SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the fiscal year ended December 31, 2003
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
Commission file number 0-28538
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Titanium Metals Corporation
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(Exact name of registrant as specified in its charter)
Delaware 13-5630895
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1999 Broadway, Suite 4300, Denver, Colorado 80202
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 296-5600
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on Which Registered
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Common Stock New York Stock Exchange
($.01 par value per share)
Securities registered pursuant to Section 12(g) of the Act: None
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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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K X
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes No X
--- ---
As of June 30, 2003, 3,192,182 shares of common stock were outstanding. The
aggregate market value of the 1,479,967 shares of voting stock held by
nonaffiliates of Titanium Metals Corporation as of such date approximated $47.5
million. No shares of non-voting stock were held by nonaffiliates. As of March
2, 2004, 3,179,602 shares of common stock were outstanding.
Documents incorporated by reference:
None.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A is an amendment to the Titanium Metals
Corporation (the "Company" or "TIMET") Annual Report on Form 10-K ("Annual
Report") for the year ended December 31, 2003. The sole purpose of the Form
10-K/A is to file all information required by Part III. The Company anticipated
that this information would be incorporated by reference from TIMET's definitive
proxy statement relating to its 2004 annual meeting. The Company filed a
preliminary proxy statement with the Securities and Exchange Commission ("SEC")
on April 5, 2004, and the SEC is reviewing the Company's preliminary proxy
statement. As a result, TIMET currently expects that it will not be in a
position to file its definitive proxy statement within 120 days of fiscal year
end. Except for this revision, no other changes have been made to the Company's
Annual Report for the year ended December 31, 2003 filed with the SEC on March
4, 2004. This Form 10-K/A does not update any disclosures to reflect
developments since the original filing date.
1
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors. Set forth below is certain information relating to the current
members of the Board of Directors of the Company, provided to the Company by
each respective member. See also ITEM 13: CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS below.
Norman N. Green, 69, has been a director of TIMET since 2002. In 1997, Mr.
Green became an original director and one of the principal investors in Sage
Telecom, a private, full service local and long distance telecommunications
company operating in several southern states. Prior to this, Mr. Green was
active in commercial real estate investment, development and management for over
40 years. Until 1995, Mr. Green was Chairman and sole owner of Stewart, Green
Properties Ltd., which owned a group of private companies specializing in the
development and management of major shopping centers in Canada and the U.S.,
operating approximately 5 million square feet of commercial real estate. From
1979 until 1990, Mr. Green was a co-owner of the Atlanta Flames, a National
Hockey League franchise (the team later became the Calgary Flames). From 1990
until 1996, Mr. Green was the sole owner of the Minnesota North Stars (the team
later became the Dallas Stars). He continues to serve as a consultant to the
Dallas Stars organization. Teams owned by Mr. Green went to the Stanley Cup
Finals several times during Mr. Green's tenure and won the Stanley Cup
Championships in 1989 and 1999. Mr. Green was a member of the National Hockey
League Board of Governors from 1979 to 1996, serving on all of its strategic
committees. He is a member of the executive committee of the board for the Edwin
L. Cox School of Business at Southern Methodist University and has been active
in philanthropic and community service activities for over 30 years. Mr. Green
is a member of TIMET's Management Development and Compensation Committee (the
"Compensation Committee"), the Nominations Committee, and the Pension and
Employee Benefits Committee (the "Pension Committee").
Gary C. Hutchison, M.D., 68, has been a director of TIMET since October
2003. Since 1968, Dr. Hutchison has practiced neurological surgery at
Presbyterian Hospital in Dallas. Dr. Hutchison is a graduate of the University
of Texas Southwestern Medical School in Dallas. He interned at the University of
Oklahoma and received his neurosurgical residency training at the University of
Texas Southwestern Medical School and Parkland Memorial Hospital, as well as the
National Hospital for Nervous Disease in London, England. Dr. Hutchison has been
board certified by the American Board of Neurological Surgery since 1969. Dr.
Hutchison has served on various health and medical boards and committees and is
currently a member of the Board of Trustees of Texas Health Resources, Inc.,
Chairman of the Strategic Planning and Development Committee of Texas Health
Resources, Inc., member of the Governance and Nominating Committee of Texas
Health Resources, Inc., Vice Chairman of the Board of Trustees Presbyterian
Hospital of Dallas and Associate Clinical Professor of Neurosurgery at the
University of Texas Health Science Center in Dallas. Dr. Hutchison serves as
Chair of the Compensation Committee, Chair of the Nominations Committee, and a
member of the Audit Committee.
2
J. Landis Martin, 58, has been Chairman of the Board of TIMET since 1987,
Chief Executive Officer of TIMET since 1995 and President from 1995 to 1996 and
since 2000. Mr. Martin served as Chairman of the Board of Tremont Corporation
from 1990, as Chief Executive Officer and a director of Tremont Corporation from
1988 and as President of Tremont Corporation from 1987 (except for a period in
1990), each until Tremont Corporation, through a series of transactions, merged
into Tremont LLC in 2003 (the "Tremont Merger"). Until his resignation in 2003,
Mr. Martin served from 1987 as President and Chief Executive Officer, and from
1986 as a director of NL Industries, Inc. ("NL"), a manufacturer of titanium
dioxide pigments. NL may be deemed to be an affiliate of TIMET. Mr. Martin is
also a director of Halliburton Company, Apartment Investment and Management
Company, and Trico Marine Services Inc. and a director and non-executive
chairman of Crown Castle International Corporation.
Albert W. Niemi, Jr., Ph.D., 61, has been a director of TIMET since 2001.
Dr. Niemi is the Dean of the Edwin L. Cox School of Business at Southern
Methodist University, where he also holds the Tolleson Chair in Business
Leadership. Before joining SMU, Dr. Niemi served as Dean of the Terry College of
Business at the University of Georgia from 1982 to 1996. Dr. Niemi graduated cum
laude from Stonehill College with an A.B. in economics and earned an M.A. and
Ph.D. in economics from the University of Connecticut. Dr. Niemi is a member of
the Business Accreditation Committee of the American Assembly of Collegiate
Schools of Business and has chaired or served as a member on the accreditation
review teams to more than 20 universities. Dr. Niemi recently completed a term
on the Board of Governors of the American Association of University
Administrators and is currently on the Board of Beta Gamma Sigma. Dr. Niemi also
serves on the boards of Mayer Electric Supply Company and Bank of Texas, and on
the Advisory Board of TXU Dallas. Dr. Niemi is Chair of TIMET's Audit Committee
and a member of the Compensation Committee and the Pension Committee.
Glenn R. Simmons, 76, has been a director of TIMET since 1999. Mr. Simmons
is Chairman of the Board of Keystone Consolidated Industries, Inc. ("Keystone"),
a steel fabricated wire products, industrial wire and carbon steel rod company
(Keystone filed a petition under Chapter 11 of the U.S. Bankruptcy Code in
2004), and CompX International Inc. ("CompX"), a manufacturer of ergonomic
computer support systems, precision ball bearing slides and security products.
CompX is a majority-owned, indirect subsidiary of Valhi, Inc. ("Valhi"). Valhi
is a diversified holding company, engaged in the manufacture of titanium dioxide
pigments (through its majority interest in Kronos Worldwide, Inc. ("Kronos"))
and component products (through its majority interest in CompX) and also engaged
in waste management. Since 1987, Mr. Simmons has been Vice Chairman of the Board
of Valhi, of Tremont LLC and of Contran Corporation ("Contran"), a diversified
holding company. Mr. Simmons has been an executive officer and/or director of
various companies related to Valhi and Contran since 1969. Mr. Simmons is also a
director of NL and Kronos, and served as a director of Tremont Corporation until
the Tremont Merger in 2003. Keystone, Valhi, Tremont LLC, Kronos and CompX may
be deemed to be affiliates of TIMET. See note (3) to the table Security
Ownership of TIMET in ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Mr. Simmons is Chair of TIMET's
Pension Committee. Mr. Simmons is a brother of Harold C. Simmons.
Steven L. Watson, 53, has been a director of TIMET since 2000. Mr. Watson
has been President and a director of Valhi and Contran since 1998 and has served
as an executive officer and/or director of Valhi, Contran and various companies
related to Valhi and Contran since 1980. Mr. Watson also serves on the board of
directors of NL, CompX, Kronos and Keystone and served as a director of Tremont
Corporation until the Tremont Merger in 2003.
3
Paul J. Zucconi, 63, has been a director of TIMET since 2002. In 2001, Mr.
Zucconi retired after 33 years at KPMG LLP where he was most recently an audit
partner. Mr. Zucconi is a member of the American Institute of Certified Public
Accountants ("AICPA") and is involved in developing the professional development
courses for the AICPA. Mr. Zucconi also serves on the Board of Directors and
Audit Committee of Torchmark Corporation, a major life and health insurance
company, and the Board of Directors of the National Kidney Foundation of North
Texas, Inc. Mr. Zucconi is a member of the Audit Committee.
