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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to             

Commission File Number: 001-14437

RTI INTERNATIONAL METALS, INC.

(Exact name of registrant as specified in its charter)

 

Ohio   52-2115953

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Westpointe Corporate Center One, 5th Floor

1550 Coraopolis Heights Road

Pittsburgh, Pennsylvania

  15108-2973
(Address of principal executive offices)   (Zip Code)

(412) 893-0026

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    x     Accelerated filer   ¨
Non-accelerated filer    ¨   (Do not check if a smaller company)   Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Number of shares of the Corporation’s common stock (“Common Stock”) outstanding as of October 31, 2014 was 30,717,267.

 

 

 


Table of Contents

RTI INTERNATIONAL METALS, INC. AND CONSOLIDATED SUBSIDIARIES

As used in this Quarterly Report on Form 10-Q, the terms “RTI,” “Company,” “Registrant,” “we,” “our,” and “us,” mean RTI International Metals, Inc., its predecessors, and consolidated subsidiaries, taken as a whole, unless the context indicates otherwise.

 

 

INDEX

 

     Page  
     PART I—FINANCIAL INFORMATION       
Item 1.    Financial Statements      1   
  

Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2014 and 2013 (Restated)

     1   
  

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2014 and 2013 (Restated)

     2   
  

Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2014 and December 31, 2013

     3   
  

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2014 and 2013 (Restated)

     4   
  

Notes to Condensed Consolidated Financial Statements (Unaudited)

     5   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      38   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      49   
Item 4.    Controls and Procedures      49   
   PART II—OTHER INFORMATION   
Item 1    Legal Proceedings      52   
Item 1A.    Risk Factors      52   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      52   
Item 4.    Mine Safety Disclosures      53   
Item 6.    Exhibits      53   

Signatures

     54   

Index to Exhibits

     55   


Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2014     2013
(As Restated)
    2014     2013
(As Restated)
 

Net sales

   $ 202,258      $ 194,936      $ 582,137      $ 583,261   

Cost and expenses:

        

Cost of sales

     159,397        149,797        468,495        455,092   

Selling, general, and administrative expenses

     21,732        22,219        71,231        69,138   

Research, technical, and product development expenses

     1,081        1,041        3,274        3,024   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     20,048        21,879        39,137        56,007   

Other income (expense), net

     1,343        (294     1,503        965   

Interest income

     61        78        206        159   

Interest expense

     (7,824     (7,387     (23,155     (32,876
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     13,628        14,276        17,691        24,255   

Provision for income taxes

     1,373        1,701        2,141        5,653   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

   $ 12,255      $ 12,575      $ 15,550      $ 18,602   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to discontinued operations, net of tax

     35        (280     (400     (752
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 12,290      $ 12,295      $ 15,150      $ 17,850   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to continuing operations:

        

Basic

   $ 0.40      $ 0.41      $ 0.51      $ 0.61   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.38      $ 0.38      $ 0.50      $ 0.61   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share attributable to discontinued operations:

        

Basic

   $ —        $ (0.01   $ (0.01   $ (0.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ —        $ (0.01   $ (0.01   $ (0.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding:

        

Basic

     30,512,303        30,325,662        30,484,509        30,285,004   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     40,493,723        40,374,609        30,604,298        30,498,847   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

1


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except share and per share amounts)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014     2013
(As Restated)
     2014     2013
(As Restated)
 

Net income

   $ 12,290      $ 12,295       $ 15,150      $ 17,850   

Other comprehensive income (loss):

         

Foreign currency translation

     (5,612     1,995         (5,703     (3,498

Unrealized gain (loss) on investments, net of tax of $1, $10, $(4) and $(2)

     1        18         (7     (4

Changes in benefit plan accounts, net of tax of $678, $767, $2,032 and $4,572

     1,105        1,250         3,315        9,324   
  

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (4,506     3,263         (2,395     5,822   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income

   $ 7,784      $ 15,558       $ 12,755      $ 23,672   
  

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

2


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

 

     September 30,
2014
    December 31,
2013
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 170,342      $ 343,637   

Short-term investments

     121,968        —     

Receivables, less allowance for doubtful accounts of $1,124 and $820

     121,280        105,271   

Inventories, net

     455,570        430,088   

Costs in excess of billings

     7,017        5,377   

Deferred income taxes

     32,439        32,032   

Assets of discontinued operations

     650        5,274   

Other current assets

     21,308        16,947   
  

 

 

   

 

 

 

Total current assets

     930,574        938,626   

Property, plant, and equipment, net

     374,301        372,340   

Goodwill

     145,450        117,578   

Other intangible assets, net

     58,725        53,754   

Other noncurrent assets

     22,071        23,247   
  

 

 

   

 

 

 

Total assets

   $ 1,531,121      $ 1,505,545   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 86,364      $ 79,039   

Accrued wages and other employee costs

     29,695        29,787   

Unearned revenues

     7,819        15,625   

Liabilities of discontinued operations

     —          458   

Other accrued liabilities

     25,139        22,574   
  

 

 

   

 

 

 

Total current liabilities

     149,017        147,483   

Long-term debt

     446,609        430,300   

Liability for post-retirement benefits

     44,219        43,447   

Liability for pension benefits

     11,409        13,787   

Deferred income taxes

     73,687        74,078   

Unearned revenues

     4,755        10,470   

Other noncurrent liabilities

     10,946        12,006   
  

 

 

   

 

 

 

Total liabilities

     740,642        731,571   
  

 

 

   

 

 

 

Commitments and contingencies (Note 16)

    

Shareholders’ equity:

    

Common stock, $0.01 par value; 100,000,000 and 50,000,000 shares authorized; 31,565,337 and 31,399,661 shares issued; 30,714,132 and 30,593,251 shares outstanding

     316        314   

Additional paid-in capital

     536,848        532,249   

Treasury stock, at cost; 851,205 and 806,410 shares

     (19,649     (18,798

Accumulated other comprehensive loss

     (42,792     (40,397

Retained earnings

     315,756        300,606   
  

 

 

   

 

 

 

Total shareholders’ equity

     790,479        773,974   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,531,121      $ 1,505,545   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

3


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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

     Nine months ended
September 30,
 
     2014     2013
(As Restated)
 

OPERATING ACTIVITIES:

    

Net income

   $ 15,150      $ 17,850   

Adjustment for non-cash items included in net income:

    

Depreciation and amortization

     33,423        32,469   

Goodwill impairment

     —          484   

Deferred income taxes

     (3,076     2,342   

Stock-based compensation

     4,173        4,543   

Excess tax benefits from stock-based compensation activity

     (199     (405

Amortization of discount on long-term debt

     13,467        10,592   

Amortization of debt issuance costs

     1,401        1,210   

Deferred financing cost writedown

     —          1,498   

Other

     43        (95

Changes in assets and liabilities:

    

Receivables

     (17,258     (14,169

Inventories

     (25,188     (35,851

Accounts payable

     7,748        (11,866

Income taxes payable

     (6,296     (11,566

Unearned revenue

     (13,129     12,636   

Costs in excess of billings

     (1,640     (842

Other current assets and liabilities

     4,300        (2,389

Other assets and liabilities

     (322     (101
  

 

 

   

 

 

 

Cash provided by operating activities

     12,597        6,340   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Purchase of investments

     (233,532     (128,324

Maturity/sale of investments

     111,650        82,957   

Acquisitions, net of cash acquired

     (37,217     —     

Capital expenditures

     (26,094     (26,357

Divestitures

     3,281        10,475   
  

 

 

   

 

 

 

Cash used in investing activities

     (181,912     (61,249
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Repayments on long-term debt

     (1,452     (120,590

Financing fees

     —          (12,370

Purchase of common stock held in treasury

     (851     (399

Borrowings on long-term debt

     —          402,500   

Proceeds from exercise of employee stock options

     807        1,960   

Excess tax benefits from stock-based compensation activity

     199        405   
  

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (1,297     271,506   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (2,683     1,234   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (173,295     217,831   

Cash and cash equivalents at beginning of period

     343,637        97,190   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 170,342      $ 315,021   
  

 

 

   

 

 

 

Non-cash investing and financing activities:

    

Increase (decrease) in capital expenditures accrued in accounts payable

   $ 1,208      $ (3,860

Capital leases entered into during the period

   $ 4,870      $ —     

Issuance of common stock for restricted stock awards

   $ 2,856      $ 3,378   

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

4


Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

Note 1—BASIS OF PRESENTATION:

The accompanying unaudited Condensed Consolidated Financial Statements of RTI International Metals, Inc. and its subsidiaries (the “Company” or “RTI”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and include the financial position and results of operations for the Company. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, these financial statements contain all of the adjustments of a normal and recurring nature considered necessary to state fairly the results for the interim periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for the year.

The Condensed Consolidated Balance Sheet at December 31, 2013 has been derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these Condensed Consolidated Financial Statements be read in conjunction with accounting policies and Notes to the Consolidated Financial Statements included in the Company’s 2013 Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2014 (the “Annual Report”).

On April 25, 2014, following shareholder approval at the Company’s Annual Meeting of Shareholders (the “Annual Meeting”), the Company filed a Certificate of Amendment with the Ohio Secretary of State which amended the Company’s Amended and Restated Articles of Incorporation by (1) increasing the number of the Company’s authorized common shares from 50,000,000 to 100,000,000 and (2) deleting the previously authorized but unissued Series A Junior Participating Preferred Stock.

Note 2—ORGANIZATION:

The Company is a leading producer and global supplier of advanced titanium mill products and a manufacturer of fabricated titanium and specialty metal components for the international aerospace, defense, energy, medical device, and other consumer and industrial markets. It is a successor to entities that have been operating in the titanium industry since 1951. The Company first became publicly traded on the New York Stock Exchange in 1990 under the name RMI Titanium Co. and the symbol “RTI,” and was reorganized into a holding company structure in 1998 under the name RTI International Metals, Inc.

On June 3, 2014, the Company acquired all of the issued and outstanding common stock of Dynamet Technology, Inc. (now known as “RTI Advanced Powder Materials”), an industry innovator in titanium powder metallurgy and a supplier of near-net shape titanium and titanium alloy preforms and components to commercial aerospace, defense, biomedical, and industrial customers.

On January 22, 2014, the Company acquired all of the issued and outstanding common stock of Directed Manufacturing, Inc. (now known as “RTI Directed Manufacturing”), a leader in additively manufacturing metals and plastics, using 3-D printing technology, for commercial production and engineering development applications.

 

5


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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Details of the acquisitions of RTI Advanced Powder Materials and RTI Directed Manufacturing, as well as the acquisition of RTI Extrusions Europe in October 2013, are presented in Note 4 to these Condensed Consolidated Financial Statements.

The Company completed the sale of the assets of the specialty metals business of Bow Steel Corporation (“RTI Connecticut”) on February 21, 2014, for approximately $3.3 million in cash. The results of RTI Connecticut have been presented as discontinued operations for the three and nine months ended September 30, 2014. The results of Pierce-Spafford Metals Company, Inc. (“RTI Pierce Spafford”), which was sold in 2013, are reported along with results of RTI Connecticut as discontinued operations for the nine months ended September 30, 2013. Refer to Note 5 to these Condensed Consolidated Financial Statements for further details surrounding the discontinued operations of the Company.

The Company conducts business in two segments: the Titanium Segment and the Engineered Products and Services (“EP&S”) Segment. The structure reflects the Company’s presence as an integrated supplier of advanced titanium mill products as well as engineered and fabricated components across the entire supply chain.

The Titanium Segment melts, processes, produces, forges, stocks, distributes, finishes, cuts-to-size, and facilitates just-in-time delivery services of a complete range of titanium mill products which are further processed by its customers for use in a variety of commercial aerospace, defense, and industrial and consumer applications. With operations in Niles and Canton, Ohio; Martinsville, Virginia; Norwalk, California; Burlington, Massachusetts; Tamworth, England; and Rosny-Sur-Seine, France, the Titanium Segment has overall responsibility for the production and distribution of primary mill products including, but not limited to bloom, billet, sheet, and plate. In addition, the Titanium Segment produces ferro titanium alloys for its steelmaking customers. The Titanium Segment also focuses on the research and development of evolving technologies relating to raw materials, melting, and other production processes, and the application of titanium in new markets.

