February 13, 1996
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, NW
Stop 1-4
Washington, D.C. 20549-1004
Attention: Filing Desk
RE: Thiokol Corporation
Commission File No. 1-6179
Amended Report on Form 8-KA dated February 13, 1996
Ladies/Gentlemen:
This Form 8-KA is being filed electronically on EDGAR pursuant to Item 2 to
correct "EDGAR" errors noted in the financial statements on pages 19, 30, and
33 of the 8-KA filed on February 8, 1996.
Sincerely,
/s/ Edwin M. North
- ------------------
Edwin M. North
Enclosures
cc: New York Stock Exchange (w/manually signed copy of report)
Chicago Stock Exchange (w/manually signed copy of report)
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 8-KA
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 13, 1996
Thiokol Corporation
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- ------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
1-6179 36-2678716
---------------------- --------------------------------
Commission File Number (IRS Employer Identification No.)
2475 Washington Boulevard, Ogden, Utah 84401-2398
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 629-2000
-----------------------------
Registrant's Telephone Number
The purpose of this form 8-KA is to correct "EDGAR" errors in the financial
statement on pages 19, 30, and 33 of the 8-KA filed on February 8, 1996.
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective December 13, 1995, Thiokol Corporation's wholly-owned
subsidiary, Thiokol Holding Company ("Holding"), entered into a Stock Purchase
Agreement with Carlyle-Blade Acquisition Partners, L.P. ("Carlyle") and Blade
Acquisition Corp. ("Blade") pursuant to the terms of which Holding purchased
49%, $98 million; and Carlyle purchased 51%, $102 million of all of the issued
and outstanding voting common stock of Blade, a Delaware acquisition corporation
formed by Holding and Carlyle for the purpose of completing the Howmet Cercast
acquisition. Holding also purchased, for $50 million, all of the issued and
outstanding 9% paid-in-kind non-voting Series A preferred stock, the terms and
conditions of which are described in the Preferred Stock Certificate of
Designation filed with the Secretary of State of Delaware. Paid-in-kind
dividends are paid quarterly by the issuance of additional shares preferred
stock. Mandatory redemption of the preferred stock occurs the earlier of ten
years after the initial issue date or immediately before the sale, merger, or
consolidation of Blade or a transfer of more than 25% of the Carlyle held Blade
common stock to nonaffiliates.
Holding's $148 million capital investment in Blade was funded by a capital
contribution made by Thiokol Corporation ("Thiokol") from $96 million of cash on
hand and $52 million in financing provided from various bank revolving credit
facilities. As a result of such capital contribution, Thiokol's liquidity
resources remain sufficient to meet its anticipated working capital and capital
expenditure needs.
The Blade voting common stock owned by Holding and Carlyle is subject to a
Security Agreement granted by each party to the other and such common stock is
held by a custodial agent pursuant to the terms of the Collateral Custodial
Agreement.
On December 13, 1995, Blade completed the acquisition of Howmet Corporation for
$750 million plus an additional $27.1 million of related fees and expenses.
Howmet is the world's largest manufacturer of investment casting components for
gas turbine engines. The acquisition includes the Cercast Group of companies, a
major producer of high quality aluminum alloy investment castings from Pechiney
International, S.A., and its affiliates ("Pechiney"), a multinational French
firm. The acquisition of Howmet and its subsidiaries and the Cercast Group of
companies, include the acquisition of the nonoperating companies Howmet
Insurance Company, a captive insurance company and Pechiney Corporation the
obligor on $816 million in promissory notes due in 1999 secured by a trust,
primary and secondary letters of credit and Pechiney indemnifications.
The acquisition is financed by the Howmet and Cercast subsidiaries of Blade. In
addition to the $250 million Blade equity investment, financing consists of $300
million secured senior indebtedness with maturities of 5 to 7.5 years at rates
ranging from 9.5 to 9.75%; $15.7 million in borrowings from a $125 million
revolving credit facility; $51.4 million in proceeds from a secured accounts
receivable financing; $125 million 10% senior subordinated notes with call
premium due 2003; $10 million in Canadian borrowings; and a $25 million 11%
paid-in-kind eleven year note payable to Pechiney. All debt financing is
non-recourse to Blade and its shareholders Holding and Carlyle.
The Shareholder Agreement by and among Holding, Carlyle and Blade set forth the
terms and conditions for the management of Blade and its subsidiaries Howmet and
Cercast, the size and composition of the Blade Board of Directors, voting
control and super majority action required for certain enumerated major
corporate actions. Pursuant to the terms and conditions of the Shareholders
Agreement, Holding has a call option exercisable during a three year period
commencing the third year from the Closing Date, December 13, 1998, to purchase
all of the issued and outstanding voting common stock of Blade owned by Carlyle.
Upon Holding's exercise of the call option, at a purchase price valuation
process set forth in the Shareholder Agreement, Holding will own all of the
issued and outstanding common stock of Blade and its subsidiaries, Howmet
Corporation and the Cercast Group of companies.
The Shareholder Agreement contains a Change in Control provision which provides
Holding a right to accelerate the exercise of the call option to purchase
Carlyle's Blade common stock in the event of a Change in Control of Carlyle as
defined by the terms and conditions in the Shareholders Agreement. In the event
of a change of control of Thiokol Corporation as defined by the terms and
conditions of the Shareholders Agreement, Carlyle will effectively gain control
of the Board of Directors of Blade and will control the Blade investment in
Howmet Corporation and the Cercast group of companies. The Shareholder Agreement
<PAGE>
contains provisions regarding the respective shareholders' rights of Holding and
Carlyle to exit the transaction including Registration Rights Agreement, co-sale
rights and tag-along rights in the event either party sells any or all of its
Blade common stock interests to a third party subsequent to the expiration of
the Holding call option.
A Standstill Agreement by and among Thiokol, Holding, Carlyle and Carlyle
affiliates provides for the protection of the long-term investment interests of
Holding in Blade and the investment interests of its stockholder Thiokol.
Holding and Carlyle have also entered into management agreements with Howmet
providing for annual payments of $1 million to each party for certain management
and consulting services. Agreements by Thiokol and a Carlyle affiliate and
Howmet Acquisition Corp. provides for the payment as of the closing of
transaction a $2 million transaction fee to each party.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THIOKOL CORPORATION
(Registrant)
/s/ Richard L. Corbin
Dated: February 13, 1996 By: ________________________________
Richard L. Corbin
Senior Vice President
and Chief Financial Officer
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
a. Financial statements of businesses acquired.
<TABLE>
<CAPTION>
INDEX TO HOWMET CORPORATION AND HOWMET CERCAST GROUP COMBINED FINANCIAL
STATEMENTS
Page
No .
----
<S> <C>
Report of Independent Accountants ................................................................................. 4
Combined Balance Sheets at December 31, 1993 and 1994 ............................................................. 5
Combined Statements of Operations and Retained Earnings for the Years Ended December 31, 1992, 1993
and 1994 ....................................................................................................... 6
Combined Statements of Cash Flows for the Years Ended December 31, 1992, 1993 and 1994 ............................ 7
Notes to Combined Financial Statements ............................................................................ 8
Combined Balance Sheets at September 30, 1994 and 1995 (unaudited) ................................................ 20
Combined Statements of Income and Retained Earnings for the Nine Months Ended September 30, 1994
and 1995 (unaudited) ........................................................................................... 21
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1994 and 1995 (unaudited) ............... 22
Notes to Combined Interim Financial Statements (unaudited) ........................................................ 23
b. Pro Forma financial statements
INDEX TO THIOKOL CORPORATION PRO FORMA FINANCIAL STATEMENTS
Pro-Forma Financial Information ................................................................................... 25
Unaudited Pro Forma Balance Sheet - September 30, 1995 ............................................................ 26
Unaudited Pro Forma Statement of Income for the Twelve Months Ended June 30, 1995 ................................. 27
Unaudited Pro Forma Statement of Income for the Three Months Ended September 30,1995 .............................. 28
Explanatory Notes ................................................................................................. 29
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors of
Howmet Corporation and Howmet Cercast Group
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Howmet
Corporation and Howmet Cercast Group (collectively, the "Company") and each of
their consolidated subsidiaries, affiliated by common ownership and management,
at December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 10 to the combined financial statements, the Company
adopted Statement of Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," in 1993.
