RTI Q3 2002
3rd Quarter - 2002
RTI International Metals, Inc.
3rd Quarter 2002
To Our Shareholders RTI earned $0.14 per share on sales of $68 million during the third quarter, not a bad performance given current market conditions. In our last quarterly letter, we said that the Titanium Group could have a loss for the second half of 2002 due to reduced demand from commercial aerospace markets. That seems less likely now with their better than expected performance in the third quarter. The Group earned $2.8 million in operating income during the quarter. This exceeded expectations largely for two reasons.
First, operating performance was
flawless on the million-plus pound order that we received in July to provide titanium alloy to Inco, Ltd.’s Goro project. Second, the Group continued to exceed cost cutting goals, particularly at our Niles, Ohio operation, where greater operating efficiency is being achieved by producing orders in batches during periods of low order volume. Earnings continued to grow in the Fabrication and Distribution Group in the third quarter, principally on the strength of oil & gas products. Operating income for the Group was $1.8 million on sales of 37 million. Efforts are underway throughout the Group to cut expenses and reduce inventory, particularly while aerospace business levels remain depressed. Unfortunately, commercial aircraft build rates will probably slow further before they recover.
Therefore, despite expected growth in military and energy markets, the
Titanium Group will likely experience a loss in the fourth quarter which could result in a consolidated loss for RTI. Our number one goal for the quarter will be to not let that happen.
Robert M. Hernandez Chairman of the Board November, 2002
Timothy G. Rupert President and Chief Executive Officer
RTI International Metals, Inc.
3rd Quarter 2002
Focus on... Titanium for Inco Limited’s Goro Mining Project
The island of New Caledonia in the French Overseas Territory of Indonesia contains nearly one-third of the world's accessible nickel resources. This is where Inco, one of the world’s
largest
mining
companies, has decided to proceed with the construction of their new $1.4 billion Goro nickel
project
-
a
fully-
integrated commercial nickelPacific Ocean
cobalt mining and production facility.
Indonesia
Australia
Equator
New Caledonia
RTI was selected to
supply titanium alloy for the numerous exchangers
banks utilized
hydrometallurgical New Zealand
of in
heat this
process.
This Quarter’s “Focus on…”
features our involvement in this tremendous undertaking. The Goro plant will utilize a pressure-acid-leach (PAL) process to extract and recover nickel and cobalt metal value from low-grade nickel laterite ores. The extensive shell and tube heat exchangers (i.e. heaters and coolers) on the feed and exit sides of the autoclave leach vessel are the critical components of this process. These exchangers must withstand all the rigors of this severe process environment including exposure to a diluted sulfuric acid ore slurry, which contains oxidizing metal ions at elevated temperatures and pressure.
RTI International Metals, Inc.
3rd Quarter 2002
Focus on... continued Typical commercial titanium alloys used for heat exchangers do not possess adequate corrosion resistance for this hot acid media, and/or lack the necessary high temperature strength in thin-wall sections to achieve adequate heat transfer under these elevated pressures. RTI’s Research & Development Engineers solved this problem with ASTM Grade 28 titanium, an alloy originally developed and qualified by RTI for critical oil and gas industry service. As a ruthenium-enhanced titanium alloy, Grade 28 offers a unique combination of elevated
acid,
crevice, and stress corrosion resistance; superior strength at required
service
temperature; and the fabricability needed to
manufacture
these
heat
exchanger systems. RTI’s
Grade
28
titanium consistently
Goro pilot plant located in New Caledonia
passed the client’s autoclave corrosion qualification tests required for this service. RTI was selected as the exclusive supplier of the GORO project heat exchanger material, based on the company’s expertise in the design and production of this special high performance alloy. The Goro project is designed to produce 55,000 metric tons of nickel and 5,000 metric tons of cobalt annually and is scheduled to be completed in late 2004 or early 2005. RTI committed to shipping half of the titanium during the third quarter and the other half in the fourth quarter of 2002. Our people performed superbly and shipped 80% of the 1 million
RTI International Metals, Inc.
