July 29, 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 July 29, 1996
Ladies/Gentlemen:
This Form 8-KA is being filed electronically on EDGAR pursuant to response
to the Commission's comment letter in connection with the Registration file
on Form S-3 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 repond to the Commissions comment
letter in connection with Registration on Form S-3.
<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. Thiokol expects to exercise its option
through Holding to acquire all of the issued and outstanding common stock
of Blade owned by Carlyle, subject to favorable Howmet financial and
operating performance and favorable conditions in the financial markets.
<PAGE>
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 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: July 29, 1996 By: ________________________________
Richard L. Corbin
Senior Vice President
and Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS
a. Financial statements of businesses acquired.
INDEX TO HOWMET CORPORATION AND HOWMET CERCAST GROUP COMBINED FINANCIAL
STATEMENTS
<S> <C>
Page
No.
----
Report of Independent Accountants ................................................................................. F2
Combined Balance Sheets at December 31, 1993 and 1994 ............................................................. F3
Combined Statements of Operations and Retained Earnings for the Years Ended December 31, 1992, 1993
and 1994 ....................................................................................................... F4
Combined Statements of Cash Flows for the Years Ended December 31, 1992, 1993 and 1994 ............................ F5
Notes to Combined Financial Statements ............................................................................ F6
Combined Balance Sheets at September 30, 1994 and 1995 (unaudited) ................................................ F19
Combined Statements of Income and Retained Earnings for the Nine Months Ended September 30, 1994
and 1995 (unaudited) ........................................................................................... F20
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1994 and 1995 (unaudited) ............... F21
Notes to Combined Interim Financial Statements (unaudited) ........................................................ F22
b. Pro Forma financial statements
INDEX TO THIOKOL CORPORATION PRO FORMA FINANCIAL STATEMENTS
Pro-Forma Financial Information ................................................................................... 1
Unaudited Pro Forma Balance Sheet - September 30, 1995 ............................................................ 2
Unaudited Pro Forma Statement of Income for the Three Months Ended September 30, 1995.............................. 3
Unaudited Pro Forma Statement of Income for the Twelve Months Ended June 30, 1995 ................................. 4
Explanatory Notes ................................................................................................. 5
c. Consent of Price Waterhouse LLP...................................................................... 6
</TABLE>
F-1
<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 Notes 3 and 11 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.
We have not audited the combined financial statements of the Company
and each of their consolidated subsidiaries for any period subsequent to
December 31, 1994.
Price Waterhouse LLP
Stamford, Connecticut
October 27, 1995
F-2
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED BALANCE SHEETS
December 31, 1993 and 1994
<TABLE>
(Dollars in thousands, except share amounts)
ASSETS
<S> <C> <C>
<CAPTION>
1993 1994
Current assets: --------- ---------
Cash and cash equivalents.................................................. $ 6,441 $ 4,962
Advances to Howmet's parent (see note 13).................................. 203,657 238,571
Accounts receivable (less allowance of $6,737 in 1993; $6,107 in 1994)..... 145,666 142,481
Inventories (see note 4)................................................... 84,459 71,311
Income taxes receivable.................................................... 1,035 --
Deferred income taxes (see note 9)......................................... 42,116 29,152
-------- ---------
Total current assets.................................................. 483,374 486,477
Property, plant and equipment, net (see note 5)................................. 179,742 190,295
Deferred income taxes (see note 9).............................................. 26,979 28,617
Investments and other assets (see note 6)....................................... 93,135 43,047
-------- ---------
Total Assets.......................................................... $783,230 $748,436
========= ========
LIABILITIES
Current liabilities:
Accounts payable........................................................... $ 53,115 $ 70,850
Notes payable to affiliates (see note 13).................................. 12,902 20,007
Notes payable.............................................................. 469 1,593
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 7)............................ 823 26,541
-------- --------
Total current liabilities............................................. 226,984 263,395
Accumulated postretirement benefit obligation (see note 11)..................... 77,430 79,766
Other liabilities............................................................... 12,888 4,918
Long-term debt (see note 7)..................................................... 43,699 15,522
-------- --------
Total Liabilities..................................................... 361,001 363,601
-------- --------
Commitments and contingencies (see notes 8 and 15)..............................
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 12)................................. (4,046) 1,311
-------- --------
Total Stockholders' Equity............................................ 422,229 384,835
-------- --------
Total Liabilities and Stockholders' Equity............................ $783,230 $748,436
========= ========
See accompanying notes to the combined financial statements.