Price Waterhouse LLP
Stamford, Connecticut
October 27, 1995
<PAGE>
<TABLE>
<CAPTION>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED BALANCE SHEETS
December 31, 1993 and 1994
(Dollars in thousands, except share amounts)
ASSETS
<S> <C> <C>
1993 1994
Current assets: --------- ---------
Cash and cash equivalents.................................................. $ 6,441 $ 4,962
Advances to Howmet's parent (see note 12).................................. 203,657 238,571
Accounts receivable (less allowance of $6,737 in 1993; $6,107 in 1994)..... 145,666 142,481
Inventories (see note 3)................................................... 84,459 71,311
Income taxes receivable.................................................... 1,035 --
Deferred income taxes (see note 8)......................................... 42,116 29,152
-------- ---------
Total current assets.................................................. 483,374 486,477
Property, plant and equipment, net (see note 4)................................. 179,742 190,295
Deferred income taxes (see note 8).............................................. 26,979 28,617
Investments and other assets (see note 5)....................................... 93,135 43,047
-------- ---------
Total Assets.......................................................... $783,230 $748,436
========= ========
LIABILITIES
Current liabilities:
Accounts payable........................................................... $ 53,115 $ 70,850
Notes payable.............................................................. 13,371 21,600
Accrued liabilities........................................................ 125,980 119,725
Dividends payable.......................................................... 7,638 --
Income taxes payable....................................................... 26,057 24,679
Long-term debt due within one year (see note 6)............................ 823 26,541
-------- --------
Total current liabilities............................................. 226,984 263,395
Accumulated postretirement benefit obligation (see note 10)..................... 77,430 79,766
Other liabilities............................................................... 12,888 4,918
Long-term debt (see note 6)..................................................... 43,699 15,522
-------- --------
Total Liabilities..................................................... 361,001 363,601
-------- --------
Commitments and contingencies (see notes 7 and 16)..............................
STOCKHOLDERS' EQUITY
Howmet Corporation common stock, $1 par value; Authorized--1,000 shares issued
and outstanding--10 shares......................................................
-- --
Capital surplus................................................................. 85,610 85,610
Retained earnings............................................................... 340,665 297,914
Cumulative translation adjustment (see note 13)................................. (4,046) 1,311
-------- --------
Total Stockholders' Equity............................................ 422,229 384,835
-------- --------
Total Liabilities and Stockholders' Equity............................ $783,230 $748,436
========= ========
</TABLE>
See accompanying notes to the combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For The Years Ended December 31, 1992, 1993 and 1994
(Dollars in thousands)
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales..................................................................... $920,177 $832,668 $858,251
Operating costs and expenses:
Cost of sales............................................................ 686,994 603,393 646,892
Selling, general and administrative expense.............................. 116,143 104,418 90,894
Depreciation and amortization expense.................................... 30,663 31,004 33,089
Research and development expense......................................... 24,299 23,335 19,169
Restructuring expense (see note 17)...................................... 59,889 -- 2,926
Goodwill writeoff (see note 5)........................................... -- -- 47,400
-------- -------- --------
917,988 762,150 840,370
-------- -------- --------
Earnings from operations...................................................... 2,189 70,518 17,881
Interest income--net (see note 14)............................................ 2,199 488 5,223
Other--net.................................................................... 507 (137) (110)
-------- -------- --------
Income before income taxes.................................................... 4,895 70,869 22,994
Provision for income taxes (see note 8)....................................... 3,324 27,822 45,984
-------- -------- --------
Income (loss) before cumulative effect of change in accounting................ 1,571 43,047 (22,990)
Cumulative effect of change in accounting for postretirement benefit costs (net
of taxes of $31,490 in 1993) (see note 10).............................. -- (49,253) --
-------- -------- --------
Net income (loss)............................................................. 1,571 (6,206) (22,990)
Retained earnings at beginning of year........................................ 377,853 366,037 340,665
Dividends declared on common stock............................................ (13,387) (19,166) (19,761)
-------- -------- --------
Retained earnings at end of year.............................................. $366,037 $340,665 $297,914
========= ========= ========
</TABLE>
See accompanying notes to the combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1992, 1993 and 1994
(Dollars in thousands)
<S> <C> <C> <C>
1992 1993 1994
------ -------- --------
Cash flows from operating activities:
Net income (loss)..................................................... $ 1,571 $ (6,206) $(22,990)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................... 30,663 31,004 33,089
Gain on sale of fixed assets..................................... (34) (228) (2,857)
Equity in (earnings) loss of unconsolidated affiliates........... (207) 672 1,434
Goodwill writeoff................................................ -- -- 47,400
Changes in assets and liabilities:
Decrease (increase) in accounts receivable....................... 37,441 (9,144) 7,847
Decrease in inventory............................................ 34,854 40,453 15,608
(Increase) decrease in deferred taxes............................ (24,247) (27,335) 9,770
Increase in accounts payable..................................... 5,318 6,191 9,992
Increase (decrease) in accrued liabilities and other liabilities. 51,775 62,769 (6,714)
Increase (decrease) in income taxes payable...................... 5,219 4,618 (519)
Decrease in prepaid pension cost................................. 3,470 -- --
Other--net....................................................... (6,995) (7,430) (668)
-------- ------- --------
Net cash provided by operating activities................... 138,828 95,364 91,392
Cash flows from investing activities:
Proceeds from disposal of fixed assets................................ 1,364 1,570 5,027
Payments made for capital expenditures................................ (28,853) (33,086) (37,991)
Increase in advances to Howmet's parent............................... (89,118) (42,993) (34,914)
Payments made for investments and other assets........................ (3,904) (173) (454)
-------- ------- --------
Net cash used in investment activities...................... (120,511) (74,682) (68,332)
Cash flows from financing activities:
Issuance of long-term debt............................................ 337 299 305
Increase in notes payable............................................. 1,256 12,115 8,229
Repayment of long-term debt........................................... (6,138) (20,896) (4,021)
Payment of dividends.................................................. (22,713) (11,528) (28,613)
-------- ------- --------
Net cash used in financing activities....................... (27,258) (20,010) (24,100)
-------- ------- --------
Effect of exchange rate changes on cash.................................... 266 (1,989) (439)
-------- ------- --------
Net decrease in cash........................................ (8,675) (1,317) (1,479)
Cash and cash equivalents at beginning of year............................. 16,433 7,758 6,441
-------- ------- --------
Cash and cash equivalents at end of year................................... $ 7,758 $ 6,441 $ 4,962
========== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year
for:
Income taxes..................................................... $ 22,274 $18,441 $ 34,643
Interest......................................................... $ 6,289 $ 4,073 $ 4,425
</TABLE>
See accompanying notes to the combined financial statements.
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Basis of Presentation
The combined financial statements have been prepared to present the combined
operations of Howmet Corporation and Howmet Cercast Group (collectively, the
"Company"), affiliated entities with common ownership and management as
described below.
Howmet Corporation ("Howmet"), a wholly-owned subsidiary of Pechiney
Corporation ("Holdings"), is a vertically-integrated manufacturer of
investment cast and machined component parts for sale to the gas turbine
engine industry. Holdings is a wholly-owned subsidiary of Pechiney
International S.A. ("Pechiney International"), a French corporation which in
turn is majority owned by Pechiney, a French corporation ("Pechiney").
Howmet Cercast Group ("Cercast") is a group of companies owned by Pechiney
International. Cercast is a manufacturer of advanced aluminum investment
castings for the aerospace and electronic packaging industries.
The Company has significant transactions with Holdings and Pechiney as set
forth herein.
