RTI Q2 2002
2nd Quarter - 2002
RTI International Metals, Inc.
2nd Quarter 2002
To Our Shareholders Second quarter earnings of $0.17 per share on sales of $73 million were a considerable improvement over last year’s second quarter performance of $0.03 per share on sales of $75 million. The Titanium Group, which had operating income of $4.5 million on sales of $34.4 million, continued to benefit from the effects of cost reduction efforts and the optimization of mill operating levels.
The Fabrication & Distribution Group, which earned $1.2 million from operations on sales of $38.5 million, continued to experience weakness in its primary markets with the possible exception of RTI Energy Systems, which had a particularly strong quarter representing nearly 10% of RTI’s consolidated sales.
The decision at RMI Titanium Company to produce certain 2002 orders early, in order to optimize the mill operating rates during the first half of the year, will reduce the Titanium Group’s profitability for the second half of 2002. In fact, it is possible that the Group may record losses over that period. Though we expect the Fabrication & Distribution Group to make money in the second half, it is unclear at this point whether RTI will be profitable on a consolidated basis each quarter.
In July, RTI announced that it had been awarded the contract to provide over 1 million pounds of titanium alloy for Inco Ltd.’s nickel-cobalt mining facility in New Caledonia. Though this business will certainly assist our performance for the remainder of 2002, it will not totally offset the effects of a continued weak commercial aerospace industry.
Whatever market conditions prevail, we will continue our efforts to reduce operating costs, remain profitable and grow your investment in RTI.
Robert M. Hernandez Chairman of the Board August, 2002
Timothy G. Rupert President and Chief Executive Officer
RTI International Metals, Inc.
2nd Quarter 2002
Focus on... RTI Energy System makes the connection Energy companies around the world spend significant resources developing new engineering technology to reach oil & gas reserves in sub-sea fields that redefine the meaning
of
environments.
harsh New
deep-water
innovative
design
concepts and a solid understanding of the requirements
are
two
of
the
basic
ingredients required for success in today’s energy market.
Our energy group, RTI Artist rendering showing the RTI Energy Systems Standard Duty (SD) Connector superimposed over a Heavy Duty ( HD) Connector.
Energy Systems (RTIES), in Houston Texas has both of these components and many more. This report will “Focus on…” the innovative approach that led to their success in the design of a premium riser connector for Kerr-McGee’s Nansen and Boomvang fields located in the Gulf of Mexico.
The Nansen and Boomvang deepwater fields form the hubs for Kerr McGee’s core operation area in the Gulf of Mexico.
RTIES’ field proven riser connector technology along with Kerr-McGee’s projectspecific requirements set the direction for the initial phase of the project. Finite element analysis (see graphic) was
RTI International Metals, Inc.
2nd Quarter 2002
Focus on... continued performed on the production riser joints in order to optimize the connector design. This modeling was done on proprietary 3-D CAD software programs, which enabled the engineers to find the best solution for the project. Once the design and testing phases were complete, full-scale load and fatigue testing verified that the modeling and engineering analysis was appropriate for the projects. The high-strength material chosen for these projects achieved superior fracture toughness, extended fatigue life and provided excellent weldability. The design capability and expertise of RTIES enabled them to deliver the riser connections ahead of schedule, and under budget.
Tomorrow’s innovative
challenges
engineering
design
demand concepts,
advanced materials technology, state-of-the-art manufacturing capabilities, and proven field service experience. RTIES is prepared to meet those challenges. Connector being machined on CNC Turret Lathe.
RTI International Metals, Inc.
2nd Quarter 2002
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (Dollars in Thousands) Quarter Ended June 30 2002 2001
Sales ........................................... Operating costs: Cost of sales ................................. Selling, general and administrative expenses .................................... Research, technical and product development expenses .............. Total operating costs ...............
$
72,943
$
Six Months Ended June 30 2002 2001
74,868
$ 138,621
$
141,107
58,453
64,680
110,335
121,408
8,470
8,340
17,530
16,689
349 67,272
538 73,558
709 128,574
900 138,997
Operating income..........................
