UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file Number 1-13645
HOWMET INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1946684
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Address of Principal Executive Offices: 475 Steamboat Road, Greenwich, CT
06830
Registrant's telephone number, including area code: 203-661-4600
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value New York Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
$264,205,333 AS OF MARCH 16, 1998
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date. COMMON STOCK, $0.01
PAR VALUE, AS OF MARCH 16, 1998 : 100,000,000 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Annual Report to Stockholders for the fiscal year ended
December 31, 1997 is incorporated by reference in Parts I, II and IV hereof.
Registrant's definitive Proxy Statement dated March 24, 1998 is incorporated by
reference in Part III hereof.
TABLE OF CONTENTS
Part I
Item 1 -- BUSINESS....................................................................................... 1
Item 2 -- PROPERTIES..................................................................................... 5
Item 3 -- LEGAL MATTERS.................................................................................. 5
Item 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................ 6
EXECUTIVE OFFICERS OF THE REGISTRANT (as required by Instruction 3 to Item 401(b) of Regulation S-K)..... 7
Part II
Item 5 -- MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................. 9
Item 6 -- SELECTED FINANCIAL DATA........................................................................ 9
Item 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 9
Item 7A-- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...................................... 9
Item 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................... 9
Item 9 -- CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............. 10
Part III
Item 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............................................... 10
Item 11 -- EXECUTIVE COMPENSATION........................................................................ 10
Item 12 -- PRINCIPAL STOCKHOLDERS........................................................................ 10
Item 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................ 10
Part IV
Item 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................. 11
SIGNATURES.................................................................................................. 16
REPORTS OF PRICE WATERHOUSE.................................................................................A-1
FINANCIAL STATEMENT SCHEDULES...............................................................................I-1
EXHIBITS
PART I
ITEM 1 -- BUSINESS
Howmet International Inc. is a Delaware corporation organized in 1995
(together with its subsidiaries the "Company"). Through its subsidiary, Howmet
Corporation, the Company is the largest manufacturer in the world of investment
cast turbine engine components for the jet aircraft and industrial gas turbine
("IGT") markets. The Company uses investment casting techniques to produce high-
performance and high-reliability superalloy and titanium components to the
exacting specifications of the major aerospace and IGT engine manufacturers. The
Company is also the world's largest producer of aluminum investment castings,
which it produces principally for the commercial aerospace and defense
electronics industries.
Howmet Corporation, the Company's principal operating subsidiary, was founded
in 1926. The Company was formed in 1995 under the name Blade Acquisition Corp.
("Blade") as a joint venture between Thiokol Corporation ("Thiokol"), which
owned 49% of its Common Stock and Carlyle-Blade Acquisition Partners, L.P.
("Carlyle-Blade Partners"), which owned 51% of its Common Stock. The Company
was formed to purchase Howmet Corporation and the Cercast companies from
Pechiney International, a French corporation, which has now merged into its
parent company, Pechiney, S.A. The acquisition of Howmet Corporation and the
Cercast companies was accomplished on December 13, 1995 through the purchase of
the capital stock of Pechiney Corporation, Howmet Corporation's parent holding
company, and the capital stock of the Cercast companies (the "Acquisition").
The Cercast companies became subsidiaries of Howmet Corporation, and Pechiney
Corporation's name was changed to Howmet Holdings Corporation ("Holdings").
On December 2, 1997, in two separate transactions, Thiokol acquired 13 million
shares of the Company's Common Stock from Carlyle-Blade Partners, increasing its
ownership interest in the Company to 62%. This was done concurrently with a
public offering of stock of the Company by Carlyle-Blade Partners, pursuant to
which public stockholders acquired a 15.35% interest in the Company and Carlyle-
Blade Partners' interest was reduced to 22.65%.
Howmet Corporation operates in one business segment, investment castings.
Financial information with respect to foreign and domestic operations and export
sales is hereby incorporated by reference to information contained in Note 15 of
"Notes to Financial Statements" on page 34 of the Company's 1997 Annual Report
to Stockholders. This information is attached hereto as part of Exhibit 13.
PRODUCTS AND SERVICES
The Company uses the investment casting process to manufacture superalloy,
titanium and aluminum components for aircraft and industrial gas turbine engines
and airframe applications for customers worldwide. These products are
manufactured to precise specifications provided by customers. The table below
describes the Company's major products:
MAJOR PRODUCTS SUMMARY PRODUCT DESCRIPTION AND APPLICATION
- -------------- -------------------------------------------
Blades High temperature superalloy rotating turbine engine
components. Blades act as air foils which are driven
by the hot gas flow.
Vanes High temperature superalloy non-rotating turbine
engine components. Vanes are the fixed airfoils which
direct the gas flow.
IGT shroud blocks Vane holders that provide a seal to fix each vane in
position.
Turbine rotors Integrated cast rotating wheels of blades primarily
for use in smaller engines. Rotors are like blades but
are manufactured as a single part instead of being
built of separate parts.
Nozzle rings Integrated cast non-rotating rings of vanes primarily
for use in smaller engines. Nozzle rings are like
vanes but are manufactured as a single integral
component.
Compressor stators Integrated cast non-rotating rings of compressor vanes
for use in both small and large engines. Compressor
stators are like vanes but are manufactured as a
single component.
1
Frames Large diameter thin-wall cases used to support their
respective sections of turbine engines such as fans,
compressors and turbines.
Bearing housings Large diameter, heavy structural supports for
bearings.
Airframe components Titanium and aluminum structures for commercial and
military aircraft, including door frames, flap tracks,
nacelles, longerons, wing tips, and nose and tail
cones.
Electronics packaging Aluminum boxes with card slots and cooling fins for
electronic avionics packages.
Electro-optical
system housings Heads-up displays, gimbals and other housings.
Engine parts Gear boxes, front frames, and blocker doors for small
engines.
Other aircraft parts Aircraft fuel pump, a/c blower, oil tank and surge
tank components.
JOINT VENTURES
Howmet currently is participating in two joint ventures, one in Japan with
Komatsu Ltd. and the other in the United States with a subsidiary of United
Technologies Corporation. The Japanese joint venture, Komatsu-Howmet Ltd.
("KHL"), manufactures investment cast components for IGT and aerospace
customers, primarily in Japan. Howmet currently holds an option to purchase
Komatsu's interest in this venture. The joint venture with United Technologies
Corporation, Sprayform Technologies International, L.L.C. ("Sprayform"), was
organized to develop and commercialize the Spraycast-X(R) technology, in which
atomized metal is sprayed onto a rotating mandrel to form products such as cases
and rings.
RAW MATERIALS
The Company's raw materials include a number of metals and minerals, including
titanium, hafnium, aluminum, nickel, cobalt, molybdenum and chromium, among
others. The Company has multiple sources of supply for most of these materials
and has not experienced any significant supply interruption for more than twenty
years. Prices of these materials, however, can be volatile, and the Company
engages in forward purchases of some of these materials under certain market
conditions, and passes certain price fluctuations through to customers pursuant
to its long-term agreements. The Company ordinarily does not otherwise attempt
to hedge the price risk of its raw materials.
PATENTS
The Company has obtained numerous patents, licenses, and other proprietary
information, which it believes provide it with a competitive advantage,
including proprietary modifications and applications of the directional
solidification and single crystal casting processes. To protect its proprietary
information, the Company requires its employees to sign confidentiality
agreements, reminds employees of this confidentiality obligation upon their
departure from the Company, and builds some of its own specialized equipment,
such as casting furnaces, to prevent competitors from learning about Howmet's
newly developed processes. Competitors in the Company's business also hold
patents and other forms of proprietary information, and there is active
technical competition in that business. No assurances can be given that one
company or another will not obtain a technological advantage from time to time,
in one aspect of the industry's technology or another.
