<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the thirteen week period ended September 28, 1997
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 1-6348
HOWMET CORPORATION
Incorporated in the State of Delaware I.R.S. Employer
Identification
No.13-2838093
475 Steamboat Road, Greenwich, CT 06836-1960
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 [ ] NO [X]
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $1.00 PAR VALUE, AS OF NOVEMBER 4, 1997: 10 SHARES
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HOWMET CORPORATION
Consolidated Condensed Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 28, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,080 $ 23,398
Accounts receivable, less allowance of $4,351 and $5,623 70,313 76,870
Inventories 142,370 149,419
Retained receivables 45,043 46,132
Deferred income taxes 9,301 20,957
Other current assets 2,777 2,982
--------- ----------
Total current assets 278,884 319,758
Property, plant and equipment, net 264,218 291,086
Goodwill, net 247,952 253,377
Acquisition intangibles and other assets, net 144,802 159,672
--------- ----------
Total assets $ 935,856 $1,023,893
========= ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 60,182 $ 76,840
Accrued liabilities 159,100 157,408
Income taxes payable 35,221 18,561
Current portion of long-term debt 34,198 56,106
--------- ----------
Total current liabilities 288,701 308,915
Accumulated postretirement benefit obligation 92,096 88,569
Other liabilities 61,908 37,245
Deferred income taxes 9,007 17,777
Long-term debt 126,500 266,870
--------- ----------
Total liabilities 578,212 719,376
Contingencies (Note F)
Stockholders' equity:
Common stock, $1 par value; 1,000 shares authorized;
10 shares issued and outstanding -- --
Capital surplus 275,000 275,000
Retained earnings 88,547 27,461
Cumulative translation adjustment (5,903) 2,056
--------- ----------
Total stockholders' equity 357,644 304,517
--------- ----------
Total liabilities and stockholders' equity $ 935,856 $1,023,893
========= ==========
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE> 3
HOWMET CORPORATION
Consolidated Condensed Income Statements (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 309,005 $ 278,537 $ 951,990 $ 823,351
Operating costs and expenses:
Cost of sales 214,717 201,908 661,559 600,658
Selling, general and administrative expense 33,146 27,449 105,939 84,450
Depreciation and amortization expense 15,439 14,723 44,711 45,003
Research and development expense 5,072 6,241 16,146 18,407
--------- --------- --------- ---------
268,374 250,321 828,355 748,518
--------- --------- --------- ---------
Earnings from operations 40,631 28,216 123,635 74,833
Interest income 50 242 799 1,203
Interest expense (8,310) (8,759) (23,774) (31,024)
Equity in income (loss) of unconsolidated affiliates 362 (353) 962 (2,431)
Losses on sales of receivables (898) (885) (2,855) (3,297)
Other, net (206) 102 (241) (221)
--------- --------- --------- ---------
Income before income taxes 31,629 18,563 98,526 39,063
Income taxes 9,544 8,995 37,440 22,055
--------- --------- --------- ---------
Net income $ 22,085 $ 9,568 $ 61,086 $ 17,008
========= ========= ========= =========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
HOWMET CORPORATION
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
--------------------------------
September 28, September 29,
1997 1996
-------------- -------------
<S> <C> <C>
Operating activities
Net income $ 61,086 $ 17,008
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 51,412 47,466
Equity in (income) loss of unconsolidated affiliates (962) 2,431
Changes in assets and liabilities:
Accounts receivable (8,207) 3,793
Inventory (4,914) 14,627
Deferred income taxes 2,880 (627)
Accounts payable (11,312) 4,831
Accrued liabilities (4,168) 18,286
Income taxes payable 16,786 9,212
Collection of long-term customer receivables -- 21,138
Stock appreciation rights non-current accrued liability 21,007 1,706
Other, net 2,527 2,710
--------- ---------
Net cash provided by operating activities 126,135 142,581
--------- ---------
Investing activities
Proceeds from sale of refurbishment business 57,502 --
Payments made for capital expenditures (32,415) (17,988)
Investment in joint venture (1,982) --
Post-closing adjustment related to December 13, 1995 acquisition -- 3,634
--------- ---------
Net cash provided (used) in investing activities 23,105 (14,354)
Financing activities
Borrowings 102,300 100,400
Repayment of debt (264,000) (217,354)
--------- ---------
Net cash used in financing activities (161,700) (116,954)
Effect of exchange rate changes on cash (1,858) (167)
--------- ---------
(Decrease) increase in cash (14,318) 11,106
Cash and cash equivalents at beginning of period 23,398 9,606
--------- ---------
Cash and cash equivalents at end of period $ 9,080 $ 20,712
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
HOWMET CORPORATION
Notes to Consolidated Condensed Financial Statements
(Unaudited)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed 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 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included. The consolidated condensed balance sheet at December 31, 1996 has been
derived from audited financial statements at that date. Operating results for
the thirteen and thirty-nine weeks ended September 28, 1997 are not necessarily
indicative of the results to be expected for the year ending December 31, 1997.
The financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K for
the year ended December 31, 1996.
B. INVENTORIES
Inventories at September 28, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Raw materials and supplies.................... $ 52,695
Work in process and finished goods............ 94,057
--------
FIFO inventory................................ 146,752
LIFO valuation adjustment..................... (4,382)
--------
$142,370
========
</TABLE>
The Company increased the LIFO valuation adjustment and thereby increased cost
of sales by $2.6 million and $2.2 million in the 1997 and 1996 thirty-nine week
periods, respectively.
C. SALE OF REFURBISHMENT BUSINESS
In September 1997, the Company sold its aircraft engine component refurbishment
business (other than its coating operations). The Company expects net cash
proceeds of approximately $43.0 million after tax and transaction related
expenses. The sales transaction did not have a material effect on net income.
Net sales of such business were approximately $53.0 million in the thirty-nine
week period ended September 28, 1997, approximately $53.0 million in the
thirty-nine week period ended September 29,1996 and approximately $69.0 million
for the full year 1996. Earnings from operations of this business were not
material in both periods.
D. INCOME TAXES
The 1997 effective tax rate includes permanent differences between book and tax
income (principally goodwill amortization), research and development credits
which offset the adverse effect of establishing valuation allowance reserves for
foreign tax credit carryforwards, and a state tax rate which is substantially
lower than that of 1996.
5
<PAGE> 6
HOWMET CORPORATION
Notes to Consolidated Condensed Financial Statements
(Unaudited)
D. INCOME TAXES (Continued)
The estimated annual effective tax rate was reduced from 41.7% in the twenty-six
weeks ended June 29, 1997 to 38.0% in the thirty-nine weeks ended September 28,
1997. In the comparable 1996 periods the estimated annual effective tax rate was
reduced from 63.7% to 56.5%. The reductions in rates resulted in $2.5 million of
lower taxes than would have otherwise been reported in the 1997 thirteen week
period and $1.5 million of lower taxes in the comparable 1996 period. These tax
reductions result from applying the September reduction in annual effective tax
rates to the pre-tax income of the first twenty-six week periods of the 1997 and
1996 years. The 1997 effective tax rate reduction was due to lower than
originally estimated state taxes and higher research and development credits.
The 1996 effective tax rate reduction was due primarily to higher estimates of
annual income which resulted in nondeductible cost and expenses being a smaller
percentage of pre-tax income.
In 1996 the effective tax rate was reduced from an estimated 56.5% for the
thirty-nine week period to 53.3% for the full year. Had the 53.3% rate been
applied to income before income taxes in the 1996 thirty-nine week period, net
income would have been $1.2 million higher. The change in the income tax rate in
1996 resulted from actual annual income that was substantially higher than the
estimate of annual income contemplated in the 56.5% rate. The higher income
reduced the percentage effect of nondeductible costs and expenses.
The Company paid income taxes, net of refunds, of $27.7 million and $14.5
million, during the respective 1997 and 1996 thirty-nine week periods.
E. OTHER INFORMATION
In the first half of 1997, the Company received $9.7 million of additional
revenue (with no associated cost), from a pricing adjustment with a customer.
Such adjustment is not expected to recur in future periods, and there was no
comparable amount in 1996.
Selling, general and administrative expense for the thirteen and thirty-nine
weeks ended September 28, 1997 included $5.1 million and $21.0 million of
pre-tax expense, respectively, recorded in connection with the Company's Stock
Appreciation Rights ("SARs") plan. The 1996 thirteen and thirty-nine weeks ended
September 29, 1996 included $0.9 million and $1.7 million, respectively, of
expense related to the SARs plan.
Interest expense for the thirteen and thirty-nine weeks ended September 28, 1997
included $2.8 million and $4.1 million, respectively, of expense attributable to
the accelerated write-off of debt issuance costs associated with debt that was
repaid ahead of schedule. There was no comparable amount in 1996.
