerospace
plate and sheet products. The higher cost of sponge in 2007 is
partially due to our final utilization in the first half of 2006 of lower-cost
sponge previously purchased from the DLA stockpile.
Gross
margin. During the first nine months
of 2007, our gross margin increased 17% to $366.9 million as compared to the
same period in 2006. Our gross margin percentage increased from 36%
in the first nine months of 2006 to 37% in the first nine months of
2007. Despite the increases in our raw material and production costs,
our gross margin percentage improved slightly as the favorable effect of higher
average selling prices and our favorable change in product mix offset the effect
of the higher costs.
Operating
income. Our operating income for the first nine months
of 2007 increased 15% to $315.4 million compared to the same period in 2006,
and
our operating income percentage was consistent at 32% for the first nine months
of 2006 and 2007. The increase in operating income is driven
primarily by an increase in gross margin, which was somewhat offset by a
reduction in other income in 2007 as a result of the December 2006 sale of
our
interest in the VALTIMET joint venture that provided $11.1 million of equity
in
earnings for the first nine months of 2006.
Income
taxes. Our effective income tax rate was 32% in the first nine
months of 2007 compared to 35% in the first nine months of 2006. We
operate in multiple tax jurisdictions and, as a result, the geographic mix
of
our pre-tax income or loss can impact our overall effective tax
rate. Our effective income tax rate for the first nine months of 2007
was lower than the U.S. statutory rate primarily due to a change in the mix
of
our pre-tax earnings, with a higher percentage of earnings in lower tax rate
jurisdictions in 2007 primarily as a result of the implementation of an internal
corporate reorganization in 2007. We currently expect that our
effective tax rate for the remainder of 2007 will continue to be lower than
our
effective tax rate for the comparable 2006 periods. Our effective
income tax rate for the first nine months of 2006 did not vary significantly
from the U.S. statutory rate. See Note 8 to the Condensed
Consolidated Financial Statements for a tabular reconciliation of our statutory
income tax expense to our actual tax expense.
On October 26, 2007, after approval by the independent members of our board
of
directors, CompX acquired all of our minority common stock ownership position
in
CompX for $19.50 per share, a recent price at which CompX had been repurchasing
its stock in open market transactions, or an aggregate of $52.6
million. As consideration for the shares, CompX issued $52.6 million
in subordinated promissory notes to us. The notes bear interest at
LIBOR plus 1%, require quarterly principal payments of $0.3 million beginning
September 30, 2008 and are subordinate to any outstanding balance under CompX’s
U.S. revolving bank credit facility. CompX may make principal
prepayments at any time, in any amount, without penalty. Any
outstanding principal balance becomes due upon maturity in September
2014. As a result, we will realize an $18.3 million after-tax capital
gain ($0.10 per diluted share) on the disposition of these CompX shares in
the
fourth quarter of 2007. A portion of our remaining capital-loss
carryforward will be utilized to offset the entire capital gain, as the benefit
of such carryforward has not previously been recognized in net
income. See Note 3 to our Condensed Consolidated Financial
Statements.
European
operations
We
have
substantial operations located in the United Kingdom, France and
Italy. Approximately 36% of our sales originated in Europe for the
nine months ended September 30, 2007, of which approximately 48% were
denominated in the British pound sterling or the euro. Certain purchases of
raw
materials, principally titanium sponge and alloys, for our European operations
are denominated in U.S. dollars, while labor and other production costs are
primarily denominated in local currencies. The functional currencies of our
European subsidiaries are those of their respective countries, and the European
subsidiaries are subject to exchange rate fluctuations that may impact reported
earnings and may affect the comparability of period-to-period operating results.
Borrowings of our European operations may be in U.S. dollars or in functional
currencies. Our export sales from the U.S. are denominated in U.S. dollars
and
are not subject to currency exchange rate fluctuations.
We
do not use currency contracts to
hedge our currency exposures. At September 30, 2007, consolidated
assets and liabilities denominated in currencies other than the functional
currencies of our European subsidiaries were approximately $93.7 million and
$66.5 million, respectively, consisting primarily of U.S. dollar cash, accounts
receivable and accounts payable.
