UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
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 April 30, 2000: 36,871,439.
1
<PAGE>
CORDANT TECHNOLOGIES INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2000
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income - Three months
ended March 31, 2000 and 1999 3
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 4-5
Consolidated Statements of Cash Flows - Three
months ended March 31, 2000 and 1999 6
Consolidated Statements of Stockholders' Equity-
Three months ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-14
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-25
ITEM 3. Quantitative and Qualitative Disclosure about
Market Risk 25
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 26
ITEM 5. Other Information 27
ITEM 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31
--------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 662.6 $ 634.1
Operating expenses:
Cost of sales 513.7 490.7
Selling, general and administrative 61.9 51.4
Research and development 8.0 8.2
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 583.6 550.3
Income from operations 79.0 83.8
Interest income .7 2.7
Interest expense (12.2) (9.5)
Other, net (1.6) (.2)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 65.9 76.8
Income taxes (23.7) (22.5)
- ----------------------------------------------------------------------------------------------------------------------
Income before minority interest 42.2 54.3
Minority interest (4.6) (7.1)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 37.6 $ 47.2
- ----------------------------------------------------------------------------------------------------------------------
Net income per share:
Basic $ 1.02 $ 1.29
Diluted $ 1.00 $ 1.26
- ----------------------------------------------------------------------------------------------------------------------
Dividends per share $ .10 $ .10
======================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
March 31
2000 December 31
(Unaudited) 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 21.1 $ 37.1
Receivables 293.0 238.0
Inventories 268.3 261.7
Deferred income taxes and prepaid expenses 63.6 67.2
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 646.0 604.0
Property, plant and equipment at cost, net 751.8 755.0
Other assets
Costs in excess of net assets of businesses
acquired, net 908.4 903.8
Patents and other intangible assets, net 101.1 104.7
Other noncurrent assets 118.1 114.5
- ------------------------------------------------------------------------------------------------------------------------
Total other assets 1,127.6 1,123.0
- ------------------------------------------------------------------------------------------------------------------------
Total assets $2,525.4 $2,482.0
========================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
March 31
2000 December 31
(Unaudited) 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Short-term debt $ 100.4 $ 83.6
Accounts payable 128.1 137.6
Accrued compensation 91.0 102.3
Other accrued expenses 212.8 216.9
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 532.3 540.4
Noncurrent liabilities
Accrued retiree benefits 176.2 174.1
Deferred income taxes 57.3 61.5
Accrued interest and other noncurrent liabilities 215.5 211.6
Long-term debt 616.1 601.3
- ------------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 1,065.1 1,048.5
Commitments and contingent liabilities
Minority interest 81.2 77.0
Stockholders' equity
Common stock (par value $1.00 per share) Authorized - 200 shares
Issued - 41.1 shares at March 31, 2000 and
December 31, 1999 (includes treasury shares) 41.1 41.1
Additional paid-in capital 48.1 48.0
Retained earnings 842.4 808.5
Accumulated other comprehensive income (loss) (13.4) (10.0)
- ------------------------------------------------------------------------------------------------------------------------
918.2 887.6
Less common stock in treasury, at cost
(4.4 shares at March 31, 2000
and December 31, 1999, respectively) (71.4) (71.5)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 846.8 816.1
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,525.4 $2,482.0
========================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
Three Months Ended
March 31
-------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 37.6 $ 47.2
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Minority interest 4.6 7.1
Depreciation 21.7 19.5
Amortization 9.8 8.6
Changes in operating assets and liabilities:
Receivables (58.1) (45.8)
Inventories (8.0) (11.2)
Accounts payable and accrued expenses (32.1) (27.2)
Income taxes 6.6 21.0
Other 5.1 4.8
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by operating activities (12.8) 24.0
Investing Activities
Acquisitions (10.9) (385.0)
Purchases of property, plant and equipment (20.4) (31.1)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (31.3) (416.1)
Financing Activities
Net change in short-term debt 17.5 50.7
Issuance of long-term debt 500.0 450.0
Repayment of long-term debt (485.3) (130.1)
Dividends paid (3.7) (3.7)
Stock option transactions .2 1.3
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 28.7 368.2
Foreign currency rate changes (.6) (2.6)
- ----------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (16.0) (26.5)
Cash and cash equivalents at beginning of year 37.1 45.3
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 21.1 $ 18.8
======================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
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 March 31, 1999
Balance, December 31, 1998 $41.1 $47.4 $658.8 $(75.5) $ (3.9) $667.9
Comprehensive income
Net income 47.2 47.2
Other comprehensive income
Minimum pension liability .9 .9
Cumulative translation adjustment (7.1) (7.1)
-----------
Comprehensive income 41.0
-----------
Dividends paid (3.7) (3.7)
Stock options exercised and related
income tax benefits (.1 shares) (.5) 1.8 1.3
- --------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 $41.1 $46.9 $702.3 $(73.7) $ (10.1) $706.5
====================================================================================================================
Three months ended March 31, 2000
Balance, December 31, 1999 $41.1 $48.0 $808.5 $(71.5) $(10.0) $816.1
Comprehensive income
Net income 37.6 37.6
Other comprehensive income
Cumulative translation adjustment (3.4) (3.4)
Comprehensive income 34.2
-----------
Dividends paid (3.7) (3.7)
Stock options exercised and related
income tax benefits .1 .1 .2
- --------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $41.1 $48.1 $842.4 $(71.4) $ (13.4) $846.8
====================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
7
<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, 1999
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 and are of a normally recurring nature.