The Company paid interest of $14.0 million and $26.1 million, during the
respective 1997 and 1996 thirty-nine week periods.
F. CONTINGENCIES
The Company has received test results indicating levels of polychlorinated
bi-phenyls ("PCBs") at its Dover, New Jersey facility 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
6
<PAGE> 7
HOWMET CORPORATION
Notes to Consolidated Condensed Financial Statements
(Unaudited)
F. CONTINGENCIES (Continued)
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 September 28, 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 one to two year period. The indemnification discussed below
applies to the costs associated with this matter.
In addition to the above, liabilities arising for clean-up costs associated with
hazardous types of materials in several waste disposal facilities exist. In
particular, 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 thirteen on-site and off-site locations. At September
28, 1997, $4.0 million of accrued environmental liabilities are included in the
consolidated condensed balance sheet for such matters.
In connection with the December 13, 1995 acquisition, Pechiney International and
Pechiney, S.A. indemnified the Company for environmental liabilities stemming
from events occurring or conditions existing on or prior to the December 13,
1995 acquisition date, 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 International and Pechiney, S.A. pursuant to this
indemnification.
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
International and 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.
At September 28, 1997, the Company guaranteed certain indebtedness aggregating
$10.3 million of its 50% owned entities.
G. SUBSEQUENT EVENTS
The Company is a wholly-owned subsidiary of Howmet International Inc. ("HII",
formerly named Blade Acquisition Corp.). An affiliate of the Carlyle Group and
certain of its affiliates ("Carlyle") and Thiokol Holding Company, a
wholly-owned subsidiary of Thiokol Corporation ("Thiokol"), own 51% and 49%,
respectively, of HII common stock.
7
<PAGE> 8
HOWMET CORPORATION
Notes to Consolidated Condensed Financial Statements
(Unaudited)
G. SUBSEQUENT EVENTS (Continued)
On October 9, 1997, HII filed a Registration Statement on Form S-1 (Reg. No.
333-37573) to register $375 million of common shares to be offered and sold by
Carlyle (the "Offering"). In addition and in connection with the Offering
Carlyle has agreed to sell to Thiokol, simultaneously with the closing of the
Offering, 11% of the outstanding common stock of HII (the "Sale"), and to grant
an option to Thiokol to purchase up to an additional 4% of the outstanding
common stock of HII. Upon completion of the Offering and the Sale, Thiokol will
own 60% of the outstanding common stock of HII (or up to 64% if it elects to
exercise all or part of the option).
In connection with the Offering, Carlyle and Thiokol entered to amend and
restate the Original Shareholders Agreement (as amended and restated, the
"Shareholders Agreement") described in Note 1 to HII's consolidated financial
statements for the year ended December 31, 1996, which are included in the
aforementioned Registration Statement on Form S-1. Carlyle and Thiokol also
intend to enter into several agreements, among themselves and agreements with
HII, which may affect the activities of the Company. The Shareholders Agreement
addresses Thiokol purchases of HII common stock held by third parties,
representation on HII's Board of Directors, Carlyle holding periods for the HII
common stock it will own after the Offering, the Thiokol purchase option for
the HII common stock owned by Carlyle after the Offering and Carlyle
participation rights in the event of Thiokol sales of HII common stock. HII has
agreed that, prior to April 1, 1999 (or such earlier date as Carlyle owns less
than 5% of the outstanding shares of common stock), HII will not take certain
actions without the approval of the director designated by Carlyle, including
with respect to issuing or repurchasing shares, declaring dividends, approving
HII's capital budget and operating plan, purchasing or selling substantial
assets, appointing or terminating HII's executive officers, incurring
indebtedness over $20 million or taking action relating to the compensation of
HII's executive officers. Also, HII has granted Carlyle certain registration
rights (exercisable between the second and the fifth anniversaries of the
closing of the Offering) for Carlyle's remaining shares of common stock and has
granted Thiokol certain preemptive rights. For a more detailed description of
the aforementioned agreements see "Certain Other Agreements Between Thiokol,
Carlyle and the Company" (HII) in the Registration Statement on Form S-1 filed
by HII.
If the Offering is consummated, the Company's subsequent charges or credits
related to the Company's SARs plan will be based on changes to HII's stock
price.