The stockholders' equity of the Company at December 31, 1993 and 1994 is
comprised as follows:
<TABLE>
1993
-----------------------------------
Howmet Cercast Total
---------- ----------- ----------
<S> <C> <C> <C>
Capital........................................... $ 35,570 $ 50,040 $ 85,610
Retained earnings (accumulated deficit) .......... 344,817 (4,152) 340,665
Cumulative translation adjustment ................ (5,364) 1,318 (4,046)
--------- --------- ----------
Stockholders' equity ................... $ 375,023 $ 47,206 $ 422,229
========= ========= =========
</TABLE>
<TABLE>
1994
---------------------------------
Howmet Cercast Total
--------- ---------- ----------
<S> <C> <C> <C>
Capital........................................... $ 35,570 $ 50,040 $ 85,610
Retained earnings (accumulated deficit) .......... 342,263 (44,349) 297,914
Cumulative translation adjustment ................ 323 988 1,311
-------- -------- --------
Stockholders' equity ................... $378,156 $ 6,679 $384,835
======== ======== ========
</TABLE>
2. Summary of Significant Accounting Policies
The combined financial statements include all subsidiary companies and
reflect the Company's equity in entities that are 50% owned. All significant
intercompany accounts and transactions have been eliminated.
The Company recognizes revenue from the sale of its products upon shipment.
Financial instruments which potentially subject the Company to credit risk
consist principally of trade receivables. The Company maintains reserves for
potential credit losses for trade accounts receivable. The Company's accounts
receivable are principally due from companies in the gas turbine engine
industry.
Inventories are stated at cost, which is less than replacement value. The
Company values a substantial portion of its inventories on the last-in,
first-out ("LIFO") method.
Property, plant and equipment is stated at cost. Depreciation is computed
principally on the straight line method over the estimated useful lives of
the respective assets.
Goodwill is the excess of purchase price over tangible and identifiable
intangible fair values and is amortized on a straight line basis over 25-40
years.
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
All assets and liabilities of the Company's subsidiaries outside of the U.S.,
except for Canada, are translated into U.S. dollars at year end exchange
rates. Revenues and expenses are translated into U.S. dollars at average
rates of exchange prevailing during the year. Unrealized currency translation
adjustments are deferred in the combined balance sheet, whereas transaction
gains and losses are recognized currently in the combined statement of
operations and retained earnings. The Canadian operations' functional
currency is the U.S. dollar. Therefore, Canadian monetary assets and
liabilities are translated at year end exchange rates and inventories and
other nonmonetary assets and liabilities are translated at historical rates.
Adjustments resulting from translation of Canadian monetary assets and
liabilities at year end exchange rates are included in the combined statement
of operations.
For purposes of the combined statements of cash flows, the Company considers
all investment instruments with a maturity of three months or less to be cash
equivalents.
3. Inventories
Inventories at December 31 are as follows:
<TABLE>
1993 1994
--------- ---------
<S> <C> <C>
Raw materials and supplies ............... $ 59,736 $ 64,775
Work in progress and finished goods ...... 107,704 93,470
--------- ---------
FIFO inventory ........................... 167,440 158,245
LIFO valuation adjustment ................ (82,981) (86,934)
--------- ---------
$ 84,459 $ 71,311
========= =========
</TABLE>
Inventories of the Company's consolidated subsidiaries include approximately
$21,986 and $22,889 that are valued on average cost methods at December 31,
1993 and 1994, respectively.
During 1993 and 1994, inventory was reduced which resulted in liquidation of
LIFO inventory carried at lower costs prevailing in prior years as compared
with costs of current purchases, the effect of which decreased cost of sales
by approximately $13,181, $9,314 and $8,986 in 1992, 1993 and 1994,
respectively, and increased net income by approximately $8,699 in 1992,
$6,054 in 1993 and $5,481 in 1994.
4. Property, Plant and Equipment
Property, plant and equipment at December 31 includes:
<TABLE>
1993 1994
--------- ---------
<S> <C> <C>
Land ........................ $ 6,411 $ 6,456
Buildings ................... 88,749 91,874
Machinery and equipment ..... 351,968 383,104
--------- ---------
447,128 481,434
Less accumulated depreciation (267,386) (291,139)
--------- ---------
$ 179,742 $ 190,295
========= =========
</TABLE>
5. Investments and Other Assets
"Investments and Other Assets" is primarily comprised of goodwill, investment
in long-term contract and other noncurrent assets.
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Goodwill balances at December 31 are as follows:
<TABLE>
1993 1994
-------- --------
<S> <C> <C>
Goodwill .................................................................. $ 83,088 $ 35,688
Less accumulated amortization ............................................. (11,116) (13,183)
-------- --------
$ 71,972 $ 22,505
======== ========
</TABLE>
As a result of the acquisition of Cercast in 1989, goodwill of approximately
$67,000 was recorded. Annual amortization expense related to the goodwill was
$1,673 in 1992, 1993 and 1994, respectively. Subsequent to the acquisition,
the market for Cercast's products has fallen short of management's
expectations. In 1994, the recoverability of the investment in Cercast was
reassessed and, as a result of this analysis, Cercast recorded a writedown of
$42,400 to the goodwill balance. The analysis used to determine the writedown
was based on management's best estimate of expected future cash flows of
Cercast which were discounted at a rate of 12%.
During 1994, Howmet reassessed the recoverability of the goodwill arising
from the acquisition of Tempcraft, its wholly-owned subsidiary engaged in the
tooling business. As a result of this analysis, goodwill of $5,000 was
written off. Howmet's analysis was based on its best estimate of the expected
future cash flows of Tempcraft, discounted at a rate of 12%.
The Company has a long-term contract to produce specified engine parts for
one of its major customers. Under the contract, the Company initially incurs
the costs of manufacturing such parts and recovers its costs proportionately
to the number of engines shipped by the customer. Shipment is expected to
begin subsequent to certification of the engine, which had not occurred as of
December 31, 1994. The Company's investment in this program at December 31,
1993 and 1994, excluding interest cost, was approximately $16,700.
6. Long-term Debt
Long-term debt at December 31 is as follows:
<TABLE>
<S> <C> <C>
1993 1994
Revolving bank lines of credit payable in 1995 and 1996 at ------- -------
variable rates based on LIBOR + 3/16% to 3/8% ............. $25,500 $22,500
Revolving bank line of credit denominated in French Francs,
payable in 1995 at variable rates based on LIBOR + 3/16% to
3/8% ...................................................... 9,668 10,662
Industrial Revenue Bond due 1995 at a rate of 8.0% ........... 5,000 5,000
Bank loans denominated in French Francs, due in varying annual
amounts from 1995 to 2004 at rates ranging from 5.0% to
13.5% ..................................................... 3,426 2,928
Mortgage notes payable monthly to November 1998 at a rate of
6.0% ...................................................... 706 579
Government loan due in 1997 at 7.5% .......................... 222 394
------- -------
44,522 42,063
Less amount due within one year .............................. 823 26,541
------- -------
$43,699 $15,522
======= =======
</TABLE>
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Principal maturities for the succeeding five years ending December 31 and
thereafter are as follows:
1995......................................... $26,541
1996......................................... 13,220
1997......................................... 1,092
1998......................................... 390
1999......................................... 256
Thereafter................................... 564
-------
$42,063
=======
Certain obligations of the Company, primarily the revolving bank lines of
credit and the Industrial Revenue Bond, are guaranteed by Holdings.
Unused lines of credit at December 31, 1993 and 1994 totaled $62,197 and
$50,832, respectively, and have a carrying charge of 1/8 of 1%. Holdings has
access to the unused lines of credit and incurs the carrying charge. As the
majority of long-term debt is comprised of revolving bank lines with various
interest rates, the carrying value approximates fair value.
7. Commitments
The Company and its subsidiaries have noncancellable leases relating
principally to manufacturing and office facilities and certain equipment.
Future minimum rental payments under noncancellable leases as of December 31,
1994 are as follows:
1995...................................... $ 5,114
1996...................................... 3,866
1997...................................... 2,783
1998...................................... 1,765
1999...................................... 1,430
Thereafter................................. 4,881
-------
$19,839
=======
Total rental expense for all operating leases was $6,271, $5,797 and $6,110
for 1992, 1993 and 1994, respectively.
8. Income Taxes
Holdings and Howmet are parties to a tax-sharing agreement requiring Howmet
to pay to Holdings an amount equal to U.S. income taxes that would be payable
if Howmet was a stand alone taxpayer. Howmet is actually included in a U.S.
consolidated tax return with Holdings and other related entities.