Audit Committee. The responsibilities and authority of the Audit Committee
include, among other things, providing oversight with respect to the integrity
of the Company's financial statements, the Company's compliance with legal and
regulatory requirements, the independent auditor's qualifications and
independence and the performance of the Company's internal audit function;
retaining the Company's independent auditor, overseeing the external audit
function and approving all fees relating to the Company's independent auditor;
reviewing with the independent auditor the scope and results of the annual
auditing engagement and the system of internal accounting controls, reviewing
the Company's Annual Report on Form 10-K, including annual financial statements,
reviewing and discussing with management the Company's interim financial
statements and directing and supervising special audit inquiries. The Company's
Board of Directors has adopted a revised written charter for the Audit
Committee, a copy of which will be posted on TIMET's website at www.timet.com
prior to the 2004 annual meeting of TIMET in accordance with applicable rules
and regulations. The current members of the Audit Committee are Dr. Niemi
(Chair), Dr. Hutchison, and Mr. Zucconi. Mr. Zucconi is the Audit Committee
"financial expert" as such term is defined in Item 401(b) of Regulation S-K. The
Company believes that each of the members of the Audit Committee is independent
in accordance with applicable rules and regulations. The Audit Committee held 10
meetings in 2003. See Item 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES below.
The Nominations Committee will consider recommendations by stockholders of
the Company with respect to the election of directors if such recommendations
are submitted in writing to the Secretary of the Company and received not later
than December 31 of the year prior to the next annual meeting of stockholders.
The Nominations Committee has not adopted any formal policy regarding minimal
qualifications of recommended nominees, but considers the criteria approved by
the Board of Directors from time to time.
Executive officers. Set forth below is certain information relating to the
current executive officers of the Company. Biographical information with respect
to J. Landis Martin is set forth under "Directors" above. See also ITEM 13:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION below.
Name Age Position(s)
---- --- -----------
J. Landis Martin 58 Chairman of the Board, President and Chief Executive
Officer
Christian Leonhard 58 Chief Operating Officer - Europe
Robert E. Musgraves 49 Chief Operating Officer - North America
Christian Leonhard, 58, served as Executive Vice President-Operations of
TIMET from 2000 to 2002 when he became Chief Operating Officer - Europe. Mr.
Leonhard joined TIMET in 1988 as General Manager of TIMET France. He was
promoted to President of TIMET Savoie S.A. ("TIMET Savoie") in 1996 and
President of European Operations in 1997.
4
Robert E. Musgraves, 49, has served as Chief Operating Officer - North
America since 2002. Mr. Musgraves served as Executive Vice President of TIMET
from 2000 to 2002 and served as General Counsel from 1990 to 2002. Mr. Musgraves
was Vice President from 1990 to 2000 and Secretary of TIMET from 1991 to 2000.
Mr. Musgraves also served as General Counsel and Secretary of Tremont
Corporation from 1993 and as Vice President of Tremont Corporation from 1994
until the Tremont Merger in 2003.
Section 16(a) beneficial ownership reporting compliance. Section 16(a) of
the Securities Exchange Act of 1934, as amended ("Exchange Act") requires
TIMET's executive officers, directors, and persons who own beneficially more
than 10% of a registered class of TIMET's equity securities to file reports of
ownership and changes in ownership with the SEC and TIMET. Based solely on a
review of copies of the Section 16(a) reports furnished to TIMET and written
representations by certain reporting persons, TIMET believes that all of TIMET's
executive officers, directors and greater than 10% beneficial owners filed on a
timely basis all reports required during and with respect to the fiscal year
ended December 31, 2003.
Corporate governance. Since the passage of the Sarbanes-Oxley Act of 2002
and the adoption of new corporate governance standards by the New York Stock
Exchange ("NYSE"), TIMET has developed and continues to evaluate new policies
and procedures regarding corporate governance. TIMET is in the process of
adopting a code of ethics that will be applicable to the Company's principal
executive officer, principal financial officer and principal accounting officer
or controller. This code of ethics will be adopted and become effective prior to
TIMET's 2004 annual meeting of stockholders. TIMET is currently updating its
website, www.timet.com, to add a corporate governance section (within the
investor information section of the website) detailing many of its new policies.
TIMET expects the website to be complete prior to the 2004 annual meeting of
stockholders. The corporate governance section of TIMET's website will include
TIMET's Corporate Governance Policies, Code of Business Conduct and Ethics
applicable to all of TIMET's officers and employees, including those officers
identified above, and charters for the committees of the Board of Directors.
TIMET's policies and practices will reflect governance initiatives that are
compliant with the corporate governance requirements of the NYSE and the SEC and
are currently expected to include the following:
o The Board of Directors has adopted clear corporate governance
policies;
o A majority of the Board of Directors is independent from TIMET and its
management;
o All members of the Audit Committee, Compensation Committee and
Nominations Committee are independent from TIMET and its management;
o Independent members of the Board have the opportunity to meet
regularly without the presence of management, either through committee
meetings or otherwise;
o TIMET has an anonymous hotline available to all employees to submit
complaints on accounting, internal control or auditing matters to the
Audit Committee; and
o All officers and employees of TIMET are required to act ethically at
all times and in accordance with the policies comprising TIMET's Code
of Business Conduct and Ethics.
ITEM 11: EXECUTIVE COMPENSATION
Summary of cash and certain other compensation of executive officers. The
following table and accompanying notes set forth certain information regarding
the compensation earned, paid or accrued by TIMET to (i) TIMET's Chief Executive
Officer and (ii) TIMET's other executive officers serving as executive officers
at the end of the last completed fiscal year, in each case for services rendered
during each of the fiscal years 2003, 2002 and 2001 (regardless of the year in
which actually paid).
SUMMARY COMPENSATION TABLE (1)(2)
All other
Annual compensation compensation (5)
------------------- ------------
Other annual
Name and principal position Year Salary (3) Bonus (4) compensation (4)
--------------------------- ---- ------ ----- ------------
Executive Officers
J. Landis Martin 2003 $ 250,000 --- --- $ 20,905
Chairman of the Board, 2002 $ 500,000 --- 131 $ 19,491
Chief Executive Officer 2001 $ 500,000 $1,000,000 --- $ 20,493
and President
Christian Leonhard (6)(7) 2003 $ 250,446 --- --- $ 77,115
Chief Operating Officer - 2002 $ 250,000 $ 30,000 --- $ 42,948
Europe 2001 $ 250,000 $ 135,000 --- $ 47,745
Robert E. Musgraves (6) 2003 $ 225,000 $ 80,000(8) --- $ 15,488
Chief Operating Officer - 2002 $ 250,000 $ 110,000 --- $ 15,521
North America 2001 $ 250,000 $ 330,000 --- $ 14,941
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(1) Columns required by the regulations of the SEC that would contain no
entries have been omitted.
(2) J. Landis Martin and Robert E. Musgraves also served as executive officers
of Tremont Corporation for a portion of 2003 prior to the Tremont Merger
and during each of 2002 and 2001. The amounts shown as salary and bonus for
Mr. Martin and Mr. Musgraves represent the full amount paid by TIMET for
services rendered by such persons on behalf of both TIMET and Tremont
Corporation during 2003, 2002 and 2001. Pursuant to an intercorporate
services agreement, for that portion of 2003 that Mr. Martin and Mr.
Musgraves performed services for Tremont Corporation and for each of 2002
and 2001, Tremont Corporation was obligated to reimburse TIMET for a
portion (approximately 10% in 2002 and 2001) of the TIMET salary and
regular bonus of each of Mr. Martin and Mr. Musgraves, and a proportionate
share of applicable estimated fringe benefits and overhead expense for
each, as follows:
Year Martin Musgraves
---- ------ ---------
2003 $ 7,500 $ 9,150
2002 $ 60,000 $ 33,600
2001 $ 60,000 $ 45,600
(3) Effective January 1, 2003, Mr. Martin, Mr. Leonhard and Mr. Musgraves
voluntarily reduced their salaries (from $500,000 to $250,000 for Mr.
Martin and from $250,000 to $225,000 for Mr. Leonhard and Mr. Musgraves).
In February 2004, the Compensation Committee approved a proposal to restore
these salaries to their pre-reduction levels after the Company has reported
positive quarterly net income for two consecutive quarters commencing in
2004. Following his relocation to Europe in July 2003, Mr. Leonhard was
paid in euros at a rate of 236,250 euros per year. The amount included as
salary for Mr. Leonhard during this portion of 2003 was converted to
dollars at an exchange rate of (euro)1 = $1.17 (the average exchange rate
for such period).
(4) Under TIMET's variable incentive compensation plan (the "Employee Cash
Incentive Plan"), Mr. Leonhard and Mr. Musgraves are entitled to receive
annual awards based upon TIMET's financial performance and the assessed
performance of the individual. In 2003, Mr. Leonhard and Mr. Musgraves were
each eligible to receive individual performance awards under the Employee
Cash Incentive Plan. However, each officer elected to forego such award
because of the existence of a salary freeze applicable to senior-level
salaried employees and the unavailability of incentive compensation for
such employees. For 2002, Mr. Leonhard and Mr. Musgraves were each awarded
$30,000 under the individual performance portion of the Employee Cash
Incentive Plan but chose to defer payment of such award (without interest).
Under SEC rules, these earned amounts are required to be shown in the
"Bonus" column for 2002 even though not actually paid.
The amounts shown in the "Bonus" column for 2001 for Mr. Leonhard and
$130,000 of the amount shown in the "Bonus" column for Mr. Musgraves for
2001 were paid pursuant to a special discretionary bonus program approved
by the TIMET Board of Directors. This program was applicable to all U.S.
and certain European salaried employees.
