10
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
______________.
Commission file number 1-6179
CORDANT TECHNOLOGIES INC.
Incorporated in the State of Delaware IRS Employer Identification
No. 36-2678716
15 West S. Temple, Suite 1600, Salt Lake City, Utah 84101-1532
Telephone Number: (801) 933-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $1.00 par value, outstanding at June 30, 1999: 36,673,270
<PAGE>
CORDANT TECHNOLOGIES INC.
QUARTERLY REPORT ON FORM 10-Q
June 30, 1999
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income - Three months
ended and Six months ended June 30, 1999 and 1998 3
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 4-5
Consolidated Statements of Cash Flows - Six
months ended June 30, 1999 and 1998 6
Consolidated Statements of Stockholders' Equity-
Three months ended and Six months ended
June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8-14
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-32
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 32
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 33
ITEM 4. Submission of Matters to a Vote of Security Holders 33
ITEM 5. Other Information 33-40
ITEM 6. Exhibits and Reports on Form 8-K 41
SIGNATURES 41
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 641.9 $ 628.6 $ 1,276.0 $ 1,191.3
Operating expenses:
Cost of sales 498.6 491.8 989.2 928.5
Selling, general and administrative 56.4 46.9 107.8 92.9
Research and development 8.3 8.1 16.5 16.5
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 563.3 546.8 1,113.5 1,037.9
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations 78.6 81.8 162.5 153.4
Interest income 2.1 3.8 4.7 6.5
Interest expense (10.7) (6.9) (20.2) (12.7)
Other, net (.5) (.3) (.7) (1.2)
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and
minority interest 69.5 78.4 146.3 146.0
Income taxes (26.2) (27.4) (48.7) (53.4)
- ---------------------------------------------------------------------------------------------------------------------------
Income before minority interest 43.3 51.0 97.6 92.6
Minority interest (4.8) (9.9) (11.9) (18.7)
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 38.5 $ 41.1 $ 85.7 $ 73.9
===========================================================================================================================
Net income per share:
Basic $ 1.05 $ 1.13 $ 2.34 $ 2.03
Diluted $ 1.03 $ 1.09 $ 2.29 $ 1.96
===========================================================================================================================
Dividends per share $ .10 $ .10 $ .20 $ .20
===========================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
June 30
1999 December 31
(Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 17.8 $ 45.3
Receivables 294.1 240.0
Inventories 258.4 252.3
Deferred income taxes and prepaid expenses 55.1 60.8
Restricted Trust (a) 716.4
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 625.4 1,314.8
Property, plant and equipment, at cost
less allowances for depreciation 702.6 672.3
Other assets
Costs in excess of net assets of businesses
acquired, net 850.1 561.7
Patents and other intangible assets, net 119.8 128.3
Other noncurrent assets 132.0 132.8
- ------------------------------------------------------------------------------------------------------------------------
Total other assets 1,101.9 822.8
- ------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,429.9 $ 2,809.9
========================================================================================================================
<FN>
(a) The Restricted Trust held a note receivable from Pechiney S.A. and related letters of credit that secured Pechiney
S.A.'s agreement to repay the Pechiney Notes. Pechiney S.A. (Howmet's previous owner) paid the notes on January 4,
1999, and the Restricted Trust was terminated. No Howmet or Cordant funds were used in the payment of the Notes.
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
June 30
1999 December 31
(Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and stockholder's equity
Current liabilities
Short-term debt $ 128.7 $ 80.1
Accounts payable 139.7 139.8
Accrued compensation 97.0 81.6
Other accrued expenses 201.1 202.1
Pechiney Notes (a) 716.4
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 566.5 1,220.0
Noncurrent liabilities
Accrued retiree benefits 172.1 169.0
Deferred income taxes 50.3 52.3
Accrued interest and other noncurrent liabilities 233.2 234.2
Long-term debt 604.1 324.5
- ------------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 1,059.7 780.0
Minority interest 65.1 142.0
Stockholders' equity
Common stock (par value $1.00 per share)
Authorized - 200 shares
Issued - 41.1 shares at June 30, 1999 and
December 31, 1998 (includes treasury shares) 41.1 41.1
Additional paid-in capital 47.5 47.4
Retained earnings 737.2 658.8
Accumulated other comprehensive income (loss) (15.1) (3.9)
- ------------------------------------------------------------------------------------------------------------------------
810.7 743.4
Less common stock in treasury, at cost
4.4 shares, June 30, 1999 and
4.6 shares, December 31, 1998 (72.1) (75.5)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 738.6 667.9
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,429.9 $ 2,809.9
=========================================================================================================================
<FN>
(a) The Restricted Trust held a note receivable from Pechiney S.A. and related letters of credit that secured Pechiney
S.A.'s agreement to repay the Pechiney Notes. Pechiney S.A. (Howmet's previous owner) paid the notes on January 4,
1999, and the Restricted Trust was terminated. No Howmet or Cordant funds were used in the payment of the Notes.
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
Six Months Ended
June 30
-------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 85.7 $ 73.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 11.9 18.7
Depreciation 39.5 34.6
Amortization 19.3 15.1
Changes in operating assets and liabilities:
Receivables (62.3) (21.4)
Inventories (9.5) (3.9)
Accounts payable and accrued expenses 8.7 (4.0)
Income taxes 11.4 18.6
Other 6.3 .7
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 111.0 132.3
Investing Activities
Acquisitions (385.0) (273.6)
Purchases of property, plant and equipment (76.0) (50.1)
Proceeds from disposal of assets 1.0 4.8
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (460.0) (318.9)
Financing Activities
Net change in short-term debt 49.6 35.5
Issuance of long-term debt 450.0 306.4
Repayment of long-term debt (170.1) (168.9)
Purchase of common stock for treasury (10.8)
Stock option transactions 3.5 3.6
Dividends paid (7.3) (7.3)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 325.7 158.5
Foreign currency rate changes (4.2) (.1)
Decrease in cash and cash equivalents (27.5) (28.2)
Cash and cash equivalents at beginning of year 45.3 45.6
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 17.8 $ 17.4
======================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(IN MILLIONS)
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Comprehensive Stockholders'
Stock Capital Earnings Stock Income Equity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended June 30
Balance, March 31, 1998 $ 41.1 $ 46.9 $ 560.6 $ (73.5) $ (3.4) $ 571.7
Comprehensive income
Net income 41.1 41.1
Other comprehensive income
Cumulative translation adjustment (.5) (.5)
-----------
Total comprehensive income 40.6
===========
Dividends paid (3.7) (3.7)
Stock options exercised and related
income tax benefits (.1 shares) (.1) 1.0 .9
- --------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 $ 41.1 $ 46.8 $ 598.0 $ (72.5) $ (3.9) $ 609.5
====================================================================================================================
Balance, March 31, 1999 $ 41.1 $ 46.9 $ 702.3 $ (73.7) $ (10.1) $ 706.5
Comprehensive income
Net income 38.5 38.5
Other comprehensive income
Cumulative translation adjustment (5.0) (5.0)
-----------
Total comprehensive income 33.5
===========
Dividends paid (3.6) (3.6)
Stock options exercised and related
income tax benefits (.1 shares) .6 1.6 2.2
- --------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ 41.1 $ 47.5 $ 737.2 $ (72.1) $ (15.1) $ 738.6
====================================================================================================================
Six months ended June 30
Balance, December 31, 1997 $ 20.5 $ 46.0 $ 552.0 $ (64.5) $ (3.5) $ 550.5
Comprehensive income
Net Income 73.9 73.9
Other comprehensive income
Cumulative translation adjustment (.4) (.4)
-----------
Total comprehensive income 73.5
===========
Dividends paid (7.3) (7.3)
Stock Split (2.2 treasury shares and
20.6 common shares) 20.6 (20.6)
Treasury stock purchases (.3 shares) (10.8) (10.8)
Stock options exercised and related
income tax benefits (.1 shares) .8 2.8 3.6
- --------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 $ 41.1 $ 46.8 $ 598.0 $ (72.5) $ (3.9) $ 609.5
====================================================================================================================
Balance, December 31, 1998 $ 41.1 $ 47.4 $ 658.8 $ (75.5) $ (3.9) $ 667.9
Comprehensive income
Net income 85.7 85.7
Other comprehensive income
Minimum pension liability .9 .9
Cumulative translation adjustment (12.1) (12.1)
-----------
Total comprehensive income 74.5
===========
Dividends paid (7.3) (7.3)
Stock options exercised and related
income tax benefits (.2 shares) .1 3.4 3.5
- --------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ 41.1 $ 47.5 $ 737.2 $ (72.1) $ (15.1) $ 738.6
====================================================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
The accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. The balance sheet at December 31, 1998
reflects the Company's audited consolidated balance sheet at that date. In
management's opinion, all adjustments considered necessary for a fair
presentation have been included. Operating results for the six-months ended
June 30, 1999 are not necessarily indicative of the results to be expected
for the year ending December 31, 1999. The financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's 1999 Notice of Annual Meeting and Proxy
Statement, Financial Information, incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Certain reclassifications were made to the 1998 financial statements to
conform to the 1999 presentation.
Receivables
<TABLE>
<CAPTION>
The components of receivables are as follows:
June 30
1999 December 31
(in millions) (Unaudited) 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trade Receivables:
Trade accounts receivable $ 164.4 $ 159.0
Retained receivables 53.0 32.0
Allowance for doubtful accounts (7.6) (7.8)
-------------------------------------------------------------------------------------------------------------
Total Trade Receivables 209.8 183.2
Receivables under U.S. Government contracts
and subcontracts 84.3 56.8
-------------------------------------------------------------------------------------------------------------
$ 294.1 $ 240.0
=============================================================================================================
</TABLE>
Receivables under government contracts and subcontracts include unbilled
costs and accrued profits. Such amounts are billed based on contract terms
and delivery schedules.
Cost and incentive-type contracts and subcontracts are subject to
government audit and review. It is anticipated that adjustments, if any,
will not have a material effect on the Company's results of operations or
financial condition.
<PAGE>
Cost management award fees totaling $138.7 million, at June 30, 1999, have
been recognized on the current Buy 3 Space Shuttle Reusable Solid Rocket
Motor (RSRM) contract. Realization of such fees is reasonably assured based
on actual and anticipated contract cost performance. However, all cost
management award fees remain at risk until contract completion and final
NASA review. The Buy 3 RSRM contract is expected to be completed during
2001. Unanticipated program problems which erode cost management
performance could cause some or all of the recognized cost management award
fees to be reversed and would be offset against receivable amounts from the
government or may be directly reimbursed. Circumstances which could erode
cost management performance, and materially impact Company profitability
and cash flow, include failure of a Company-supplied component, performance
problems with the RSRM leading to a major redesign and/or requalification
effort, manufacturing problems, including supplier problems which result in
RSRM production interruptions or delays, and major safety incidents.
Trade accounts receivable primarily relate to sales to well established
corporations and historically, bad debt expense has been minor.
Howmet has an agreement to sell, on a revolving basis, an undivided
interest in a defined pool of accounts receivable. Howmet has received $55
million from the sale of such receivables and has deducted this amount from
accounts receivable at June 30, 1999. The $53 million retained receivables,
represents the receivables set aside to replace sold receivables in the
event they are not fully collected.
Inventories
Inventories are stated at the lower of cost or market. Inventories for the
fastening systems segment are determined by the first-in, first-out (FIFO)
method. Inventories for the investment castings segment are determined by
both the FIFO and last-in, first-out (LIFO) method.
Propulsion Systems inventories include estimated recoverable costs related
to long-term fixed price contracts including direct production costs and
allocable indirect costs, less related progress payments received. In
accordance with industry practice, such costs include amounts that are not
expected to be realized within one year. The government may acquire title
to, or a security interest in, certain inventories as a result of progress
payments made on contracts and programs.
<PAGE>
<TABLE>
<CAPTION>
The components of inventories are as follows:
June 30
1999 December 31
(in millions) (Unaudited) 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and work-in-process $ 189.8 $ 161.8
Finished Goods 62.6 87.6
Inventoried costs related to U.S. Government
and other long-term contracts 31.8 28.8
Progress payments received on long-term contracts (22.5) (22.6)
LIFO valuation adjustment (3.3) (3.3)
- -------------------------------------------------------------------------------------------------------------------
$ 258.4 $ 252.3
===================================================================================================================
</TABLE>
At June 30, 1999 and December 31, 1998, inventories include $115.7 and
$111.8 million, respectively, that are valued using LIFO. The LIFO
valuation adjustment approximates the difference between the LIFO carrying
value and current replacement cost.
Purchase of Additional Howmet International Inc. Common Stock
On February 8, 1999, the Company acquired the remaining 22.65 million
shares of Howmet International Inc. common stock owned by Carlyle Blade
Acquisition Partners, L.P. (Carlyle) for $385 million and entered into a
new Standstill Agreement and extended an existing covenant not to compete.
With this purchase of the Carlyle shares, the Company's ownership of Howmet
International Inc. common stock increases to approximately 84.6 million
shares representing 84.6 percent of Howmet's outstanding voting common
stock. The remaining 15.4 percent of Howmet common stock is publicly owned.
The acquisition was financed with borrowings under an unsecured bank line
of credit established in conjunction with the stock purchase. The interest
rate on this facility is based on LIBOR plus a spread, and was 5.75 percent
at the time of the transaction. As a result of this acquisition, a one-time
tax adjustment was recorded in the first quarter of 1999 reversing $7.1
million or $.19 per share of a previously accrued accumulated dividend tax.