Operating results for the three-months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2000. The financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
Acquisition of the Company by Alcoa; Alcoa Tender Offer for Howmet
On March 14, 2000, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Alcoa Inc., a Pennsylvania corporation
("Alcoa"), and Omega Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Alcoa (the "Purchaser"). Pursuant to the Merger
Agreement, on March 20, 2000, the Purchaser commenced a cash tender offer
(the "Cordant Offer") for all of the outstanding shares of the Company's
Common Stock ("Company Shares") at a purchase price of $57.00 per Company
Share. The Merger Agreement provides that, subject to the satisfaction or
waiver of certain conditions, following completion of the Cordant Offer,
the Purchaser will be merged (the "Merger") with and into the Company, and
at the effective time of the merger (the "Effective Time") each Company
Share outstanding (other than Company Shares owned by Alcoa, the Purchaser,
any of their respective subsidiaries, the Company or any of its
subsidiaries, and shares held by stockholders, if any, who did not vote in
favor of the Merger Agreement and who comply with all of the relevant
provisions of Section 262 of the Delaware General Corporation Law relating
to dissenters' rights of appraisal) will be converted into the right to
receive $57.00 in cash or any greater amount per share paid pursuant to the
Cordant Offer.
Pre-merger notification under the U.S. Hart-Scott-Rodino law with respect
to the Cordant Offer was made to the Antitrust Division of the Department
of Justice and to the Federal Trade Commission on March 21, 2000. The
15-day waiting period applicable to cash tender offers expired on April 5,
2000.
Pre-merger notification to the European Commission with respect to the
Cordant Offer was made on April 11, 2000. The Company expects that the
waiting period under the European Merger Control Regulation will expire on
May 19, 2000,unless the Commission takes action to extend it.
8
<PAGE>
On April 25, 2000, Alcoa announced that it had extended the Cordant Offer
to 5:00 p.m. Eastern Daylight Time on Friday May 19, 2000 and that as of
the close of business on April 24, 2000, the number of Company Shares that
had been validly tendered in the Cordant Offer was 33,169,088, including
guaranteed deliveries.
On November 12, 1999, the Company announced it had made a proposal to the
Board of Directors of Howmet to acquire all of the outstanding common
shares of Howmet not owned by the Company or its affiliates (the "Publicly
Held Howmet Shares") for a price of $17 per share in cash. The Howmet Board
referred the matter to the Independent Directors Committee of the Howmet
Board (the "Howmet Committee") for its consideration. In early March 2000,
during the course of further discussions between the Company and the
Howmet, the Company made a proposal to the Howmet Committee to acquire all
of the Publicly Held Howmet Shares for $18.75 per share, or a total of
approximately $288 million, but following further discussions no agreement
was reached.
On March 13, 2000, prior to the execution of the Merger Agreement, the
Company, a wholly owned subsidiary of the Company ("Holding") and Howmet
amended (the "Corporate Agreement Amendment") the Corporate Agreement
entered into by such parties in connection with the initial public offering
of Howmet Shares in December 1997. Under the Corporate Agreement Amendment,
the Company and Holding agreed that neither they nor any of their
affiliates will acquire outstanding Publicly Held Howmet Shares if, after
such acquisition, the number of Publicly Held Howmet Shares would be less
than 14% of the total number of outstanding Howmet Shares, other than: (1)
with the consent of a majority (but not less than two) of the non-employee
directors of Howmet who are not directors or employees of the Company,
Holding or their affiliates; or (2) the purchase of at least a majority of
the outstanding Publicly Held Howmet Shares pursuant to a tender offer to
acquire all of the Publicly Held Howmet Shares, which tender offer (A) is
conditioned upon there being tendered and not withdrawn prior to the
expiration of the offer not less than a majority of the outstanding
Publicly Held Howmet Shares (the "Howmet Minimum Tender"), and (B) provides
a commitment for a prompt merger or business combination following the
purchase of Howmet Shares in the tender offer as contemplated by clause (3)
below; or (3) pursuant to a merger or other business combination, within
one year following the completion of a tender offer described in clause (2)
above that satisfied the Howmet Minimum Tender, in which each Publicly Held
Howmet Share outstanding immediately prior to the effective time of such
merger or business combination is converted into the right to receive the
same consideration paid or issued in the tender offer; or (4) pursuant to a
merger or other business combination in which holders of all outstanding
Publicly Held Howmet Shares are treated the same which is approved by the
holders of a majority of the outstanding Publicly Held Howmet Shares. Alcoa
and Howmet entered into a letter agreement on March 13, 2000, pursuant to
which Alcoa agreed with Howmet to be bound by the same limitations on
purchasing Publicly Held Howmet Shares as bind the Company under the
Corporate Agreement Amendment.
9
<PAGE>
On April 20, 2000, Alcoa, through its wholly owned subsidiary HMI
Acquisition Corp., commenced a cash tender offer for all of the outstanding
Howmet Shares at a price of $20.00 per share (the "Howmet Offer"). Howmet's
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Howmet Offer, filed on May 1, 2000, stated that the Howmet Committee, to
which the full Howmet Board had referred consideration of the Howmet Offer,
had unanimously determined that the Howmet Offer is inadequate and not in
the best interest of the holders of Publicly Held Howmet Shares, and
contained the recommendation of the Howmet Committee, on behalf of Howmet,
that holders of Publicly Held Howmet Shares reject the Howmet Offer and not
tender their Howmet Shares pursuant to the Howmet Offer. The Company and
Holding advised Howmet that they do not intend to tender or cause to be
tendered in the Howmet Offer any of the Howmet Shares owned by Holding in
light of (1) the fact that the Howmet Offer is conditioned on the
consummation of the Cordant Offer, following which Alcoa would be required,
subject to the conditions set forth in the Merger Agreement, to effect the
Merger and as of such Merger would indirectly own all of such Howmet Shares
and (2) the provisions of the Merger Agreement that do not permit the
Company to, and require the Company not to permit Holding to, without the
consent of Alcoa, dispose of any assets or securities (including Howmet
Shares), except in an amount that is not material to the Company and its
subsidiaries taken as a whole.
