Oregon Metallurgical Corporation
Address:
530 34th Ave. SW
Albany, Oregon 97321
U.S.A.
Telephone: (541) 926-4281
Fax: (541) 967-8669
Statistics:
Public Company
Incorporated: 1955
Employees: 580
Sales: $146.9 million (1995)
Stock Exchanges: NASDAQ
SICs: 3339 Primary Nonferrous Metals, Not Elsewhere Classified
Company Perspectives:
Oregon Metallurgical Corporation is a leader in developing manufacturing technology and processes for the production of titanium, and is active in promoting the use of titanium in increasingly diverse aerospace, industrial, medical and consumer applications.
Company History:
Oregon Metallurgical Company, known as Oremet, is one of only two companies in the United States that produce titanium sponge, the pure form of the rare metal used to produce titanium alloys for use in manufacturing. The company also forges titanium products for aerospace, medical, electronics, and other applications. Although nearly half of the company's sales in 1996 were for commercial or military aerospace applications, Oremet also was the leading provider of titanium for use in the manufacture of golf clubs, which accounted for 20 percent of sales. The Albany, Oregon-based company operates titanium metals service centers in the United States, United Kingdom, Germany, and Canada through Titanium Industries, Inc., an 80 percent-owned subsidiary. The only other U.S. producer of titanium sponge is Denver-based Titanium Metals Corporation, the industry leader.
U.S. Bureau of Mines
In 1942, with the United States at war in Europe and the Pacific Theater, Carl Curlee, then president of the Albany, Oregon, Chamber of Commerce, flagged down a passenger train heading from California to Washington State. On board was an agent for the now-defunct Bureau of Mines, then an agency of the U.S. Department of the Interior, who was on his way to inspect the proposed site of a new metals laboratory in Spokane, Washington. However, Curlee and other members of the Albany Chamber of Commerce had an alternative site in mind--the 45-acre campus of buildings that had recently been abandoned by Albany College when it left the languishing Willamette Valley logging and farming community and moved to Portland to begin anew as Lewis & Clark College.
Curlee dumped aerial maps and brochures about the Albany area into the startled agent's lap and succeeded in convincing him to tour the former college campus. A few months later, the Albany business community sent Curlee to Washington, D.C., where he was able to present the city's proposal directly to the Bureau of Mines. As he wrote in January 1943, "My big moment had arrived. I did my best under pressure. What with Senators Wheeler, Murray, Cone and Walten, to say nothing of the score of 90 congressmen looking down my throat, I introduced our material. They immediately struck the fancy of the Bureau people." Not long afterwards, the Bureau of Mines designated the abandoned college campus as the site for the sought-after metals laboratory.
A decade later, Steve Shelton, then Northwest regional director for the Bureau of Mines, casually mentioned during an Albany Chamber of Commerce luncheon that perhaps the city should try to attract a titanium plant to boost the still-lagging local economy. The primary role of the Bureau of Mines, created in 1910, was to promote mine safety and develop more efficient mining methods. But during the war, it had assumed the added responsibility of assuring that the country had adequate supplies of critical raw materials. In the early 1950s, that was beginning to include titanium.
Titanium was discovered in 1791, but was not produced commercially until 1948, by the Du Pont Co., because it was difficult and expensive to refine. However, titanium is relatively light and has a higher strength-to-weight ratio than steel. It also resists rust and corrosion as well as platinum and better than stainless steel, and combines readily with nearly every other metal, except copper and aluminum, making it useful in creating strong, lightweight alloys for military and aerospace applications.
But in 1955, titanium was still an exotic, little-known material, and after the Chamber of Commerce luncheon, Charlie McCormack, then mayor of Albany, followed Shelton back to his office at the Bureau of Mines and asked, "What the hell is a titanium plant?" Shelton explained and McCormack took on the project personally. He registered stock with the Oregon Corporation Commission for sale to Oregon residents and sold more than half a million shares at $1 each.
Founding of Oremet
The Oregon Metallurgical Company was incorporated on December 1, 1955, with Dale Fischer of Eugene, Oregon, as president. The company, known as Oremet for short, bought 56 acres about a mile south of Albany, and on March 15, 1956, hired its first employee, George Smith, as construction supervisor. Oremet broke ground the following day.
Shelton left the Bureau of Mines to became general manager at the end of March and hired Frank Caputo, a titanium and zirconium metallurgist for the Bureau of Mines, to design the refining plant. Several other employees also left the federal agency to join Oremet, which produced its first 60-pound ingot of titanium by Labor Day. Shelton was named president in 1959.