8
<PAGE> 9
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
RESULTS OF OPERATIONS
Thirteen Weeks Ended September 28, 1997 Compared to Thirteen Weeks Ended
September 29, 1996
Net sales increased by $30.5 million (10.9%) to $309 million for the thirteen
week period ended September 28, 1997 ("the 1997 thirteen week period") from
$278.5 million for the thirteen week period ended September 29, 1996 ("the 1996
thirteen week period"). The increase was primarily due to volume increases
resulting from increased demand in the commercial aerospace airfoils market and
continued strength in the industrial gas turbine airfoils market. Sales for 1997
were adversely affected by continued pricing pressures.
Gross profit increased by $17.7 million (23.0%) to $94.3 million for the 1997
thirteen week period from $76.6 million for the 1996 thirteen week period. The
principal reason for the improvement was the effect of volume increases.
Continued pricing pressures, a $1.0 million lower adverse LIFO valuation
adjustment in the 1997 thirteen week period, fixed cost containment, variable
cost reductions and other operational improvements were also significant factors
in the 1997 versus 1996 comparison.
Selling, general and administrative expense increased by $5.7 million (20.8%) to
$33.1 million for the 1997 thirteen week period. The increase was primarily due
to $4.2 million of higher 1997 expense recorded in connection with the Company's
Stock Appreciation Rights plan.
Research and development expense decreased $1.2 million (18.7%) to $5.1 million
for the 1997 thirteen week period. This decline was a function of the timing of
customer requirements and the normal progression of parts from the development
to production stages of their life cycle.
Net interest expense decreased $0.3 million for the 1997 thirteen week period.
Net interest expense was reduced by $3.1 million due to lower debt levels and,
to a lesser extent, lower rates resulting from achievements of financial
targets. Partially offsetting this reduction was a $2.8 million accelerated
write-off of debt issuance costs associated with debt that was repaid ahead of
schedule.
Equity in income of unconsolidated affiliates of $0.4 million in the 1997
thirteen week period was a $0.7 million improvement over the $0.3 million equity
loss in the 1996 thirteen week period. The improvement reflects better results
for the Japanese joint venture.
Income taxes increased $0.5 million due to higher pre-tax income. The effective
income tax rate was 30.2% in the 1997 thirteen week period compared to 48.5% in
the 1996 thirteen week period. The lower 1997 effective rate is due principally
to higher research and development credits, lower effective state tax rates and
a higher estimate of annual earnings in 1997 compared to 1996. As a result of
higher estimated 1997 earnings, nondeductible costs and expenses represent a
lower percentage of estimated annual earnings in 1997 than in 1996. See Note D
of Notes to Consolidated Condensed Financial Statements for a discussion (i) of
the effect of September 1997 and 1996 changes in estimated annual effective tax
rates and (ii) of subsequent changes in the estimated 1996 effective rate.
As a result of the foregoing, net income was $22.1 million for the 1997 thirteen
week period compared to $9.6 million for the 1996 thirteen week period.
9
<PAGE> 10
Thirty-Nine Weeks Ended September 28, 1997 Compared to Thirty-Nine Weeks Ended
September 29, 1996
Net sales increased by $128.6 million (15.6%) to $952.0 million for the
thirty-nine week period ended September 28, 1997 ("the 1997 thirty-nine week
period") from $823.4 million for the thirty-nine week period ended September 29,
1996 ("the 1996 thirty-nine week period"). The increase was primarily due to
volume increases resulting from increased demand in the commercial aerospace
airfoils market and continued strength in the industrial gas turbine airfoils
market. Sales for 1997 reflect continued pricing pressures, partially offset by
$9.7 million of additional revenue from a pricing adjustment with a customer.
Such adjustment is not expected to recur in future periods and there was no
comparable amount in 1996.
Gross profit increased by $67.7 million (30.4%) to $290.4 million for the 1997
thirty-nine week period from $222.7 million for the 1996 thirty-nine week
period. The principal reason for the improvement was the effect of volume
increases. Continued pricing pressures, the aforementioned $9.7 million of
additional revenue with no associated cost, fixed cost containment, variable
cost reductions and other operational improvements were also significant factors
in the 1997 versus 1996 comparison.
Selling, general and administrative expense increased by $21.5 million (25.4%)
to $105.9 million for the 1997 thirty-nine week period. The increase was
primarily due to $19.3 million of higher 1997 expense recorded in connection
with the Company's Stock Appreciation Rights plan.
Research and development expense decreased $2.3 million (12.3%) to $16.1 million
for the 1997 thirty-nine week period. This decline was a function of the timing
of customer requirements and the normal progression of parts from the
development to production stages of their life cycle.