5,671
1,310
10,047
2,110
Other income, net ......................... Interest expense............................ Income before income taxes......... Provision for income taxes............ Income before cumulative effect of change in accounting principle... Cumulative effect of change in accounting principle ................... Net income ....................................
149 141 5,679 2,215
(169) 113 1,028 399
9,085 288 18,844 7,349
5,881 323 7,668 2,981
3,464
629
11,495
4,687
$
-3,464
$
-629
-$ 11,495
$
(191) 4,496
Income before cumulative effect of change in accounting principle: Basic...........................................
$
0.17
$
0.03
$
0.55
$
0.22
Diluted ........................................
$
0.17
$
0.03
$
0.55
$
0.22
Net income: Basic...........................................
$
0.17
$
0.03
$
0.55
$
0.22
Diluted ........................................
$
0.17
$
0.03
$
0.55
$
0.21
Earnings per common share
Weighted average shares used to compute earnings per share: Basic...........................................
20,781,346
20,895,667
20,774,504
20,893,264
Diluted ........................................
20,974,605
21,143,242
20,905,297
21,164,149
RTI International Metals, Inc.
2nd Quarter 2002
CONSOLIDATED BALANCE SHEET (Dollars in Thousands)
June 30, 2002 (Unaudited)
Assets Assets: Cash and cash equivalents ................................................................ $ 22,943 Receivables--less allowance for doubtful accounts of $1,253 and $1,219.............................................................................................. 45,875 Inventories, net .................................................................................. 167,329 Deferred income taxes ....................................................................... 8,096 Other current assets........................................................................... 5,059 Total current assets ......................................................................... 249,302 Property, plant and equipment, net.................................................... 94,122 Goodwill.............................................................................................. 34,133 Other noncurrent assets..................................................................... 17,444 Total assets ..................................................................................... $ 395,001 Liabilities and Shareholders' Equity Liabilities: Accounts payable ............................................................................... $ 14,368 Accrued wages and other employee costs ........................................ 8,134 Unearned revenue ............................................................................. 8,187 Income taxes payable ........................................................................ 3,557 Other accrued liabilities ...................................................................... 5,395 Total current liabilities ...................................................................... 39,641 Long-term debt ................................................................................... -Accrued postretirement benefit cost .................................................. 19,940 Deferred income taxes ....................................................................... 1,296 Accrued pension cost ......................................................................... 11,551 Other noncurrent liabilities.................................................................. 5,078 Total liabilities .................................................................................. 77,506 Commitments and contingencies Shareholders' equity: Common stock, $0.01 par value, 50,000,000 shares authorized; 21,095,588 and 21,035,454 shares issued; 20,770,738 and 20,730,604 shares outstanding....................................................... Additional paid-in capital .................................................................... Deferred compensation...................................................................... Treasury stock, at cost; 324,850 and 304,850 shares....................... Accumulated other comprehensive (loss).......................................... Retained earnings .............................................................................. Total shareholders' equity................................................................ Total liabilities and shareholders' equity .................................... $
211 242,133 (2,329) (2,831) (8,677) 88,988 317,495 395,001
December 31, 2001
$
8,036
50,572 158,561 7,418 13,136 237,723 98,375 34,133 17,520 $ 387,751
$ 17,799 7,494 6,133 29 5,011 36,466 -19,940 1,296 17,787 5,287 80,776
210 241,579 (2,278) (2,612) (7,417) 77,493 306,975 $ 387,751
RTI International Metals, Inc.
2nd Quarter 2002
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Six months ended June 30 2001 2002
Cash flows from operating activities: Net income ............................................................................................ Adjustment for items not affecting funds from operations: Depreciation and amortization ........................................................... Deferred income taxes ....................................................................... Stock-based compensation and other ...............................................
$ 11,495
$ 4,496
6,269 (678) 1,170
6,450 (123) 998
Changes in assets and liabilities (excluding cash): Receivables ........................................................................................ Inventories .......................................................................................... Accounts payable ............................................................................... Other current liabilities........................................................................ Other assets and liabilities ................................................................. Cash provided by operating activities...........................................
