October 5, 1994
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, NW
Stop 1-4
Washington, D.C. 20549-1004
Attention: Filing Desk
Re: Thiokol Corporation - Commission File No. 1-6179
Amendment No. 1 to Annual Report on Form 10-K/A
Filed September 21, 1994 for the Fiscal Year Ended
June 30, 1994
Gentlemen:
Pursuant to General Instruction D to Form 10-K and Rule 12b-15
Amendments, enclosed on behalf of the Registrant is Amendment No.1
to Form 10-K filed as Form 10-K/A. The amendment corrects "Edgar"
filing problems encountered by the Registrant with column alignment
of financial data set forth in the Consolidated Statement of
Stockholder's Equity, page 80 and Note F. Income taxes, page 83 of
the original filing. This filing amends Item 14(a)1 of Form 10-K
set forth as Exhibit 13.
Sincerely,
Edwin M. North
EMN/dch
Enclosure
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended June 30
-------------------------------------
(in millions, except per share data) 1994 1993 1992
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,043.9 $1,201.7 $1,311.7
Interest and other income 13.7 7.8 10.5
-------------------------------------
1,057.6 1,209.5 1,322.2
Deductions from income:
Cost of sales 860.4 996.4 1,122.4
General and administrative expense 69.6 70.2 59.6
Research and development expense 15.4 15.7 14.2
Interest expense 14.4 25.5 24.2
-------------------------------------
959.8 1,107.8 1,220.4
Income before income taxes and cumulative
effect of accounting changes 97.8 101.7 101.8
Income taxes 37.5 37.9 38.8
-------------------------------------
Income before cumulative effect
of accounting changes 60.3 63.8 63.0
Cumulative effect of accounting changes (63.8)
-------------------------------------
Net (loss) income $ (3.5) $ 63.8 $ 63.0
=====================================
Net (loss) income per share:
Income before cumulative effect
of accounting changes $ 3.02 $ 3.13 $ 3.12
Cumulative effect of accounting changes (3.20)
-------------------------------------
Net (loss) income $ (.18) $ 3.13 $ 3.12
=====================================
- ----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
77
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
June 30
-----------------
(in millions) 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 40.1 $ 31.4
Receivables 195.4 225.8
Inventories 121.9 118.4
Deferred income tax assets 21.4
Prepaid expenses 4.5 2.9
-------------------
Total Current Assets 361.9 399.9
Property, Plant & Equipment
Land 17.3 17.3
Buildings and improvements 242.5 239.2
Machinery and equipment 342.5 327.4
Construction in progress 21.8 20.5
-------------------
624.1 604.4
Less allowances for depreciation (302.0) (275.1)
-------------------
322.1 329.3
Other Assets
Costs in excess of net assets of businesses acquired,
less amortization 54.0 55.9
Patents and other intangible assets 19.6 21.9
Other noncurrent assets 42.9 27.2
-------------------
116.5 105.0
-------------------
$800.5 $834.2
===================
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 27.1 $ 27.0
Accounts payable 40.3 33.2
Accrued compensation 46.4 48.0
Other accrued expenses 28.9 26.5
Income taxes 2.6 12.8
Current portion of long-term debt .1 34.7
-------------------
Total Current Liabilities 145.4 182.2
Noncurrent Liabilities
Long-term debt 87.9 87.9
Accrued retiree benefits other than pensions 76.0
Deferred income taxes 16.9 62.7
Accrued interest and other 89.8 58.2
-------------------
Total Noncurrent Liabilities 270.6 208.8
Commitments and Contingent Liabilities
Stockholders' Equity
Common stock (par value $1.00 per share)
Authorized - 200.0 shares
Issued - 20.5 shares including shares in treasury 20.5 20.5
Additional paid-in capital 46.2 48.7
Retained earnings 364.3 381.1
-------------------
431.0 450.3
Less common stock in treasury, at cost
(1.8 shares and .3 shares at June 30, 1994 and 1993) (46.5) (7.1)
-------------------
Total Stockholders' Equity 384.5 443.2
-------------------
$800.5 $834.2
===================
- ----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
78
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
--------------------------
(in millions) 1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net (loss) income $ (3.5) $ 63.8 $ 63.0
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Cumulative effect of accounting changes 63.8
Depreciation and amortization 41.0 43.8 43.7
Changes in operating assets and liabilities:
Receivables 31.1 (29.6) 23.1
Inventories and prepaid expenses (.1) 45.4 (11.2)
Accounts payable and accrued expenses 2.6 (28.1) (9.8)
Accrued income taxes 1.6 9.5 5.6
Other - net (5.2) 11.7 .8
Deferred income taxes 1.4 (94.9) (2.0)
----------------------------
Net cash provided by operating activities 132.7 21.6 113.2
Investing Activities
Acquisitions, net of acquired cash (12.1) (6.0) (149.3)
Purchase of property, plant and equipment (21.2) (19.8) (37.4)
Proceeds from disposal of assets 1.2 .1 6.3
----------------------------
Net cash used for investing activities (32.1) (25.7) (180.4)
Financing Activities
Net change in short-term debt (2.0) 10.4 8.3
Long-term borrowings 1.0
Repayment of long-term debt (34.7) (102.8) (2.4)
Purchase of common stock for treasury (51.7) (11.6) (.1)
Stock option transactions 9.8 13.1 5.9
Dividends paid (13.3) (9.4) (7.2)
----------------------------
Net cash (used for) provided (91.9) (100.3) 5.5
by financing activities
Increase (decrease) in cash and cash equivalents 8.7 (104.4) (61.7)
Cash and cash equivalents at beginning of year 31.4 135.8 197.5
----------------------------
Cash and cash equivalents at end of year $ 40.1 $ 31.4 $135.8
============================
- ------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
79
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Treasury Stock Total
-------------- Paid-In Retained -------------- Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
(in millions)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1991 20.5 $20.5 $85.0 $270.9 (.9) $(50.7) $325.7
Net income 63.0 63.0
Dividends paid (7.2) (7.2)
Purchase of common stock for treasury (.1) (.1)
Exercise of stock options and
related income tax benefits (16.1) .4 22.0 5.9
----------------------------------------------------------------
Balance, June 30, 1992 20.5 20.5 68.9 326.7 (.5) (28.8) 387.3
----------------------------------------------------------------
Net income 63.8 63.8
Dividends paid (9.4) (9.4)
Purchase of common stock for treasury (.6) (11.6) (11.6)
Exercise of stock options and
related income tax benefits (20.2) .8 33.3 13.1
----------------------------------------------------------------
Balance, June 30, 1993 20.5 20.5 48.7 381.1 (.3) (7.1) 443.2
----------------------------------------------------------------
Net loss (3.5) (3.5)
Dividends paid (13.3) (13.3)
Purchase of common stock for treasury (2.0) (51.7) (51.7)
Exercise of stock options and
related income tax benefits (2.5) .5 12.3 9.8
----------------------------------------------------------------
Balance, June 30, 1994 20.5 $20.5 $46.2 $364.3 (1.8) $(46.5) $384.5
================================================================
- ------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
80
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation: The consolidated financial statements
include the accounts of Thiokol Corporation and its wholly owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated from the consolidated financial
statements.