The EP&S Segment is comprised of companies with significant hard and soft-metal expertise that form, extrude, fabricate, additively manufacture, machine, micro machine, and assemble titanium, aluminum, and other specialty metal parts and components. Its products, many of which are complex engineered parts and assemblies, serve the commercial aerospace, defense, medical device, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. With operations in Minneapolis, Minnesota; Houston and Austin, Texas; Sullivan and Washington, Missouri; Laval, Canada; and Welwyn Garden City and Bradford, England, the EP&S Segment provides value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and subassemblies, and components for the production of minimally invasive and implantable medical devices, as well as engineered systems for deepwater oil and gas exploration and production infrastructure. The EP&S Segment utilizes the Titanium Segment as its primary source of titanium mill products.

Note 3—RESTATEMENTS:

In the Annual Report, the Company restated its Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2013 to establish a full valuation allowance against its Canadian net deferred tax asset, and to correct the related provision for income taxes. The following tables set forth the impact of the restatement, as well as adjustments for the presentation of RTI Connecticut as a discontinued operation, on

 

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Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Cash Flows as filed in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2013 as filed with the SEC on November 12, 2013.

Condensed Consolidated Statements of Operations:

 

     Three Months Ended September 30, 2013  
     Previously
Reported (1)
    Restatement
Adjustment
    As
Corrected
    Discontinued
Operations
    Currently
Reported
 

Net sales

   $ 196,532      $ —        $ 196,532      $ (1,596   $ 194,936   

Cost and expenses:

          

Cost of sales

     151,435        —          151,435        (1,638     149,797   

Selling, general, and administrative expenses

     22,491        —          22,491        (272     22,219   

Research, technical, and product development expenses

     1,041        —          1,041        —          1,041   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     21,565        —          21,565        314        21,879   

Other income, net

     (294     —          (294     —          (294

Interest income

     78        —          78        —          78   

Interest expense

     (7,387     —          (7,387     —          (7,387
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     13,962        —          13,962        314        14,276   

Provision for income taxes

     1,670        (3     1,667        34        1,701   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

     12,292        3        12,295        280        12,575   

Net income (loss) attributable to discontinued operations, net of tax

     —          —          —          (280     (280
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 12,292      $ 3      $ 12,295      $ —        $ 12,295   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to continuing operations:

          

Basic

   $ 0.40      $ —        $ 0.40      $ 0.01      $ 0.41   

Diluted

   $ 0.37      $ —        $ 0.37      $ 0.01      $ 0.38   

Loss per share attributable to discontinued operations:

          

Basic

   $ —        $ —        $ —        $ (0.01   $ (0.01

Diluted

   $ —        $ —        $ —        $ (0.01   $ (0.01

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidated Statement of Operations in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013.

 

7


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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

     Nine Months Ended September 30, 2013  
     Previously
Reported (1)
    Restatement
Adjustment
    As
Corrected
    Discontinued
Operations
    Currently
Reported
 

Net sales

   $ 588,514      $ —        $ 588,514      $ (5,253   $ 583,261   

Cost and expenses:

          

Cost of sales

     460,192        —          460,192        (5,100     455,092   

Selling, general, and administrative expenses

     70,040        —          70,040        (902     69,138   

Research, technical, and product development expenses

     3,024        —          3,024        —          3,024   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     55,258        —          55,258        749        56,007   

Other income, net

     965        —          965        —          965   

Interest income

     159        —          159        —          159   

Interest expense

     (32,876     —          (32,876     —          (32,876
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     23,506        —          23,506        749        24,255   

Provision for income taxes

     3,507        1,993        5,500        153        5,653   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

     19,999        (1,993     18,006        596        18,602   

Net income (loss) attributable to discontinued operations, net of tax

     (156     —          (156     (596     (752
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 19,843      $ (1,993   $ 17,850      $ —        $ 17,850   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to continuing operations:

          

Basic

   $ 0.66      $ (0.07   $ 0.59      $ 0.02      $ 0.61   

Diluted

   $ 0.65      $ (0.07   $ 0.59      $ 0.02      $ 0.61   

Loss per share attributable to discontinued operations:

          

Basic

   $ (0.01   $ —        $ (0.01   $ (0.02   $ (0.02

Diluted

   $ (0.01   $ —        $ (0.01   $ (0.02   $ (0.02

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidated Statement of Operations in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidated Statement of Cash Flows:

 

    September 30, 2013  
    Previously
Reported (1)
    Restatement
Adjustment
    Currently
Reported
 

OPERATING ACTIVITIES:

     

Net income

  $ 19,843      $ (1,993   $ 17,850   

Adjustment for non-cash items included in net income:

     

Depreciation and amortization

    32,469        —          32,469   

Goodwill impairments

    484        —          484   

Deferred income taxes

    349        1,993        2,342   

Stock-based compensation

    4,543        —          4,543   

Excess tax benefits from stock-based compensation activity

    (405     —          (405

Amortization of discount on long-term debt

    10,592        —          10,592   

Deferred financing cost writedown

    1,498        —          1,498   

Other

    1,115        —          1,115   

Changes in assets and liabilities:

     

Receivables

    (14,169     —          (14,169

Inventories

    (35,851     —          (35,851

Accounts payable

    (11,866     —          (11,866

Income taxes payable

    (11,566     —          (11,566

Unearned revenue

    12,636        —          12,636   

Cost in excess of billings

    (842     —          (842

Other current assets and liabilities

    (2,493     104        (2,389

Other assets and liabilities

    3        (104     (101
 

 

 

   

 

 

   

 

 

 

Cash provided by (used in) operating activities

    6,340        —          6,340   

INVESTING ACTIVITIES:

     

Divestitures

    10,475        —          10,475   

Maturity/sale of investments

    82,957        —          82,957   

Capital expenditures

    (26,357     —          (26,357

Purchase of investments

    (128,324     —          (128,324
 

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investing activities

    (61,249     —          (61,249

FINANCING ACTIVITIES:

     

Proceeds from exercise of employee stock options

    1,960        —          1,960   

Excess tax benefits from stock-based compensation activity

    405        —          405   

Purchase of common stock held in treasury

    (399     —          (399

Borrowings on long-term debt

    402,500        —          402,500   

Repayments on long-term debt

    (120,590     —          (120,590

Financing fees

    (12,370     —          (12,370
 

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

    271,506        —          271,506   

Effect of exchange rate changes on cash and cash equivalents

    1,234        —          1,234   
 

 

 

   

 

 

   

 

 

 

Decrease in cash and cash equivalents

    217,831        —          217,831   

Cash and cash equivalents at beginning of period

    97,190        —          97,190   
 

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ 315,021      $ —        $ 315,021   
 

 

 

   

 

 

   

 

 

 

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidated Statement of Cash Flows in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013. The previously reported changes in inventory, cost in excess of billings, and deferred revenue have been adjusted by $543, $323, and $(866) to correct the prior presentation.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 4—ACQUISITIONS:

RTI Advanced Powder Materials. On June 3, 2014, the Company purchased all of the outstanding common stock of RTI Advanced Powder Materials for total consideration of approximately $19.2 million, including $15.5 million in cash, $1.6 million in contingent consideration, and the assumption of $2.1 million in liabilities. RTI Advanced Powder Materials is an industry innovator in titanium powder metallurgy and a supplier of near-net shape titanium and titanium alloy preforms and components to commercial aerospace, defense, biomedical and industrial customers. Subsequent to its acquisition, RTI Advanced Powder Materials was merged with and into the RMI Titanium Company, which is part of the Titanium Segment. From the acquisition date through September 30, 2014, RTI Advanced Powder Materials generated revenues of $0.2 million and an operating loss of $0.6 million.

The preliminary purchase price allocation, which has not been finalized, is as follows:

 

Assets purchased:

  

Current assets, excluding inventory

   $ 392   

Inventories

     174   

Plant and equipment

     101   

Intangible assets:

  

Customer relationships

     3,250   

Developed technology

     850   

Backlog

     100   

Goodwill

     14,354   

Liabilities assumed:

  

Current liabilities

     (389

Deferred tax liabilities

     (1,724

Contingent consideration

     (1,600
  

 

 

 

Net assets acquired

   $ 15,508   
  

 

 

 

The purchase price allocation was adjusted during the three months ended September 30, 2014 as a result of further evaluation of RTI Advanced Powder Materials’ opening balance sheet. These adjustments resulted in decreases to the customer relationships and developed technology intangible assets and an increase to goodwill in the preceding purchase price allocation.

Goodwill is primarily attributable to the Company’s exposure to new materials and production methods, which is expected to enhance the Company’s existing product offerings, and is not deductible for income tax purposes. Customer relationships and developed technology intangible assets are being amortized over a seven-year useful life, while the backlog intangible asset is being amortized over a one-year useful life. The purchase price allocation remained open at September 30, 2014, with the exception of the contingent consideration which was finalized as of September 30, 2014.

Pro forma financial information has not been prepared for the acquisition of RTI Advanced Powder Materials as the acquisition was not material to the Condensed Consolidated Financial Statements.

RTI Directed Manufacturing. On January 22, 2014, the Company purchased all of the outstanding common stock of RTI Directed Manufacturing for total consideration of approximately $22.1 million, including $21.7 million in cash and the assumption of $0.4 million in liabilities. RTI Directed Manufacturing additively

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

manufactures plastic and metal, including titanium, components using 3-D printing technology for a variety of markets. The results of RTI Directed Manufacturing are reported in the EP&S Segment. From the acquisition date through September 30, 2014, RTI Directed Manufacturing generated revenues of $2.0 million and an operating loss of $1.0 million.

The preliminary purchase price allocation, which has not been finalized, is as follows:

 

Assets purchased:

  

Current assets, excluding inventory

   $ 717   

Inventories

     452   

Plant and equipment

     1,973   

Intangible assets:

  

Customer relationships

     2,800   

Directed Manufacturing trade name

     1,000   

Developed technology

     1,100   

Goodwill

     14,074   

Liabilities assumed:

  

Current liabilities

     (285
  

 

 

 

Net assets acquired

   $ 21,831   
  

 

 

 

The purchase price allocation was adjusted during the three months ended September 30, 2014 as a result of further evaluation of RTI Directed Manufacturing’s opening balance sheet and projections of future performance. These adjustments resulted in decreases to each of the captions in the purchase price allocation.

Goodwill is primarily attributable to RTI Directed Manufacturing’s assembled workforce and exposure to new customers for the Company’s products. Customer relationships and developed technology are being amortized over a seven-year useful life. Trade names are not amortized as the Company believes that these assets have an indefinite life and the Company intends to continue the use of the Directed Manufacturing name indefinitely.

The Company previously disclosed that it was evaluating the appropriateness of a 338(h)(10) election under the Internal Revenue Code (the “I.R.C.”), which would allow the Company to step-up the tax basis of acquired assets to fair value as presented in the purchase price allocation. The Company has since determined that the election is appropriate, and as a result, a significant portion of the purchase price, including goodwill, is deductible for U.S. tax purposes under the provisions of I.R.C. Section 197. The entire purchase price allocation remained open at September 30, 2014.

Pro forma financial information has not been prepared for the acquisition of RTI Directed Manufacturing as the acquisition was not material to the Condensed Consolidated Financial Statements.

RTI Extrusions Europe Limited. On October 1, 2013, the Company purchased all of the outstanding common stock of RTI Extrusions Europe for total consideration of approximately $20.4 million, including $16.2 million in cash, and the assumption of $4.2 million in liabilities. RTI Extrusions Europe manufactures extruded, hot-or-cold stretched steel and titanium parts for a number of markets including the aerospace and oil and gas markets. The results of RTI Extrusions Europe are reported in the EP&S Segment.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The purchase price allocation, which has been finalized, is as follows:

 

Assets purchased:

  

Current assets, excluding inventory

   $ 4,827   

Inventories

     5,230   

Plant and equipment

     4,346   

Intangible assets:

  

Customer relationships

     3,600   

Backlog

     100   

Goodwill

     2,285   

Liabilities assumed:

  

Current liabilities

     (2,621

Deferred tax liabilities

     (1,553
  

 

 

 

Net assets acquired

   $ 16,214   
  

 

 

 

The customer relationship intangible asset is being amortized over a seven-year useful life, while the fully-amortized backlog was amortized over a six-month useful life. Goodwill is primarily attributable to the assembled workforce of RTI Extrusions Europe. Goodwill is not deductible for tax purposes.