6
In lieu of participating in the Employee Cash Incentive Program, Mr. Martin
participates in TIMET's Senior Executive Cash Incentive Plan (the "Senior
Executive Cash Incentive Plan"), which provides for payments based solely
upon TIMET's financial performance. No payments were made under this plan
to Mr. Martin during 2003, 2002 or 2001. At the Company's 2004 annual
meeting of stockholders, stockholders will be asked to consider and vote
upon a replacement to the Senior Executive Cash Incentive Plan.
In 2001, the TIMET Board of Directors made one-time bonus awards to a small
number of employees (including Mr. Martin and Mr. Musgraves) in recognition
of their special efforts in achieving a favorable settlement of certain
litigation on behalf of the Company. Of Mr. Martin's award of $1,000,000
(shown in the "Bonus" column for 2001), $550,000 was paid in 2001 and the
remainder was paid in 2002 with accrued interest at 7% per annum (the
above-market portion of such interest of $131 is reflected in the "All
other compensation" column for Mr. Martin in 2002). Tremont Corporation
also awarded Mr. Martin a $1,000,000 bonus in respect of the same
litigation settlement, which amount is not reflected in the Summary
Compensation Table. The Tremont Corporation bonus was paid $200,000 in 2002
and $800,000 in 2003, with interest on the unpaid portion at 7% per annum
($71,541 in 2002 and $37,146 in 2003). See note (8) below with respect to
Mr. Musgraves' bonus awarded in connection with the same litigation
settlement.
(5) Except as otherwise indicated in note (7) below, "All other compensation"
amounts represent (i) matching contributions made or accrued by TIMET
pursuant to the savings feature of TIMET's Retirement Savings Plan
(suspended in April 2003), (ii) retirement contributions made or accrued by
TIMET pursuant to the Retirement Savings Plan, (iii) life insurance
premiums paid by TIMET and (iv) long-term disability insurance premiums
paid by TIMET, as follows:
Year Martin Leonhard Musgraves
Savings match 2003 $ 462 --- $ 462
2002 $ 2,468 --- $ 2,000
2001 $ 5,000 --- $ 2,530
Retirement contribution 2003 $12,750 --- $ 8,325
2002 $10,200 --- $ 7,400
2001 $ 8,670 --- $ 6,290
Life insurance 2003 --- $ 2,124 $ 1,600
2002 --- $ 1,620 $ 1,599
2001 --- $ 1,620 $ 1,599
Long-term disability insurance 2003 $ 7,693 $ 4,733 $ 5,101
2002 $ 6,923 --- $ 4,522
2001 $ 6,823 --- $ 4,522
Under the terms of the TIMET universal life insurance plan, Mr. Musgraves
is entitled to the cash surrender value of his individual policy. As of the
April 15, 2004, the policy for Mr. Musgraves had a cash surrender value of
$4,704. Mr. Leonhard's life insurance policy has no cash surrender value.
(6) In 2000, Mr. Musgraves and Mr. Leonhard each received an award of 4,000
restricted shares of TIMET's common stock. The restrictions lapse as to 20%
of such shares on each of the first five anniversaries of such grant date.
Any shares as to which restrictions have not lapsed are subject to
forfeiture in the event of the termination of the individual's employment
with TIMET (for reasons other than death, disability or retirement).
Holders of restricted stock are entitled to vote and receive dividends with
respect to such shares prior to the date restrictions lapse thereon. As of
December 31, 2003, Mr. Musgraves held 1,600 restricted shares of TIMET's
common stock (valued at $84,016 at the $52.51 per share closing price of
TIMET's common stock on such date). In connection with his relocation to
Europe in 2003, Mr. Leonhard's remaining unvested grant of restricted stock
was cancelled and replaced with a grant of "phantom" restricted stock on
identical terms except payable in cash rather than shares of TIMET's common
stock.
(7) The amounts shown as "All other compensation" for Mr. Leonhard include
$70,258 in 2003, $41,328 in 2002, and $46,125 in 2001 paid to or on behalf
of Mr. Leonhard in connection with his foreign assignments (including
housing and car allowance, tax equalization payments, relocation costs and
income taxes with respect to certain of such payments).
(8) In 2001, the TIMET Board of Directors awarded Mr. Musgraves a bonus of
$360,000 in recognition of his special efforts in achieving a favorable
settlement of certain litigation on behalf of the Company. Of this amount,
$200,000 was paid in 2001 at the time of the award (reflected in the
"Bonus" column for 2001). The balance would be earned and payable in two
equal installments of $80,000 each in 2002 and 2003, subject to Mr.
7
Musgraves' continued employment with TIMET. One such installment of $80,000
was earned and paid in May 2002 (reflected in the "Bonus" column for 2002),
and the other installment was earned in May 2003. However, Mr. Musgraves
elected to defer payment of the final installment of $80,000 (without
interest). Under SEC rules, this earned amount is required to be shown in
the "Bonus" column for 2003 even though not paid.
Stock option/SAR grants in last fiscal year. No stock options or stock
appreciation rights ("SARs") were granted under the 1996 Long Term Performance
Incentive Plan of TIMET adopted by the Company and approved by the Company's
stockholders ("TIMET Stock Incentive Plan") in 2003.
Stock option exercises and holdings. The following table and accompanying
notes provide information, with respect to the executive officers of TIMET
listed in the "Summary Compensation Table" above, concerning the exercise of
TIMET stock options during the last fiscal year and the value of unexercised
TIMET stock options held as of December 31, 2003. No SARs have been granted
under the TIMET Stock Incentive Plan.
Aggregated Option Exercises in 2003 and 12/31/03 Option Values
Number of securities
underlying Value of unexercised
unexercised options in-the-money options
Shares at 12/31/03 at 12/31/03
acquired on Value exercisable/ exercisable/
Name exercise realized unexercisable unexercisable
---- --------- -------- ------------- -------------
J. Landis Martin --- --- 42,780 / 12,220 --- / ---
Christian Leonhard --- --- 2,320 / 360 --- / ---
Robert E. Musgraves --- --- 6,120 / 540 --- / ---
Severance arrangements and employment agreements. In 1999, the Company
adopted a policy applicable to certain executive officers of the Company,
including Mr. Martin, Mr. Musgraves and Mr. Leonhard, providing that the
following payments will be made to each such individual in the event his
employment is terminated by TIMET without cause (as defined in the policy) or
such individual terminates his employment with TIMET for good reason (as defined
in the policy): (i) one times such individual's annual TIMET base salary paid in
the form of salary continuation, (ii) prorated bonus for the year of termination
and (iii) certain other benefits. The base salary for purposes of the executive
severance policy would be no less than those salaries in effect for each
individual prior to their voluntary reduction in 2003.
Mr. Leonhard may be eligible for benefits under a statutory French
indemnity program, pursuant to which he would receive (at his option and in lieu
of any benefits under the foregoing executive severance policy) a severance
payment equal to one year's salary payable by TIMET Savoie (in addition to any
unemployment benefits he might be entitled to receive under the French
governmental program).
Mr. Leonhard is party to an Amendment to Employment Contract executed as of
November 25, 2003 with TIMET and its affiliate TIMET Savoie. Under this Contract
Mr. Leonhard is seconded by TIMET Savoie to TIMET in the capacity of Director of
European Operations and performs duties commensurate with that position. This
Contract provides that Mr. Leonhard's annual gross salary is payable at a rate
of 236,250 euros, and provides for certain other benefits customary for
executives of his position. A copy of this "Amendment to Employment Contract" is
filed as Exhibit 10.12 to TIMET's Annual Report on Form 10-K for the year ended
December 31, 2003.
8
Compensation Committee Report On Executive Compensation
The Compensation Committee of the Company's Board of Directors presents the
following report on executive compensation.
The Compensation Committee is composed of directors who are neither
officers nor employees of the Company, its subsidiaries or affiliates and who
are not eligible to participate in any of the employee benefit plans
administered by it. The Compensation Committee reviews and recommends
compensation policies and is responsible for approving all compensation paid
directly by the Company to the Company's executive officers other than
compensation matters involving the Chief Executive Officer (the "CEO"). Any
action regarding compensation matters involving the CEO is reviewed and approved
by the Board after recommendation by the Compensation Committee.
Compensation program objectives. The Compensation Committee believes that
the Company's primary goal is to increase stockholder value, as measured by
dividends paid on and appreciation in the value of the Company's equity
securities. It is the Compensation Committee's policy that compensation programs
be designed to attract, retain, motivate and reward employees, including
executive officers, who can lead the Company in accomplishing this goal. It is
also the Compensation Committee's policy that compensation programs tie a large
component of cash compensation to the Company's financial results, creating a
performance-oriented environment that rewards employees for achieving pre-set
financial performance levels and increasing stockholder value, thereby
contributing to the long-term success of the Company.
During 2003, the Company's compensation program with respect to its
executive officers, including the CEO, consisted of two primary components: base
salary and variable compensation based upon Company and, in certain cases,
individual performance.
Base salaries. The Compensation Committee, in consultation with the CEO,
reviews base salaries for the executive officers other than the CEO generally no
more frequently than annually. The CEO's recommendation and the Compensation
Committee's actions regarding base salaries are generally based primarily upon a
subjective evaluation of past and potential future individual performance and
contributions, changes in individual responsibilities, and alternative
opportunities that might be available to the executives in question, as well as
compensation data from companies employing executives in positions similar to
those whose salaries were being reviewed, as well as market conditions for
executives in general with similar skills, background and performance, both
inside and outside of the metals industry (including companies contained in the
peer group index plotted on the Performance Graph following this report), and
other companies with similar financial and business characteristics as the
Company or where the executive in question has similar responsibilities. Based
upon the condition of the business and the outlook over the next few years, Mr.