Additional detailed financial information on Howmet is available in it's
current Form 10-Q and in Howmet's Notice of 1999 Annual Meeting and Proxy
Statement, Exhibit B, incorporated by reference in Howmet's Annual Report
on Form 10-K for the year ended December 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
FINANCING ARRANGEMENTS
Long term debt is summarized as follows:
June 30
1999 December 31
(in millions) (Unaudited) 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cordant Technologies 6.625% senior notes $ 150.0 $ 150.0
Cordant Technologies senior revolving credit facilities 380.0 110.0
Howmet senior revolving credit facility 70.0 60.0
Other 12.0 13.1
- --------------------------------------------------------------------------------------------------------------------
612.0 333.1
Less current portion 7.9 8.6
- --------------------------------------------------------------------------------------------------------------------
$ 604.1 $ 324.5
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company, excluding Howmet, has credit commitments from a group of banks
aggregating $500 million under revolving credit facilities, of which $120
million was available at June 30, 1999. The funds available under the
credit facilities may be used for any corporate purpose and are available
through November 1999 ($300 million), February 2000 ($50 million), and May
2001 ($150 million). The Company has the option to extend the November 1999
facility for an additional nine months. The interest rate on the revolving
credit facilities is based on LIBOR plus a spread, and was 5.7 and 5.9
percent at June 30, 1999 and December 31, 1998, respectively. The credit
agreements and senior notes contain covenants restricting, among other
things, the Company's ability to incur funded debt, limitations on liens,
sale and leaseback transactions, and the sale of assets.
Howmet has credit commitments from a group of banks aggregating $300
million under a revolving credit agreement, of which $222.4 million was
available at June 30, 1999. Howmet had $7.6 million in Letters of Credit
outstanding at June 30, 1999 under the revolving credit facility. The funds
available under the credit facility may be used for any corporate purpose
and are available through December 2002. The interest rate on the facility
is based on LIBOR plus a spread, and was 5.3 and 5.8 percent at June 30,
1999 and December 31, 1998, respectively. Terms of the revolving credit
facility require Howmet to meet certain interest coverage and leverage
ratios and maintain certain minimum net worth amounts. In addition, there
are restrictions that limit indebtedness, the sale of assets, and payments
for acquisitions or investments.
Cordant Technologies does not have access to Howmet cash balances except
through Howmet's declaring a cash dividend to its shareholders, which
availability may be restricted under the terms of Howmet's revolving credit
facility. Howmet does not currently intend to pay dividends.
On February 17, 1999, Howmet paid $66.4 million to redeem all of its 9
percent preferred stock. The payment was made to Cordant Technologies, the
sole preferred stockholder. Howmet borrowed under its existing revolving
credit facility to make this payment and Cordant Technologies used the
proceeds to reduce debt under its revolving credit facilities.
The current portion of long-term debt is classified in "short-term debt" on
the balance sheets.
<PAGE>
<TABLE>
<CAPTION>
Earnings per share
The following unaudited table sets forth the computation of basic and diluted earnings per share:
Three-Months Ended Six-Months Ended
June 30 June 30
----------------------------------------------------------
(In millions, except per share data) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator for basic and
diluted earnings per share:
Net Income $ 38.5 $ 41.1 $ 85.7 $ 73.9
- --------------------------------------------------------------------------------------------------------------
Denominator
Denominator for basic earnings
per share--weighted-average
shares 36.6 36.5 36.6 36.5
Effect of dilutive securities
employee stock options 1.0 1.1 .9 1.1
- --------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings
per share--weighted-average
shares and assumed exercises 37.6 37.6 37.5 37.6
- --------------------------------------------------------------------------------------------------------------
Net income per share:
Basic $ 1.05 $ 1.13 $ 2.34 $ 2.03
Diluted $ 1.03 $ 1.09 $ 2.29 $ 1.96
==============================================================================================================
</TABLE>
Lakewood Closure and Relocation
The Company announced the closing and relocation of assets at its Lakewood,
California, aerospace fastener manufacturing plant to the Company's nearby
Carson, California, plant. The Lakewood closure will result in reduced
fixed costs of approximately $6 million pre-tax annually and allow
utilization of available capacity at Carson. The consolidated plant will be
able to support customers at the peak production rates experienced during
1998. The Company's second quarter results include a $5 million pre-tax
charge for the plant closing. The Company expects to receive savings of
approximately $1.5 million in the fourth quarter of 1999. The relocation
will result in the elimination of approximately 115 jobs. The Lakewood
plant is expected to close on September 1, 1999.
<PAGE>
Accounting Standards
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." SFAS No. 137 delays the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. The Company will
adopt the new statement beginning on January 1, 2001. The Company does not
believe that SFAS 137 will have a significant effect on the earnings and
financial position of the Company.
Segment Information
The Company has three reportable segments: Investment Castings, Fastening
Systems, and Propulsion Systems. The Company's reportable segments
manufacture and distribute distinct products with different production
processes.
The Company evaluates performance and allocates resources based on
operating income, which is pre-tax income before interest income and
expense, and excludes any equity income and other non-operating expenses.
In accordance with industry practice, a proportionate share of Corporate
general and administrative expense is allocated and reimbursed through
Propulsion Systems contracts. Intersegment sales and transfers are not
significant.
<PAGE>
<TABLE>
<CAPTION>
Summary unaudited segment information for the three months and six months ended June 30 follows:
Three Months Ended Six months Ended
June 30 June 30
----------------------------------------------------------------
(in millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Investment Castings $ 369.7 $ 335.7 $ 742.4 $ 664.1
Fastening Systems 116.0 100.7 237.1 190.8
Propulsion Systems 156.2 192.2 296.5 336.4
- ---------------------------------------------------------------------------------------------------------------
Total sales $ 641.9 $ 628.6 $ 1,276.0 $ 1,191.3
- ---------------------------------------------------------------------------------------------------------------
Operating income:
Investment Castings $ 48.8 $ 48.8 $ 103.8 $ 92.6
Fastening Systems 12.4 16.7 30.7 29.9
Propulsion Systems 25.1 22.9 42.9 41.3
Unallocated corporate expense (7.7) (6.6) (14.9) (10.4)
- ---------------------------------------------------------------------------------------------------------------
Total operating income 78.6 81.8 162.5 153.4
Interest income 2.1 3.8 4.7 6.5
Interest expense (10.7) (6.9) (20.2) (12.7)
Other, net (.5) (.3) (.7) (1.2)
- ---------------------------------------------------------------------------------------------------------------
Consolidated income before income taxes
and minority interest
$ 69.5 $ 78.4 $ 146.3 $ 146.0
===============================================================================================================
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
Results of Operations
All of the following discussion reflects diluted earnings per share.
Income for the Second Quarter
Net income for the second quarter ended June 30, 1999, was $38.5 million,
or $1.03 per share, a decrease of 6 percent, compared to the prior year's
quarter net income of $41.1 million or $1.09 per share. The current
quarter's net income included a $3.1 million or $.08 per share charge in
the fastener segment for the closure and relocation of the Lakewood,
California aerospace fastener facility. Net income for the current quarter
also included the reversal of the first quarter Stock Appreciation Rights
(SAR) benefit at Howmet of $1.3 million or $.03 per share. This expense
resulted from Howmet's stock price increasing above the $15 per share
ceiling at the end of the quarter. Net income for the prior year's quarter
included a $2.6 million or $.07 per share tax refund. Excluding the unusual
items listed above, income of $42.9 million or $1.14 per share increased 12
percent over the prior year's quarter.
<PAGE>
<TABLE>
<CAPTION>
Summary unaudited financial information for the three-months ended June 30 follows:
(in millions, except per share data) 1999 1998 Better Percent
(Worse)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Investment Castings $ 369.7 $ 335.7 $ 34.0 10
Fastening Systems 116.0 100.7 15.3 15
Propulsion Systems 156.2 192.2 (36.0) (19)
- ---------------------------------------------------------------------------------------------------------------------
Total sales $ 641.9 $ 628.6 $ 13.3 2
- ---------------------------------------------------------------------------------------------------------------------
Operating income:
Investment Castings (1) $ 48.8 $ 48.8
Fastening Systems 12.4 16.7 $ (4.3) (26)
Propulsion Systems 25.1 22.9 2.2 10
Unallocated corporate expense (7.7) (6.6) (1.1) (17)
- ---------------------------------------------------------------------------------------------------------------------
Total operating income 78.6 81.8 (3.2) (4)
Interest income 2.1 3.8 (1.7) (45)
Interest expense (10.7) (6.9) (3.8) (55)
Other, net (.5) (.3) (.2) (67)
Income taxes (26.2) (27.4) 1.2 4
- ---------------------------------------------------------------------------------------------------------------------
Income before minority interest 43.3 51.0 (7.7) (15)
Minority interest (4.8) (9.9) 5.1 52
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 38.5 $ 41.1 $ (2.6) (6)
=====================================================================================================================
Net income per share:
Basic $ 1.05 $ 1.13 $ (.08) (7)
Diluted $ 1.03 $ 1.09 $ (.06) (6)
<FN>
(1) Investment Castings operating income includes goodwill amortization of $2.9 and $1 million in 1999 and 1998,
respectively, associated with the Howmet common stock purchases in December 1997 and February 1999.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Selected Unaudited Financial Data
Three Months Ended June 30
---------------------------------------------------------------------------------------------
1999 1998
------------------------------------------- ----------------------------------------------
(in millions) Cordant Howmet Consolidated Cordant Howmet Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $ 38.0 $ 49.0 $ 87.0 $ 64.7 $ 41.4 $ 106.1
Capital expenditures (10.9) (34.0) (44.9) (7.6) (19.2) (26.8)
Dividends (3.6) (3.6) (3.7) (3.7)
- ---------------------------------------------------------------------------------------------------------------------------
$ 23.5 $ 15.0 $ 38.5 $ 53.4 $ 22.2 $ 75.6
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENT SALES AND INCOME FOR THE QUARTER
Investment Castings
The following unaudited information summarizes Howmet's results, as separately reported to its shareholders, for the
three-months ended June 30:
(in millions) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 369.7 $ 335.7
Cost of goods sold 283.3 257.4
Gross profit 86.4 78.3
Operating income 51.7 49.8
Net income $ 31.3 $ 27.4
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Following is a reconciliation of Howmet's contribution to the Company's income for the three-months ended June 30:
(in millions) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Howmet net income $ 31.3 $ 27.4
Less preferred paid-in-kind dividend (1) (1.4)
- -------------------------------------------------------------------------------------------------------------------
Income available to common shareholders 31.3 26.0
- -------------------------------------------------------------------------------------------------------------------
Company's interest in Howmet income (2) 26.5 16.1
Add preferred paid-in-kind dividend 1.4
- -------------------------------------------------------------------------------------------------------------------
Howmet's contribution to the Company's income 26.5 17.5
Less the Company's 7 percent tax on Howmet income (1.2)
- -------------------------------------------------------------------------------------------------------------------
Howmet's total after-tax contribution to the Company's
income $ 26.5 $ 16.3
===================================================================================================================
<FN>
(1) Howmet's 9 percent paid-in-kind preferred stock owned by the Company was redeemed on February 17, 1999 for $66.4
million.
(2) On February 8, 1999, the Company increased its ownership in Howmet from 62 percent to 84.6 percent.
</FN>
</TABLE>
Howmet's sales increased $34 million or 10 percent over the prior year's
quarter, due to increased demand for components for large Industrial Gas
Turbines (IGT's) used for electrical power generation. Strong demand for
additional electrical power generation capacity is expected to continue for
the next few years, resulting in substantial growth for the Company's
products. The sales increase came from the IGT market. Sales to the
aerospace market were approximately 6 percent lower than the prior year's
quarter with approximately one-third of the decrease due to price
reductions. Such price reductions, as well as similar reductions for the
IGT Market, were a function of sharing cost savings with customers.
<PAGE>
Howmet's net income was $31.3 million for the quarter, a 14 percent
increase from $27.4 million in the prior year's quarter. The higher income
resulted primarily from the increased IGT revenue. The current quarter also
includes the aforementioned $1.3 million after-tax SAR expense which was
the reversal of the benefit recorded in the first quarter. Interest expense
was $1.5 million lower than the prior year's quarter due to lower debt
levels.
Fastening Systems
Fastening systems sales for the quarter increased $15.3 million or 15
percent over last year. This increase reflects both the addition of
Jacobson Manufacturing's results for an entire quarter in the current year
and continued strength in the industrial markets. During the quarter, a $5
million pre-tax charge was taken to close and relocate the aerospace
fastener operations at Lakewood, California to Huck's nearby Carson,
California facility. The Lakewood closure will result in reduced fixed
costs of approximately $6 million pre-tax annually and allow utilization of
available capacity at Carson. Operating income increased $.7 million or 4
percent over last year excluding the Lakewood relocation charge. The
quarter also included a $1.4 million pre-tax, non-cash charge to write-off
an unused automotive fastener patent. Operating margins for the quarter,
excluding the Lakewood charge and the patent write-off, were 16.1 percent,
compared to 16.6 percent last year. Aircraft fastener sales declined 33
percent from the prior year's quarter primarily as a result of weak
domestic aerospace demand. Excluding Jacobson's results, the patent
write-off and the Lakewood relocation charge, Huck's sales and operating
income decreased 12 and 14 percent, respectively, from the prior year.
Fastening systems book-to-bill ratios, defined as period orders divided by
period shipments, for the three months ended June 30, were as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace .82 .89
Industrial .99 .98
- --------------------------------------------------------------------------------------------------------------------
Fastening Systems Total .94 .93
====================================================================================================================
</TABLE>
Book to bill ratios are used as an indicator of future sales, but as with
all indicators, such ratios have inherent limitations and actual results
may be different. Since the book to bill ratio is not a generally accepted
accounting principle disclosure, other companies may calculate this ratio
differently and utilize the ratio for different purposes.