Note 5—DISCONTINUED OPERATIONS:

As previously disclosed, in conjunction with the reorganization of its reportable segments in 2013, the Company evaluated its long-term growth strategy and determined it would sell or seek other strategic alternatives for its non-core service centers, RTI Connecticut and RTI Pierce Spafford. In February 2014, the Company completed the sale of the assets of RTI Connecticut for approximately $3.3 million in cash. In April 2013, the Company completed the sale of RTI Pierce Spafford for approximately $12.4 million in cash, of which $10.5 million has been received as of September 30, 2014 with the remainder expected to be received later in 2014.

The results of RTI Connecticut, including all fair value adjustments and losses on the completed sale, have been presented as results from discontinued operations for the three and nine months ended September 30, 2014 and 2013 on the Company’s Condensed Consolidated Statements of Operations, while the results of RTI Pierce Spafford are presented as results of discontinued operations for the nine months ended September 30, 2013. The assets and liabilities of RTI Connecticut have been classified on the Company’s Condensed Consolidated Balance Sheets as assets and liabilities of discontinued operations.

The Company’s results from discontinued operations are summarized below:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
         2014              2013             2014             2013      

Net sales

   $ 30       $ 1,596      $ 834      $ 14,125   

Income (loss) before income taxes

     39         (314     (535     (949

Provision for (benefit from) income taxes

     4         (34     (135     (197

Net income (loss) from discontinued operations

     35         (280     (400     (752

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Assets and liabilities of discontinued operations were comprised of the following at September 30, 2014 and December 31, 2013:

 

     September 30,
2014
     December 31,
2013
 

ASSETS

     

Accounts receivable, net

   $ 68       $ 594   

Inventories, net

     582         4,555   

Property, plant, and equipment, net

     —           105   

Other current assets

     —           20   
  

 

 

    

 

 

 

Total assets of discontinued operations

   $ 650       $ 5,274   
  

 

 

    

 

 

 

LIABILITIES

     

Accounts payable

   $ —         $ 326   

Accrued wages and other employment costs

     —           96   

Other liabilities

     —           36   
  

 

 

    

 

 

 

Total liabilities of discontinued operations

   $ —         $ 458   
  

 

 

    

 

 

 

Note 6—ACCUMULATED OTHER COMPREHENSIVE LOSS:

Accumulated other comprehensive loss is comprised of foreign currency exchange rate fluctuations at the Company’s Canadian subsidiary, changes in prior service costs and actuarial losses related to the Company’s pension plans, and unrealized gains and losses on short-term investments. The components of accumulated other comprehensive loss at September 30, 2014 and December 31, 2013 were as follows:

 

    Foreign
Currency
Translation
    Prior Service
Costs and
Actuarial Losses
on Benefit Plans
    Unrealized
Losses

on
Investments
    Total  

Balance at December 31, 2013

  $ 5,780      $ (46,177   $ —        $ (40,397

Other comprehensive loss before reclassifications, net of tax

    (5,703     —          (7     (5,710

Amounts reclassified from accumulated other comprehensive loss, net of tax

    —          3,315        —          3,315   
 

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive income (loss) at September 30, 2014

  $ 77      $ (42,862   $ (7   $ (42,792
 

 

 

   

 

 

   

 

 

   

 

 

 

Amounts reclassified from accumulated other comprehensive income to net periodic pension expense during the three and nine months ended September 30, 2014 and 2013 were as follows:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2014     2013     2014     2013  

Actuarial losses and prior service costs

   $ 1,783      $ 2,017      $ 5,347      $ 6,463   

Special termination benefits

     —          —          —          2,214   

Tax benefit

     (678     (767     (2,032     (3,296
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassifications

   $ 1,105      $ 1,250      $ 3,315      $ 5,381   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

These amounts have been used in the calculation of net periodic benefit cost for the three and nine months ended September 30, 2014 and 2013. Refer to Note 15 for further information about the Company’s benefit plans.

Note 7—STOCK-BASED COMPENSATION:

On April 25, 2014, the Company established the 2014 Stock and Incentive Plan (the “2014 Plan”) after receiving approval from its shareholders at the Annual Meeting. The 2014 Plan authorized for issuance 3,500,000 common shares, which includes approximately 711,000 shares that were never issued under the expired RTI International Metals, Inc. 2004 Stock Plan (the “2004 Plan”). Additionally, shares that are currently subject to previously granted awards under the 2004 Plan would become available for awards under the 2014 Plan in the event of forfeiture, expiration or termination of a 2004 Plan award or in the event shares are delivered in payment for or are withheld for taxes in connection with a 2004 Plan award.

Stock Options

A summary of the status of the Company’s stock options as of September 30, 2014, and the activity during the nine months then ended, is presented below:

 

Stock Options

   Options  

Outstanding at December 31, 2013

     526,736   

Granted

     103,472   

Forfeited

     (20,272

Expired

     (32,211

Exercised

     (27,914
  

 

 

 

Outstanding at September 30, 2014

     549,811   
  

 

 

 

Exercisable at September 30, 2014

     380,969   
  

 

 

 

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model based upon the assumptions noted in the following table:

 

     2014  

Risk-free interest rate

     1.51

Expected dividend yield

     0.00

Expected lives (in years)

     5.0   

Expected volatility

     55.00

The weighted-average grant date fair value of stock option awards granted during the nine months ended September 30, 2014 was $14.73.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Restricted Stock

A summary of the status of the Company’s nonvested restricted stock as of September 30, 2014, and the activity during the nine months then ended, is presented below:

 

Nonvested Restricted Stock Awards

   Shares  

Nonvested at December 31, 2013

     213,475   

Granted

     96,806   

Vested

     (92,259

Forfeited

     (17,657
  

 

 

 

Nonvested at September 30, 2014

     200,365   
  

 

 

 

The fair value of restricted stock grants was calculated using the market value of the Company’s Common Stock on the date of issuance. The weighted-average grant date fair value of restricted stock awards granted during the nine months ended September 30, 2014 was $29.50.

Performance Share Awards

A summary of the Company’s performance share awards as of September 30, 2014, and the activity during the nine months then ended, is presented below:

 

Performance Share Awards

   Awards
Activity
    Maximum Shares
Eligible to
Receive
 

Outstanding at December 31, 2013

     154,333        308,666   

Granted

     70,875        141,750   

Vested

     (42,442     (84,884

Forfeited

     (21,798     (43,596
  

 

 

   

 

 

 

Outstanding at September 30, 2014

     160,968        321,936   
  

 

 

   

 

 

 

The performance awards issued in 2014 have both market and performance vesting conditions. The payout of fifty percent of the awards is based upon the Company’s total shareholder return compared to the total shareholder return of a relative peer group over a three-year period. These awards were valued using a Monte Carlo model. The payout of the remaining fifty percent of the awards is based upon the Company’s annual diluted earnings per share growth over a three-year period. These awards have been accounted for as awards with performance conditions using the market value of the Company’s Common Stock on the date of issuance. Expense on these awards is recognized over the performance period and is determined based on the probability that the performance targets will be achieved. The weighted-average grant-date fair value of these shares awarded during the nine months ended September 30, 2014 was $34.96.

Note 8—INCOME TAXES:

Management estimates the annual effective income tax rate quarterly, based on current annual forecasted results. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

For the nine months ended September 30, 2014, the estimated annual effective tax rate applied to ordinary income from continuing operations was 25.0%, compared to a rate of 39.2% for the nine months ended September 30, 2013. The Company’s effective income tax rate decreased 14.3 percentage points from 2013 principally because no tax expense was recorded on income expected to be earned in 2014 by the Company’s Canadian subsidiary, and no tax benefit was recognized in prior years when Canadian net operating losses were generated by this subsidiary.

Due to the Canadian subsidiary’s cumulative losses over a number of years, the Company recorded a full valuation allowance at December 31, 2010 and for all subsequent periods, against its Canadian net deferred tax asset position, which is principally comprised of net operating losses. At September 30, 2014, the Company’s Canadian net deferred tax asset totaled $30.5 million, with an offsetting valuation allowance of the same amount.

For the nine months ended September 30, 2014 and for the full 2014 calendar year, the Company’s Canadian subsidiary is expected to generate taxable income, which will not result in a tax charge for financial statement purposes, since no benefit was recognized in prior years for the net operating losses that are offsetting the current year taxable income. The effect of utilizing these Canadian net operating losses, for which a benefit is not currently recognized in the financial statements, reduced the Company’s estimated annual effective income tax rate by 4.4 percentage points.

Inclusive of discrete items, the Company recorded a provision for income taxes of $2,141, or 12.1% of pretax income from continuing operations, and $5,653 (as restated), or 23.3% of pretax income from continuing operations, for federal, state, and foreign income taxes for the nine months ended September 30, 2014 and 2013, respectively. A discrete benefit of $2,283 was reflected for the nine months ended September 30, 2014 and was primarily due to adjustments to unrecognized tax benefits due to a lapse of the statute of limitations. A $3,843 discrete benefit was reflected for the nine months ended September 30, 2013 primarily related to the revaluation of certain deferred tax liabilities due to changes in state and U.K. tax laws and from the effective settlement of a tax audit during the period.

Note 9—EARNINGS PER SHARE:

Basic earnings per share (“EPS”) was computed by dividing net income attributable to common shareholders by the weighted-average number of shares of Common Stock outstanding for each respective period. Diluted EPS was calculated by dividing net income attributable to common shareholders by the weighted-average of all potentially dilutive shares of Common Stock that were outstanding during the periods presented. The Company’s restricted stock awards are considered participating securities. As such, the Company uses the two-class method to compute basic and diluted EPS.

At September 30, 2014, the Company had $114.4 million aggregate principal amount of its 3.000% Convertible Senior Notes due December 2015 (the “2015 Notes”) and $402.5 million aggregate principal amount of its 1.625% Convertible Senior Notes due October 2019 (the “2019 Notes”) outstanding. The calculation of diluted EPS for the three months ended September 30, 2014 and for the three months ended September 30, 2013 was calculated by adding back interest expense, net of tax, related to the 2019 Notes to the numerator and adding shares underlying the 2019 Notes to the denominator using the “If Converted” method. Shares underlying the 2015 Notes and certain stock options were excluded from the calculation of EPS as their effects were antidilutive.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Shares excluded from the calculation of EPS for the three and nine months ending September 30, 2014 and 2013 were as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014      2013      2014      2013  

2015 Notes

     3,185,213         3,185,213         3,185,213         3,185,213   

2019 Notes

     —           —           9,885,561         9,885,561   

Antidilutive options (1)

     368,326         241,334         370,488         238,090   

 

(1) Average option price of shares excluded from calculation of EPS were $39.94 and $47.50 for the three months ended September 30, 2014 and 2013, respectively, and $40.47 and $48.29 for the nine months ended September 30, 2014 and 2013, respectively.