Net interest expense decreased $6.8 million for the 1997 thirty-nine week
period. Net interest expense was reduced by $10.9 million due to lower debt
levels and, to a lesser extent, lower rates resulting from achievements of
financial targets. Partially offsetting this reduction was a $4.1 million
accelerated write-off of debt issuance cost associated with debt that was repaid
ahead of schedule.
Equity in income of unconsolidated affiliates of $1.0 million in the 1997
thirty-nine week period was a $3.4 million improvement over the $2.4 million
equity loss in the 1996 thirty-nine week period. The improvement reflects better
results for the Japanese joint venture.
Income taxes increased $15.4 million due to higher pre-tax income. The effective
income tax rate was 38.0% in the 1997 thirty-nine week period compared to 56.5%
in the 1996 thirty-nine week period. The lower 1997 effective rate is due
principally to a lower state tax rate and a higher estimate of annual earnings
in 1997 compared to 1996. As a result of higher estimated 1997 annual earnings,
nondeductible costs and expenses represent a lower percentage of estimated
annual earnings in 1997 than in 1996. See Note D of Notes to Consolidated
Condensed Financial Statements for a discussion of changes in the estimated 1996
effective rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flow from operations and
borrowings under its revolving credit facility. The Company's principal
requirements for cash are to provide working capital, service debt, finance
capital expenditures and fund research and development. 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 and scheduled principal payments under the
Senior Credit Facilities, 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.
10
<PAGE> 11
At September 28, 1997, there were $9.6 million of standby letters of credit
outstanding and $0.5 million of outstanding borrowings under the $75 million
revolving credit facility. In the 1997 thirty-nine week period, the Company
reduced its debt outstanding by $161.7 million, including (i) repayment of $8.7
million of borrowings under a subsidiary's revolving credit line, (ii) repayment
of $11.5 million of the Company's revolving credit facility borrowings, and
(iii) $26.3 million of mandatory scheduled repayments and $115.2 million of
voluntary repayments of senior term facility borrowings.
The source of $57.5 million of the cash used for the aforementioned debt
repayments was the sale of the aircraft engine component refurbishment business,
discussed in Note C of Notes to Consolidated Condensed Financial Statements.
Subsequent tax payments and other expenditures related to this asset sale are
expected to be funded with cash from operations and short-term senior revolving
credit facility borrowings. Apart from the benefits of the estimated $43.0
million net cash proceeds of this sale and any subsequent pay-down of debt,
the impact of the sale has not had a material effect on liquidity.
In the first half of 1997, interest rates on the Senior Credit Facilities were
reduced by 50 basis points as a result of the Company achieving certain
financial targets. An additional 25 basis point reduction will occur in October
1997 due to further achievements of financial targets. After these reductions,
interest rates are, at the Company's option, at the Eurodollar rates plus 50
basis points or at a bank's base rate plus no basis points.
Capital expenditures in the 1997 thirty-nine week period were $32.4 million,
and are expected to be approximately $60.0 million for the full year. Terms of
the Senior Credit Facilities allow capital expenditures of up to $55.0 million
per year. If less than $55.0 million is spent in any year, up to $10.0 million
of the underspending may be carried forward and added to the spending
limitation of the subsequent year but not beyond. For 1997, $10.0 million of
allowable spending capacity has been carried forward from 1996. The 1998 limit
is expected to be $55.0 million. Spending beyond this limit requires lender
approval, and the Company expects to seek such approval in 1998.
The Company's Senior Credit Facilities prohibit payment of dividends and stock
redemptions and restrict intercompany loans. Expenditures for future
acquisitions of businesses are limited to a total of $20.0 million in the 1997
(including $10.0 million of allowable capacity carried forward from 1996) and
$10.0 million per year thereafter. If less is spent in any year, up to $10.0
million of the underspending may be carried forward and added to the spending
limitation of the subsequent year but not beyond. The Senior Credit Facilities
also limit future contributions to joint ventures to a total of $5.4 million.
While the terms of the Senior Credit Facilities are more restrictive than the
terms of the Senior Subordinated Notes, these latter notes also restrict, among
other things, payment of dividends, redemptions of shares, sales of assets,
mergers and incurrence of additional debt.
An $8.0 million change in the cumulative translation adjustment, which is
included in stockholders' equity, resulted in a $5.9 million negative balance.
The change is primarily due to strengthening of the U.S. dollar relative to the
French Franc.