MAJOR CUSTOMERS
The Company is the leading supplier of precision investment cast components to
the producers of aircraft and industrial gas turbine engines. Most of the
turbine engine market is characterized by a limited number of large
manufacturers of engines. The Company's top ten customers represented
approximately 62% of the Company's net sales in 1997. The Company's principal
customers are The General Electric Company through its aircraft engine (GEAE)
and power systems (GEPS) groups and United Technologies Corporation's Pratt &
Whitney aircraft operations (Pratt & Whitney Division and Pratt & Whitney
Canada). Sales to these customers represented 20% and 15%, respectively, of the
Company's 1997 net sales. The Company's principal other aerospace engine
customers (none of which represented more than
2
10% of 1997 net sales) include AlliedSignal Inc., FiatAvio, S.p.A., Allison
Engine Company, MTU Munchen GmbH (a subsidiary of Daimler-Benz Aerospace),
Rolls-Royce PLC, Walbar (a division of Coltec Industries Inc.) and SNECMA. The
Company's principal other IGT customers (none of which represented more than 10%
of 1997 net sales) include European Gas Turbine (which manufactures GEPS-
designed engines), ABB Power Generation Ltd., Siemens AG, Westinghouse Electric
Corp., Nuovo Pignone, Solar Turbines Incorporated, and Westinghouse Canada Inc.
Orders for components are primarily awarded through a competitive bidding
process. Contractual relationships with the Company's principal customers vary.
Approximately half of the Company's casting business is derived from multi-year
contracts, typically three years in length. Under these contracts, the Company's
customers agree to order from the Company, and the Company agrees to supply,
specified percentages of specified parts at specified pricing over the life of
the contracts. The customers are not required to order fixed numbers of parts,
although pricing may be subject to certain threshold quantities. Some of these
contracts include provisions requiring specified price reductions over the term
of the contract, based on lower production costs as programs mature, shared
benefits from other cost reductions resulting from joint production decisions,
and negotiated reductions. The Company typically renegotiates these contracts
during the last year of the contract period and, during the process, customers
frequently solicit bids from the Company's competitors. See "Concentrated
Customer Base" and "Competition" in Exhibit 99.1 attached hereto.
BACKLOG
The Company's backlog of orders as of December 31, 1997 was $793 million.
Because of the short lead and delivery times often involved and because
deferrals and cancellations often affect the Company's orders, backlog may not
be a significant indicator of the Company's future performance.
RESEARCH AND DEVELOPMENT
The Company has made a substantial investment in research and development to
establish a technology leadership position in the investment casting industry.
The Company believes it has significant opportunities for growth by developing
new products and new applications, which offer its customers greater performance
and significant cost savings. A portion of the Company's total research and
development budget comes from the Company's customers, which regularly retain
the Company for specific projects. The Company also provides research and
development services by contract to governmental agencies. The Company's
research center staff includes 75 degreed engineers and scientists. Cercast
also maintains a research and development staff to improve the aluminum
investment casting process. This staff develops casting processes and specialty
materials which enable Cercast to produce a diverse range of large, thin wall
and complex geometry castings. The Company's research and development expenses
for the years ended December 31, 1997, 1996 and 1995 were $24.6 million, $24.2
million and $26.4 million respectively. The amount spent during the same periods
for customer-sponsored research and development (primarily U.S. Government
funded) was $8.8 million, $8.5 million, and $4.8 respectively.
COMPETITION
The Company believes it has a majority market share in the overall turbine
engine airfoil investment casting market. Precision Castparts Corp. ("PCC"), a
publicly held company based in Portland, Oregon, is the Company's primary
competitor. Management believes that the Company and PCC account for most of the
total aerospace turbine engine and IGT investment casting production. The
Company competes with PCC and other smaller participants primarily on
technological sophistication, quality, price, service and delivery time for
orders from large, well-capitalized customers with significant market power.
Certain of the Company's customers, principally in Europe, have their own
investment casting foundries, which produce parts similar to those manufactured
by the Company. The Company knows of no plans by its major North American
customers to establish such captive facilities, nor any significant expansion
plans by those customers that have such foundries now.
The Company's aluminum casting operations compete with a large number of
smaller competitors, also on the basis of price, quality and service.
See "Major Customers" above for discussion of competition in the contract
award process.
3
ENVIRONMENTAL MATTERS
The Company is subject to comprehensive and changing environmental laws, which
are discussed more fully in Exhibit 99.1 attached hereto.
The Company has received test results indicating levels of polychlorinated
biphenyls ("PCBs") at its Dover, New Jersey facility which will require
remediation. These levels have been reported to the New Jersey Department of
Environmental Protection ("NJDEP"). The Company is preparing a work plan to
define the risk and to test possible clean-up options. The statement of work
must be approved by the NJDEP pursuant to an administrative consent order
entered into between the Company and the NJDEP on May 20, 1991 regarding clean-
up of the site. Various remedies are possible and could involve expenditures
ranging from $2 million to $22 million or more. The Company has recorded a $2
million long-term liability as of December 31, 1997 for this matter. Given the
uncertainties, it is possible that the estimated range of this cost and the
amount accrued will change within the next year. The indemnification discussed
below applies to the costs associated with this matter.
In addition to the above, liabilities arising for clean-up costs associated
with hazardous types of materials in several waste disposal facilities exist.
In particular, the Company has been or may be named a potentially responsible
party under the Comprehensive Environmental Response, Compensation and Liability
Act or similar state laws at eleven on-site and off-site locations. At December
31, 1997, $4.4 million of accrued environmental liabilities are included in the
consolidated balance sheet for such matters.
In connection with the Acquisition, Pechiney, S.A. is required to indemnify
the Company for environmental liabilities and obligations relating to Howmet
Corporation stemming from events occurring or conditions existing prior to
December 13, 1995, the date of the Acquisition, to the extent that such
liabilities exceed a cumulative $6 million. This indemnification applies to all
of the aforementioned environmental matters.
In addition, unrelated to Howmet Corporation's operations, the Company's
subsidiary Howmet Holdings Corporation and Pechiney, S.A. are jointly and
severally liable for environmental contamination and related costs associated
with certain discontinued mining operations owned and/or operated by a
predecessor-in-interest until the early 1960s. These liabilities include
approximately $21.3 million in remediation and natural resource damage
liabilities at the Blackbird Mine Site in Idaho and at least $8 million in
investigation and remediation costs at the Holden Mine Site in Washington.
Pechiney, S.A. has agreed to indemnify the Company for such environmental
liabilities. The Company has recorded a liability and an asset for an equal
amount related to these matters.
In the event that Pechiney, S.A. does not honor its indemnification
obligations described in any of the preceding paragraphs, the Company would
likely be responsible for such matters and the cost of addressing those matters
could be material.
EMPLOYEES
As of December 31, 1997, the Company had 10,352 employees.
* * *
The statements made herein that are not historical facts may be forward
looking statements. In connection with the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company hereby cautions
readers that the forward looking statements are subject to certain risks and
uncertainties, including without limitation those identified in Exhibit 99.1
hereto, which could cause actual results to differ materially from historical
results or those anticipated, and urges readers to review Exhibit 99.1
carefully. Factors discussed in Exhibit 99.1 include, among others, the effects
of aerospace industry economic conditions and cyclicality, concentrated customer
base, competition, pricing pressures, availability and cost of raw materials,
relationship with Thiokol, and environmental matters.
4
ITEM 2 -- PROPERTIES
The Company has nineteen facilities in the United States, four in France, two
in Great Britain and two in Canada, all of which are reasonably expected to meet
the production needs of the Company. Its KHL joint venture in Japan owns one
facility. Except as indicated, the facilities described below are all owned by
Howmet Corporation or its subsidiaries:
Location (No. of Facilities) Size (Sq. Ft.)