<PAGE>
Propulsion Systems
Propulsion Systems sales for the quarter decreased 19 percent compared to
the prior year primarily from lower activity in the commercial launch motor
and Space Shuttle Reusable Solid Rocket Motor (RSRM) programs. Propulsion
Systems operating income increased 10 percent from the prior year's quarter
due primarily to a retroactive increase in the fee booking rate in the RSRM
program. Income from commercial launch motor programs decreased from the
prior year. Operating margins were 16.1 percent in the current quarter
compared to 11.9 percent in 1998.
During the quarter, the RSRM contract accounted for approximately 16
percent of the Company's consolidated net sales and 25 percent of
consolidated operating income. Current year RSRM sales are expected to
decline compared to prior year's sales. The current NASA Buy 3
cost-plus-award-fee contract provides for Company production of the Space
Shuttle solid rocket motors through 2001. Buy 3 profit margins are expected
to improve through 2001 as the contract approaches completion.
RSRM Buy 4
In December 1998, an agreement was reached with NASA outlining all
significant contractual issues for the RSRM Buy 4 contract. The final
contract signing is expected in the third quarter of 1999. The Buy 4
contract type is a cost-plus-incentive/performance/award-fee. The Buy 4
contract includes 35 flight sets, or 70 motors, and three flight support
motors. Contract completion is expected during 2005. Currently, the Company
anticipates follow-on contracts for RSRM motors through the life of the
Space Shuttle program. The Space Shuttle program is expected to continue in
service through approximately 2010. Long lead material procurement and
production has begun under the Buy 4 agreement. The contract is subject to
annual Congressional funding. While the Buy 4 agreement is similar in
structure and profit potential to the Buy 3 contract, until performance
incentives are met, Buy 4 profit margins will be lower than margins
currently being recognized on Buy 3.
On February 9, 1999 the Company was notified that NASA intends to
consolidate the Company's RSRM contract into the Space Flight Operations
Contract with United Space Alliance (U.S.A.). This change will mean the
Company will perform RSRM activities under a subcontract to U.S.A. instead
of as a prime contractor to NASA. The target date established by NASA for
the transition is October 1, 2000. The Company does not anticipate any
significant change to its RSRM contract terms or profit potential as a
result of the change.
<PAGE>
Income Year-to-Date
Net income for the six-months ended June 30, 1999, was $85.7 million, or
$2.29 per share, a 16 percent increase, compared to the prior year's period
net income of $73.9 million or $1.96 per share. Net income for the
six-month period included a $7.1 million or $.19 per share tax benefit from
reversing a dividend tax previously recorded on the Company's share of
Howmet's income. The current six month period's results also included a
$3.1 million or $.08 per share charge for the closure and relocation of the
Lakewood, California aerospace fastener facility. Net income for the prior
year period included a $2.6 million or $.07 per share tax refund. Excluding
the unusual items listed above, net income of $81.7 million or $2.18 per
share increased 15 percent over the prior year period.
<TABLE>
<CAPTION>
Summary unaudited financial information for the six-months ended June 30 follows:
Better
(in millions, except per share data) 1999 1998 (Worse) Percent
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Investment Castings $ 742.4 $ 664.1 $ 78.3 12
Fastening Systems 237.1 190.8 46.3 24
Propulsion Systems 296.5 336.4 (39.9) (12)
- ----------------------------------------------------------------------------------------------------------------------
Total sales $ 1,276.0 $ 1,191.3 $ 84.7 7
- ----------------------------------------------------------------------------------------------------------------------
Operating income:
Investment Castings (1) $ 103.8 $ 92.6 $ 11.2 12
Fastening Systems 30.7 29.9 .8 3
Propulsion Systems 42.9 41.3 1.6 4
Unallocated corporate expense (14.9) (10.4) (4.5) (43)
- ----------------------------------------------------------------------------------------------------------------------
Total operating income 162.5 153.4 9.1 6
Interest income 4.7 6.5 (1.8) (28)
Interest expense (20.2) (12.7) (7.5) (59)
Other, net (.7) (1.2) .5 42
Income taxes (48.7) (53.4) 4.7 9
- ----------------------------------------------------------------------------------------------------------------------
Income before minority interest 97.6 92.6 5.0 5
Minority interest (11.9) (18.7) 6.8 36
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 85.7 $ 73.9 $ 11.8 16
=======================================================================================================================
Net income per share:
Basic $ 2.34 $ 2.03 $ .31 15
Diluted $ 2.29 $ 1.96 $ .33 17
<FN>
(1) Investment Castings operating income includes goodwill amortization of $5.1 and $2 million in 1999 and 1998,
respectively, associated with the Howmet common stock purchases in December 1997 and February 1999.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Selected Unaudited Financial Data
Six Months Ended June 30
---------------------------------------------------------------------------------------------
1999 1998
------------------------------------------- ----------------------------------------------
(in millions) Cordant Howmet Consolidated Cordant Howmet Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $ 51.9 $ 59.1 $ 111.0 $ 96.3 $ 36.0 $ 132.3
Capital expenditures (18.7) (57.3) (76.0) (14.3) (35.8) (50.1)
Dividends (7.3) - (7.3) (7.3) - (7.3)
- ---------------------------------------------------------------------------------------------------------------------------
$ 25.9 $ 1.8 $ 27.7 $ 74.7 $ .2 $ 74.9
- ---------------------------------------------------------------------------------------------------------------------------
Total Debt (a) $ 601.4 $ 131.4 $ 732.8 $ 333.3 $ 172.9 $ 506.2
Less cash & cash
Equivalents 8.2 9.6 17.8 7.3 10.1 17.4
- ---------------------------------------------------------------------------------------------------------------------------
$ 593.2 $ 121.8 $ 715.0 $ 326.0 $ 162.8 $ 488.8
===========================================================================================================================
<FN>
(a) Excludes Pechiney note payable in 1998 data.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Investment Castings
The following unaudited information summarizes Howmet's results, as separately reported to its shareholders, for the
six-months ended June 30:
(in millions) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 742.4 $ 664.1
Cost of goods sold 567.9 510.1
Gross profit 174.5 154.0
Operating income 108.9 94.6
Net income $ 66.1 $ 51.9
====================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Following is a reconciliation of Howmet's contribution to the Company's income for the six-months ended June 30:
(in millions) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Howmet net income $ 66.1 $ 51.9
Less preferred paid-in-kind dividend (1) (.8) (2.7)
- -------------------------------------------------------------------------------------------------------------------
Income available to common shareholders 65.3 49.2
- -------------------------------------------------------------------------------------------------------------------
Company's interest in Howmet income (2) 53.3 30.5
Add preferred paid-in-kind dividend .8 2.7
- -------------------------------------------------------------------------------------------------------------------
Howmet's contribution to the Company's income 54.1 33.2
Less the Company's 7 percent tax on Howmet income (2.3)
- -------------------------------------------------------------------------------------------------------------------
Howmet's total after-tax contribution to the Company's
income $ 54.1 $ 30.9
===================================================================================================================
<FN>
(1) Howmet's 9 percent paid-in-kind preferred stock owned by the Company was redeemed on February 17, 1999 for $66.4
million.
(2) On February 8, 1999, the Company increased its ownership in Howmet from 62 percent to 84.6 percent.
</FN>
</TABLE>
Howmet's sales for the current six-month period increased $78.3 million or
12 percent over the prior year period. The 1999 sales increase is due to
volume increases in the IGT market. Sales to the aerospace market were
approximately 3 percent lower than 1998, with approximately one-third of
the decrease due to price reductions. Such price reductions, as well as
similar reductions for the IGT market were a function of sharing cost
savings with customers.
Howmet's net income was $66.1 million for the six-month period, a 27
percent increase from $51.9 million in the prior year period. The principle
reason for the higher income was the increased revenue in the IGT market
and improved operating margins. Interest expense was $3.3 million lower
than the prior year period due to lower debt levels.
Starting in late 1998, Howmet discovered certain product testing and
specification non-compliance issues at two of Cercast's facilities. Howmet
notified customers, is actively cooperating with them and government
agencies in the investigation of these matters, and is implementing
remedial action. In addition, Cercast has been, and expects to continue for
some time to be, late in delivery of products to certain customers. A
definitive estimate of Howmet's cost to resolve these matters cannot be
made until all claims have been received and analyzed. Howmet knows of no
in-service problems associated with these issues. Based on preliminary
evaluation, however, Howmet recorded an estimated loss of $4 million in its
consolidated statement of income for the year ended December 31, 1998. On
July 23, 1999, Howmet received a customer claim, which was significantly
higher than, and which could possibly be resolved for an amount in excess
of amounts accrued. Howmet is in the very early stages of evaluating this
claim but believes it is excessive. Based on currently known facts, the
Company believes that additional cost to Howmet beyond amounts accrued,
would not have a material adverse effect on the Company's financial
position, cash flow, or annual operating results. However, additional cost
when and if accrued may have a material adverse impact on the quarter in
which it may be accrued.
<PAGE>
On March 3, 1999, Howmet received from the U.S. Air Force a Notice of
Proposed Debarment from future U.S. government contracts and subcontracts
directed at Howmet Corporation and its Cercast Canadian subsidiary. The Air
Force terminated the proposed debarment with respect to Howmet Corporation
by letter to it on March 10, 1999, thus permitting Howmet Corporation to
resume accepting U.S. government contracts and subcontracts. The continuing
proposed debarment with respect to Howmet's Cercast Canadian subsidiary is
based on the product testing and specification non-compliance issues
discussed above, and improper vendor payments previously disclosed.
Debarment does not affect existing Cercast contracts, other than
extensions. Howmet is negotiating an Administrative Agreement with the Air
Force under which the Notice of Proposed Debarment would be terminated. In
the unlikely event a debarment were imposed for an extended period of time,
such action would negatively impact sales and profits in future periods.
However, the Company believes that such impact would be immaterial to
Howmet's results of operations.
Fastening Systems
Fastening Systems sales for the six-months ended June 30, 1999 increased
$46.3 million or 24 percent over the prior year period, reflecting both the
addition of Jacobson Manufacturing's results and continued strength in
industrial markets. During the current period, a $5 million pre-tax charge
was taken to close and relocate the aerospace fastener operations at
Lakewood California to Huck's nearby Carson, California facility. The
Lakewood closure will result in reduced fixed costs of approximately $6
million pre-tax annually and allow utilization of available capacity at
Carson. Operating income increased $5.7 million or 19 percent over last
year excluding the Lakewood relocation charge. The six-month period also
included a $1.4 million pre-tax, non-cash charge to write-off an unused
automotive fastener patent. Operating margins for the current period
excluding the Lakewood charge and patent write-off were 15.6 percent,
compared to 15.7 percent last year. Aircraft fastener sales declined 26
percent from the prior year period primarily as a result of weak domestic
aerospace demand. Excluding Jacobson's results and the Lakewood relocation
charge, Huck's sales and operating income decreased 9 and 16 percent,
respectively, from the prior year. The Fastening Systems plastics
operations are experiencing low margins in a highly competitive market.
Such low margins are expected to continue.
<TABLE>
<CAPTION>
Fastening systems book-to-bill ratios, defined as period orders divided by period shipments, for the six months ended June
30, were as follows:
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aerospace .70 .97
Industrial 1.03 1.02
- --------------------------------------------------------------------------------------------------------------------
Fastening Systems Total .92 .99
====================================================================================================================
<FN>
Book to bill ratios are used as an indicator of future sales, but as with all indicators, such ratios have inherent
limitations and actual results may be different. Since the book to bill ratio is not a generally accepted accounting
principle disclosure, other companies may calculate this ratio differently and utilize the ratio for different purposes.
</FN>
</TABLE>
<PAGE>
Propulsion Systems
Propulsion Systems sales decreased $39.9 million or 12 percent for the
six-month period ended June 30, 1999, compared to the prior year due
primarily to lower activity in the commercial launch motor and RSRM
programs. Operating income increased 4 percent for the same period due
primarily to a retroactive increase in the fee-booking rate in the RSRM
program and nonrecurring costs in 1998. Operating income from commercial
launch motor programs decreased from the prior year. Propulsion systems
operating margins were 14.5 percent compared to 12.3 percent in 1998.
OTHER MATTERS
Selling, general and administrative
For the quarter and six-months ended June 30, 1999, selling, general and
administrative expenses increased $9.5 and $14.9 million, respectively,
compared to the prior year. Goodwill amortization increased $3 and $5.3
million for the quarter and six-month period, respectively, due to the
purchase of an additional 22.6 percent of Howmet common stock in February
1999, and the purchase of Jacobson in mid-June 1998. Howmet's general and
administrative expenses increased $5.6 and $5.8 million for the quarter and
six-month period, respectively, due to increased costs necessary to support
Howmet's higher sales volume. The increase in the second quarter also
included the $2.6 million SAR reversal due to the increase in Howmet's
stock price. Selling, general and administrative expenses for the quarter
and six-month period increased $.6 and $3.5 million, respectively due to
the addition of Jacobson's selling, general and administrative expenses and
to increased corporate costs and marketing efforts. Corporate unallocated
costs increased due to increased costs noted above and fewer costs being
allocated to Propulsion systems contracts. Increased sales in the
commercial segments reduced the amount of corporate costs allocable to
Propulsion systems.
Interest Expense
Interest expense increased $3.8 and $7.5 million for the quarter and
six-month period, respectively, due to the Company's increased borrowings
related to the 22.6 percent purchase of Howmet and the Jacobson
acquisition.
