<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file Number 1-13645
HOWMET INTERNATIONAL INC.
Incorporated in the State of Delaware I.R.S. Employer Identification
No. 52-1946684
475 Steamboat Road, Greenwich, CT 06830
Telephone Number: (203) 661-4600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $0.01 PAR VALUE, AS OF MAY 11, 1998 : 100,000,000 SHARES
<PAGE>
Howmet International Inc.
Quarterly Report on Form 10-Q
March 31, 1998
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1 -- Financial Statements
Consolidated Statements of Operations - Three months ended
March 31, 1998 and 1997 3
Consolidated Condensed Balance Sheets - March 31, 1998 and
December 31, 1997 4
Consolidated Statements of Cash Flows - Three months ended
March 31, 1998 and 1997 5
Consolidated Statements of Common Stockholders' Equity
and Redeemable Preferred Stock - Three months ended
March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II. OTHER INFORMATION
Item 5 -- Other Information 14
Item 6 -- Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Howmet International Inc.
Consolidated Statements of Income (Unaudited)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $328.4 $312.6
Operating expenses:
Cost of sales 231.5 220.0
Selling, general and administrative expense 32.6 36.5
Depreciation and amortization expense 14.4 14.4
Research and development expense 5.1 5.9
------- -------
283.6 276.8
------- -------
Income from operations 44.8 35.8
Interest income (expense) from Restricted Trust and
Pechiney Notes, net (Note C) - -
Interest income .4 .4
Interest expense (3.8) (8.0)
Other, net (.6) (.7)
------- -------
Income before income taxes 40.8 27.5
Income taxes 16.3 12.0
------- -------
Net income 24.5 15.5
Dividends on redeemable preferred stock (1.4) (1.2)
------- -------
Net income applicable to common stock $ 23.1 $ 14.3
======= =======
Net income per common share, basic and diluted $ .23 $ .14
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Howmet International Inc.
Consolidated Condensed Balance Sheets
(Dollars in millions, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21.9 $ 45.4
Accounts receivable (less allowance of $4.3 and $4.4) 89.1 78.7
Inventories 155.8 155.5
Retained receivables 48.0 20.2
Deferred income taxes 15.0 16.3
Other current assets 3.0 3.9
Restricted Trust (a) 727.4 -
--------- ---------
Total current assets 1,060.2 320.0
Property, plant and equipment, net 285.5 275.5
Goodwill, net 224.9 226.5
Patents and technology and other intangible assets, net 115.6 118.4
Other noncurrent assets 54.4 53.8
Restricted Trust (a) - 716.4
--------- ---------
Total assets $1,740.6 $1,710.6
========= =========
Liabilities, redeemable preferred stock and stockholders' equity
Current liabilities:
Accounts payable $ 70.8 $ 84.2
Accrued liabilities 134.1 145.1
Income taxes payable 44.3 28.2
Pechiney Notes (a) 727.4 -
--------- ---------
Total current liabilities 976.6 257.5
Accrued retiree benefits other than pensions 94.5 93.1
Other noncurrent liabilities 112.0 106.1
Deferred income taxes .6 3.4
Long-term debt, excluding the Pechiney Notes 206.7 208.4
Pechiney Notes (a) - 716.4
Commitments and contingencies (Note G)
Redeemable preferred stock, 9% payment-in-kind dividends,
$.01 par value, liquidation value - $10,000 per share,
authorized - 15,000 shares, issued and outstanding:
March 31, 1998 - 6,136 shares, December 31, 1997 - 6,001 shares 61.4 60.0
Stockholders' equity:
Preferred stock, authorized - 9,985,000 shares, issued and
outstanding - 0 shares - -
Common stock, $.01 par value, authorized - 400,000,000 shares,
issued and outstanding - 100,000,000 shares 1.0 1.0
Capital surplus 195.0 195.0
Retained earnings 98.4 75.3
Accumulated other comprehensive income (Cumulative translation
adjustment) (5.6) (5.6)
--------- ---------
Total stockholders' equity 288.8 265.7
--------- ---------
Total liabilities, redeemable preferred stock and stockholders'
equity $1,740.6 $1,710.6
========= =========
</TABLE>
(a) The Restricted Trust holds a note receivable from Pechiney, S.A. and related
letters of credit that secures Pechiney, S.A.'s agreement to repay the
Pechiney Notes due January 2, 1999. Management believes that it is
extremely remote that the Company will use any assets other than those in
the Restricted Trust to satisfy any payments related to the Pechiney Notes.
See Note C.
See notes to consolidated financial statements.
4
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Howmet International Inc.
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
- --------------------
Net income $ 24.5 $ 15.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14.5 15.3
Equity in income of unconsolidated affiliates (.4) (.2)
Changes in assets and liabilities:
Receivables (37.8) (23.2)
Inventories .1 (2.2)
Accounts payable and accrued liabilities (25.1) (16.3)
Deferred income taxes (1.7) .7
Income taxes payable 16.0 9.0
Long-term SARs accrual (2.4) 7.9
Other - net 6.9 5.1
------- -------
Net cash (used) provided by operating activities (5.4) 11.6
Investing activities
- --------------------
Purchases of property, plant and equipment (16.6) (8.0)
------- -------
Net cash used by investing activities (16.6) (8.0)
Financing activities
- --------------------
Issuance of long-term debt 33.6 80.4
Repayment of long-term debt (35.2) (98.2)
Foreign currency rate changes .1 (1.4)
------- -------
Net cash used by financing activities (1.5) (19.2)
------- -------
Decrease in cash and cash equivalents (23.5) (15.6)
Cash and cash equivalents at beginning of period 45.4 23.4
------- -------
Cash and cash equivalents at end of period $ 21.9 $ 7.8
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Howmet International Inc.
Consolidated Statements of Common Stockholders' Equity
and Redeemable Preferred Stock
(Dollars in millions, except share amounts)
<TABLE>
<CAPTION>
Accumulated Total Redeemable
Common Stock Other Common Preferred Stock
------------------- Capital Retained Comprehensive Stockholders' ---------------
Shares Amount Surplus Earnings Income (Note D) Equity Shares Amount
----------- ------ ------- --------- --------------- -------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 100,000,000 $1.0 $195.0 $20.7 $ 2.1 $218.8 5,490 $54.9
--------
Comprehensive income (Note D):
Net income 15.5 15.5
Other comprehensive income
(Foreign exchange translation
adjustment) (7.4) (7.4)
--------
Total comprehensive income 8.1
--------
Dividends - redeemable
preferred stock (1.2) (1.2) 124 1.2
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 100,000,000 $1.0 $195.0 $35.0 $(5.3) $225.7 5,614 $56.1
===============================================================================================================================
Balance, December 31, 1997 100,000,000 $1.0 $195.0 $75.3 $(5.6) $265.7 6,001 $60.0
--------
Comprehensive income (Note D):
Net income 24.5 24.5
Other comprehensive income
(Foreign exchange translation
adjustment) - -
--------
Total comprehensive income 24.5
--------
Dividends - redeemable
preferred stock (1.4) (1.4) 135 1.4
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 100,000,000 $1.0 $195.0 $98.4 $(5.6) $288.8 6,136 $61.4
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
6
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Howmet International Inc.