Despite the high cost of producing titanium, it was widely used by the military for ship propellers, armor plating, jet engines parts, steam-turbine blades in nuclear power plants, surgical instruments, and components in the U.S. space program. As a result, Oremet prospered during the 1960s, a period of rapid technological development in the United States, with revenues growing from $4.2 million in 1961 to $13.8 million in 1969, when it posted net earnings of $518,000. But sales began to slip in 1970, falling to about $12.4 million, with slowdowns in both the military and commercial aerospace industries and the U.S. space program. Oremet moved to reduce costs by producing its own titanium "sponge"--the first stage in recovering metal from ore--completing a five-year, $9 million development program.
With a recession beginning, the market for titanium virtually disappeared the following year when Congress cut off funds to the Boeing Company, which was developing a U.S. version of the supersonic transport (SST), which was to have been a nearly all-titanium aircraft. Oremet was forced to mothball its new sponge plant. It also suspended research and development programs and cut its workforce by two-thirds, from more than 300 to barely more than 100 employees. Sales in 1971 fell to $8.3 million and Oremet posted its first loss, of nearly $2 million, in more than a decade.
Even with growing inflation, Oremet sales continued to fall in 1972, to $7.3 million, and the company posted its second consecutive loss of $1.7 million. With the slowdown in the aerospace industry, which had accounted for nearly 90 percent of all titanium orders, Oremet began exploring new markets. In 1974, both General Motors and Ford began to use a titanium-steel alloy in government-mandated antipollution equipment, adding about a half pound of titanium to every new automobile. Oremet also began selling titanium for use in seafood processing equipment because of its resistance to saltwater corrosion. In the company's annual report for 1973, then-President Henry F. Peters also noted that one of Oremet's customers "has put considerable time and effort" into experimenting with a titanium alloy for golf club shafts. By the mid-1990s, golf clubs would be the fastest-growing market for titanium.
Purchase by Armco
Government purchases of titanium for missile components and inflation above 10 percent pushed sales in 1974 to record levels of $22 million, although the sponge facility remained closed. That changed in 1976, when the company decided to reopen its moth-balled sponge plants in anticipation of the federal B-1 bomber development program. The board of directors decided the move was essential since the idled plants represented 70 percent of the company's fixed assets. But the decision came at a price. Oremet borrowed $3 million from the First National Bank of Oregon, with $2 million guaranteed by Armco Steel Corporation. Armco, which already owned about 1.6 million shares of Oremet stock, received an option for another 1.5 million shares at a par value of $1.
Only months after the three plants comprising Oremet's sponge facility were brought back on line, an explosion shut down operations in late 1977, injuring seven workers and causing $2.4 million in damage. The plant was back in operation by the end of the year, and Oremet finished fiscal 1978 with nearly $22 million in sales and a profit of $1.7 million. Sales and profits more than doubled the following year, and doubled again in 1980, with another resurgence in commercial aerospace.
Encouraged by the strong financial performance, Armco exercised its option to buy 1.5 million shares of Oremet stock. That gave Armco 62 percent of Oremet, and the titanium producer became a corporate subsidiary. Peters, in that year's annual report, noted, "Armco management has stated its intent to encourage Oremet's on-going development as a growing, positive force in the titanium industry."
Unfortunately for Armco, the boom in the titanium industry was short-lived. In 1982, Business Week reported, "After three years of prosperity, the U.S. titanium industry is heading into a slump." The magazine noted that the "big price boosts of the late 1970s was largely the result of misplaced optimism, particularly by commercial aircraft builders." The optimistic aerospace industry stockpiled titanium, creating the appearance of a shortage that turned into an overabundance of the metal when expectations failed to materialize.
After peaking at $111.5 million in 1981, sales at Oremet fell to $28.3 million in 1983. In 1985, Armco sold its Aerospace & Strategic Materials Group, including its share of Oremet, which had grown to 80 percent, to the Owens-Corning Fiberglas Corporation for $415 million. Owens-Corning, the worldwide leader in fiberglass products for industry and home insulation, was then expanding into high-tech composites and was interested primarily in Armco's Hitco Materials Division, which produced composites for the aerospace and defense industries. Armco, however, made it clear that it would not sell the division piecemeal.
Owens-Corning announced it would sell its interest in Oremet, along with other parts of the former Armco aerospace division it did not want. But before the company could act, Owens-Corning found itself in a fight for survival. In 1986, the Wickes Companies, a California-based building materials retailer, launched a hostile bid to acquire Owens-Corning. Wickes, which already held about 10 percent of Owens-Corning's outstanding stock, offered shareholders $74 a share for shares that were then trading for about $35 on the New York Stock Exchange. To fight the takeover, Owens-Corning borrowed $2.5 billion to recapitalize, offering stockholders a package that included $52 a share plus one new share of stock for every old share the company repurchased. Wickes eventually withdrew its offer and walked away with a $30 million profit, while Owens-Corning was saddled with a massive debt.