Accordingly, the tax strategies reflected in Holdings' U.S. consolidated tax
return are not necessarily consistent with the basis of preparation for
Howmet's tax provision in these combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Income taxes were provided in the following amounts for the years ended
December 31:
<S> <C> <C> <C>
1992 1993 1994
-------- -------- --------
Current income taxes:
U.S. Federal ........ $ 20,192 $ 18,010 $ 24,352
State ............... 2,112 5,053 3,474
Foreign ............. 3,090 4,220 4,039
-------- -------- --------
25,394 27,283 31,865
Deferred income taxes (22,070) 539 14,119
-------- -------- --------
$ 3,324 $ 27,822 $ 45,984
========= ========= ========
</TABLE>
The provision for income taxes differs from the amount of income taxes
determined by applying the U.S. statutory federal tax rate to pretax income
for the years ended December 31 as follows:
<TABLE>
<S> <C> <C> <C>
1992 1993 1994
U.S. Federal income tax at statutory rate (34% in 1992; -------- -------- --------
35% in 1993 and 1994) .................................... $ 1,665 $ 24,804 $ 8,048
State income taxes, net of federal benefit .................... 1,377 3,281 3,001
Net foreign taxes in excess of statutory rate ................. 141 2,202 16,166
Goodwill ...................................................... 637 259 4,669
Additional tax reserves ....................................... -- -- 6,092
Deferred tax adjustment ....................................... -- -- 6,712
Other ......................................................... (496) (2,724) 1,296
-------- -------- --------
$ 3,324 $ 27,822 $ 45,984
======== ======== ========
</TABLE>
Domestic and foreign components of pre-tax income for the years ended
December 31 are as follows:
<TABLE>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
United States ........................................... $ 11,967 $ 70,578 $ 57,629
Foreign ................................................. (7,072) 291 (34,635)
-------- -------- --------
$ 4,895 $ 70,869 $ 22,994
======== ======== ========
</TABLE>
The components of the deferred income tax asset (liability) at December 31 are
as follows:
<TABLE>
1993 1994
-------- --------
<S> <C> <C>
OPEB reserve .................. $ 32,616 $ 33,643
Restructuring accrual ......... 10,295 6,769
Other liability reserves ...... 6,363 4,479
Loss carryforward ............. 8,228 10,090
State taxes ................... 2,788 1,107
Inventory ..................... 1,799 1,164
Other assets .................. 16,763 10,906
-------- --------
Gross deferred tax asset ... 78,852 68,158
Valuation allowance ........... (1,415) (2,957)
-------- --------
Total deferred tax asset ... 77,437 65,201
-------- --------
Property, plant and equipment . (5,416) (7,039)
Other liabilities ............. (2,926) (393)
-------- --------
Total deferred tax liability (8,342) (7,432)
-------- --------
Net deferred tax asset ..... $ 69,095 $ 57,769
======== ========
</TABLE>
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
During 1993 and 1994, the Company's deferred tax valuation allowance
increased by $1,415 and $1,542, respectively. The Company has available
approximately $25,000 and $30,000 of foreign net operating loss carryforwards
at December 31, 1993 and 1994, respectively. The carryforwards expire over
the next five years.
Provision has not been made for additional federal or foreign taxes on
undistributed earnings of foreign subsidiaries as these earnings are expected
to be indefinitely reinvested. It is not practicable to estimate the amount
of additional tax that might be due if the foreign earnings were distributed
to the U.S.
The Company adopted Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes" as of January 1, 1993. The benefit of adoption
was not material.
9. Pensions
The Company has trusteed noncontributory defined benefit retirement plans
covering substantially all of its employees in the U.S. and Canada. The
Company makes annual contributions to the retirement plans in amounts up to
the maximum allowable for tax deduction purposes.
The following items are the components of the net pension cost for the U.S.
and Canadian plans for the years ended December 31:
<TABLE>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the year ....... $ 9,469 $ 8,820 $ 7,889
Interest cost on the projected benefit obligation ... 13,710 13,772 13,786
Actual return on plan assets ........................ (9,000) (25,296) 548
Net amortization of unrecognized net assets and prior
service cost ..................................... 991 887 177
Deferral of actual vs. expected return on plan assets (7,672) 8,348 (18,091)
-------- -------- --------
Net pension expense ................................. $ 7,498 $ 6,531 $ 4,309
======== ======== ========
</TABLE>
The following table sets forth the U.S. and Canadian plans' funded status and
amounts recognized in the combined balance sheets at December 31:
Actuarial present value of benefit obligations:
<TABLE>
1993 1994
--------- ---------
<S> <C> <C>
Vested benefit obligation ............................ $(138,637) $(141,765)
Nonvested benefit obligation ......................... (6,741) (6,871)
--------- ---------
Accumulated benefit obligation ....................... (145,378) (148,636)
Additional benefits based on estimated future salaries (39,393) (36,689)
--------- ---------
Projected benefit obligation ......................... (184,771) (185,325)
Fair value of plan assets ............................ 193,742 181,546
--------- ---------
Projected benefit obligation in excess of plan assets 8,971 (3,779)
Unrecognized net asset ............................... (30,057) (22,608)
Unrecognized prior service cost ...................... 31,080 32,114
Unrecognized net asset from adoption of FASB Statement
No. 87 ............................................ (21,444) (20,167)
--------- ---------
Accrued pension cost ................................. $ (11,450) $ (14,440)
========= =========
</TABLE>
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The discount rate used to determine the actuarial present value of the
projected benefit obligation was 8.0% at December 31, 1993 and 1994. The
interest cost on the projected benefit obligation was calculated using a rate
of 8.0% in 1993 and 1994. The expected rate of return was 9.5% for U.S. plan
assets and 8% for Canadian plan assets at December 31, 1993 and 1994. The
expected increase in future salaries for those plans using future
compensation assumptions was 5.5% for the U.S. plans and 6% for the Canadian
plans in 1993 and 1994. The unrecognized net asset and the unrecognized prior
service cost are being amortized based on the projected future service lives
of employees which range from 15-25 years. Plan assets are primarily invested
in equity securities, debt securities, guaranteed insurance contracts, real
estate and temporary cash investment. Accrued pension cost is included within
"Accrued Liabilities."
The Company has unfunded supplemental retirement plans for certain employees
whose benefits under the principal salaried retirement plans are reduced
because of compensation deferral elections or limitations under federal tax
laws. Pension expense for these plans was $414, $105 and $268 for the years
ended December 31, 1992, 1993 and 1994, respectively. The projected benefit
obligation for these plans was $415 and $339 at December 31, 1993 and 1994,
respectively. The corresponding accumulated benefit obligation of $193 and
$297 at December 31, 1993 and 1994, respectively, has been recognized as a
liability in the combined balance sheets and is equal to the amount of vested
benefits.
The net pension expense for the Company's United Kingdom operations was $489,
$447 and $700 for the years ended December 31, 1992, 1993 and 1994,
respectively.
10. Postretirement Benefits
The Company provides postretirement health care and life insurance benefits
to its eligible active and retired employees, including certain union,
non-union and salaried employees. Effective January 1, 1993, the Company
adopted Statement of Financial Accounting Standard No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and began
recording its obligation for its unfunded postretirement health care and life
insurance programs, which effectively records the cost of postretirement
benefits over the service lives of employees. Previously, the Company's
practice was to record such amounts on a pay-as-you-go basis. The cumulative
effect of recording the postretirement benefit obligation as of January 1,
1993 was $80,743 (less tax benefit of $31,490), and was recorded as a direct
charge to earnings. In addition, the impact of this change on earnings for
the years ended December 31, 1993 and 1994 was a charge of $2,887 (less tax
benefit of $1,126) and $2,636 (less tax benefit of $1,028), respectively.