Notes to Consolidated Financial Statements (Unaudited)
A. BASIS OF PRESENTATION
Cordant Technologies Inc. (name changed from Thiokol Corporation on May 5, 1998)
owns 62% of the Company's common shares; Carlyle-Blade Acquisition Partner,
L.P., an affiliate of The Carlyle Group owns 22.65% and the public owns 15.35%.
Cordant Technologies Inc. ("Cordant") also owns all of the outstanding preferred
stock.
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for the complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation have been included. The consolidated condensed balance
sheet at December 31, 1997 has been derived from the Company's audited financial
statements at that date. Operating results for the three months ended March 31,
1998 are not necessarily indicative of the results to be expected for the year
ending December 31, 1998. The financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report to Stockholders incorporated by
reference in the Annual Report on Form 10-K for the year ended December 31,
1997.
B. INVENTORIES
Inventories are summarized as follows (in millions):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------ ------------------
<S> <C> <C>
Raw materials and supplies $ 61.5 $ 62.0
Work in progress 73.1 61.5
Finished goods 25.0 35.4
------------------ ------------------
FIFO inventory 159.6 158.9
LIFO valuation adjustment (3.8) (3.4)
------------------ ------------------
$155.8 $155.5
================== ==================
</TABLE>
At March 31, 1998 and December 31, 1997, inventories include $120.4 million and
$122.7 million, respectively, that are valued using LIFO. This valuation
adjustment approximates the difference between the LIFO carrying value and
current replacement cost.
C. RESTRICTED TRUST AND RELATED PECHINEY NOTES PAYABLE
In 1988, Pechiney Corporation, as a wholly-owned subsidiary of Pechiney, S.A.,
issued indebtedness maturing in 1999 (the "Pechiney Notes") to third parties in
connection with the purchase of American National Can Company. As a result of
the acquisition by the Company of Pechiney Corporation (now named Howmet
Holdings Corporation, "Holdings") and the Cercast Group of companies, Holdings
became a wholly-owned subsidiary of the Company. The Pechiney Notes remained at
Holdings, but Pechiney, S.A., which retained American National Can Company,
agreed with the Company to be responsible for all payments due on or in
connection with the Pechiney Notes. Accordingly, Pechiney, S.A. issued its own
note to Holdings in an amount sufficient to satisfy all obligations under the
Pechiney Notes. The Pechiney, S.A. note was deposited in a trust for the
benefit of Holdings (the "Restricted Trust"). If Pechiney, S.A. fails to make
any payments required by its note, the trustee under the Restricted Trust (the
"Trustee")
7
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Howmet International Inc.
Notes to Consolidated Financial Statements (Unaudited)
C. RESTRICTED TRUST AND RELATED PECHINEY NOTES PAYABLE (Continued)
has irrevocable letters of credit in the aggregate amount of $772 million issued
to the Restricted Trust by Banque Nationale de Paris ("BNP"), a French bank
which has an A+ credit rating from Standard & Poors Ratings Group ("S&P"), to
draw upon to make such payments. In the event that there is an impediment to a
draw under the BNP letters of credit held by the Trustee, the Trustee has
substantially identical "back-up" letters of credit in the aggregate amount of
$772 million issued to the Restricted Trust by Caisse des Depots et
Consignations, a French bank which has an AAA credit rating from S&P. In
addition, the holders of the Pechiney Notes have a third set of letters of
credit (also issued by BNP), which can be drawn upon by such holders in the
event that principal and/or interest payments on the Pechiney Notes are not
made. Pechiney, S.A. is solely responsible as reimbursement party for draws
under the various letters of credit referenced above, and by agreement with the
banks neither Holdings nor the Company has any responsibility therefor. However,
Holdings remains liable as the original issuer of the Pechiney Notes in the
event that Pechiney, S.A. and both banks fail to meet their obligations under
their respective letters of credit. Management believes that it is extremely
remote that the Company will be required to use any of its assets other than
those in the Restricted Trust to satisfy any payments due on or in connection
with the Pechiney Notes. Upon repayment of the Pechiney Notes, the Restricted
Trust terminates and any assets of the Restricted Trust are to be returned to
Pechiney, S.A.
The Pechiney Notes are due on January 2, 1999 and may not be prepaid prior to
that date. Interest is at three-month LIBOR plus 25 basis points (6.32% for the
quarter ended March 31, 1998). Interest is paid quarterly and was paid shortly
after the end of both the 1998 and 1997 quarters. Interest expense on these
notes was $11 million and $10.4 million for the quarter ended March 31, 1998
and 1997, respectively. Interest income from the Restricted Trust for the
aforementioned periods was equal to the interest expense and is netted in these
financial statements.
D. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income". SFAS No.
130 requires the Company to report comprehensive income which is net income plus
other comprehensive income. For the Company, the only item included in other
comprehensive income is the change in foreign currency translation adjustments.
SFAS No. 130 also requires the Company to report accumulated other comprehensive
income in the stockholders' equity section of the consolidated condensed balance
sheet. The adoption of SFAS No. 130 does not change the amount reported as net
income nor the total amount of stockholders' equity; however, it does change the
presentation of stockholders' equity. The amount previously presented as
cumulative translation adjustment in the stockholders' equity section of the
consolidated condensed balance sheets is now captioned accumulated other
comprehensive income. Prior financial statements have been recaptioned to
conform to the requirement of SFAS No. 130.
Total comprehensive income, as disclosed in the Consolidated Statements of
Common Stockholders' Equity and Redeemable Preferred Stock, amounted to $24.5
million and $8.1 million, for the first quarter of 1998 and 1997, respectively.
E. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income applicable to
common stock by the weighted average number of common shares outstanding
(100,000,000). Diluted earnings per share is calculated by dividing net income
applicable to common stock by the weighted average number of common shares
outstanding plus the common stock equivalent shares of employee stock options,
calculated using the treasury stock method (189,249 for the quarter ended March
31, 1998).
All 1997 share and per share data have been retroactively restated to reflect
the October 1997, 10,000-to-1 stock split.
8
<PAGE>
Howmet International Inc.