- ----------------------------- --------------
Bethlehem, Pennsylvania 47,200 (leased)
Branford, Connecticut 138,420
City of Industry, California 50,000 (leased)
Cleveland, Ohio 100,000
Dover, New Jersey (2) 240,737
115,292
Hampton, Virginia 284,800
4,090 (leased)
Hillsboro, Texas 51,000 (leased)
LaPorte, Indiana (2) 186,100
132,748(a)
Morristown, Tennessee 85,000
Whitehall, Michigan (6) 253,018
114,270
89,461
83,208
57,605
43,029
Wichita Falls, Texas 206,300
Winsted, Connecticut 81,000
Overseas
- --------
Dives, France (capital lease) 255,858
Evron, France 81,000
Exeter, U.K. (2) 184,350
65,650
Gennevilliers, France 47,361
Georgetown, Ontario 37,000 (leased)
Le Creusot, France 156,077
Montreal, Quebec 11,200
86,194(leased)
Terai, Japan 53,000(b)
(a) Howmet Transport Services Warehouse
(b) Factory owned by Komatsu-Howmet Ltd.
ITEM 3 -- LEGAL MATTERS
The Company is a party to certain pending proceedings regarding environmental
matters. See "Environmental Matters", above. The Company, in its ordinary course
of business, is party to various other legal actions. Management believes these
are routine in nature and incidental to its operations. Management believes
that the outcome of any proceedings to which the Company currently is a party
will not have material adverse effects upon its operations, financial condition
or liquidity.
5
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 8, 1997, Thiokol and Carlyle-Blade Partners, as holders of all of
the then outstanding shares of voting stock of the Company, by written consent,
approved a resolution amending the Certificate of Incorporation of the Company
to change the name of the Company from "Blade Acquisition Corp." to "Howmet
International Inc." and to increase the authorized shares of capital stock of
the Company to 410,000,000 shares, of which 10,000,000 would be shares of
preferred stock, par value $.01 per share, and 400,000,000 would be shares of
Common Stock.
Also on October 8, 1997, Thiokol and Carlyle-Blade Partners, as holders of all
of the then outstanding shares of voting stock of the Company, by written
consent, approved a resolution amending the Certificate of Incorporation of the
Company to make the following changes:
(a) The Board of Directors was given authority to grant preferential or
preemptive rights to subscribe for or purchase shares of capital stock to
Thiokol or its subsidiaries.
(b) The designation, preferences and rights relating to the 9.0% Series A
Senior Cumulative Preferred Stock (the "Preferred Stock") theretofore set
forth in a separate Certificate of Designations were incorporated into the
Certificate of Incorporation.
(c) The obligation of the Company to redeem the Preferred Stock upon a sale by
Carlyle-Blade Partners of 25% or more of the outstanding shares of the
Company was eliminated.
(d) Provisions were added relating to the allocation of corporate
opportunities between the Company and Thiokol and the responsibilities of
persons who may be directors and/or officers of both the Company and
Thiokol when presented with certain corporate opportunities that may be
appropriate for both companies. Under these provisions, Thiokol may
pursue or engage in the same or similar activities or lines of business as
the Company without Thiokol's or any of Thiokol's officers' or directors'
incurring liability for breach of any fiduciary duty to the Company,
except as follows. A director or officer of the Company who is also a
director or officer of Thiokol who acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both the
Company and Thiokol will have satisfied his or her fiduciary duty to the
Company and its stockholders with respect to such corporate opportunity if
such director or officer acts in a manner consistent with certain policies
set forth in the Certificate of Incorporation.
(e) A provision was added expressly permitting stockholders to act by written
consent in lieu of a meeting but only for so long as Thiokol beneficially
owns 50% or more of the voting power of all classes of stock.
Thiokol, on October 8, 1997, and Carlyle-Blade Partners on November 20, 1997,
as holders of all of the then outstanding shares of voting stock of the Company,
by written consent, ratified the Company's Stock Appreciation Rights agreements
("SARs") entered into with certain key employees in 1997, reapproved all of the
SARs entered into in 1996, and specifically approved provisions of those
agreements which provided for accelerated payments in the event of certain
changes in the ownership or control of the Company or Howmet Corporation.
On November 20, 1997, Thiokol and Carlyle-Blade Partners, as holders of all of
the then outstanding shares of voting stock of the Company, by written consent,
adopted resolutions authorizing the following matters:
(a) Amendment to the SARs program (the "Amended SARs Program"). Pursuant to
this amendment, the maximum per share value of the outstanding SARs has
been limited to the difference between the initial public offering price
and the base price per share (generally $2) of the SARs and, in exchange
for accepting such limitation, each holder of SARs was granted a non-
qualified stock option to purchase, at the initial public offering price
of $15 per share, a number of shares of Common Stock equal to the number
of shares with respect to which such employee has SARs. In addition, the
Company offered holders of SARs the opportunity to cash out 20% of their
SARs (which represented the vested portion of the SARs) at the initial
public offering price.
(b) Adoption of the 1997 Stock Awards Plan and the grant of stock options
under the Plan. The 1997 Stock
6
Awards Plan provides for the grant of stock options, SARs and restricted
stock (collectively, "Awards") with respect to up to 5,000,000 shares of
Common Stock. Of this amount, 4,377,500 were granted to participants under
the Amended SARs Program as discussed above. The exercise price of all
options and the base price of all SARs granted under the 1997 Stock Awards
Plan must be at not less than 100 percent of the fair market value of the
Common Stock on the date of grant. The maximum number of shares of Common
Stock with respect to which awards may be granted under the 1997 Stock
Awards Plan during any calendar year to a single plan participant shall
not exceed 400,000 shares, except in connection with options granted
pursuant to the Amended SARs Program. The 1997 Stock Awards Plan is
administered by a subcommittee of the Compensation Committee, which
consists of two Directors of the Company who are "outside Directors" as
the term is used in Internal Revenue Code ("Code") Section 162(m) and
"non-employee Directors" for the purpose of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended ("Exchange Act").
(c) Adoption of the Directors Deferred Compensation Plan. Under this Plan each
Director who is entitled to a Director's fee from the Company may elect to
have payment of part or all of his Director's compensation deferred until
such time as he ceases to be a Director. Each Director has the option of
electing the deferral of his Director's fees into a cash or phantom stock
credit account. Amounts credited to the cash account are credited with
increments (equivalent to interest at the prime rate), and amounts
credited to the phantom stock account are credited or debited with amounts
reflecting the change in the price of the Company's Common Stock and
payment of dividends, if any, from the date of the grant. All
distributions of a Director's cash or phantom stock account are made only
in cash.
EXECUTIVE OFFICERS OF THE REGISTRANT
(AS REQUIRED BY INSTRUCTION 3 TO ITEM 401(b) OF REGULATION S-K)
The By-Laws of the Company provide that the directors will be elected
annually. All directors of the Company hold office until the election and
qualification of their successors. Executive officers of the Company are chosen
by the Board of Directors of the Company or Howmet Corporation, as the case may
be, and serve at its discretion.
The following paragraphs list certain information with respect to the
executive officers of the Company as of the filing date of this Report.
David L. Squier, age 52, has been President and Chief Executive Officer of
Howmet Corporation since 1992 and has been President and Chief Executive Officer
of the Company since October 1997. Mr. Squier began his association with Howmet
Corporation when he joined the Corporate Planning department of its predecessor
in December 1971. He was involved in manufacturing management from 1976 to 1978,
became General Manager of Howmet's Wichita Falls casting facility in 1979, and
was promoted to Vice President of Operations in 1983. He was elected a Director
of Howmet Corporation in 1987. He has been a Director of the Company since
consummation of the Acquisition.
