RTI Q2 2001
2 0 0 1
Q U A R T E R
2
RTI International Metals, Inc.
To Our Shareholders RTI’s operating results improved modestly in the second quarter from the first quarter on increased sales and mill product shipments. Revenues of $75 million were split evenly between the Titanium and Fabrication & Distribution Groups. Both were profitable. Earnings for the quarter were hurt when Tropical Storm Allison hit the Houston area in June, flooding RTI Fabrication. The facility was in the process of installing their new 5,000-ton extrusion press. Direct and indirect costs totaling approximately $1.4 million reduced consolidated earnings by $0.04 per share. Our Houston team made a great recovery and began startup in August. Initial results are very encouraging. This new technology is the subject of this quarter’s “Focus on...” (opposite). As we reported in our last letter, conditions in our aerospace and oil & gas markets are improved this year. RMI Titanium Company recently announced price increases for its mill products. The Pentagon gave the go ahead for initial production of the new F-22 Raptor fighter aircraft, prompting release of additional titanium orders under RMI’s contract to supply titanium for this program. Activity in the oil & gas sector continues to be strong. RTI Energy Systems is busy working on existing projects, while quoting on new ones. As a result, we expect continued operating earnings growth in the second half. As always, we appreciate your support.
Robert M. Hernandez Chairman of the Board August, 2001
Timothy G. Rupert President and Chief Executive Officer
Focus on... New Technology RTI is dedicated to being The Supplier of Choice – the best at what it does. One of the ways we achieve this goal is a never-ending search for new technology. A recent example is our investment in a new, state-of-the-art 5,000-ton extrusion press at RTI Fabrication. RTI entered the extrusion industry through its acquisition of Extrusion Technology Corporation of America in 1998. Not satisfied with existing capacity and quality, the operation was relocated to a new 142,000 square foot facility in Houston, Texas and the new press ordered, launching RTI Fabrication in 1999. Construction began in the Fall of 2000. After a bout with Tropical Storm Allison in June 2001, the facility began production in August. The press is the newest of its kind in the specialty metals industry, making it technologically unique. Utilizing indirect extrusion technology, formerly available only for softer metals, the press can produce superior near-net shapes of titanium, nickel, stainless and other special metals for a variety of product offerings to aerospace, oil & gas, and other industrial markets. The facility is capable of producing bar, seamless pipe and other tubular product sizes up to 12.5" in diameter and shapes with 16.5" section widths. Integration of this investment with RTI’s other companies is expected to provide a number of exciting new opportunities. The RTI family’s dedication to cutting-edge technology and superior quality will continue to provide our customers with “A World of Possibilities”.
RTI International Metals, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Dollars in Thousands) Quarter Ended June 30 2001 2000 Sales............................................................ $ 74,868 $ 63,345 Operating costs: Cost of sales............................................... 64,680 54,419 Selling, general and administrative expenses ................................................. 8,340 6,791 Research, technical and product development expenses ......................... 538 356 Total operating costs......................... 73,558 61,566 Operating income ..................................... 1,310 1,779 Other (expense) income, net ................ (169) 6,504 Interest expense ....................................... 113 363 Income before income taxes................... 1,028 7,920 Provision for income taxes...................... 399 3,085 Income before cumulative effect of change in accounting principle .......... 629 4,835 Cumulative effect of change in accounting principle........................ — — Net income................................................. $ 629 $ 4,835 Earnings per common share Income before cumulative effect of change in accounting principle: Basic........................................................ $ 0.03 $ 0.23 Diluted .................................................... $ 0.03 $ 0.23 Net Income: Basic........................................................ $ 0.03 $ 0.23 Diluted .................................................... $ 0.03 $ 0.23 Weighted average shares used to compute earnings per share: Basic........................................................ 20,895,667 20,853,240 Diluted .................................................... 21,143,242 21,028,302