Notes to Consolidated Financial Statements (Unaudited)
F. OTHER INFORMATION
Selling, general and administrative expense for the quarter ended March 31, 1998
included $2.7 million and $1.4 million of pre-tax expense recorded in connection
with the Company's Stock Appreciation Rights ("SARs") plan and the Cordant
Options (formerly "Thiokol Options"), respectively. The comparable 1997 quarter
included $7.9 million of expense related to the SARs plan and no expense for the
Cordant Options. Partially offsetting the 1997 adverse effect on income before
income taxes was a $3.4 million benefit from finalization of a pricing
adjustment with a customer that did not occur in 1998 and is not expected to
recur in the future.
The Company paid interest of $4.0 million and $6.7 million, during the
respective 1998 and 1997 first quarters.
The Company paid income taxes, net of refunds, of $2.6 million and $2.0 million,
during the respective 1998 and 1997 first quarters.
G. CONTINGENCIES
The Company has received test results indicating levels of polychlorinated
biphenyls ("PCBs") at its Dover, New Jersey plant which will require
remediation. These levels have been reported to the New Jersey Department of
Environmental Protection ("NJDEP"), and the Company is preparing a work plan to
define the risk and to test possible clean-up options. The statement of work
must be approved by the NJDEP pursuant to an Administrative Consent Order
entered into between the Company and NJDEP on May 20, 1991 regarding clean-up of
the site. Various remedies are possible and could involve expenditures ranging
from $2 million to $22 million or more. The Company has recorded a $2 million
long-term liability as of March 31, 1998 and December 31, 1997 for this matter.
Given the uncertainties, it is possible that the estimated range of this cost
and the amount accrued will change within a year. The indemnification discussed
below applies to the costs associated with this matter.
Besides the above-mentioned remediation work required at the Company's Dover,
New Jersey plant, liabilities exist for clean-up costs associated with hazardous
types of materials at eight other on-site and off-site waste disposal
facilities. The Company has been or may be named a potentially responsible
party under the Comprehensive Environmental Response, Compensation and Liability
Act or similar state laws at these locations. At March 31, 1998 and December
31, 1997 $4.3 million and $4.4 million of accrued environmental liabilities are
included in the consolidated condensed balance sheets for these eight sites.
In connection with the acquisition by the Company of Howmet Corporation's parent
holding company, Howmet Holdings Corporation and the Cercast Group of companies
("the Acquisition"), Pechiney, S.A. indemnified the Company for environmental
liabilities relating to Howmet Corporation and stemming from events occurring or
conditions existing on or prior to the Acquisition, to the extent that such
liabilities exceed a cumulative $6 million. This indemnification applies to all
of the aforementioned environmental matters. It is highly probable that changes
in any of the aforementioned accrued liabilities will result in an equal change
in the amount receivable from Pechiney, S.A. pursuant to this indemnification.
In addition to the above environmental matters, and unrelated to Howmet
Corporation, Holdings and Pechiney, S.A. are jointly and severally liable for
environmental contamination and related costs associated with certain
discontinued mining operations owned and/or operated by a predecessor-in-
interest until the early 1960s. These liabilities include approximately $21.3
million in remediation and natural resource damage liabilities at the Blackbird
Mine site in Idaho and a minimum of $8 million in investigation and remediation
costs at the Holden Mine site in Washington. Pechiney, S.A. has agreed to
indemnify the Company for such liabilities. In connection with these
environmental matters, the Company recorded a $29.3 million liability and an
equal $29.3 million receivable from Pechiney, S.A. at March 31, 1998 and
December 31,1997. Pechiney, S.A. is currently funding amounts related to these
liabilities.
9
<PAGE>
Howmet International Inc.
Notes to Consolidated Financial Statements (Unaudited)
G. CONTINGENCIES (Continued)
Estimated environmental costs are not expected to materially impact the
financial position or the results of the Company's operations in future periods.
However, environmental clean-up periods are protracted in length and
environmental costs in future periods are subject to changes in environmental
remediation regulations. Any losses which are not covered by the Pechiney, S.A.
indemnifications and which are in excess of amounts currently accrued will be
charged to operations in the periods in which they occur.
The Company, in its ordinary course of business, is involved in other
litigation, administrative proceedings and investigations of various types in
several jurisdictions. The Company believes these are routine in nature and
incidental to its operations, and that the outcome of any proceedings to which
the Company currently is a party will not have a material adverse effect upon
its operations or financial condition.
10
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
-----------------------------------------------------------------------
Of Operations
-------------
RESULTS OF OPERATIONS
- ---------------------
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
Summary financial information for the quarters ended March 31 follows (in
millions):
<TABLE>
<CAPTION>
Better/
1998 1997 (Worse) Percent
-------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $328.4 $312.6 $15.8 5
- -----------------------------------------------------------------------------------------
Gross profit $ 96.9 $ 92.6 $ 4.3 5
Selling, general and administrative expense 32.6 36.5 3.9 11
Depreciation and amortization expense 14.4 14.4 - -
Research and development expense 5.1 5.9 .8 14
- -----------------------------------------------------------------------------------------
Income from operations 44.8 35.8 9.0 25
Net interest expense (3.4) (7.6) 4.2 55
Other, net (.6) (.7) .1 14
Income taxes 16.3 12.0 (4.3) (36)
- -----------------------------------------------------------------------------------------
Net income $ 24.5 $ 15.5 $ 9.0 58
=========================================================================================
Earnings per share (basic and diluted) $ .23 $ .14 $ .09 64
=========================================================================================
</TABLE>
Net sales in the 1998 first quarter were 11% higher than in the 1997 first
quarter, after excluding, from the 1997 quarter, the sales of the Company's
refurbishment business which was sold in September 1997. The 1998 sales
increase is due to volume increases. Also affecting first quarter comparability
is $3.4 million of additional revenue in 1997 from a pricing adjustment with a
customer that was not repeated in 1998 and is not expected to recur in the
future.
Gross profit, as reported, was $4.3 million higher in the 1998 quarter than in
the 1997 quarter. However, on a comparable basis, 1998 gross profit was $11.1
million higher than 1997, after reducing 1997 gross profit to exclude (i) the
gross profit of the sold refurbishment business and (ii) the aforementioned $3.4
million of additional 1997 revenue (which had no associated costs). The
principal reason for the 1998 improvement was the effect of volume increases.
Selling, general and administrative expense was $3.9 million lower in the 1998
first quarter than in the 1997 quarter. The decrease was primarily due to lower
expense recorded in connection with the Company's Stock Appreciation Rights plan
("SARs"). Expense for SARs in 1998 will continue to be less than in 1997.