<TABLE>
<CAPTION>
Receivables
The components of receivables are as follows:
March 31
2000 December 31
(in millions) (Unaudited) 1999
----------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Trade Receivables:
Trade accounts receivable $179.9 $160.5
Retained receivables 49.3 35.6
Allowance for doubtful accounts (6.5) (6.0)
----- ----------------------------------------------------------- --------------------- ---------------------
Total Trade Receivables 222.7 190.1
Receivables under U.S. Government
contracts and subcontracts 70.3 47.9
----------------------------------------------------------------- --------------------- ---------------------
293.0 $238.0
================================================================= ===================== =====================
</TABLE>
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 March 31, 2000. The $49.3 million retained
receivables represents the receivables set aside to replace sold
receivables in the event they are not fully collected.
Trade accounts receivable primarily relate to sales to well established
corporations, and historically, bad debt expense has been minor.
Receivables under government contracts and subcontracts include unbilled
costs and accrued profits. Such amounts are billed based on contract terms
and delivery schedules.
10
<PAGE>
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.
Cost management award fees totaling $157.4 million, at March 31, 2000, 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.
Inventories
Inventories are stated at the lower of cost or market. Inventories for the
Investment Castings segment are determined by both the first-in, first-out
(FIFO) and last-in, first-out (LIFO) method. Inventories for the fastening
systems segment are determined by the FIFO 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.
<TABLE>
<CAPTION>
The components of inventories are as follows:
March 31
2000 December 31
(in millions) (Unaudited) 1999
----------------------------------------------------------------- ----------------------- -------------------
<S> <C> <C>
Work-in-process $107.2 $104.0
Raw materials and supplies 88.3 88.0
Finished goods 68.1 65.4
Inventoried costs related to U.S. Government
and other long-term contracts 31.7 31.0
Progress payments received on long-term contracts
(22.3) (22.3)
LIFO valuation adjustment (4.7) (4.4)
----------------------------------------------------------------- ----------------------- -------------------
$268.3 $261.7
================================================================= ======================= ===================
</TABLE>
11
<PAGE>
At March 31, 2000 and December 31, 1999, inventories include $114.7 and
$122.2 million, respectively, that are valued using LIFO. The LIFO
valuation adjustment approximates the difference between the LIFO carrying
value and current replacement cost.
Financing arrangements
<TABLE>
<CAPTION>
Long term debt is summarized as follows:
March 31
2000 December 31
(in millions) (Unaudited) 1999
- ----------------------------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Cordant Technologies 6.625% senior notes $150.0 $150.0
Cordant Technologies senior credit facilities 465.0 450.0
Other 1.3 1.7
- ----------------------------------------------------------------------- ---------------------- ---------------------
616.3 601.7
Less current portion .2 .4
- ----------------------------------------------------------------------- ---------------------- ---------------------
$616.1 $601.3
======================================================================= ====================== =====================
</TABLE>
On February 9, 2000 the Company terminated its senior bank credit
facilities and replaced them with a new $1 billion senior bank credit
facility. The new facility will be used to refinance existing bank debt and
for general corporate purposes. The terms of the bank facility include
guarantees from existing and future material domestic subsidiaries for all
obligations arising under the facility. The credit facility matures in
February 2001 ($400 million) and February 2005 ($600 million). The Company
had drawn $465 million at the end of the current quarter on the five-year
facility, leaving $535 million available for future use. The Company has no
other principal maturing in the next five years. The interest rate on the
new facility was 6.65 percent on March 31, 2000 and is based on the London
Interbank Offered Rate (LIBOR) plus a borrowing spread. The new credit
agreement and senior notes require the Company to meet certain interest
coverage and leverage ratios and also contain covenants restricting, among
other things, the Company's ability to incur funded debt, liens, sale and
leaseback transactions, and the sale of assets. The Company, excluding
Howmet, at March 31, 2000, had $13.7 million in Letters of Credit
outstanding.
On February 9, 2000, Howmet terminated its $300 million revolving credit
facility and replaced it with a $25 million revolving credit facility. On
March 31, 2000, Howmet had no borrowings under the new facility. The funds
available under the new revolving credit facility are available through May
9, 2000. Howmet has the option to extend this facility beyond the
termination date. 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.
12
<PAGE>
Cordant does not have access to Howmet cash balances except through Howmet
declaring a cash dividend to its shareholders, which availability may be
restricted under the terms of its new revolving credit facility. Howmet
does not currently intend to pay dividends.
On January 6, 2000 the Company filed a Form S-3 with the Securities and
Exchange Commission (SEC) to sell from time to time an additional $650
million in debt securities, warrants, common stock and preferred stock.
The current portion of long-term debt is classified in "short-term debt" on
the balance sheet.
Earnings per share
<TABLE>
<CAPTION>
The following unaudited table sets forth the computation of basic and
diluted earnings per share for the three months ended March 31:
2000
(In millions, except per share data) (Unaudited) 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator for basic and diluted earnings per share:
Net Income $37.6 $47.2
=====================================================================================================================
Denominator
Denominator for basic earnings
per share--weighted-average shares 36.7 36.5
Effect of dilutive securities
employee stock options .8 .9
- ---------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share--
weighted-average shares and assumed exercises 37.5 37.4
- ---------------------------------------------------------------------------------------------------------------------
Net income per share:
Basic $1.02 $1.29
Diluted $1.00 $1.26
=====================================================================================================================
</TABLE>
13
<PAGE>
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 government contracts. Inter-segment sales and transfers
are not significant.