NEW ACCOUNTING STANDARDS
In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" was issued. This statement changes the methodology of
calculating earnings per share. Under current circumstances this standard will
not have an effect on the Company's financial statements. In June 1997, SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" were issued. Adoption of SFAS
No. 131 is not expected to have a significant impact on the Company's financial
statements. Adoption of SFAS No. 130 will not have an effect on the Company's
reported cash flows, financial position or net income. However, adoption of SFAS
No. 130 will require the Company to report comprehensive income, which will
include net income and the change in the cumulative translation adjustment
reported in stockholders' equity.
11
<PAGE> 12
ENVIRONMENTAL MATTERS
See Note F of Notes to Consolidated Condensed Financial Statements, and Exhibit
99.1 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Securities and Exchange Commission for
discussion of environmental matters.
* * * * * * * * * * *
The statements made herein that are not historical facts may be forward-looking
statements. The Company hereby cautions readers that the forward-looking
statements are subject to certain risks and uncertainties, including without
limitation those identified in Exhibit 99.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, filed with the Securities
and Exchange Commission, which could cause actual results to differ materially
from historical results or those anticipated, and urges readers to review these
materials carefully. Factors discussed in Exhibit 99.1 include, among others,
substantial leverage and debt service, the effects of aerospace industry
economic conditions and cyclicality, reduced government sales, concentrated
customer base, competition, concentration of ownership, and environmental
matters.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 5. Other Events
CAUTIONARY STATEMENT
The Company wishes to inform its investors of important factors that in some
cases have affected, and in the future could affect, the Company's results of
operations and that could cause such future results of operations to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. These factors are discussed at length in Exhibit 99.1 of
the Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1996, filed with the Securities and Exchange Commission.
Although the Company has attempted to list in that exhibit the important
cautionary factors, the Company wishes to caution investors that other factors
may in the future prove to be important in affecting the Company's results of
operations. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 6. Exhibits and Reports on Form 8-K
(a) -- Exhibits
4.1 Repurchase Agreement dated May 16, 1997 (under the Blade
Receivables Master Trust Amended and Restated Pooling and Servicing
Agreement dated April 18, 1996), among Howmet Corporation, Howmet
Cercast (U.S.A.), Inc., Howmet Refurbishment, Inc., Howmet-Tempcraft,
Inc., Turbine Components Corporation, Blade Receivables Corporation,
and Manufacturers and Traders Trust Company, as Trustee,
(incorporated herein by reference to Exhibit 4.14 to the Registration
Statement on Form S-1 of Howmet International Inc. filed October 9,
1997 Registration No. 333- 37573).
4.2 Amending Agreement dated August 29, 1997 (amending the Blade
Receivables Master Trust Amended and Restated Pooling and Servicing
Agreement dated April 18, 1996), among Blade Receivables Corporation,
Howmet Corporation, Manufacturers and Traders Trust Company, as
Trustee, Falcon Asset Securitization Corporation, Alpine
Securitization Corp., Credit Suisse First Boston, New York Branch,
and The First National Bank of Chicago, as Agent for Falcon Asset
Securitization Corporation and Alpine Securitization Corp.
(incorporated herein by reference to Exhibit 4.15 to the Registration
Statement on Form S-1 of Howmet International Inc. filed October 9,
1997 Registration No. 333-37573).
10.1 Howmet Corporation Amended and Restated Retirement Income
Make-Up Plan A, effective January 1, 1996 (incorporated herein by
reference to Exhibit 10.4(a) to the Registration Statement on Form
S-1 of Howmet International Inc. filed October 9, 1997 Registration
No. 333-37573).
10.2 Howmet Corporation Amended and Restated Retirement Income
Make-Up Plan B, effective January 1, 1996 (incorporated herein by
reference to Exhibit 10.4(b) to the Registration Statement on Form
S-1 of Howmet International Inc. filed October 9, 1997 Registration
No. 333-37573).
27.1 Financial Data Schedule
13
<PAGE> 14
(b) -- Reports on Form 8-K
During the thirteen week period ended September 28, 1997, the
Company filed no Current Reports on Form 8-K.
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: November 4, 1997
HOWMET CORPORATION
By /s/ John C. Ritter
---------------------------------
Senior Vice President &
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE
THIRTEEN WEEK PERIOD ENDED SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000048848
<NAME> HOWMET CORPORATION
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<S> <C>
<PERIOD-TYPE> 9-MOS
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<PERIOD-START> JAN-01-1997
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0
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