Employee Ownership
In the late 1980s, Owens-Corning cut its payroll from a high of 29,000 in 1986 to less than 17,000. The company also sold several subsidiaries at fire-sale prices, including the entire aerospace division it had acquired from Armco. Rather than another corporate owner, however, the 280 workers at Oremet stepped in to buy the titanium producer. In a deal orchestrated by the United Steelworkers Union, the employees agreed to a 20 percent cut in hourly wages and borrowed $17 million from Owens-Corning in an employee stock ownership plan (ESOP). To provide the company with some stability, the ESOP placed strict limits on how much stock the employees could withdraw unless they quit their jobs.
Despite rising sales, Oremet struggled financially the next several years, accumulating more than $17 million in losses between 1990 and 1995. Caputo, the last remaining executive from the original Bureau of Mines group that launched the company in 1956, also retired in 1993. After serving as president for 13 years, Caputo took advantage of a brief financial upswing--Oremet's first profitable quarter in two years&mdashø announce he was leaving while the company was the only profitable titanium producer in the world. He was succeeded by Carlos E. Aguirre, former president of Axel Johnson Metal, Inc., the U.S. subsidiary of Sweden's Axel Johnson Inc. Aguirre, a native of Argentina with a doctorate in metallurgy, told American Metal Market, "My role will be to develop a new strategic direction that results in consistent, profitable growth."
One of Aguirre's first accomplishments was a six-year agreement with the United Steelworkers, signed in 1994, that allowed the company to buy titanium sponge on the world market without paying laid-off employees the difference between their unemployment benefits and their regular wages, which the old contract required. At the time, titanium sponge could be purchased cheaper in foreign markets than it could be produced by Oremet because of "dumping" by former Soviet Union countries.
By 1996, sales had reached $236.9 million and Oremet seemingly had turned the corner on what the annual report that year called "one of the most severe downturns the industry has ever experienced." Oremet posted a net income of $22.3 million and the Oregonian reported that Oremet's employees were "reaping the rewards for a frightening risk they took nine years ago."
The Oregonian went on to note, "Today (the workers are) doing better than good. Many of these who spend their 12-hour shifts cutting, melting and pushing titanium around Oremet's dark and noisy plant buildings are wealthy. Some of them display it, many of them don't." When the ESOP purchased the company at the end of 1987, the stock was trading for about $3 a share. After fluctuating at about $12 a share through the early 1990s, it rocketed to $30 in late 1996, before settling back to the high $20s.
One reason for increasing sales was the purchase of 80 percent of the New Jersey-based Titanium Industries Distribution Group from Kamyr, Inc. in 1994 for $13.5 million. Titanium Industries operated Titanium Wire Corp. and metal service centers in the United States, United Kingdom, Germany, and Canada, which opened new markets for Oremet. In 1995, for the first time ever, more than half of Oremet sales were for non-aerospace applications, led by growth in recreational uses, including golf clubs and titanium lacrosse sticks. In the company's 1996 annual report, Aguirre declared, "New applications for titanium continue to arise and Oremet is well positioned to benefit in such a marketplace."
Principal Subsidiaries: Titanium Industries Inc. (80%); Oremet France.
Further Reading:
Francis, Mike, "Patience Pays Off," Oregonian, September 8, 1996, p. G1.
Frye, Cory, "A Man, a Train, a Metals Empire," Albany Democrat-Herald, March 21, 1997, p. 19.
Haflich, Frank, "Oremet's Caputo Set to Retire at May's End," American Metal Market, May 27, 1993, p. 12.
------, "How Aguirre Sees Oremet; New President Examines Non-Aerospace Markets," American Metal Market, June 30, 1993, p. 5.
------, "Oremet-USW Pact Seen as Embracing Reality," American Metal Market, September 7, 1994, p. 5.
------, "Oremet Paves Path into Larger Market," American Metal Market, September 23, 1994, p. 1.
------, "Owens-Corning to Sell 80% Stake in Oremet," American Metal Market, February 12, 1986, p. 2.
------, "Oremet Price Plan Based on Stability," American Metal Market, April 29, 1997, p. 1.
Rogers, Jack, "Armco Companies Reported for Sale Only as a Package," American Metal Market, April 18, 1985, p. 2.
"The Titanium Market Falls Back to Earth," Business Week, July 12, 1982, p. 25.
Source: International Directory of Company Histories, Vol. 20. St. James Press, 1998.