Net interest expense was $4.2 million lower in the 1998 first quarter. The
principal reason for the reduction was significantly lower debt levels resulting
from strong cash generation in the last three quarters of 1997. The other
significant contributor to the lower interest expense is the interest rate
reductions achieved in the Company's 1997 fourth quarter refinancing.
11
<PAGE>
Income tax expense increased $4.3 million due to higher pre-tax income. The
effective income tax rate was 40.0% in the 1998 quarter compared to 43.6% in the
1997 quarter. The lower 1998 effective rate is principally a function of
nondeductible expenses representing a lower percentage of estimated annual
earnings in 1998 than in 1997.
The impact of the adverse Asian economic condition on the Company is uncertain.
To the extent the Asian economic conditions impact the commercial aerospace and
industrial gas turbine markets, such impact may affect the Company.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's principal sources of liquidity are cash flow from operations and
borrowings under its revolving credit facility. Based upon the current level of
operations, management believes that cash from the aforementioned sources will
be adequate to meet the Company's anticipated requirements for working capital,
interest payments, capital expenditures and research and development, although
there can be no assurance in this regard. To date, cash available after
satisfaction of these requirements has been used to voluntarily repay debt prior
to mandatory due dates.
At March 31, 1998, there were $7.6 million of standby letters of credit
outstanding and $196.4 million of outstanding borrowings under the $300 million
revolving credit facility. In the 1998 first quarter, the Company reduced its
debt outstanding by $1.6 million.
Capital expenditures in the 1998 first quarter were $16.6 million, and are
expected to be approximately $80 million for the current year. The 1998 capital
expenditures are for completion of capacity expansions needed to serve the core
business, as well as additional expenditures to support new products and process
enhancement activities.
Debt, excluding Pechiney Notes, plus redeemable preferred stock as a percentage
of total capitalization (debt, excluding Pechiney Notes, plus redeemable
preferred stock plus common stockholders' equity) is 48% at March 31, 1998
compared to 50% at December 31, 1997. The current ratio (excluding long-term
debt due within one year and Pechiney Notes) at March 31, 1998 was 1.3 and was
1.2 at December 31, 1997. Working capital (excluding long-term debt within one
year and Pechiney Notes) was $83.6 million and $62.5 million at March 31, 1998
and December 31, 1997, respectively.
At March 31, 1998 the Company's balance sheet includes $727.4 million of
Pechiney Notes and a $727.4 million Restricted Trust asset. See Note C of Notes
to Consolidated Financial Statements.
YEAR 2000 COMPLIANCE
- --------------------
The Company does not anticipate a disruption in operations as a result of
computer software issues associated with the Year 2000. A dedicated team of
both Company and contract programmers are actively addressing the Company's Year
2000 compliance issues. Management believes that all data logic problems on the
Company's central mainframe and distributed server applications have been
identified, and remedial action to correct or replace problematic code is
currently underway. Project work on this phase of the effort started in late
1996 and is scheduled to be completed by June 30, 1999.
12
<PAGE>
The Year 2000 compliance team is concurrently working with the various plant
facilities to identify and implement any needed changes to both local business
applications and shop floor control systems. The inventory and assessment phase
of this effort will be completed in the second quarter of 1998. To date no
material risk of non-compliance has been identified.
The Company has also initiated formal communications with all of its significant
suppliers, including raw materials, services, and computer hardware/software
suppliers, and large customers to determine the extent to which Howmet's
manufacturing processes and interface systems are vulnerable to those third
parties' failure to resolve their own Year 2000 issues. There can be no
guarantee that the systems of other companies on which Howmet's systems rely
will be timely converted and would not have an adverse effect on the Howmet
systems. However, at this point, no material problems are anticipated.
The Company expects to incur incremental costs for such efforts of $2.5 million,
$2.5 million and $.5 million, respectively, for the full years 1998, 1999 and
2000. The Company has also diverted internal resources with an additional
annual cost of approximately $.6 million for each of the 1998 and 1999 years.
ENVIRONMENTAL AND OTHER LEGAL MATTERS
- -------------------------------------
In view of the indemnification from the Company's previous owners granted in
connection with the acquisition described in Note G of Notes to Consolidated
Financial Statements, the Company does not expect resolution of environmental
matters to have a material effect on its liquidity or results of operations.
See Note G of Notes to Consolidated Financial Statements in this Form 10-Q, and
Exhibit 99.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange Commission for
discussion of environmental matters.
The Company, in its ordinary course of business, is involved in other
litigation, administrative proceedings and investigations of various types in
several jurisdictions. The Company believes these are routine in nature and
incidental to its operations, and that the outcome of any proceedings to which
the Company currently is a party will not have a material adverse effect upon
its operations or financial condition.
NEW ACCOUNTING STANDARD
- -----------------------
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
statement revises employers' disclosures about pensions and other postretirement
benefit plans. It does not change the measurement or recognition of those
plans. SFAS No. 132 requirements will be included in the Company's 1998 annual
report.
13
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Events
------------
CAUTIONARY STATEMENT
Certain statements in this quarterly report are "forward-looking statements" as
defined in the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The matters discussed in these statements are subject to
risks and uncertainties which should be considered in assessing the Company's
conduct of its business. Such risks include changing economic and political
conditions in the United States and in other countries, including those in Asia.
Risks and uncertainties also include but are not limited to changes in
governmental laws and regulations, the outcome of environmental matters, the
availability and cost of raw materials, and the effects of: (i) aerospace and
IGT industry economic conditions, (ii) aerospace industry cyclicality, (iii) a
concentrated customer base, (iv) competition and (v) pricing pressures. These
and other factors are discussed in greater detail in Exhibit 99.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission. All forecasts and projections in
this report are "forward-looking statements", and are based on management's
current expectations of the Company's results, based on current information
available pertaining to the Company and its products including the
aforementioned risk factors. Actual future results and trends may differ
materially from any "forward-looking statements" made herein.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) -- Exhibits
--------
4.16 Letter Agreement dated as of March 6, 1998 among Howmet
Corporation, as Servicer, Blade Receivables Corporation, as
Transferor, Manufacturers and Traders Trust Company, as Trustee,
The First National Bank of Chicago, as agent, and Falcon Asset
Securitization Corporation, with respect to the Blade Receivables
Master Trust Amended and Restated Pooling and Servicing Agreement
dated as of April 18, 1996 (Exhibit 4.12 of the Company's Annual
Report on Form 10-K filed on March 26, 1998).
10.31 Howmet Corporation Second Amended and Restated Special Executive
Deferred Compensation Plan dated November 24, 1997.
27.1 Financial Data Schedule
(b) -- Reports on Form 8-K
-------------------
During the quarter ended March 31, 1998, the Company did not file any
Current Reports on Form 8-K.