F-3
</TABLE>
<PAGE>
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)
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales..................................................................... $920,177 $832,668 $858,251
Operating costs and expenses:
Cost of sales............................................................ 687,994 603,393 647,272
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 16)...................................... 58,889 -- 2,546
Goodwill writeoff (see note 6)........................................... -- -- 47,400
-------- -------- --------
917,988 762,150 840,370
-------- -------- --------
Earnings from operations...................................................... 2,189 70,518 17,881
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)
Other--net.................................................................... 507 (137) (110)
-------- -------- --------
Income before income taxes.................................................... 4,895 70,869 22,994
Provision for income taxes (see note 9)....................................... 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 11).............................. -- (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
========= ========= ========
See accompanying notes to the combined financial statements.
</TABLE>
F-4
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1992, 1993 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1992 1993 1994
------ -------- --------
<S> <C> <C> <C>
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
See accompanying notes to the combined financial statements.
</TABLE>
F-5
<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>
<CAPTION>
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
========= ========= =========
1994
---------------------------------
Howmet Cercast Total
--------- ---------- ----------
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 majority-owned
subsidiary companies and reflect the use of the equity method of accounting
for 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 ranging from four to eight years for
machinery and equipment, and from nineteen to thirty years for buildings.
Goodwill is the excess of purchase price over tangible and
identifiable intangible fair values and is amortized on a straight line
basis over 40 years. Periodically the Company assesses the recoverability
of this intangible asset by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through projected
future discounted cash flows and earnings. The amount of goodwill
impairment considered to be permanent is measured based upon these
projected discounted future results at appropriate discount rates.
F-6
<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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from
those estimates.
3. Accounting Changes
Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions"
requiring that the estimated future cost of providing postretirement
benefits such as health care be recognized as an expense when employees
render services instead of when the benefits are paid. The cumulative
effect of this change in accounting for post retirement benefits other than
pensions was a charge of $49.3 million (net of tax benefits of $31.5
million) for the year ended December 31, 1993. See Note 11.
The Company adopted SFAS No. 109, "Accounting for Income Taxes",
effective as of January 1, 1993. SFAS No. 109 requires an asset and
liability approach to the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. The
benefit of adoption was not material. See Note 9.
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which is required to be adopted by
the Company in 1996. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the entity should estimate the
future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Measurement of an impairment loss for
long-lived assets and identifiable intangibles that an entity expects to
hold and use should be based on the fair value of the asset. Long-lived
assets and certain identifiable intangibles to be disposed of are to be
reported at the lower of carrying amount or fair value less cost to sell.
Adoption of SFAS No. 121 is not anticipated to have a material adverse
impact on the results of operations or financial position of the Company.
F-7
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
4. Inventories
Inventories at December 31 are as follows:
1993 1994
--------- ---------
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
========= =========
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.
5. Property, Plant and Equipment
Property, plant and equipment at December 31 includes:
1993 1994
--------- ---------
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
========= =========
6. Investments and Other Assets
"Investments and Other Assets" is primarily comprised of goodwill,
investment in long-term contract and other noncurrent assets.
Goodwill balances at December 31 are as follows:
1993 1994
-------- --------
Goodwill ................................... $ 83,088 $ 35,688
Less accumulated amortization .............. (11,116) (13,183)
-------- --------
$ 71,972 $ 22,505
======== ========
As a result of the acquisition of Cercast in 1989, goodwill of
approximately $67,000 was recorded. Annual amortization expense since that
time has approximated $1,673. During 1994, the Company recorded goodwill
F-8
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
write-offs totaling $47.4 million, the principal component of which, $42.4
million, related to Cercast. Cercast is a producer of aluminum investment
castings for the defense electronics and commercial aerospace industries
which are primarily North American and European based. Management estimated
that the market for aluminum investment castings in North America had
declined significantly due to downsizing in the defense industry sector and
a then existing downturn in commercial aerospace orders. As a result, the
industry had shifted from a seller's market to a buyer's market with
pricing under severe pressure. Similarly, the European market for aluminum
castings had experienced a decline due to weakness in both sectors of the
aerospace industry. These conditions resulted in Cercast achieving lower
than expected sales and related profitability. The Company determined that
the defense industry sector decline was permanent in nature and that based
on its estimate of expected future operating results, the entire remaining
goodwill balance would not be recoverable. The methodology used by
management to evaluate the recoverability of goodwill was to discount 10
years of projected cash flows at 12% (the Company's estimated long term
cost of capital) together with an associated discounted earnings valuation
for the remaining amortization period. The amount of impairment was
measured on this basis as well. The forward projections made by management
were based on approved budgets and related information and represented
management's belief of the most likely future scenario.