The following illustrates the earnings allocation method utilized in the calculation of basic and diluted EPS. Actual weighted-average shares of Common Stock outstanding used in the calculation of basic and diluted EPS for the three and nine months ended September 30, 2014 and 2013 were as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013
(As Restated)
    2014     2013
(As Restated)
 

Numerator—basic earnings per share:

       

Net income from continuing operations before allocation of earnings to participating securities

  $ 12,255      $ 12,575      $ 15,550      $ 18,602   

Less: Earnings allocated to participating securities

    (80     (87     (98     (125
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations attributable to common shareholders, after earnings allocated to participating securities used in calculation of basic earnings per share

  $ 12,175      $ 12,488      $ 15,452      $ 18,477   
 

 

 

   

 

 

   

 

 

   

 

 

 

Numerator—diluted earnings per share:

       

Net income from continuing operations before allocation of earnings to participating securities

  $ 12,255      $ 12,575      $ 15,550      $ 18,602   

Interest expense on 2019 Notes, net of tax

    3,218        2,853        N/A        N/A   

Less: Earnings allocated to participating securities

    (101     (107     (98     (125
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations attributable to common shareholders, after earnings allocated to participating securities used in calculation of diluted earnings per share

  $ 15,372      $ 15,321      $ 15,452      $ 18,477   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from discontinued operations before allocation of earnings to participating securities

  $ 35      $ (280   $ (400   $ (752

Less: Earnings allocated to participating securities

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from discontinued operations attributable to common shareholders, after earnings allocated to participating securities

  $ 35      $ (280   $ (400   $ (752
 

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

       

Basic weighted-average shares outstanding

    30,512,303        30,325,662        30,484,509        30,285,004   

Effect of dilutive securities

    9,981,420        10,048,947        119,789        213,843   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted-average shares outstanding

    40,493,723        40,374,609        30,604,298        30,498,847   
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to continuing operations:

       

Basic

  $ 0.40      $ 0.41      $ 0.51      $ 0.61   

Diluted

  $ 0.38      $ 0.38      $ 0.50      $ 0.61   

Earnings (loss) per share attributable to discontinued operations:

       

Basic

  $ 0.00      $ (0.01   $ (0.01   $ (0.02

Diluted

  $ 0.00      $ (0.01   $ (0.01   $ (0.02

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 10—CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

Cash and cash equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents principally consist of investments in short-term money market funds and corporate commercial paper with original maturities of less than 90 days.

Available-for-sale securities

Investments with maturities of less than one year are classified as available-for-sale, short-term investments and are recorded at fair value based on market quotes using the specific identification method, with unrealized gains and losses recorded as a component of accumulated other comprehensive loss until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis. The Company considers these investments to be available-for-sale as they may be sold to fund other investment opportunities as they arise.

The major categories of the Company’s cash equivalents and available-for-sale, short-term investments are as follows:

Commercial paper

The Company invests in high-quality commercial paper issued by highly-rated corporations and governments. By definition, the stated maturity on commercial paper obligations cannot exceed 270 days.

Money market mutual funds

The Company invests in money market mutual funds that seek to maintain a stable net asset value of $1.00, while limiting overall exposure to credit, market, and liquidity risks.

Cash, cash equivalents, and short-term investments consist of the following:

 

    September 30,
2014
    December 31,
2013
 

Cash and cash equivalents:

   

Cash

  $ 67,873      $ 62,394   

Cash equivalents:

   

Commercial paper

    39,794        150,978   

Money market mutual funds

    62,675        130,265   
 

 

 

   

 

 

 

Total cash and cash equivalents

    170,342        343,637   
 

 

 

   

 

 

 

Short-term investments:

   

Commercial paper

    121,968        —     
 

 

 

   

 

 

 

Total short-term investments

    121,968        —     
 

 

 

   

 

 

 

Total cash, cash equivalents, and short-term investments

  $ 292,310      $ 343,637   
 

 

 

   

 

 

 

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The Company had no short- or long-term investments at December 31, 2013. The Company’s short-term investments at September 30, 2014 were as follows:

 

     Amortized
Cost
     Gross Unrealized      Fair Value  
          Gains          Losses       

As of September 30, 2014

           

Commercial Paper

   $ 121,979       $ —         $ 11       $ 121,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 121,979       $ —         $ 11       $ 121,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company typically purchases its available-for-sale debt securities either at a premium or a discount. The premium or discount is amortized over the remaining term of each security using the interest method. Amortization is recorded as either a decrease to interest income for premiums or an increase to interest income for discounts. For the nine months ended September 30, 2014, net amortization of premiums and discounts was immaterial.

The Company classifies investments maturing within one year as short-term investments. Investments maturing in excess of one year are classified as noncurrent. All of the Company’s investments had contractual maturities of less than one year at September 30, 2014.

As of September 30, 2014, no investments classified as available-for-sale had been in a continuous unrealized loss position for greater than twelve months. The Company believes that the unrealized losses on the available-for-sale portfolio as of September 30, 2014 are temporary in nature and are related to market interest rate fluctuations and not indicative of a deterioration in the creditworthiness of the issuers.

Note 11—FAIR VALUE MEASUREMENTS:

For certain of the Company’s financial instruments and account groupings, including cash, accounts receivable, costs in excess of billings, accounts payable, accrued wages and other employee costs, unearned revenue, and other accrued liabilities, the carrying value approximates fair value.

 

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Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Listed below are the Company’s assets and liabilities and their fair values, which are measured at fair value on a recurring basis, as of September 30, 2014. The Company uses trading prices near the balance sheet date to determine the fair value of its assets measured on a recurring basis. The fair value of contingent consideration payable that was classified as Level 3 relates to our probability assessments of expected future revenues related to the RTI Advanced Powder Materials acquisition. The contingent consideration is to be paid over the next 10 years, and there is no limit to the potential amount of contingent consideration. As of September 30, 2014, the purchase price allocation for the RTI Advanced Powder Materials contingent consideration was finalized. The Company held no assets or liabilities measured at fair value on a recurring basis as of December 31, 2013. There were no transfers between levels for the nine months ended September 30, 2014.

 

     Quoted
Market Prices
(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Fair Value  

Assets measured on a recurring basis as of September 30, 2014:

           

Commercial Paper

   $ —         $ 121,968       $ —         $ 121,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 121,968       $ —         $ 121,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities measured on a recurring basis as of September 30, 2014:

           

Contingent Consideration

   $ —         $ —         $ 1,600       $ 1,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ 1,600       $ 1,600   
  

 

 

    

 

 

    

 

 

    

 

 

 

The carrying amounts and fair values of financial instruments for which the fair value option was not elected were as follows:

 

     September 30, 2014      December 31, 2013  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

Cash and cash equivalents

   $ 170,342       $ 170,342       $ 343,637       $ 343,637   

Current portion of long-term debt

   $ 2,366       $ 2,366       $ 1,914       $ 1,914   

Long-term debt

   $ 446,609       $ 517,668       $ 430,300       $ 559,986   

The fair value of long-term debt was estimated based on significant observable inputs, including recent trades and trading levels of the outstanding debt on September 30, 2014 and December 31, 2013 (Level 2).

 

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Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 12—INVENTORIES:

Inventories were valued at cost as determined by the last-in, first-out (“LIFO”) method for approximately 53% and 56% of the Company’s inventories at September 30, 2014 and December 31, 2013, respectively. The remaining inventories are valued at cost determined by a combination of the first-in, first-out (“FIFO”) and weighted-average cost methods. Inventory costs generally include materials, labor, and manufacturing overhead (including depreciation). As of September 30, 2014 and December 31, 2013, the current FIFO cost of inventories exceeded their LIFO carrying value by $36,074 and $50,709, respectively. When market conditions indicate an excess of carrying cost over market value, a lower-of-cost-or-market provision is recorded. Inventories consisted of the following:

 

     September 30,
2014
    December 31,
2013
 

Raw materials and supplies

   $ 143,594      $ 166,359   

Work-in-process and finished goods

     348,050        314,438   

LIFO reserve

     (36,074     (50,709
  

 

 

   

 

 

 

Total inventories, net

   $ 455,570      $ 430,088   
  

 

 

   

 

 

 

Note 13—GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill. The Company does not amortize goodwill; however, the carrying amount of goodwill is tested at least annually for impairment. Absent any events throughout the year which would indicate a potential impairment has occurred, the Company performs its annual impairment testing during the fourth quarter.

While there were no impairments during the first nine months of 2014, uncertainties or other factors that could result in a potential impairment in future periods include:

 

    the Company’s ability to improve the operational performance of its Medical Device Fabrication reporting unit,

 

    unfavorable changes in program pricing, reductions in expected demand, or future production delays related to the Boeing 787 Pi Box program, and

 

    any cancellation of one of the other major aerospace programs in which the Company currently participates, including the Joint Strike Fighter program, the Airbus family of aircraft, including the A380 and A350XWB programs, or the Boeing 747-8 program.

At both September 30, 2014 and December 31, 2013, the EP&S Segment had accumulated goodwill impairment losses of $22,858, while the Titanium Segment had no accumulated goodwill impairment losses. The carrying amounts of goodwill attributable to each segment at December 31, 2013 and September 30, 2014 were as follows:

 

     Titanium
Segment
     Engineered
Products and
Services
Segment
    Total  

December 31, 2013

   $ 9,662       $ 107,916      $ 117,578   

Additions (Note 4)

     14,354         14,074        28,428   

Purchase price allocation adjustment

     —           100        100   

Translation adjustment

     —           (656     (656
  

 

 

    

 

 

   

 

 

 

September 30, 2014

   $ 24,016       $ 121,434      $ 145,450   
  

 

 

    

 

 

   

 

 

 

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Intangibles. Intangible assets consist primarily of customer relationships, trade names, and developed technology acquired through various business combinations. The fair values of these intangible assets were originally determined at acquisition. In the event that long-term demand or market conditions change and the expected future cash flows associated with these assets are reduced, a write-down or acceleration of the amortization period may be required. Trade names are not amortized, as the Company believes that these assets have an indefinite life as the Company currently intends to continue use of the Remmele and Directed Manufacturing names indefinitely. Other intangible assets are being amortized over the following periods:

 

Intangible Asset

   Amortization
Period
 

Customer relationships

     7-20 years   

Developed technology

     7-20 years   

Backlog

     2 years or less   

There were no intangible assets attributable to the Titanium Segment at December 31, 2013. The acquisition of RTI Advanced Powder Materials in June 2014 was incorporated into the Titanium Segment. The carrying amounts of intangible assets attributable to each segment at December 31, 2013 and September 30, 2014 were as follows:

 

     Titanium
Segment
    Engineered
Products and
Services
Segment
    Total  

December 31, 2013

   $ —        $ 53,754      $ 53,754   

Intangible assets acquired (Note 4)

     4,200        4,900        9,100   

Amortization

     (229     (3,315     (3,544

Translation adjustment

     —          (585     (585
  

 

 

   

 

 

   

 

 

 

September 30, 2014

   $ 3,971      $ 54,754      $ 58,725   
  

 

 

   

 

 

   

 

 

 

Note 14—LONG-TERM DEBT:

Long-term debt consisted of:

 

     September 30, 
2014
    December 31, 
2013
 

$402.5 million aggregate principal amount 1.625% Convertible Senior Notes due 2019

   $ 328,804      $ 319,569   

$114.4 million aggregate principal amount 3.000% Convertible Senior Notes due 2015

     107,297        103,065   

Capital leases

     12,874        9,580   
  

 

 

   

 

 

 

Total debt

     448,975        432,214   

Less: Current portion of capital leases

     (2,366     (1,914
  

 

 

   

 

 

 

Total long-term debt

   $ 446,609      $ 430,300   
  

 

 

   

 

 

 

During the three and nine months ended September 30, 2014, the Company recorded, as a component of interest expense, long-term debt discount amortization of $4,552 and $13,467, respectively. Interest expense

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

from the amortization of debt issuance costs was $472 and $1,401 for the three and nine months ended September 30, 2014, respectively. No interest was capitalized for the three and nine months ended September 30, 2014.

During the three and nine months ended September 30, 2013, the Company recorded, as a component of interest expense, long-term debt discount amortization of $4,266 and $10,592, respectively. Interest expense from the amortization of debt issuance costs was $457 and $1,210 for the three and nine months ended September 30, 2013, respectively. The Company did not capitalize any interest during the three or nine months ended September 30, 2013.