Outlook
We
achieved record levels of net sales and operating income in the first nine
months of 2007, reflecting strong demand for titanium metal across all major
industry sectors (commercial aerospace, industrial, military and emerging
markets). These strong operating results were largely driven by
higher selling prices for both melted and mill products, as well as favorable
changes in product mix. Our backlog remained steady at $1.0 billion
as of September 30, 2007, June 30, 2007 and September 30, 2006.
We
expect
current industry-wide demand trends to continue for the foreseeable future,
and
we do not anticipate the outlook being significantly impacted by the recently
announced delay of the initial deliveries of the Boeing 787 commercial
aircraft. As described below, based on these trends, we are expanding
our productive capacity, and we expect our overall capacity utilization to
remain high for the remainder of 2007. We intend to continue
exploring other opportunities to expand our existing production and conversion
capacities through internal expansion and long-term third-party arrangements,
as
well as potential joint ventures and acquisitions. These efforts
focus on opportunities to enhance the certainty, quality and reliability of
product supply in order to service the expanding needs of our current and
prospective customers. These efforts have included strategic
initiatives to assure that we have the necessary availability of raw materials,
melt capacity and mill product processing capabilities. With our
current plant production levels near practical capacity, we have taken several
actions to significantly expand our productive capacity across all areas of
our
manufacturing operations, including the following:
Raw
materials. We completed the expansion of our existing
premium-grade titanium sponge facility in Henderson and continue to ramp up
commercial production. This expansion provides annual productive
sponge capacity of approximately 12,600 metric tons, which is an
increase of approximately 47% over the previous productive sponge capacity
levels.
Additionally,
we expect the design and engineering efforts for a new premium-grade titanium
sponge facility to be substantially completed by year-end. The
facility has been designed to be built at a location that would provide the
flexibility for direct production or third party supply of titanium
tetrachloride, a chemical manufactured by titanium dioxide pigment (“TiO2”) production
facilities that is an intermediate feedstock material for the manufacture
of
both TiO2 and
titanium sponge. We believe such a facility could be operational
within approximately two years of the commencement of
construction.
In
addition to our continuing efforts to complete plans for a new sponge facility,
we have also continued to explore and pursue additional third-party long-term
sources of sponge and titanium scrap that could provide us with lower cost
and
more flexible sources of raw materials.
As
a result of these efforts, we have recently entered into two new long-term
sponge supply agreements, both commencing in 2008 and expiring initially in
2012
and 2015, respectively, each with renewal options to extend through
2020. These new agreements, together with long-term supply agreements
currently in place, provide for the supply of varying annual amounts of up
to
10,500 metric tons of titanium sponge. In addition, we continue to
explore other opportunities to secure long-term titanium sponge supply
agreements and utilize sponge acquired from established suppliers. We
also utilize titanium scrap for melted products that is internally generated
at
our production facilities, purchased from certain customers under contractual
agreements or acquired in the open metals market. In anticipation of
a significant increase in the availability of titanium scrap and moderation
in
its cost relative to levels experienced during the past 18 months, we are
increasing our capacity to recycle scrap and use EB melt capacity to efficiently
use a combination of sponge and scrap to produce melted titanium
products.
Our goal is to have assured and flexible availability of raw materials which
affords us the ability to respond to industry demands in a timely and
cost-efficient manner. We believe our projected mix of internally
generated sponge and scrap, along with our assured long-term third party sources
of sponge and scrap, will assist in controlling cost for the products we produce
compared to what could be achieved solely through additional internal production
of sponge.