Components of the net periodic postretirement benefit cost were as follows
for the years ended December 31, 1993 and 1994:
<TABLE>
1993 1994
------ ------
<S> <C> <C>
Service cost--benefits attributable to service during the period .... $2,219 $2,397
Interest cost on accumulated postretirement benefit obligation ...... 6,237 6,442
------ ------
Net periodic postretirement benefit cost .................. $8,456 $8,839
====== ======
</TABLE>
The amounts recognized in the Company's combined balance sheets at December
31 were as follows:
<TABLE>
1993 1994
------- -------
<S> <C> <C>
Retirees ............................................................ $56,088 $54,124
Fully eligible active plan participants ............................. 10,010 10,810
Other active plan participants ...................................... 17,532 21,332
------- -------
Total ....................................................... 83,630 86,266
Less current portion ................................................ 6,200 6,500
------- -------
$77,430 $79,766
======= =======
</TABLE>
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The accumulated postretirement benefit obligation was determined using an 8%
weighted average discount rate for 1993 and 1994. The health care cost trend
rate assumption for pre-age 65 benefits was 14% and 13% for 1993 and 1994,
respectively, and was assumed to decline 1% annually to 6% in the year 2001
and remain constant thereafter. The health care cost trend rate for post-age
65 benefits was 11.4% and 10.6% for 1993 and 1994, respectively, and was
assumed to decline gradually to 5% in the year 2001 and remain constant
thereafter. A 1% increase in the health care cost trend rate would have
increased the accumulated postretirement benefit obligation by $4,387 and
$5,008 at December 31, 1993 and 1994, respectively, and the net periodic cost
by $601 and $621 for the years ended December 31, 1993 and 1994,
respectively.
11. Major Customers
The Company's sales to its two largest customers were $233,881 and $217,052
for the year ended December 31, 1992, $206,533 and $136,441 for the year
ended December 31, 1993 and $229,175 and $123,671 for the year ended December
31, 1994. Receivables from these customers were $17,957 and $13,994 at
December 31, 1993 and $20,128 and $10,084 at December 31, 1994.
Net sales include export sales to unaffiliated customers of $146,766,
$180,449 and $176,859 for the years ended December 31, 1992, 1993 and 1994,
respectively.
12. Transactions With Affiliates
The Company has financing and other transactions with Holdings. Interest
income earned from advances to Holdings amounted to $4,197, $5,298 and $9,462
for the years ended December 31, 1992, 1993 and 1994, respectively, and is
based on the weighted average rate of return obtained by Holdings on its
short-term investments. The average advance balance was $173,742 and $217,919
for the years ended December 31, 1993 and 1994, respectively. The carrying
amount at December 31, 1993 and 1994 approximates fair value as the interest
rate is determined by Holdings' rate of return on its short-term investments.
The Company also has financing and other transactions with Pechiney and its
affiliates. Amounts payable to Pechiney and its affiliates at December 31,
1993 and 1994, respectively, were $12,902 and $20,007.
13. Foreign Operations
The combined financial statements of the Company include the accounts of
wholly-owned subsidiaries operating in the United Kingdom, Canada and France.
Combined financial information included in the combined financial statements
relating to these foreign operations was as follows:
<TABLE>
For the year ended December 31,
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales ...................................................................... $ 202,283 $ 196,535 $ 200,842
Net (loss) ..................................................................... (4,903) (1,552) (38,662)
December 31,
1993 1994
-------- ---------
Total assets ................................................................... $183,188 $ 157,830
Stockholders' equity ........................................................... 90,946 60,056
</TABLE>
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
An analysis of the changes in the cumulative translation adjustment account
is as follows:
<TABLE>
1993 1994
------- -------
<S> <C> <C> <C>
Balance at January 1 ....................................... $ 799 $(4,046)
Sale of foreign operating facility ......................... 349 --
Aggregating translation adjustments net of income taxes .... (5,194) 5,357
------- -------
Balance at December 31 ..................................... $(4,046) $ 1,311
======= =======
</TABLE>
In 1993, the Company sold its 51% interest in an operating facility in Spain and
recorded a $945 loss.
14. Interest Income--Net
Interest income (expense) for the years ended December 31 is as follows:
<TABLE>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Interest income--affiliates ............................................... $ 4,358 $ 5,298 $ 9,462
Interest income--third parties ............................................ 2,690 776 552
Interest expense--affiliates .............................................. -- (927) (843)
Interest expense--third parties ........................................... (4,849) (4,659) (3,948)
------- ------- -------
$ 2,199 $ 488 $ 5,223
======= ======= =======
</TABLE>
15. Financial Instruments
The Company has entered into forward exchange contracts as a hedge against
currency fluctuations of certain foreign currency transactions. At December
31, 1993, the Company had contracts with maturity dates from January 1994
through July 1994 to purchase 2,663 Canadian dollars for $2,009 and also had
a contract with a maturity date of March 15, 1994 to purchase 330 pounds
sterling for $531. The fair value of foreign currency contracts at December
31, 1993 was approximately $2,491. At December 31, 1994, the Company had
contracts with maturity dates from January 1995 through August 1995 to
purchase 5,018 Canadian dollars for $3,605. The fair value of these foreign
currency contracts at December 31, 1994 is approximately $3,576. The fair
value of foreign currency contracts was estimated by obtaining quotes from
brokers. The market value gains or losses arising from foreign exchange
contracts offset foreign exchange gains or losses on the underlying hedged
assets. The Company's exposure to currency risk is limited to currency rate
movement and is considered to be negligible.
During 1994, the Company also entered into option contracts to purchase up to
$1,300 of Canadian dollars as a hedge against currency fluctuations of
certain foreign currency transactions. These options are exercisable from
June 1995 through December 1996. The fair value of these foreign currency
option contracts at December 31, 1994 is not significantly different as
compared to the original contract value. The fair value was estimated by
obtaining quotes from brokers. At December 31, 1993 there were no foreign
currency option contracts outstanding. The market value gains or losses
arising from currency exchange options offset foreign exchange gains or
losses on the underlying hedged assets. The Company's exposure to currency
risk in these options is limited to currency rate movements and is considered
to be negligible.
The counterparties to these transactions are major financial institutions.
The Company does not anticipate nonperformance by the counterparties.
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
16. Contingencies
The Company and its subsidiaries are involved in litigation, administrative
proceedings and investigations of various types in several jurisdictions.
Additionally, liabilities arising from cleanup costs associated with
hazardous waste disposal sites exist. While the Company's ultimate liability
with respect to all such matters cannot be determined at this time, it is the
opinion of management that the outcome of any such matters, and all of them
combined, will not have a material adverse effect on the Company's combined
financial position. Additionally, the Company has guaranteed certain
obligations of its equity investees.
17. Restructuring
The following is a summary of the Company's restructuring activities in 1992,
1993 and 1994:
In late 1992, the Company recorded a restructuring charge of $59,889 related
to certain programs at Howmet and Cercast as outlined below.
1992 Howmet Restructuring Plan
During 1992, Howmet recorded a $54,000 restructuring charge. The goal of the
restructuring was to reduce costs and improve operating efficiencies.
Specific restructuring programs established included capacity
rationalizations, scrap and productivity improvement and various corporate
office programs designed to benefit the entire Howmet operation. The
following is an analysis of the 1992, 1993 and 1994 activity related to this
restructuring plan:
<TABLE>
Scrap and
Capacity Productivity Corporate
Rationalization Improvement Office Total
-------------- --------- -------- --------
<C> <C> <C> <C> <C>
1992 restructuring charge ................................................... $ 16,320 $ 33,650 $ 4,030 $ 54,000
Payments made ............................................................... (957) (370) (490) (1,817)
-------- -------- -------- --------
Balance at December 31, 1992 ................................................ $ 15,363 $ 33,280 $ 3,540 $ 52,183
Payments made ............................................................... (7,920) (16,549) (2,001) (26,470)
-------- -------- -------- --------
Balance at December 31, 1993 ................................................ $ 7,443 $ 16,731 $ 1,539 $ 25,713
Additions (reductions) ...................................................... (90) (565) 655 --
Payments made ............................................................... (3,477) (9,547) (1,919) (14,943)
-------- -------- -------- --------
Balance at December 31, 1994 ................................................ $ 3,876 $ 6,619 $ 275 $ 10,770
======== ======== ======== ========
</TABLE>
1992 Cercast Restructuring Plan
In 1992, Cercast recorded a restructuring charge of $5,889 related to a
restructuring program designed to reduce costs and improve operating
efficiencies at its North American and European facilities. The program
included the shutdown of a U.S. plant, the implementation of a social plan in
connection with layoffs in France, plantwide reengineering and a reserve for
environmental lawsuits.