Note 15—EMPLOYEE BENEFIT PLANS:

Components of net periodic pension and other post-retirement benefit costs for the three and nine months ended September 30, 2014 and 2013 for those salaried and hourly covered employees were as follows:

 

     Pension Benefits     Other Post-Retirement Benefits  
     Three Months
Ended

September 30,
    Nine Months Ended
September 30,
    Three Months
Ended

September 30,
     Nine Months
Ended

September 30,
 
     2014     2013     2014     2013     2014      2013      2014      2013  

Service cost

   $ 527      $ 594      $ 1,581      $ 1,879      $ 239       $ 177       $ 718      $ 570   

Interest cost

     1,965        1,715        5,897        5,096        534         481         1,601        1,439   

Expected return on plan assets

     (2,826     (2,615     (8,478     (7,814     —           —           —           —     

Amortization of prior service cost

     228        248        685        744        173         304         517        911   

Amortization of actuarial loss

     1,359        1,412        4,075        4,614        24         53         71        194   

Settlement loss

     427        —          427        —          —           —           —           —     

Special termination benefits

     —          —          —          2,052        —           —           —           162   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost

   $ 1,680      $ 1,354      $ 4,187      $ 6,571      $ 970       $ 1,015       $ 2,907      $ 3,276   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Additionally, the Company recognized $1,105 and $3,315, net of tax, as a component of accumulated other comprehensive loss related to amortization of actuarial losses and prior service costs, for the three and nine months ended September 30, 2014, respectively.

The Company recorded an expense of $427 in net periodic benefit cost during the three and nine months ended September 30, 2014, reflecting a settlement charge that has been incurred as a result of a voluntary early retirement program participant with benefits payable under the Company’s supplemental pension plan. The Company recorded an expense of $2,214 in net periodic benefit cost during the nine months ended September 30, 2013 related to the remeasurement of its qualified defined benefit pension plans and post-retirement medical plans as a result of a voluntary early retirement program initiated during the period.

The Company made contributions of $1,100 to its qualified defined benefit plans during the nine months ended September 30, 2014. The Company does not currently expect to make any additional contributions to its Company-sponsored pension plans during the remainder of 2014.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 16—COMMITMENTS AND CONTINGENCIES:

From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. In the Company’s opinion, the ultimate liability, if any, resulting from these matters will have no significant effect on its Condensed Consolidated Financial Statements. Given the critical nature of many of the aerospace end uses for the Company’s products, including specifically their use in critical rotating parts of gas turbine engines, the Company maintains aircraft products liability insurance of $500 million, which includes grounding liability.

Environmental Matters

Based on available information, the Company believes that its share of possible environmental-related costs is in a range from $0.5 million to $2.1 million in the aggregate. At September 30, 2014 and December 31, 2013, the amount accrued for future environmental-related costs was $1.2 million and $1.3 million, respectively. Of the total amount accrued at September 30, 2014, $0.1 million was expected to be paid within the next twelve months, and was included as a component of other accrued liabilities on the Company’s Condensed Consolidated Balance Sheet. The remaining $1.1 million was recorded as a component of other noncurrent liabilities. During the three months ended September 30, 2014, there were no payments made related to environmental liabilities, and during the nine months ended September 30, 2014, the Company made payments of $0.1 million related to its environmental liabilities.

Other Matters

The Company is also the subject of, or a party to, a number of other pending or threatened legal actions involving a variety of matters incidental to its business. The Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of the operations, cash flows, or the financial position of the Company.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 17—SEGMENT REPORTING:

The Company has two reportable segments: the Titanium Segment and the EP&S Segment. The EP&S Segment utilizes the Titanium Segment as its primary source of titanium mill products. Reportable segments are measured by the Company’s Chief Operating Decision Maker based on revenues and segment operating income after an allocation of certain corporate items such as general corporate overhead and expenses. Assets of general corporate activities include unallocated cash and deferred taxes. A summary of financial information by reportable segment is as follows:

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2014     2013
(As Restated)
    2014     2013
(As Restated)
 

Net sales:

       

Titanium Segment

  $ 94,986      $ 88,065      $ 255,284      $ 268,411   

Intersegment sales

    20,876        24,375        68,469        65,993   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Titanium Segment sales

    115,862        112,440        323,753        334,404   

EP&S Segment

    107,272        106,871        326,853        314,850   

Intersegment sales

    21,847        14,142        71,928        47,181   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total EP&S Segment sales

    129,119        121,013        398,781        362,031   

Eliminations

    42,723        38,517        140,397        113,174   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated net sales

  $ 202,258      $ 194,936      $ 582,137      $ 583,261   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income:

       

Titanium Segment before corporate allocations

  $ 20,625      $ 21,786      $ 43,435      $ 59,397   

Corporate allocations

    (4,520     (4,641     (13,565     (14,051
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Titanium Segment operating income

    16,105        17,145        29,870        45,346   

EP&S Segment before corporate allocations

    10,049        9,953        27,575        26,682   

Corporate allocations

    (6,106     (5,219     (18,308     (16,021
 

 

 

   

 

 

   

 

 

   

 

 

 

Total EP&S Segment operating income

    3,943        4,734        9,267        10,661   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated operating income

  $ 20,048      $ 21,879      $ 39,137      $ 56,007   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

     September 30,
2014
     December 31,
2013
 

Total assets:

     

Titanium Segment

   $ 674,288       $ 604,123   

EP&S Segment

     611,331         585,867   

General corporate assets

     244,852         310,281   

Assets of discontinued operations

     650         5,274   
  

 

 

    

 

 

 

Total consolidated assets

   $ 1,531,121       $ 1,505,545   
  

 

 

    

 

 

 

 

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Table of Contents

RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Note 18—NEW ACCOUNTING STANDARDS:

In August 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements—Going Concern—Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The amendment requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosures. The guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect that the adoption of the ASU will have a material impact on its Condensed Consolidated Financial Statements.

In June 2014, the FASB issued ASU 2014-12, “Compensation—Stock Compensation—Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company does not expect that the adoption of the ASU will have a material impact on its Condensed Consolidated Financial Statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact of the adoption of this ASU on its Condensed Consolidated Financial Statements.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU amends the requirements for reporting discontinued operations to include only disposals of a component or groups of components of an entity if the disposal represents a strategic shift that has or will have a major effect on the entity’s operations and financial results. The amendment requires additional disclosure regarding disposals that meet the criteria for discontinued operations in the ASU, and is effective for all disposals within annual and interim periods beginning on or after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. The Company does not expect that the adoption of the ASU will have a material impact on its Condensed Consolidated Financial Statements.

In July 2013, the FASB issued ASU 2013-11, “Income Taxes—Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This ASU prescribes the Balance Sheet presentation for unrecognized tax benefits in the presence of a net operating loss carryforward, tax loss or tax credit carryforward. The amendments in the ASU do not require any new recurring disclosures, and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance during the nine months ended September 30, 2014 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In March 2013, the FASB issued ASU 2013-05, “Foreign Currency Matters—Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU clarifies the applicable guidance for the

 

26


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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

release of the cumulative translation adjustment under current U.S. GAAP. The amendments in this ASU are effective prospectively for annual and interim reporting periods beginning after December 15, 2013. The adoption of this guidance during the nine months ended September 30, 2014 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In February 2013, the FASB issued ASU 2013-04, “Liabilities—Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date.” This ASU provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the ASU is fixed at the reporting date. The amendments in this ASU are effective prospectively for annual and interim reporting periods beginning after December 15, 2013. The adoption of this guidance during the nine months ended September 30, 2014 did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Note 19—GUARANTOR SUBSIDIARIES:

The 2015 Notes and 2019 Notes (together, the “Notes”) are jointly and severally, fully and unconditionally (subject to the customary exceptions discussed below) guaranteed by several 100% owned subsidiaries (the “Guarantor Subsidiaries”) of RTI International Metals, Inc. (the “Parent”). Each Guarantor Subsidiary would be automatically released from its guarantee of the Notes if either (i) it ceased to be a guarantor under the Parent’s Second Amended and Restated Credit Agreement or (ii) it ceased to be a direct or indirect subsidiary of the Parent. Separate financial statements of the Parent and each of the Guarantor Subsidiaries are not presented because the guarantees are full and unconditional (subject to the aforementioned customary exceptions) and the Guarantor Subsidiaries are jointly and severally liable. The Company believes separate financial statements and other disclosures concerning the Guarantor Subsidiaries would not be material to investors in the Notes.

There are no current restrictions on the ability of the Guarantor Subsidiaries to make payments under the guarantees referred to above, except, however, the obligations of each Guarantor Subsidiary under its guarantee will be limited to the maximum amount as will result in obligations of such Guarantor Subsidiary under its guarantee not constituting a fraudulent conveyance or fraudulent transfer for purposes of bankruptcy law, the Uniform Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar Federal or state law.

The Condensed Consolidating Statements of Operations for the three and nine months ended September 30, 2013 have been restated to correct the provision for income taxes related to the establishment of a full valuation allowance against the Company’s Canadian net deferred tax asset. The following tables present the Condensed Consolidating Statements of Operations as presented in the Company’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2013 as filed with the SEC on November 12, 2013, and the restated balances as presented in the Annual Report. The restatement impacts the provision for income taxes and all related subtotals for the non-guarantor subsidiaries. The non-guarantor subsidiary results have also been recast for the presentation of RTI Connecticut as a discontinued operation. Refer to Note 3 for details of restatement adjustments. The restatement adjustments had no impact on the Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2013.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Three Months Ended September 30, 2013

(unaudited)

 

    RTI International
Metals, Inc.
    Guarantors     Non-Guarantors     Eliminations     Consolidated  
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
 

Net sales

  $ —        $ —        $ 128,285      $ 128,285      $ 116,754      $ 115,158      $ (48,507   $ (48,507   $ 196,532      $ 194,936   

Cost of sales

    —          —          103,808        103,808        96,134        94,496        (48,507   $ (48,507     151,435        149,797   

Selling, general, and administrative expenses

    712        712        10,808        10,808        10,971        10,699        —          —          22,491        22,219   

Research, technical, and product development expenses

    —          —          1,037        1,037        4        4        —          —          1,041        1,041   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (712     (712     12,632        12,632        9,645        9,959        —          —          21,565        21,879   

Other income (expense), net

    4,120        4,120        (2,520     (2,520     (1,894     (1,894     —          —          (294     (294

Interest income (expense), net

    (5,488     (5,488     (1,571     (1,571     (250     (250     —          —          (7,309     (7,309

Equity in earnings of subsidiaries

    11,876        12,268        (439     (439     532        532        (11,969     (12,361     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    9,796        10,188        8,102        8,102        8,033        8,347        (11,969     (12,361     13,962        14,276   

Provision for (benefit from) income taxes

    (2,496     (2,387     2,665        2,665        1,501        1,423        —          —          1,670        1,701   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

    12,292        12,575        5,437        5.437        6,532        6,924        (11,969     (12,361     12,292        12,575   

Net loss attributable to discontinued operations, net of tax

    —          (280     —          —          —          (280     —          280        —          (280
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 12,292      $ 12,295      $ 5,437      $ 5,437      $ 6,532      $ 6,644      $ (11,969   $ (12,081   $ 12,292      $ 12,295   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 16,251      $ 15,558      $ 6,561      $ 6,561      $ 9,224      $ 8,640      $ (15,785   $ (15,201   $ 16,251      $ 15,558   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidating Statement of Operations in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Nine Months Ended September 30, 2013

(unaudited)

 

    RTI International
Metals, Inc.
    Guarantors     Non-Guarantors     Eliminations     Consolidated  
  Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
    Previously
Reported (1)
    As
Restated
 

Net sales

  $ —        $ —        $ 401,236      $ 401,236      $ 343,492      $ 338,239      $ (156,214   $ (156,214   $ 588,514      $ 583,261   

Cost of sales

    —          —          325,858        325,858        290,548        285,448        (156,214   $ (156,214     460,192        455,092   

Selling, general, and administrative expenses

    2,416        2,416        33,550        33,550        34,074        33,172        —          —          70,040        69,138   

Research, technical, and product development expenses

    —          —          3,020        3,020        4        4        —          —          3,024        3,024   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (2,416     (2,416     38,808        38,808        18,866        19,615        —          —          55,258        56,007   

Other income (expense), net

    4,230        4,230        (3,800     (3,800     535        535        —          —          965        965   

Interest income (expense), net

    (15,510     (15,510     (10,210     (10,210     (6,997     (6,997     —          —          (32,717     (32,717