Marklin Lasker, age 60, has been a Senior Vice President of Howmet
Corporation since February 1992 and has been Senior Vice President-International
Operations of the Company since October 1997. Before joining Howmet, Mr. Lasker
was Vice President and General Manager for International Operations for the
AlliedSignal Turbocharger Division from April 1984 to September 1991. He also
held other managerial positions for AlliedSignal Aerospace Groups over a 20 year
period.
John C. Ritter, age 50, has been Senior Vice President and Chief Financial
Officer of the Company since October 1997. From April 1996 until October 1997,
Mr. Ritter was Vice President-Finance and Chief Financial Officer of Howmet
Corporation. Prior to his employment at Howmet, he served as Vice President,
Finance and Contracts, for AlliedSignal Government Electronics from 1994 to
1996, and as Vice President, Finance and Administration of Norden Systems, a
subsidiary of United Technologies Corporation, from 1991 to 1994. He has also
held the positions of Vice President, Finance and Administration, Chemical
Systems Division, and Manager, Business Analysis, Pratt & Whitney Aircraft-
Government Products Division of United Technologies Corporation.
James R. Stanley, age 56, has been Senior Vice President of Howmet
Corporation since 1992 and has been Senior
7
Vice President-United States Operations of the Company since October 1997.
Previous to his employment at Howmet, Mr. Stanley was the Vice President and
General Manager of Customer Support and Marketing at the Textron Turbine Engine
Division of Textron, Inc. from August 1990 to January 1992. He also held the
position of Vice President of Operations for Textron Lycoming and held numerous
managerial positions for nearly 20 years at General Electric - Aircraft Engines.
Roland A. Paul, age 61, has been Vice President-General Counsel and
Secretary of Howmet Corporation since 1976 and has been Vice President-General
Counsel and Secretary of the Company since October 1997. Mr. Paul was previously
in private practice as an attorney at law firms in New York and Paris and served
as counsel to the United States Senate Foreign Relations Subcommittee on United
States Security Commitments Abroad.
B. Dennis Albrechtsen, age 53, has been Vice President - Manufacturing of
Howmet Corporation since September 1997. Prior to that he held the position of
General Manager of the Howmet Whitehall Castings facility beginning in 1994.
Prior to this, he served Howmet Corporation as Vice President, Airfoil
Operations beginning in October 1988. He has also held managerial positions at
Howmet Corporation's Whitehall, Michigan; Dover, New Jersey; and Wichita Falls,
Texas casting plants.
EMPLOYMENT AGREEMENTS
In October 1995 Howmet Corporation entered into employment agreements (the
"Employment Agreements") with thirteen management employees (each, an
"Executive"), including each of the executive officers listed above except Mr.
Ritter, who joined Howmet Corporation in April 1996, and Mr. Albrechtsen. The
Employment Agreements set base salary levels and provide a specified percentage
(generally from 30-60%) of base salary as a target annual bonus amount. The
Employment Agreements generally provide that in the event the Executive's
employment is terminated by Howmet other than for "cause" or by the Executive
with "good reason" (each as defined therein) within 18 months following the
Acquisition (or prior to the Executive's 62nd birthday in the case of Mr. Squier
and Mr. Paul), the Executive will be entitled to the amount of the Executive's
base pay and target bonus for a specified period ranging from 18 to 36 months,
a prorated portion of the annual bonus and any long-term incentive awards that
would have been payable in the year of termination, and certain other benefits.
In February 1996 Howmet Corporation entered into an employment agreement with
Mr. Ritter that sets a base salary and an annual bonus targeted at 40% of that
amount. In the event Mr. Ritter is terminated within the first 24 months of his
employment, he is entitled to receive, in lieu of any other severance
arrangements, 12 months base pay and target bonus, paid in a lump sum.
Mr. Albrechtsen has an employment agreement that sets a base salary and 35% of
that amount as an annual bonus target, and is generally effective until his 62nd
birthday (in 2008). In the event that Mr. Albrechtsen's employment is terminated
by Howmet Corporation without "cause" or by Mr. Albrechtsen with "good reason"
(each as defined therein), Mr. Albrechtsen is generally entitled to the amount
of his base salary and annual bonus for a period of 24 months; and if such
termination occurs after his 55th birthday, he is entitled to such amounts for a
period of 36 months.
8
PART II
ITEM 5 -- MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
The Company's Common Stock, $.01 par value, trades on the New York Stock
Exchange. Other information required with respect to this Item 5 (a) is hereby
incorporated by reference to information under "Recent Market Prices and
Dividends" on page 46 of the Company's 1997 Annual Report to Stockholders. This
information is attached hereto as part of Exhibit 13.
(b) Holders.
As of March 16, 1998 there were 122 stockholders of record of the Company's
Common Stock.
(c) Dividends
During 1996 and 1997 the Company did not declare or pay any dividends. The
Company does not expect to pay cash dividends on the Common Stock for the
foreseeable future. Certain of the Company's debt instruments contain financial
covenants and other restrictions that prohibit or restrict the payment of
dividends by the Company to its stockholders. Information with respect to
restrictions on the payment of dividends is incorporated by reference to
information contained in Note 7 of "Notes to Financial Statements" on pages 25-
27 of the Company's 1997 Annual Report to Stockholders. This information is
attached hereto as part of Exhibit 13.
ITEM 6 -- SELECTED FINANCIAL DATA
Information required with respect to this Item 6 is hereby incorporated by
reference to information under "Selected Financial Data" on page 47 of the
Company's 1997 Annual Report to Stockholders. This information is attached
hereto as part of Exhibit 13.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required with respect to this Item 7 is hereby incorporated by
reference to information under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 41- 46 of the Company's
1997 Annual Report to Stockholders. This information is attached hereto as part
of Exhibit 13.
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information with respect to this Item 7A is not required pursuant to
Instruction 1 of the General Instructions to Paragraphs 305(a), 305(b), 305(c),
305(d), and 305(e) of Item 305 of Regulation S-K.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required with respect to this Item 8 are hereby
incorporated by reference to the Financial Statements of the Company included on
pages 17 through 40 of the Company's 1997 Annual Report to Stockholders. This
information is attached hereto as part of Exhibit 13. See "Item 14 -- Documents
Filed as Part of this Report--(1) Financial Statements", page 11. The
supplemental financial information required with respect to this Item 8 is filed
as "Financial Statement Schedules" pursuant to Item 14. See "Item 14 --
Documents Filed as Part of this Report--(2) Financial Statement Schedules", page
11.
9
Information with respect to quarterly financial highlights is incorporated by
reference to information contained in Note 22 of "Notes to Financial Statements"
on page 38 of the Company's 1997 Annual Report to Stockholders. This information
is attached hereto as part of Exhibit 13.
ITEM 9 -- CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the Company's directors and nominees for Director is
included on pages 2 through 5 of the Company's definitive Proxy Statement dated
March 24, 1998, and is incorporated herein by reference. Information concerning
the Company's officers is included on pages 7 through 8 of Part I hereof.
Information concerning disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is set forth on page 6 of the Company's definitive Proxy
Statement dated March 24, 1998, and is incorporated herein by reference.
ITEM 11 -- EXECUTIVE COMPENSATION
Information required with respect to this Item 11 is hereby incorporated by
reference to information under "Executive Compensation" on pages 7-15 of the
Company's definitive Proxy Statement dated March 24, 1998.
ITEM 12 -- PRINCIPAL STOCKHOLDERS
Information required with respect to this Item 12 is hereby incorporated by
reference to information under "Voting Securities and Principal Holders Thereof"
on pages 5-6 of the Company's definitive Proxy Statement dated March 24, 1998.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required with respect to this Item 13 is hereby incorporated by
reference to information under "Thiokol Stock Options," and "Employment
Agreements" on page 12, "Transactions with Management" on page 13 and
"Arrangements Among the Company, Thiokol and Carlyle" on pages 13-15 of the
Company's definitive Proxy Statement dated March 24, 1998.
