RTI Q1 2001
2 0 0 1
Q U A R T E R
1
RTI International Metals, Inc.
To Our Shareholders As we begin our 50th year in titanium, conditions are improving in our principle aerospace markets. The excess inventory held by our customers that has plagued the industry for the last couple of years has been substantially depleted. Boeing and Airbus have firm orders for over 3,200 aircraft, representing four to five years of production. Both have announced production increases. As a result, order flow and selling prices are increasing for our mill products. Prospects are also improving for RTI’s energy related businesses as deep-water oil and gas exploration activity increases. Our backlog for these products exceeds $20 million and is growing. Demand for the products and services of our Fabrication and Distribution Group is also expanding, where sales in the first quarter grew 42% over the previous quarter. Our strategy for growing this business in Europe is the subject of this quarter’s “Focus on…” (opposite). On a consolidated basis, RTI’s order backlog, which grew 27% in the final period last year, grew an additional 28% in the first quarter. RTI has 1,200 men and women who work on your behalf each day, diligently finding ways to improve our operations and reduce cost at all levels while continuing to produce the finest quality products in the industry. As a result of their efforts and improving market conditions, we remain confident in RTI’s future, both near and long term.
Robert M. Hernandez Chairman of the Board June, 2001
Timothy G. Rupert President and Chief Executive Officer
Focus on... RTI Europe One of RTI International Metals’ key strategies is to expand our capabilities and operations in Europe, enhancing our ability to further add customer value to our products. Our operations in the U.K. and France provide full service fabrication and distribution facilities, while Germany and Italy were recently added to increase sales support on the continent. These operations work closely with our customers to maximize value while also reducing costs. One example is optimizing the number of parts produced from a single piece of input material. This is accomplished by careful design during the production process, which significantly reduces our customers final component costs and minimizes scrap. Our experienced sales and manufacturing personnel provide the necessary ongoing technical support and manufacturing expertise that is important in building and maintaining these commercial relationships. Approximately 20% of RTI’s total revenue flows through RTI Europe and this is expected to increase as major RTI European programs, including Airbus, Eurofighter, compact heat exchangers, and automotive applications show sustained growth over the coming years. The European operations also work closely with their RTI affiliate subsidiaries in America to augment capabilities, which add to RTI’s European competitive advantage including titanium mill products, CAD/CAM, water-jet cutting, machining, extrusion capability, hot forming, and a wide array of other products and services. The inherent synergies and expertise of these groups focus on supplying our customers with a wider range of products and services, while improving revenues, diversifying activities, and enhancing shareholder value. RTI is well positioned to further serve and support the European Union Community, as it becomes an ever-growing segment in the world economy. To illustrate this, in the April 2001 Stainless Steel World's "Titanium Special" issue, RTI was the featured cover story. In addition to highlighting our Company and titanium, they increased their readers’ awareness and knowledge of our products, services, and the diversity we offer. In time, this type of coverage will serve RTI well as it continues to market to an evergrowing number of customers and applications. To read the entire article please visit our web site at rti-intl.com.
RTI International Metals, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Dollars in Thousands) Quarter Ended March 31 2001 2000 Sales................................................................................................ $ 66,239 $ 70,508 Operating costs: Cost of sales ................................................................................... 56,728 59,748 Selling, general and administrative expenses.......................... 8,349 7,144 Research, technical and product development expenses...... 362 393 Total operating costs ........................................................... 65,439 67,285 Operating income ......................................................................... 800 3,223 Other income-net ......................................................................... 6,049 149 Interest expense ........................................................................... 210 773 Income before income taxes....................................................... 6,639 2,599 Provision for income taxes .......................................................... 2,581 1,014 Income before cumulative effect of change in accounting principle ................................................................ 4,058 1,585 Cumulative effect of change in accounting principle..................................................................................... (191) — Net income..................................................................................... $ 3,867 $ 1,585 Earnings per common share: Income before cumulative effect of change in accounting principle: Basic....................................................................................... $ 0.19 $ 0.08 Diluted ................................................................................... $ 0.19 $ 0.08 Net income: Basic....................................................................................... $ 0.19 $ 0.08 Diluted ................................................................................... $ 0.18 $ 0.08
SEGMENT REPORTING (Unaudited) (Dollars in Thousands) The Company’s reportable segments are the Titanium Group and the Fabrication and Distribution Group. Segment information for the three-month periods ended March 31, 2001 and 2000 is as follows: Quarter Ended March 31 2001 2000 Net sales: Titanium Trade........................................................................................... $ Intersegment.............................................................................