During 1994, Cercast reversed its restructuring plans related to the U.S.
plant shutdown and the French social plan due to improved business
conditions. Certain of these restructuring reserves were reallocated to
increase the existing reserves for the plantwide reengineering and the
environmental liability, as necessary.
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Outlined in the table below are the specific programs covered by the Cercast
restructuring reserve and the related activity during 1992, 1993 and 1994:
<TABLE>
French
Social U.S. Plant Environmental Plantwide
Plan Shutdown Lawsuits Reengineering Total
_______ _______ ________ __________ ________
<C> <C> <C> <C> <C> <C>
1992 restructuring charge ........................ $ 865 $ 2,400 $ 1,000 $ 1,624 $ 5,889
Payments made .................................... -- -- -- (794) (794)
------- ------- ------- ------- -------
Balance at December 31, 1992 ..................... $ 865 $ 2,400 $ 1,000 $ 830 $ 5,095
Additions (reductions) ........................... 565 (600) -- -- (35)
Payments made .................................... -- -- (50) (330) (380)
------- ------- ------- ------- -------
Balance at December 31, 1993 .................... $ 1,430 $ 1,800 $ 950 $ 500 $ 4,680
Additions (reductions) .......................... (1,430) (1,800) 380 1,344 (1,506)
Payments made ................................... -- -- (33) (191) (224)
------- ------- ------- ------- -------
Balance at December 31, 1994 .................... $ 0 $ 0 $ 1,297 $ 1,653 $ 2,950
======= ======= ======= ======= =======
</TABLE>
1994 Howmet Restructuring Plans
During 1994 Howmet implemented the following restructuring programs:
Morristown Wax Closure
Howmet recorded a $1,450 restructuring charge in connection with its plan to
close its Morristown, Tennessee wax facility. The closure is to be effected
in order to reduce excess capacity and enhance coordination and lead time at
Howmet's casting plants. The restructuring charge is primarily comprised of
exit costs, termination benefits and other items.
Dover Airmelt Closure
Howmet recorded a $1,000 restructuring charge in connection with its plan to
exit its airmelt business at its Dover Alloy plant in New Jersey. The exit
from the airmelt business is primarily due to the unprofitability of the
airmelt product line which is not considered an essential part of Howmet's
alloy operations. The restructuring charge is entirely comprised of exit
costs.
Howmet S.A. Administrative Office Closure
Howmet recorded a $1,982 restructuring charge related to the closure of its
administrative office in Asnieres, France and the opening of an
administrative office in Dives, France. The restructuring charge is comprised
of termination benefits, exit costs and other items.
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Concluded)
(Dollars in thousands)
Included in the table below is an analysis of the components of the
restructuring programs established by Howmet in 1994:
<TABLE>
Exit Termination
Costs Benefits Other Total
------ -------- ------ ------
<S> <C> <C> <C> <C>
Morristown ......................................................... $ 945 $ 180 $ 325 $1,450
Dover Airmelt ...................................................... 1,000 -- -- 1,000
Howmet S.A ......................................................... 1,182 595 205 1,982
------ ------ ------ ------
Total 1994 Restructuring Charges ......................... $3,127 $ 775 $ 530 $4,432
====== ====== ====== ======
</TABLE>
The following is an analysis related to the restructuring reserve activities
for the 1994 Howmet restructuring programs:
<TABLE>
Dover Howmet
Morristown Airmelt S.A. Total
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Additions ............................................................ $ 1,450 $ 1,000 $ 1,982 $ 4,432
Payments made ........................................................ (415) -- -- (415)
-------- ------- ------- -------
Balance at December 31, 1994 ......................................... $ 1,035 $ 1,000 $ 1,982 $ 4,017
======== ======= ======= =======
</TABLE>
At December 31, 1993 and 1994, $3,728 and $570, respectively, of the
Company's restructuring reserves were considered long-term and included in
"Other Liabilities" while the remaining amounts were considered short-term
and included in "Accrued Liabilities".
18. Subsequent Events (Unaudited)
Effective April 30, 1995, the Company acquired Turbine Components
Corporation, a refurbishment operation, in exchange for approximately $9,000
and the assumption of certain liabilities. The acquisition was not
significant to the Company's operations.
In August 1995, in connection with the planned sale of the Company, Howmet
declared and paid a dividend of $200,000 to Holdings.
On October 12, 1995, Pechiney, Pechiney International, Howmet Cercast S.A.
and Blade Acquisition Corp. ("Blade") executed a Stock Purchase Agreement
("SPA") whereby Blade would acquire the outstanding common stock of Holdings
(including Howmet and certain affiliates) and Cercast in exchange for
approximately $750,000. The acquisition is subject to various terms and
conditions outlined in the SPA, including purchase price adjustments and
financing arrangements.
<PAGE>
<TABLE>
<CAPTION>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED BALANCE SHEETS
September 30, 1994 and 1995
(Dollars in thousands except share data)
(Unaudited)
<S> <C> <C>
ASSETS 1994 1995
Current assets: -------- --------
Cash and cash equivalents ................................................... $ 2,529 $ 6,227
Advances to Howmet's parent ................................................. 230,827 17,245
Accounts receivable (less allowance of $6,235 in 1994; $7,199 in 1995) ...... 147,380 175,802
Inventories ................................................................. 78,291 79,630
Deferred income taxes ....................................................... 44,148 25,088
-------- --------
Total current assets ................................................... 503,175 303,992
Property, plant and equipment, net ............................................... 185,665 199,542
Deferred income taxes ............................................................ 27,627 29,200
Investments and other assets ..................................................... 91,526 54,486
-------- --------
Total Assets ........................................................... $807,993 $587,220
======== ========
LIABILITIES
Current liabilities:
Accounts payable ............................................................ $ 57,047 $ 50,421
Notes payable ............................................................... 14,852 27,786
Accrued liabilities ......................................................... 122,232 129,353
Dividends payable ........................................................... 5,832 5,462
Income taxes payable ........................................................ 34,388 17,155
Long-term debt due within one year .......................................... 28,029 34,878
-------- --------
Total current liabilities .............................................. 262,380 265,055
Accumulated postretirement benefit obligation .................................... 79,407 81,745
Other liabilities ................................................................ 6,930 8,881
Long-term debt ................................................................... 18,270 14,342
-------- --------
Total Liabilities ...................................................... 366,987 370,023
-------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Howmet Corporation common stock, $1 par value; Authorized--1,000 shares issued
and outstanding--10 shares ...................................................... -- --
Capital surplus .................................................................. 85,610 85,610
Retained earnings ................................................................ 354,866 121,536
Cumulative translation adjustment ................................................ 530 10,051
-------- --------
Total Stockholders' Equity ............................................. 441,006 217,197
-------- --------
Total Liabilities and Stockholders' Equity ............................. $807,993 $587,220
======== ========
</TABLE>
See accompanying notes to the combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
For The Nine Months Ended September 30, 1994 and 1995
(Dollars in thousands)
(Unaudited)
1994 1995
--------- ---------
<S> <C> <C>
Net sales ...................................... $ 639,792 $ 706,887
Operating costs and expenses:
Cost of sales ............................. 476,974 531,347
Selling, general and administrative expense 70,767 80,375
Depreciation and amortization expense ..... 24,153 25,013
Research and development expense .......... 14,999 19,082
Restructuring expense ..................... -- (1,000)
--------- --------
586,893 654,817
--------- --------
Earnings from operations ....................... 52,899 52,070
Interest income--net ........................... 3,482 4,380
Other--net ..................................... 1,394 (2,118)
--------- --------
Income before income taxes ..................... 57,775 54,332
Provision for income taxes ..................... 23,325 25,176
--------- --------
Net income ..................................... 34,450 29,156
Retained earnings at beginning of period ....... 340,665 297,914
Dividends declared on common stock ............. (20,249) (205,534)
--------- --------
Retained earnings at end of period ............. $ 354,866 $ 121,536
========= =========
</TABLE>
See accompanying notes to the combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED STATEMENTS OF CASH FLOWS
For The Nine Months Ended September 30, 1994 and 1995
(Dollars in thousands)
(Unaudited)
1994 1995
Cash flows from operating activities: --------- ---------
<S> <C> <C>
Net income ...................................................................... $ 34,450 $ 29,156
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .............................................. 24,153 25,013
Gain on sale of fixed assets ............................................... (2,617) (73)
Equity in loss of unconsolidated affiliates ................................ 337 3,075
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ................................. 5,906 (29,335)
Decrease (increase) in inventory ........................................... 8,565 (6,653)
(Increase) decrease in deferred taxes ...................................... (2,003) 4,221
Increase (decrease) in accounts payable .................................... 5,084 (14,366)
(Decrease) increase in accrued liabilities and other liabilities ........... (7,813) 9,331
Increase (decrease) in income taxes payable ................................ 9,018 (8,370)
Other--net ................................................................. 125 2,862
--------- ---------
Net cash provided by operating activities ............................. 75,205 14,861
Cash flows from investing activities:
Proceeds from disposal of fixed assets .......................................... 4,305 3,119
Payments made for capital expenditures .......................................... (27,680) (21,809)
Acquisition of Turbine Components Corporation ................................... -- (9,050)
(Increase) decrease in advances to Howmet's parent .............................. (27,170) 221,326
Payments made for investments and other assets .................................. (283) (2,355)
---------- ---------
Net cash (used in) provided by investment activities .................. (50,828) 191,231
Cash flows from financing activities:
Issuance of long-term debt ...................................................... 4,089 106
(Decrease) increase in notes payable ............................................ (5,363) 4,658
Repayment of long-term debt ..................................................... (4,931) (9,585)
Payment of dividends ............................................................ (22,057) (200,000)
--------- ---------
Net cash used in financing activities ................................. (28,262) (204,821)
--------- ---------
Effect of exchange rate changes on cash .............................................. (27) (6)
--------- ---------
Net (decrease) increase in cash ....................................... (3,912) 1,265
Cash and cash equivalents at beginning of period ..................................... 6,441 4,962
--------- ---------
Cash and cash equivalents at end of period ........................................... $ 2,529 $ 6,227
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes.................................................................. $ 14,075 $ 25,670
Interest ..................................................................... $ 3,128 $ 4,338
</TABLE>
See accompanying notes to the combined financial statements.