Equity in earnings of subsidiaries

    26,681        25,277        (549     (549     1,485        1,485        (27,617     (26,213     —          —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    12,985        11,581        24,249        24,249        13,889        14,638        (27,617     (26,213     23,506        24,255   

Provision for (benefit from) income taxes

    (7,014     (7,021     7,541        7,541        2,980        5,133        —          —          3,507        5,653   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

    19,999        18,602        16,708        16,708        10,909        9,505        (27,617     (26,213     19,999        18,602   

Net loss attributable to discontinued operations, net of tax

    (156     (752     —          —          (156     (752     156        752        (156     (752
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 19,843      $ 17,850      $ 16,708      $ 16,708      $ 10,753      $ 8,753      $ (27,461   $ (25,461   $ 19,843      $ 17,850   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 24,574      $ 23,672      $ 25,089      $ 25,089      $ 6,164      $ 5,255      $ (31,253   $ (30,344   $ 24,574      $ 23,672   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1): Previously reported balances represent the amounts reported in the Condensed Consolidating Statement of Operations in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013 as filed with the SEC on November 12, 2013.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

The following tables present Condensed Consolidating Financial Statements as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013:

Condensed Consolidating Statement of Operations and Comprehensive Income

Three Months Ended September 30, 2014

 

     RTI
International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 124,863      $ 123,299      $ (45,904   $ 202,258   

Costs and expenses:

          

Cost of sales

     —          100,997        104,304        (45,904     159,397   

Selling, general, and administrative expenses (1)

     (1,565     11,277        12,020        —          21,732   

Research, technical, and product development expenses

     —          1,056        25        —          1,081   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     1,565        11,533        6,950        —          20,048   

Other income (expense), net

     (2,711     2,036        2,018        —          1,343   

Interest expense, net

     (5,944     (1,048     (771     —          (7,763

Equity in earnings of subsidiaries

     12,554        306        416        (13,276     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     5,464        12,827        8,613        (13,276     13,628   

Provision for (benefit from) income taxes

     (6,791     5,910        2,254        —          1,373   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

   $ 12,255      $ 6,917      $ 6,359      $ (13,276   $ 12,255   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to discontinued operations, net of tax

   $ 35      $ —        $ 35      $ (35   $ 35   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 12,290      $ 6,917      $ 6,394      $ (13,311   $ 12,290   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 7,784      $ 7,871      $ 782      $ (8,653   $ 7,784   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Parent allocates selling, general, and administrative expenses (“SG&A”) to the subsidiaries based upon its budgeted annual expenses. A credit in parent SG&A is offset by an equal debit amount in the subsidiaries’ SG&A.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Three Months Ended September 30, 2013

 

     RTI International
Metals, Inc.
(As Restated)
    Guarantor
Subsidiaries
(As Restated)
    Non-Guarantor
Subsidiaries
(As Restated)
    Eliminations
(As Restated)
    Consolidated
(As Restated)
 

Net sales

   $ —        $ 128,285      $ 115,158      $ (48,507   $ 194,936   

Costs and expenses:

          

Cost of sales

     —          103,808        94,496        (48,507     149,797   

Selling, general, and administrative expenses (1)

     712        10,808        10,699        —          22,219   

Research, technical, and product development expenses

     —          1,037        4        —          1,041   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (712     12,632        9,959        —          21,879   

Other income (expense)

     4,120        (2,520     (1,894     —          (294

Interest expense, net

     (5,488     (1,571     (250     —          (7,309

Equity in earnings of subsidiaries

     12,268        (439     532        (12,361     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     10,188        8,102        8,347        (12,361     14,276   

Provision for (benefit from) income taxes

     (2,387     2,665        1,423        —          1,701   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

   $ 12,575      $ 5,437      $ 6,924      $ (12,361   $ 12,575   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to discontinued operations, net of tax

   $ (280   $ —        $ (280   $ 280      $ (280
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 12,295      $ 5,437      $ 6,644      $ (12,081   $ 12,295   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 15,558      $ 6,561      $ 8,640      $ (15,201   $ 15,558   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Parent allocates SG&A to the subsidiaries based upon its budgeted annual expenses.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Nine Months Ended September 30, 2014

 

    RTI International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

  $ —        $ 358,489      $ 373,034      $ (149,386   $ 582,137   

Costs and expenses:

         

Cost of sales

    —          307,350        310,531        (149,386     468,495   

Selling, general, and administrative expenses (1)

    (997     34,584        37,644        —          71,231   

Research, technical, and product development expenses

    —          3,236        38        —          3,274   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    997        13,319        24,821        —          39,137   

Other income (expense), net

    (4     219        1,288        —          1,503   

Interest expense, net

    (17,701     (3,293     (1,955     —          (22,949

Equity in earnings of subsidiaries

    24,089        872        1,718        (26,679     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    7,381        11,117        25,872        (26,679     17,691   

Provision for (benefit from) income taxes

    (8,169     4,894        5,416        —          2,141   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

  $ 15,550      $ 6,223      $ 20,456      $ (26,679   $ 15,550   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to discontinued operations, net of tax

  $ (400   $ —        $ (400   $ 400      $ (400
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 15,150      $ 6,223      $ 20,056      $ (26,279   $ 15,150   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 12,755      $ 9,079      $ 14,353      $ (23,432   $ 12,755   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Parent allocates SG&A to the subsidiaries based upon its budgeted annual expenses. A credit in parent SG&A is offset by an equal debit amount in the subsidiaries’ SG&A.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Nine Months Ended September 30, 2013

 

     RTI International
Metals, Inc.

(As Restated)
    Guarantor
Subsidiaries
(As Restated)
    Non-Guarantor
Subsidiaries
(As Restated)
    Eliminations
(As Restated)
    Consolidated
(As Restated)
 

Net sales

   $ —        $ 401,236      $ 338,239      $ (156,214   $ 583,261   

Costs and expenses:

          

Cost of sales

     —          325,858        285,448        (156,214     455,092   

Selling, general, and administrative expenses (1)

     2,416        33,550        33,172        —          69,138   

Research, technical, and product development expenses

     —          3,020        4        —          3,024   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (2,416     38,808        19,615        —          56,007   

Other income (expense)

     4,230        (3,800     535        —          965   

Interest expense, net

     (15,510     (10,210     (6,997     —          (32,717

Equity in earnings of subsidiaries

     25,277        (549     1,485        (26,213     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     11,581        24,249        14,638        (26,213     24,255   

Provision for (benefit from) income taxes

     (7,021     7,541        5,133        —          5,653   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to continuing operations

   $ 18,602      $ 16,708      $ 9,505      $ (26,213   $ 18,602   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to discontinued operations, net of tax

   $ (752   $ —        $ (752   $ 752      $ (752
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 17,850      $ 16,708      $ 8,753      $ (25,461   $ 17,850   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 23,672      $ 25,089      $ 5,255      $ (30,344   $ 23,672   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Parent allocates SG&A to the subsidiaries based upon its budgeted annual expenses.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Balance Sheet

As of September 30, 2014

 

     RTI
International
Metals, Inc.
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

             

Current assets:

             

Cash and cash equivalents

   $ —         $ 122,060       $ 48,282       $ —        $ 170,342   

Short-term investments

     —           121,968         —           —          121,968   

Receivables, net

     1,588         65,861         76,943         (23,112     121,280   

Inventories, net

     —           302,142         153,428         —          455,570   

Cost in excess of billings

     —           2,620         4,397         —          7,017   

Deferred income taxes

     27,396         2,755         2,288         —          32,439   

Assets of discontinued operations

     —           —           650         —          650   

Other current assets

     13,727         2,930         4,651         —          21,308   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     42,711         620,336         290,639         (23,112     930,574   

Property, plant, and equipment, net

     2,120         283,391         88,790         —          374,301   

Goodwill

     —           94,911         50,539         —          145,450   

Other intangible assets, net

     —           33,573         25,152         —          58,725   

Other noncurrent assets

     8,954         7,104         6,013         —          22,071   

Intercompany investments (1)

     1,275,690         148,296         55,251         (1,479,237     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,329,475       $ 1,187,611       $ 516,384       $ (1,502,349   $ 1,531,121   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

             

Current liabilities:

             

Accounts payable

   $ 1,796       $ 56,383       $ 51,297       $ (23,112   $ 86,364   

Accrued wages and other employee costs

     5,328         16,137         8,230         —          29,695   

Unearned revenue

     —           43         7,776         —          7,819   

Other accrued liabilities

     7,402         6,970         10,767         —          25,139   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     14,526         79,533         78,070         (23,112     149,017   

Long-term debt

     436,100         296         10,213         —          446,609   

Intercompany debt

     9,124         47,812         240,157         (297,093     —     

Liability for post-retirement benefits

     —           44,219         —           —          44,219   

Liability for pension benefits

     5,679         5,571         159         —          11,409   

Deferred income taxes

     68,074         1,748         3,865         —          73,687   

Unearned revenue

     —           —           4,755         —          4,755   

Other noncurrent liabilities

     5,493         5,172         281         —          10,946   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     538,996         184,351         337,500         (320,205     740,642   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Shareholders’ equity

     790,479         1,003,260         178,884         (1,182,144     790,479   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,329,475       $ 1,187,611       $ 516,384       $ (1,502,349   $ 1,531,121   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Intercompany investments include equity investments and intercompany loans receivable from legal entities not included within the same consolidation.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Balance Sheet

As of December 31, 2013

 

     RTI
International
Metals, Inc.
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

ASSETS

             

Current assets:

             

Cash and cash equivalents

   $ —         $ 312,202       $ 31,435       $ —        $ 343,637   

Receivables, net

     786         57,397         69,847         (22,759     105,271   

Inventories, net

     —           265,621         164,467         —          430,088   

Costs in excess of billings

     —           3,800         1,577         —          5,377   

Deferred income taxes

     31,656         —           376         —          32,032   

Assets of discontinued operations

     —           —           5,274         —          5,274   

Other current assets

     9,425         2,984         4,538         —          16,947   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     41,867         642,004         277,514         (22,759     938,626   

Property, plant, and equipment, net

     2,328         292,033         77,979         —          372,340   

Goodwill

     —           79,705         37,873         —          117,578   

Other intangible assets, net

     —           31,184         22,570         —          53,754   

Other noncurrent assets

     11,025         7,184         5,038         —          23,247   

Intercompany investments (1) (2)

     1,240,671         108,693         109,638         (1,459,002     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,295,891       $ 1,160,803       $ 530,612       $ (1,481,761   $ 1,505,545   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

             

Current liabilities:

             

Accounts payable

   $ 1,948       $ 54,111       $ 45,739       $ (22,759   $ 79,039   

Accrued wages and other employee costs

     6,598         14,093         9,096         —          29,787   

Unearned revenue

     —           288         15,337         —          15,625   

Liabilities of discontinued operations

     —           —           458         —          458   

Other accrued liabilities

     6,800         5,101         10,673           22,574   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     15,346         73,593         81,303         (22,759     147,483   

Long-term debt

     422,634         738         6,928         —          430,300   

Intercompany debt (2)

     —           402,114         210,550         (612,664     —     

Liability for post-retirement benefits

     —           43,447         —           —          43,447   

Liability for pension benefits

     5,943         7,685         159         —          13,787   

Deferred income taxes

     70,006         —           4,072         —          74,078   

Unearned revenue

     —           —           10,470         —          10,470   

Other noncurrent liabilities

     7,988         3,763         255         —          12,006   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     521,917         531,340         313,737         (635,423     731,571   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Shareholders’ equity (2)

     773,974         629,463         216,875         (846,338     773,974   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,295,891       $ 1,160,803       $ 530,612       $ (1,481,761   $ 1,505,545   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Intercompany investments include equity investments and intercompany loans receivable from legal entities not included within the same consolidation.
(2) The Condensed Consolidating Balance sheet has been adjusted to correct the prior presentation of intercompany debt and investment balances. Previously, certain intercompany debt and investment balances had been netted, resulting in the understatement of total assets and liabilities of both the Guarantor Subsidiaries and Non-Guarantor Subsidiaries, as well as understatement of Guarantor Subsidiaries Shareholders’ Equity. These adjustments increased (decreased) intercompany investments by $82,070, $103,917, and $(185,987); intercompany debt by $44,970, $103,917, and $(148,887); and shareholders’ equity by $37,100, $-, and $(37,100) for Guarantor Subsidiaries, Non-Guarantor Subsidiaries, and Eliminations, respectively.