Six Months Ended June 30 2001 2000 $ 141,107 $ 133,853
$
121,408
114,167
16,689
13,935
900 138,997 2,110 5,881 323 7,668 2,981
749 128,851 5,002 6,653 1,136 10,519 4,099
4,687
6,420
(191) 4,496 $
— 6,420
$ $
0.22 0.22
$ $
0.31 0.31
$ $
0.22 0.21
$ $
0.31 0.31
20,893,264 21,164,149
20,844,583 20,956,982
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 and six-month periods ended June 30, 2001 and 2000 is as follows: Quarter Ended June 30 2001 2000 Net sales: Titanium Trade ....................................................... $ Intersegment ......................................... Fabrication and Distribution Trade ....................................................... Intersegment ......................................... Other operations....................................... Adjustments and elimination ................ Total net sales .................................... $ Operating income: Titanium ................................................. $ Fabrication and distribution ............... Other operations ................................... Total operating income..................... Reconciliation of operating income to reported income before taxes: Other income—net .............................. Interest expense.................................... Reported income before taxes......... $
34,701 11,702 46,403
$
36,388 574 36,962 3,779 (12,276) 74,868 $
30,309 13,395 43,704 28,958 23 28,981 4,078 (13,418) 63,345
(110) $ 1,251 169 1,310
1,257 322 200 1,779
(169) 113 1,028 $
6,504 363 7,920
Six Months Ended June 30 2001 2000
$
$ $
$
61,303 25,392 86,695
$
72,527 617 73,144 7,277 (26,009) 141,107 $ (613) $ 2,380 343 2,110
5,881 323 7,668
$
67,644 27,042 94,686 58,102 198 58,300 8,107 (27,240) 133,853 4,182 413 407 5,002
6,653 1,136 10,519
RTI International Metals, Inc.
CONSOLIDATED BALANCE SHEET (Dollars in Thousands) June 30, December 31, 2001 2000 (Unaudited) Assets Assets: Cash and cash equivalents............................................................................ $ Receivables—less allowance for doubtful accounts of $1,189 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 ...................................................................................... Accrued pension cost ........................................................................................ Other noncurrent liabilities.............................................................................. Total liabilities............................................................................................. Commitments and contingencies.................................................................... Shareholders’ equity: Common stock, $0.01 par value, 50,000,000 shares authorized; 21,017,627 and 20,946,712 shares issued; 20,907,277 and 20,851,962 shares outstanding....................................... Additional paid-in capital.............................................................................. Deferred compensation ................................................................................. Treasury stock, at cost; 110,350 and 94,750 shares................................... Accumulated other comprehensive income (loss)................................... Retained earnings........................................................................................... Total shareholders’ equity................................................................................. Total liabilities and shareholders’ equity ................................................ $
4,958 61,504 159,633 9,269 10,427 245,791 98,108 34,920 13,935 392,754
18,211 8,393 12,571 39,175 10,900 20,286 2,555 7,106 5,852 85,874 —
$
6,374
$
46,417 165,210 9,146 10,235 237,382 97,989 35,736 15,172 386,279
$
210 241,361 (2,309) (1,035) (1,258) 69,911 306,880 392,754 $
18,199 5,646 5,149 28,994 19,800 19,986 2,555 7,106 5,979 84,420 —
208 240,527 (2,187) (846) (1,258) 65,415 301,859 386,279
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in Thousands) Six Months Ended June 30 2001 2000 Cash flows from operating activities: Net income.......................................................................................................... $ Adjustment for items not affecting funds from operations: Depreciation and amortization .................................................................... Deferred income taxes................................................................................... 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 ...........................
$
4,496
$
6,420
6,450 (123) 998
5,847 (2) 429
(15,440) 5,577 12 10,169 1,218 13,357
3,094 7,519 (3,304) (760) (74) 19,169
(5,976) (5,976)
(5,342) (5,342)
292 (8,900) (189) (8,797) (1,416) 6,374 4,958 $
81 (16,300) — (16,219) (2,392) 3,664 1,272
$ $
587 1,882
$ $
1,685 888
$
544
$
391
Q U A R T E R
2
RTI International Metals, Inc.