Accounting Changes: Effective July 1, 1993, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions," and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," as described in Notes I and J.
Revenue Recognition Under Long-Term Contracts: Propulsion
systems segment sales encompass propulsion and ordnance products
and services performed principally under contracts and subcontracts
with various U.S. Government agencies and aerospace prime
contractors. Sales under cost-type contracts are recognized as
costs are incurred and include a portion of the total estimated
earnings to be realized in the ratio that costs incurred relate to
estimated total costs. Sales under fixed-price-type contracts are
recognized generally when deliveries are made or upon completion of
specified tasks. Cost or performance incentives are incorporated
into certain contracts and are generally recognized when awards are
earned, or when realization is reasonably assured and amounts can
be estimated. Adjustments in estimates which can affect both
revenues and earnings are made in the period in which the
information necessary to make the adjustment becomes available.
Provisions for estimated losses on contracts are recorded when
identified.
Cash and Cash Equivalents: Cash and cash equivalents consist
of cash and short-term investments in highly liquid investments
with maturities of less than three months.
Inventories: Inventories are stated at the lower of cost or
market. Propulsion systems segment inventories represent estimated
recoverable costs related to long-term fixed price contracts and
include direct production costs and allocable indirect costs, less
related progress payments received. In accordance with industry
practice, such costs include amounts which are not expected to be
realized within one year. Under the provisions of certain
contracts, the U.S. Government acquires title to, or a security
interest in, certain inventories as a result of progress payments
made on contracts and programs. Inventories for the fastening
systems segment are determined by the first in, first out (FIFO)
method.
Property, Plant and Equipment: Property, plant and equipment
is carried at cost and depreciated over the estimated useful lives
of the various classes of properties, using either the
straight-line or accelerated methods.
Intangibles: Costs in excess of the net assets acquired,
patents, and other intangible assets are being amortized on a
straight-line basis over periods between 10 and 40 years.
Accumulated amortization amounted to $29.7 and $25.3 million at
June 30, 1994 and 1993, respectively.
Contingent Matters: A liability for contingent matters is
recorded when the Company has determined that a liability exists
and the amount is reasonably determinable. At the time a liability
is recognized, a receivable is recorded for the estimated future
recovery of the costs from third parties, insurance carriers, or
from the U.S. Government. Except for current amounts receivable
and payable, the amounts are included in other assets and in
noncurrent liabilities. Any costs estimated to be allocated to
commercial business or not otherwise recoverable from third parties
are charged to cost of sales at the time the liability is recorded.
For environmental matters, the Company will recover a substantial
portion of any costs not recovered from its insurance carriers or
other third parties through the establishment of prices of the
Company's products and services to the U.S. Government.
Translation of Foreign Currencies: The financial statements
of the Company's foreign operations are translated into U.S.
dollars in accordance with SFAS No. 52, "Foreign Currency
Translation." Foreign exchange gains and losses incurred on
foreign currency transactions are included in net income. The
Company enters into forward foreign exchange contracts to hedge
identifiable foreign currency commitments and any resulting gain or
loss is deferred and accounted for as part of the transaction.
Foreign currency exchange contracts are not significant.
Income Taxes: Provisions for federal, state, local, and
foreign income taxes are calculated based on current tax laws. The
provision for income taxes includes, in the current period, the
cumulative effect of any changes in tax rates from those used
previously in determining deferred tax assets and liabilities.
Deferred taxes are
81
<PAGE>
provided to recognize the income tax effects of amounts which are
included in different reporting periods for financial statement and
tax purposes. As discussed in Note F, in 1992 the Company adopted
SFAS No. 109, "Accounting for Income Taxes."
Income Per Share: Income per share is calculated based on the
average number of common and common equivalent shares outstanding.
The equivalent shares, in thousands, for 1994, 1993, and 1992 were
19,973, 20,384, and 20,151, respectively.
Reclassification: Certain reclassifications were made to the
1993 and 1992 financial statements to conform with the 1994
presentation.
NOTE B. ACQUISITION OF HUCK INTERNATIONAL, INC.
On November 1, 1991, the Company purchased certain assets and
assumed certain liabilities of Huck Manufacturing Company for
$152.6 million in cash and the assumption of $19.0 million in debt
and $20.6 million in other liabilities. The fair value of assets
acquired was $192.2 million. The name was subsequently changed to
Huck International, Inc. (Huck). The unaudited consolidated pro
forma results of operations assuming consummation of the purchase
as of July 1, 1990, are as follows:
<TABLE>
<CAPTION>
ProForma
(in millions except per share data) 1992
- ----------------------------------------------------------------
<S> <C>
Net sales $1,364.4
Net income 61.7
Net income per share 3.06
- ----------------------------------------------------------------
</TABLE>
The unaudited pro forma financial information is not
necessarily indicative of the results that would have occurred had
the two companies been combined for the year presented nor of the
future results of operations.
NOTE C. RECEIVABLES
The components of receivables are as follows:
<TABLE>
<CAPTION>
June 30
----------------
(in millions) 1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Receivables under U.S. Government
contracts and subcontracts:
Amounts billed $ 57.6 $ 89.2
Unbilled costs and accrued profits 91.5 92.9
-----------------
Total receivables under U.S. Government
contracts and subcontracts 149.1 182.1
Accounts receivable 44.6 42.0
Other current receivables 1.7 1.7
-----------------
$195.4 $225.8
=================
- ----------------------------------------------------------------
</TABLE>
Unbilled costs and accrued profits consist principally of
revenues recognized on U.S. Government contracts for which billings
have not been presented. Such amounts are billed on the basis of
contract terms and delivery schedules. It is expected that $51.2
million of the unbilled amount at June 30, 1994, will be billed
within 90 days. The remaining $40.3 million primarily relates to
amounts subject to final negotiations of contract terms and rates
and is expected to be collected within two years.
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 of $15.6 million have been
recognized on the current Space Shuttle Redesigned Solid Rocket
Motor (RSRM) contract. Realization of such fees is reasonably
assured based on actual and anticipated contract cost performance.
However, all of the cost management award fees remain at risk until
completion of the current contract and final NASA review.
Unanticipated problems which erode cost management performance
could cause a reversal of some or all of the recognized cost
management award fees and would be offset against receivable
amounts from the U.S. Government or be directly reimbursed.