<TABLE>
<CAPTION>
Summary unaudited segment information for the three months ended March 31
follows:
(in millions) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Investment Castings $381.6 $372.7
Fastening Systems 133.9 121.2
Propulsion Systems 147.1 140.2
- ---------------------------------------------------------------------------------------------------------------
Total sales $662.6 $634.1
===============================================================================================================
Operating income:
Investment Castings $ 43.0 $ 55.0
Fastening Systems 21.4 18.3
Propulsion Systems 20.8 17.8
Unallocated corporate expense (6.2) (7.3)
- ---------------------------------------------------------------------------------------------------------------
Total operating income 79.0 83.8
Interest income .7 2.7
Interest expense (12.2) (9.5)
Other, net (1.6) (.2)
- ---------------------------------------------------------------------------------------------------------------
Consolidated income before income taxes
and minority interest $ 65.9 $ 76.8
===============================================================================================================
</TABLE>
14
<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 First Quarter
Net income for the first quarter ended March 31, 2000 was $37.6 million, or
$1.00 per share, a decrease of 20 percent, compared to the prior year's
quarter net income of 47.2 million or $1.26 per share.
During the quarter, Cordant Technologies agreed to be acquired by Alcoa
Inc. for $57 per Cordant share payable in cash. As a result of the Alcoa
offer to purchase the Company, Cordant's stock price increased from $29.56
to $56.56 per share during the quarter. This 91 percent increase in the
Company's stock price resulted in $3.3 million after tax, or $.09 per
share, in stock based incentive compensation expense at the Company's
Howmet subsidiary. In addition, Howmet incurred $1.2 million after tax, or
$.03 per share, in advisory fees associated with the Company's tender offer
to purchase the remaining public shares of Howmet.
The first quarter of 1999 also included certain special items. The prior
year's first quarter net income included a $7.1 million, or $.19 per share,
benefit from reversing taxes on accumulated dividends previously accrued on
the Company's share of Howmet income. This reversal resulted from the
increase in the Company's ownership of Howmet in February 1999. Prior year
earnings also included a Stock Appreciation Rights (SAR) benefit at Howmet
of $1.3 million or $.03 per share, resulting from Howmet's stock price
being below the $15 per share ceiling at March 31, 1999. Excluding these
special items in 1999 and 2000, the Company's 2000 first quarter earnings
were $42.1 million, or $1.12 per share, an eight percent increase over
$38.8 million, or $1.04 per share in 1999.
15
<PAGE>
<TABLE>
<CAPTION>
Summary unaudited financial information for the three-months ended March 31
follows:
Better
(in millions, except per share data) 2000 1999 (Worse) Percent
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Investment Castings $ 381.6 $ 372.7 $ 8.9 2
Fastening Systems 133.9 121.2 12.7 10
Propulsion Systems 147.1 140.2 6.9 5
- ---------------------------------------------------------------------------------------------------------------------
Total sales $ 662.6 $ 634.1 $ 28.5 4
=====================================================================================================================
Operating income:
Investment Castings (1) $ 43.0 $ 55.0 $(12.0) (22)
Fastening Systems 21.4 18.3 3.1 17
Propulsion Systems 20.8 17.8 3.0 17
Unallocated corporate expense (6.2) (7.3) 1.1 15
- ---------------------------------------------------------------------------------------------------------------------
Total operating income 79.0 83.8 (4.8) (6)
Interest income .7 2.7 (2.0) (74)
Interest expense (12.2) (9.5) (2.7) (28)
Other, net (1.6) (.2) (1.4) (700)
Income taxes (23.7) (22.5) (1.2) (5)
- ---------------------------------------------------------------------------------------------------------------------
Income before minority interest 42.2 54.3 (12.1) (22)
Minority interest (4.6) (7.1) 2.5 35
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 37.6 $ 47.2 $ (9.6) (20)
=====================================================================================================================
Net income per share:
Basic $ 1.02 $ 1.29 $ (.27) (21)
Diluted $ 1.00 $ 1.26 $ (.26) (21)
<FN>
(1) Investment Castings operating income includes goodwill amortization of
$2.9 and $2.3 million in 2000 and 1999, respectively, associated with the
Howmet common stock purchases in December 1997 and February 1999.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Selected Unaudited Financial Data
Three Months Ended March 31
-----------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------- ------------------------------------------------
(in millions) Cordant (1) Howmet Consolidated Cordant (1) Howmet Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash (used for)
provided by
operating activities $ (4.8) $ (8.0) $ (12.8) $14.2 $ 9.8 $ 24.0
Capital expenditures (8.1) (12.3) (20.4) (7.8) (23.3) (31.1)
Dividends (3.7) - (3.7) (3.7) - (3.7)
- ---------------------------------------------------------------------------------------------------------------------------
$(16.6) $(20.3) $ (36.9) $ 2.7 $ (13.5) $ (10.8)
===========================================================================================================================
Total Debt (1) $ 666.1 $ 50.4 $ 716.5 $ 620.6 $ 154.0 $ 774.6
Less cash and cash
Equivalents (2.1) 23.2 21.1 .7 18.1 18.8
- ---------------------------------------------------------------------------------------------------------------------------
$ 668.2 $ 27.2 $ 695.4 $ 619.9 $ 135.9 $ 755.8
===========================================================================================================================
<FN>
(1) Cordant, exclusive of Howmet
</FN>
</TABLE>
BUSINESS SEGMENT SALES AND INCOME FOR THE QUARTER
Investment Castings
<TABLE>
<CAPTION>
The following unaudited information summarizes Howmet's results, as
separately reported to its shareholders, for the three-months ended March
31:
(in millions) 2000 1999
---------------------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Net sales $381.6 $372.7
Cost of goods sold 296.8 284.6
Gross profit 84.8 88.1
Operating income 45.9 57.2
Net income $ 30.1 $ 34.8
============================================================================ =============== =================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Following is a reconciliation of Howmet's contribution to the Company's
income for the three-months ended March 31 (unaudited):
(in millions) 2000 1999
- ---------------------------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Howmet net income $30.1 $34.8
Less preferred paid-in-kind dividend (1) (.8)
- ---------------------------------------------------------------------------------- --------------- ----------------
Income available to common shareholders 30.1 34.0
- ---------------------------------------------------------------------------------- --------------- ----------------
Company's interest in Howmet income (2) 25.4 26.8
Add preferred paid-in-kind dividend .8
- ---------------------------------------------------------------------------------- --------------- ----------------
Howmet's contribution to the Company's income 25.4 27.6
Add the Company's cumulative 7 percent tax reversal on
Howmet's income (3) 7.1
- ---------------------------------------------------------------------------------- --------------- ----------------
Howmet's total after-tax contribution to the Company's
income $25.4 $34.7
================================================================================== =============== ================
<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.