3rd Quarter 2002
Focus on... continued pound order in the third quarter leaving only the final 20% for the fourth quarter.
This
superior teamwork put the first phase of this project on track and ahead of schedule. This performance fell to the bottom line and provided the Titanium Group with a better quarter than expected, due to higher operating efficiencies. RTI continues to be the “Supplier of Choice” as we provide the best solutions to meet our customers requirements. Tomorrows’ challenges are here today and we are ready to meet them with the expertise of our technical research and development group, innovative engineering design concepts and a sales team second to none.
A
RTI International Metals, Inc.
3rd Quarter 2002
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (Dollars in Thousands)
Sales .............................................. Operating costs: Cost of sales .................................. Selling, general and administrative expenses...................................... Research, technical and product development expenses ................ Total operating costs.................
Quarter Ended September 30 2002 2001 $ 68,105 $ 76,047
Nine Months Ended September 30 2002 2001 $ 206,726 $ 217,154
55,945
64,067
166,280
185,475
7,266
7,674
24,796
24,363
288 63,499
454 72,195
997 192,073
1,354 211,192
Operating income...........................
4,606
3,852
14,653
5,962
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.....................................
122 185 4,543 1,538
85 174 3,763 1,476
9,207 473 23,387 8,887
5,966 497 11,431 4,457
3,005
2,287
14,500
6,974
— 2,287
— $ 14,500
$
(191) 6,783
$
— 3,005
$
Earnings per common share Income before cumulative effect of change in accounting principle: Basic ............................................
$
0.14
$
0.11
$
0.70
$
0.33
Diluted..........................................
$
0.14
$
0.11
$
0.69
$
0.33
Net income: Basic ............................................
$
0.14
$
0.11
$
0.70
$
0.32
Diluted..........................................
$
0.14
$
0.11
$
0.69
$
0.32
Weighted average shares used to compute earnings per share: Basic ............................................
20,767,348
20,879,036
20,772,092
20,888,470
Diluted..........................................
20,900,695
21,028,092
20,892,541
21,113,102
RTI International Metals, Inc.
3rd Quarter 2002
CONSOLIDATED BALANCE SHEET (Dollars in Thousands)
Assets Assets: Cash and cash equivalents ............................ Receivables—less allowance for doubtful accounts of $1,139 and $1,219................... 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..... Unearned revenue ......................................... Income taxes payable .................................... 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; 21,118,833 and 21,035,454 shares issued; 20,773,983 and 20,730,604 shares outstanding Additional paid-in capital ................................ Deferred compensation.................................. Treasury stock, at cost; 344,850 and 304,850 shares Accumulated other comprehensive (loss) ...... Retained earnings .......................................... Total shareholders' equity ........................... Total liabilities and shareholders' equity.
September 30, 2002 (Unaudited)
December 31, 2001
$
25,662
$
$
45,370 160,728 8,096 5,314 245,170 93,119 34,133 17,078 389,500
$
$
10,882 7,795 3,092 4,961 4,421 31,151 — 19,940 1,296 11,351 5,205 68,943
211 242,331 (2,269) (3,032) (8,677) 91,993 320,557 389,500
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.
3rd Quarter 2002
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Cash flows from operating activities: Net income........................................................
Adjustment for items not affecting funds from operations:
Nine Months Ended September 30 2002 2001 $ 14,500
Depreciation and amortization ........................ Deferred income taxes.................................... Stock-based compensation and other ............
$
6,783
9,372 (678) 1,677
9,942 (123) 1,434
Changes in assets and liabilities (excluding cash): Receivables .................................................... Inventories ...................................................... Accounts payable............................................ Other current liabilities .................................... Other assets and liabilities .............................. Cash provided by operating activities ........
4,555 (1,916) (6,917) 1,903 944 23,440
(11,077) 3,433 2,528 13,252 357 26,529
Cash flows from investing activities: Capital expenditures ....................................... Cash used in investing activities ................