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
1. Basis of Presentation
The unaudited combined interim financial statements presented herein have
been prepared to reflect the combined operations of Howmet Corporation
("Howmet") and Howmet Cercast Group ("Cercast") (collectively, the
"Company"), affiliated entities with common ownership and management. The
combined interim financial statements have been prepared in conformity with
the standards of accounting measurement set forth in Accounting Principles
Board Opinion No. 28 and any amendments thereto adopted by the Financial
Accounting Standards Board. Also, the combined interim financial statements
have been prepared in accordance with the accounting policies stated in the
Company's published combined financial statements for the years ended
December 31, 1992, 1993 and 1994 and should be read in conjunction with the
notes to the combined financial statements appearing in such financial
statements.
In the opinion of management, the unaudited combined interim financial
statements reflect all material adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
unaudited interim periods.
2. Subsequent Event
On October 12, 1995, Pechiney, Pechiney International S.A., Howmet Cercast
S.A. and Blade Acquisition Corp. ("Blade") executed a Stock Purchase
Agreement ("SPA") whereby Blade would acquire the outstanding common stock of
Pechiney Corporation ("Holdings") (including Howmet and certain affiliates)
and Cercast in exchange for approximately $750,000. The acquisition is
subject to various terms and conditions outlined in the SPA, including
purchase price adjustments and financing arrangements. In August 1995, in
connection with the aforementioned acquisition, Howmet declared and paid a
dividend of $200,000 to its parent Holdings. The dividend was reflected as a
reduction in the "Advances to Howmet's Parent" account.
3. Acquisition
Effective April 30, 1995, the Company acquired Turbine Components
Corporation, a refurbishment operation, in exchange for approximately $9,000
and the assumption of certain liabilities. The acquisition was not
significant to the Company's operations.
4. Supplemental Financial Information
Restructuring
During the nine month period ended September 30, 1995, the Company cancelled
its plan for the closure of the Howmet Dover Alloy Airmelt operation and,
accordingly, reversed the related restructuring reserve of $1,000 which had
been established as of December 31, 1994.
<PAGE>
<TABLE>
<CAPTION>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Inventories
Inventories at September 30 are as follows:
1994 1995
--------- ---------
<S> <C> <C>
Raw materials and supplies .......................... $ 58,926 $ 69,376
Work in process and finished goods .................. 102,346 103,585
--------- ---------
FIFO inventory ...................................... 161,272 172,961
LIFO valuation adjustment ........................... (82,981) (93,331)
--------- ---------
$ 78,291 $ 79,630
========= =========
</TABLE>
During the nine months ended September 30, 1995, the Company recorded a LIFO
adjustment of approximately $6,400 based on its estimation of year end LIFO
inventories. In the nine months ended September 30, 1994, a LIFO adjustment
was not effected as historically the Company only recorded such adjustments
at year end. The LIFO adjustment for 1994 approximated $3,953 and was
recorded at December 31, 1994.
<PAGE>
THIOKOL CORPORATION
PRO FORMA FINANCIAL INFORMATION
In October 1995, Thiokol and The Carlyle Group (Carlyle) formed a jointly owned
company, Blade Acquisition Corp. (Blade), in which Carlyle controls 51 percent
and Thiokol has a 49 percent minority interest. Thiokol invested $98 million for
49 percent of the voting common stock and $50 million for 100 percent of the 9%
paid-in-kind non-voting preferred stock. Thiokol financed its $148 million
investment in Blade through $96 million of cash on hand and borrowings of $52
million under existing credit facilities.
Thiokol accounts for its minority interest in Blade using the equity method.
As previously described, on December 13, 1995, Blade completed the acquisition
of Howmet Corporation and the Howmet Cercast Group for $750 million plus an
additional $27.1 million of related fees and expenses. The acquisition was
financed by Howmet and included $475.7 million of debt borrowings, a $250
million equity investment from Blade, and a $51.4 million receivable facility.
The debt is non-recourse to Blade and its shareholders Thiokol and Carlyle.
This section contains the unaudited pro forma balance sheet as of September 30,
1995, reflecting Thiokol's investment in Blade and Blade's acquisition of Howmet
on that date. The operations of Blade and Howmet Corporation and the Howmet
Cercast Group are collectively referred to in the financial statements as
Howmet. Also presented are unaudited pro forma statements of income for the
three months ended September 30, 1995, and for the year ended June 30, 1995,
giving effect to the formation of Blade and its acquisition of Howmet as if they
had occurred at the beginning of each period.
The pro forma statements have been prepared based upon historical unaudited
financial statements of Howmet for the periods indicated included elsewhere
herein and updated to coincide with Thiokol's fiscal year end and quarter end.
The Howmet financial statements were updated by combining results for the six
months ended December 31, 1994, and for the six months ended June 30, 1995, to
yield results for the year ended June 30, 1995. Howmet results for the three
months ended September 30, 1995, were derived from its results for the nine
months ended September 30, 1995. The Thiokol historical statement of income for
the year ended June 30, 1995, was audited and was the statement used for the
Thiokol Corporation 1995 Annual Report to Shareholders. The Thiokol historical
statement of income for the three months ended September 30, 1995, is unaudited
and is the statement used for the Thiokol Corporation Form 10-Q report for its
first quarter ending September 30, 1995.
The pro forma results in the statements referred to above are not necessarily
indicative of the actual operating results that would have occurred had the
formation of Blade and the purchase of Howmet been consummated on July 1, 1994,
or of future operating results. The pro forma financial statements should be
read in conjunction with the consolidated financial statements contained in
Thiokol's 1995 Annual Report to Shareholders, Thiokol's Report on Form 10-Q for
the quarter ended September 30, 1995, and Howmet's audited financial statements
included elsewhere herein. A copy of Thiokol's 1995 Annual Report to
Shareholders and its Form 10-Q report for the quarter ended September 30, 1995,
may be obtained, upon request, from the Company.