NOTE D. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30
--------------
(in millions) 1994 1993
- ---------------------------------------------------------------
<S> <C> <C>
Finished goods $ 56.1 $ 46.6
Raw materials and work-in-process 47.3 47.9
Inventoried costs related to
U.S. Government and other
long-term contracts 36.7 46.2
Progress payments received on
long-term contracts (18.2) (22.3)
-----------------
$121.9 $118.4
====== ======
- ---------------------------------------------------------------
</TABLE>
NOTE E. FINANCING ARRANGEMENTS
The Company has credit commitments from a group of banks
totaling $100 million under a Revolving Credit Agreement. The
funds available under the credit facility may be used for any
corporate purpose and are available through September 1997. At
June 30, 1994, the Company had not drawn upon these credit
facilities.
Short-term debt consisted of foreign subsidiary borrowings
with various domestic and foreign banks with interest rates varying
from 2.9 to 6.7 percent.
82
<PAGE>
Long-term debt consisted of the following:
<TABLE>
June 30
----------------
(in millions) 1994 1993
- -------------------------------------------------------------
<S> <C> <C>
Private Placement Notes:
10.34% notes, due June 30, 1994 $ 34.5
10.45% notes, due June 30, 1996 $ 37.0 37.0
10.48% notes, due June 30, 1999 48.5 48.5
Other 2.5 2.6
-----------------
88.0 122.6
Less current maturities .1 34.7
-----------------
$ 87.9 $ 87.9
=================
- -------------------------------------------------------------
</TABLE>
The note agreements contain covenants restricting, among other
things, the Company's ability to incur funded debt in excess of 60
percent of consolidated net tangible assets, limitations on sale
and leaseback transactions, and the sale of assets during each
12-month period which account for more than 10 percent of revenues,
earnings or book value of the Company's total assets. The
agreements also contain restrictions with respect to the amount of
retained earnings available for the payment of cash dividends and
the purchase of Company stock. At June 30, 1994, approximately
$225 million of retained earnings was available for the payment of
dividends and the purchase of Company stock. Interest paid on
borrowings was $14.4, $25.5, and $24.2 million in 1994, 1993, and
1992, respectively.
NOTE F. INCOME TAXES
On June 30, 1992, the Company adopted SFAS No. 109,
"Accounting for Income Taxes," effective July 1, 1991. There was
no cumulative effect from adoption of SFAS 109 as deferred tax
assets remained unchanged from SFAS No. 96. The provisions for
income taxes applicable to both domestic and foreign operations are
as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- ---------------------------------------------------------------
<S> <C> <C> <C>
Current Taxes:
Federal $31.6 $116.2 $35.0
Foreign .4 .2 .6
State 4.1 16.4 5.2
---------------------------
36.1 132.8 40.8
Deferred Taxes:
Federal 1.7 (81.8) (1.5)
Foreign (.5) (1.6) (.3)
State .2 (11.5) (.2)
---------------------------
1.4 (94.9) (2.0)
---------------------------
$37.5 $ 37.9 $38.8
===========================
- ---------------------------------------------------------------
</TABLE>
A reconciliation of the United States statutory rate to the
effective income tax rate applicable to income before the
cumulative effect of accounting changes follows:
<TABLE>
1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 34.0% 34.0%
Effect of:
State taxes, net of
federal benefit 3.1 3.2 3.3
R&D credit (.8) (1.2)
Impact of retroactive
federal tax increase 1.5
Other (.5) .1 2.0
--------------------------
Effective rate 38.3% 37.3% 38.1%
==========================
- -----------------------------------------------------------------
</TABLE>
Deferred income taxes arise because of differences in the
treatment of income and expense items for financial reporting and
income tax purposes. Deferred income taxes are not provided on
certain unremitted earnings of international subsidiaries as the
earnings are deemed to be indefinitely reinvested and the effect of
such taxes would not be significant after foreign tax credits. The
effect of the temporary differences that give rise to deferred tax
balances at June 30 are as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993
- ---------------------------------------------------------------
<S> <C> <C>
Recognition of income on contracts
reported on different methods for tax
purposes than for financial reporting $ 45.3 $42.0
Depreciation expense 53.0 51.3
Employee benefit expenses 11.9 9.8
Other 3.5 .1
--------------
Gross deferred tax liabilities 113.7 103.2
Provision for estimated expenses (41.3) (45.9)
Employee benefit expenses (48.0) (9.9)
Other (7.5) (6.1)
--------------
Gross deferred tax assets (96.8) (61.9)
--------------
Net deferred tax liabilities 16.9 41.3
Net current deferred tax assets (21.4)
--------------
Net non-current deferred tax liabilities $ 16.9 $ 62.7
===============
- ---------------------------------------------------------------
</TABLE>
The increase in the "employee benefit expenses" deferred tax
asset resulted from the adoption of SFAS No. 106 and SFAS No. 112.
Total income tax payments were $36.0, $121.1, and $35.4
million during 1994, 1993, and 1992, respectively.
In connection with the transfer on July 1, 1989, of certain
assets and liabilities to Morton International, Inc., the Company
and Morton entered into a Tax Sharing Agreement which generally
provides that each entity will retain federal, state and local
income tax liabilities applicable to their pre July 1, 1989,
operations.
The Internal Revenue Service (IRS) has completed its
examination of federal income tax returns through fiscal year 1985.
Based upon preliminary understandings, substantial tax refunds and
interest payments may
83
<PAGE>
be received by the Company. Such interest and a portion of the
taxes refunded will be recognized as income as audits are
finalized. Tax refunds which relate to timing issues will be
utilized to pay the corresponding deferred tax liabilities as
amounts come due.
NOTE G. PREFERRED STOCK PURCHASE RIGHTS
The Company has declared a dividend distribution of one
Preferred Share Purchase Right for each outstanding common share.
Each Right entitles its holder to buy one one-hundredth of a share
of a new series of the Company's preferred stock at an exercise
price of $60. The Rights will only become exercisable if a person
or group acquires or makes an offer to acquire 15 percent or more
of the Company's common stock. If the Company is acquired in a
merger or other business combination, each Right will entitle the
holder to purchase common stock of the acquiring company having a
market value of twice the exercise price of the Right. If any
person acquires 15 percent or more of the Company's common stock,
each Right will entitle the holder (other than such acquirer) to
purchase common stock of the Company having a market value of twice
the exercise price of the Right. The Rights may be redeemed by the
Company at the price of $.01 per Right prior to the acquisition of
15 percent or more of the outstanding shares of the Company's
common stock. The Rights expire on February 28, 1999.
NOTE H. RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans
covering most of its employees. The benefits for most employees
are based on an average of the employee's highest five consecutive
years' earnings during the ten years preceding retirement and on
credited service. Certain supplemental unfunded plan arrangements
also provide retirement benefits to specified groups of
participants.