Leonhard and Mr. Musgraves, the Company's two Chief Operating Officers,
voluntarily agreed to reduce their salaries from $250,000 to $225,000 beginning
in 2003. Mr. Leonhard's annual compensation rate was modified from $225,000 to
236,250 euros upon his return to Europe in mid-2003. The salaries of Mr.
Leonhard and Mr. Musgraves will remain at current levels until the Company
reports positive quarterly net income for two consecutive quarters commencing in
2004, at which time those salaries will automatically be restored to
pre-reduction levels at the beginning of the next quarter.
9
Cash incentive plans. Awards under TIMET's Employee Cash Incentive Plan
represent a significant portion of the potential annual cash compensation to
employees of TIMET and consist of a combination of awards based on the financial
performance of TIMET and, in some cases, on individual performance. All of the
Company's executive officers, other than Mr. Martin, were eligible to receive
benefits under the Employee Cash Incentive Plan for 2003.
Potential awards under the Employee Cash Incentive Plan attributable solely
to the performance of TIMET in 2003 were based on TIMET's achieving certain
pre-set return on equity ("ROE") goals, which the Company believes should
increase stockholder value over time if they are met. Performance levels are
tied to the Company's corporate-wide ROE as follows:
Performance
ROE Level
---------------------------------
less than 3% --
3%-6% A
6%-12% B
12%-24% C
over 24% D
In 2003, the Company achieved a return on equity of less than 3%, as
calculated under the Employee Cash Incentive Plan, resulting in no
Company-performance based payout.
Mr. Leonhard and Mr. Musgraves are eligible to receive individual
performance awards under the Employee Cash Incentive Plan if each such
executive's performance objectives were met during the prior fiscal year. Mr.
Leonhard and Mr. Musgraves were eligible for 2003 performance awards under this
Plan, based on individual performance without regard to Company performance.
However, in light of TIMET's freeze on the salaries of senior-level salaried
employees and the unavailability of any incentive compensation for senior-level
salaried employees, both executive officers voluntarily elected to forego the
awarding and payment of any such award until business conditions improve.
Individual performance awards of $30,000 each were made to Mr. Leonhard and Mr.
Musgraves for service in 2002 (reflected in the Summary Compensation Table), but
each previously agreed to defer payment of those awards (the deferrals bear no
interest).
In 1996, the Board established the Senior Executive Cash Incentive Plan,
which was approved by the Company's stockholders in 1997. This plan was
applicable only to Mr. Martin in 2003. The Senior Executive Cash Inventive Plan
provided for payments based solely upon Company performance ranging between 0%
for corporate returns on equity of less than 10% up to 150% of base salary for
corporate returns on equity at 30% or greater. No payments were made to Mr.
Martin for 2003 under this plan based upon the Company's return on equity of
less than 10%. In 2004, the Board approved the 2004 Senior Executive Cash
Incentive Plan which provides for payments based solely on Company performance
ranging between 0% for corporate returns on equity of less than 3% up to 150% of
base salary for corporate returns on equity at 30% or greater. At the Company's
2004 annual meeting of stockholders, stockholders will be asked to consider and
vote upon the 2004 Senior Executive Cash Incentive Plan.
10
Apart from the foregoing plans, the Compensation Committee or the Board may
from time to time award such other bonuses as the Compensation Committee or
Board deems appropriate from time to time under its general authority or under a
separate discretionary plan. In 2001, the Board approved special bonuses of
$1,000,000 for Mr. Martin ($550,000 of which was paid in 2001 and $450,000 of
which was paid in 2002, together with interest on the unpaid balance) and
$360,000 for Mr. Musgraves ($200,000 of which was paid in 2001 and $80,000 of
which was paid in 2002) relating to the favorable settlement of certain
litigation involving the Company. These amounts are reflected in the Summary
Compensation Table. Mr. Musgraves voluntarily agreed to defer (without interest)
payment of his $80,000 installment that was otherwise earned and payable in
2003.
Long-term incentive compensation. The Compensation Committee recognizes the
value of long-term incentive compensation that provides a benefit over an
extended period of time. The Compensation Committee has, from time to time, used
the TIMET Stock Incentive Plan to provide long-term incentives in the form of
grants of stock options and restricted stock. No grants of stock options or
restricted stock were made in 2003. In the future, the Compensation Committee
may also consider using long-term cash incentives tied to performance or other
criteria.
Tax code limitation on executive compensation deductions. In 1993, Congress
amended the Internal Revenue Code to impose a $1 million deduction limit on
compensation paid to the CEO and the four other most highly compensated
executive officers of public companies, subject to certain transition rules and
exceptions for compensation received pursuant to non-discretionary
performance-based plans approved by such company's stockholders. The Company's
stockholders previously approved both the TIMET Stock Incentive Plan and the
Senior Executive Cash Incentive Plan in 1997. The limitation on deductibility
requires re-approval of only the Senior Executive Cash Incentive Plan every five
years. The Compensation Committee believes that payments made pursuant to the
TIMET Stock Incentive Plan qualify for exemption from the deductibility limit as
"performance-based compensation," but payments made under the Senior Executive
Cash Incentive Plan would not at the present time because of the lack of current
stockholder approval. Stockholders will be asked to approve the 2004 Senior
Executive Cash Incentive Plan at the 2004 annual meeting of stockholders.
Approval of such plan at the annual meeting would satisfy the deductibility
requirements. The Compensation Committee does not currently believe that any
other existing compensation program of the Company could give rise to a
deductibility limitation at current executive compensation levels. The
Compensation Committee intends to periodically review the compensation plans of
the Company to determine whether further action in respect of this limitation is
warranted.
Chief Executive Officer compensation. Based upon the condition of the
business and the outlook over the next few years, Mr. Martin voluntarily reduced
his salary from $500,000 to $250,000 beginning in 2003. Mr. Martin's salary will
remain at current levels until the Company reports positive quarterly net income
for two consecutive quarters commencing in 2004, at which time his salary will
automatically be restored to its pre-reduction level at the beginning of the
next quarter.
The foregoing report on executive compensation has been furnished by the
Company's Management Development and Compensation Committee of the Board of
Directors.
Management Development and Compensation Committee
Dr. Gary C. Hutchison, Chairman
Norman N. Green
Dr. Albert W. Niemi, Jr.
11
Compensation of directors. Under the compensation plan for non-employee
directors adopted by the Company and by the Company's stockholders (referred to
herein as the "Director Compensation Plan"), effective May 20, 2003, directors
of the Company who are not employees of the Company receive an annual cash
retainer of $20,000, paid in quarterly installments, plus an annual cash
retainer of $2,000, paid in quarterly installments, for each committee a member
serves upon. Directors also receive an annual stock retainer ranging between 500
shares (if the closing price of TIMET's common stock on the date of the grant is
above $20 per share) and 2,000 shares (if the closing price is less than $5 per
share). In addition, non-employee directors receive an attendance fee of $1,000
per day for meeting attendance. Directors are also reimbursed for reasonable
expenses incurred in attending Board of Directors' and committee meetings. Prior
May 20, 2003, directors of the Company who were not employees of the Company
received a retainer at an annual rate of $15,000 in cash plus 100 shares of
TIMET's common stock. In addition, non-employee directors received an attendance
fee of $1,000 per meeting for each meeting of the Board of Directors or a
committee of the Board of Directors attended in person ($350 for telephonic
participation). Committee chairs received an additional attendance fee of $1,000
for each committee meeting attended in person ($350 for telephonic
participation). Directors were also reimbursed for reasonable expenses incurred
in attending Board of Directors' and committee meetings.
12
Performance Graph. Set forth below is a line graph comparing, for the
period December 31, 1998 through December 31, 2003, the cumulative total
stockholder return on TIMET's common stock against the cumulative total return
of (i) the S&P Composite 500 Stock Index and (ii) a self-selected peer group,
comprised solely of RTI International Metals, Inc. (NYSE: RTI) (formerly RMI
Titanium Company), the principal U.S. competitor of TIMET in the titanium metals
industry for which meaningful, same-period stockholder return information is
available. The graph shows the value at December 31 of each year, assuming an
original investment of $100 in each and reinvestment of cash dividends and other
distributions to stockholders.
Comparison of Cumulative Return among Titanium Metals Corporation,
S&P Composite 500 Stock Index and Self-Selected Peer Group
[graph]
13
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Ownership of TIMET's common stock. The following table and accompanying
notes set forth, as of the April 15, 2004, the beneficial ownership, as defined
by the regulations of the SEC, of TIMET's common stock held by (i) each person
or group of persons known to TIMET to beneficially own more than 5% of the
outstanding shares of any class of TIMET's securities (including TIMET's common
stock), (ii) each director or nominee for director of TIMET, (iii) each
executive officer of TIMET listed in the Summary Compensation Table above who is
not a director or nominee for director of TIMET and (iv) all executive officers
and directors and nominees for director of TIMET as a group. See note (3)
following the table immediately below for information concerning individuals and
entities that may be deemed to indirectly beneficially own those shares of
TIMET's common stock directly beneficially owned by Tremont LLC, the Combined
Master Retirement Trust ("CMRT") and Harold C. Simmons' spouse. All information
has been taken from or is based upon ownership filings made by such persons with
the SEC or upon information provided by such persons to TIMET.