26,602 13,690 40,292
Fabrication and Distribution Trade........................................................................................... Intersegment.............................................................................
36,139 43 36,182 Other operations ........................................................................... 3,498 Adjustments and eliminations.................................................... (13,733) Total net sales....................................................................... $ 66,239 Operating income (loss): Titanium..................................................................................... $ (503) Fabrication and Distribution.................................................. 1,129 Other operations....................................................................... 174 Total operating income ....................................................... 800 Reconciliation of operating income to reported income before taxes: Other income–net .................................................................... Interest expense ....................................................................... Reported income before taxes ........................................... $
6,049 (210) 6,639
$
37,286 13,647 50,933
29,144 175 29,319 4,078 (13,822) $ 70,508 $
$
2,932 91 200 3,223
149 (773) 2,599
RTI International Metals, Inc.
CONSOLIDATED BALANCE SHEET (Dollars in Thousands) March 31, 2001
December 31, 2000
(Unaudited)
Assets Assets: Cash and cash equivalents...................................................... Receivables–less allowance for doubtful accounts of $1,111 and $926 .................................................................... Inventories, net......................................................................... Deferred income taxes............................................................. Other current assets ................................................................ Total current assets ............................................................. Property, plant and equipment, net ...................................... Goodwill ..................................................................................... Other noncurrent assets.......................................................... Total assets............................................................................ Liabilities and Shareholders’ Equity Liabilities: Accounts payable...................................................................... Accrued wages and other employee costs............................ Other accrued liabilities.......................................................... Total current liabilities........................................................ Long-term debt.............................................................................. Accrued postretirement benefit cost......................................... Deferred income taxes................................................................. Noncurrent pension liability ....................................................... Other noncurrent liabilities ........................................................ Total liabilities...................................................................... Commitments and contingencies............................................... Shareholders’ equity: Common stock, $0.01 par value, 50,000,000 shares authorized; 21,000,250 and 20,946,712 shares issued and 20,902,000 and 20,851,962 outstanding..................... Additional paid-in capital........................................................ Deferred compensation ........................................................... Treasury stock, at cost; 98,250 and 94,750 shares............... Accumulated other comprehensive income......................... Retained earnings..................................................................... Total shareholders’ equity ........................................................... Total liabilities and shareholders’ equity .........................
$
5,982
$
6,374
52,305 161,827 9,269 9,639 239,022 97,524 35,323 15,084 $ 386,953
46,417 165,210 9,146 10,235 237,382 97,989 35,736 15,172 $ 386,279
$
$ 18,199 5,646 5,149 28,994 19,800 19,986 2,555 7,106 5,979 84,420 —
14,938 8,785 8,457 32,180 13,000 20,136 2,555 7,106 5,908 80,885 —
210 241,259 (2,537) (888) (1,258) 69,282 306,068 $ 386,953
208 240,527 (2,187) (846) (1,258) 65,415 301,859 $ 386,279
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in Thousands) Three Months Ended March 31 2001 2000 Cash flows from operating activities: Net income..................................................................................... Adjustment for items not affecting funds from operations: Depreciation and amortization .............................................. Other-net....................................................................................
$
Changes in assets and liabilities (excluding cash): Receivables................................................................................ Inventories................................................................................. Accounts payable...................................................................... Other current liabilities........................................................... Other assets and liabilities ..................................................... Cash provided by operating activities............................... Cash flows from investing activities: Capital expenditures................................................................ Cash used in investing activities ....................................... Cash flows from financing activities: Exercise of employee stock options ...................................... Net borrowings and repayments under revolving credit agreement.............................................................................. Purchase of common stock held in treasury........................ Cash used in financing activities....................................... Decrease in cash and cash equivalents ................................. Cash and cash equivalents at beginning of period.............. Cash and cash equivalents at end of period......................... $ Supplemental cash flow information: Cash paid for interest, net of amounts capitalized............. $ Cash paid for income taxes..................................................... $ Noncash financing activities: Issuance of common stock for restricted stock awards ..... $
3,867
$
1,585
3,230 266
2,927 210
(6,083) 3,383 (3,261) 6,447 762 8,611
(2,016) 3,036 (20) (4,497) (402) 823
(2,351) (2,351)
(2,397) (2,397)
190 (6,800) (42) (6,652) (392) 6,374 5,982
— (1,700) — (1,700) (3,274) 3,664 $ 390
374 192
$ $
170 931
544
$
391
Q U A R T E R
1
RTI International Metals, Inc.