The Company's funding policy for the plans is to contribute
amounts sufficient to meet the minimum funding requirements of the
Employee Retirement Income Security Act of 1974, plus any
additional amounts which the Company may determine to be
appropriate.
The annual cost for all Company-sponsored defined benefit
pension plans includes the following components:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 14.8 $ 15.9 $ 13.6
Interest cost 36.2 34.3 31.3
Actual gain on plan assets (22.4) (59.9) (57.3)
Net amortization and deferral (19.9) 20.7 20.5
----------------------------
Net pension cost 8.7 $ 11.0 $ 8.1
============================
- ----------------------------------------------------------------
</TABLE>
The reconciliation of the funded status of all defined benefit
pension plans at June 30 is as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefits:
Vested benefits $391.8 $362.1 $309.1
Nonvested benefits 2.5 6.2 7.7
----------------------------
Accumulated benefit
obligation 394.3 368.3 316.8
Effect of projected future
compensation increases 85.7 94.6 97.3
----------------------------
Projected benefit obligation 480.0 462.9 414.1
Fair value of plan assets 494.9 487.2 428.8
----------------------------
Plan assets in excess of
projected benefit obligation 14.9 24.3 14.7
Unrecognized net losses 47.9 29.5 30.0
Unrecognized transition obligation (27.3) (30.6) (33.9)
Unrecognized prior service cost 1.3 7.4 7.5
----------------------------
Pension asset $ 36.8 $ 30.6 $ 18.3
============================
- ----------------------------------------------------------------
</TABLE>
The assumptions used in the determination of the net pension
cost for all defined benefit pension plans are shown below:
<TABLE>
1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.0% 8.0% 8.5%
Rate of increase in compensation
levels 5.5 5.5 5.5
Expected long-term rate of return
on assets 9.0 9.0 9.0
- -----------------------------------------------------------------
</TABLE>
The assets of the Company-sponsored plans are invested
primarily in equities and bonds. Certain pension plans contain
restrictions on the use of excess pension plan assets in the event
of a change in control of the Company.
The Company sponsors a defined contribution money purchase
plan covering certain employees. The Company makes contributions
on behalf of each participant at a specified percentage of base
pay. The annual cost of the defined contribution plan was $.8,
$.8, and $.9 million in 1994, 1993, and 1992, respectively.
The Company has matching and nonmatching savings plans for
eligible employees. Company contributions to the savings plans,
which are based on a limited percentage of participant
contributions, were $7.6, $8.2, and $8.9 million in 1994, 1993, and
1992, respectively.
84
<PAGE>
NOTE I. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company
provides certain health care and life insurance benefits for
substantially all of its retirees and eligible dependents. During
1992, the plan for providing these benefits was revised for
employees retiring after February 1, 1993. The current plan is
contributory, with retiree contribution levels adjusted annually,
and contains other cost-sharing features including deductibles and
coinsurance. Under the revised plan, the Company's cost for
retiree medical is limited to a 4 percent annual increase. Current
eligibility requirements include ten years of credited service
after attaining age forty-five.
Effective July 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions." The standard requires the Company to accrue the
expected cost of postretirement benefits during the period of
employee eligible service rather than the prior policy of charging
the costs against earnings as the amounts were paid. The Company
recognized the transition obligation as a one-time charge to
earnings. At July 1, 1993, the accumulated postretirement
obligation recognized was $81.9 million. The effect on 1994
earnings and shareholders' equity was $51.6 million ($2.59 per
share) after a deferred income tax benefit of $30.3 million. A
significant portion of the charge is expected to be recovered in
future years as amounts are funded and allocated to Government
contracts. The Company's policy is to fund the cost of retiree
medical benefits at management's discretion. Voluntary Employees'
Beneficiary Association (VEBA) trusts and other trusts under IRS
regulations were established in 1994 for funding purposes. The
amounts funded are tax deductible in the year of contribution under
current IRS regulations.
Retiree medical and life insurance costs for the year ended
June 30, 1994, are as follows:
<TABLE>
(in millions)
- ---------------------------------------------------------
<S> <C>
Service cost - attributed to service
during the period $ 2.4
Interest cost on accumulated postretirement
benefit obligation 6.5
------
Retiree medical and life insurance costs $ 8.9
======
- ---------------------------------------------------------
</TABLE>
The following table reconciles the plan's funded status to the
amount included in the Company's balance sheet at June 30, 1994:
<TABLE>
(in millions)
- ---------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ 71.8
Fully eligible active plan participants 10.6
Other active plan participants 12.7
------
Total accumulated postretirement benefit obligation 95.1
Plan assets at fair value, primarily listed stocks
and bonds (5.3)
-------
Accumulated postretirement benefit obligation
in excess of plan assets 89.8
Unrecognized net experience loss (13.8)
-------
Accrued retiree benefits other than pensions $ 76.0
=======
- ---------------------------------------------------------------
Assumptions Used for 1994:
- ---------------------------------------------------------------
Discount rate 8.0%
Health care cost trend rate decreasing to
9% in 1995 and to 6% by 2001 10.0%
- ---------------------------------------------------------------
</TABLE>
Increasing the assumed health care cost trend rate by one
percentage point would increase the accumulated postretirement
benefit obligation at June 30, 1994, by approximately $4.5 million
and increase retiree medical costs by approximately $.3 million in
1994.
Amounts paid for retiree medical and life insurance costs were
$6.5 and $4.8 million in 1993 and 1992, respectively.
NOTE J. POSTEMPLOYMENT BENEFITS
Effective July 1, 1993, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." This
accounting standard requires the Company to accrue the expected
cost of postemployment benefits provided to former employees or
their beneficiaries rather than the prior policy of charging the
costs against earnings as the amounts were paid. The liability,
which relates to long-term disability benefits and medical benefits
recognized at July 1, 1993, was $19.3 million. The cumulative
effect on earnings and shareholders' equity was $12.2 million ($.61
per share) after a deferred income tax benefit of $7.1 million.
NOTE K. CONTINGENT MATTERS
The Company is currently involved in a number of lawsuits and
other contingencies. The Company provides for costs related to
contingencies when a loss is probable and the amount is reasonably
determinable. It is the opinion of management, based on advice of
counsel, that the ultimate resolution of these contingencies, to
the extent not previously provided for, will not have a material
adverse effect on the financial condition of the Company. However,
depending on the amount and
85
<PAGE>
timing of an unfavorable resolution of these contingencies, it is
possible that the Company's future results of operations or cash
flows could be materially affected in a particular period.