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
Dated: May 12, 1998
HOWMET INTERNATIONAL INC.
/s/ John C. Ritter
------------------
John C. Ritter
Senior Vice President &
Chief Financial Officer
(Principal Financial Officer)
/s/ George T. Milano
---------------------
George T. Milano
Corporate Controller
(Principal Accounting Officer)
15
<PAGE>
EXHIBIT 4.16
HOWMET CORPORATION
475 Steamboat Road
Greenwich, Connecticut 06836-1960
BLADE RECEIVABLES CORPORATION
c/o Nevada Corporate Management, Inc.
3753 Howard Hughes Parkway, Suite 200
Las Vegas, Nevada 89109
March 6, 1998
MANUFACTURERS AND TRADERS TRUST
COMPANY, as Trustee
One M&T Plaza, 7th Floor
Buffalo, New York 14203
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
One First National Plaza
Chicago, Illinois 60670
FALCON ASSET SECURITIZATION CORPORATION
One First National Plaza
Chicago, Illinois 60670
Re: Blade Receivables Master Trust
------------------------------
Ladies and Gentlemen:
Reference is hereby made to that certain Blade Receivables Master Trust
Amended and Restated Pooling and Servicing Agreement dated as of April 18, 1996
(as heretofore further amended, supplemented or modified, the "Pooling
-------
Agreement") among Blade Receivables Corporation, as Transferor ("BRC"), Howmet
- --------- ---
Corporation, as Servicer ("Howmet"), and Manufacturers and Traders Trust
------
Company, as Trustee (in such capacity, the "Trustee"). Capitalized terms used
-------
herein and not otherwise defined herein have the meanings specified in Appendix
A to the Pooling Agreement.
The undersigned hereby request that each of (i) AlliedSignal Inc. ("Allied"),
------
(ii) each Person which is, as of the date hereof, a Subsidiary of Allied (each,
a "Present Allied Subsidiary") and (iii) each Person which at any time after the
-------------------------
date hereof becomes a Subsidiary of Allied (each, a "Future Allied Subsidiary")
------------------------
be deemed an Exempt Obligor for all purposes. Each of the undersigned hereby
represents, warrants and covenants that (a) each of Allied and each Present
Allied Subsidiary has been, and each Future Allied Subsidiary will be,
instructed to make all payments in respect of its receivables to a location
other than to any of the Bank
<PAGE>
Accounts, (b) Allied and each Present Allied Subsidiary can, and each Future
Allied Subsidiary will, reasonably be expected to follow such instructions, and
(c) none of the data included in the Daily Reports, Monthly Reports or other
information supplied to the Trustee or Holders includes any information about
Allied or any Present Allied Subsidiary or receivables owed by them, or in the
case of any Future Allied Subsidiary, will include any information about such
Future Allied Subsidiary or receivables owed by it.
Please evidence your agreement and consent to the above request by signing
the enclosed copy of this letter in the appropriate space provided below and
returning an original executed copy of the same to each of the undersigned.
BLADE RECEIVABLES CORPORATION
By: /s/ Jeffrey A. Jankowski
------------------------
Name: Jeffrey A. Jankowski
Title: Treasurer
HOWMET CORPORATION
By: /s/ Jeffrey A. Jankowski
------------------------
Name: Jeffrey A. Jankowski
Title: Treasurer
ACKNOWLEDGED AND AGREED
to as of this 6th day of March, 1998.
MANUFACTURERS AND TRADERS TRUST
COMPANY, as Trustee
By: /s/ Russel T. Whitler
---------------------
Name: Russel T. Whitler
Title: AVP
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
By: /s/ Wanda Malone Harrison
-------------------------
Name. Wanda Malone Harrison
Title: Authorized Signer
FALCON ASSET SECURITIZATION CORPORATION
By: /s/ Wanda Malone Harrison
-------------------------
Name. Wanda Malone Harrison
Title: Authorized Signer
<PAGE>
EXHIBIT 10.31
HOWMET CORPORATION
SECOND AMENDED AND RESTATED SPECIAL 1995 EXECUTIVE DEFERRED
COMPENSATION PLAN
This Special 1995 Executive Deferred Compensation Plan (the "Plan") was
adopted by Howmet Corporation (the "Employer") on November 1, 1995 to provide a
program for deferring compensation by a select group of management employees.
This Plan is maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and is not intended
to comply with the requirements of Section 401(a) of the Internal Revenue Code.
The Plan is intended to be exempt from most of the requirements of ERISA. In
order to amend the Plan in certain respects, effective as of November 24, 1997,
the Employer has adopted the Second Amended and Restated Howmet Corporation
Special 1995 Executive Deferred Compensation Plan.
ARTICLE I
PURPOSE
The purpose of the Plan is to provide designated employees the
opportunity to (1) defer current federal income taxes on their incentive
compensation awards, (2) to have such deferred amounts grow at rates reflecting
the growth of the Employer and other investments and (3) to defer current
federal income taxes on the earnings from such investments until future payout
dates selected by the participants.
ARTICLE II
DEFINITIONS
For the purposes of this Plan the following words and phrases shall have
the meanings indicated, unless the context clearly indicates otherwise:
2.1 Administrator. "Administrator" means the Employer, acting through the
Board or its delegates. The Administrator shall have all duties and
responsibilities imposed by ERISA.
2.2 Affiliate. "Affiliate" means any employer which, at the time of reference,
was, with the Employer, a member of a controlled group of corporations or trades
or businesses under common control, or a member of an affiliated service group,
as determined under regulations issued by the Secretary of the Treasury or his
delegate under Code Sections 414(b), (c), (m) and 415(h) and any other entity
required to be aggregated with the Employer pursuant to regulations issued under
Code Section 414(o).
1
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2.3 Beneficiary. "Beneficiary" means the person, persons or entity designated
by the Participant, or as provided in Article VII, to receive any death benefits
payable under the Plan. Any beneficiary designation shall be made in a written
instrument filed with the Administrator.
2.4 Board. "Board" means the Board of Directors of the Employer.
2.5 Carlyle-Blade. "Carlyle-Blade" means Carlyle-Blade Acquisition Partners,
L.P., a Delaware limited partnership.
2.6 Code. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.7 Deferred Compensation. "Deferred Compensation" means the amount of
Incentive Compensation deferred by a Participant pursuant to this Plan, net of
any amount the Employer is required to withhold pursuant to any federal, state
or local law.
2.8 Deferred Compensation Account. "Deferred Compensation Account" means the
account maintained on the books of the Employer for each Participant pursuant to
Article V.