(3) The Company's previously accrued tax on Howmet income was reversed on
February 8, 1999, and since then, Howmet's taxable income has been
included in the Company's consolidated Federal income tax return. The
7 percent tax is no longer required on the Company's share of Howmet
income.
</FN>
</TABLE>
Howmet's sales increased $8.9 million or 2 percent over the prior year's
first quarter, due to increased component demand for large Industrial Gas
Turbines (IGT) used for electrical power generation. IGT sales increased
approximately 18 percent over 1999, net of price reductions of
approximately 6 percent. Sales to the aerospace market were approximately 7
percent lower than the prior year's quarter net of an approximate 2 percent
price decrease.
Howmet's pre-tax income was $44.9 million for the quarter, a 19 percent
decrease from $55.2 million in the prior year's quarter. The current
quarter included the pre-tax Cordant Technologies stock based incentive
expense of $6.2 million, which resulted from the increase in Cordant's
stock price related to Alcoa's offer to purchase Cordant Technologies. The
quarter also included $2.3 million of pre-tax expense in advisory fees
related to Cordant Technologies Inc.'s proposed buyout of Howmet's 15
percent publicly held shares. The prior year's quarter included a pre-tax
SAR benefit of $2.6 million resulting from Howmet's common stock price
falling below $15 per share at March 31, 1999. Excluding these items,
pre-tax income in the current quarter of $53.4 million increased 2 percent
over the prior year pre-tax income of $52.6 million. Interest expense was
$1.2 million lower than the prior year's quarter due primarily to lower
debt levels.
18
<PAGE>
Howmet has experienced pressure from all of its major customers for price
reductions. This pressure is the result of the competitive environment
which Howmet's OEM customers are facing in selling their products in the
world market. The adverse effect of price reductions is expected to be
offset to a large extent through company and joint company/customer cost
reduction programs. These cost reductions include significant efficiency
and yield improvements on new, technologically advanced parts, as they move
through the normal product life cycle. While expected, these cost
reductions cannot be assured.
Howmet's tax rate was 33 percent in the current period compared to 37
percent in the prior year. The lower rate in the current year is due to
higher benefits related to the Foreign Sales Corporation and higher
estimates of research and development tax credits.
Starting in late 1998, Howmet discovered certain product testing and
specification non-compliance issues at the Montreal (Canada) and Bethlehem
(Pennsylvania) operations of its Howmet Aluminum subsidiaries (formerly
called Cercast). In 1999, Howmet discovered several additional instances of
other testing and specification non-compliance at its Hillsboro (Texas)
aluminum casting facility and at the Montreal and Bethlehem operations.
Howmet has notified customers and the appropriate government agencies and
substantially completed correction of these issues. Howmet knows of no
in-service problems associated with any of these issues. In addition,
Howmet Aluminum has been, and expects to continue to be, late in delivery
of products to certain customers resulting in lower sales. Delivery
performance later in 2000 is expected to improve significantly.
The Defense Criminal Investigative Service (the "DCIS") in conjunction with
other agents from Department of Defense and NASA, has undertaken an
investigation with respect to certain of the foregoing matters at the
Montreal and Bethlehem facilities. The DCIS has informed Howmet that the
investigation concerns possible violations of the False Claims Act and the
False Statements Act, as well as possible criminal penalties. Howmet is
unable to determine definitively what, if any, civil or criminal penalties
might be imposed as a result of the investigation.
All customer claims relating to the foregoing matters have either been
resolved, or, in the Company's judgement, will be resolved within existing
reserves.
The Company believes that additional costs for the foregoing matters beyond
amounts accrued, if any, 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.
19
<PAGE>
On August 6, 1999, Howmet and Howmet Aluminum entered into an
Administrative Agreement with the U.S. Air Force terminating Notices of
Proposed Debarment issued on March 1, 1999 relating to certain of the
foregoing matters. The Administrative Agreement permits the affected
facilities to resume accepting new U.S. government contracts and
subcontracts.
Fastening Systems
Huck's Fastening Systems sales for the quarter increased by $12.7 million
or 10 percent from last year reflecting the additional sales provided by
Continental/Midland, which was acquired in October 1999. Sales in the
industrial market decreased 5 percent over the prior year's quarter,
excluding the sales provided by the Continental/Midland acquisition. Sales
in the aerospace market decreased 17 percent from the prior year primarily
from weak domestic aerospace demand. Excluding sales provided by the
Continental/Midland acquisition, Fastening systems total sales decreased 9
percent from the prior year.