Also during 1994, $5,000 of goodwill pertaining to the acquisition of
Howmet's wholly-owned tooling subsidiary, Tempcraft, was written off. The
evaluation and measurement criteria used in making this determination were
similar to that described above for Cercast.
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.
7. Long-term Debt
Long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
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>
F-9
<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.
8. 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.
9. 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.
Income taxes were provided in the following amounts for the years ended
December 31:
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
========= ========= ========
F-10
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
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>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
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
======== ======== ========
In 1994 a provision for potential tax exposures was provided due to
developments related to examinations by federal and state taxing
authorities of the Company's prior years' income tax returns. Deferred tax
adjustments in 1994 represent a change in the Company's overall estimated
state income tax rate and other adjustments relating to permanent
differences.
Domestic and foreign components of pre-tax income for the years ended
December 31 are as follows:
1992 1993 1994
---- ---- ----
United States ........................................... $ 11,967 $ 70,578 $ 57,629
Foreign ................................................. (7,072) 291 (34,635)
-------- -------- --------
$ 4,895 $ 70,869 $ 22,994
======== ======== ========
The components of the deferred income tax asset (liability) at December 31
are as follows:
1993 1994
---- ----
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>
F-11
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Management believes that it is more likely than not that the net
deferred tax asset at December 31, 1994 will be realized.
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.
10. 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>
<CAPTION>
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
======== ======== ========
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:
1993 1994
---- -----
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>
F-12
<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.
11. 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>
<CAPTION>
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
====== ======
The amounts recognized in the Company's combined balance sheets at
December 31 were as follows:
1993 1994
------- -----
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>
F-13
<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.
12. Segment Related Information
The Company operates predominantly in a single industry as a
manufacturer of investment cast components for the aerospace and industrial
gas turbine industries. The Company is a multi-national entity with
operating subsidiaries in two geographic regions. North America (including
the United States and Canada) and Europe (including France and the United
Kingdom). Intercompany transfers between geographic areas are not
significant. In computing earnings from operations for subsidiaries outside
of the United States, no allocations of general corporate expenses have
been made.
Identifiable assts of subsidiaries outside of the United States are
those assets related to the operations of those subsidiaries. United States
assets consist of all other assets of the Company.
<TABLE>
<CAPTION>
North America Europe Combined
------------- ------ --------
<S> <C> <C> <C>
1992
Sales to unaffiliated customers........................................... $738,701 $181,476 $920,177
Earnings (loss) from operations........................................... 10,352 (8,163) 2,189
Identifiable assets....................................................... 589,910 165,489 755,399
1993
Sales to unaffiliated customers........................................... $655,221 $177,447 $832,668
Earnings (loss) from operations........................................... 68,336 2,182 70,518
Identifiable assets....................................................... 630,593 152,637 783,230
1994
Sales to unaffiliated customers........................................... $678,481 $179,770 $858,251
Earnings (loss) from operations........................................... 30,135 (12,254) 17,881
Identifiable assets....................................................... 609,050 139,386 748,436
Sales to unaffiliated customers include export sales of $146,766,
$180,449, and $176,859 for the years ended December 31, 1992, 1993, and
1994, respectively.
The Company's sales and 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.
An analysis of the changes in the cumulative translation adjustment
account is as follows:
1993 1994
---- ----
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>
F-14
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
In 1993, the Company sold its 51% interest in an operating facility in
Spain and recorded a $945 loss.
13. Transactions With Affiliates
The Company has financing and other transactions with Holdings.
Interest income earned from advances to Holdings is based on short-term
borrowing rates obtained by Holdings. 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'
short-term borrowing rates.
The Company also has financing and other tansactions with Pechiney and
its affiliates. Interest expense incurred on notes payable to Pechiney and
its affiliates is based on short-term borrowing rates obtained by Pechiney
and its affiliates.
14. 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.
15. 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
assoicated with on-site contamination and off-site hazardous 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 nineteen
on-site and off-site locations. 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.
Accordingly, should any losses be sustained in excess of provided reserves,
they will be charged to income in the future.
Additionally, the Company has guaranteed certain obligations of joint
ventures in which it has invested aggregating approximately $8.0 million at
December 31, 1994.
F-15
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
16. Restructuring
The following is a summary of the Company's restructuring activities
in 1992, 1993 and 1994:
In late 1992 the Company approved a restructuring program pursuant to
which it planned to rationalize certain of its business activities and to
reengineer certain of its processes in an effort to streamline operations
and reduce costs.
The 1992 restructuring provision included $39,831 for the estimated
cost of reengineering programs and $19,058 in estimated costs for capacity
rationalization.
The following table sets forth the restructuring provisions
established in 1992, 1993, and 1994.