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2014

 

     RTI
International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash provided by (used in) operating activities

   $ 39,351      $ 8,601      $ 15,538      $ (50,893   $ 12,597   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Investments in subsidiaries, net

     (346,642     —          —          346,642        —     

Acquisitions, net of cash acquired

     —          (15,508     (21,709     —          (37,217

Capital expenditures

     (185     (13,403     (12,506     —          (26,094

Short-term investments, net

     —          (121,882     —          —          (121,882

Divestitures

     —          —          3,281        —          3,281   

Intercompany debt activity, net

     298,197        (39,582     56,105        (314,720     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investing activities

     (48,630     (190,375     25,171        31,922        (181,912

Financing activities:

          

Proceeds from exercise of employee stock options

     807        —          —          —          807   

Excess tax benefits from stock-based compensation activity

     199        —          —          —          199   

Parent company investments, net of distributions

     —          346,642        (50,893     (295,749     —     

Repayments on long-term debt

     —          (708     (744     —          (1,452

Intercompany debt activity, net

     9,124        (354,302     30,458        314,720        —     

Purchase of common stock held in treasury

     (851     —          —          —          (851
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) financing activities

     9,279        (8,368     (21,179     18,971        (1,297

Effect of exchange rate changes on cash and cash equivalents

     —          —          (2,683     —          (2,683
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     —          (190,142     16,847        —          (173,295

Cash and cash equivalents at beginning of period

     —          312,202        31,435        —          343,637   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ —        $ 122,060      $ 48,282      $ —        $ 170,342   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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RTI INTERNATIONAL METALS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except share and per share amounts, unless otherwise indicated)

 

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2013

 

     RTI
International
Metals, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash provided by (used in) operating activities

   $ 3,413      $ 8,745      $ (5,818   $ —        $ 6,340   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities:

          

Acquisitions, net of cash acquired

     —          —          10,475        —          10,475   

Investments in subsidiaries, net

     (34,492     —          —          34,492        —     

Capital expenditures

     (946     (19,229     (6,182     —          (26,357

Investments, net

     —          (45,367     —          —          (45,367

Intercompany debt activity, net (1)

     (240,267     (5,507     2,156        243,618        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by (used in) investing activities

     (275,705     (70,103     6,449        278,110        (61,249
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

          

Proceeds from exercise of employee stock options

     1,960        —          —          —          1,960   

Excess tax benefits from stock-based compensation activity

     405        —          —          —          405   

Financing fees

     (12,370     —          —          —          (12,370

Parent company investments/dividends, net

     —          99        34,393        (34,492     —     

Borrowings on long-term debt

     402,500        —          —          —          402,500   

Repayments on long-term debt

     (119,917     (673     —          —          (120,590

Intercompany debt activity, net (1)

     —          238,111        5,507        (243,618     —     

Purchase of common stock held in treasury

     (399     —          —          —          (399

Other financing activities

     113        99        (212     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by financing activities

     272,292        237,636        39,688        (278,110     271,506   

Effect of exchange rate changes on cash and cash equivalents

     —          —          1,234        —          1,234   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase in cash and cash equivalents

     —          176,278        41,553        —          217,831   

Cash and cash equivalents at beginning of period

     —          87,283        9,907        —          97,190   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ —        $ 263,561      $ 51,460      $ —        $ 315,021   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The Condensed Consolidating Statements of Cash Flows have been adjusted to revise the presentation of intercompany debt activities to present gross investing and financing activities, rather than net financing activities as previously reported. These adjustments increased (decreased) cash flows from investing activities for the Parent, Guarantor Subsidiaries, Non-Guarantor Subsidiaries, and Eliminations by $(240,267), $(5,507), $2,156 and $243,618 and increased (decreased) cash flows from financing activities for the Parent, Guarantor Subsidiaries, Non-Guarantor Subsidiaries, and Eliminations by $240,267, $5,507, $(2,156) and $(243,618), respectively.

 

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following discussion should be read in connection with the information contained in the Condensed Consolidated Financial Statements and the Notes to the Condensed Consolidated Financial Statements. The following information contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created by that Act. Such forward-looking statements may be identified by their use of words like “expects,” “anticipates,” “believes,” “intends,” “estimates,” “projects,” or other words of similar meaning. Forward-looking statements are based on expectations and assumptions regarding future events. In addition to factors discussed throughout this quarterly report, the following factors and risks should also be considered, including, without limitation:

 

    global economic and political uncertainties,

 

    a significant portion of our revenue is concentrated within the commercial aerospace and defense industries and the limited number of potential customers within those industries,

 

    changes in defense spending and cancellation or changes in defense programs or initiatives, including the Joint Strike Fighter program,

 

    long-term supply agreements and the impact if another party to a long-term supply agreement fails to fulfill its requirements under existing contracts or successfully manage its future development and production schedule,

 

    our ability to successfully integrate newly acquired businesses,

 

    if our internal controls are not effective, investors could lose confidence in our financial reporting,

 

    our ability to recover the carrying value of goodwill and other intangible assets,

 

    our dependence on products and services that are subject to price and availability fluctuations,

 

    our ability to protect our data and systems against corruption and cyber-security threats and attacks,

 

    fluctuations in our income tax obligations and effective income tax rate,

 

    our ability to execute on new business awards,

 

    demand for our products,

 

    competition in the titanium industry,

 

    the future availability and prices of raw materials,

 

    the historic cyclicality of the titanium and commercial aerospace industries,

 

    energy shortages or cost increases,

 

    labor matters,

 

    risks related to international operations,

 

    our ability to attract and retain key personnel,

 

    the ability to obtain access to financial markets and to maintain current covenant requirements,

 

    potential costs for violations of applicable environmental, health, and safety laws,

 

    the fluctuation of the price of our Common Stock, and

 

    our ability to generate sufficient cash flow to satisfy our debt obligations.

 

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Table of Contents

Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These and other risk factors are set forth in this filing, as well as in other filings filed with or furnished to the Securities and Exchange Commission (“SEC”) over the last 12 months, copies of which are available from the SEC or may be obtained upon request from RTI International Metals, Inc. (the “Company,” “RTI,” “we,” “us,” or “our”). Any forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof, and we caution you not to unduly rely on them. Except as may be required by applicable law, we undertake no duty to update our forward-looking information.

Overview

Overview

We are a leading producer and global supplier of advanced titanium mill products and supplier of fabricated titanium and specialty metal components for the international aerospace, defense, medical device, energy, and other consumer and industrial markets. We conduct our global operations through two segments: the Titanium Segment and the Engineered Products and Services (“EP&S”) Segment.

The Titanium Segment melts, processes, produces, forges, stocks, distributes, finishes, cuts-to-size, and facilitates just-in-time delivery services of a complete range of titanium mill products which are further processed by its customers for use in a variety of commercial aerospace, defense, and industrial and consumer applications. With operations in Niles and Canton, Ohio; Martinsville, Virginia; Norwalk, California; Burlington, Massachusetts; Tamworth, England; and Rosny-Sur-Seine, France, the Titanium Segment has overall responsibility for the production and distribution of primary mill products including, but not limited to, bloom, billet, sheet, and plate. In addition, the Titanium Segment produces ferro titanium alloys for its steel-making customers. The Titanium Segment also focuses on the research and development of evolving technologies relating to raw materials, melting, and other production processes, and the application of titanium in new markets.

The EP&S Segment is comprised of companies with significant hard and soft-metal expertise that form, extrude, fabricate, machine, additively manufacture, micro machine, and assemble titanium, aluminum, and other specialty metal parts and components. Its products, many of which are complex engineered parts and assemblies, serve commercial aerospace, defense, medical device, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets. With operations in Minneapolis, Minnesota; Houston and Austin, Texas; Sullivan and Washington, Missouri; Laval, Canada; and Welwyn Garden City and Bradford, England, the EP&S Segment provides value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and sub-assemblies, and components for the production of minimally invasive and implantable medical devices, as well as engineered systems for deepwater oil and gas exploration and production infrastructure.

The EP&S Segment utilizes the Titanium Segment as its primary source of titanium mill products. For the three months ended September 30, 2014 and 2013, approximately 18% and 22%, respectively, of the Titanium Segment’s sales were to the EP&S Segment. For the nine months ended September 30, 2014 and 2013, approximately 21% and 20%, respectively, of the Titanium Segment’s sales were to the EP&S Segment.

Trends and Uncertainties

The commercial aerospace industry, which represents our largest market, continues to strengthen as the ramp in production activity stays on track to support the growing, record commercial aerospace backlog. We continue to win additional commercial aerospace business through the spectrum of products and services that we offer within our EP&S Segment. We also continue to increase the use of titanium produced at our mill in these commercial aerospace applications, which we anticipate will drive margin benefits at an enterprise level. In addition to the offerings of our EP&S Segment, we have experienced increased demand for offerings from our Titanium Segment in the commercial aerospace engine market, including a recently negotiated agreement to

 

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Table of Contents

supply titanium aluminide for use in turbine engines. As we expand our product offerings and manufacturing capabilities, we have experienced and may continue to experience increased costs related to the development of these offerings and capabilities, which could have negative impacts on our operations. Notwithstanding the short-term impact of customer de-risking strategies, political instability in Russia, Ukraine, and the Middle East, as well as a weakening European economy, the strengthening of the U.S. Dollar, and the threat of an Ebola virus epidemic, could cause our customers to maintain a cautious outlook in the near-term.

We continue to experience short-term difficulties in the medical device market; however, we see long-term profitable growth within the market as short-term pricing pressures related to the Patient Protection and Affordable Care Act are expected to be overcome by long-term growth resulting from aging populations and continued advances in medical technology. Additionally, the recent fall in oil prices could cause reductions in offshore exploration and drilling.

U.S. defense spending continues to be a source of uncertainty, but we continue to see support for key programs such as the JSF and other aircraft, as well as a radar modernization program, which we believe provides stability for our defense market sales.

Results of Operations

Three Months Ended September 30, 2014 Compared To Three Months Ended September 30, 2013

Net Sales. Net sales for our reportable segments, excluding intersegment sales, for the three months ended September 30, 2014 and 2013 were as follows:

 

     Three Months Ended
September 30,
               
(In millions except percentages)    2014      2013
(As Restated)
     $ Increase/
(Decrease)
     % Increase/
(Decrease)
 

Titanium Segment

   $ 95.0       $ 88.0       $ 7.0         8.0

EP&S Segment

     107.3         106.9         0.4         0.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consolidated net sales

   $ 202.3       $ 194.9       $ 7.4         3.8
  

 

 

    

 

 

    

 

 

    

 

 

 

The increase in the Titanium Segment’s net sales was primarily the result of an increase in shipments of prime mill products to trade customers to 2.7 million pounds for the three months ended September 30, 2014, from 1.9 million pounds for the three months ended September 30, 2013, partially offset by a lower-priced product mix which resulted in a 23% decrease in average realized selling prices to $13.71 per pound for the three months ended September 30, 2014, from $17.80 per pound for the three months ended September 30, 2013, primarily driven by the mix of lower-priced mill products. Higher sales of processed mill products to commercial aerospace customers increased the Titanium Segment’s net sales by a further $3.8 million.

The increase in the EP&S Segment’s net sales was the result of achieving full-rate production under the Boeing 787 Pi Box program, which increased net sales $11.2 million, as well as the acquisitions of RTI Extrusions Europe and RTI Directed Manufacturing, which increased net sales $5.8 million, and higher sales to the medical device market totaling $0.6 million. Offsetting these increases were lower energy market project sales of $9.4 million, non-787 Pi Box-related commercial aerospace sales of $1.7 million, and lower defense aerospace and radar sales of $3.5 and $2.7 million, respectively.