<PAGE>
Income Taxes
The Company had an effective income tax rate of 33 percent, compared with
37 percent for the same six-month period in the prior year. The effective
income tax rate for the six-month period was 38.5 percent before reversal
of the $7.1 million or $.19 per share dividend tax previously recorded on
the Company's share of Howmet income. Beginning in February 1999, Howmet's
taxable income will be included in the Company's consolidated Federal
income tax return, and a dividend tax will no longer be required on the
Company's share of Howmet results. The Company's effective tax rate for the
prior year period would have been higher if not for a $2.6 million tax
refund in the second quarter.
YEAR 2000 REMEDIATION
The Company has a decentralized Information Systems (I.S.) function,
wherein each of its three business segments operates autonomously with its
own I.S. organization. Accordingly, each segment is conducting its own Year
2000 project that is unique to its particular operating environment. Each
of the business segment projects is similarly organized into four distinct
categories of effort. These four categories include the following: Business
Information Systems Remediation; Embedded Processor Systems Remediation;
Customer and Supplier Readiness; and Risk Assessment, Worst Case Scenarios
and Contingency Planning.
Investment Castings
Business Information Systems Remediation: Investment Castings I.S.
organization has identified all date logic problems on its central
mainframe and distributed server production systems and remediation is
currently in process. This portion of the Year 2000 remediation project,
which began in 1996, has been, with minor exceptions, completed as of June
of 1999. All central systems have now been placed under restrictive change
control procedures to ensure that corrected systems are not inadvertently
impacted by further changes. System-wide testing activity will be conducted
periodically throughout 1999. The central I.S. Year 2000 project team also
provides oversight for the sixteen small, local I.S. groups located at
Howmet plant facilities. These plant teams have each completed a Year 2000
readiness assessment that identified all local business systems and
equipment requiring corrective action or replacement. This remediation work
is complete for 97 percent of the critical systems at all plants. Work on
the remaining critical systems and devices is being closely monitored by
the central I.S. Year 2000 project team, with completion planned in the
third quarter of 1999.
<PAGE>
Embedded Processor Systems Remediation: The central I.S. organization
provided each plant facility with guidance and support for embedded
processor identification, evaluation, testing and remediation, where
required. The plant teams have tested and/or corrected all of their
critical embedded systems.
Customer and Supplier Readiness: Howmet I.S. and procurement personnel have
communicated with several hundred of their key customers, suppliers and
third parties regarding their respective Year 2000 readiness status and
plans. These communications have included written inquiries or
questionnaires and, in some instances, on-site meetings. Any electronic
interfaces with individual business associates are being addressed on a
case-by-case basis. Management has also responded appropriately to Year
2000 readiness inquiries from Howmet customers, suppliers and third
parties. Howmet is not aware of any significant readiness issues at this
time.
Risk Assessment, Worst Case Scenarios and Contingency Planning: Howmet
Castings management believes the most likely worst case scenario would be a
one or two week shutdown of individual pieces of critical equipment or
computer systems at one or two manufacturing facilities, disrupting but not
totally eliminating production at those plants. Workaround procedures would
be established by the end of that period. Total remediation of the
underlying problem could stretch over a six-month period. Management
further believes that this is more likely to occur at its foreign
facilities than its U.S. plants. Even in this eventuality, management
believes that any loss of revenue during the period involved would be
substantially recovered in later periods due to deferral rather than
cancellation of orders or deliveries.
Howmet is currently developing Year 2000 Contingency Plans in three areas:
1) business systems processing at Howmet's primary data center; 2)
procurement activities for critical raw materials and services, including
transportation; and 3) local manufacturing processes and systems at each
facility. These plans are expected to be completed during the third quarter
of 1999. Howmet expects to employ various methods of risk mitigation such
as: devising alternate manual processes for critical applications;
installing a generator at Howmet's central computing facility; establishing
a corporate command post and providing full staffing of I.S. and plant
maintenance personnel during the year-end weekend; conducting extensive
future date testing; developing an inventory build-up strategy; imposing
extra product quality testing during the new year; validating customer and
supplier electronic interfaces; scheduling shutdowns of critical equipment
on December 31, 1999; and active monitoring, measuring, and auditing of
plant compliance.
<PAGE>
Cost Information: The estimated cost at completion for all phases of the
Howmet Castings project is $16.3 million. An estimated $6.7 million (41
percent) of this amount is for I.S. labor and miscellaneous project costs;
these costs are being expensed as routine I.S. systems maintenance as
incurred over the three-year duration of the project. Another $7 million
(43 percent) is for software package purchase and implementation costs for
applications that were installed or expedited for Year 2000 purposes. An
additional $2.6 million (16 percent) has been spent for infrastructure
upgrades or replacement. Approximately $13.9 million (85 percent) had been
expended as of June 30, 1999; the estimated $2.4 million (15 percent) in
remaining costs will be expended during the remainder of 1999 and early
2000. No major information systems initiatives have been adversely affected
due to staffing constraints or expenditures needed to remedy Year 2000
issues. Management has concluded that it will substantially benefit from
these efforts because of the elimination of numerous old systems,
implementation of several new state-of-the-art applications, new and
thorough documentation of many older systems, and the creation of updated
and improved business continuity plans.
Propulsion Systems
Business Information Systems Remediation: Thiokol Propulsion has completed
its renovation on all major production applications. The objective of the
project, which began in early 1996, was to identify all date-related
program logic, to renovate, replace or eliminate all date processing
problems, to validate the results via integrated system testing, and to
implement into production the corrected application software. All systems
that were replaced or renovated have been moved into production operation.
The production environment will be maintained under restrictive change
control procedures to ensure that corrected systems are not inadvertently
impacted by further changes. System-wide testing activity will be conducted
periodically throughout 1999. Additionally, all computer and internal
telecommunications hardware systems have been evaluated, upgraded and
tested, as required, and placed into production operation.
Embedded Processor Systems Remediation: Cross-functional teams at each
Thiokol Propulsion facility have inventoried, evaluated, replaced or
renovated, and tested all embedded processor systems with potential Year
2000 readiness risks. The systems evaluated include programmable process
controllers, recording devices, data collection devices, security and alarm
systems, pumps and pumping stations, power metering systems, elevators,
HVAC timers, protective relays and card readers. To date, 99 percent have
been corrected or replaced with only minor issues remaining to be resolved
during the third quarter.
<PAGE>
Customer and Supplier Readiness: Thiokol Propulsion is actively
communicating with its key customers, suppliers and third parties to help
ensure that its supply chain dependencies and interfaces are or will be
Year 2000 ready. This initiative, which will continue throughout 1999,
involves written inquiries or questionnaires to these business associates
regarding the status of their respective Year 2000 readiness efforts. For
certain key customers, critical suppliers (i.e. railways, sole sources,
critical materials and utilities) and third parties, on-premise meetings
have been conducted to review detailed project plans and timetables.
Thiokol has also responded appropriately upon receipt of such inquiries
from its customers, suppliers and third parties. Management is not aware of
any significant readiness issues at this time.
Risk Assessment, Worst Case Scenarios and Contingency Planning: Risk
assessment and contingency planning for the Company's business information
systems and embedded processor systems are expected to be completed by
September 1999. Additional categories of risk assessment and contingency
planning focus on the external influences that the Company does not
directly control. The outcomes of ongoing external renovation activities
will be rigorously monitored with risks assessed and contingency plans put
in place as required. The critical supplier chain has been addressed and
contingency plans put into place, mitigating the risk of disruption to
manufacturing operations for lack of materials or finished components. The
NASA-critical solid rocket motor program risk has been assessed as minimal.
With five flights planned for 1999 and ongoing production, five flight sets
of hardware will be in inventory at Kennedy Space Flight Center by December
1999. This inventory will support the shuttle launch schedule through
August 2000. Additionally, in December 1999, 3.6 flight sets of hardware
will be in inventory at Thiokol Propulsion facilities. Risk assessment and
contingency planning will be a dynamic activity and as such will be
monitored and acted upon on a continual basis as risks are identified.
Cost Information: The estimated cost at completion for all phases of the
Thiokol Propulsion project is $9 million. These costs are recorded as
incurred over the three-year duration of the project. Approximately $8.8
million (98 percent) had been expended through June 30, 1999, and the $.2
million (2 percent) in estimated remaining costs will be expended during
the remainder of 1999. Of the total estimated project cost, 58 percent is
labor and miscellaneous project-related expense, 12 percent is for I.S.
infrastructure upgrades and replacement, and 30 percent is for software
package implementations that were performed or expedited to address Year
2000 issues. No major information systems initiatives have been adversely
affected due to staffing constraints or expenditures needed to remedy Year
2000 issues. On average, Year 2000 project spending has consumed only 7.5
percent of the annual I.S. budget and 10-12 percent of I.S. staffing.
Thiokol Propulsion management has concluded that it will substantially
benefit from these efforts because of the elimination of several old
systems, the implementation of new state-of-the-art applications, new and
thorough documentation of many older systems, and the creation of updated
and improved business continuity plans.
<PAGE>
Fastening Systems
Business Information Systems Remediation: Huck Fasteners is employing a
dual approach to Year 2000 readiness for its business information systems.
For many years most Huck locations have used standard commercial,
vendor-supported application software products. As of June 30, 1999, seven
of those locations had been upgraded to versions of these software products
that address virtually all Year 2000 readiness issues. All remaining Huck
locations, including its international sites and headquarters offices, are
implementing a recently purchased Enterprise Resource Planning (ERP)
software product that is both Year 2000 and Euro ready. Of the eight sites
scheduled for implementation of this ERP system, six were in production
operation as of June 30, 1999, and the remaining two sites will be
operational by September 1999. Additional local and system-wide testing
activity is being conducted during the remainder of 1999.
Embedded Processor Systems Remediation: Huck Fasteners has a dedicated Year
2000 program office that supports each site in establishing a
cross-functional team to identify, evaluate, test and, where needed, to
modify or replace embedded processor systems. To date, formal inventories
have been completed, criticality assessments have been made and evaluations
of individual devices have been completed. Less than 5% of the production
equipment required remediation efforts and 50% of that has been completed.
Remediation work on the remaining equipment is scheduled for completion by
September 1999.
Customer and Supplier Readiness: Huck Fasteners has submitted written
inquiries or questionnaires to all major customers, critical suppliers and
certain third parties to determine their respective Year 2000 readiness
status and plans. Any electronic interfaces will be coordinated with these
business associates on a case-by-case basis. Huck's electronic data
interchange (EDI) systems have been replaced with Year 2000 ready products
and were operational as of June 30,1999. Management has responded
appropriately to Year 2000 inquiries made by any of its customers,
suppliers and third parties. Huck is not aware of any significant Year 2000
readiness issues at this time.
Risk Assessment, Worst Case Scenarios and Contingency Planning: Using the
approach of certain major Huck customers, management has contracted with
independent assessors to audit its progress against plan and with respect
to industry benchmarks. Additionally, several customers have provided
assessment teams to evaluate individual sites and Huck's overall Year 2000
readiness and plans. These assessments are being used to refine Huck's
approach to risk assessment and contingency planning. Huck headquarters has
completed a basic contingency planning approach and is working with
individual sites to ensure completion of their respective plans by
September 1999.
<PAGE>
Cost Information: The estimated total cost at completion for all phases of
the Huck Year 2000 project is $12.9 million. Approximately $8.7 million (67
percent) of that total amount will be capitalized. The estimated $4.2
million (33 percent) in remaining cost is classified as routine I.S.
maintenance and is being expensed as incurred over the three-year life of
the project. Approximately $8.8 million (68 percent) had been expended as
of June 30, 1999, and the estimated $4.1 million (32 percent) in remaining
costs will be expended in 1999 and during the first quarter of 2000. No
major I.S. initiatives have been adversely affected due to staffing
constraints or expenditures needed to remedy Year 2000 issues. Huck
management has concluded that it will substantially benefit from these
efforts because of the elimination of several old systems, the
implementation of new state-of-the-art applications, and the creation of
updated and improved business continuity plans.
Euro Conversion
The Company is assessing the impact of the Euro conversion on its business
operations and is currently implementing a strategy which will allow it to
operate in a Euro environment during the transition period, January 1, 1999
through December 31, 2001, and after full Euro conversion post July 1,
2002. The Company does not anticipate any material impact from the Euro
conversion on its computer software plans. Computer software changes
necessary to comply with the Year 2000 issue are generally compliant with
the Euro conversion issue. Enterprise Resource Planning (ERP) software
being implemented at Huck as a part of Year 2000 readiness will be Euro
compliant. No additional costs related to Euro compliance are expected for
the ERP software. Some expense is anticipated for minor system
modifications, but is not expected to be significant. The Company's payroll
system has not yet been examined and will require modifications to be Euro
compliant. The cost of payroll systems modifications is also undetermined.
The Company expects no Euro conversion impact to its Thiokol Propulsion
business segment. The Company expects no significant impact to its
contracting policies or competitive position related to its three business
segments as a result of the Euro conversion. The Company is reviewing the
impact of the Euro conversion on its foreign exchange exposure and has
determined a modest increase in this exposure due to the Company's United
Kingdom operation's acceptance of Euro denominated contracts. The Company
does not expect any significant changes to its current hedging policy and
does not expect any significant increases in its foreign exchange exposure.
Liquidity and Capital Resources
For the current six-month period, consolidated net cash flows from
operating activities were $111 million compared to $132.3 million last
year. Compared to the prior year, the higher net income in the current
period was offset by an increase in receivables. The increase in
receivables resulted from collection timing issues related to both
Investment Castings and Propulsion Systems receivables balances. The
increase in inventories was primarily from the Investment Castings segment.
<PAGE>
Acquisition activity included $385 million for the remaining 22.65 million
shares of Howmet International Inc. common stock owned by Carlyle Blade
Acquisition Partners, L.P. The acquisition amount included entering into a
new Standstill Agreement and extending an existing covenant not to compete.