NOTE L. ENVIRONMENTAL MATTERS
The Company is presently involved with two Environmental
Protection Agency (EPA) superfund sites in Morris County, New
Jersey formerly operated by the Company for government contract
work. The Company has not incurred any material costs relating to
these environmental matters. The Company has negotiated a consent
decree with the EPA on the Rockaway Borough Well Field ("Klockner")
site. The decree is subject to final approval of the Federal
District Court of New Jersey. With respect to the Company's
liability for response costs, site remediation, and future
operation maintenance costs of the Klockner site, the Company has
recorded an $8.5 million liability. The Company is a "potentially
responsible party" at the Rockaway Township Well Field ("Denville")
site. The Company has agreed to replace a water treatment system
at the Denville site at an estimated cost of $.25 million. The
total estimated cost for remediation and future operations and
maintenance at this site is $4.9 million which the Company has
accrued.
In addition to the above sites the Company is involved with
other locations involving environmental issues. The Company has
recorded an estimated total liability for all of its environmental
remediation of $20 million. The Company has recorded an $11
million receivable that it expects to recover from third parties
and the U.S. Government as amounts are expended. The Company
estimates it will spend approximately $10.8 million of the total
liability equally over the next three years.
NOTE M. LEASE COMMITMENTS
The Company has operating leases, which are principally
short-term, and primarily for building and office space and other
real estate. Rental expense charged was $9.9, $11.9, and $14.5
million in 1994, 1993, and 1992, respectively. Renewal and
purchase options are available on certain of these leases. Future
minimum rental commitments under non-cancelable operating leases as
of June 30, 1994, were not material. Certain plant facilities and
equipment are provided for use by the U.S. Government under
short-term or cancelable arrangements.
NOTE N. STOCK OPTION AND PERFORMANCE UNIT PLANS
The Company's Stock Option Plans provide that grants may be
made to key employees of (a) stock options, (b) stock options with
alternative appreciation rights, (c) appreciation rights, not
related to any option, and (d) shares of restricted stock and other
awards as deemed appropriate by the Compensation Committee of the
Board of Directors. In addition, options granted prior to fiscal
year 1992 may provide for supplemental cash payments to optionees
upon exercise for the purpose of reimbursing them for income tax
liabilities incurred as a result of such exercises. Stock option
activity during fiscal year 1994 is summarized as follows:
<TABLE>
Shares Per Share
- ----------------------------------------------------------------
<S> <C> <C>
Options outstanding at
June 30, 1993 1,224,196 $10.86 to $15.81
Granted 221,100 $21.63 to $26.13
Lapsed (40,000) $21.63
Exercised (587,261) $11.25 to $15.81
-----------------------------
Options outstanding at
June 30, 1994 (648,935
exercisable shares) 818,035 $10.86 to $26.13
=============================
- -----------------------------------------------------------------
</TABLE>
Options outstanding at June 30, 1994, have expiration dates
ranging from June 1996 to May 2004.
In addition, limited appreciation rights were outstanding
covering 182,972 option shares. Limited appreciation rights are
paid automatically in cash in lieu of other related options upon a
change in control of the Company. As of June 30, 1994, supplemental
cash payment rights were outstanding with respect to 80,447 option
shares, payable upon exercise of options or limited appreciation rights.
Shares of common stock reserved for both outstanding and future
grants of options and payment of appreciation rights and other
stock-based awards at June 30, 1994 and 1993 were 1,557,185 and
2,144,446 shares, respectively.
NOTE O. FAIR VALUE OF FINANCIAL INSTRUMENTS
Under SFAS No. 107, "Fair Value Disclosures about Financial
Instruments," the Company is required to disclose the fair value of
financial instruments, including off-balance-sheet financial
instruments, when fair value can be reasonably estimated. The
values provided are representative of fair values only as of June
30, 1994 and 1993, and do not reflect subsequent changes in the
economy, interest and tax rates, and other variables that may
impact determination of fair value. The following methods and
assumptions were used in estimating fair values:
Cash and cash equivalents: The carrying amount approximates
fair values.
Receivables: The fair value of receivables, due to the
collection of certain receivables over an extended period, is based
on the discounted value of expected future cash flows.
86
<PAGE>
Short-term and long-term debt: The carrying value of
short-term debt approximates fair value. The fair value of
long-term debt is estimated based on the current borrowing rates
for similar issues.
Off-balance-sheet instruments: Foreign currency exchange
contracts are not significant.
The carrying amounts and estimated fair values of the
Company's financial instruments at June 30 were as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash
equivalents $ 40.1 $ 40.1 $ 31.4 $ 31.4
Receivables 195.4 192.3 225.8 220.7
Short-term debt 27.1 27.1 27.0 27.0
Long-term debt 88.0 95.3 122.6 135.9
- -------------------------------------------------------------------
</TABLE>
NOTE P. OPERATIONS BY INDUSTRY SEGMENT
The Company and its subsidiaries design, develop, manufacture,
and sell products classified in two principal
industry segments.
The propulsion systems segment consists of propulsion, gas
generator and ordnance products, metal and composite components,
and services relating to such systems, principally under contracts
and subcontracts with the Department of Defense, the National
Aeronautical and Space Administration (NASA) and aerospace prime
contractors, for use primarily in space and defense applications.
The fastening systems segment consists of high technology,
specialty fastening systems for a broad range of aerospace and
industrial applications worldwide.
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------
(in millions) 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Propulsion Systems $ 868.2 $1,042.8 $1,204.8
Fastening Systems 175.7 158.9 106.9
-----------------------------
Consolidated net sales $1,043.9 $1,201.7 $1,311.7
=============================
- ----------------------------------------------------------------
Operating Profit
Propulsion Systems $ 86.8 $ 117.8 $ 119.7
Fastening Systems 16.9 7.8 8.7
-----------------------------
Operating profit 103.7 125.6 128.4
Interest and other income 12.9 6.6 9.2
Interest expense (14.4) (25.5) (24.2)
Unallocated corporate
expense (4.4) (5.0) (11.6)
-----------------------------
Consolidated income
before income taxes and
cumulative effect of
accounting changes $ 97.8 $ 101.7 $ 101.8
=============================
- ----------------------------------------------------------------
Total Assets
Propulsion Systems $ 506.6 $ 573.5 $ 607.8
Fastening Systems 238.3 207.9 208.7
Corporate 55.6 52.8 139.6
------------------------------
Consolidated assets $ 800.5 $ 834.2 $ 956.1
==============================
- -----------------------------------------------------------------
Depreciation Expense
Propulsion Systems $ 29.4 $ 32.9 $ 34.7
Fastening Systems 6.0 5.0 3.8
Corporate .6 .7 .5
------------------------------
Consolidated depreciation
expense $ 36.0 $ 38.6 $ 39.0
==============================
- -----------------------------------------------------------------
Amortization Expense
Propulsion Systems $ 2.5 $ 2.7 $ 3.0
Fastening Systems 2.5 2.5 1.7
------------------------------
Consolidated amortization
expense $ 5.0 $ 5.2 $ 4.7
==============================
- -----------------------------------------------------------------
Capital Expenditures
Propulsion Systems $ 13.0 $ 12.9 $ 26.3
Fastening Systems 7.8 6.7 10.5
Corporate .4 .2 .6
------------------------------
Consolidated capital
expenditures $ 21.2 $ 19.8 $ 37.4
===============================
- -----------------------------------------------------------------
</TABLE>
A proportionate share of Corporate general and administrative
expense is allocated and reimbursed through propulsion systems
contracts.