10
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) -- FINANCIAL STATEMENTS
The following Financial Statements of the Company and its subsidiaries are
included on pages 17 through 40 of the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1997. This information is attached as
part of Exhibit 13 and is incorporated herein by reference:
Statements of Income -- Years Ended December 31, 1997 and December 31, 1996,
the Period from December 14, 1995 to December 31, 1995 (Howmet International
Inc. Consolidated), and the Period from January 1, 1995 to December 13, 1995
(Howmet Predecessor Company Combined)
Consolidated Balance Sheets -- December 31, 1997 and December 31, 1996
Statements of Cash Flows -- Years Ended December 31, 1997 and December 31, 1996,
the Period from December 14, 1995 to December 31, 1995 (Howmet International
Inc. Consolidated), and the Period from January 1, 1995 to December 13, 1995
(Howmet Predecessor Company Combined)
Statements of Common Stockholders' Equity and Redeemable Preferred Stock --Years
Ended December 31, 1997 and December 31, 1996, the Period from December 14, 1995
to December 31, 1995 (Howmet International Inc. Consolidated), and the Period
from January 1, 1995 to December 13, 1995 (Howmet Predecessor Company Combined)
Notes to Financial Statements
Management's Report on Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The following reports of Price Waterhouse and Befec-Price Waterhouse for the
year ended December 31, 1995 are included as a separate section of Item 14 (a)
(1) on pages A-1 to A-3 of this Report:
Report of Price Waterhouse, Independent Accountants of Howmet
Limited A-1
Auditor's Report on the Annual Accounts of Howmet S.A. by Befec-
Price Waterhouse A-2
Auditor's Report on the Annual Accounts of CIRAL SNC by Befec-
Price Waterhouse A-3
(2) -- FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedules of the Company and its subsidiaries listed
below are filed as part of this Report on Form 10-K and should be read in
conjunction with the Financial Statements of the Company:
Schedule I -- Condensed Financial Information of Howmet
International Inc. (Parent Company) I-1 to I-4
Schedule II -- Valuation and Qualifying
Accounts and Reserves II-1
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are otherwise inapplicable, and therefore have been
omitted.
11
(3) -- EXHIBITS
Regulation S-K
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 filed October 9, 1997 (registration no. 333-
37573)).
3.2 Restated By-Laws of the Company.
4.1 Specimen Certificate of Common Stock of the Company (incorporated
herein by reference to Exhibit 4.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 filed November 21, 1997
(registration no. 333-37573)).
4.2 Specimen Certificate of the 9.0% Series A Senior Cumulative Preferred
Stock.
4.3 IPO Agreement dated as of October 8, 1997 by and among the Company,
Thiokol Corporation, Thiokol Holding Company and Carlyle-Blade
Acquisition Partners, L.P. (incorporated herein by reference to Exhibit
4.2 to Amendment No. 2 to the Company's Registration Statement on Form
S-1 filed November 12, 1997 (registration no. 333-37573)).
4.4 Amended and Restated Shareholders Agreement dated as of December 2,
1997 by and among the Company, Thiokol Corporation, Thiokol Holding
Corporation and Carlyle-Blade Acquisition Partners, L.P.
4.5 Corporate Agreement dated as of December 2, 1997 by and among the
Company, Thiokol Corporation and Thiokol Holding Corporation.
4.6 Registration Rights Agreement dated as of December 2, 1997 by and
between the Company and Carlyle-Blade Acquisition Partners, L.P.
4.7 Registration Rights Agreement dated as of December 7, 1995, among
Howmet Corporation, BT Securities Corporation, and Lehman Brothers,
Inc. (incorporated herein by reference to Exhibit 4.1 to Howmet
Corporation's Registration Statement on Form S-4 filed January 9, 1996
(registration no. 333-00200)).
4.8(a) Indenture dated as of December 7, 1995 between Howmet Corporation and
Marine Midland Bank, as Trustee (incorporated herein by reference to
Exhibit 4.2(a) to Howmet Corporation's Registration Statement on Form
S-4 filed January 9, 1996 (registration no. 333-00200)).
4.8(b) Supplemental Indenture dated as of December 13, 1995 between Howmet
Corporation and Marine Midland Bank, as Trustee (incorporated herein by
reference to Exhibit 4.2 to Amendment no. 2 to Howmet Corporation's
Registration Statement on Form S-4 filed April 1, 1996 (registration
no. 333-00200)).
4.8(c) Supplemental Indenture dated as of December 15, 1997 supplementing
Indenture dated December 7, 1995 between Howmet Corporation, as Issuer
and Marine Midland Bank, as Trustee.
4.9 Copies of the executed original 10% Senior Subordinated Notes due 2003
of Howmet Corporation (the "Original Notes"), authenticated and
delivered by Marine Midland Bank as Trustee on December 7, 1995
(incorporated herein by reference to Exhibit 4.4 to Howmet
Corporation's Registration Statement on Form S-4 filed January 9, 1996
(registration no. 333-00200)).
4.10 Form of 10% Senior Subordinated Notes due 2003 of Howmet Corporation
offered in exchange for the Original Notes (included in Exhibit
4.8(a)).
4.11 Credit Agreement dated as of December 16, 1997 among Howmet
Corporation, various institutions as Lenders, ABN AMRO Bank N.V. and
Bankers Trust Company as Co-Documentation Agents, and The First
National Bank of Chicago as Agent, together with certain collateral
documents attached thereto as exhibits, including the Pledge Agreements
among Howmet Ltd. and, Howmet S.A., Howmet Corporation, and the First
National Bank of Chicago.
4.12 Blade Receivables Master Trust Amended and Restated Pooling and
Servicing Agreement dated April 18, 1996 among Blade Receivables
Corporation as Transferor, Howmet Corporation as Servicer
12
and Manufacturers and Traders Trust Company as Trustee together with
certain collateral documents attached thereto as exhibits, including
the Amended and Restated Receivables Purchase Agreement dated as of
April 18, 1996 between Howmet Corporation and certain subsidiaries of
Howmet Corporation, as Settlors, and Blade Receivables Corporation as
Buyer (incorporated herein by reference to Exhibit 4.7 to Howmet
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 filed March 31, 1997.)
4.13 Repurchase Agreement dated May 16, 1997 (under the Blade Receivables
Master Trust Amended and Restated Pooling and Servicing Agreement dated
April 16, 1996 (Exhibit 4.12)), among Howmet Corporation, Howmet
Cercast (U.S.A.), Inc., Howmet Refurbishment, Inc., Howmet-Tempcraft,
Inc., Turbine Components Corporation, Blade Receivables Corporation,
and Manufacturers and Traders Trust Company, as Trustee (incorporated
herein by reference to Exhibit 4.14 to the Company's Registration
Statement on Form S-1 filed October 9, 1997 (registration no. 333-
37573)).
4.14 Amending Agreement dated August 29, 1997 (amending the Blade
Receivables Master Trust Amended and Restated Pooling and Servicing
Agreement dated April 18, 1996 (Exhibit 4.12)) among Blade Receivables
Corporation, Howmet Corporation, Manufacturers and Traders Trust
Company, as Trustee, Falcon Asset Securitization Corporation, Alpine
Securitization Corp., Credit Suisse First Boston, New York Branch, and
The First National Bank of Chicago, as Agent for Falcon Asset
Securitization Corporation and Alpine Securitization Corp.
(incorporated herein by reference to Exhibit 4.15 to the Company's
Registration Statement on Form S-1 filed October 9, 1997 (registration
no. 333-37573)).
