RTI International Metals Inc. Reports Operating Results (10-Q)
Rti International Metals Inc. has a market cap of $728 million; its shares were traded at around $24.22 with and P/S ratio of 1.8. RTI is in the portfolios of Chuck Royce of Royce& Associates.
Highlight of Business Operations: Excluding the $4.2 million of nonrecurring engineering funds received related to the Boeing 787 Dreamliner® program that were previously paid by the customer, the Fabrication Groups net sales decreased $1.7 million compared to the prior year. The nonrecurring engineering funds were received to offset certain agreed upon tooling expenses to support the Boeing 787 Dreamliner® program. A corresponding amount was recorded in cost of sales during the current period. The decrease in net sales principally relates to a reduction of $2.1 million in sales to our energy market customers. Partially offsetting this decrease, however, has been the recent first deliveries related to the Boeing 787 Dreamliner® Pi Box program, as well as increased deliveries related to other Boeing programs, which have increased net sales $1.4 million compared to the prior year.
Excluding the $15.4 million related to the resolution of Airbus 2009 contractual obligations, the Titanium Groups gross profit decreased $5.8 million. The decrease in the Titanium Groups gross profit was the result of the Boeing 787 Dreamliner® production delays causing reduced overall titanium demand. Lower sales levels of prime products reduced gross profit by $1.7 million and lower average realized selling prices reduced gross profit by $3.8 million, while higher raw material costs and lower overhead absorption reduced gross profit by $2.0 million. Partially offsetting these decreases, gross profit at the Titanium Group was favorably impacted $1.3 million due to higher ferro-alloy demand and $0.4 million due to higher sales of Titanium Group-sourced inventory by our Fabrication and Distribution Group businesses.
Interest Income and Interest Expense. Interest income for the three months ended March 31, 2010 and 2009 was $0.1 million and $0.6 million, respectively. The decrease was principally related to lower returns on invested cash, as well as lower overall cash balances, compared to the prior year period. Interest expense was $0.3 million and $2.4 million for the three months ended March 31, 2010 and 2009, respectively. The decrease in interest expense was primarily attributable to the decrease in our long-term debt compared to the prior year as a result of the payoff of our $225 million term loan in September 2009.
Provision for (Benefit from) Income Taxes. We recognized a provision for income taxes of $0.2 million, or 2.1% of pretax income, and a benefit from income taxes of $0.2 million, or 12.1% of pretax income, for federal, state, and foreign income taxes for the three months ended March 31, 2010 and 2009, respectively. Discrete items totaling $0.4 million reduced the provision for income taxes for the three months ended March 31, 2010 and were comprised of a $1.6 million charge associated with the recently enacted healthcare legislation with the remainder associated with adjustments to unrecognized tax benefits due to the effective settlement of an income tax examination. Discrete items totaling $0.6 million reduced the provision for income taxes for the three months ended March 31, 2009 and were comprised primarily of adjustments to unrecognized tax benefits based upon data that became available during the quarter.
In connection with our long-term supply agreements for the Joint Strike Fighter (JSF) program and the Airbus family of commercial aircraft, including the A380 and A350XWB programs, we are constructing a new titanium forging and rolling facility in Martinsville, Virginia, and new melting facilities in Canton and Niles, Ohio, with anticipated capital spending of approximately $140 million. The Niles melting facility is substantially complete, whereas we have capital spending of approximately $6 million remaining on the Canton melting facility and expect it will begin operations in 2011. We have capital expenditures of $60 million remaining related to the Martinsville, Virginia facility and anticipate that it will begin production in 2012. We expect this facility will enable us to enhance our throughput and shorten our lead times on certain products, primarily titanium sheet and plate. We will continually evaluate market conditions as we move forward with these capital projects to ensure our operational capabilities are matched to our anticipated demand.
Provided we continue to meet our financial covenants under the Credit Agreement, we expect that our cash and cash equivalents of $83.9 million, short-term investments of $20.1 million, and our undrawn $225 million revolving credit facility will provide us sufficient liquidity to meet our operating needs and capital expansion plans.
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