The fastening systems segment for 1992 represents operating
results for an eight-month period beginning November 1, 1991.
Intersegment, foreign operations, and export sales are
insignificant.
Net sales under U.S. Government contracts and subcontracts
amounted to $813.4, $975.7, and $1,134 million for 1994, 1993, and
1992, respectively.
Corporate assets consist principally of cash and cash
equivalents, deferred income tax assets, property, plant and
equipment, and other noncurrent assets.
87
<PAGE>
Management's Report on Financial Statements
Management has prepared, and is responsible for, the
consolidated financial statements and all related financial
information contained in the Annual Report. The consolidated
financial statements, which include amounts based on estimates and
judgments, were prepared in accordance with generally accepted
accounting principles appropriate in the circumstances and applied
on a consistent basis. Other financial information in this report
is consistent with that in the consolidated financial statements.
Management maintains an accounting system and related internal
controls which it believes provide reasonable assurance, at
appropriate cost, that transactions are properly executed and
recorded, that assets are safeguarded, and that accountability for
assets is maintained. An environment that provides an appropriate
level of control is maintained and monitored and includes
examinations by an internal audit staff.
Management recognizes its responsibilities for conducting the
Company's affairs in an ethical and socially responsible manner.
The Company has written standards of business conduct, including
its business code of ethics which emphasize the importance of
personal and corporate conduct, that demands compliance with
federal and state laws governing the Company. The importance of
ethical behavior is regularly communicated to all employees through
ongoing education and review programs designed to create a strong
compliance environment.
The Audit Committee of the Board of Directors is composed of
five outside directors. This Committee meets periodically and also
meets separately with representatives of the independent auditors,
Company officers, and the internal auditors to review their
activities.
The consolidated financial statements have been examined by
Ernst & Young LLP, independent auditors, whose report follows.
Richard L. Corbin
Senior Vice President and
Chief Financial Officer
Report of Ernst & Young LLP, Independent Auditors
To the Stockholders and Board of Directors
Thiokol Corporation:
We have audited the accompanying consolidated balance sheets
of Thiokol Corporation as of June 30, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended June
30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those 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 consolidated
financial position of Thiokol Corporation at June 30, 1994 and
1993, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended June 30, 1994
in conformity with generally accepted accounting principles.
As discussed in Notes I and J, the Company changed its method
of accounting for postretirement benefits other than pensions and
postemployment benefits.
ERNST & YOUNG LLP
Salt Lake City, Utah
August 2, 1994
88
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Fiscal Year 1994 Compared to Fiscal Year 1993
Net income for 1994 before the cumulative effect of accounting
changes was $60.3 million or $3.02 per share, a decrease of 5
percent compared to $63.8 million or $3.13 for the prior year. The
decrease in net income was caused primarily by lower defense sales
in 1994 and higher 1993 propulsion systems income due to the
nonrecurring recovery of $13 million in U.S. Government
reimbursement of tax-related costs recognized in prior years. Net
income for the year was favorably affected by receipt of $10.5
million of interest from income tax refunds, higher fastening
systems income, and lower interest expense.
The cumulative effect of accounting changes resulted from the
July 1, 1993, adoption of Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The one-time after-tax
charge of $63.8 million or $3.20 per share reflects the after-tax
liability recognized at July 1, 1993, due to the adoption of SFAS
Nos. 106 and 112 of $51.6 and $12.2 million, respectively. Net
loss for the twelve months ended June 30, 1994, after the charge
for the accounting changes, was $3.5 million or $.18 per share.
Sales for the year of $1,043.9 million decreased 13 percent
compared to $1,201.7 million last year. Propulsion systems sales
of $868.2 million decreased 17 percent primarily as the result of
completion of Peacekeeper motor deliveries in the first quarter and
lower operating levels at the government-owned, company-operated
ammunition plants. Fastening systems sales of $175.7 million
increased 11 percent or $16.9 million as a result of higher
domestic industrial sales and a small acquisition.
Space sales in 1994 of $500.8 million decreased 4 percent or
$18.5 million compared to 1993 and related operating income
decreased 16 percent to $51.5 million from prior year's $61.5
million. Sales and income derived from production of the Space
Shuttle Redesigned Solid Rocket Motor (RSRM), which represents the
majority of Space operations, were flat in comparison to 1993. The
decline in revenues resulted primarily from cancellation of the
Advanced Solid Rocket Motor (ASRM) nozzle work during the second
quarter and fewer Castor and STAR motor deliveries. Income was
lower due to the nonrecurring recovery in Government reimbursement
in 1993 of tax-related costs recognized in prior years and Castor
120TM motor development costs.
Strategic sales decreased $110.6 million or 41 percent to
$156.5 million while operating income of $27.4 million decreased
$18.4 million or 40 percent from $45.8 million in 1993. The sales
and income decrease was caused primarily by completion of
Peacekeeper motor deliveries during the first quarter of 1994, and
was partially offset by higher Trident incentive fees.
Tactical sales declined 3 percent to $89.5 million from $92
million last year. Tactical income of $1.3 million increased $.9
million over 1993. The continuing low operating margins reflect
reduced unit volumes and a competitive pricing environment.
Ordnance sales decreased 26 percent to $121.4 million compared
to $164.4 million last year and operating income of $6.6 million
decreased $3.6 million from the prior year. The decrease in sales
and income resulted from lower operating levels at the
government-owned, company-operated ammunition plants combined with
lower operating margins.
Fastening systems segment sales of $175.7 million increased
11 percent for the year while operating income of $16.9 million
increased $6.8 million or 67 percent over last year's $10.1
million, excluding a $2.3 million charge in 1993 for severance and
restructuring costs. Higher domestic industrial sales combined
with lower costs and improved efficiency contributed to the
increase in income. Sales and income from international
operations continue to be negatively affected by the recession in
Europe.
General and administrative expense for the year of $69.6
million decreased slightly from $70.2 million in 1993. The $11.1
million decrease in interest expense resulted primarily from the
repayment of $100 million long-term debt at the end of last year.
The tax provision for income taxes reflects effective rates
of 38.3 percent in 1994 and 37.3 percent in 1993.
Results of Operations
Fiscal Year 1993 Compared to Fiscal Year 1992
Net income for 1993 of $63.8 million or $3.13 per share
increased 1 percent over $63 million or $3.12 per share for 1992.
Operating results for 1993 were favorably affected by certain
tax-related items.