4,236 (8,517) (3,431) 6,907 943 18,394
(15,440) 5,577 12 10,169 1,218 13,357
Cash flows from investing activities: Capital expenditures........................................................................... Cash used in investing activities...................................................
(2,609) (2,609)
(5,976) (5,976)
76 -(219) (735) (878) 14,907 8,036 $ 22,943
292 (8,900) (189) -(8,797) (1,416) 6,374 $ 4,958
$ 174 $ 3,806
$ 587 $ 1,882
$ $
$ $
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 ...................................... Deferred charges related to credit facility........................................... Cash used in financing activities................................................... Increase (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 ..................... Capital lease obligations incurred ......................................................
479 --
544 --
RTI International Metals, Inc.
2nd Quarter 2002
SEGMENT REPORTING (Unaudited) (Dollars in Thousands)
Quarter Ended June 30 2002 2001
Net sales: Titanium Trade ........................................................... Intersegment ...............................................
Six Months Ended June 30 2002 2001
$ 29,301 18,490 47,791
$ 34,701 11,702 46,403
$ 57,646 32,697 90,343
Other operations ............................................ Adjustments and eliminations ........................ Total net sales ..........................................
38,511 518 39,029 5,131 (19,008) $ 72,943
36,388 574 36,962 3,779 (12,276) $ 74,868
72,399 72,527 893 617 73,292 73,144 8,576 7,277 (33,590) (26,009) $ 138,621 $141,107
Operating income (loss): Titanium....................................................... Fabrication and distribution ......................... Other operations.......................................... Total operating income.............................
$ 4,306 1,161 204 5,671
$
$
Reconciliation of operating income to reported income before taxes: Other income (loss)--net.............................. Interest expense............................................. Reported income before taxes .................
149 141 $ 5,679
(169) 113 $ 1,028
Fabrication and distribution Trade ........................................................... Intersegment ...............................................
(110) 1,251 169 1,310
8,338 1,390 319 10,047
9,085 288 $ 18,844
$ 61,303 25,392 86,695
$
$
(613) 2,380 343 2,110
5,881 323 7,668
RTI International Metals, Inc.
2nd Quarter 2002
To Our Shareholders Second quarter earnings of $0.17 per share on sales of $73 million were a considerable improvement over last year’s second quarter performance of $0.03 per share on sales of $75 million. The Titanium Group, which had operating income of $4.5 million on sales of $34.4 million, continued to benefit from the effects of cost reduction efforts and the optimization of mill operating levels.
The Fabrication & Distribution Group, which earned $1.2 million from operations on sales of $38.5 million, continued to experience weakness in its primary markets with the possible exception of RTI Energy Systems, which had a particularly strong quarter representing nearly 10% of RTI’s consolidated sales.
The decision at RMI Titanium Company to produce certain 2002 orders early, in order to optimize the mill operating rates during the first half of the year, will reduce the Titanium Group’s profitability for the second half of 2002. In fact, it is possible that the Group may record losses over that period. Though we expect the Fabrication & Distribution Group to make money in the second half, it is unclear at this point whether RTI will be profitable on a consolidated basis each quarter.
In July, RTI announced that it had been awarded the contract to provide over 1 million pounds of titanium alloy for Inco Ltd.’s nickel-cobalt mining facility in New Caledonia. Though this business will certainly assist our performance for the remainder of 2002, it will not totally offset the effects of a continued weak commercial aerospace industry.
Whatever market conditions prevail, we will continue our efforts to reduce operating costs, remain profitable and grow your investment in RTI.
Robert M. Hernandez Chairman of the Board August, 2002
Timothy G. Rupert President and Chief Executive Officer
RTI International Metals, Inc.
2nd Quarter 2002
Focus on... RTI Energy System makes the connection Energy companies around the world spend significant resources developing new engineering technology to reach oil & gas reserves in sub-sea fields that redefine the meaning
of
environments.
harsh New
deep-water
innovative
design
concepts and a solid understanding of the requirements
are
two
of
the
basic
ingredients required for success in today’s energy market.