Ownership of TIMET's Common Stock
TIMET common stock
-------------------------------------
Amount and
nature of
beneficial Percent of
Name of beneficial owner ownership (1) class (2)
------------------------ -------------- ------------
Greater than 5% stockholders
Persons or entities related to Harold C. Simmons (3)(4)
Tremont LLC (3) 1,261,850 39.7%
CMRT (3) 266,812 8.4%
Harold C. Simmons' spouse (3)(4) 214,240 6.3%
Valhi, Inc. (3) 37,168 1.2%
Other (4) 4,760 ---
Total (3)(4) 1,784,830 52.6%
Royce & Associates, LLC (5) 229,329 7.2%
Dimensional Fund Advisors Inc. (6) 202,100 6.4%
State Street Research & Management Company (7) 174,179 5.5%
Directors and nominees
Norman N. Green (8) 1,100 ---
Dr. Gary C. Hutchison 500 ---
J. Landis Martin (9) 175,771 5.4%
Dr. Albert W. Niemi, Jr. (10) 1,700 ---
Glenn R. Simmons (3)(11) 1,000 ---
Steven L. Watson (3) (12) 3,050 ---
Paul J. Zucconi (13) 1,100 ---
Executive officers
Christian Leonhard (14) 4,800 ---
Robert E. Musgraves (15) 11,695 ---
All directors and nominees and executive officers of the Company as a
group (9 persons) (3)(7)(8)(9)(10)(11)(12)(13)(14)(15)(16) 200,716 6.2%
-------------------------------------------------------------------------------------------------------------------
(1) All beneficial ownership is sole and direct unless otherwise noted.
14
(2) No percent of class is shown for holdings of less than 1%. For purposes of
calculating individual and group percentages, the number of shares treated
as outstanding for each individual includes stock options exercisable by
such individual (or all individuals included in the group) within 60 days
of the April 15, 2004 and shares each individual may acquire by conversion
of convertible securities. As of April 15, 2004, there were 3,179,942
shares of TIMET's common stock outstanding (excluding 9,000 shares of
treasury stock).
(3) Tremont LLC, the CMRT, Mrs. Harold C. Simmons and Valhi are the direct
holders of approximately 39.7%, 8.4%, 6.3% and 1.2%, respectively, of the
outstanding shares of TIMET's common stock. Mr. Simmons' spouse and Valhi
directly hold 1,600,000 and 14,700, respectively, of the 6.625% mandatorily
redeemable convertible preferred securities, beneficial unsecured
convertible securities ("BUCS") of TIMET Capital Trust I ("Capital Trust"),
which are convertible into 214,240 and 1,968 shares, respectively, of
TIMET's common stock. The percentage ownership of TIMET's common stock
shown for Mr. Simmons' spouse and Valhi assumes, in each case, the full
conversion of only each such holder's BUCS. BUCS are not entitled to vote
on matters submitted to the holders of TIMET's common stock prior to the
conversion of BUCS into shares of TIMET's common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold
C. Simmons (the "Trusts"), of which Mr. Simmons is the sole trustee, or is
held by Mr. Simmons or persons or other entities related to Mr. Simmons. As
sole trustee of each of the Trusts, Mr. Simmons has the power to vote and
direct the disposition of the shares of Contran stock held by each of the
Trusts. Mr. Simmons, however, disclaims beneficial ownership of any shares
of Contran stock that the Trusts hold.
Valhi is the direct holder of 100% of the outstanding membership interests
of Tremont LLC. Valhi Group, Inc. ("VGI"), National City Lines, Inc.
("National"), Contran, the Harold Simmons Foundation, Inc. (the
"Foundation"), the Contran Deferred Compensation Trust No. 2 (the "CDCT No.
2") and the CMRT are the direct holders of 77.6%, 9.1%, 3.1%, 0.9%, 0.4%
and 0.1%, respectively, of the outstanding shares of Valhi's common stock.
National, NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie Holding") are
the direct holders of approximately 73.3%, 11.4% and 15.3%, respectively,
of the outstanding common stock of VGI. Contran and NOA are the direct
holders of approximately 85.7% and 14.3%, respectively, of the outstanding
common stock of National. Contran and Southwest Louisiana Land Company,
Inc. ("Southwest") are the direct holders of approximately 49.9% and 50.1%,
respectively, of the outstanding common stock of NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the direct holder of 100%
of the outstanding common stock of Dixie Holding. Contran is the holder of
100% of the outstanding common stock of Dixie Rice and approximately 88.9%
of the outstanding common stock of Southwest.
The CMRT directly holds approximately 8.4% of the outstanding shares of
TIMET's common stock and 0.1% of the outstanding shares of Valhi's common
stock. Valhi established the CMRT as a trust to permit the collective
investment by master trusts that maintain the assets of certain employee
benefit plans Valhi and related companies, including TIMET, adopt. Mr.
Simmons is the sole trustee of the CMRT and a member of the trust
investment committee for the CMRT. Valhi's board of directors selects the
trustee and members of the trust investment committee for the CMRT. Mr.
Simmons, Glenn R. Simmons and Steven L. Watson are each members of Valhi's
board of directors and participants in one or more of the employee benefit
plans that invest through the CMRT. Each such person, however, disclaims
beneficial ownership of any shares the CMRT holds, except to the extent, if
any, of his individual, vested beneficial interest in the assets the CMRT
holds.
The Foundation directly holds approximately 0.9% of the outstanding shares
of Valhi's common stock. The Foundation is a tax-exempt foundation
organized for charitable purposes. Harold C. Simmons is the Chairman of the
Board of the Foundation and may be deemed to control the Foundation. Mr.
Simmons, however, disclaims beneficial ownership of any shares of Valhi's
common stock held by the Foundation.
The CDCT No. 2 directly holds approximately 0.4% of the outstanding shares
of Valhi's common stock. U.S. Bank National Association serves as the
trustee of the CDCT No. 2. Contran established the CDCT No. 2 as an
irrevocable "rabbi trust" to assist Contran in meeting certain deferred
compensation obligations that it owes to Harold C. Simmons. If the CDCT No.
2 assets are insufficient to satisfy such obligations, Contran is obligated
to satisfy the balance of such obligations as they come due. Pursuant to
the terms of the CDCT No. 2, Contran (i) retains the power to vote the
shares of Valhi's common stock held directly by the CDCT No. 2, (ii)
retains dispositive power over such shares and (iii) may be deemed the
indirect beneficial owner of such shares. Mr. Simmons, however, disclaims
beneficial ownership of the shares owned, directly or indirectly, by the
CDCT No. 2, except to the extent of his interest as a beneficiary of the
CDCT No. 2.
15
Valmont Insurance Company ("Valmont"), NL and a subsidiary of NL directly
own 1,000,000 shares, 3,522,967 shares and 1,186,200 shares, respectively,
of Valhi's common stock. Valhi is the direct holder of 100% of the
outstanding common stock of Valmont. Valhi and Tremont LLC are the direct
holders of 62.4% and 21.1%, respectively, of the outstanding shares of
common stock of NL. Pursuant to Delaware law, Valhi treats the shares of
Valhi's common stock that Valmont, NL and the subsidiary of NL own as
treasury stock for voting purposes and for the purposes of this note such
shares are not deemed outstanding.
Harold C. Simmons is Chairman of the Board and Chief Executive Officer of
NL and Chairman of the Board of Tremont LLC, Valhi, VGI, National, NOA,
Dixie Holding, Dixie Rice, Southwest and Contran.
By virtue of the offices held, the stock ownership and his services as
trustee, all as described above, (a) Harold C. Simmons may be deemed to
control the entities described above and (b) Mr. Simmons and certain of
such entities may be deemed to possess indirect beneficial ownership of any
shares directly held by certain of such other entities. Mr. Simmons
disclaims beneficial ownership of the shares beneficially owned, directly
or indirectly, by any of such entities, except to the extent otherwise
expressly indicated in this note.
Harold C. Simmons may be deemed to share indirect beneficial ownership of
the 1,600,000 BUCS (which are convertible into 214,240 shares of TIMET's
common stock) that Mrs. Simmons directly holds. Mr. Simmons disclaims all
such beneficial ownership.
Glenn R. Simmons and Steven L. Watson are directors and/or officers of
Tremont LLC, NL, Valhi, VGI, National, NOA, Dixie Holding, Dixie Rice,
Southwest and Contran. Each of such persons disclaims beneficial ownership
of any shares that any of such entities hold, whether directly or
indirectly.
The business address of Tremont LLC, Valhi, VGI, National, NOA, Dixie
Holding, Contran, the CMRT, the Foundation and Harold C. Simmons and his
spouse is Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697. The business address of Dixie Rice is 600 Pasquiere Street,
Gueydan, Louisiana 70542. The business address of Southwest is 402 Canal
Street, Houma, Louisiana 70360.
(4) A trust for which Harold C. Simmons and his spouse are co-trustees and of
which the beneficiaries are the grandchildren of Mrs. Simmons is the direct
holder of 4,760 shares of TIMET's common stock. Mr. Simmons and his spouse
each disclaim beneficial ownership of these shares.
(5) As reported in the Statement on Schedule 13G filed with the SEC dated
February 9, 2004. The address of Royce & Associates, LLC is 1414 Avenue of
the Americas, New York, NY 10019.
(6) As reported in an Amendment to Statement on Schedule 13G filed with the SEC
dated February 6, 2004. The address of Dimensional Fund Advisors Inc. is
1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(7) As reported in the Statement on Schedule 13G filed with the SEC dated
February 17, 2004. The address of State Street Research & Management
Company is One Financial Center, 31st Floor, Boston, MA 02111-2690.