Huck's Fastening Systems operating income increased $3.1 million or 17
percent over the prior year. Excluding operating income provided by the
Continental/Midland acquisition, Fastening Systems operating income
increased $1.2 million, or 6 percent from the prior year's quarter. The
higher operating income resulted primarily from improved aerospace margins
reflecting the cost savings from closing the Lakewood facility in 1999.
Operating margins for the quarter were 15.9 percent, compared to 15.1
percent last year.
Management uses book-to-bill ratios 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.
<TABLE>
<CAPTION>
(unaudited) 2000 1999
------------------------------------------------- ----------------------------- ------------------------------
<S> <C> <C>
Aerospace .75 .59
Industrial .94 1.06
------------------------------------------------- ----------------------------- ------------------------------
Fastening Systems Total .88 .90
================================================= ============================= ==============================
</TABLE>
Propulsion Systems
Propulsion Systems sales for the quarter increased $6.9 million or five
percent compared to the prior year primarily from higher sales in the Space
Shuttle Reusable Solid Rocket Motor (RSRM), ordnance and commercial launch
motor programs. The higher RSRM sales resulted from increased activity on
the Buy 4 contract. Propulsion Systems operating income increased $3
million or 17 percent over the prior year's quarter primarily from higher
RSRM and ordnance program sales and margins. Operating margins were 14.2
percent in the current quarter compared to 12.7 percent in 1999.
20
<PAGE>
During the quarter, the RSRM contract accounted for approximately 15
percent of the Company's consolidated net sales and 19 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 as the contract approaches completion and performance incentives
are met. While the Buy 4 contract is similar in structure and profit
potential to Buy 3, Buy 4 profit margins will initially be lower than
margins currently being recognized on Buy 3. Buy 4 profit margins may
increase in the future as contract performance incentives are met.
OTHER MATTERS
Selling, general and administrative
For the quarter ended March 31, 2000, selling, general and administrative
(SG&A) expenses increased $10.5 million compared to the prior year.
Howmet's SG&A increased $8.4 million primarily from a $6.2 million charge
in the current quarter for a Cordant Technologies stock based incentive
expense. The increase resulted primarily from the increase in Cordant's
stock price from $29.56 to $56.56 per share as a result of Alcoa's offer to
buy Cordant Technologies. Howmet also incurred $2.3 million in advisory
fees associated with Cordant Technologies offer to purchase the remaining
public shares of Howmet. Goodwill amortization increased $1.2 million
compared to last year's quarter due to the purchase of an additional 22.6
percent of Howmet common stock in February 1999, and the purchase of
Continental Midland in October 1999. SG&A expenses for the current
three-month period increased $1.5 million, due to the addition of
Continental/Midland.
General
Interest expense increased $2.7 million for the quarter, due to the
Company's increased borrowings related to the 22.6 percent purchase of
Howmet common stock in February 1999, and the Continental/Midland purchase
in October 1999. Interest income decreased $2 million from the prior year
due to lower cash levels.
Income Taxes
The Company had an effective income tax rate of 36 percent, compared with
29 percent for the same three-month period in the prior year. The effective
income tax rate for the prior year would have been 38.5 percent before
reversal of the $7.1 million or $.19 per share tax on accumulated dividends
previously recorded on the Company's share of Howmet income. Beginning in
February 1999, Howmet's taxable income has been included in the Company's
consolidated federal income tax return, and the dividend tax is no longer
required on the Company's share of Howmet results. The tax rate for 2000 is
lower than the 38.5 percent rate that would have been reported last year
absent the Howmet tax reversal primarily because the Company realized
greater benefits from the research tax credit and the Foreign Sales
Corporation export tax incentive program.
21
<PAGE>
Acquisition of the Company by Alcoa; Alcoa Tender Offer for Howmet
On March 14, 2000, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Alcoa Inc., a Pennsylvania corporation
("Alcoa"), and Omega Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Alcoa (the "Purchaser"). Pursuant to the Merger
Agreement, on March 20, 2000, the Purchaser commenced a cash tender offer
(the "Cordant Offer") for all of the outstanding shares of the Company's
Common Stock ("Company Shares") at a purchase price of $57.00 per Company
Share. The Merger Agreement provides that, subject to the satisfaction or
waiver of certain conditions, following completion of the Cordant Offer,
the Purchaser will be merged (the "Merger") with and into the Company, and
at the effective time of the merger (the "Effective Time") each Company
Share outstanding (other than Company Shares owned by Alcoa, the Purchaser,
any of their respective subsidiaries, the Company or any of its
subsidiaries, and shares held by stockholders, if any, who did not vote in
favor of the Merger Agreement and who comply with all of the relevant
provisions of Section 262 of the Delaware General Corporation Law relating
to dissenters' rights of appraisal) will be converted into the right to
receive $57.00 in cash or any greater amount per share paid pursuant to the
Cordant Offer.
Pre-merger notification under the U.S. Hart-Scott-Rodino law with respect
to the Cordant Offer was made to the Antitrust Division of the Department
of Justice and to the Federal Trade Commission on March 21, 2000. The
15-day waiting period applicable to cash tender offers expired on April 5,
2000.
Pre-merger notification to the European Commission with respect to the
Cordant Offer was made on April 11, 2000. The Company expects that the
waiting period under the European Merger Control Regulation will expire on
May 19, 2000,unless the Commission takes action to extend it.
On April 25, 2000, Alcoa announced that it had extended the Cordant Offer
to 5:00 p.m. Eastern Daylight Time on Friday May 19, 2000 and that as of
the close of business on April 24, 2000, the number of Company Shares that
had been validly tendered in the Cordant Offer was 33,169,088, including
guaranteed deliveries.