Annual sales were $1,201.7 million, an 8 percent decrease from
$1,311.7 million in 1992. A $162 million or 13 percent decline in
aerospace sales was partially offset by a $52 million increase in
Huck fastening systems sales due to the inclusion of twelve months
of sales in 1993 compared to eight months of sales in fiscal year
1992. Huck was purchased on November 1, 1991.
Space sales of $519.3 million were 7 percent lower than in
1992, resulting primarily from slightly lower production on the
Space Shuttle RSRM and reduced ASRM
89
<PAGE>
nozzle development activity. Operating income increased 5 percent
to $61.5 million as a result of higher margins on the Space Shuttle
RSRM program.
Strategic sales declined 11 percent to $267.1 million from
$300.6 million in 1992; however, operating income increased 17
percent to $45.8 million. The sales decrease was attributed to a
cost underrun on the Peacekeeper program, reduced Peacekeeper
component deliveries, and reduced sales on the SICBM and Trident
programs. The SICBM program was terminated during the third
quarter of the prior fiscal year. Higher operating margins
realized on the Peacekeeper and Trident programs offset the effect
of the sales decrease.
Tactical sales of $92 million declined 29 percent from 1992
while operating income of $.4 million compares to income of $8.2
million in 1992. The sales decline was caused principally by a
decrease in HARM and Mark 70 deliveries. Reduced program operating
margins also contributed to the decrease in operating income.
Ordnance sales of $164.4 million decreased 25 percent and
related operating income decreased 27 percent to $10.1 million.
The decline in sales and income resulted from lower operating
levels at the Louisiana plant and significantly reduced flare
deliveries.
The Company's results in each of its propulsion systems
businesses were favorably affected during 1993 by recoveries in
U.S. Government revenues of approximately $13 million of
tax-related costs expensed in prior years.
Huck's fastening systems sales of $158.9 million for the
twelve-month period ended June 30, 1993, compares to sales of
$106.9 million for the eight-month period ended June 30, 1992.
Fastening systems income for the current twelve-month period of
$7.8 million, after deducting a $2.3 million charge for severance
and restructuring costs, decreased in comparison to income of $8.7
million for the eight-month period in 1992. Fastening systems
income does not include an allocation of Corporate expense.
Significantly higher industrial sales offset reduced aerospace
sales. Income from international operations continues to be
negatively affected by the recession in Europe.
General and administrative expense for the year of $70.2
million increased $10.6 million, all of which was due to the
inclusion of twelve months of Huck general and administrative
expense versus eight months of Huck expense in fiscal year 1992.
For comparative purposes, general and administrative expense for
1993, excluding Huck, was $32.5 million, a 6 percent decrease from
1992. Increases in interest expense and research and development
costs are attributed to Huck operations. Interest income declined
$2.8 million during 1993 as a result of lower interest rates.
The provision for income taxes reflects effective rates of
37.3 percent in 1993 and 38.1 percent in 1992.
Future Operations/Business Environment
The Company's major business is the production of
high-technology solid propellant motors for space and defense
applications. Production of and services for the RSRM represented
44 percent of 1994 total Company sales and 49 percent of operating
income. The current contract with NASA extends the Company's
production of the RSRM through fiscal year 2000. NASA's continued
emphasis on cost containment should produce a slight decrease in
RSRM sales in 1995. However, the opportunity under contract
incentives to reduce costs over the life of the program provides
for higher margin opportunities in the future. The level of U.S.
Government funding of Space programs may impact the Space Shuttle
launch schedule. Management believes that its production rate will
stay at the current planned level of eight per year. A significant
reduction in the launch schedule could lower the Company's
production rates and would reduce related revenue and profits to
the Company. The Company believes there are long-term growth
opportunities in the expendable launch vehicle area and is
developing new solid rocket motors, including the Castor 120TM
motor, for this market.
The ASRM program, which was being developed by a competitor
to replace Thiokol's current RSRM, was canceled by the U.S.
Government during 1994. The Company's contract for the ASRM nozzle
development generated approximately $1 million in sales this year
and $11 million in sales in 1993. The cancellation of the ASRM
will have a minor impact on sales and income over the next few
years.
Due to reductions in U.S. Government defense spending, the
Company expects its defense sales and income to continue to decline
in fiscal year 1995 and 1996. The Peacekeeper program was
completed during the first quarter of 1994. Trident sales will
likely decrease as missile production is reduced in future years.
Decreased defense spending has created a highly competitive pricing
environment for tactical programs and a decline in new program
opportunities. The propulsion industry is characterized by
overcapacity and continued industry consolidation. Management
believes it is well positioned to be a strong competitor in this
environment. Sales from the company-operated U.S. Army ordnance
plants will decline significantly in 1995. Both of the
company-operated plants are on the Army's closure list but will be
maintained in an inactive status for an indefinite period. All
U.S. Army directed production is expected to be completed during
fiscal year 1995. The Company has negotiated long-term contracts
for maintaining the plants, managing inventory and performing other
non-
90
<PAGE>
production related projects. The Company has been successful in
competing for a small number of Army production contracts which
will be manufactured at the Longhorn plant. In response to this
current environment, the Company continues to downsize operations
to match current and projected operating conditions by reductions
in employment, consolidation of facilities, and related spending
reductions.
The Company is pursuing demilitarization opportunities in the
United States and internationally. In addition, the Company was
awarded a contract to develop a propulsion replacement program for
Minuteman solid rocket motors beginning in fiscal year 1995.
Huck International, Inc., the Company's fastening systems
segment, continues to improve its position in both industrial and
aerospace fastening systems markets. Huck's industrial fasteners
recorded record sales in 1994 and that trend is expected to
continue. The aerospace segment is influenced by build schedules
of commercial aircraft which have flattened out but are anticipated
to increase over the next several years. Military aircraft
spending is expected to continue at a low production level. The
addition of the Deutsch Fastener Manufacturing Company in January,
1994, provides Huck a broader product line for the commercial
aircraft business.
The IRS has completed its examination of federal income tax
returns through fiscal year 1985. Based upon preliminary
understandings, substantial tax refunds and interest payments may
be received by the Company. Such interest and a portion of the
taxes refunded will be recognized as income as audits are
finalized.
Other Matters
The Company has operating leases, the majority of which are
short-term and real estate related. Rental expense amounted to
$9.9 million in 1994. Renewal and purchase options are available
on certain of these leases. Future minimum rental commitments
under non-cancelable operating leases are not significant.
The Company is involved in various legal proceedings and
uncertainties including those related to environmental matters as
discussed in Notes K and L to the consolidated financial
statements.