(8) The shares of TIMET's common stock shown as beneficially owned by Norman N.
Green include 500 shares that Mr. Green has the right to acquire by the
exercise of stock options within 60 days of April 15, 2004 under the
Director Compensation Plan.
(9) The shares of TIMET's common stock shown as beneficially owned by J. Landis
Martin include (i) 50,000 shares that Mr. Martin may acquire upon exercise
of stock options within 60 days of April 15, 2004 under the TIMET Stock
Incentive Plan (subject to the qualification described in this note below),
and (ii) 2,940 shares held by members of Mr. Martin's immediate family,
beneficial ownership of which is disclaimed by Mr. Martin. Under the TIMET
Stock Incentive Plan a grantee may not exercise out-of-the-money options.
Taking this limitation into account, Mr. Martin's total beneficial
ownership, as of April 15, 2004, would be 149,171 shares or 4.6%. Mr.
Martin is also the direct holder of 103,000 BUCS and an indirect holder of
10,000 BUCS. See "Ownership of BUCS" below. Such BUCS are convertible into
13,792 and 1,339 shares, respectively, of TIMET's common stock, which
amounts are included in the TIMET's common stock ownership number shown for
Mr. Martin. No other director, nominee for director or executive officer of
TIMET is known to hold any BUCS.
(10) The shares of TIMET's common stock shown as beneficially owned by Dr.
Albert W. Niemi, Jr. include 1,000 shares that Dr. Niemi has the right to
acquire upon the exercise of stock options within 60 days of April 15, 2004
under the Director Compensation Plan.
(11) The shares of TIMET's common stock shown as beneficially owned by Glenn R.
Simmons include 1,000 shares that Mr. Simmons has the right to acquire upon
the exercise of stock options within 60 days of April 15, 2004 under the
Director Compensation Plan.
16
(12) The shares of TIMET's common stock shown as beneficially owned by Steven L.
Watson include 1,500 shares that Mr. Watson has the right to acquire upon
the exercise of stock options within 60 days of April 15, 2004 under the
Director Compensation Plan.
(13) The shares of TIMET's common stock shown as beneficially owned by Paul J.
Zucconi include 500 shares that Mr. Zucconi has the right to acquire upon
the exercise of stock options within 60 days of April 15, 2004 under the
Director Compensation Plan.
(14) The shares of TIMET's common stock shown as beneficially owned by Christian
Leonhard include 2,680 shares that Mr. Leonhard may acquire upon the
exercise of stock options within 60 days of April 15, 2004 under the TIMET
Stock Incentive Plan.
(15) The shares of TIMET's common stock shown as beneficially owned by Robert E.
Musgraves include (i) 6,660 shares that Mr. Musgraves may acquire upon the
exercise of stock options within 60 days of April 15, 2004 under the TIMET
Stock Incentive Plan, (ii) 20 shares held by members of Mr. Musgraves'
immediate family, beneficial ownership of which is disclaimed by Mr.
Musgraves and (iii) 800 shares of TIMET's common stock that represent
restricted shares under the terms of the TIMET Stock Incentive Plan with
respect to which shares Mr. Musgraves has the power to vote and receive
dividends. Of the shares of TIMET's common stock shown as beneficially
owned by Mr. Musgraves, 1,440 shares are pledged to TIMET to secure
repayment of a loan from TIMET in 1998 used to purchase a portion of such
shares. See "TIMET Executive Stock Ownership Loan Plan" in ITEM 13: CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS below.
(16) The shares of TIMET's common stock shown as beneficially owned by "All
directors and nominees and executive officers of the Company as a group"
include 63,840 shares that members of this group have the right to acquire
by the exercise of stock options within 60 days of April 15, 2004 under the
TIMET Stock Incentive Plan (subject to the qualification in note (9) above)
or the TIMET Director Compensation Plan, 15,131 shares that members of this
group have the right to acquire upon the conversion of BUCS and 800 shares
of TIMET's common stock that are restricted shares with respect to which
members of the group have the power to vote and receive dividends.
TIMET understands that Tremont LLC and related entities may consider
acquiring or disposing of shares of TIMET's common stock or BUCS through
open-market or privately negotiated transactions, depending upon future
developments, including, but not limited to, the availability and alternative
uses of funds, the performance of TIMET's common stock or BUCS in the market, an
assessment of the business of and prospects for TIMET, financial and stock
market conditions and other factors. TIMET may similarly consider such
acquisitions of shares of TIMET's common stock or BUCS and acquisition or
disposition of securities issued by related or unrelated parties. As of April
15, 2004, TIMET, through a wholly-owned subsidiary, owned 1,277,710 shares of
CompX Class A common stock, representing 24.9% of the total shares of CompX
Class A common stock outstanding. TIMET does not, and understands that Tremont
LLC also does not, presently intend to engage in any transaction or series of
transactions that would result in TIMET's common stock becoming eligible for
termination of registration under the Exchange Act or ceasing to be traded on a
national securities exchange.
Ownership of BUCS. The Capital Trust is a statutory business trust formed
under the laws of the State of Delaware, all of whose common securities are
owned by TIMET. The Capital Trust exists for the sole purpose of issuing the
BUCS and investing in an equivalent amount of 6.625% Convertible Junior
Subordinated Debentures due 2026 (the "Subordinated Debentures") of TIMET. The
BUCS represent undivided beneficial interests in the Capital Trust. The BUCS are
convertible, at the option of the holder thereof, into an aggregate of
approximately 540,000 shares of TIMET's common stock at a conversion rate of
0.1339 shares of TIMET's common stock for each BUCS. TIMET has, in effect, fully
and unconditionally guaranteed repayment of all amounts due on the BUCS.
17
The BUCS were issued pursuant to an offering exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to an
agreement with the original purchasers of the BUCS, TIMET has filed a
registration statement under the Securities Act to register, among other things,
the BUCS, the Subordinated Debentures, TIMET's common stock issuable upon the
conversion of the BUCS and certain other shares of TIMET's common stock that are
held by, or may be acquired by, Tremont LLC. See "Contractual
Relationships--Registration Rights" in ITEM 13: CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS below. Except as set forth in notes (3) and (9) to the
table under the heading "Ownership of TIMET's Common Stock" above, no director,
nominee for director or executive officer of TIMET is known to hold any BUCS.
Ownership of Valhi common stock. By virtue of the share ownership described
above, for purposes of the SEC's regulations, Valhi may be deemed to be the
parent of TIMET. The following table and accompanying notes set forth the
beneficial ownership, as of April 15, 2004, of Valhi's common stock ($.01 par
value per share) held by (i) each director or nominee for director of TIMET,
(ii) each executive officer listed in the Summary Compensation Table who is not
a director or nominee for director of TIMET and (iii) all executive officers and
all directors and nominees for director of TIMET as a group. Except as set forth
below and under the heading "Ownership of BUCS" above, no securities of TIMET's
subsidiaries or less than majority owned affiliates are beneficially owned by
any director, nominee for director or executive officer of TIMET. All
information has been taken from or is based upon, ownership filings made by such
persons with the SEC or upon information provided by such persons to TIMET.
Ownership of Valhi Common Stock
Valhi common stock
-----------------------------------------
Amount and
nature of
beneficial Percent of
Name of beneficial owner ownership (1) class (2)
------------------------ ------------------- -----------------
Directors and nominees
Norman N. Green --- ---
Dr. Gary C. Hutchison --- ---
J. Landis Martin ---
4
Dr. Albert W. Niemi, Jr. --- ---
Glenn R. Simmons (3) 13,247 ---
Steven L. Watson (4) 117,246 ---
Paul J. Zucconi --- ---
Executive officers
Christian Leonhard --- ---
Robert E. Musgraves --- ---
All directors and nominees and executive officers of the Company as a
group (9 persons) (3)(4)(5) 130,497 ---
---------------------------------------------------------------------------------------------------------------------
(1) All beneficial ownership is sole and direct unless otherwise noted.
(2) No percent of class is shown for holdings of less than 1%. For purposes of
calculating individual and group percentages, the number of shares treated
as outstanding for each individual includes stock options exercisable by
such individual (or all individuals included in the group) within 60 days
of April 15, 2004.
(3) The shares of Valhi's common stock shown as beneficially owned by Glenn R.
Simmons include 2,383 shares held in an individual retirement account for
Mr. Simmons and 800 shares held in an individual retirement account for Mr.
Simmons' spouse. Mr. Simmons disclaims beneficial ownership of the shares
held in his spouse's retirement account.
18
(4) The shares of Valhi's common stock shown as beneficially owned by Steven L.
Watson include 100,000 shares that Mr. Watson has the right to acquire upon
the exercise of stock options within 60 days of April 15, 2004 under stock
option plans adopted by Valhi and 2,035 shares held in an individual
retirement account for Mr. Watson.
(5) The shares of Valhi's common stock shown as beneficially owned by "All
directors and nominees and executive officers of the Company as a group"
include 100,000 shares that members of this group have the right to acquire
upon the exercise of stock options within 60 days of April 15, 2004 as
described in note (4) above.
Equity compensation plan information. The following table provides
information, as of December 31, 2003, with respect to compensation plans and
arrangements under which equity securities of TIMET are authorized for issuance.
All of TIMET's current equity compensation plans have been approved by TIMET's
common stockholders.