Melted
products. We are in the process of expanding our global
melt capacity. We currently expect to complete an 8,500 metric ton
expansion of our electron beam (“EB”) cold hearth melt capacity in Morgantown by
early 2008. In addition, we have commenced efforts to add another EB
furnace at the same facility, which is currently on schedule to be completed
in
the last half of 2009. During 2007 we also commenced construction of
vacuum arc remelting (“VAR”) capacity additions at our Witton, Morgantown and
Savoie locations, all of which are expected to be completed by the end of the
second quarter of 2008. Upon completion, these melt capacity
additions will increase our EB melt capacity by approximately 107% and will
increase our VAR capacity by approximately 34%. As we continue to
adjust our long-term business plan in response to industry trends, we will
consider more additions to our melt capacity based on our raw material sources
and product mix. We have also been able to leverage our melt capacity
and expertise as integral components of certain arrangements for additional
and
alternative sources of raw materials and conversion services.
Mill
products and conversion services. We have numerous
capital projects in process to improve and expand our production capacity for
mill products. Also, under various conversion services agreements
with third-party vendors, we have access to a dedicated annual capacity at
certain of our vendors’ facilities. Our access to outside conversion
services includes dedicated annual rolling capacity of at least 4,500 metric
tons until 2026, with the option to increase the output capacity to 9,000 metric
tons. Additionally, we have access to dedicated annual forging
capacity of 3,200 metric tons beginning in 2008 and ramping up to 10,400 metric
tons for 2011 through at least 2019. These agreements provide us with
a long-term secure source for processing round and flat products, resulting
in a
significant increase in our existing mill product conversion capabilities,
which
allows us to assure our customers of our long-term ability to meet their
needs.
We
believe our efforts to prudently allocate available resources within our entire
manufacturing process, supplemented with committed capacity from third party
sources, will allow us to achieve profitable growth and enhanced long-term
return on invested capital.
LIQUIDITY
AND CAPITAL RESOURCES
Our
consolidated cash flows for the nine months ended September 30, 2006 and 2007
are presented below. The following should be read in conjunction with
our Condensed Consolidated Financial Statements and notes thereto.
|
|
Nine
months ended September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(In
millions)
|
|
Cash
provided by (used in):
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
57.5
|
|
|
$ |
129.7
|
|
Investing
activities
|
|
|
(63.1 |
) |
|
|
(70.6 |
) |
Financing
activities
|
|
|
13.8
|
|
|
|
(10.7 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating, investing and financing
activities
|
|
$ |
8.2
|
|
|
$ |
48.4
|
|
Operating
activities. Cash flow from operations is considered
a primary source of our liquidity. Changes in pricing, production
volume and customer demand, among other things, could significantly affect
our
liquidity. Cash provided by operating activities increased $72.2
million, from $57.5 million for the first nine months of 2006 to $129.7 million
for the first nine months of 2007. The net effects of the following
significant items contributed to the overall increase in cash provided by
operating activities:
·
|
higher
operating income of $49.9 million in 2007 (exclusive of $7.8 million
non-cash equity in earnings in 2006 from our interest in the VALTIMET
joint venture that we sold in December
2006);
|
·
|
lower
net cash used by changes in receivables, inventories, payables and
accrued
liabilities of $61.3 million in 2007 in response to changing working
capital requirements; and
|
·
|
higher
net cash paid for income taxes in 2007 (including our tax benefit
related
to stock option exercises which was $9.2 million lower in 2007) of
$55.7
million due to the utilization of the remainder of our U.S. net operating
loss carryforward in 2006 and higher taxable income in
2007.
|
Our
working capital requirements have changed significantly since 2005 as our net
sales and sales volume have increased dramatically. Cash outflows to
support our working capital requirements for the nine months ended September
30,
2006 were influenced by increasing unit cost for inventory as well as increased
inventory purchases to support higher levels of sales volume. In
contrast, as sales volumes have decreased somewhat and purchased inventory
costs
per unit has declined during the nine months ended September 30, 2007, the
cash
outflow to support our working capital requirements was not as significant
during the 2007 period.