 

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Gross Profit. Gross profit for our reportable segments for the three months ended September 30, 2014 and 2013 was as follows:

 

     Three Months Ended
September 30,
             
     2014     2013
(As Restated)
             
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 25.1         26.4   $ 26.8         30.5   $ (1.7     (6.3 )% 

EP&S Segment

     17.8         16.6     18.3         17.1     (0.5     (2.7 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total consolidated gross profit

   $ 42.9         21.2   $ 45.1         23.1   $ (2.2     (4.9 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The decrease in the Titanium Segment’s gross profit was primarily attributable to lower duty drawback recoveries of $1.9 million and a lower-priced product mix, which reduced gross profit $4.0 million. Partially offsetting these decreases were gross profit improvements of $4.4 million related to higher sales volumes.

The decrease in the EP&S Segment’s gross profit was driven primarily by build-rate adjustments and normalized duty drawback recoveries during the three months ended September 30, 2014, which collectively reduced gross profit $4.5 million. Partially offsetting these decreases were a continued recovery in the medical device market which increased gross profit $3.0 million, and the acquisitions of RTI Extrusions Europe and RTI Directed Manufacturing, which increased gross profit $1.0 million.

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses (“SG&A”) for our reportable segments for the three months ended September 30, 2014 and 2013 were as follows:

 

     Three Months Ended
September 30,
             
     2014     2013
(As Restated)
             
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 7.9         8.3   $ 8.6         9.8   $ (0.7     (8.1 )% 

EP&S Segment

     13.8         12.9     13.6         12.7     0.2        1.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total consolidated SG&A

   $ 21.7         10.7   $ 22.2         11.4   $ (0.5     (2.3 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The decrease in SG&A expenses was primarily due to a $1.5 million reduction in compensation costs, partially offset by an increase in SG&A expenses due to the acquisition of RTI Extrusions Europe in October 2013 and RTI Directed Manufacturing in January 2014 of $0.7 million and $0.3 million, respectively.

Research, Technical, and Product Development Expenses. Research, technical, and product development expenses were $1.1 million and $1.0 million for the three months ended September 30, 2014 and 2013, respectively. This spending reflects our continued focus on productivity and quality enhancements to our current manufacturing processes, as well as new product development.

 

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Operating Income. Operating income for our reportable segments for the three months ended September 30, 2014 and 2013 was as follows:

 

     Three Months Ended
September 30,
             
     2014     2013
(As Restated)
             
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 16.1         16.9   $ 17.2         19.5   $ (1.1     (6.4 )% 

EP&S Segment

     3.9         3.6     4.7         4.4     (0.8     (17.0 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total consolidated operating income

   $ 20.0         9.9   $ 21.9         11.2   $ (1.9     (8.7 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The decrease in the Titanium Segment’s operating income was primarily the result of lower pricing and lower duty drawback recoveries during the three months ended September 30, 2014, partially offset by higher volume.

The decrease in the EP&S Segment’s operating income was driven primarily by build-rate adjustments for certain aerospace programs, lower duty drawback recoveries, and higher SG&A during the three months ended September 30, 2014, partially offset by increased medical device market volumes and the impact of recent acquisitions.

Other Income (Expense), Net. Other income (expense), net, was $1.3 million and $(0.3) million for the three months ended September 30, 2014 and 2013, respectively. Other income (expense) consisted of foreign exchange gains and losses from our international operations and realized gains (losses) on sales of available-for-sale securities. Other income during the three months ended September 30, 2014 was driven by foreign exchange gains totaling $1.3 million during the period.

Interest Income and Interest Expense. Interest income was not material for each of the three months ended September 30, 2014 and 2013. Interest expense for the three months ended September 30, 2014 and 2013 was $7.8 million and $7.4 million, respectively.

Our interest expense for the three months ended September 30, 2014 and 2013 was attributable to the following:

 

     Three Months Ended
September 30,
 
         2014              2013      

1.625% Convertible Senior Notes due 2019

   $ 4,738       $ 4,570   

3.000% Convertible Senior Notes due 2015

     2,307         2,188   

Other

     779         629   
  

 

 

    

 

 

 

Total

   $ 7,824       $ 7,387   
  

 

 

    

 

 

 

 

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Provision for Income Taxes. We recognized a provision for income taxes of $1.4 million, or 10.1% of pretax income, and $1.7 million, or 11.9% of pretax income, for federal, state, and foreign income taxes on continuing operations for the three months ended September 30, 2014 and 2013, respectively. Discrete items for the three months ended September 30, 2014 resulted in a benefit of $2.1 million and were primarily related to adjustments to unrecognized tax benefits due to a lapse of the statute of limitations. Discrete items for the three months ended September 30, 2013 resulted in a benefit of $2.6 million and were primarily related to a reduction of certain deferred tax liabilities due to changes in state and U.K. tax laws. This change in the provision for income taxes is illustrated in the table below:

 

Provision for income taxes for the three months ended September 30, 2013 (As Restated)

     $ 1.7   

Items resulting in changes in income tax provision between periods:

    

Tax at statutory rate of 35% resulting from a decrease in income between periods

   $ (0.3  

State income taxes, net of federal effects

     2.4     

Tax reserves and prior years’ income taxes

     (1.5  

Foreign income taxed at different rates

     (0.2  

Bond premium disallowance

     (0.4  

Other

     (0.3     (0.3 )
  

 

 

   

 

 

 

Provision for income taxes for the three months ended September 30, 2014

     $ 1.4  
    

 

 

 

Because of our Canadian subsidiary’s cumulative losses over several years, no financial statement benefit has been recognized for its deferred tax assets, including its net operating losses (“NOLs”). As a result, income expected to be earned by the Company’s Canadian subsidiary in 2014 has an effective tax rate of zero. The effect of reversing the valuation allowance on the Company’s Canadian net deferred tax asset in the three month period is reflected in the “foreign income taxed at different rates” above.

Refer to Note 8 of the accompanying Condensed Consolidated Financial Statements for additional information regarding income taxes.

Nine Months Ended September 30, 2014 Compared To Nine Months Ended September 30, 2013

Net Sales. Net sales for our reportable segments, excluding intersegment sales, for the nine months ended September 30, 2014 and 2013 were as follows:

 

     Nine Months Ended
September 30,
              
(In millions except percentages)    2014      2013
(As Restated)
     $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 255.3       $ 268.4       $ (13.1     (4.9 )% 

EP&S Segment

     326.8         314.9         11.9        3.8
  

 

 

    

 

 

    

 

 

   

 

 

 

Total consolidated net sales

   $ 582.1       $ 583.3       $ (1.2     (0.2 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

The decrease in the Titanium Segment’s net sales was primarily the result of a 17.9% decrease in average realized selling prices to $15.00 per pound for the nine months ended September 30, 2014, from $18.26 per pound for the nine months ended September 30, 2013, which was the result of a lower-priced product mix. Shipments of prime mill product to trade customers were consistent at 5.9 million pounds for both the nine months ended September 30, 2014 and the nine months ended September 30, 2013. The decrease was partially offset by higher sales of processed mill products to commercial aerospace customers which increased the Titanium Segment’s net sales $5.2 million.

The increase in the EP&S Segment’s net sales was primarily attributable to achieving full-rate production on the Boeing 787 Pi Box program, which increased net sales $45.4 million, as well as the acquisitions of RTI Extrusions Europe and RTI Directed Manufacturing, which increased net sales $17.5 million. Partially offsetting

 

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these increases were decreases of $22.0 million related to decreased activity on energy market projects, $14.0 million related to commercial aerospace build-rate schedule reductions as well as other commercial aerospace-related decreases, $12.8 million related to defense market programs, and lower demand from our medical device market customers, which decreased net sales by $2.5 million.

Gross Profit. Gross profit for our reportable segments for the nine months ended September 30, 2014 and 2013 was as follows:

 

    Nine Months Ended
September 30,
             
    2014     2013
(As Restated)
             
(In millions except percentages)   $     % of
Sales
    $     % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

  $ 58.8        23.0   $ 74.5        27.8   $ (15.7     (21.1 )% 

EP&S Segment

    54.8        16.8     53.7        17.1     1.1        2.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated gross profit

  $ 113.6        19.5   $ 128.2        22.0   $ (14.6     (11.4 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The decrease in the Titanium Segment’s gross profit was primarily attributable to a lower-priced product mix, partially offset by increased shipments to commercial aerospace customers. Additionally, lower duty drawback recoveries of $8.9 million during the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 were primarily due to the backlog of claims that were filed in 2013. The decrease was partially offset by a $1.6 million expense related to a voluntary early retirement program recorded during the nine months ended September 30, 2013.

The increase in the EP&S Segment’s gross profit was primarily attributable to achieving full-rate production on the Boeing 787 Pi Box program, which increased gross profit $11.8 million. These increases were partially offset by adjustments to certain commercial aerospace build-rate schedules and lower margins on medical device sales during the nine months ended September 30, 2014.

Selling, General, and Administrative Expenses. SG&A for our reportable segments for the nine months ended September 30, 2014 and 2013 were as follows:

 

     Nine Months Ended
September 30,
             
     2014     2013
(As Restated)
             
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 25.7         10.1   $ 26.1         9.7   $ (0.4     (1.5 )% 

EP&S Segment

     45.5         13.9     43.0         13.7     2.5        5.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total consolidated SG&A

   $ 71.2         12.2   $ 69.1         11.8   $ 2.1        3.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The increase in SG&A expenses was primarily due to the acquisitions of RTI Extrusions Europe in October 2013 and RTI Directed Manufacturing in January 2014 which increased SG&A expenses $2.1 million and $0.7 million, respectively, as well as severance costs associated with fixed cost reductions which increased SG&A expenses $0.5 million. These increases were partially offset by lower compensation-related expenses of $1.7 million.

Research, Technical, and Product Development Expenses. Research, technical, and product development expenses were $3.3 million and $3.0 million for the nine months ended September 30, 2014 and 2013, respectively. This spending reflects our continued focus on productivity and quality enhancements to our current manufacturing processes, as well as new product development.

 

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Operating Income. Operating income for our reportable segments for the nine months ended September 30, 2014 and 2013 was as follows:

 

     Nine Months Ended
September 30,
             
     2014     2013
(As Restated)
             
(In millions except percentages)    $      % of
Sales
    $      % of
Sales
    $ Increase/
(Decrease)
    % Increase/
(Decrease)
 

Titanium Segment

   $ 29.9         11.7   $ 45.3         16.9   $ (15.4     (34.0 )% 

EP&S Segment

     9.2         2.8     10.7         3.4     (1.5     (14.0 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total consolidated operating income

   $ 39.1         6.7   $ 56.0         9.6   $ (16.9     (30.2 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The decrease in the Titanium Segment’s operating income was due to lower average realized selling prices and a lower margin sales mix, as well as lower duty drawback recoveries during the nine months ended September 30, 2014.

The decrease in the EP&S Segment’s operating income was primarily attributable to the $2.5 million increase in SG&A expense and margin decreases related to other commercial aerospace build-rate schedules and medical device market sales, partially offset by achieving full-rate production on the Boeing 787 Pi Box Program.

Other Income, Net. Other income, net, was $1.5 million and $1.0 million for the nine months ended September 30, 2014 and 2013, respectively. Other income consisted of foreign exchange gains and losses from our international operations and realized gains on sales of available-for-sale securities.

Interest Income and Interest Expense. Interest income was not material for each of the nine months ended September 30, 2014 and 2013. Interest expense was $23.2 million and $32.9 million, respectively.

Our interest expense for the nine months ended September 30, 2014 and 2013 was attributable to the following:

 

     Nine Months Ended
September 30,
 
     2014      2013  

1.625% Convertible Senior Notes due 2019

   $ 14,125       $ 8,379   

3.000% Convertible Senior Notes due 2015

     6,821         8,651   

Debt extinguishment charges

     —           13,710   

Other

     2,209         2,136   
  

 

 

    

 

 

 

Total

   $ 23,155       $ 32,876   
  

 

 

    

 

 

 

Provision for Income Taxes. We recognized a provision for income taxes of $2.1 million, or 12.1%