To Our Shareholders RTI’s operating results improved modestly in the second quarter from the first quarter on increased sales and mill product shipments. Revenues of $75 million were split evenly between the Titanium and Fabrication & Distribution Groups. Both were profitable. Earnings for the quarter were hurt when Tropical Storm Allison hit the Houston area in June, flooding RTI Fabrication. The facility was in the process of installing their new 5,000-ton extrusion press. Direct and indirect costs totaling approximately $1.4 million reduced consolidated earnings by $0.04 per share. Our Houston team made a great recovery and began startup in August. Initial results are very encouraging. This new technology is the subject of this quarter’s “Focus on...” (opposite). As we reported in our last letter, conditions in our aerospace and oil & gas markets are improved this year. RMI Titanium Company recently announced price increases for its mill products. The Pentagon gave the go ahead for initial production of the new F-22 Raptor fighter aircraft, prompting release of additional titanium orders under RMI’s contract to supply titanium for this program. Activity in the oil & gas sector continues to be strong. RTI Energy Systems is busy working on existing projects, while quoting on new ones. As a result, we expect continued operating earnings growth in the second half. As always, we appreciate your support.
Robert M. Hernandez Chairman of the Board August, 2001
Timothy G. Rupert President and Chief Executive Officer
Focus on... New Technology RTI is dedicated to being The Supplier of Choice – the best at what it does. One of the ways we achieve this goal is a never-ending search for new technology. A recent example is our investment in a new, state-of-the-art 5,000-ton extrusion press at RTI Fabrication. RTI entered the extrusion industry through its acquisition of Extrusion Technology Corporation of America in 1998. Not satisfied with existing capacity and quality, the operation was relocated to a new 142,000 square foot facility in Houston, Texas and the new press ordered, launching RTI Fabrication in 1999. Construction began in the Fall of 2000. After a bout with Tropical Storm Allison in June 2001, the facility began production in August. The press is the newest of its kind in the specialty metals industry, making it technologically unique. Utilizing indirect extrusion technology, formerly available only for softer metals, the press can produce superior near-net shapes of titanium, nickel, stainless and other special metals for a variety of product offerings to aerospace, oil & gas, and other industrial markets. The facility is capable of producing bar, seamless pipe and other tubular product sizes up to 12.5" in diameter and shapes with 16.5" section widths. Integration of this investment with RTI’s other companies is expected to provide a number of exciting new opportunities. The RTI family’s dedication to cutting-edge technology and superior quality will continue to provide our customers with “A World of Possibilities”.
RTI International Metals, Inc.
CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Dollars in Thousands) Quarter Ended June 30 2001 2000 Sales............................................................ $ 74,868 $ 63,345 Operating costs: Cost of sales............................................... 64,680 54,419 Selling, general and administrative expenses ................................................. 8,340 6,791 Research, technical and product development expenses ......................... 538 356 Total operating costs......................... 73,558 61,566 Operating income ..................................... 1,310 1,779 Other (expense) income, net ................ (169) 6,504 Interest expense ....................................... 113 363 Income before income taxes................... 1,028 7,920 Provision for income taxes...................... 399 3,085 Income before cumulative effect of change in accounting principle .......... 629 4,835 Cumulative effect of change in accounting principle........................ — — Net income................................................. $ 629 $ 4,835 Earnings per common share Income before cumulative effect of change in accounting principle: Basic........................................................ $ 0.03 $ 0.23 Diluted .................................................... $ 0.03 $ 0.23 Net Income: Basic........................................................ $ 0.03 $ 0.23 Diluted .................................................... $ 0.03 $ 0.23 Weighted average shares used to compute earnings per share: Basic........................................................ 20,895,667 20,853,240 Diluted .................................................... 21,143,242 21,028,302