Investing
activities. Cash flows used in our investing activities
increased from $63.1 million in the first nine months of 2006 to $70.6 million
in 2007. Our aggregate capital expenditures of $60.6 million during
the first nine months of 2007 did not change significantly from the same period
in 2006. During 2006, we had significant capital expenditures related
to our sponge plant expansion in Henderson, Nevada. During 2007 we
had lower expenditures on the project, as the expansion was completed in April
2007. However, we incurred a higher level of expenditures in 2007
related to an EB melt capacity expansion project at our facility in Morgantown,
Pennsylvania and other capacity expansion projects initiated in 2007 which
largely offset the 2007 expenditure reductions on the sponge plant expansion
project.
Financing
activities. We had net borrowings of $2.7 million in
the first nine months of 2006 under our U.S. and U.K. bank credit facilities
compared to no debt activity during the first nine months of
2007. Other significant items included in our cash flows from
financing activities included:
·
|
dividends
paid to the minority interest shareholder of our 70%-owned French
subsidiary of $3.0 million in the first nine months of 2006 compared
to
$8.1 million in the first nine months of 2007;
and
|
·
|
proceeds
from the issuance of our common stock upon exercise of stock options
of
$10.7 million (and the related tax benefit of $10.0 million) in the
first
nine months of 2006 compared to $0.9 million (and the related tax
benefit
of $0.8 million) in the first nine months of
2007.
|
Future
cash requirements
Liquidity. Our
primary source of liquidity on an on-going basis is our cash flows from
operating activities and borrowings under various credit
facilities. We generally use these amounts to (i) fund capital
expenditures, (ii) repay indebtedness incurred primarily for working capital
purposes and (iii) provide for the payment of dividends. From
time-to-time we will incur indebtedness, generally to (i) fund short-term
working capital needs, (ii) refinance existing indebtedness, (iii) make
investments in marketable and other securities (including the acquisition of
securities issued by our subsidiaries and affiliates) or (iv) fund major capital
expenditures or the acquisition of other assets outside the ordinary course
of
business.
We
routinely evaluate our liquidity requirements, capital needs and availability
of
resources in view of, among other things, our alternative uses of capital,
debt
service requirements, the cost of debt and equity capital and estimated future
operating cash flows. As a result of this process, we have in the
past, or in light of our current outlook, may in the future, seek to raise
additional capital, modify our common and preferred dividend policies,
restructure ownership interests, incur, refinance or restructure indebtedness,
repurchase shares of common stock, purchase or redeem Series A Preferred Stock,
sell assets, or take a combination of such steps or other steps to increase
or
manage our liquidity and capital resources. In the normal course of
business, we investigate, evaluate, discuss and engage in acquisition, joint
venture, strategic relationship and other business combination opportunities
in
the titanium, specialty metal and other industries. In the event of
any future acquisition or joint venture opportunities, we may consider using
then-available liquidity, issuing equity securities or incurring additional
indebtedness.
At
September 30, 2007, we had credit available under existing U.S. and European
credit facilities of $226.9 million, and we had an aggregate of $78.8 million
of
cash and cash equivalents. Our U.S. credit facility matures in
February 2011, and our U.K. credit facility matures in July
2010. Based upon our expectations of our operating performance,
anticipated demands on our cash resources, borrowing availability under our
existing credit facilities and anticipated borrowing capacity after the maturity
of these credit facilities, we expect to have sufficient liquidity to meet
our
short-term obligations (defined as the next twelve-month period) and our
long-term obligations, including our planned capacity expansion projects, some
of which are discussed below. If actual developments differ from our
expectations, our liquidity could be adversely affected.
Capital
expenditures. We intend to invest a total of
approximately $100 million to $120 million for capital expenditures during
2007,
primarily for improvements in and expansion of existing productive
capacity. For 2007, we spent $60.6 million on capital expenditures as
of September 30, 2007.
We
completed the expansion of our titanium sponge facility in Henderson, Nevada,
and we commenced commercial production in April 2007. Additionally,
we currently expect to complete the addition of 8,500 metric tons of EB melt
capacity by early 2008.