4.15(a) Form of Amended Series A Note Due 1999 (incorporated herein by
reference to Exhibit 4.16(a) to Amendment No. 3 to the Company's
Registration Statement on Form S-1 filed November 21, 1997
(registration no. 333-37573)).
4.15(b) Form of Series B Note Due 1999 (incorporated herein by reference to
Exhibit 4.16(b) to Amendment No. 3 to the Company's Registration
Statement on Form S-1 filed November 21, 1997 (registration no. 333-
37573)).
4.15(c) Form of Amendment No. 1 to Series B Notes (incorporated herein by
reference to Exhibit 4.16(c) to Amendment No. 3 to the Company's
Registration Statement on Form S-1 filed November 21, 1997
(registration no. 333-37573)).
4.15(d) Form of Amended and Restated Series B Note Due 1999 (incorporated
herein by reference to Exhibit 4.16(d) to Amendment No. 3 to the
Company's Registration Statement on Form S-1 filed November 21, 1997
(registration no. 333-37573)).
4.15(e) Form of Amended Series C Note Due 1999 (incorporated herein by
reference to Exhibit 4.16(e) to Amendment No. 3 to the Company's
Registration Statement on Form S-1 filed November 21, 1997
(registration no. 333-37573)).
10.1 Howmet Corporation Annual Bonus Plan (incorporated herein by reference
to Exhibit 10.1 to Amendment No. 1 to Howmet Corporation's Registration
Statement on Form S-4 filed January 17, 1996 (registration no. 333-
00200)).
10.2 Howmet Restructuring Cash Incentive Plan (incorporated herein by
reference to Exhibit 10.2 to Amendment No. 1 to Howmet Corporation's
Registration Statement on Form S-4 filed January 17, 1996 (registration
no. 333-00200)).
10.3 Howmet Corporation Excess Benefit Plan (incorporated herein by
reference to Exhibit 10.4 to Amendment No. 1 to Howmet Corporation's
Registration Statement on Form S-4 filed January 17, 1996 (registration
no. 333-00200)).
10.4 Howmet Corporation Transaction Incentive Payments Plan (incorporated
herein by reference to Exhibit 10.5 to Amendment No. 1 to Howmet
Corporation's Registration Statement on Form S-4 filed January 17, 1996
(registration no. 333-00200)).
10.5 Howmet Corporation Enhanced Bonus Program for Employees Grade 22 and
Above (incorporated herein by reference to Exhibit 10.6 to Amendment
No. 1 to Howmet Corporation's Registration Statement on Form S-4 filed
January 17, 1996 (registration no. 333-00200)).
13
10.6 1986 Howmet Corporation Deferred Compensation Plan (incorporated herein
by reference to Exhibit 10.7 to Amendment No. 1 to Howmet Corporation's
Registration Statement on Form S-4 filed January 17, 1996
(registration no. 333-00200)).
10.7 Howmet Corporation 1995 Executive Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10.8 to Amendment No. 1 to
Howmet Corporation's Registration Statement on Form S-4 filed January
17, 1996 (registration no. 333-00200)).
10.8 Employment Agreement dated October 4, 1995, between Howmet Corporation
and Mark Lasker (incorporated herein by reference to Exhibit 10.11 to
Howmet Corporation's Registration Statement on Form S-4 filed January
9, 1996 (registration no. 333-00200)).
10.9 Employment Agreement dated October 4, 1995, between Howmet Corporation
and James Stanley (incorporated herein by reference to Exhibit 10.13 to
Howmet Corporation's Registration Statement on Form S-4 filed January
9, 1996 (registration no. 333-00200)).
10.10 Employment Agreement dated October 4, 1995, between Howmet Corporation
and David Squier (incorporated herein by reference to Exhibit 10.17 to
Howmet Corporation's Registration Statement on Form S-4 filed January
9, 1996 (registration no. 333-00200)).
10.11 Employment Agreement dated July 1, 1984, between Howmet Turbine
Components Corporation and B. Dennis Albrechtsen (incorporated herein
by reference to Exhibit 10.18 to Howmet Corporation's Registration
Statement on Form S-4 filed January 9, 1996 (registration no. 333-
00200)).
10.12 Letter Agreement regarding payment of life insurance between Howmet
Corporation and David L. Squier (incorporated herein by reference to
Exhibit 10.19 to Amendment No. 1 to Howmet Corporation's Registration
Statement on Form S-4 filed January 17, 1996 (registration no. 333-
00200)).
10.13(a) Tax Sharing Agreement among Howmet Corporation, Howmet Management
Services, Inc., Howmet-Tempcraft, Inc., Howmet Thermatech Canada, Inc.,
Howmet Transport Services, Inc., Howmet Sales, Inc., Howmet
Refurbishment, Inc., Turbine Components Corporation, Blade Receivables
Corporation, a Nevada corporation, and Howmet Cercast (USA), Inc.,
dated as of December 13, 1995 (incorporated herein by reference to
Exhibit 10.20(a) to Howmet Corporation's Registration Statement on Form
S-4 filed January 9, 1996 (registration no. 333-00200)).
10.13(b) Tax Sharing Agreement among Blade Acquisition Corp., Pechiney
Corporation, Howmet Insurance Co., Inc., Howmet Corporation and all of
its directly and indirectly owned subsidiaries, dated as of December
13, 1995 (incorporated herein by reference to Exhibit 10.20(b) to
Howmet Corporation's Registration Statement on Form S-4 filed January
9, 1996 (registration no. 333-00200)).
10.14 Amended and Restated Management Agreement between Howmet Corporation
and TCG Holdings, L.L.C., dated as of December 2, 1997.
10.15 Assignment and Assumption Agreement between Howmet Holdings Acquisition
Corp. and Howmet Acquisition Corp., dated as of December 6, 1995 and
Indemnification Provisions of the Stock Purchase Agreement among
Pechiney, Pechiney International S.A., Howmet Cercast S.A. and Blade
Acquisition Corp., dated as of October 12, 1995 (incorporated herein by
reference to Exhibit 10.23 to Amendment No. 1 to Howmet Corporation's
Registration Statement on Form S-4 filed January 17, 1996 (registration
no. 333-00200)).
10.16 Revised Employment Letter dated February 13, 1996, between Howmet
Corporation and John C. Ritter (incorporated herein by reference to
Exhibit 10.24 to Amendment No. 3 to Howmet Corporation's Registration
Statement on Form S-4 filed June 11, 1996 (registration no. 333-
00200)).
10.17 Stock Appreciation Right Agreement between Howmet Corporation and David
L. Squier dated May 17, 1996 (incorporated herein by reference to
Exhibit 10.24 to Howmet Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 29, 1996, filed August 28, 1996.)
10.18 Stock Appreciation Right Agreement between Howmet Corporation and James
Stanley dated May 17, 1996 (incorporated herein by reference to Exhibit
10.25 to Howmet Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 29, 1996, filed August 28, 1996.)
10.19 Stock Appreciation Right Agreement between Howmet Corporation and
Marklin Lasker dated May 17, 1996 (incorporated herein by reference to
Exhibit 10.26 to Howmet Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 29, 1996, filed August 28, 1996.)
14
10.20 Stock Appreciation Right Agreement between Howmet Corporation and John
C. Ritter dated May 17, 1996 (incorporated herein by reference to
Exhibit 10.27 to Howmet Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 29, 1996, filed August 28, 1996).
10.21 Stock Appreciation Right Agreement between Howmet Corporation and B.
Dennis Albrechtsen dated May 17, 1996 (incorporated herein by reference
to Exhibit 10.29 to Howmet Corporation's Quarterly Report on Form 10-Q
for the quarter ended June 29, 1996, filed August 28, 1996).
10.22 Howmet Corporation Amended and Restated Special 1995 Executive Deferred
Compensation Plan effective as of November 1, 1995 (incorporated herein
by reference to Exhibit 10.30 to Howmet Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 29, 1996, filed August 28,
1996).