<TABLE>
<CAPTION>
1992 Activity
-------------
1992 Cash Non- Reserve at
Restructuring Costs Cash December 31,
Provision Incurred Costs 1992
---------- -------- ----- -----------
<S> <C> <C> <C> <C> <C>
Reengineering programs............................ $39,831 $(2,182) --- $37,649
Capacity rationalization.......................... 19,058 (430) --- 18,628
-------- -------- ----- --------
$58,889 $(2,612) --- $56,277
======== ======== ==== ========
1993 Activity
--------------
Reserve at Cash Non- Changes Reserve at
December 31, Costs Cash in December 31,
1992 Incurred Costs Estimates 1993
----------- -------- ----- ---------- ---------
Reengineering programs................................ $37,649 $(18,879) --- --- $18,770
Capacity rationalization.............................. 18,628 (7,920) --- $(35) 10,673
-------- --------- ---- ------ -------
$56,277 $(26,799) --- $(35) $29,443
======= ========= ===== ====== =======
1994 Activity
-------------
Reserve at Cash Non- Changes Reserve at
December 31, Costs Cash in December 31,
1993 Incurred Costs Estimates 1994
----------- -------- ----- ---------- ----------
Reengineering programs..................................... $18,770 $(11,657) --- $ 1,434 $ 8,547
Capacity rationalization.................................. 10,673 (3,312) $(165) (3,320) 3,876
------- --------- ------- -------- -------
$29,443 $(14,969) $(165) $ (1,886) $12,423
======= ========= ====== ======== =======
The significant cost components of the 1992 restructuring provisions
were as follows:
Reengineering programs represent the estimated costs associated with
reengineering certain of the Company's business processes and related
activities and include direct expenses associated with various project
terms related to the evaluation, design and implementation of a Company
wide synchronous manufacturing environment with cellular work stations,
uniform work instructions and business center management and reporting
($23,286), severance and relocation for approximately 1,835 employees
($13,437) and consulting fees ($3,108).
</TABLE>
F-16
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Capacity rationalization costs represent the estimated costs to be
incurred in streamlining operations and include expenses related to
severance and relocation for approximately 562 employees ($8,750), asset
writedowns ($1,260) and the transfer and reinstallation of equipment
($9,048).
Management periodically reevaluates the adequacy of the remaining
reserve to provide for the estimated costs of implementing the
restructuring program. Based upon this reevaluation, during 1994, the
Company reversed the portion of the reserve related to a U.S. plant
shutdown ($1,800) and a French social plan ($1,430) due to improved
business conditions; certain of these reserves were reallocated to other
restructuring programs as necessary.
During 1994 the Company 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 ($945), termination benefits ($180), and other
items ($325).
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 unprofitabiity
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 ($595), exit costs ($1,182), and other
items ($205).
The following is an analysis related to the restructuring reserve
activities for the 1994 programs:
<TABLE>
<CAPTION>
1994 Activity
-------------
<S> <C> <C> <C> <C>
1994 Reserve at
Restructuring Cash Costs Non-cash December 31,
Provision Incurred Costs 1994
---------- -------- ----- ----
Morristown............ $1,450 $(176) $(239) $1,035
Dover Airmelt......... 1,000 --- --- 1,000
Howmet S.A. .......... 1,982 --- --- 1,982
------ ------- ------ -------
$4,432 $(176) $(239) $4,017
====== ====== ====== ======
At December 31, 1993 and 1994, $2,778 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".
</TABLE>
F-17
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
17. 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.
F-18
<PAGE>
HOWMET CORPORATION AND HOWMET CERCAST GROUP
COMBINED BALANCE SHEETS
September 30, 1994 and 1995
(Dollars in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
<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 to affiliates.................................................. 14,852 26,054
Notes payable................................................................ --- 1,732
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
======== ========
See accompanying notes to the combined financial statements.
</TABLE>
F-19
<PAGE>
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
--------- ---------
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 - affiliates.................... 6,368 8,195
Interest income - third parties................. 328 341
Interest expense - affiliates................... (644) (1,254)
Interest expense - third parties................ (2,570) (2,902)
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
========= =========
See accompanying notes to the combined financial statements.
F-20
<PAGE>
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)
<TABLE>
<CAPTION>
<S> <C> <C>
1994 1995
Cash flows from operating activities: --------- ---------
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
See accompanying notes to the combined financial statements.
</TABLE>
F-21
<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.
F-22
<PAGE>
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
--------- ---------
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
========= =========
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.
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
assoicated with on-site contamination and off-site hazardous 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 nineteen
on-site and off-site locations. 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.