We
continue to evaluate additional opportunities to expand our production capacity
including capital projects, acquisitions or other investments which, if
consummated, would be funded by our cash reserves or by borrowings under our
U.S. or European credit facilities.
Contractual commitments. We entered into several supply
agreements during 2007 to purchase titanium sponge with total commitments of
$644.6 million over the remaining terms of the agreements, and we entered into
a
conversion services agreement in the fourth quarter of 2007 to purchase titanium
conversion services with a total commitment of $69.1 million over the remaining
term. Except for these agreements and other fixed asset and raw
material purchase orders entered into in the normal course of business, there
have been no material changes to our contractual commitments discussed in our
2006 Annual Report. The following table updates our contractual
commitments presented in our 2006 Annual Report for the agreements discussed
above:
|
|
Payment
Due Date
|
|
|
|
|
|
|
|
2008/
|
|
|
|
2010/
|
|
|
2012
&
|
|
|
|
|
|
|
2007
|
|
|
2009
|
|
|
2011
|
|
|
After
|
|
|
Total
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
commitments as of December
31, 2006
|
|
$ |
192.8
|
|
|
$ |
33.5
|
|
|
$ |
24.5
|
|
|
$ |
39.7
|
|
|
$ |
290.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
long-term purchase agreements
entered into during 2007
|
|
|
-
|
|
|
|
200.6
|
|
|
|
182.3
|
|
|
|
330.8
|
|
|
|
713.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
192.8
|
|
|
$ |
234.1
|
|
|
$ |
206.8
|
|
|
$ |
370.5
|
|
|
$ |
1,004.2
|
|
Off-balance
sheet arrangements. Other than letters of credit and
operating leases entered into in the normal course of business, there have
been
no material changes to our off-balance sheet arrangements discussed in our
2006
Annual Report.
Recent
accounting pronouncements. See Note 1 to Condensed
Consolidated Financial Statements.
Critical
accounting policies. For a discussion of our critical
accounting policies, refer to Part I, Item 7 - “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Critical
Accounting Policies and Estimates” in our 2006 Annual
Report. There have been no changes in our critical accounting
policies during the first nine months of 2007.
Affiliate
transactions. Corporations that may be deemed to be
controlled by or affiliated with Mr. Simmons sometimes engage in (i)
intercorporate transactions such as guarantees, management and expense sharing
arrangements, shared fee arrangements, joint ventures, partnerships, loans,
options, advances of funds on open account, and sales, leases and exchanges
of
assets, including securities issued by both related and unrelated parties,
and
(ii) common investment and acquisition strategies, business combinations,
reorganizations, recapitalizations, securities repurchases, and purchases and
sales (and other acquisitions and dispositions) of subsidiaries, divisions
or
other business units, which transactions have involved both related and
unrelated parties and have included transactions which resulted in the
acquisition by one related party of a publicly-held minority equity interest
in
another related party. We continuously consider, review and evaluate
such transactions, and understand that Contran and related entities consider,
review and evaluate such transactions. Depending upon the business,
tax and other objectives then relevant, it is possible that we might be a party
to one or more such transactions in the future. See Note 3 to our
Condensed Consolidated Financial Statements.
Item
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
are exposed to market risk,
including foreign currency exchange rates, commodity prices and security
prices. There have been no material changes in these market risks
since we filed our 2006 Annual Report, and we refer you to the report for a
complete description of these risks.
Item
4. CONTROLS
AND PROCEDURES
Evaluation
of disclosure
controls and procedures. We maintain a system
of disclosure controls and procedures. The term "disclosure controls
and procedures," as defined by Rule 13a-15(e) of the Securities Exchange Act
of
1934, as amended (the “Exchange Act”), means controls and other procedures that
are designed to ensure that information required to be disclosed in the reports
that we file or submit to the SEC under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit to the SEC under
the
Exchange Act is accumulated and communicated to our management, including our
principal executive officer and our principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions to be
made regarding required disclosure. Steven L. Watson, our Chief
Executive Officer, and James W. Brown, our Chief Financial Officer, have
evaluated the design and operating effectiveness of our disclosure controls
and
procedures as of September 30, 2007. Based upon their evaluation,
these executive officers have concluded that our disclosure controls and
procedures were effective as of September 30, 2007.