Column (A) Column (B) Column (C)
Number of securities
Number of securities remaining available for future
to be issued upon Weighted-average issuance under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrant, and rights warrants and rights reflected in Column (A))
------------------- ------------------- ------------------- ------------------------
Equity compensation
plans approved by
security holders 110,150 $ 179 174,508
Equity compensation
plans not approved
by security holders --- --- ---
Total 110,150 $ 179 174,508
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships with related parties. As set forth in ITEM 12: SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS above, TIMET may be deemed to be controlled by Harold C. Simmons. Other
entities that may be deemed to be controlled by or related to Mr. Simmons
sometimes engage in (a) intercorporate transactions with related companies such
as guarantees, management and expense sharing arrangements, shared fee
arrangements, tax sharing agreements, joint ventures, partnerships, loans,
options, advances of funds on open account, and sales, leases and exchanges of
assets, including securities issued by both related and unrelated parties, and
(b) common investment and acquisition strategies, business combinations,
reorganizations, recapitalizations, securities repurchases, and purchases and
sales (and other acquisitions and dispositions) of subsidiaries, divisions or
other business units, which transactions have involved both related and
unrelated parties and have included transactions that resulted in the
acquisition by one related party of a publicly held, minority equity interest in
another related party. TIMET considers, reviews and evaluates, and understands
that Contran, Valhi, Keystone, NL, Kronos, CompX, Tremont LLC and related
entities also consider, review and evaluate, such transactions. Depending upon
the business, tax and other objectives then relevant, it is possible that TIMET
might be a party to one or more of such transactions in the future.
19
J. Landis Martin is Chairman of the Board, President and Chief Executive
Officer of TIMET. Mr. Martin also served as a director and President and Chief
Executive Officer of NL until his resignation in July 2003. Glenn R. Simmons, a
director of TIMET, is also Chairman of the Board of Keystone and CompX, Vice
Chairman of the Board of Contran and Valhi, Vice Chairman of Tremont LLC and a
director of NL and Kronos. Steven L. Watson, a director of TIMET, is also an
executive officer of Contran, Valhi and Tremont LLC, and a director of Contran,
CompX, Keystone, Kronos, Valhi, and NL. A. Andrew R. Louis is Assistant
Secretary of TIMET and Secretary and Associate General Counsel of Contran, Valhi
and Tremont LLC. Robert D. Graham is Assistant Secretary of TIMET, Vice
President, General Counsel and Secretary of NL and Kronos and Vice President of
Contran, Valhi and Tremont LLC. Joan H. Prusse is Vice President, General
Counsel and Secretary of TIMET and Vice President of Tremont LLC. TIMET
understands that all such persons are expected to continue to serve in such
capacities in 2004. Such individuals divide their time among the companies for
which they serve as officers. Such management interrelationships and
intercorporate relationships may lead to possible conflicts of interest. These
possible conflicts of interest may arise from the duties of loyalty owed by
persons acting as corporate fiduciaries to two or more companies under
circumstances in which such companies may have conflicts of interest. Prior to
the Tremont Merger in 2003, certain directors and officers of TIMET served as
directors and officers of Tremont Corporation.
Although no specific procedures are in place that govern the treatment of
transactions among TIMET, Contran, Valhi, CompX, Keystone, Kronos, Tremont LLC
and NL, the board of directors of each of these companies (with the exception of
Contran and Tremont LLC, which are not public companies) includes one or more
members who are not officers or directors of any entity that may be deemed to be
related to TIMET. Additionally, under applicable principles of law, in the
absence of stockholder ratification or approval by directors who may be deemed
disinterested, transactions involving contracts among companies under common
control must be fair to all companies involved. Furthermore, directors and
officers owe fiduciary duties of good faith and fair dealing to stockholders of
all the companies for which they serve.
Contractual relationships.
Incorporate services agreements. Under the terms of various intercorporate
services agreements ("ISAs") that TIMET has historically entered into with
various related parties, employees of one company provide certain management,
tax planning, financial, risk management, environmental, administrative,
facility or other services to the other company on a fee basis. Such charges are
based upon estimates of the time devoted by the employees of the provider of the
services to the affairs of the recipient and the compensation of such persons
and the cost of facilities, equipment or supplies provided. These ISAs are
reviewed and approved by the independent directors of the companies that are
parties to the agreements.
In 2003, the Company had an ISA with Tremont LLC to provide certain
management, financial, environmental, human resources and other services to
Tremont LLC under which Tremont LLC paid the Company approximately $0.2 million.
The Company had a similar ISA with Tremont Corporation, Tremont LLC's
predecessor prior to the Tremont Merger, and the amount reported as paid in 2003
includes the amount paid to TIMET under the ISA with Tremont Corporation.
In 2003, the Company paid NL approximately $15,000 under an ISA with NL
whereby NL provided certain financial and other services to TIMET.
In 2003, the Company paid Contran approximately $0.3 million under an ISA
with Contran whereby Contran provided certain business, financial and other
services to TIMET.
20
In 2004, the Company, Tremont LLC and Contran agreed to enter into a single
ISA covering the provision of services by Contran to TIMET and the provision of
services by TIMET to Tremont LLC. Under the 2004 combined ISA, TIMET will pay
Contran approximately $1.2 million, representing the net cost of the Contran
services to TIMET ($1.3 million) less the TIMET services to Tremont LLC ($0.1
million).
Shareholders' agreement. Prior to TIMET's initial public offering in 1996,
TIMET, Tremont Corporation and other stockholders of TIMET at that time entered
into a shareholders' agreement (referred to herein as the "Shareholders'
Agreement") that provides, among other things, that so long as Tremont LLC (as
the successor to Tremont Corporation the only remaining shareholder party)
continues to hold at least 10% of the outstanding shares of TIMET's common
stock, TIMET will not, without the approval of Tremont LLC, cause or permit the
dissolution or liquidation of itself or any of its subsidiaries or the filing by
itself of a petition in bankruptcy, or the commencement by TIMET of any other
proceeding seeking relief from its creditors. TIMET also agreed to provide
certain periodic information about TIMET and its subsidiaries to Tremont LLC,
which right is subject to confidentiality restrictions.
Registration rights. Under the Shareholders' Agreement, Tremont LLC (as
successor to Tremont Corporation) is entitled to certain rights with respect to
the registration under the Securities Act of the shares of TIMET's common stock
that Tremont LLC holds. The Shareholders' Agreement generally provides, subject
to certain limitations, that (i) Tremont LLC has two rights, only one of which
can be on Form S-1, to require TIMET to register under the Securities Act an
amount of not less than $25 million of registrable securities, and (ii) if TIMET
proposes to register any securities under the Securities Act (other than a
registration on Form S-4 or Form S-8, or any successor or similar form), whether
or not pursuant to registration rights granted to other holders of its
securities and whether or not for sale for its own account, Tremont LLC has the
right to require TIMET to include in such registration the registrable
securities held by Tremont LLC or its permitted transferees so long as Tremont
LLC holds in excess of 5% of the outstanding shares of TIMET's common stock (or
to sell the entire balance of any such registrable securities even though less
than 5%). TIMET is obligated to pay all registration expenses in connection with
a registration under the Shareholders' Agreement. Under certain circumstances,
the number of shares included in such a registration may be limited. TIMET has
agreed to indemnify the holders of any registrable securities to be covered by a
registration statement pursuant to the Shareholders' Agreement, as well as the
holders' directors and officers and any underwriters and selling agents, against
certain liabilities, including liabilities under the Securities Act.
Insurance matters. TIMET participates in a combined risk management program
with Contran and certain of its subsidiaries and affiliates. Pursuant to the
program, Contran and certain of its subsidiaries and affiliates, including
TIMET, purchase certain of their insurance policies as a group, with the costs
of the jointly owned policies being apportioned among the participating
companies. Tall Pines Insurance Company ("Tall Pines"), Valmont and EWI RE, Inc.
("EWI") provide for or broker these insurance policies. Tall Pines and Valmont
are captive insurance companies wholly owned by Valhi, and EWI is a reinsurance
brokerage wholly owned by NL. A son-in-law of Harold C. Simmons serves as EWI's
chairman of the board and chief marketing officer and is compensated as an
employee of EWI. Consistent with insurance industry practices, Tall Pines,
Valmont and EWI receive commissions from insurance and reinsurance underwriters
for the policies that they provide or broker.
21
During 2003, Contran and its related parties paid premiums of approximately
$16.7 million for policies Tall Pines or Valmont provided or EWI brokered,
including approximately $3.8 million TIMET and its subsidiaries paid. This
amount principally included payments for reinsurance and insurance premiums paid
to unrelated third parties, but also included commissions paid to Tall Pines,
Valmont and EWI. In TIMET's opinion, the amount that TIMET paid for these
insurance policies and the allocation among Contran and certain of its
subsidiaries and affiliates, including TIMET, of relative insurance premiums are
reasonable and at least as favorable to those they could have obtained through
unrelated insurance companies and/or brokers. TIMET expects that these
relationships with Tall Pines, Valmont and EWI will continue in 2004.
With respect to certain of such jointly owned insurance policies, it is
possible that unusually large losses incurred by one or more insureds during a
given policy period could leave the other participating companies without
adequate coverage under that policy for the balance of the policy period. As a
result, Contran and certain of its subsidiaries or affiliates, including TIMET,
have entered into a loss sharing agreement under which any uninsured loss is
shared by those entities who have submitted claims under the relevant policy.