Consolidated capital spending on property, plant and equipment used $76
million in the current period compared to $50.1 million in the prior year.
Howmet used $57.3 million in capital expenditures, mainly for capacity
expansions to serve the core business as well as additional expenditures to
support new products and process enhancement activities.
Financing activities for the six-month period provided $325.7 million of
cash compared to $158.5 million of cash provided in the prior year period.
In February, the Company borrowed $385 million to finance the Howmet common
stock purchase. During the period the Company repaid a total of $170.1
million of debt, $55 million being repaid by Howmet.
On February 17, 1999, Howmet paid $66.4 million to redeem all of its 9
percent paid-in-kind preferred stock. The payment was made to Cordant
Technologies, the sole preferred stockholder. Howmet borrowed under its
existing senior revolving credit facility to make this payment and Cordant
Technologies used the proceeds to reduce debt under its senior revolving
credit facilities.
During the six-month period, Cordant did not repurchase any shares of
common stock. In the prior year period, Cordant repurchased 265,200 shares
of it's common stock for $10.8 million. There are approximately 2.4 million
shares available for repurchase under the current share repurchase
authorization. Cordant will repurchase shares when, and in amounts as it
deems appropriate.
Cordant does not have access to Howmet cash balances except through Howmet
declaring a cash dividend to its shareholders. Howmet is limited as to the
amount of dividends it can declare under the terms of Howmet's financing
agreements. Howmet does not currently intend to pay dividends.
At December 31, 1998, the Company's balance sheet includes $716.4 million
of Pechiney Notes and a related $716.4 million Restricted Trust asset. On
January 4, 1999, Pechiney, S.A. (Howmet's previous owner) repaid the
Pechiney Notes in full. As a result, the Restricted Trust, which secured
Pechiney, S.A's agreement to repay the notes was terminated. No Howmet or
Cordant funds were used in the payment of the Notes.
At June 30, 1999, Cordant had $500 million in revolving credit facilities
with $120 million available for additional use. In addition, on June 30,
1999, Howmet had a $300 million revolving credit facility with $222.4
million available for additional borrowing and/or letters of credit.
The Company is considering refinancing some of its outstanding bank debt
through a public debt offering. The Company has $150 million remaining
under a $300 million shelf registration filed in October 1996.
<PAGE>
Howmet has an agreement to sell, on a revolving basis, an undivided
interest in a defined pool of accounts receivable. Howmet has received $55
million from the sale of such receivables and has deducted this amount from
accounts receivable at June 30, 1999. The $53 million retained receivables
represents the receivables set aside to replace sold receivables in the
event they are not fully collected.
<TABLE>
<CAPTION>
The Company's liquidity ratio's were as follows:
June 30 December 31
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Working Capital (in millions) $ 58.9 $ 94.8
Current Ratio 1.1 1.2
Debt-to-equity 99.2% 60.6%
Debt-to-total capital 51.6% 40.8%
=================================================================================================================
</TABLE>
All of the above ratios for 1998 exclude the Pechiney Notes and the
Restricted Trust terminated with Pechiney S.A.' payment of its Notes on
January 4, 1999. The debt-to-total-capital ratio includes the $55 million
receivable facility at Howmet. The current ratio and working capital
decreases resulted primarily from increased short-term debt levels.
Estimated future cash flows from operations, current financial resources,
and available credit facilities are expected to be adequate to fund the
Company' anticipated working capital requirements, capital expenditures,
dividend payments, and stock repurchase program on both a short and
long-term basis. The Company expects that its senior revolving credit
facilities will be renegotiated, restructured, or replaced and continually
reviews its options for other types of long-term financing.
Since December 31, 1998, the cumulative translation adjustment, which is
included in stockholder's equity, changed by $12.1 million. The change is
primarily due to the strengthening of the U.S. dollar relative to the
French franc and United Kingdom pound.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no significant changes in market risks since the end of the
Company's December 31, 1998 year. For more information, please read the
consolidated financial statements and notes thereto included in the
Company's 1999 Notice of Annual Meeting and Proxy Statement, Financial
Information, incorporated by reference in the Annual Report on Form 10-K
for the year ended December 31, 1998.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Investment Castings under the Income Year-to-Date section of
Management's Discussion and Analysis for information relating to the
proposed debarment proceedings pending against the Montreal, Quebec
facility of Howmet Cercast (Canada), Inc. and the Bethlehem, Pennsylvania
facility of Howmet Cercast (U.S.A.), Inc. which discussion is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
<TABLE>
<CAPTION>
The Annual Meeting of Stockholders of the Company was held on May 13, 1999. The results of the following matters presented
to stockholders for vote in person or by proxy were as follows:
1) The election of three directors to serve for three-year terms expiring at the 2002 Annual Meeting.
Name For Withheld
-------------------------------------------- -------------------------------- ---------------------
<S> <C> <C>
Neil A. Armstrong 33,948,416 211,615
William O. Studeman 33,952,803 207,228
Donald C. Trauscht 33,949,268 210,763
1) Ratification of appointment of Ernst & Young, LLP as the independent auditors for the Company for the fiscal year
December 31, 1999.
For Against Abstain
-------------------------------------------- -------------------------------- ---------------------
34,092,327 shares 32,689 shares 35,015 shares
</TABLE>
ITEM 5. OTHER INFORMATION
By-Law Amendments
On July 22, 1999 the Board of Directors amended the By-Laws of the Company
to require notice of stockholder proposals at least 90 days (but in no
event more than 120 days) in advance of the anniversary of the prior year's
Annual Meeting.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. Forward-looking statements, which are
based on assumptions and describe our future plans, strategies and
expectations, are generally identifiable by the use of the words
"anticipate," "believe," "estimate," "expect," "intend," "project," or
similar expressions. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us. Important factors that could cause
actual results to differ materially from the forward-looking statements we
make are set forth under the caption "Risk Factors" and elsewhere in filing
and the documents incorporated by reference. If one or more of these risks
or uncertainties materialize, or if any underlying assumptions prove
incorrect, our actual results, performance or achievements may vary
materially from any future results, performance or achievements expressed
or implied by these forward-looking statements. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements in this paragraph.
We undertake no obligation to publicly update or revise any forward-looking
statements to reflect future events or developments.
RISK FACTORS
Risks which may impact the accuracy of the Company's forward-looking
statements include, but are not necessarily limited to:
Our RSRM contracts with NASA for the space shuttle program may be
terminated or changed by the U.S. government
Our RSRM contracts for NASA's space shuttle program are subject to
substantial performance and financial risks. Approximately 15 percent of
our current revenues are derived from the reusable solid rocket motor (or
RSRM) contracts. Therefore, any change in, or discontinuance of, our RSRM
contracts or the benefits we receive under those contracts could have a
material adverse effect on us. The U.S. government may terminate the
contracts for any reason, or Congress may change the funding available to
the contracts. The U.S. government may also delay or extend deliveries
under the contracts at will. For example, future space shuttle launches
depend upon the status of the international space station. Delays in space
station components may delay launches and affect the RSRM production rates.
Our RSRM contracts are dependent upon NASA's Space Shuttle program, which
is highly dependent upon the viability of the International Space Station.
Should the International Space Station be cancelled, NASA's Space Shuttle
program and our RSRM contracts would likely be cancelled as well. NASA has
also shown initial interest in developing a liquid fly back booster as an
alternative propulsion source or as a replacement for our RSRM motors, and
any development of this or other alternative propulsion sources would
adversely impact us in the future. Additionally, actions by the U.S.
government or us may make the amount of the contract fee already booked
inappropriate, which might cause a retroactive award fee adjustment that
could include reimbursement to the government of fees the government has
paid to us.
<PAGE>
Our current space and defense propulsion contracts as well as our future
propulsion programs with the United States government and prime contractors
may be terminated, renegotiated or not funded
The U.S. government and prime contractors may terminate, renegotiate or not
fund our non-RSRM space and defense contracts, including the Minuteman
regrain and commercial launch vehicle programs, and may not provide
additional contracts or programs in the future. For example, international
treaty negotiations limiting the deployment of ICBM's may impact the level
of Minuteman production. The termination or discontinuance of funding of a
substantial portion of this business could have a material adverse effect
on us.
We cannot assure that we will successfully win new programs or retain
current programs and the failure to do so could have a material adverse
effect on us. Our ability to successfully compete for and win new programs
or retain current programs may be affected by:
o the availability of program funding;
o competition by others with us for such programs on price, quality,
technology, facilities, delivery, and product performance;
o changes in Congressional funding objectives;
o federal agency demand and program management, including program
termination, consolidation or privatization; and
o the degree we successfully manage current programs.
The profitability of such programs with satisfactory return on investment
on lower prices, costs and unit volumes in a shrinking and competitive
government procurement environment may also adversely affect us.
The cyclicality of the aerospace market may materially and adversely affect
us
Sales of our products and services to the domestic and international
commercial aerospace markets are subject to the risks of the cyclical
nature of these markets and the phase of this cycle at any point in time.
Fluctuations in demand for our products in the aerospace industry could
have a material adverse effect on us. Delay or changes in aircraft and
component orders and build schedules may impact the future demand for our
products and our profitability. We cannot assure that there will not be
declines in these markets impacting the demand for our products or the
delivery schedule for existing orders.
<PAGE>
Our failure to satisfy the demands of major customers in the aerospace
market could have a material adverse effect on us
Our major aerospace customers are large and may exercise their market power
among a number of suppliers, including us, competing for their business by
exerting pricing pressure and delivery, inventory, and unit volume
requirements. Our ability to maintain both product and manufacturing
qualifications, meet the needs of our major customers and regulatory
agencies and maintain or improve margins and return on investment in light
of competitive pricing pressures, unit demand, product qualification and
product substitutions by major customers, will be important to our success
in the aerospace market. Our inability to maintain product pricing, as well
as availability, delivery, quality, and service could result in decreased
sales or profitability for us in the aerospace market.
General economic activity and mature industrial markets may negatively
affect our ability to sell our products and services
The products and services sold by us for domestic and international, and
industrial commercial markets, primarily through our Fastening Systems and
Investment Castings segments are subject to the risks of the level of
general economic activity and industry capacity in mature industrial
markets, product applications and technology associated primarily with
aircraft, automotive, transportation, power generation, construction and
other industrial applications. Our Fastening Systems segment is subject to
the cyclical and economic nature of the automotive industry and the market
power of large automotive original equipment manufacturers as to
competition among vendors for pricing, delivery, inventory and unit
volumes. The Fastening Systems plastics operations acquired in the Jacobson
Manufacturing acquisition are subject to major customer turnover and
operate in a highly competitive and fragmented industry.
Our business can also be affected by factors such as management's ability
to:
o successfully react to changes in market conditions and demand;
o expand new and existing product lines;
o Compete successfully with the consolidation of suppliers by major
Fastener Systems customers; and
o improve margins and returns on investment by successfully
implementing asset management, pricing and cost reduction strategies.
Our ability to maintain competitive products, pricing, availability,
delivery and service are also important factors in maintaining customer
relationships and competing effectively with other manufacturers.
<PAGE>
There are risks associated with our ownership of Howmet
The value of Howmet's assets includes significant goodwill. This value may
not be realized by stockholders, including us, if Howmet were sold or
liquidated. In addition, financial covenants and restrictions contained in
certain Howmet credit agreements restrict Howmet's ability to pay cash
dividends to stockholders, including us. As a result, we are restricted in
our access to Howmet's cash flows and other resources. If we are unable to
generate sufficient cash flows from other sources, our ability to repay
amounts due on indebtedness would be materially adversely affected.
Our loss or failure to maintain product quality or manufacturing
qualifications may result in our loss of markets and business
Supplier and customer product qualifications and product quality are
important to us as a purchaser and as a supplier. As a supplier, loss or
failure to maintain product quality or manufacturing qualifications from
major customers including the U.S. government and major commercial
aerospace and aircraft manufacturers and automotive original equipment
manufacturers may result in loss of markets and business, which could have
a material adverse effect on us.
Starting in late 1998, Howmet discovered certain product testing and
specification non-compliance issues at two of its Cercast aluminum casting
operations. Howmet notified customers and is actively cooperating with them
and government agencies in the investigation of these matters and is
implementing remedial action. Howmet does not know of any in-service
problems associated with these products. On July 23, 1999, Howmet received
a customer claim, which was significantly higher than, and which could
possibly be resolved for an amount in excess of amounts accrued. Howmet is
in the very early stages of evaluating this claim but believes it is
excessive. Based on currently known facts, Howmet believes that additional
cost beyond amounts accrued would not have a material adverse effect on
Howmet's financial position, cash flow, or annual operating results.
However, additional cost when and if accrued may have a material adverse
impact on Howmet's operating results in the particular quarter in which
they occur.
On March 3, 1999, Howmet received from the U.S. Air Force a Notice of
Proposed Debarment from future U.S. government contracts and subcontracts
directed at Howmet Corporation, its principal operating subsidiary, and
Howmet Cercast (Canada), Inc. The Air Force unilaterally terminated the
proposed debarment with respect to Howmet Corporation by letter to Howmet
on March 10, 1999, thus permitting Howmet Corporation to resume accepting
U.S. government contracts and subcontracts. The continuing proposed
debarment with respect to Howmet's Cercast Canadian subsidiary is based on
the above testing issues and improper vendor payments that took place at
the Cercast Canadian operations. Debarment does not affect existing Cercast
contracts, other than extensions. Although Howmet is taking steps to have
the proposed Cercast debarment withdrawn, it cannot assure that these steps
will be successful. If a debarment were imposed for an extended period of
time, such action would negatively impact Howmet's sales and profits in
future periods.