(4,746) (4,746)
(10,109) (10,109)
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
— (420) (735) (1,068) 17,626 8,036 $ 25,662
(18,200) (1,766) — (19,657) (3,237) 6,374 $ 3,137
Supplemental cash flow information: Cash paid for interest, net of amounts capitalized Cash paid for income taxes ............................
$ $
264 3,961
$ $
787 2,287
$ $
666 —
$ $
731 311
Noncash financing activities:
Issuance of common stock for restricted stock awards
Capital lease obligations incurred ...................
87
309
RTI International Metals, Inc.
3rd Quarter 2002
SEGMENT REPORTING (Unaudited) (Dollars in Thousands)
Net sales: Titanium Trade ..................................................... Intersegment.......................................... Fabrication and Distribution Trade ..................................................... Intersegment..........................................
Quarter Ended September 30 2002 2001 $ 26,244 11,226 37,470
$35,360 10,604 45,964
Nine Months Ended September 30 2002 2001 $ 83,890 43,923 127,813
$ 96,663 35,996 132,659
Other operations ...................................... Adjustments and eliminations .................. Total net sales ....................................
36,615 37,442 620 266 37,235 37,708 5,246 3,245 (11,846) (10,870) $ 68,105 $76,047
109,014 109,969 1,513 883 110,527 110,852 13,822 10,522 (45,436) (36,879) $ 206,726 $ 217,154
Operating income (loss): Titanium ................................................. Fabrication and distribution.................... Other operations .................................... Total operating income .......................
$ 2,320 1,792 494 4,606
$ 2,486 1,180 186 3,852
$ 10,657 3,183 813 14,653
$
Reconciliation of operating income to reported income before taxes: Other income (loss)—net ....................... Interest expense .................................... Reported income before taxes............
122 185 $ 4,543
85 174 $ 3,763
9,207 473 $ 23,387
5,966 497 $ 11,431
1,873 3,560 529 5,962
RTI International Metals, Inc.
3rd Quarter 2002
To Our Shareholders RTI earned $0.14 per share on sales of $68 million during the third quarter, not a bad performance given current market conditions. In our last quarterly letter, we said that the Titanium Group could have a loss for the second half of 2002 due to reduced demand from commercial aerospace markets. That seems less likely now with their better than expected performance in the third quarter. The Group earned $2.8 million in operating income during the quarter. This exceeded expectations largely for two reasons.
First, operating performance was
flawless on the million-plus pound order that we received in July to provide titanium alloy to Inco, Ltd.’s Goro project. Second, the Group continued to exceed cost cutting goals, particularly at our Niles, Ohio operation, where greater operating efficiency is being achieved by producing orders in batches during periods of low order volume. Earnings continued to grow in the Fabrication and Distribution Group in the third quarter, principally on the strength of oil & gas products. Operating income for the Group was $1.8 million on sales of 37 million. Efforts are underway throughout the Group to cut expenses and reduce inventory, particularly while aerospace business levels remain depressed. Unfortunately, commercial aircraft build rates will probably slow further before they recover.
Therefore, despite expected growth in military and energy markets, the
Titanium Group will likely experience a loss in the fourth quarter which could result in a consolidated loss for RTI. Our number one goal for the quarter will be to not let that happen.
Robert M. Hernandez Chairman of the Board November, 2002
Timothy G. Rupert President and Chief Executive Officer
RTI International Metals, Inc.
3rd Quarter 2002
Focus on... Titanium for Inco Limited’s Goro Mining Project
The island of New Caledonia in the French Overseas Territory of Indonesia contains nearly one-third of the world's accessible nickel resources. This is where Inco, one of the world’s
largest
mining
companies, has decided to proceed with the construction of their new $1.4 billion Goro nickel
project
-
a
fully-
integrated commercial nickelPacific Ocean
cobalt mining and production facility.