Six Months Ended June 30 2001 2000 $ 141,107 $ 133,853
$
121,408
114,167
16,689
13,935
900 138,997 2,110 5,881 323 7,668 2,981
749 128,851 5,002 6,653 1,136 10,519 4,099
4,687
6,420
(191) 4,496 $
— 6,420
$ $
0.22 0.22
$ $
0.31 0.31
$ $
0.22 0.21
$ $
0.31 0.31
20,893,264 21,164,149
20,844,583 20,956,982
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 and six-month periods ended June 30, 2001 and 2000 is as follows: Quarter Ended June 30 2001 2000 Net sales: Titanium Trade ....................................................... $ Intersegment ......................................... Fabrication and Distribution Trade ....................................................... Intersegment ......................................... Other operations....................................... Adjustments and elimination ................ Total net sales .................................... $ Operating income: Titanium ................................................. $ Fabrication and distribution ............... Other operations ................................... Total operating income..................... Reconciliation of operating income to reported income before taxes: Other income—net .............................. Interest expense.................................... Reported income before taxes......... $
34,701 11,702 46,403
$
36,388 574 36,962 3,779 (12,276) 74,868 $
30,309 13,395 43,704 28,958 23 28,981 4,078 (13,418) 63,345
(110) $ 1,251 169 1,310
1,257 322 200 1,779
(169) 113 1,028 $
6,504 363 7,920
Six Months Ended June 30 2001 2000
$
$ $
$
61,303 25,392 86,695
$
72,527 617 73,144 7,277 (26,009) 141,107 $ (613) $ 2,380 343 2,110
5,881 323 7,668
$
67,644 27,042 94,686 58,102 198 58,300 8,107 (27,240) 133,853 4,182 413 407 5,002
6,653 1,136 10,519
RTI International Metals, Inc.
CONSOLIDATED BALANCE SHEET (Dollars in Thousands) June 30, December 31, 2001 2000 (Unaudited) Assets Assets: Cash and cash equivalents............................................................................ $ Receivables—less allowance for doubtful accounts of $1,189 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 ...................................................................................... Accrued pension cost ........................................................................................ Other noncurrent liabilities.............................................................................. Total liabilities............................................................................................. Commitments and contingencies.................................................................... Shareholders’ equity: Common stock, $0.01 par value, 50,000,000 shares authorized; 21,017,627 and 20,946,712 shares issued; 20,907,277 and 20,851,962 shares outstanding....................................... Additional paid-in capital.............................................................................. Deferred compensation ................................................................................. Treasury stock, at cost; 110,350 and 94,750 shares................................... Accumulated other comprehensive income (loss)................................... Retained earnings........................................................................................... Total shareholders’ equity................................................................................. Total liabilities and shareholders’ equity ................................................ $
4,958 61,504 159,633 9,269 10,427 245,791 98,108 34,920 13,935 392,754
18,211 8,393 12,571 39,175 10,900 20,286 2,555 7,106 5,852 85,874 —
$
6,374
$
46,417 165,210 9,146 10,235 237,382 97,989 35,736 15,172 386,279
$
210 241,361 (2,309) (1,035) (1,258) 69,911 306,880 392,754 $
18,199 5,646 5,149 28,994 19,800 19,986 2,555 7,106 5,979 84,420 —
208 240,527 (2,187) (846) (1,258) 65,415 301,859 386,279
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in Thousands) Six Months Ended June 30 2001 2000 Cash flows from operating activities: Net income.......................................................................................................... $ Adjustment for items not affecting funds from operations: Depreciation and amortization .................................................................... Deferred income taxes................................................................................... 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 ...........................
$
4,496
$
6,420
6,450 (123) 998
5,847 (2) 429
(15,440) 5,577 12 10,169 1,218 13,357
3,094 7,519 (3,304) (760) (74) 19,169
(5,976) (5,976)
(5,342) (5,342)
292 (8,900) (189) (8,797) (1,416) 6,374 4,958 $
81 (16,300) — (16,219) (2,392) 3,664 1,272
$ $
587 1,882
$ $
1,685 888
$
544
$
391