<PAGE>
Qualified vendors, component parts, and raw materials qualifications are
important to us in the manufacture of our products, including major
propulsion systems such as the RSRM. Sources, component parts and raw
materials may be limited, and the loss of a major vendor as a supplier, has
the potential to cause a major and material delay in production or program
performance.
Shortages or significant price fluctuations of raw materials used by us
could have a material adverse effect on us
Raw materials that our Investment Castings and Fastening Systems segments
use include a number of metals and minerals, including titanium, hafnium,
aluminum, nickel, cobalt, molybdenum and chromium, among others. Although
we have not experienced significant shortages of our supplies and raw
materials, we cannot assure that shortages will not occur in the future.
Any such shortages could have a material adverse effect on us.
Our Propulsion segment relies upon a number of raw materials specifically
qualified to customer requirements such as, but not limited to, ammonium
perchlorate, aluminum powder, polymers, and insulating materials that are
produced by a limited number of suppliers; and in many cases by sole source
or single source suppliers. Shortages of these materials could adversely
impact the Company.
Prices of raw materials can be volatile, and we ordinarily do not hedge the
price risk of our raw materials. Significant raw materials price
fluctuations could have a material adverse effect on us. For some of the
supplies and raw materials we purchase, including certain metals, we have
no fixed price contracts or arrangements. Commercial deposits of certain
metals, such as cobalt, nickel, titanium, and molybdenum, that are required
for the alloys used in precision castings and aircraft structurals, are
found in only a few parts of the world, and for certain materials only
single sources are readily available. The availability and prices of these
metals and other materials may be influenced by private or governmental
cartels, changes in world politics, unstable governments in exporting
nations, production interruptions, inflation and other factors.
We do not hedge the risk of net asset value fluctuations of our foreign
investments valued in local currencies and therefore may be exposed to
adverse foreign currency rate changes
We do not hedge against net asset values for our foreign investments
attributed to our foreign subsidiaries valued in local currencies. To the
extent our foreign revenue base grows and net asset base expands as the
result of our increased foreign business activity, our exposure to adverse
foreign currency rate movement increases. Our foreign currency risk
exposure is also subject to the stability of the foreign currency of the
country where we maintain foreign operations or do business.
<PAGE>
Year 2000 related problems may disrupt our business information systems,
production or business operations
We have implemented a formal Year 2000 program to address required remedial
action and readiness with respect to our business information and systems
with embedded processors to minimize the risk of business information,
production and business operation disruptions resulting from Year 2000 date
logic problems. Our Year 2000 readiness program also includes an assessment
of the Year 2000 preparedness of major customers, suppliers and critical
third party support. Developing worst case scenarios and contingency
planning are also a part of this program. Although we believe there will be
no material adverse disruptions to our business information systems,
production or business operations, we can not give assurances there will
not be localized business interruption or disruptions within a business
segment as the result of Year 2000 related problems. Such Year 2000
disruptions or interruptions, should they occur, are most likely to impact
foreign operations or result from a Year 2000 related failure at a supplier
or third party providing raw materials, component parts or services that
are required for continuing or supporting our production, business
operations and business information systems. Our management believes the
likelihood of a major or material Year 2000 problem to be remote. Year 2000
problems, if they should occur, however, may disrupt or delay production,
business operations or business information systems at a particular
location of one of our business segments. Such disruption may have a
material and adverse impact on us in the quarter in which the Year 2000
failure occurs.
Environmental issues could have a material adverse effect on us
We are subject to comprehensive and changing federal, state, local and
foreign laws, regulations and ordinances that:
o govern activities or operations that may have adverse environmental
effects such as discharges to air and water, as well as handling and
disposal practices for hazardous materials and wastes, and
o impose liability for the costs of cleaning up, and certain damages
resulting from, sites of past spills, disposals or other releases
of hazardous substances and materials, including liability under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, and similar state statutes for the investigation and
remediation of environmental contamination at properties owned and/or
operated by us and at off-site locations where we have arranged for the
disposal of hazardous substances.
We are involved from time to time in legal proceedings involving
remediation of environmental contamination from past or present operations,
as well as compliance with environmental requirements applicable to ongoing
operations. We cannot assure that material costs or liabilities will not be
incurred in connection with any such proceedings, claims or compliance
requirements or in connection with currently unknown environmental
liabilities.
<PAGE>
We have not completely assessed the impact of the Euro conversion on our
operations
We are currently assessing the impact of the Euro conversion on our
business operations and are currently implementing a strategy intended to
allow us to operate in the Euro environment during the transition period,
January 1, 1999 - December 31, 2001, and after full Euro conversion, post
July 1, 2002. Until we complete our assessment of the Euro conversion
impact, we cannot assure that the Euro conversion will not have a material
adverse effect on our overall business operations.
Our European operations began transacting in Euro denominated contracts
requested by customers and suppliers beginning January 1, 1999. We do not
anticipate any material impact from the Euro conversion on our computer
software plans. Computer software changes necessary to comply with the Year
2000 issue generally include compliant with the Euro conversion. We do not
expect additional costs related to Euro conversion for the Enterprise
Resource Planning software being implemented at Huck and Howmet, but we
anticipate some immaterial expense for minor system modifications. Our
payroll system has not yet been examined and will require modifications to
be Euro-compliant. We have not determined the costs of payroll systems
modifications but we expect those costs to be immaterial. We expect no Euro
conversion impact to the Thiokol Propulsion segment. We do not expect any
material impact to our contracting policies or competitive position on our
three business segments as a result of the Euro conversion. We are
reviewing the impact of the Euro conversion on our foreign exchange
exposure and have determined there will be a modest increase in this
exposure as the result of our United Kingdom operation's acceptance of
Euro-denominated contracts. We do not expect any significant increases in
our foreign exchange exposure except for our United Kingdom operations.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit 3(ii) Amended and Restated By-Laws of Cordant
Technologies Inc., July 22, 1999.
Exhibit 10 Material Contracts
10.1 Form of Cordant Technologies Inc., Executive
Employment Agreement adopted by the Board
of Directors July 22, 1999 covering certain
executives of the Company including three
executive officers of the Company.
Reports on Form 8-K
On June 25, 1999 a Form 8-K was filed. Included therein was Item 5, "Other
Events" disclosing the Company's consideration of Huck International,
Inc.'s aerospace fastener operations at Lakewood, California into the
Carson, California operations. No financial statements were included.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORDANT TECHNOLOGIES INC.
(Registrant)
Date: July 27, 1999. /s/ Richard L. Corbin__________________
Richard L. Corbin, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
/s/ Michael R. Ayers__________________
Michael R. Ayers,
Vice President and Controller
(Principal Accounting Officer)
AMENDED AS OF JULY 22, 1999
BY-LAWS
OF
THIOKOL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
Section 1.1. DELAWARE OFFICE. The principal office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County
of New Castle, and the name and address of its registered agent is The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware.
Section 1.2. OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time
to time require.
Section 1.3. BOOKS AND RECORDS. The books and records of the
Corporation may be kept outside the State of Delaware at such place or
places as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. ANNUAL MEETING; NO ACTION BY WRITTEN CONSENT. The annual
meeting of the stockholders of the Corporation shall be held on such date
and at such place and time as may be fixed by resolution of the Board of
Directors adopted at least ten (10) days prior to the date so fixed, for
the purpose of electing directors and for the transaction of such other
business as may properly come before the meeting. Subject to the rights of
the holders of any class or series of stock having a preference over the
Common Stock of the Corporation as to dividends or upon liquidation
("Preferred Stock"), any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
Section 2.2. SPECIAL MEETING. Subject to the rights of the holders of
any class of Preferred Stock, special meetings of the stockholders may be
called only by the Chairman of the Board
<PAGE>
or by the Board of Directors pursuant to a resolution adopted by a majority
of the Whole Board (as such term is defined in Article EIGHTH of the
Corporation's Restated Certificate of Incorporation (the "Certificate of
Incorporation")).
Section 2.3. PLACE OF MEETING. The Board of Directors may designate
the place of meeting for any annual meeting or for any special meeting of
the stockholders called by the Board of Directors. If no designation is
made by the Board of Directors, the place of meeting shall be the principal
executive office of the Corporation.
Section 2.4. NOTICE OF MEETING; POSTPONEMENTS. Written or printed
notice, stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be delivered not less than
ten (10) days nor more than sixty (60) days before the date of the meeting,
either personally or by mail, to each stockholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon
prepaid, addressed to the stockholder at his address as it appears on the
stock transfer books of the Corporation. Such further notice shall be given
as may be required by law. Business transacted at any special meeting shall
be confined to the purpose or purposes stated in the notice of such special
meeting. Meetings may be held without notice if all stockholders entitled
to vote are present, or if notice is waived by those not present. Any
previously scheduled meeting of the stockholders may be postponed, and
(unless the Certificate of Incorporation otherwise provides) any special
meeting of the stockholders may be cancelled, by resolution of the Board of
Directors upon public notice given prior to the date previously scheduled
for such meeting of stockholders.
Section 2.5. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, a majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting as a
class, the holders of a majority of the shares of such class or series
shall constitute a quorum of such class or series for the transaction of
such business. The chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there
is such a quorum. No notice of the time and place of adjourned meetings
need be given except as required by law. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
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notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 2.6. PROXIES. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing by the stockholder, or by
his duly authorized attorney in fact. Such proxy must be filed with the
Secretary of the Corporation or his representative at or before the time of
the meeting. No proxy shall be valid after three (3) years from the date of
its execution, unless the proxy shall otherwise provide.
Section 2.7. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE
POLLS. The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve
the Corporation in other capacities, including, without limitation, as
officers, employees, agents or representatives, to act at the meetings of
stockholders and make a written report thereof. One or more persons may be
designated as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate has been appointed to act or is able to
act at a meeting of stockholders, the Chairman of the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before
discharging his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to
the best of his or her ability. The inspectors shall have the duties
prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
Section 2.8. NOTICE OF STOCKHOLDER BUSINESS. (a) At an annual
meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought
before an annual meeting business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a stockholder entitled to vote at the
meeting. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than the close of business
on the 60th day nor earlier than the opening of business on the 90th day
prior to the first anniversary of the preceding year's
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annual meeting; provided that in the event that the date of the annual
meeting (other than the 1999 Annual Meeting) is more than 30 days before or
more than 60 days after such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the opening of business on
the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the
10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation; and provided, further, that with
respect to the Corporation's 1999 Annual Meeting, a stockholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Corporation not later than the close of business on February
20, 1999 and not earlier than the opening of business on January 20, 1999.
In no event shall the public announcement of an adjournment of a
stockholder meeting commence a new time period for the giving of a
stockholder's notice as described above. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
proposal is made (i) the name and record address of such stockholder
proposing such business and such beneficial owner, (ii) the class and
number of shares of the Corporation which are beneficially owned by such
stockholder and such beneficial owner, and (iii) any material interest of
such stockholder and such beneficial owner in such business. The Chairman
of an annual meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and
in accordance with the provisions of this Section 2.8, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted. At any special
meeting of the stockholders, only such business shall be conducted as shall
have been brought before the meeting by or at the direction of the Board of
Directors.
(b) For purposes of this Section 2.8 and Section 2.9, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
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(c) Notwithstanding the provisions of Section 2.8 and Section 2.9,
a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in these By-Law shall be deemed
to affect any rights (i) of stockholders to request inclusion of proposals
in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (ii) of the holders of any series of Preferred Stock to
elect directors under specified circumstances.
Section 2.9. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 2.9
shall be eligible for election as Directors. Nominations of persons for
election to the Board of Directors of the Corporation may be made at a
meeting of stockholders by or at the direction of the Board of Directors,
by any nominating committee or person appointed by the Board of Directors
or by any stockholder of the Corporation entitled to vote for the election
of Directors at the meeting who complies with the notice procedures set
forth in this Section 2.9. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not later than the close of
business on the 90th day nor earlier than the opening of business on the
120th day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the opening of business on the 120th day prior
to such annual meeting and not later than the close of business on the
later of the 90th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting
is first made by the Corporation. In no event shall the public announcement
of an adjournment of a stockholder meeting commence a new time period for
the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or re-election as a Director, all information
relating to such person that is required to be disclosed in solicitations
of proxies for election of Directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the
Exchange Act and Rule 14a-11 thereunder (including without limitation such
person's written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected); and (b) as to the stockholder
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giving the notice and the beneficial owner, if any, on whose behalf the
nomination is made (i) the name and record address of such stockholder and
such beneficial owner and (ii) the class and number of shares of the
Corporation which are beneficially owned by such stockholder and such
beneficial owner. The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the By-Laws, and if he should
so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding anything in the second
sentence of this paragraph to the contrary, in the event that the number of
directors to be elected to the Board of directors of the Corporation is
increased and there is no public announcement naming all of the nominees
for director or specifying the size of the increased Board of Directors
made by the Corporation at least 100 days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by
this By-Law shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
Section 2.10. PROCEDURE FOR ELECTION OF DIRECTORS. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, except as otherwise set forth in any
Preferred Stock Designation (as defined in Article FOURTH of the
Certificate of Incorporation) with respect to the right of the holders of
any class or series of Preferred Stock to elect additional directors under
specified circumstances, a plurality of the votes cast thereat shall elect.
Except as otherwise provided by law, the Certificate of Incorporation, any
Preferred Stock Designation, the By-Laws of the Corporation or resolution
adopted by the Whole Board, all matters other than the election of
directors submitted to the stockholders at any meeting shall be decided by
the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the matter.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
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Directors. In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Certificate of Incorporation or by these By-Laws
required to be exercised or done by the stockholders.