Indonesia
Australia
Equator
New Caledonia
RTI was selected to
supply titanium alloy for the numerous exchangers
banks utilized
hydrometallurgical New Zealand
of in
heat this
process.
This Quarter’s “Focus on…”
features our involvement in this tremendous undertaking. The Goro plant will utilize a pressure-acid-leach (PAL) process to extract and recover nickel and cobalt metal value from low-grade nickel laterite ores. The extensive shell and tube heat exchangers (i.e. heaters and coolers) on the feed and exit sides of the autoclave leach vessel are the critical components of this process. These exchangers must withstand all the rigors of this severe process environment including exposure to a diluted sulfuric acid ore slurry, which contains oxidizing metal ions at elevated temperatures and pressure.
RTI International Metals, Inc.
3rd Quarter 2002
Focus on... continued Typical commercial titanium alloys used for heat exchangers do not possess adequate corrosion resistance for this hot acid media, and/or lack the necessary high temperature strength in thin-wall sections to achieve adequate heat transfer under these elevated pressures. RTI’s Research & Development Engineers solved this problem with ASTM Grade 28 titanium, an alloy originally developed and qualified by RTI for critical oil and gas industry service. As a ruthenium-enhanced titanium alloy, Grade 28 offers a unique combination of elevated
acid,
crevice, and stress corrosion resistance; superior strength at required
service
temperature; and the fabricability needed to
manufacture
these
heat
exchanger systems. RTI’s
Grade
28
titanium consistently
Goro pilot plant located in New Caledonia
passed the client’s autoclave corrosion qualification tests required for this service. RTI was selected as the exclusive supplier of the GORO project heat exchanger material, based on the company’s expertise in the design and production of this special high performance alloy. The Goro project is designed to produce 55,000 metric tons of nickel and 5,000 metric tons of cobalt annually and is scheduled to be completed in late 2004 or early 2005. RTI committed to shipping half of the titanium during the third quarter and the other half in the fourth quarter of 2002. Our people performed superbly and shipped 80% of the 1 million
RTI International Metals, Inc.
3rd Quarter 2002
Focus on... continued pound order in the third quarter leaving only the final 20% for the fourth quarter.
This
superior teamwork put the first phase of this project on track and ahead of schedule. This performance fell to the bottom line and provided the Titanium Group with a better quarter than expected, due to higher operating efficiencies. RTI continues to be the “Supplier of Choice” as we provide the best solutions to meet our customers requirements. Tomorrows’ challenges are here today and we are ready to meet them with the expertise of our technical research and development group, innovative engineering design concepts and a sales team second to none.
A
RTI International Metals, Inc.
3rd Quarter 2002
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (Dollars in Thousands)
Sales .............................................. Operating costs: Cost of sales .................................. Selling, general and administrative expenses...................................... Research, technical and product development expenses ................ Total operating costs.................
Quarter Ended September 30 2002 2001 $ 68,105 $ 76,047
Nine Months Ended September 30 2002 2001 $ 206,726 $ 217,154
55,945
64,067
166,280
185,475
7,266
7,674
24,796
24,363
288 63,499
454 72,195
997 192,073
1,354 211,192
Operating income...........................
4,606
3,852
14,653
5,962
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.....................................
122 185 4,543 1,538
85 174 3,763 1,476
9,207 473 23,387 8,887
5,966 497 11,431 4,457
3,005
2,287
14,500
6,974
— 2,287
— $ 14,500
$
(191) 6,783
$
— 3,005
$
Earnings per common share Income before cumulative effect of change in accounting principle: Basic ............................................
$
0.14
$
0.11
$
0.70
$
0.33
Diluted..........................................
$
0.14
$
0.11
$
0.69
$
0.33
Net income: Basic ............................................
$
0.14
$
0.11
$
0.70
$
0.32
Diluted..........................................
$
0.14
$
0.11
$
0.69
$
0.32
Weighted average shares used to compute earnings per share: Basic ............................................