Liquidity and Capital Resources
Cash flow provided by operations was $132.7 million compared
to $21.6 million in 1993. The increase resulted principally from:
1) an $85.0 million decrease in income tax payments from 1993, 2)
a $31.1 decrease in receivables this year compared to a $29.6
million increase in receivables in 1993, and 3) a $2.6 million
increase in accounts payable and accrued expenses compared to a
$28.1 million decrease last year. Cash flow decreased from the
prior year as a result of a $45.4 million decrease in inventories
and prepaid expenses in 1993 compared to a $.1 million increase
this year.
Investing activities, which consumed approximately $32.1
million in cash this year, include purchases of property, plant and
equipment and a small acquisition. During 1994 the Company
acquired certain assets of Deutsch Fastener Manufacturing Company
of Lakewood, California. Deutsch Fastener, with annual sales of
approximately $15 million, produces a broad line of high
performance fasteners.
During 1994 the Company repurchased 2,034,238 shares ($51.7
million) of common stock compared to 574,800 shares ($11.6 million)
in 1993. Earnings per share increased 4.7 percent compared to 1993
due to the reduction in outstanding shares. In June 1994 the Board
of Directors authorized the repurchase of up to 1.5 million
additional shares of common stock. Repayment of long-term debt
declined from $102.8 million in 1993 to $34.7 million in 1994.
Thiokol's current ratio at June 30, 1994, of 2.5 represented
an increase from 2.2 at June 30, 1993. Working capital at June 30,
1994, of $216.5 million decreased $1.2 million since June 30, 1993.
As a result of the ASRM cancellation, the Company has agreed
to transfer its RSRM nozzle manufacturing operation in Utah to a
new facility at NASA's Yellow Creek, Mississippi complex. The
unfinished Yellow Creek facility was being constructed to
manufacture the ASRM. The use of the new Yellow Creek nozzle
facility will allow the Company to enhance its nozzle manufacturing
process and strengthen its position in the solid propulsion
industry. An estimated $80 million of capital investment will be
expended to complete the nozzle facility over the next few years.
The Company has current outstanding authorizations for capital
expenditures of approximately $100 million.
Future estimated cash flow from operations, current financial
resources, and available credit facilities are expected to be
adequate to fund the Company's anticipated working capital
requirements, debt repayment, capital expenditures, dividend
payments, and stock repurchase program for fiscal year 1995.
During 1994 the Company negotiated a new $100 million
revolving credit facility with a group of banks which expires in
September 1997. As of June 30, 1994, no funds had been drawn on
this credit facility.
Dividends and Recent Market Prices
Dividends paid were 68 cents, 47 cents, and 36 cents per share
for 1994, 1993, and 1992, respectively.
The high and low market prices of Thiokol common stock for
fiscal year 1994 were $29.00 per share and $21.13 per share,
respectively. The principal market for the Company's common stock
is the New York Stock Exchange and prices are based on the
Composite Tape (ticker symbol TKC).
91
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL HIGHLIGHTS
Fiscal Year 1994 Fiscal Year 1993
Three Months Ended Three Months Ended
------------------------------ ----------------------------
(in millions, except
per share data) Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $279.4 $266.1 $240.7 $257.7 $327.3 $277.9 $307.5 $289.0
Gross profit 51.7 45.6 41.9 44.3 58.9 49.2 49.5 47.7
Income (loss) before cumulative
effect of accounting changes 16.1 15.4 14.8 14.0 20.3 15.4 14.6 13.5
Net income (loss) (1) 16.1 15.4 14.8 (49.8) 20.3 15.4 14.6 13.5
Income (loss) per share
before cumulative effect
of accounting changes .84 .77 .73 .68 .98 .76 .72 .67
Net income (loss) per
share (1)(2) .84 .77 .73 (2.42) .98 .76 .72 .67
Cash dividends paid per share .17 .17 .17 .17 .17 .10 .10 .10
Market price
High 27.00 29.00 26.75 24.38 22.25 19.00 17.63 17.75
Low 22.88 25.50 21.13 21.13 18.25 16.00 14.88 14.13
- ------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(dollars in millions,
except per share data) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales by industry segment
Propulsion Systems $ 868.2 $1,042.8 $1,204.8 $1,255.4 $1,181.4
Fastening Systems (3) 175.7 158.9 106.9
-------------------------------------------------------
Consolidated net sales 1,043.9 1,201.7 1,311.7 1,255.4 1,181.4
Interest and other income 13.7 7.8 10.5 14.4 10.2
Cost of sales and other expenses 945.4 1,082.3 1,196.2 1,159.5 1,101.1
Interest expense 14.4 25.5 24.2 22.3 22.3
Income before cumulative effect of
accounting changes 60.3 63.8 63.0 53.4 41.4
FINANCIAL
Total assets $ 800.5 $ 834.2 $ 956.1 $ 849.1 $ 816.2
Working capital 216.5 217.7 138.8 356.2 317.1
Current ratio 2.5 2.2 1.4 3.7 3.1
Short-term and long-term debt $ 115.1 $ 149.6 $ 245.8 $ 220.0 $ 220.0
Debt-to-equity 29.9% 33.8% 63.5% 67.5% 80.3%
Stockholders' equity $ 384.5 $ 443.2 $ 387.3 $ 325.7 $ 274.0
Stockholders' equity per share 20.52 21.94 19.44 16.69 14.26
Return on stockholders' equity (4) 13.6% 16.5% 19.3% 19.5% 17.4%
Capital expenditures $ 21.2 $ 19.8 $ 37.4 $ 40.9 $ 29.4
Provision for depreciation 36.0 38.6 39.0 36.7 39.3
Cash dividends paid 13.3 9.4 7.2 5.7 5.7
Cash dividends declared per share .68 .47 .36 .30 .30
(LOSS) INCOME PER SHARE
Income before cumulative effect
of accounting changes $ 3.02 $ 3.13 $ 3.12 $ 2.75 $ 2.15
Cumulative effect of accounting
changes (3.20)
----------------------------------------------------
Net (loss) income $ (.18) $ 3.13 $ 3.12 $ 2.75 $ 2.15
GENERAL
Average number of common
and common equivalent
shares outstanding (in thousands) 19,973 20,384 20,151 19,412 19,277
Approximate number of stockholders
of record 7,100 8,533 9,107 9,700 10,430
Approximate number of employees 8,000 9,300 11,200 11,500 11,500
- ------------------------------------------------------------------------------------------
1) The first quarter of 1994 includes the cumulative effect of accounting changes of $63.8
million or $3.10 per share.
2) The sum of the 1994 quarterly net income or loss per share does not equal the annual
net loss per share due to the significant impact on the first quarter net loss
resulting from the adoption of SFAS No. 106 and SFAS No. 112 concurrent with decreasing
shares outstanding during the year.
3) Represents net sales for an eight-month period in 1992.
4) Based on income before the cumulative effect of accounting changes and calculated on
beginning of year stockholders' equity.
91
</TABLE>