On November 12, 1999, the Company announced it had made a proposal to the
Board of Directors of Howmet to acquire all of the outstanding common
shares of Howmet not owned by the Company or its affiliates (the "Publicly
Held Howmet Shares") for a price of $17 per share in cash. The Howmet Board
referred the matter to the Independent Directors Committee of the Howmet
Board (the "Howmet Committee") for its consideration. In early March 2000,
during the course of further discussions between the Company and the
Howmet, the Company made a proposal to the Howmet Committee to acquire all
of the Publicly Held Howmet Shares for $18.75 per share, or a total of
approximately $288 million, but following further discussions no agreement
was reached.
22
<PAGE>
On March 13, 2000, prior to the execution of the Merger Agreement, the
Company, a wholly owned subsidiary of the Company ("Holding") and Howmet
amended (the "Corporate Agreement Amendment") the Corporate Agreement
entered into by such parties in connection with the initial public offering
of Howmet Shares in December 1997. Under the Corporate Agreement Amendment,
the Company and Holding agreed that neither they nor any of their
affiliates will acquire outstanding Publicly Held Howmet Shares if, after
such acquisition, the number of Publicly Held Howmet Shares would be less
than 14% of the total number of outstanding Howmet Shares, other than: (1)
with the consent of a majority (but not less than two) of the non-employee
directors of Howmet who are not directors or employees of the Company,
Holding or their affiliates; or (2) the purchase of at least a majority of
the outstanding Publicly Held Howmet Shares pursuant to a tender offer to
acquire all of the Publicly Held Howmet Shares, which tender offer (A) is
conditioned upon there being tendered and not withdrawn prior to the
expiration of the offer not less than a majority of the outstanding
Publicly Held Howmet Shares (the "Howmet Minimum Tender"), and (B) provides
a commitment for a prompt merger or business combination following the
purchase of Howmet Shares in the tender offer as contemplated by clause (3)
below; or (3) pursuant to a merger or other business combination, within
one year following the completion of a tender offer described in clause (2)
above that satisfied the Howmet Minimum Tender, in which each Publicly Held
Howmet Share outstanding immediately prior to the effective time of such
merger or business combination is converted into the right to receive the
same consideration paid or issued in the tender offer; or (4) pursuant to a
merger or other business combination in which holders of all outstanding
Publicly Held Howmet Shares are treated the same which is approved by the
holders of a majority of the outstanding Publicly Held Howmet Shares. Alcoa
and Howmet entered into a letter agreement on March 13, 2000, pursuant to
which Alcoa agreed with Howmet to be bound by the same limitations on
purchasing Publicly Held Howmet Shares as bind the Company under the
Corporate Agreement Amendment.
On April 20, 2000, Alcoa, through its wholly owned subsidiary HMI
Acquisition Corp., commenced a cash tender offer for all of the outstanding
Howmet Shares at a price of $20.00 per share (the "Howmet Offer"). Howmet's
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Howmet Offer, filed on May 1, 2000, stated that the Howmet Committee, to
which the full Howmet Board had referred consideration of the Howmet Offer,
had unanimously determined that the Howmet Offer is inadequate and not in
the best interest of the holders of Publicly Held Howmet Shares, and
contained the recommendation of the Howmet Committee, on behalf of Howmet,
that holders of Publicly Held Howmet Shares reject the Howmet Offer and not
tender their Howmet Shares pursuant to the Howmet Offer. The Company and
Holding advised Howmet that they do not intend to tender or cause to be
tendered in the Howmet Offer any of the Howmet Shares owned by Holding in
light of (1) the fact that the Howmet Offer is conditioned on the
consummation of the Cordant Offer, following which Alcoa would be required,
subject to the conditions set forth in the Merger Agreement, to effect the
Merger and as of such Merger would indirectly own all of such Howmet Shares
and (2) the provisions of the Merger Agreement that do not permit the
Company to, and require the Company not to permit Holding to, without the
consent of Alcoa, dispose of any assets or securities (including Howmet
Shares), except in an amount that is not material to the Company and its
subsidiaries taken as a whole.
23
<PAGE>
Liquidity and Capital Resources
For the current three-month period, operating activities used $12.8 million
in cash compared to cash provided by operations of $24 million last year.
Cash used from operating activities resulted primarily from an increase in
receivables, lower net income and higher income tax payments. The increase
in receivables resulted primarily from collection timing issues at
Propulsion Systems. The change in income tax accruals resulted from
additional U.S. estimated income tax payments related to dividends from
non-U.S. subsidiaries received in late 1999.
Consolidated capital spending on property, plant and equipment used $20.4
million in the current period compared to $31.1 million in the prior year.
Howmet used $12.3 million in capital expenditures. Acquisition accounting
activity for the quarter included $10.9 million in purchase price
adjustments related to the previously announced Continental/Midland
transaction (including reflecting an agreement to pay an additional $7
million in return for the Seller agreeing to execute a tax election to
treat the transaction as an asset purchase and sale).
Financing activities for the three-month period provided $28.7 million of
cash compared to $368.2 million of cash provided in the prior year period.
On February 9, 2000 the Company terminated its senior bank credit
facilities and replaced them with a new $1 billion senior bank credit
facility. The new facility will be used to refinance existing bank debt and
for general corporate purposes. The terms of the bank facility include
guarantees from existing and future material domestic subsidiaries for all
obligations arising under the facility. The credit facility matures in
February 2001 ($400 million) and February 2005 ($600 million). The Company
had drawn $465 million at the end of the current quarter on the five-year
facility, leaving $535 million available for future use. The Company has no
other principal maturing in the next five years. The interest rate on the
new facility was 6.65 percent on March 31, 2000 and is based on the London
Interbank Offered Rate (LIBOR) plus a borrowing spread. The new credit
agreement and senior notes require the Company to meet certain interest
coverage and leverage ratios and also contain covenants restricting, among
other things, the Company's ability to incur funded debt, liens, sale and
leaseback transactions, and the sale of assets. The Company, excluding
Howmet, at March 31, 2000, had $13.7 million in Letters of Credit
outstanding.