Scope
of management’s
report on internal control over financial
reporting. We also maintain internal control
over financial reporting. The term "internal control over financial
reporting," as defined by rule 13a-15(f) of the Exchange Act, means a process
designed by, or under the supervision of, our principal executive and principal
financial officers, or persons performing similar functions, and effected by
our
board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP, and
includes those policies and procedures that:
·
|
Pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of our
assets;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with GAAP, and
that our
receipts and expenditures are being made only in accordance with
authorizations of our management and directors;
and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could
have
a material effect on our Consolidated Financial
Statements.
|
Changes
in internal control
over financial reporting. There has been no
change to our internal control over financial reporting during the quarter
ended
September 30, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II.
–
OTHER
INFORMATION
Item
1. LEGAL
PROCEEDINGS
Refer
to Note
9 of the Condensed Consolidated Financial Statements and to our 2006 Annual
Report for descriptions of certain previously reported legal
proceedings.
Item
1A.
RISK FACTORS
There
have
been no material changes in the first nine months of 2007 with respect to our
risk factors presented in Item 1A. in our 2006 Annual Report on Form
10-K.
Item
6. EXHIBITS
|
|
|
3.1
|
|
Bylaws
of Titanium Metals Corporation as Amended and Restated, dated November
1,
2007, incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on November 1,
2007.
|
|
|
|
10.1
|
|
Stock
Purchase Agreement dated as of October 16, 2007 between TIMET Finance
Management Company and CompX International Inc., incorporated by
reference
to Exhibit 10.1 to the Current Report on Form 8-K filed by
CompX International Inc. with the SEC on October 22, 2007 (File No.
1-13905).
|
|
|
|
10.2
|
|
Agreement
and Plan of Merger dated as of October 16, 2007 among
CompX International Inc., CompX Group, Inc. and CompX KDL LLC,
incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K filed by CompX International Inc. with the SEC on October
22, 2007 (File No. 1-13905).
|
|
|
|
10.3
|
|
Form
of Subordination Agreement among TIMET Finance Management Company,
CompX
International Inc., CompX Security Products, Inc., CompX Precision
Slides Inc., CompX Marine Inc., Custom Marine Inc., Livorsi MarineInc.,
Wachovia Bank, National Association as administrative agent for itself,
Compass Bank and Comerica Bank, incorporated by reference to Exhibit
10.4 to the Current Report on Form 8-K filed by CompX International
Inc. with the SEC on October 22, 2007 (File No.
1-13905).
|
|
|
|
10.4
|
|
Subordinated
Term Loan Promissory Note dated October 26, 2007 executed by CompX
International Inc. and payable to the order of TIMET Finance Management
Company, incorporated by reference to Exhibit 10.4 to the Current
Report
of Form 8-K filed by CompX International Inc. with the SEC on October
30,
2007 (File No. 1-13905).
|
|
|
|
31.1
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
31.2
|
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
32.1
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
Note:
|
We
have retained a signed original of any exhibit listed above that
contains
signatures, and we will provide any such exhibit to the SEC or its
staff
upon request. Such request should be directed to the attention
of our Corporate Secretary at our corporate offices located at 5430
LBJ
Freeway, Suite 1700, Dallas, Texas
75240.
|
SIGNATURES
Pursuant
to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto
duly
authorized.
|
|
TITANIUM
METALS CORPORATION
|
|
|
|
|
|
|
|
|
|
Date:
November 7, 2007
|
By
|
/s/
James W. Brown
|
|
|
James
W. Brown
|
|
|
Vice
President and Chief Financial Officer
|
|
|
|
|
|
|
Date:
November 7, 2007
|
By
|
/s/
Scott E. Sullivan
|
|
|
Scott
E. Sullivan
|
|
|
Vice
President and Controller
Principal
Accounting Officer
|