2.9 Determination Date. "Determination Date" means the date as of which the
value of a Participant's Deferred Compensation Account is determined as provided
in Article V hereof. The first Determination Date will be December 31, 1995 and
the second Determination Date will be the date on which occurs a Distribution
Upon Liquidation; provided, that the Administrator in its discretion, may select
any date as an additional Determination Date.
2.10 Distribution Upon Liquidation. "Distribution Upon Liquidation" means a
distribution to partners of Carlyle-Blade upon liquidation of Carlyle-Blade in
accordance with the provisions of Article 9 (or any successor provision thereto)
of the Partnership Agreement.
2.11 Employer. "Employer" means Howmet Corporation and any successor to the
business thereof.
2.12 Incentive Compensation. "Incentive Compensation" means the amount payable
to the Participant pursuant to the Special Incentive Compensation Plan.
2.13 Non-Liquidation Distribution. "Non-Liquidation Distribution" means any
distribution to partners of Carlyle-Blade other than a Distribution upon
Liquidation.
2.14 Participant. "Participant" means any employee who is a participant in the
Special Incentive Compensation Plan and who files a Participation Agreement as
provided in Article IV.
2.15 Participation Agreement. "Participation Agreement" means an agreement
filed with the Administrator by a Participant on or before November 10, 1995
pursuant to which Incentive Compensation is to be deferred pursuant to the Plan,
as amended in accordance with the Plan.
2
<PAGE>
2. 16 Partnership Agreement. "Partnership Agreement" means the Limited
Partnership Agreement of Carlyle-Blade, dated as of December 13, 1995, as
amended.
2.17 Plan. "Plan" means the Howmet Corporation Special 1995 Executive Deferred
Compensation Plan, as amended.
2.18 Rules of the Plan. "Rules of the Plan" means the rules adopted by the
Administrator pursuant to Section 3.2 for the administration, interpretation or
application of the Plan.
2.19 Special Incentive Compensation Plan. "Special Incentive Compensation
Plan" means the Special Incentive Compensation Plan announced by the Employer on
June 6, 1995.
2.20 Spouse. "Spouse" with respect to a Participant means such Participant's
wife or husband who is lawfully married to the Participant immediately prior to
the distribution of such Participant's Deferred Compensation Account under this
Plan.
2.21 Termination. "Termination" with respect to a Participant means such
Participant's severance from service with the Employer and all Affiliates of the
Employer. A transfer of service among the Employer and Affiliates will not
constitute a Termination for purposes of this Plan.
ARTICLE III
ADMINISTRATION
3.1 Duties of the Board. This plan shall be administered by the Board.
Members of the Board may be Participants under this Plan. No member of the
Board may act, vote or otherwise influence a decision of the Board specifically
relating to his own participation in the Plan.
3.2 Administrator's Duties and Powers.
(a) The Administrator shall conduct the general administration of the
Plan in accordance with the Plan and shall have all the necessary power and
authority to carry out that function. Among its necessary powers and duties, are
the following:
(i) To delegate all or part of its function as Administrator to
others and to revoke any such delegation.
(ii) To determine questions of eligibility of Participants and their
entitlement to benefits.
3
<PAGE>
(iii) To select and engage attorneys, accountants, actuaries, trustees,
appraisers, brokers, consultants, administrators, physicians or other
persons to render service or advice with regard to any responsibility the
Administrator has under the Plan, or otherwise, to designate such persons
to carry out responsibilities, and (with the Employer, the Board and its
officers, trustees and employees) to rely upon the advice, opinions or
valuations of any such persons, to the extent permitted by law, being fully
protected in acting or relying thereon in good faith.
(iv) To interpret the Plan for purpose of the administration and
application of the Plan, in a manner not inconsistent with the Plan or
applicable law and to amend or revoke any such interpretation.
(v) To adopt Rules of the Plan that are not inconsistent with the
Plan or applicable law and to amend or revoke any such rules.
(vi) To determine the form of distribution of Deferred Compensation
Accounts pursuant to Article VI.
(b) Every finding, decision, and determination made by the
Administrator shall, to the full extent permitted by law, be final and binding
upon all parties, except to the extent found by a court of competent
jurisdiction to constitute an abuse of discretion.
3.3 Limitations Upon Powers. The Plan shall be uniformly and consistently
administered, interpreted and applied with regard to all Participants in similar
circumstances. The Plan shall be administered, interpreted and applied fairly
and equitably and in accordance with the specified purposes of the Plan.
3.4 Indemnification by the Employer; Liability Insurance.
(a) The Employer shall pay or reimburse any of the Employer's officers,
directors or employees who administer the Plan for all expenses incurred by such
persons in, and shall indemnify and hold them harmless from, all claims,
liability and costs (including reasonable attorneys' fees) arising out of the
good faith performance of their Plan functions.
(b) The Employer may obtain and provide for any such person, at the
Employer's expense, liability insurance against liabilities imposed on him by
law.
3.5 Recordkeeping.
(a) The Administrator shall maintain suitable records as follows:
4
<PAGE>
(i) Records of each Participant's individual Deferred
Compensation Account which, among other things, shall show separately
deferrals and the gains and losses thereon.
(ii) Records which show the operations of the Plan during each
Plan Year.
(iii) Records of its deliberations and decisions.
(b) The Administrator may appoint a secretary to keep the record of
proceedings, to transmit its decisions, instructions, consents or directions to
any interested party, to execute and file, on behalf of the Administrator, such
documents, reports or other matters as may be necessary or appropriate under
ERISA and to perform ministerial acts.
(c) The Administrator shall not be required to maintain any records
or accounts which duplicate any records or accounts maintained by the Employer.
3.6 Inspection of Records. Copies of the Plan and records of a Participant's
Deferred Compensation Account shall be open to inspection by him or his duly
authorized representatives at the office of the Employer at any reasonable
business hour.
3.7 Conflicting Claims. If the Administrator is confronted with conflicting
claims concerning a Participant's Deferred Compensation Account, the
Administrator may interplead the claimants in an action at law, or in an
arbitration conducted in accordance with the rules of the American Arbitration
Association, as the Administrator shall elect in its sole discretion, and in
either case, the attorneys' fees, expenses and costs reasonably incurred by the
Administrator in such proceeding shall be paid from the Participant's Deferred
Compensation Account.
3.8 Service of Process. The Secretary of the Employer is hereby designated as
agent of the Plan for the service of legal process.
3.9 Service in More than One Capacity. Any person or group of persons may
serve in more than one capacity with respect to the Plan.
ARTICLE IV
PARTICIPATION
4.1 Eligibility. All employees of the Employer who file U.S. income tax
returns and who are eligible to participate in the Special Incentive
Compensation Plan will be eligible to participate in this Plan.