Our energy group, RTI Artist rendering showing the RTI Energy Systems Standard Duty (SD) Connector superimposed over a Heavy Duty ( HD) Connector.
Energy Systems (RTIES), in Houston Texas has both of these components and many more. This report will “Focus on…” the innovative approach that led to their success in the design of a premium riser connector for Kerr-McGee’s Nansen and Boomvang fields located in the Gulf of Mexico.
The Nansen and Boomvang deepwater fields form the hubs for Kerr McGee’s core operation area in the Gulf of Mexico.
RTIES’ field proven riser connector technology along with Kerr-McGee’s projectspecific requirements set the direction for the initial phase of the project. Finite element analysis (see graphic) was
RTI International Metals, Inc.
2nd Quarter 2002
Focus on... continued performed on the production riser joints in order to optimize the connector design. This modeling was done on proprietary 3-D CAD software programs, which enabled the engineers to find the best solution for the project. Once the design and testing phases were complete, full-scale load and fatigue testing verified that the modeling and engineering analysis was appropriate for the projects. The high-strength material chosen for these projects achieved superior fracture toughness, extended fatigue life and provided excellent weldability. The design capability and expertise of RTIES enabled them to deliver the riser connections ahead of schedule, and under budget.
Tomorrow’s innovative
challenges
engineering
design
demand concepts,
advanced materials technology, state-of-the-art manufacturing capabilities, and proven field service experience. RTIES is prepared to meet those challenges. Connector being machined on CNC Turret Lathe.
RTI International Metals, Inc.
2nd Quarter 2002
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (Dollars in Thousands) Quarter Ended June 30 2002 2001
Sales ........................................... Operating costs: Cost of sales ................................. Selling, general and administrative expenses .................................... Research, technical and product development expenses .............. Total operating costs ...............
$
72,943
$
Six Months Ended June 30 2002 2001
74,868
$ 138,621
$
141,107
58,453
64,680
110,335
121,408
8,470
8,340
17,530
16,689
349 67,272
538 73,558
709 128,574
900 138,997
Operating income..........................
5,671
1,310
10,047
2,110
Other income, net ......................... Interest expense............................ Income before income taxes......... Provision for income taxes............ Income before cumulative effect of change in accounting principle... Cumulative effect of change in accounting principle ................... Net income ....................................
149 141 5,679 2,215
(169) 113 1,028 399
9,085 288 18,844 7,349
5,881 323 7,668 2,981
3,464
629
11,495
4,687
$
-3,464
$
-629
-$ 11,495
$
(191) 4,496
Income before cumulative effect of change in accounting principle: Basic...........................................
$
0.17
$
0.03
$
0.55
$
0.22
Diluted ........................................
$
0.17
$
0.03
$
0.55
$
0.22
Net income: Basic...........................................
$
0.17
$
0.03
$
0.55
$
0.22
Diluted ........................................
$
0.17
$
0.03
$
0.55
$
0.21
Earnings per common share
Weighted average shares used to compute earnings per share: Basic...........................................
20,781,346
20,895,667
20,774,504
20,893,264
Diluted ........................................
20,974,605
21,143,242
20,905,297
21,164,149
RTI International Metals, Inc.