TIMET believes the benefits in the form of reduced premiums and broader coverage
associated with the group coverage for such policies justify the risks
associated with the potential for any uninsured loss.
Utility services. In connection with the operations of TIMET's Henderson,
Nevada facility, TIMET purchases certain utility services from Basic Management,
Inc. and its subsidiaries (referred to collectively herein as "BMI") pursuant to
various agreements. A wholly owned subsidiary of Tremont LLC owns approximately
32% of the outstanding equity securities of BMI (representing 26% of the voting
securities of BMI). During 2003, fees for such utility services provided by BMI
to TIMET were approximately $3.0 million.
TIMET Executive Stock Ownership Loan Plan. Under TIMET's Executive Stock
Ownership Loan Plan, approved by the TIMET Board of Directors in 1998 and the
TIMET stockholders in 2000, TIMET's executive officers were entitled to borrow
funds to purchase TIMET's common stock or to pay taxes payable with respect to
vesting shares of restricted stock. Each executive could borrow up to 50% of his
or her base salary per calendar year and 200% of such base salary in the
aggregate. Interest accrues at a rate equal to .0625% per annum above TIMET's
effective borrowing rate at the time of the loan, subject to annual adjustment,
and is payable quarterly. The effective interest rate in 2003 was 3.4425%
(3.2825% for 2004). Principal is repayable in five equal annual installments
commencing on the sixth anniversary of the loan. Repayment of the loans is
secured by the stock purchased with the loan proceeds or the stock for which
loan proceeds were used to pay taxes. The loans are "full recourse" to the
executive personally, except that in the case of a sale of all of the collateral
by TIMET upon an event of default or upon the termination of the executive's
employment, whether for cause or otherwise, the borrower's personal liability
for repayment of the loan is limited to 70% of the principal amount remaining
after sale and application of the proceeds from the sale of the stock. TIMET
terminated this program effective July 30, 2002, subject to continuing only
those loans outstanding at that time in accordance with their then-current
terms. The following table identifies the executive officers of TIMET who were
indebted to TIMET under this program during 2003 and as of April 15, 2004:
Maximum principal amount Principal outstanding
Name outstanding during 2003 as of April 15, 2004
---- ----------------------- --------------------
Robert E. Musgraves $ 113,708 $ 87,461
22
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent auditors. PricewaterhouseCoopers LLP ("PwC") served as TIMET's
principal accountant for the audit of TIMET's financial statements for the year
ended December 31, 2003 and has been appointed to review TIMET's quarterly
unaudited consolidated financial statements to be included in its Quarterly
Reports on Form 10-Q for the first three quarters of 2004 and to audit TIMET's
annual consolidated financial statements for the year ending December 31, 2004.
Audit Committee pre-approval procedures. The Audit Committee has adopted
policies and procedures for pre-approving all work performed by the Company's
outside auditor. The Audit Committee requires specific pre-approval prior to the
engagement of the outside auditor for the following audit and audit-related
services:
o Annual audits of the Company's consolidated financial statements,
attestation services associated with TIMET's system of internal
control over financial reporting and other services associated with
TIMET's Annual Report on Form 10-K;
o Quarterly review procedures associated with the Company's unaudited
interim consolidated financial statements and other services
associated with the Company's Quarterly Reports on Form 10-Q;
o Services associated with registration statements filed by TIMET with
the SEC, including responding to SEC comment letters and providing
comfort letters;
o Statutory audits or annual audits of the annual financial statements
of subsidiaries of the Company; o Quarterly review procedures of the
interim financial statements of subsidiaries of TIMET; o Services
associated with potential business acquisitions/dispositions involving
the Company;
o Any other services provided to TIMET not specifically described above
or otherwise pre-approved by the Audit Committee; and
o Any material changes in terms, conditions or fees with respect to the
foregoing resulting from changes in audit scope, TIMET structure or
other applicable matters.
The Audit Committee must also pre-approve any of the specific types of
services included within the following categories of audit, audit-related, tax
and international corporate governance services:
o Audit Services:
o Consultations with TIMET's management as to the accounting and/or
disclosure treatment of transactions or events and/or the actual
or potential impact of final or proposed rules, standards or
interpretations of the SEC, the Financial Accounting Standards
Board ("FASB"), the Public Company Accounting Oversight Board
("PCAOB") or other applicable U.S. or international regulatory or
standard-setting bodies; and
o Assistance with responding to SEC comment letters received by
TIMET other than in connection with any registration statement
filed with the SEC.
23
o Audit-Related Services:
o Consultations with the Company's management as to the accounting
and/or disclosure treatment of transactions or events and/or the
actual or potential impact of final or proposed rules, standards
or interpretations of the SEC, FASB, PCAOB or other applicable
U.S. or international regulatory or standard-setting bodies.
o Financial statement audits of employee benefit plans of TIMET;
o Agreed-upon or expanded audit procedures related to the Company's
accounting records required to respond to or comply with
financial, accounting, legal, regulatory or contractual reporting
requirements; and
o Internal control reviews and assistance with internal control
reporting requirements of TIMET (to the extent permitted by
applicable rule or regulation).
o Tax Services:
o Consultations with TIMET's management as to the tax treatment of
transactions or events and/or the actual or potential tax impact
of final or proposed laws, rules and regulations in U.S.
(federal, state and local) and international jurisdictions;
o Consultations with the Company's management related to compliance
with existing or proposed tax laws, rules and regulations in U.S.
(federal, state and local) and international jurisdictions;
o Assistance in the preparation of and review of TIMET's U.S.
(federal, state and local) and international income, franchise
and other tax returns;
o Assistance with tax inquiries, audits and appeals of TIMET before
the U.S. Internal Revenue Service and similar state, local and
international agencies;
o Consultations with TIMET's management regarding domestic and
international statutory, regulatory or administrative tax
developments;
o Transfer pricing and cost segregation studies of the Company; and
o Expatriate tax assistance and compliance for TIMET and its
employees.
o Other Services:
o Assistance with corporate governance matters (including
preparation of board minutes and resolutions) and assistance with
the preparation and filing of documents (such as paperwork to
register new companies or to de-register existing companies)
involving the Company with non-U.S. governmental and regulatory
agencies; provided, however, that the non-U.S. jurisdiction in
which such services are provided does not require that the
individual providing such service be licensed, admitted or
otherwise qualified to practice law.
The Audit Committee reviews service proposals for proposed work to be
performed by the outside auditor and, if acceptable to the Audit Committee,
would pre-approve those services for a specified fee limit or range. For any
general categories of services for which the Audit Committee may determine to
pre-approve a specific fee amount or range in the absence of a specific proposal
for services, an officer of TIMET is required to report the Company's incurring
or payment of such fees to the full Audit Committee at the first meeting of the
Audit Committee held subsequent to the engagement of the independent auditor to
provide any of those services.
The Audit Committee requires the use of engagement letters prior to the
engagement of TIMET's outside auditor for many of the foregoing services. The
Audit Committee also prohibits the use of the outside auditor for the non-audit
related services described under the terms of the SEC's rules on auditor
independence.
24
Fees paid to PwC. The following table shows the aggregate fees PwC has
billed or is expected to bill to TIMET and its subsidiaries for services
rendered for 2002 and 2003. Of the services shown in the table below,
approximately 98% were pre-approved by the Audit Committee (although not
pursuant to the previously described pre-approval policies and procedures
because those policies and procedures were not adopted until February 2004). The
percentage of audit-related services that were not pre-approved by the Audit
Committee does not adversely impact PwC's independence from TIMET under
applicable regulations. None of the hours expended by PwC to complete the audit
for the last fiscal year were performed by persons other than PwC's full-time,
permanent employees.
Type of Fees 2002 2003
------------ ---- ----
Audit fees (1)............................ $ 397,000 $ 552,000
Audit-related fees (2).................... 5,000 24,600
Tax fees (3).............................. 64,500 44,300
All other fees (4)........................ --- ---
--------- ---------
Total..................................... $ 466,500 $ 620,900
========= =========
-------------------------------------------------------------------------------------------------------------------
(1) Represents fees for the following services:
(a) Audits of TIMET's consolidated year-end financial statements for each
year;
(b) Reviews of the unaudited quarterly financial statements appearing in
TIMET's Forms 10-Q for each of the first three quarters of each year;
(c) Consents filed with the SEC;
(d) Normally provided statutory or regulatory filings or engagements for
each year; and
(e) The estimated out-of-pocket costs PwC incurs in providing all of such
services for which TIMET reimburses PwC.
(2) Represents fees for assurance and services reasonably related to the audit
or review of TIMET's financial statements for each year. These services may
include accounting consultations, attest services concerning financial
accounting and reporting standards, audits of employee benefit plans and
advice concerning internal controls.
(3) Represents fees for tax compliance, tax advice and tax planning services.
(4) The Company incurred no other fees from PwC in the last two fiscal years
for services not described in the other categories.
PART IV
ITEM 15: EXHIBITS
(c) Exhibits:
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Note:The Company has retained a signed original of any exhibit listed above
that contains signatures, and the Company will provide any such
exhibit to the SEC or its staff upon request. Such request should be
directed to the attention of the Company's Corporate Secretary at the
Company's corporate offices located at 1999 Broadway, Suite 4300,
Denver, Colorado 80202.
25
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TITANIUM METALS CORPORATION
(Registrant)
By /s/ J. Landis Martin
--------------------------------------------
J. Landis Martin, April 28, 2004
Chairman of the Board, President
and Chief Executive Officer