5
<PAGE>
4.2 Participation. Participation in the Plan shall be limited to eligible
employees who file a Participation Agreement on or before November 10, 1995.
The election to participate shall be effective upon receipt by the Administrator
of a duly executed Participation Agreement.
4.3 Deferred Compensation. Provided that the amount deferred is not less than
$1,000, each Participant may elect to defer receipt of all or any percentage of
his Incentive Compensation until a date specified by the Participant, which may
in no event be later than the occurrence of a Distribution Upon Liquidation.
The Participant's Deferred Compensation will be deducted from the Incentive
Compensation otherwise payable to the Participant pursuant to the Special
Incentive Compensation Plan.
4.4 Irrevocability. The election to defer Incentive Compensation pursuant to a
Participation Agreement filed with the Administrator is irrevocable and may not
be amended except to the extent required, in the discretion of the Board, to
reflect the amendment and restatement of the Plan; provided, that the Board, in
its discretion, may permit further amendment.
4.5 Participation Agreement. The Participant shall set forth on the
Participation Agreement:
(a) his consent that he, his successors in interest and assigns and all
persons claiming under him shall be bound, to the extent authorized by law, by
the statements contained therein and by the provisions of the Plan as they now
exist, and as they may be amended from time to time,
(b) the percentage or specified dollar amount of his Incentive Compensation
to be deferred and the date as of which distribution of his Deferred
Compensation Account shall be made,
(c) his consent to the Administrator's discretion to choose the form of
property (which may include cash and other property as selected by the
Administrator in its discretion) in which such distribution shall be made, and
(d) such other information as may be required for the administration of the
Plan. Such Participation Agreement shall be in the form specified by the
Administrator.
ARTICLE V
DEFERRED COMPENSATION ACCOUNTS
5.1 Establishment of Deferred Compensation Account. The Administrator shall
establish and maintain for each Participant a Deferred Compensation Account to
which shall be credited the
6
<PAGE>
amounts determined under Section 5.2, debited amounts distributed therefrom
pursuant to Article VI and credited or debited the amounts determined under
Section 5.3.
5.2 Deferred Compensation. The amount of Incentive Compensation that a
Participant elects to defer in the Participation Agreement, net of any amount
the Employer is required to withhold pursuant to any federal, state, or local
law, shall be credited by the Employer to the Participant's Deferred
Compensation Account on the first day of the month following the date as of
which such Incentive Compensation was eligible to be paid.
5.3 Investment Credits and Debits. On each Determination Date after December
31, 1995, additional amounts shall be credited (or debited) to each
Participant's Deferred Compensation Account, such amounts to be equal to the
earnings (or losses) that would have been credited (or debited) had such
Participant's Deferred Compensation Account been applied in its entirety to
purchase the interest of a "Limited Partner" of Carlyle-Blade (as defined in the
Partnership Agreement) for the period between successive Determination Dates.
5.4 Determination of Account Value. As of each Determination Date, the
Administrator shall determine, in good faith, the fair market value of each
Participant's Deferred Compensation Account based upon such information as the
Administrator deems appropriate and which is reasonably available to the
Administrator including appraisals by qualified persons, transactions and bona
fide offers in assets of the type in question, data from newspapers and
financial publications of general circulation, statistical and valuation
services, records of securities exchanges, and other information customarily
used in the valuation of property for the purposes of the Code. With respect to
securities for which there is a generally recognized market, the published
selling prices on or nearest to such Determination Date shall establish fair
market value of such security. Fair market value so determined shall be
conclusive for all purposes of the Plan.
5.5 Applicability of Account Values. The value of a Deferred Compensation
Account as determined as of a given date under this Article less any amounts
subsequently distributed under Article VI, shall remain the value thereof for
all purposes of the Plan until revalued hereunder.
5.6 Vesting of Deferred Compensation Account. A Participant shall always be
100 % vested in the value of his Deferred Compensation Account.
5.7 Statement of Accounts. The Administrator shall submit to each Participant
after each Determination Date a statement setting forth the balance to the
credit of such Participant in his Deferred Compensation Account as of the
Determination Date.
7
<PAGE>
ARTICLE VI
DISTRIBUTION OF ACCOUNTS
6.1 Distribution Election. Subject to Sections 6.2 and 6.3, the value of each
Participant's Deferred Compensation Account shall be distributed to him or her
in one lump sum payment within 30 days after the date selected by the
Participant in the Participation Agreement.
6.2 Non-Liquidation Distributions. Notwithstanding any Participant's deferral
election or any other provisions of this Plan to the contrary, the Administrator
shall distribute to each Participant, no earlier than the day of, and no later
than 60 days after the end of each calendar year in which occurs, any Non-
Liquidating Distribution, an amount equal to such Non-Liquidation Distribution
(net of any amount the Employer is required to withhold pursuant to any federal,
state or local law) that would have been credited to such Participant's Deferred
Compensation Account had such Deferred Compensation Account been applied in its
entirety to purchase the interest of a "Limited Partner" of Carlyle-Blade (as
defined in the Partnership Agreement) for the period since the last
Determination Date; provided, however, that such distributions shall be made at
such time as is necessary to entitle the Employer to the applicable federal
income tax deduction for the year to which the Non-Liquidation Distribution
relates.
6.3 Form of Distribution. Any distribution from a Participant's Deferred
Compensation Account which is made on the day of, and in connection with, a Non-
Liquidating Distribution, shall be made in the form of units in Howmet Executive
Compensation Partners, L.P. ("HECP"). In all other events, distribution of the
value of each Participant's Deferred Compensation Account shall be made in cash
(or, if so determined by the Administrator, in other property including, without
limitation, distribution of the interest of a "Limited Partner" of Carlyle-
Blade, to the extent permitted by the Partnership Agreement or distribution of
units of HECP.).
6.4 Adjustments for Taxes. Any distributions made from a Participant's
Deferred Compensation Account will be subject to appropriate arrangements for
the payment of any applicable withholding required pursuant to any federal,
state or local law.
ARTICLE VII
BENEFICIARY DESIGNATION
7.1 Beneficiary Designation. Each Participant may designate any person,
persons, or entity as his Beneficiary or Beneficiaries to whom payment of the
value of his Deferred Compensation Account shall be made in the event of his
death. Any Beneficiary designation may be made or
8
<PAGE>
changed by a Participant by filing a beneficiary designation form prescribed by
the Administrator. The filing of a new Beneficiary designation form will cancel
all Beneficiary designations previously filed.