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1995
(In thousands except per share data)
Thiokol Pro Forma
Corporation Pro Forma Balance
Historical Adjustments Sheet
---------- ----------- -------
ASSETS
Current Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents .................. $ 74,082 $ (74,082) (1) $2,000
2,000 (2)
Receivables ................................ 180,865 180,865
Inventories ................................ 134,597 134,597
Prepaid expenses ........................... 10,043 10,043
--------- --------- -------
Total Current Assets .................... 399,587 (72,082) 327,505
Property, Plant and Equipment................. 291,471 291,471
Equity investment in Howmet .................. 148,000 (1) 146,000
(2,000) (2)
Costs in excess of net assets of
businesses acquired, less
amortization ............................... 28,487 28,487
Patents and other intangible assets .......... 18,346 18,346
Other noncurrent assets ...................... 41,761 41,761
--------- ---------- ---------
$ 779,652 $ 73,918 $ 853,570
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt ............................ $ 33,655 $ 73,918 (1)$ 107,573
Accounts Payable ........................... 34,191 34,191
Other liabilities and accrued expenses ..... 93,108 93,108
--------- --------- ---------
Total Current Liabilities ................ 160,954 73,918 234,872
Noncurrent Liabilities
Long-term debt ............................. 2,388 2,388
Accrued retiree benefits other than pensions 72,947 72,947
Deferred income taxes ...................... 26,956 26,956
Accrued interest and other ................. 101,531 101,531
--------- --------- ---------
Total Noncurrent Liabilities ............. 203,822 203,822
Stockholders' Equity ........................ 414,876 414,876
--------- --------- ---------
$ 779,652 $ 73,918 $ 853,570
========= ========= =========
</TABLE>
See explanatory notes for pro forma adjustments
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
UNAUDITED PRO FORMA STATEMENT OF INCOME
Three Months Ended September 30, 1995
(In thousands except per share data)
Thiokol Pro Forma
Corporation Pro Forma Statement
Historical Adjustments of Income
--------- ----------- ----------
<S> <C> <C>
Net sales ..................................................... $ 222,943 $ 222,943
Operating expenses:
Cost of sales ............................................. 180,739 180,739
General and administrative ................................ 16,916 $ (250)(3) 16,666
Research and development .................................. 3,182 3,182
--------- --------- ---------
200,837 (250) 200,587
Income from operations ........................................ 22,106 250 22,356
Equity income in Howmet ....................................... 696 (4) 696
Interest income ............................................... 575 (550)(5) 25
Interest expense .............................................. 701 1,700 (6) 2,401
--------- --------- ---------
Income (loss) before income taxes ............................. 21,980 (1,304) 20,676
Income taxes .................................................. 8,792 (800)(7) 7,992
--------- --------- ---------
Net income (loss) ............................................. $ 13,188 $ (504) $ 12,684
========= ========= =========
Net income (loss) per share ................................... $ 0.71 $ (0.03) $ 0.68
========= ========= =========
</TABLE>
See explanatory notes for pro forma adjustments
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
UNAUDITED PRO FORMA STATEMENT OF INCOME
Year Ended June 30, 1995
(In thousands except per share data)
Thiokol Pro Forma
Corporation Pro Forma Statement
Historical Adjustments of Income
--------- ----------- ---------
<S> <C> <C>
Net sales .................................................. $ 956,812 $ 956,812
Operating expenses:
Cost of sales .......................................... 769,069 769,069
General and administrative ............................. 71,930 $ (1,000)(3) 70,930
Research and development ............................... 15,044 15,044
Restructuring .......................................... 61,398 61,398
--------- --------- ---------
917,441 (1,000) 916,441
Income from operations ..................................... 39,371 1,000 40,371
Equity loss in Howmet ...................................... (8,745)(4) (8,745)
Interest income ............................................ 46,213 (2,600)(5) 43,613
Interest expense ........................................... 9,344 5,900 (6) 15,244
--------- --------- --------
Income (loss) before income taxes
and extraordinary item ................................. 76,240 (16,245) 59,995
Income taxes ............................................... 23,991 (2,963)(7) 21,028
-------- --------- --------
Income (loss) before extraordinary item .................... 52,249 (13,282) 38,967
Extraordinary item ......................................... (4,786) (4,786)
-------- --------- --------
Net income (loss) .......................................... $ 47,463 $ (13,282) $ 34,181
======== ========= ========
Net income (loss) per share:
Income (loss) before extraordinary item................. $ 2.78 $ (0.71) $ 2.07
Extraordinary item ..................................... $ (0.25) $ (0.25)
-------- --------- --------
Net income (loss) per share ................................ $ 2.53 $ (0.71) $ 1.82
========= ========= ========
</TABLE>
See explanatory notes for pro forma adjustments
<PAGE>
THIOKOL CORPORATION
EXPLANATORY NOTES TO PRO FORMA ADJUSTMENTS (UNAUDITED)
(1) Cash Paid and debt issued to finance Thiokol's 49% common stock minority
interest in Howmet ($98 million) and 9% pay-in-kind non-voting preferred
stock interest in Howmet ($50 million). See note 9 below.
(2) Transaction fee paid to Thiokol by Howmet for services performed in
connection with the acquisition. The fee was recorded as a reduction of the
equity investment in Howmet.
(3) Fee paid to Thiokol from Howmet for certain management and consulting
services
(4) Recognition under the equity method of Thiokol's 49% minority interest in
Howmet's after-tax net income (loss) for the respective period. See note 8
below.
(5) Reduction of interest income due to the reduction of cash and cash
equivalents used to finance the investment in Howmet.
(6) Increase in interest expense resulting from the issuance of debt to finance
the investment in Howmet.
(7) Adjustment to income taxes based on pro forma net income.
(8) Reconciliation of Howmet historical net income (loss) to Thiokol's equity
income (loss):
<TABLE>
(Dollars in thousands) Three Twelve
Months Months
Ended Ended
Sept 30 June 30
1995 1995
------- --------
<S> <C> <C>
Howmet historical net income (loss) .................... $ 10,400 $(27,800)
Pro forma adjustments
Depreciation and amortization expense ............. (5,870) (22,790)
Interest and other financing expense .............. (13,490) (59,250)
Reversal of historical goodwill write off ......... 47,400
Other ............................................. 3,640 (4,700)
Income tax benefit ................................ 5,570 44,610
-------- --------
Pro forma income (loss) ........................... 250 (22,530)
Preferred stock dividend required ................. (1,125) (4,500)
-------- --------
Pro forma loss available to common stockholders
(875) (27,030)
Thiokol interest (49%) ............................ x .49 x .49
-------- --------
Net loss on Thiokol common stock investment ............ (429) (13,245)
Preferred stock dividend payable to Thiokol ............ 1,125 4,500
-------- --------
Thiokol equity income (loss) from Howmet ............... $ 696 $ (8,745)
======== ========
</TABLE>
<PAGE>
THIOKOL CORPORATION
EXPLANATORY NOTES TO PRO FORMA ADJUSTMENTS (UNAUDITED) - Continued
(9) Reconciliation of Howmet historical stockholders' equity to Thiokol's
equity investment at September 30, 1995:
(Dollars in Thousands)
<TABLE>
<S> <C>
Howmet historical stockholders' equity .......................................... $ 217,200
Pro forma adjustments:
Sale of accounts receivable under the receivables facility .................. (51,900)
Revaluation of inventories to estimated fair value .......................... 93,300
Revaluation of property, plant and equipment to estimated fair value ........ 100,300
Estimated fair value of patents and technology .............................. 142,400
Additional goodwill resulting from the acquisition .......................... 266,300
Borrowings to finance the acquisition ....................................... (475,700)
Deferred taxes related to purchase allocation ............................... (98,500)
Eliminate accounts retained by seller ....................................... 59,100
Other adjustments ........................................................... (2,500)
Preferred stock issued ...................................................... (50,000)
---------
Howmet pro forma stockholders' equity ........................................... $ 200,000
Reconciliation to Thiokols' Equity Investment in Howmet:
Howmet pro forma stockholders' equity .......................................... $ 200,000
Thiokol interest (49%)
x .49
---------
98,000
Preferred stock ................................................................. 50,000
Less acquisition transaction fee ................................................ (2,000)
---------
Equity investment in Howmet ..................................................... $ 146,000
=========
</TABLE>