10.23 The Howmet Corporation Nonqualified Deferred Compensation Trust dated
April 29, 1996 (incorporated herein by reference to Exhibit 10.31 to
Howmet Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 29, 1996, filed August 28, 1996).
10.24 Howmet International Inc. 1997 Stock Awards Plan (incorporated herein
by reference to Exhibit 10.27 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 filed November 21, 1997
(registration no. 333-37573)).
10.25 Intercompany Services Agreement between the Company and Thiokol
Corporation dated December 2, 1997.
10.26 Agreement and Amendment to Stock Appreciation Right Agreement between
Howmet Corporation and David L. Squier dated November 1997.
10.27 Agreement and Amendment to Stock Appreciation Right Agreement between
Howmet Corporation and Marklin Lasker dated November 10, 1997.
10.28 Agreement and Amendment to Stock Appreciation Right Agreement between
Howmet Corporation and James Stanley dated November 10, 1997.
10.29 Agreement and Amendment to Stock Appreciation Right Agreement between
Howmet Corporation and John C. Ritter dated November 1997.
10.30 Agreement and Amendment to Stock Appreciation Right Agreement between
Howmet Corporation and B. Dennis Albrechtsen dated November 8, 1997.
13 Portions of the 1997 Annual Report to Stockholders of the Company.
21 List of Significant Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
99.1 Cautionary Statement for Purposes of the Safe Harbor provisions of the
Private Securities Litigation Reform Act of 1995
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the last quarter of
1997.
15
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.
HOWMET INTERNATIONAL INC.
Dated: March 20, 1998 By: /s/ John C. Ritter
-----------------------------------
John C. Ritter
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ James R. Wilson Chairman of the Board and February 9, 1998
- ------------------- Director
James R. Wilson
/s/ David L. Squier Director, President and Chief February 9, 1998
- ------------------- Executive Officer (principal
David L. Squier executive officer)
/s/ John C. Ritter Senior Vice President and February 9, 1998
- ------------------ Chief Financial Officer
John C. Ritter (principal financial officer)
/s/ George T. Milano Corporate Controller February 9, 1998
- -------------------- (principal accounting officer)
George T. Milano
/s/ William E. Conway, Jr. Director February 9, 1998
- --------------------------
William E. Conway, Jr.
/s/ Richard L. Corbin Director February 9, 1998
- ---------------------
Richard L. Corbin
/s/ Edsel D. Dunford Director February 9, 1998
- --------------------
Edsel D. Dunford
/s/ James R. Mellor Director February 9, 1998
- -------------------
James R. Mellor
/s/ D. Larry Moore Director February 9, 1998
- ------------------
D. Larry Moore
/s/ James D. Woods Director February 9, 1998
- ------------------
James D. Woods
16
REPORT OF INDEPENDENT ACCOUNTANTS
11 July 1996
To the Board of Directors of Howmet Limited
We have audited the balance sheet of Howmet Limited ("the Company") as of 31
December 1995, and the related profit and loss account and statements of changes
in cash flows and changes in shareholders' equity for the year ended 31 December
1995, all expressed in pounds sterling and prepared on the basis set forth in
the financial statements (not separately presented herein). Those financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with United Kingdom generally accepted
auditing standards which do not differ in any material respect from auditing
standards generally accepted in the United States. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at 31 December 1995
and the results of the Company's operations and its cash flows for the year
ended 31 December 1995 in conformity with generally accepted accounting
principles in the United Kingdom.
/s/ Price Waterhouse
Bristol, England
A-1
AUDITOR'S REPORT ON THE ANNUAL ACCOUNTS
(YEAR ENDED DECEMBER 31, 1995)
To the Stockholders
Howmet SA
68 Rue du Moulin du Cage
92230 Gennevilliers
The following report is a free translation of the statutory auditor's report
issued in France except with respect to the reference to generally accepted
auditing standards in the United States (see paragraph 1, below).
In accordance with the terms of our appointment by the General Meeting, we
hereby present our report for the year ended December 31, 1995 on:
- the audit of the annual accounts (balance sheet and income statement) of
Howmet SA (not separately presented herein);
- the specific procedures and disclosures required by law.
The Board of Directors is responsible for the preparation of the annual
accounts. Our responsibility is to express an opinion on these accounts based
on our audit.
1. OPINION ON THE ANNUAL ACCOUNTS
We conducted our audit in accordance with generally accepted auditing
standards (GAAS) in France (which are substantially similar to generally
accepted auditing standards in the United States). These standards require the
auditor to perform such tests and procedures as give reasonable assurance that
the annual accounts are free from material misstatement. An audit includes
examination, on a test basis, of evidence relevant to the information contained
in these accounts. It also includes an assessment of the accounting policies
used and of significant estimates made by the Board of Directors in the
preparation of the annual accounts, and an evaluation of the overall adequacy of
the presentation of these accounts. We believe that our audit provides a
reasonable basis for the opinion expressed below.
In our opinion, the annual accounts have been properly prepared and present
fairly the company's results for the year ended December 31, 1995, and its
assets, liabilities and financial position as at that date in accordance with
accounting principles generally accepted in France.
2. SPECIFIC PROCEDURES AND DISCLOSURES
We have also performed the specific procedures required by the law, in
accordance with auditing standards.
We have no comments to make on the fair presentation or on the consistency
with the annual accounts of the information given in the Management Report of
the Board of Directors or in documents sent to the stockholders on the company's
financial position and annual accounts.
In accordance with the law, we have ensured that the necessary disclosures on
acquisitions of participating and controlling interests and on the identity of
stockholders have been provided in the Management Report.
Signed in Paris on May 23, 1996
The Auditor
/s/ Befec-Price Waterhouse
A-2
AUDITOR'S REPORT ON THE ANNUAL ACCOUNTS
(YEAR ENDED DECEMBER 31, 1995)
To the Stockholders
CIRAL SNC
ZAC de la Presaie
53600 Evron
The following report is a free translation of the statutory auditor's report
issued in France except with respect to the reference to generally accepted
auditing standards in the United States (see paragraph 1, below).
In accordance with the terms of our appointment by the General Meeting, we
hereby present our report for the year ended December 31, 1995 on:
- the audit of the annual accounts (balance sheet and income statement) of
Ciral SNC (not separately presented herein);
- the specific procedures and disclosures required by law.
The manager is responsible for the preparation of the annual accounts. Our
responsibility is to express an opinion on these accounts based on our audit.
1. OPINION ON THE ANNUAL ACCOUNTS
We conducted our audit in accordance with generally accepted auditing
standards (GAAS) in France (which are substantially similar to generally
accepted auditing standards in the United States). These standards require the
auditor to perform such tests and procedures as to give reasonable assurance
that the annual accounts are free from material misstatement. An audit includes
examination, on a test basis, of evidence relevant to the information contained
in these accounts. It also includes an assessment of the accounting policies
used and of significant estimates made by the manager in the preparation of the
annual accounts, and an evaluation of the overall adequacy of the presentation
of these accounts. We believe that our audit provides a reasonable basis for the
opinion expressed below.
In our opinion, the annual accounts have been properly prepared and present
fairly the company's results for the year ended December 31, 1995, and its
assets, liabilities and financial position as at that date in accordance with
accounting principles generally accepted in France.
2. SPECIFIC PROCEDURES AND DISCLOSURES
We have also performed the specific procedures required by the law, in
accordance with auditing standards.
We have no comments to make on the fair presentation or on the consistency
with the annual accounts of the information given in the Management Report of
the manager or in documents sent to the stockholders on the company's financial
position and annual accounts.