7.2 Marital Status. If a Participant's Deferred Compensation Account is
community property under applicable state law, no Beneficiary designation shall
be valid or effective if any such Beneficiary (or combination thereof) other
than the Participant's Spouse, if any, is to receive more than 50 percent of
such Participant's Deferred Compensation Account unless the Spouse shall, in
writing, approve the designation.
7.3 No Participant Designation. If a Participant fails to designate a
Beneficiary as provided above, or if his Beneficiary designation is revoked by
operation of law or otherwise without execution of a new designation, or if all
designated Beneficiaries predecease the Participant, then the Participant's
Beneficiary shall be his estate.
ARTICLE VIII
AMENDMENT AND TERMINATION OF PLAN
8.1 Amendment. The Employer may at any time amend the Plan in whole or in part,
provided however, that no amendment shall decrease the balance to the credit of
any Deferred Compensation Account as of the date of such amendment.
8.2 Employer's Right to Terminate. The Employer may at any time terminate the
Plan. Upon termination of the Plan, the Employer may discharge in full its
obligations to any participant upon payment of the Participant's Deferred
Compensation Account balance as of the date of such termination.
ARTICLE IX
GENERAL PROVISIONS
9.1 Creditors of the Employer. The Employer may establish a trust to provide a
source of funding its obligations under this Plan, but the assets of the trust
will remain subject to the claims of the creditors of the Employer.
9.2 Nonassignability. Neither a Participant nor any other person shall have
any right to sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, hypothecate or convey in advance of actual receipt, the amounts
payable hereunder.
9
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9.3 Not a Contract of Employment. The terms and conditions of this Plan and
any Participation Agreement shall not be deemed to constitute a contract of
employment with the Employer, and the Participant (or his Beneficiary) shall
have no rights against the Employer except as may be specifically provided
herein. Moreover, nothing in this Plan shall be deemed to give a Participant
the right to be retained in the service of the Employer or to interfere with the
right of the Employer to discipline or discharge him at any time for any reason
whatsoever.
9.4 Protective Provisions. A Participant will cooperate with the Employer and
Administrator by furnishing any and all information requested by the Employer or
the Administrator in order to facilitate the payment of benefits hereunder, and
by taking such other action as may be requested by the Employer or the
Administrator.
9.5 Terms. Whenever any words are used herein in the masculine, they shall be
construed as though they were used in the feminine in all cases where they would
so apply; and wherever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or in the
singular, as the case may be, in all cases where they would so apply.
9.6 Captions. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
9.7 Governing Law. The provisions of this Plan shall be construed and
interpreted according to the laws of the State of New York.
9.8 Validity. In case any provision of this Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the remaining
parts hereof but this Plan shall be construed and enforced as if such illegal
and invalid provision had never been inserted herein.
9.9 Notice. Any notice or filing required or permitted to be given to the
Administrator under this Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the Administrator at the
executive office of the Employer. Such notice shall be deemed given as of the
date of delivery or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
9.10 Successors. The provisions of this Plan shall bind and inure to the
benefit of the Employer and its successors and assigns. The term successors as
used herein shall include any corporate or other business entity which shall,
whether by merger, consolidation, purchase or otherwise, acquire all or
substantially all of the business and assets of the Employer, and successors of
any such corporation or other business entity.
9.11 Incompetency. In the event that it shall be found upon evidence
satisfactory to the Administrator that any Participant or Beneficiary to whom a
benefit is payable under this Plan
10
<PAGE>
is unable to care for his affairs because of illness or accident, any payment
due (unless prior claim therefor shall have been made by a duly authorized
guardian or other legal representative) may be paid, upon appropriate
indemnification of the Employer and Administrator, to the Spouse or other person
deemed by the Administrator to have incurred expense for such Participant (or
Beneficiary). Any such payment shall be a payment for the account of the
Participant and shall be a complete discharge of any liability of the Plan and
the Employer with respect to the amount so paid.
ARTICLE X
CLAIMS PROCEDURE
10.1 Claim. Any person claiming a benefit or requesting an interpretation or
ruling under the Plan shall present the request in writing to the Administrator
which shall respond in writing as soon as practicable.
10.2 Denial of Claim. If the claim or request is denied, the written notice of
denial shall state:
(a) The reason for denial with specific reference to the Plan provisions on
which the denial was based.
(b) A description of any additional material or information required and an
explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
10.3 Review of Claim. Any person whose claim or request is denied or who has
not received a response within 60 days may request review by notice given in
writing to the Administrator. The claim or request shall be reviewed by the
Administrator which may grant the claimant a hearing or request a hearing to
clarify any related matters which it deems appropriate. On review, the claimant
may have representation, examine pertinent documents, and submit issues and
comments in writing.
10.4 Final Decision. The decision on review shall normally be made by the
Administrator within 60 days of the date of the review of claim authorized by
10.3. If an extension of time is required for a hearing or other special
circumstances, the claimant shall be notified and the time limit shall be 120
days. The decision shall be in writing and shall state the reason and the
relevant Plan provisions.
10.5 Arbitration. Any claim or dispute arising hereunder which is not resolved
upon conclusion of the procedures heretofore provided in this Article X shall,
upon request of either
11
<PAGE>
the Employer or the claiming or requesting person, be decided by arbitration in
the metropolitan area where the Participant is, or was most recently, employed
by the Employer, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The award rendered in such arbitration shall
be final, and judgment on such award may be entered in any court, state or
federal having jurisdiction thereover. In no event however, should the
arbitrator be given authority to judge any decision which is the subject of the
Administrator's exercise of its discretion in accordance with the terms of this
Plan.
IN WITNESS WHEREOF, the Employer has caused this Second Amended and Restated
Plan to be executed on this 24th day of November, 1997.
HOWMET CORPORATION
By: /s/ Roland A. Paul
------------------
Its: Vice President - General Counsel
--------------------------------
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF INCOME OF HOWMET INTERNATIONAL INC. INCLUDED IN
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 21,866
<SECURITIES> 0
<RECEIVABLES> 141,446
<ALLOWANCES> 4,309
<INVENTORY> 155,768
<CURRENT-ASSETS> 1,060,237
<PP&E> 359,864
<DEPRECIATION> 74,346
<TOTAL-ASSETS> 1,740,642
<CURRENT-LIABILITIES> 249,213
<BONDS> 206,742
61,360
0
<COMMON> 1,000
<OTHER-SE> 287,827
<TOTAL-LIABILITY-AND-EQUITY> 1,740,642
<SALES> 328,365
<TOTAL-REVENUES> 328,365
<CGS> 231,466
<TOTAL-COSTS> 231,466
<OTHER-EXPENSES> 19,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,753
<INCOME-PRETAX> 40,817
<INCOME-TAX> 16,327
<INCOME-CONTINUING> 24,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,490
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