Section 3.2. NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights
of the holders of any class or series of Preferred Stock to elect directors
under specified circumstances, the number of directors shall be fixed from
time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board. Commencing with the 1989 annual meeting of stockholders of
the Corporation, the directors, other than those who may be elected by the
holders of any series of Preferred Stock under specified circumstances,
shall be divided, with respect to the time for which they severally hold
office, into three classes, with the term of office of the first class to
expire at the 1990 annual meeting of stockholders, the term of office of
the second class to expire at the 1991 annual meeting of stockholders and
the term of office of the third class to expire at the 1992 annual meeting
of stockholders, with each director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the 1990 annual meeting, (i)
directors elected to succeed those directors whose terms then expire shall
be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election, with each director to hold
office until his or her successor shall have been duly elected and
qualified, and (ii) if authorized by a resolution of the Board of
Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created. In order
to be qualified to serve as a director, a person must (a) not have attained
the age of seventy (70) years and (b) either (i) be an officer or employee
of the Corporation and not (A) have voluntarily resigned from the position
or office he held at the time of his election as a director, (B) have
retired or been retired pursuant to the requirements of a pension, profit
sharing, or similar plan or (C) have, at the time of his election as a
director, held a position or office in the Corporation which has been
changed, other than by an upward or expanded promotion or (ii) in the case
of any person who is not an officer or employee of the Corporation, not (A)
have retired from or severed his connection with the organization with
which he was affiliated at the time of his election as a director or (B)
have held a position or office with an organization with which he was
affiliated at the time of his election as a director which has been
changed, other than by an upward or expanded promotion. Whenever any
director shall cease to be qualified to serve as a director his term shall
expire, but
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he shall continue to serve until his successor is elected and qualified;
provided, however, that no director's term shall so expire if the Board of
Directors shall have waived such qualification.
Section 3.3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately
after, and at the same place as, the Annual Meeting of Stockholders. The
Board of Directors may, by resolution, provide the time and place for the
holding of additional regular meetings without other notice than such
resolution.
Section 3.4. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the
place and time of the meetings.
Section 3.5. NOTICE. Notice of any special meeting shall be given to
each director at his business or residence in writing, by hand delivery,
first-class or overnight mail, telegram or facsimile transmission, or
orally by telephone. If by first-class mail, such notice shall be deemed
adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least five (5) days before such
meeting. If by telegram or overnight mail, such notice shall be deemed
adequately delivered when the telegram is delivered to the telegraph
company or the notice is delivered to the overnight mail delivery company
at least forty-eight (48) hours before such meeting. If by facsimile
transmission or by telephone, the notice shall be given at least twelve
(12) hours prior to the time set for the meeting. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice of such meeting, except
for amendments to these By-Laws, as provided under Article VII, Section
7.1. A meeting may be held at any time without notice if all the directors
are present or if those not present waive notice of the meeting in writing,
either before or after such meeting.
Section 3.6. QUORUM. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction
of business, but if at any meeting of the Board of Directors there shall be
less than a quorum present, a majority of the directors present may adjourn
the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. The directors
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present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough directors to leave
less than a quorum.
Section 3.7. VACANCIES. Subject to the rights of the holders of any
class or series of Preferred Stock, and unless the Board of Directors
otherwise determines, vacancies resulting from death, resignation,
retirement, disqualification, removal from office or other cause, and newly
created directorships resulting from any increase in the authorized number
of directors may be filled, only by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at
the annual meeting of stockholders at which the term of office of the class
to which they have been elected expires and until such director's successor
shall have been duly elected and qualified. No decrease in the number of
authorized directors constituting the Whole Board shall shorten the term of
any incumbent director.
Section 3.8. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors,
immediately following each annual meeting of stockholders or a special
meeting of the same held for the election of a majority of directors, shall
immediately meet and shall appoint from its number by a majority vote of
the Whole Board an Executive Committee of such number of members as from
time to time may be selected by the Board, to serve until the next annual
or special meeting at which a majority of directors is elected or until the
respective successor of each is duly appointed. The Executive Committee
shall possess and may exercise all the powers and authority of the Board of
Directors in the management and direction of the business and affairs of
the Corporation, except as limited by law and except for the power to
change the membership or to fill vacancies in the Board or any committee of
the Board. The Board of Directors, by majority vote of the Whole Board, may
designate one or more additional committees with such powers and
responsibilities as shall be specified in the designating resolution,
subject to applicable law. The Board shall have the power at any time to
change the membership of any committee, to fill vacancies in any such
committees, to make rules for the conduct of business of such committees,
or to dissolve any of such committees.
Section 3.9. REMOVAL. Subject to the rights of the holders of any
class or series of Preferred Stock, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least 80 percent of the
voting power of all of the then-outstanding shares of capital stock of the
Corporation
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entitled to vote generally in the election of directors (the "Voting
Stock"), voting together as a single class.
ARTICLE IV
OFFICERS
Section 4.1. ELECTED OFFICERS. The elected officers of the
Corporation shall be a Chairman of the Board of Directors, a Secretary, a
Treasurer, and such other officers (including, without limitation, a
President) as the Board of Directors from time to time may deem proper. The
Chairman of the Board of Directors shall be chosen from the directors. All
officers chosen by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the
specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any Committee thereof.
Section 4.2. ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after each annual meeting of
the stockholders. If the election of officers shall not be held at such
meeting such election shall be held as soon thereafter as convenient. Each
officer shall hold office until his successor shall have been duly elected
and shall have qualified or until his death or until he shall resign, but
any officer may be removed from office at any time by the affirmative vote
of a majority of the members of the Whole Board.
Section 4.3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors.
The Chairman of the Board shall have the general management of the affairs
of the Corporation and shall perform all duties incidental to his office
which may be required by law and all such other duties as are properly
required of him by the Board of Directors. Except where by law the
signature of the President (if any) is required, the Chairman of the Board
shall possess the same power as the President to sign all certificates,
contracts, and other instruments of the Corporation which may be authorized
by the Board of Directors. He shall make reports to the Board of Directors
and the stockholders, and shall perform all such other duties as are
properly required of him by the Board of Directors. He shall see that all
orders and resolutions of the Board of Directors and of any committee
thereof are carried into effect.
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Section 4.4. PRESIDENT. The President (if one shall have been chosen
by the Board of Directors) shall act in a general executive capacity and
shall assist the Chairman of the Board in the administration and operation
of the Corporation's business and general supervision of its policies and
affairs. The President shall, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of
the Board and preside at all meetings of stockholders and of the Board of
Directors. The President may sign with the Secretary, or an Assistant
Secretary, or any other proper officer of the Corporation authorized by the
Board of Directors, certificates, contracts, and other instruments of the
Corporation as authorized by the Board of Directors. In the event of the
death, inability or refusal to act of the President, the Board of Directors
shall promptly meet for the purpose of electing his successor.
Section 4.5. REMOVAL. Any officer elected by the Board of Directors
may be removed by a majority of the members of the Whole Board whenever, in
their judgment, the best interests of the Corporation would be served
thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of
the election of his successor, his death, his resignation or his removal,
whichever event shall first occur, except as otherwise provided in an
employment contract or under an employee deferred compensation plan.
Section 4.6. VACANCIES. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board
of Directors for the unexpired portion of the term at any meeting of the
Board of Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1. STOCK CERTIFICATES AND TRANSFERS. The interest of each
stockholder of the Corporation shall be evidenced by certificates for
shares of stock in such form as the appropriate officers of the Corporation
may from time to time prescribe. The shares of the stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof
in person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such
proof of the authenticity of the signature as the Corporation or its agents
may reasonably require.
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The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon
a certificate has ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. FISCAL YEAR. Until June 30, 1998, the fiscal year of the
Corporation shall begin on the first day of July and end on the thirtieth
day of June of each year. The period from July 1, 1998 until December 31,
1998 shall constitute a transitional fiscal period, with the Corporation
thereafter having a fiscal year beginning on the first day of January and
ending on the last day of December of each year.
Section 6.2. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares
in the manner and upon the terms and conditions provided by law and its
Certificate of Incorporation.
Section 6.3. SEAL. The corporate seal may bear in the center the
emblem of some object, and shall have enscribed thereunder the words
"Corporate Seal" and around the margin thereof the words "Thiokol
Corporation -- Delaware 1969."
Section 6.4. WAIVER OF NOTICE. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the
provisions of the General Corporation Law of the State of Delaware, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of the
stockholders or the Board of Directors need be specified in any waiver of
notice of such meeting.
Section 6.5. AUDITS. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors,
and it shall be the duty of the Board of Directors to cause such audit to
be made annually.
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Section 6.6. RESIGNATIONS. Any director or any officer, whether
elected or appointed, may resign at any time by serving written notice of
such resignation on the Chairman of the Board, the President, or the
Secretary, and such resignation shall be deemed to be effective as of the
close of business on the date said notice is received by the Chairman of
the Board, the President, or the Secretary. No formal action shall be
required of the Board of Directors or the stockholders to make any such
resignation effective.
Section 6.7. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The Corporation shall provide indemnification as set forth in
Article NINTH of the Certificate of Incorporation.
ARTICLE VII
AMENDMENTS
Section 7.1. AMENDMENTS. These By-Laws may be amended, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the
notice of the meeting and, in the case of a meeting of the Board of
Directors, in a notice given not less than two days prior to the meeting;
provided, however, that, in the case of amendments by stockholders
notwithstanding any other provisions of these By-Laws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition
to any affirmative vote of the holders of any particular class or series of
the Voting Stock required by law, the Certificate of Incorporation, any
Preferred Stock Designation or these By-Laws, the affirmative vote of the
holders of at least 80 percent of the voting power of all the then
outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal any provision of these By-Laws.
13
CORDANT TECHNOLOGIES INC.
EXECUTIVE EMPLOYMENT AGREEMENT
Effective July 22, 1999
<PAGE>
Section Page
- ------- ----
1 Change of Control Date 1
2 Change of Control 2
3 Employment Period 4
4 Terms of Employment 4
(a) Position and Duties 4
(b) Compensation, Benefits and Support Staff 5
(i) Base salary 5
(ii) Bonus 6
(iii) Incentives, Savings and Retirement Plan 6
(iv) Welfare Benefit Plans 7
(v) Expenses 7
(vi) Other Executive Benefits 7
(vii) Office and Support Staff 8
(viii)Vacation 8
5 Termination of Employment 8
(a) Death or Disability 9
(b) Cause 9
(c) Good Reason 10
(d) Notice of Termination 11
(e) Date of Termination
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6 Obligations of the Company upon Termination 12
(a) Death 12
(b) Disability 13
(c) Cause, Other Than For Good Reason 13
(d) Good Reason; Other than for Cause or Disability(1) 13
7 Non-exclusivity of Rights 15
8 Full Payments 15
9 Certain Additional Payments by the Company 16
10 Confidential Information 20
11 Successors 21
12 Miscellaneous 22
- ----------
(1) the severance benefit formula.
ii
<PAGE>
CORDANT TECHNOLOGIES INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement is made by and between CORDANT
TECHNOLOGIES INC. (the "Company") and ____________________ (the
"Executive"), and is dated as of the 22nd day of July 1999.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its stockholders to
assure that the Company will have the continued dedication of the
Executive, notwithstanding the possibility, threat, or occurrence of a
Change of Control (as defined below) of the Company. The Board believes it
is imperative to diminish the inevitable distraction of the Executive by
virtue of the personal uncertainties and risks created by a pending or
threatened Change of Control and to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the Executive with
compensation and benefits arrangements upon a Change of Control which
ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Amended and Restated Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1 . CHANGE OF CONTROL DATE. The "Change of Control Date" shall be the
first date on which a Change of Control (as defined in Section 2) occurs.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and the Company has terminated the Executive's employment
(other than under circumstances which would constitute Cause or Disability
(as defined below)) or the Executive has terminated his employment under
circumstances which would constitute Good Reason
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hereunder if such termination occurred the day after the Change of Control
Date, and if (A) it is reasonably demonstrated by the Executive (i) that
such termination of employment was at the request of a third party who has
taken steps reasonably calculated to effect the Change of Control or (ii)
that the Company's actions otherwise arose in connection with or
anticipation of the Change of Control or (B) such termination is within six
months of the Change of Control Date, then for all purposes of this
Agreement the "Change of Control Date" shall mean the date immediately
prior to the date of such termination of employment.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) the acquisition by any individual, entity or group (within
the meaning of sections 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "exchange act")) (a "person") of
beneficial ownership (within the meaning of rule 13d-3 promulgated
under the exchange act) of 20% or more of either (i) the then
outstanding shares of common stock of the company (the "outstanding
company common stock") or (ii) the combined voting power of the then
outstanding voting securities of the company entitled to vote
generally in the election of directors (the "outstanding company
voting securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
change of control: (i) any acquisition directly from the company, (ii)
any acquisition by the company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the company
or any corporation controlled by the company or (iv) any acquisition
by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this section 2; or
(b) individuals who, as of the date hereof, constitute the board
(the "incumbent board") cease for any reason to constitute at least a
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majority of the board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the incumbent
board shall be considered as though such individual were a member of
the incumbent board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a person other than the board;
or
(c) consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
the company (a "business combination"), in each case, unless,
following such business combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the outstanding company common stock and outstanding
company voting securities immediately prior to such business
combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such business combination
(including, without limitation, a corporation which as a result of
such transaction owns the company or all or substantially all of the
company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such business combination of the outstanding company common
stock and outstanding company voting securities, as the case may be,
(ii) no person (excluding any corporation resulting from such business
combination or any employee benefit plan (or related trust) of the
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company or such corporation resulting from such business combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such business combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the business combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
business combination were members of the incumbent board at the time
of the execution of the initial agreement, or of the action of the
board, providing for such business combination; or
(d) approval by the shareholders of the company of a complete
liquidation or dissolution of the company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company, for the period commencing on the Change of Control
Date and ending on the third anniversary of such date (the "Employment
Period").