Signed in Paris on May 15, 1996
The Auditor
/s/ Befec-Price Waterhouse
A-3
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(DOLLARS IN MILLIONS)
DECEMBER 31,
1997 1996
------------------- -------------------
ASSETS
Current deferred income taxes $ 1.0 $ -
Investment in subsidiaries 327.6 273.7
--------------------- ------------------
Total assets $328.6 $273.7
===================== ==================
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current accrued liabilities $ 2.9 $ -
Redeemable preferred stock 60.0 54.9
Stockholders' equity 265.7 218.8
--------------------- ------------------
Total liabilities, redeemable preferred stock and
stockholders' equity $328.6 $273.7
===================== ==================
See notes to the condensed financial statements.
I-1
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
PERIOD FROM
OCTOBER 11, 1995
YEAR ENDED DECEMBER 31, (INCEPTION) TO
1997 1996 DECEMBER 31, 1995
-------------------- -------------------- --------------------
Public stock offering costs $(2.9) $ - $ -
Income tax benefit 1.0 - -
Equity in earnings of subsidiaries before
extraordinary item 73.9 25.6 -
-------------------- -------------------- --------------------
Income before extraordinary item 72.0 25.6 -
Extraordinary item subsidiary's loss on early
retirement of debt, net of income taxes of $7.9 (12.3) - -
-------------------- -------------------- --------------------
Net income 59.7 25.6
Payment-in-kind dividends on redeemable
preferred stock (5.1) (4.6) (.2)
-------------------- -------------------- --------------------
Net income (loss) applicable to common stock $54.6 $21.0 $(.2)
==================== ==================== ====================
Per common share amounts, basic and diluted:
Income before extraordinary item $ .67 $ .21 $ -
Extraordinary item (.12) - -
-------------------- -------------------- --------------------
Net income $ .55 $ .21 $ -
==================== ==================== ====================
See notes to the condensed financial statements.
I-2
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the parent company only financial statements, Howmet International Inc.'s
("HII") investments in its wholly-owned subsidiaries are stated at cost plus the
undistributed earnings and cumulative translation adjustments of the
subsidiaries, net of a $4 million payable to a subsidiary.
The parent company only financial statements should be read in conjunction with
HII's consolidated financial statements, included elsewhere in this Form 10K.
2. CONTINGENCIES
HII's wholly-owned subsidiary, Howmet Corporation, has received test results
indicating levels of polychlorinated biphenyls ("PCBs") at its Dover, New Jersey
facility which will require remediation. These levels have been reported to the
New Jersey Department of Environmental Protection ("NJDEP"), and Howmet
Corporation is preparing a work plan to define the risk and to test possible
clean-up options. The statement of work must be approved by the NJDEP pursuant
to an Administrative Consent Order entered into between Howmet Corporation and
NJDEP on May 20, 1991 regarding clean-up of the site. Various remedies are
possible and could involve expenditures ranging from $2 million to $22 million
or more. Howmet Corporation has recorded a $2 million long-term liability as of
December 31, 1997 and 1996 for this matter. Given the uncertainties, it is
possible that the estimated range of this cost and the amount accrued will
change within a one year period. The indemnification discussed below applies to
the costs associated with this matter.
In addition to the above, liabilities arising for clean-up costs associated with
hazardous types of materials in several waste disposal facilities exist. In
particular, Howmet Corporation has been or may be named a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act or similar state laws at eleven on-site and off-site
locations. At December 31, 1997 and 1996, $4.4 million of accrued environmental
liabilities are included in the consolidated balance sheet for such matters.
In connection with the acquisition by HII of Howmet Corporation's parent holding
company, Howmet Holdings Corporation, and the Cercast group of companies (the
"Acquisition"), Pechiney, S.A. indemnified HII for environmental liabilities
relating to Howmet Corporation and stemming from events occurring or conditions
existing on or prior to the Acquisition, to the extent that such liabilities
exceed a cumulative $6 million. This indemnification applies to all of the
aforementioned environmental matters. It is highly probable that changes in any
of the aforementioned accrued liabilities will result in an equal change in the
amount receivable from Pechiney, S.A. pursuant to this indemnification.
In addition to the above environmental matters, and unrelated to Howmet
Corporation, Howmet Holdings Corporation, HII's wholly-owned subsidiary, and
Pechiney, S.A. are jointly and severally liable for environmental contamination
and related costs associated with certain discontinued mining operations owned
and/or operated by a predecessor-in-interest until the early 1960s. These
liabilities include approximately $21.3 million in remediation and natural
resource damage liabilities at the Blackbird Mine site in Idaho and a minimum of
$8 million in investigation and remediation costs at the Holden Mine site in
Washington. Pechiney, S.A. has agreed to indemnify HII for such liabilities.
HII has assigned this indemnification to Howmet Holdings Corporation. In
connection with these environmental matters, Howmet Holdings Corporation
recorded a $29.3 million liability and an equal $29.3 million receivable from
Pechiney, S.A. as of December 31, 1997 and $24.7 million for both the liability
and receivable as of December 31, 1996.
I-3
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
2. CONTINGENCIES (CONTINUED)
Estimated environmental costs are not expected to materially impact the
financial position or the results of HII's subsidiaries' operations in future
periods. However, environmental clean-up periods are protracted in length and
environmental costs in future periods are subject to changes in environmental
remediation regulations. Any losses which are not covered by the Pechiney, S.A.
indemnifications and which are in excess of amounts currently accrued will be
charged to operations in the periods in which they occur.
3. CASH FLOWS INFORMATION
HII had no cash flows for the years ended December 31, 1997 and 1996. In the
October 11, 1995 to December 31, 1995 period, HII: (i) received $50 million
from the issuance of redeemable preferred stock, (ii) received $200 million from
the issuance of common stock, (iii) returned $4 million to common stockholders
and (iv) invested $246 million in its subsidiaries.
I-4
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
HOWMET INTERNATIONAL INC.
(DOLLARS IN MILLIONS)
CHARGED TO
BALANCE AT COSTS CHARGED TO DEDUCTIONS BALANCE AT
DESCRIPTION BEGINNING OF PERIOD AND EXPENSES OTHER ACCOUNTS FROM RESERVES END OF PERIOD
- ---------------------------------- ------------------- ------------ -------------- ------------- -------------
HOWMET INTERNATIONAL INC. CONSOLIDATED:
FOR THE YEAR ENDED DECEMBER 31, 1997
Reserves:
Accounts Receivable $ 5.6 6.0 (.7) (6.5) $ 4.4
Inventories $ 7.3 6.7 (1.9) (4.6) $ 7.5
Deferred income tax
valuation allowance $22.2 (1.6) (1.3) (1.3) (a) $18.0
FOR THE YEAR ENDED DECEMBER 31, 1996
Reserves:
Accounts Receivable $ 8.2 4.4 (7.0) $ 5.6
Inventories $12.0 4.5 (2.2) (7.0) $ 7.3
Deferred income tax
valuation allowance $26.4 (2.2) (1.1) (.9) (a) $22.2
PERIOD DECEMBER 14, 1995 TO DECEMBER 31, 1995
Reserves:
Accounts Receivable $ 8.3 - (.1) - $ 8.2
Inventories $ 8.6 1.2 2.2 - $12.0
Deferred income tax
valuation allowance $26.3 .1 - - $26.4
HOWMET PREDECESSOR COMPANY COMBINED:
PERIOD JANUARY 1, 1995 TO DECEMBER 13, 1995
Reserves:
Accounts Receivable $ 6.1 1.3 1.9 (1.0) $ 8.3
Inventories $ 5.1 7.9 (1.3) (3.1) $ 8.6
Deferred income tax
valuation allowance $18.0 8.3 - - $26.3
(a) Expired net operating loss ("NOL").
(b) Amounts for periods prior to 1997 have been adjusted to include valuation
allowances for state NOLs and to exclude intercompany profit elimination
reserves previously presented herein.
II-1