2nd Quarter 2002
CONSOLIDATED BALANCE SHEET (Dollars in Thousands)
June 30, 2002 (Unaudited)
Assets Assets: Cash and cash equivalents ................................................................ $ 22,943 Receivables--less allowance for doubtful accounts of $1,253 and $1,219.............................................................................................. 45,875 Inventories, net .................................................................................. 167,329 Deferred income taxes ....................................................................... 8,096 Other current assets........................................................................... 5,059 Total current assets ......................................................................... 249,302 Property, plant and equipment, net.................................................... 94,122 Goodwill.............................................................................................. 34,133 Other noncurrent assets..................................................................... 17,444 Total assets ..................................................................................... $ 395,001 Liabilities and Shareholders' Equity Liabilities: Accounts payable ............................................................................... $ 14,368 Accrued wages and other employee costs ........................................ 8,134 Unearned revenue ............................................................................. 8,187 Income taxes payable ........................................................................ 3,557 Other accrued liabilities ...................................................................... 5,395 Total current liabilities ...................................................................... 39,641 Long-term debt ................................................................................... -Accrued postretirement benefit cost .................................................. 19,940 Deferred income taxes ....................................................................... 1,296 Accrued pension cost ......................................................................... 11,551 Other noncurrent liabilities.................................................................. 5,078 Total liabilities .................................................................................. 77,506 Commitments and contingencies Shareholders' equity: Common stock, $0.01 par value, 50,000,000 shares authorized; 21,095,588 and 21,035,454 shares issued; 20,770,738 and 20,730,604 shares outstanding....................................................... Additional paid-in capital .................................................................... Deferred compensation...................................................................... Treasury stock, at cost; 324,850 and 304,850 shares....................... Accumulated other comprehensive (loss).......................................... Retained earnings .............................................................................. Total shareholders' equity................................................................ Total liabilities and shareholders' equity .................................... $
211 242,133 (2,329) (2,831) (8,677) 88,988 317,495 395,001
December 31, 2001
$
8,036
50,572 158,561 7,418 13,136 237,723 98,375 34,133 17,520 $ 387,751
$ 17,799 7,494 6,133 29 5,011 36,466 -19,940 1,296 17,787 5,287 80,776
210 241,579 (2,278) (2,612) (7,417) 77,493 306,975 $ 387,751
RTI International Metals, Inc.
2nd Quarter 2002
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Six months ended June 30 2001 2002
Cash flows from operating activities: Net income ............................................................................................ Adjustment for items not affecting funds from operations: Depreciation and amortization ........................................................... Deferred income taxes ....................................................................... Stock-based compensation and other ...............................................
$ 11,495
$ 4,496
6,269 (678) 1,170
6,450 (123) 998
Changes in assets and liabilities (excluding cash): Receivables ........................................................................................ Inventories .......................................................................................... Accounts payable ............................................................................... Other current liabilities........................................................................ Other assets and liabilities ................................................................. Cash provided by operating activities...........................................
4,236 (8,517) (3,431) 6,907 943 18,394
(15,440) 5,577 12 10,169 1,218 13,357
Cash flows from investing activities: Capital expenditures........................................................................... Cash used in investing activities...................................................
(2,609) (2,609)
(5,976) (5,976)
76 -(219) (735) (878) 14,907 8,036 $ 22,943
292 (8,900) (189) -(8,797) (1,416) 6,374 $ 4,958
$ 174 $ 3,806
$ 587 $ 1,882
$ $
$ $
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 ...................................... Deferred charges related to credit facility........................................... Cash used in financing activities................................................... Increase (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 ..................... Capital lease obligations incurred ......................................................
479 --
544 --
RTI International Metals, Inc.
2nd Quarter 2002
SEGMENT REPORTING (Unaudited) (Dollars in Thousands)
Quarter Ended June 30 2002 2001
Net sales: Titanium Trade ........................................................... Intersegment ...............................................
Six Months Ended June 30 2002 2001
$ 29,301 18,490 47,791
$ 34,701 11,702 46,403
$ 57,646 32,697 90,343
Other operations ............................................ Adjustments and eliminations ........................ Total net sales ..........................................
38,511 518 39,029 5,131 (19,008) $ 72,943
36,388 574 36,962 3,779 (12,276) $ 74,868
72,399 72,527 893 617 73,292 73,144 8,576 7,277 (33,590) (26,009) $ 138,621 $141,107
Operating income (loss): Titanium....................................................... Fabrication and distribution ......................... Other operations.......................................... Total operating income.............................
$ 4,306 1,161 204 5,671
$
$
Reconciliation of operating income to reported income before taxes: Other income (loss)--net.............................. Interest expense............................................. Reported income before taxes .................
149 141 $ 5,679
(169) 113 $ 1,028
Fabrication and distribution Trade ........................................................... Intersegment ...............................................
(110) 1,251 169 1,310
8,338 1,390 319 10,047
9,085 288 $ 18,844
$ 61,303 25,392 86,695
$
$
(613) 2,380 343 2,110
5,881 323 7,668