To Our Shareholders As we begin our 50th year in titanium, conditions are improving in our principle aerospace markets. The excess inventory held by our customers that has plagued the industry for the last couple of years has been substantially depleted. Boeing and Airbus have firm orders for over 3,200 aircraft, representing four to five years of production. Both have announced production increases. As a result, order flow and selling prices are increasing for our mill products. Prospects are also improving for RTI’s energy related businesses as deep-water oil and gas exploration activity increases. Our backlog for these products exceeds $20 million and is growing. Demand for the products and services of our Fabrication and Distribution Group is also expanding, where sales in the first quarter grew 42% over the previous quarter. Our strategy for growing this business in Europe is the subject of this quarter’s “Focus on…” (opposite). On a consolidated basis, RTI’s order backlog, which grew 27% in the final period last year, grew an additional 28% in the first quarter. RTI has 1,200 men and women who work on your behalf each day, diligently finding ways to improve our operations and reduce cost at all levels while continuing to produce the finest quality products in the industry. As a result of their efforts and improving market conditions, we remain confident in RTI’s future, both near and long term.
Robert M. Hernandez Chairman of the Board June, 2001
Timothy G. Rupert President and Chief Executive Officer
Focus on... RTI Europe One of RTI International Metals’ key strategies is to expand our capabilities and operations in Europe, enhancing our ability to further add customer value to our products. Our operations in the U.K. and France provide full service fabrication and distribution facilities, while Germany and Italy were recently added to increase sales support on the continent. These operations work closely with our customers to maximize value while also reducing costs. One example is optimizing the number of parts produced from a single piece of input material. This is accomplished by careful design during the production process, which significantly reduces our customers final component costs and minimizes scrap. Our experienced sales and manufacturing personnel provide the necessary ongoing technical support and manufacturing expertise that is important in building and maintaining these commercial relationships. Approximately 20% of RTI’s total revenue flows through RTI Europe and this is expected to increase as major RTI European programs, including Airbus, Eurofighter, compact heat exchangers, and automotive applications show sustained growth over the coming years. The European operations also work closely with their RTI affiliate subsidiaries in America to augment capabilities, which add to RTI’s European competitive advantage including titanium mill products, CAD/CAM, water-jet cutting, machining, extrusion capability, hot forming, and a wide array of other products and services. The inherent synergies and expertise of these groups focus on supplying our customers with a wider range of products and services, while improving revenues, diversifying activities, and enhancing shareholder value. RTI is well positioned to further serve and support the European Union Community, as it becomes an ever-growing segment in the world economy. To illustrate this, in the April 2001 Stainless Steel World's "Titanium Special" issue, RTI was the featured cover story. In addition to highlighting our Company and titanium, they increased their readers’ awareness and knowledge of our products, services, and the diversity we offer. In time, this type of coverage will serve RTI well as it continues to market to an evergrowing number of customers and applications. To read the entire article please visit our web site at rti-intl.com.
RTI International Metals, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Dollars in Thousands) Quarter Ended March 31 2001 2000 Sales................................................................................................ $ 66,239 $ 70,508 Operating costs: Cost of sales ................................................................................... 56,728 59,748 Selling, general and administrative expenses.......................... 8,349 7,144 Research, technical and product development expenses...... 362 393 Total operating costs ........................................................... 65,439 67,285 Operating income ......................................................................... 800 3,223 Other income-net ......................................................................... 6,049 149 Interest expense ........................................................................... 210 773 Income before income taxes....................................................... 6,639 2,599 Provision for income taxes .......................................................... 2,581 1,014 Income before cumulative effect of change in accounting principle ................................................................ 4,058 1,585 Cumulative effect of change in accounting principle..................................................................................... (191) — Net income..................................................................................... $ 3,867 $ 1,585 Earnings per common share: Income before cumulative effect of change in accounting principle: Basic....................................................................................... $ 0.19 $ 0.08 Diluted ................................................................................... $ 0.19 $ 0.08 Net income: Basic....................................................................................... $ 0.19 $ 0.08 Diluted ................................................................................... $ 0.18 $ 0.08
SEGMENT REPORTING (Unaudited) (Dollars in Thousands) The Company’s reportable segments are the Titanium Group and the Fabrication and Distribution Group. Segment information for the three-month periods ended March 31, 2001 and 2000 is as follows: Quarter Ended March 31 2001 2000 Net sales: Titanium Trade........................................................................................... $ Intersegment.............................................................................