20,767,348
20,879,036
20,772,092
20,888,470
Diluted..........................................
20,900,695
21,028,092
20,892,541
21,113,102
RTI International Metals, Inc.
3rd Quarter 2002
CONSOLIDATED BALANCE SHEET (Dollars in Thousands)
Assets Assets: Cash and cash equivalents ............................ Receivables—less allowance for doubtful accounts of $1,139 and $1,219................... 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..... Unearned revenue ......................................... Income taxes payable .................................... 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; 21,118,833 and 21,035,454 shares issued; 20,773,983 and 20,730,604 shares outstanding Additional paid-in capital ................................ Deferred compensation.................................. Treasury stock, at cost; 344,850 and 304,850 shares Accumulated other comprehensive (loss) ...... Retained earnings .......................................... Total shareholders' equity ........................... Total liabilities and shareholders' equity.
September 30, 2002 (Unaudited)
December 31, 2001
$
25,662
$
$
45,370 160,728 8,096 5,314 245,170 93,119 34,133 17,078 389,500
$
$
10,882 7,795 3,092 4,961 4,421 31,151 — 19,940 1,296 11,351 5,205 68,943
211 242,331 (2,269) (3,032) (8,677) 91,993 320,557 389,500
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.
3rd Quarter 2002
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Cash flows from operating activities: Net income........................................................
Adjustment for items not affecting funds from operations:
Nine Months Ended September 30 2002 2001 $ 14,500
Depreciation and amortization ........................ Deferred income taxes.................................... Stock-based compensation and other ............
$
6,783
9,372 (678) 1,677
9,942 (123) 1,434
Changes in assets and liabilities (excluding cash): Receivables .................................................... Inventories ...................................................... Accounts payable............................................ Other current liabilities .................................... Other assets and liabilities .............................. Cash provided by operating activities ........
4,555 (1,916) (6,917) 1,903 944 23,440
(11,077) 3,433 2,528 13,252 357 26,529
Cash flows from investing activities: Capital expenditures ....................................... Cash used in investing activities ................
(4,746) (4,746)
(10,109) (10,109)
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
— (420) (735) (1,068) 17,626 8,036 $ 25,662
(18,200) (1,766) — (19,657) (3,237) 6,374 $ 3,137
Supplemental cash flow information: Cash paid for interest, net of amounts capitalized Cash paid for income taxes ............................
$ $
264 3,961
$ $
787 2,287
$ $
666 —
$ $
731 311
Noncash financing activities:
Issuance of common stock for restricted stock awards
Capital lease obligations incurred ...................
87
309
RTI International Metals, Inc.
3rd Quarter 2002
SEGMENT REPORTING (Unaudited) (Dollars in Thousands)
Net sales: Titanium Trade ..................................................... Intersegment.......................................... Fabrication and Distribution Trade ..................................................... Intersegment..........................................
Quarter Ended September 30 2002 2001 $ 26,244 11,226 37,470
$35,360 10,604 45,964
Nine Months Ended September 30 2002 2001 $ 83,890 43,923 127,813
$ 96,663 35,996 132,659
Other operations ...................................... Adjustments and eliminations .................. Total net sales ....................................
36,615 37,442 620 266 37,235 37,708 5,246 3,245 (11,846) (10,870) $ 68,105 $76,047
109,014 109,969 1,513 883 110,527 110,852 13,822 10,522 (45,436) (36,879) $ 206,726 $ 217,154
Operating income (loss): Titanium ................................................. Fabrication and distribution.................... Other operations .................................... Total operating income .......................
$ 2,320 1,792 494 4,606
$ 2,486 1,180 186 3,852
$ 10,657 3,183 813 14,653
$
Reconciliation of operating income to reported income before taxes: Other income (loss)—net ....................... Interest expense .................................... Reported income before taxes............
122 185 $ 4,543
85 174 $ 3,763
9,207 473 $ 23,387
5,966 497 $ 11,431
1,873 3,560 529 5,962