On January 6, 2000 the Company filed a Form S-3 with the Securities and
Exchange Commission (SEC) to sell from time to time up to $650 million in
debt securities, warrants, common stock and preferred stock.
Cordant does not have access to Howmet cash balances except through
Howmet's 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.
24
<PAGE>
On February 9, 2000, Howmet terminated its $300 million revolving credit
facility and replaced it with a $25 million revolving credit facility. On
March 31, 2000, Howmet had no borrowings under the new facility. The funds
available under the new revolving credit facility are available through May
9, 2000. Howmet has the option to extend this facility beyond the
termination date. 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
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 March 31, 2000. The $49.3 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:
March 31 December 31
2000 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Working Capital (in millions) $ 113.7 $ 63.6
Current Ratio 1.2 1.1
Debt-to-equity 84.6% 83.9%
Debt-to-total capital 47.7% 47.6%
===================================================================================================
</TABLE>
The debt-to-total-capital ratio includes the $55 million receivable
facility at Howmet. Estimated future cash flows from operations, current
financial resources, and available credit facilities are expected to be
adequate to fund the Company's anticipated working capital requirements,
capital expenditures, dividend payments, and stock repurchase program on
both a short and long-term basis.
Since December 31, 1999, the cumulative translation adjustment, which is
included in stockholder's equity, changed by $3.4 million. The change is
primarily due to the strengthening of the U.S. dollar relative to the
French franc and the U.K. Sterling.
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, 1999 year. For more information, please read the
consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1999.
25
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Investment Castings under the section entitled "Business Segment Sales
and Income for the Quarter" in Management's Discussion and Analysis for
information relating to the termination of 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. This section also discusses the Administrative Agreement
entered into with the U.S. Air Force and the government's voluntary
disclosure program controlled by the Department of Justice and the
Department of Defense Inspector General, which discussion is incorporated
herein by reference. Cercast has been renamed Howmet Aluminum, but in this
discussion will continue to be referred to as Cercast.
On November 12, 1999, the Company announced that it had made a proposal to
Howmet to purchase all of the outstanding shares of Howmet that the Company
does not already own for $17 per share in cash. Shortly thereafter, eight
separate but nearly identical lawsuits were filed in the Court of Chancery
of Delaware against the Company, Howmet and each member of the Howmet Board
of Directors. The plaintiffs are shareholders of Howmet who complain that
the Company's offer for their shares in Howmet is not for an adequate
price. The plaintiffs request the following relief: Certification as a
class action with themselves designated as Class Representatives; An order
enjoining the Company, Howmet and its Board of Directors from proceeding
with the transaction; and money damages and the costs of bringing the
lawsuit. On the motion of the defendants, the Court has consolidated the
cases under the style of "In Re Howmet International Shareholders
Litigation" and directed that the plaintiffs file an Amended Complaint
reflecting the consolidation. The Company is defending these actions and
believes that any outcome will not result in a materially adverse impact to
the financial position of the Company.
The Company has filed a complaint against the United States in the U.S.
Court of Federal Claims in the amount of $8,148,888 to recover certain
previously approved costs associated with the development of Thiokol
Propulsion's Castor IVA-XL rocket motors. In March 1999, the Government
reversed its longstanding approval of the Company's accounting method and
denied reimbursement.
26
<PAGE>
ITEM 5. OTHER INFORMATION
Annual Stockholders Meeting
The Annual Meeting of the Cordant Technologies Stockholders has been
postponed pending the expected completion of the tender offer by Alcoa for
the Company's common stock.
FORWARD-LOOKING STATEMENTS
The Company's "Cautionary Statements" with respect to certain statements
herein that the Company believes are "forward looking statements" under the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 are set forth in Item 7, Management's Discussion and Analysis of
Financial Conditions and Operations of the Company's Annual Report on Form
10-K for the year ended December 31, 1999. Many of the factors described
herein are discussed in both current and prior Company Securities and
Exchange Commission filings and to the extent not otherwise discussed in
forward-looking statements should be considered in assessing the various
risks associated with the Company's conduct of its business and financial
condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit 27.1 Financial Data Schedule
Reports on Form 8-K
On February 11, 2000, a Form 8-K was filed. Included in Item 5, "Other
Events" was the text of the earnings announcement for the quarter and year
ended December 31, 1999, summary financial information was included.
On March 21, 2000, a Form 8-K was filed. Included in Item 5, "Other Events"
was the announcement of the merger between Alcoa Inc. and Cordant
Technologies Inc. No financial statements were included.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORDANT TECHNOLOGIES INC.
(Registrant)
Date: May 11, 2000. /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)
28
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Cordant
Cordant Technologies Inc. audited financial statements for the year ended
December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000068366
<NAME> Cordant Technologies Inc.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 293
<ALLOWANCES> 7
<INVENTORY> 268
<CURRENT-ASSETS> 646
<PP&E> 1275
<DEPRECIATION> 523
<TOTAL-ASSETS> 2525
<CURRENT-LIABILITIES> 532
<BONDS> 616
0
0
<COMMON> 41
<OTHER-SE> 806
<TOTAL-LIABILITY-AND-EQUITY> 2525
<SALES> 663
<TOTAL-REVENUES> 664
<CGS> 514
<TOTAL-COSTS> 584
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 66
<INCOME-TAX> 24
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<EPS-BASIC> 1.02
<EPS-DILUTED> 1.00
</TABLE>