26,602 13,690 40,292
Fabrication and Distribution Trade........................................................................................... Intersegment.............................................................................
36,139 43 36,182 Other operations ........................................................................... 3,498 Adjustments and eliminations.................................................... (13,733) Total net sales....................................................................... $ 66,239 Operating income (loss): Titanium..................................................................................... $ (503) Fabrication and Distribution.................................................. 1,129 Other operations....................................................................... 174 Total operating income ....................................................... 800 Reconciliation of operating income to reported income before taxes: Other income–net .................................................................... Interest expense ....................................................................... Reported income before taxes ........................................... $
6,049 (210) 6,639
$
37,286 13,647 50,933
29,144 175 29,319 4,078 (13,822) $ 70,508 $
$
2,932 91 200 3,223
149 (773) 2,599
RTI International Metals, Inc.
CONSOLIDATED BALANCE SHEET (Dollars in Thousands) March 31, 2001
December 31, 2000
(Unaudited)
Assets Assets: Cash and cash equivalents...................................................... Receivables–less allowance for doubtful accounts of $1,111 and $926 .................................................................... Inventories, net......................................................................... Deferred income taxes............................................................. Other current assets ................................................................ Total current assets ............................................................. Property, plant and equipment, net ...................................... Goodwill ..................................................................................... Other noncurrent assets.......................................................... Total assets............................................................................ Liabilities and Shareholders’ Equity Liabilities: Accounts payable...................................................................... Accrued wages and other employee costs............................ Other accrued liabilities.......................................................... Total current liabilities........................................................ Long-term debt.............................................................................. Accrued postretirement benefit cost......................................... Deferred income taxes................................................................. Noncurrent pension liability ....................................................... Other noncurrent liabilities ........................................................ Total liabilities...................................................................... Commitments and contingencies............................................... Shareholders’ equity: Common stock, $0.01 par value, 50,000,000 shares authorized; 21,000,250 and 20,946,712 shares issued and 20,902,000 and 20,851,962 outstanding..................... Additional paid-in capital........................................................ Deferred compensation ........................................................... Treasury stock, at cost; 98,250 and 94,750 shares............... Accumulated other comprehensive income......................... Retained earnings..................................................................... Total shareholders’ equity ........................................................... Total liabilities and shareholders’ equity .........................
$
5,982
$
6,374
52,305 161,827 9,269 9,639 239,022 97,524 35,323 15,084 $ 386,953
46,417 165,210 9,146 10,235 237,382 97,989 35,736 15,172 $ 386,279
$
$ 18,199 5,646 5,149 28,994 19,800 19,986 2,555 7,106 5,979 84,420 —
14,938 8,785 8,457 32,180 13,000 20,136 2,555 7,106 5,908 80,885 —
210 241,259 (2,537) (888) (1,258) 69,282 306,068 $ 386,953
208 240,527 (2,187) (846) (1,258) 65,415 301,859 $ 386,279
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in Thousands) Three Months Ended March 31 2001 2000 Cash flows from operating activities: Net income..................................................................................... Adjustment for items not affecting funds from operations: Depreciation and amortization .............................................. Other-net....................................................................................
$
Changes in assets and liabilities (excluding cash): Receivables................................................................................ Inventories................................................................................. Accounts payable...................................................................... Other current liabilities........................................................... Other assets and liabilities ..................................................... Cash provided by operating activities............................... Cash flows from investing activities: Capital expenditures................................................................ Cash used in investing activities ....................................... Cash flows from financing activities: Exercise of employee stock options ...................................... Net borrowings and repayments under revolving credit agreement.............................................................................. Purchase of common stock held in treasury........................ Cash used in financing activities....................................... Decrease in cash and cash equivalents ................................. Cash and cash equivalents at beginning of period.............. Cash and cash equivalents at end of period......................... $ Supplemental cash flow information: Cash paid for interest, net of amounts capitalized............. $ Cash paid for income taxes..................................................... $ Noncash financing activities: Issuance of common stock for restricted stock awards ..... $
3,867
$
1,585
3,230 266
2,927 210
(6,083) 3,383 (3,261) 6,447 762 8,611
(2,016) 3,036 (20) (4,497) (402) 823
(2,351) (2,351)
(2,397) (2,397)
190 (6,800) (42) (6,652) (392) 6,374 5,982
— (1,700) — (1,700) (3,274) 3,664 $ 390
374 192
$ $
170 931
544
$
391