Accordingly, should any losses be sustained in excess of provided reserves,
they will be charged to income in the future.
F-23
<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.
1
<PAGE>
THIOKOL CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1995
(In thousands except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Thiokol Pro Forma
Corporation Pro Forma Balance
Historical Adjustments Sheet
---------- ----------- -------
ASSETS
Current Assets
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
========= ========= =========
See explanatory notes for pro forma adjustments
</TABLE>
2
<PAGE>
THIOKOL CORPORATION
UNAUDITED PRO FORMA STATEMENT OF INCOME
Three Months Ended September 30, 1995
(In thousands except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Thiokol Pro Forma
Corporation Pro Forma Statement
Historical Adjustments of Income
--------- ----------- ----------
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
========= ========= =========
See explanatory notes for pro forma adjustments
</TABLE>
3
<PAGE>
THIOKOL CORPORATION
UNAUDITED PRO FORMA STATEMENT OF INCOME
Year Ended June 30, 1995
(In thousands except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Thiokol Pro Forma
Corporation Pro Forma Statement
Historical Adjustments of Income
--------- ----------- ---------
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 ...................................... (31,380)(4) (31,380)
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 (38,880) 37,360
Income taxes ............................................... 23,991 (2,963)(7) 21,028
-------- --------- --------
Income (loss) before extraordinary item .................... 52,249 (35,917) 16,332
Extraordinary item ......................................... (4,786) (4,786)
-------- --------- --------
Net income (loss) .......................................... $ 47,463 $ (35,917) $ 11,546
======== ========= ========
Net income (loss) per share:
Income (loss) before extraordinary item................. $ 2.78 $ (1.92) $ .86
Extraordinary item ..................................... $ (0.25) $ (0.25)
-------- --------- --------
Net income (loss) per share ................................ $ 2.53 $ (1.92) $ .61
========= ========= ========
</TABLE>
See explanatory notes for pro forma adjustments
4
<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>
<CAPTION>
(Dollars in thousands)
<S> <C> <C>
Three Twelve
Months Months
Ended Ended
Sept 30 June 30
1995 1995
------- --------
Howmet historical net income (loss) ........................................... $ 10,400 $(27,800)
Pro forma adjustments
Depreciation and amortization expense increase from write-up of assets and goodwill..... (5,870) (22,790)
Interest and other financing expense increase from debt increase........................ (13,490) (59,250)
Other .................................................................................. 3,640 (4,700)
Income tax benefit purchase accounting adjustments...................................... 5,570 45,816
-------- --------
Pro forma income (loss) ................................................................ 250 (68,724)
Preferred stock dividend required by preferred stock agreement.......................... (1,125) (4,500)
-------- --------
Pro forma loss available to common stockholders
(875) (73,224)
Thiokol interest (49%) ................................................................. x .49 x .49
-------- --------
Net loss on Thiokol common stock investment ................................................. (429) (35,880)
Preferred stock dividend payable to Thiokol per stock agreement.............................. 1,125 4,500
-------- --------
Thiokol equity income (loss) from Howmet .................................................... $ 696 $(31,380)
======= =========
</TABLE>
5
<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:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Howmet historical stockholders' equity .......................................... $ 217,200
Pro forma adjustments:
Sale of accounts receivable under the receivables facility (1)............... (51,900)
Revaluation of inventories to estimated fair value (2)....................... 93,300
Revaluation of property, plant and equipment to estimated fair value (2)..... 100,300
Estimated fair value of patents and technology (2)........................... 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 (3)................................................... (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
=========
<FN>
1. The Company's sale of accounts receivable reflects the use of accounts
receivable as part of a securitized accounts receivable financing
facilitiy used to finance working capital neeeds of the Company.
2. As part of the acquisition process, the Company hired a third party to
evaluate the value of the assets of the Corporation. The assets were
revalued to fair value accordingly.
3. The preferred stock reflects the nonvoting paid-in-kind preferred
stock issued to Thiokol Holding Co., a wholly owned subsidiary of
Thiokol.
</FN>
</TABLE>
6
<PAGE>
(Exhibit 23)
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-18630, 33-2921, 33-10316,
2-76672, 2-90885, 33-64082 and 33-38322) and Form S-14 (No. 2-78968) of
Thiokol Corporation of our report dated October 27, 1995 relating to the
combined financial statements of Howmet Cercest Group, which appears in the
Amended Report on Form 8-KA of Thiokol Corporation dated July 29, 1996.
/s/ Price Waterhouse LLP
- ---------------------------------
PRICE WATERHOUSE LLP
Stamford, CT
July 29, 1996