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting relationships), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the
90-day period immediately preceding the Change of Control Date and (B) the
Executive's services shall be performed at the location (the "Principal
Business Location") where the Executive was employed immediately preceding
the Change of Control Date or at any office or location which does not
result in a material increase in the distance or time of commutation
between the Executive's place of primary residence at the Change of Control
Date and the Executive's Principal Business Location, or materially
adversely affect the mode of such commutation.
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(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
Discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall
not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the
Change of Control Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to
the Change of Control Date shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the Company.
(b) COMPENSATION, BENEFITS AND SUPPORT STAFF. (i) BASE SALARY. During
the Employment Period, the Executive shall receive in accordance with the
Company's payroll practices at the Change of Control Date an annual base
salary ("Annual Base Salary"), at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Change of Control Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least
annually and shall be increased at any time and from time to time as shall
be substantially consistent with increases in base salary awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies but in no event shall the annual increase in Base
Salary be less than a percentage at least equal to the increase, if any, in
the cost-of-living shown on the
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Consumer Price Index for the area in which the Principal Business Location
is located, published by the Bureau of Labor Statistics of the United
States Department of Labor for the immediately preceding twelve-month
period (or, if no such Consumer Price Index is then published, any
successor index thereto). Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer
to Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" includes any company controlled by, controlling or
under common control with the Company.
(ii) BONUS. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year beginning or ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
highest annualized (for any fiscal year consisting of less than twelve full
months or with respect to which the Executive has been employed by the
Company for less than twelve full months) bonus paid or payable (including
any amount subject to a deferral election) to the Executive by the Company
and its affiliated companies in respect of the three fiscal years
immediately preceding the fiscal year in which the Change of Control Date
occurs (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. In addition to Annual
Base Salary, and Annual Bonus payable as herein above provided, the
Executive shall be entitled to participate during the Employment Period in
all other incentive, savings and retirement plans, practices, policies and
programs applicable to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive, savings and retirement
benefits opportunities, in each case, less favorable, in the
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aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 90-day period
immediately preceding the Change of Control Date.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs)
and applicable to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide benefits which are less favorable, in the aggregate, than
the most favorable of such plans, practices, policies and programs in
effect at any time during the 90-day period immediately preceding the
Change of Control Date.
(v) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect at any time during the 90-day period immediately preceding the
Change of Control Date or, if more favorable to the Executive, as in effect
at ANY time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) OTHER EXECUTIVE BENEFITS. During the Employment Period, the
Executive shall be entitled to other executive benefits in accordance with
the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect at any time during the 90-day period
immediately preceding the Change of Control Date or, if more favorable to
the Executive, as in effect at any time
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thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, to exclusive personal secretarial and
other assistance at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at
any time during the 90-day period immediately preceding the Change of
Control Date or, if more favorable to the Executive, as provided at any
time thereafter with respect to other peer executives of the Company and
its affiliated companies.
(viii) VACATION. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies as in effect at any time during the 90-day period immediately
preceding the Change of Control Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies with similar lengths
of service.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during
the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of "Disability" set forth below), it may give
to the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive
(the "Disability Change of Control Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the
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Executive's duties. For purposes of this Agreement, "Disability" means the
absence of the Executive from the Executive's duties with the Company on a
Full-time basis for 180 consecutive business days as a result of incapacity
due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for "Cause." For purposes of this Agreement, "Cause"
means (i) an act or acts of personal dishonesty taken by the Executive and
intended to result in substantial personal enrichment of the Executive at
the expense of the Company, (ii) repeated violations by the Executive of
the Executive's obligations under Section 4(a) of this Agreement which are
demonstrably willful and deliberate on the Executive's part and which are
not remedied in a reasonable period of time after receipt of written notice
from the Company or (iii) the conviction of the Executive of a felony
involving moral turpitude. For purposes of this Section 5(b), no act, or
failure to act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have
been delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for the purpose
(after reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, the Executive was guilty of conduct
set forth above in clause (i), (ii), or (iii) of the second sentence of
this Section 5(b) and specifying the particulars thereof in detail.
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(c) GOOD REASON. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting relationships), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the
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contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Change of Control Date shall be deemed to be a termination for Good Reason
for all purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause or
by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen days after the giving of such
notice). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing the
Executive's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means the date of
receipt of the Notice of Termination or any later date specified therein,
as the case may be; provided, however, that (i) if the Executive's
employment is terminated by the Company other than for Cause or Disability,
the Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (ii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall
be the date of death of the Executive or the Disability Change of Control
Date, as the case may be.
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6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) DEATH. If the Executive's employment terminates by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than the following obligations:
(i) the Executive's Annual Base Salary through the Date of Termination, to
the extent not theretofore paid, (ii) any amount payable to the Executive
pursuant to Section 4(b)(ii) hereof in respect of the most recently
completed fiscal year, to the extent not theretofore paid, (iii) if the
Change of Control Date occurred after the end of the most recently
completed fiscal year and no Annual Bonus was paid to the Executive in
respect of such period, an amount equal to the Recent Annual Bonus, (iv)
the product of the greater of the Annual Bonus paid or payable (and
annualized for any fiscal year consisting of less than twelve full months
or for which the Executive has been employed for less than twelve full
months) to the Executive for the most recently completed fiscal year during
the Employment Period, if any, or the Recent Annual Bonus (such greater
amount hereafter referred to as the "Highest Annual Bonus") and a fraction,
the numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365, and
(v) any accrued vacation pay not yet paid by the Company (the amounts
described in paragraphs (i) through (v) hereof are hereinafter referred to
as "Accrued Obligations"). All Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. Anything in this Agreement to
the contrary notwithstanding, the Executive's family shall be entitled to
receive benefits at least equal to the most favorable benefits provided by
the Company and any of its affiliated companies to surviving families of
peer executives of the Company and such affiliated companies under such
plans, programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and their
families at any time during the 90-day period immediately preceding the
Change of Control Date or, if more favorable to the Executive and/or the
Executive's family, as in effect on the date of the
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Executive's death with respect to other peer executives of the Company and
its affiliated companies and their families.
(b) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than
for Accrued Obligations. All Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the Executive
shall be entitled after the Disability Change of Control Date to receive
disability and other benefits at least equal to the most favorable of those
provided by the Company and its affiliated companies to disabled executives
and/or their families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect with respect to
other peer executives and their families at any time during the 90-day
period immediately receding the Change of Control Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter with respect to other peer executives of the Company
and its affiliated companies and their families.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period or if the
Executive terminates employment during the Employment Period other than for
Good Reason, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive Annual Base
Salary through the Date of Termination and accrued vacation pay, in each
case to the extent theretofore unpaid.
(d) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY. If, during the
Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability, or if the Executive shall terminate
employment under this Agreement for Good Reason:
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(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the product of (x) one and (y) the sum of (i) Annual Base
Salary, and (ii) the Highest Annual Bonus; and
B. all Accrued Obligations; and
C. the Executive shall be entitled to receive a lump-sum
retirement benefit equal to the difference between (a) the
actuarial equivalent of the benefit under the Cordant
Technologies Inc. Pension Plan and the Cordant Technologies Inc.
Excess Pension Plan as in effect on the Change of Control Date or
any successor plan which provides more favorable benefits to the
Executive (the "Retirement Plans") which the Executive would
receive if the Executive's employment continued at the
compensation level provided for in Sections 4(b)(i) and 4(b)(ii)
of this Agreement for one year, assuming for this purpose that
all accrued benefits are fully vested, and (b) the actuarial
equivalent of the Executive's actual benefit (paid or payable),
if any, under the Retirement Plans; and
(ii) for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) and (vi) of this Agreement if
the Executive's employment had not been terminated in accordance with
the most favorable plans, practices, programs or policies of the
Company and its affiliated companies applicable to other peer
executives and their families during the 90-day period immediately
preceding the Change of Control Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to other
peer executives of the Company and its
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affiliated companies and their families. For purposes of determining the
Executive's age and length of service at the time of his termination of
employment in order to determine eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the end of
the Employment Period and to have terminated employment on the last day of
such period; provided, however, that the Executive shall be entitled to the
more favorable of the retiree benefits in effect on the Date of Termination
or the retiree benefits in effect on the date that would have been the last
date of the Employment Period if the Executive had remained employed.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plans, programs, policies or practices, provided
by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as the Executive may have under any other agreements with the
Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program except as explicitly
modified by this Agreement.
8. FULL PAYMENTS. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement. The Company agrees to pay, from time to time promptly upon
invoice, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest,
question or controversy (regardless of the
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outcome thereof and whether or not litigation is involved) by the Company,
the Executive or others over the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to Section 9 of this Agreement).
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPAny.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or any
other compensation plan, program or arrangement including but not limited
to the proceeds from the exercise of stock option grants the Executive is
entitled to receive on the date of a Change of Control or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive
of all taxes (including any interest or penalties imposed with respect to
such taxes), including without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c) below, all
determinations required to be made under this Section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions
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to be utilized in arriving at such determination, shall be made by Ernst &
Young (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving (or has, during the three years preceding the
Effective Date, served) as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm's determination. If
the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a negligence or
similar penalty. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount
of Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing
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of such claim and shall apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any Proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and
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conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or Penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect
to such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
19
<PAGE>
10. CONFIDENTIAL INFORMATION. (a) During the period of his employment
hereunder, the Executive shall not, without the written consent of the
Chief Executive Officer, disclose to any person, other than an employee of
the Company or another person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his
duties as an executive of the Company, any material confidential
information obtained by him while in the employ of the Company with respect
to any of the Company's products, improvements, formulas, designs or
styles, processes, customers, methods of distribution or methods of
manufacture, the disclosure of which he knows will be materially damaging
to the Company; provided, however, that confidential information shall not
include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a
type not otherwise considered confidential by persons engaged in the same
business or a business similar to that conducted by the Company. For the
period ending two years following the Date of Termination, the Executive
shall not disclose any confidential information of the type described above
except as determined by him to be reasonably necessary in connection with
any business or activity in which he is then engaged.
(b) Any and all inventions made, developed or created by the Executive
(whether at the request or suggestion of the Company or otherwise, whether
alone or in conjunction with others, and whether during regular hours of
work or otherwise) during the period of his employment by the Company,
which may be directly or indirectly useful in, or relate to, the business
of or research and development being carried out by the Company or any of
its subsidiaries or affiliates, will be promptly and fully disclosed by the
Executive to an appropriate executive officer of the Company and shall be
the Company's exclusive property as against the Executive, and the
Executive will promptly deliver to an appropriate executive officer of the
Company all papers, drawings, models, data and other material relating to
any invention made, developed or created by him as aforesaid.
20
<PAGE>
(c) The Executive will, upon the Company's request and without any
payment therefor, execute any documents necessary or advisable in the
opinion of the Company's counsel to direct issuance of patents to the
Company with respect to such inventions as are to be the Company's
exclusive property as against the Executive under Section 10(b) above or to
vest in the Company title to such inventions as against the Executive,
provided, however, that the expense of securing any such patent will be
borne by the Company.
(d) The foregoing provisions of this Section 10 shall be binding upon
the Executive's heirs, successors and legal representatives.
(e) In no event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this
21
<PAGE>
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Home address as currently shown on Human Resources
Department records of the Company's Corporate Office or
the Executive's business unit as the case may be.
If to the Company:
Cordant Technologies Inc.
15 W. South Temple, Suite 1600
Salt Lake City, UT 84101-1532
Attention: Corporate Secretary
22
<PAGE>
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or
any other provision thereof.
(f) This Agreement contains the entire understanding of
the Company and the Executive with respect to the subject matter hereof.
(g) Anything in this Agreement to the contrary notwithstanding, the
Executive and the Company acknowledge that the employment of the Executive
by the Company is "at will", and, except as provided in Section 1 hereof,
prior to the Change of Control Date, the employment of the Executive may be
terminated by either the Executive or the Chief Executive Officer of the
Company at any time. Upon a termination of the Executive's employment prior
to the Change of Control Date, except as provided in Section 1 hereof,
there shall be no further rights under this Agreement.
23
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of
the day and year first above written. CORDANT TECHNOLOGIES INC.
by __________________________________
James R. Wilson
Chairman of the Board, President, and
Chief Executive Officer
by:__________________________________
(name)
24
Financial Data Schedule
[ARTICLE]
[LEGEND]
This Schedule contains summary financial information extracted from Cordant
Technologies Inc. unaudited financial statements for the six months ended
June 30, 1999 and is qualified in its entirety by reference to such financial
statements.
[LEGEND]
[MULTIPLIER] 1,000,000
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-START] JAN-01-1999
[PERIOD-END] JUN-30-1999
[CASH] 18
[SECURITIES] 0
[RECEIVABLES] 302
[ALLOWANCES] 8
[INVENTORY] 258
[CURRENT-ASSETS] 625
[PP&E] 1180
[DEPRECIATION] 477
[TOTAL-ASSETS] 2430
[CURRENT-LIABILITIES] 567
[BONDS] 604
[COMMON] 41
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 698
[TOTAL-LIABILITY-AND-EQUITY] 2430
[SALES] 1276
[TOTAL-REVENUES] 1281
[CGS] 989
[TOTAL-COSTS] 1114
[OTHER-EXPENSES] 1
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 20
[INCOME-PRETAX] 146
[INCOME-TAX] 48
[INCOME-CONTINUING] 98
<Discontinue> 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 86
[EPS-BASIC] 2.34
<EPS-Dilute> 2.29
</TABLE>
