FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6179
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THIOKOL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-2678716
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2475 Washington Blvd., Ogden, Utah 84401-2398
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(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code..........(801) 629-2052
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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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at January 31, 1994
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Common Stock, $1.00 par value 19,645,319 shares
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THIOKOL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
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PART I. FINANCIAL INFORMATION ------
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Item 1. Financial Statements
Consolidated Statements of Income - Three months ended
and Six months ended December 31, 1993 and 1992 3
Consolidated Balance Sheets -
December 31, 1993 and June 30, 1993 4
Consolidated Statements of Cash Flows - Six
months ended December 31, 1993 and 1992 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
December 31 December 31
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1993 1992 1993 1992
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Net sales $240,695 $307,462 $498,359 $596,476
Interest and other income 7,121 2,017 11,742 3,477
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247,816 309,479 510,101 599,953
Deductions from income:
Cost of sales 198,824 257,953 412,146 499,276
General and administrative expense 17,473 17,874 33,902 34,907
Research and development expense 3,926 3,937 7,673 8,239
Interest expense 3,611 6,428 7,273 12,763
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223,834 286,192 460,994 555,185
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Income before income taxes and cumulative
effect of accounting changes 23,982 23,287 49,107 44,768
Income taxes 9,185 8,688 20,281 16,698
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Income before cumulative effect
of accounting changes 14,797 14,599 28,826 28,070
Cumulative effect of accounting changes (63,838)
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Net income (loss) $ 14,797 $ 14,599 $(35,012) $ 28,070
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Net income (loss) per share:
Income before cumulative effect
of accounting changes $ .73 $ .72 $ 1.41 $ 1.39
Cumulative effect of accounting changes (3.12)
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Net income (loss) $ .73 $ .72 $ (1.71) $ 1.39
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Dividends per share $ .17 $ .10 $ .34 $ .20
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Average number of common and common
equivalent shares outstanding 20,230 20,229 20,419 20,189
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See notes to consolidated financial statements
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THIOKOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31 June 30
1993 1993
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ASSETS (Unaudited)
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Current assets
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Cash and cash equivalents $ 36,441 $ 31,365
Receivables 195,313 225,818
Inventories 115,163 118,371
Deferred income tax assets 21,364 21,364
Prepaid expenses 6,963 2,935
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Total current assets 375,244 399,853
Property, plant and equipment, at cost
Less allowances for depreciation 318,933 329,262
Other assets
Costs in excess of net assets of businesses
acquired, less amortization 54,979 55,921
Patents and other intangible assets 20,706 21,938
Other noncurrent assets 33,775 33,981
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$803,637 $840,955
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities
Short-term debt $ 25,618 $ 26,989
Accounts payable 26,717 33,233
Accrued compensation 34,765 48,042
Other accrued expenses 18,265 28,598
Income taxes 5,240 12,830
Current portion of long-term debt 34,624 34,679
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Total current liabilities 145,229 184,371
Long-term debt 87,836 87,917
Accrued retiree benefits 80,926
Deferred income taxes 26,487 62,689
Accrued interest and other non-current liabilities 78,801 62,810
Stockholders' equity
Common stock (par value $1.00 per share)
Authorized - 200,000 shares
Issued - 20,455 shares including shares in Treasury 20,538 20,538
Additional paid-in capital 45,778 48,718
Retained earnings 339,249 381,082
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405,565 450,338
Less cost of common stock in Treasury
875 shares, December 31, 1993 and
342 shares, June 30, 1993 (21,207) (7,170)
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Total stockholders' equity 384,358 443,168
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$803,637 $840,955
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See notes to consolidated financial statements
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THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Six Months Ended
December 31
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1993 1992
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Operating Activities
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Net (loss) income $(35,012) $ 28,070
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 19,397 22,369
Changes in operating assets and liabilities:
Decrease (increase) in receivables 30,437 (5,788)
(Increase) decrease in inventories and prepaid expenses (991) 29,221
Decrease in accounts payable and accrued expenses (29,982) (16,683)
Decrease in income taxes (6,438) (6,571)
Cumulative effect of accounting changes 63,838
Other (4,350) 6,074
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Net cash provided by operating activities 36,899 56,692
Investing Activities
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Acquisitions, net of acquired cash (6,020)
Purchases of property, plant and equipment (net) (6,612) (11,094)
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Net cash used for investing activities (6,612) (17,114)
Financing Activities
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Net change in short-term debt (1,295) 4,588
Long-term borrowings 31
Repayment of long-term debt (118) (320)
Dividends paid (6,821) (3,987)
Purchase of common stock for treasury (24,332) (1,026)
Stock option transactions 7,355 2,079
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Net cash (used for) provided by financing activities (25,211) 1,365
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Increase in cash and cash equivalents 5,076 40,943
Cash and cash equivalents at beginning of year 31,365 135,838
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Cash and cash equivalents at end of period $36,441 $176,781
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See notes to consolidated financial statements
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THIOKOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Basis of Presentation
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The accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. The balance sheet at June 30, 1993,
reflects the Company's audited consolidated financial statements at that
date. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six months ended December 31, 1993,
are not necessarily indicative of the results to be expected for the
fiscal year ending June 30, 1994. The financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report to Stockholders and Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
Inventories
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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 costs incurred for production,
allocable indirect, and research and development costs, less related
progress payments received. Propulsion systems segment inventories of
$52,392 at December 31, 1993, and $58,043 at June 30, 1993, are after
reduction for progress payments received of $16,090 and $22,344,
respectively. Inventories for the fastening systems segment are
determined by the first-in, first-out (FIFO) method and amounted to
$62,771 at December 31, 1993, and $60,328 at June 30, 1993.
Accounting Changes
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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." SFAS 106 requires the Company to
accrue the expected cost of postretirement benefits, primarily health
care, during the period of employee eligible service rather than as the
amounts are paid. The Company elected to record the transition obligation
as a one-time charge to earnings. In addition to the one-time charge, the
adoption of SFAS No. 106 will increase fiscal year 1994 retiree medical
expense by approximately $3 million. SFAS 112 requires the Company to
accrue the expected cost of postemployment benefits provided to former
employees or their beneficiaries rather than the current method of
charging these costs against earnings as the amounts are paid. SFAS 112
was adopted earlier than required by the provisions of the Statement. A
significant portion of the charges are expected to be recovered under
government contracts as amounts are funded or allocated to contracts.
At July 1, 1993, the accumulated postretirement obligation under SFAS No.
106 was $81,901. The effect on earnings and shareholders' equity was
$51,663 ($2.53 per share) after a deferred income tax benefit of $30,238.
The liability recognized at July 1, 1993, due to the adoption of SFAS No.
112 was $19,300. The effect on earnings and shareholders' equity was
$12,175 ($.59 per share) after a deferred income tax benefit of $7,125.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
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Net income for the second quarter ended December 31, 1993,
increased 1 percent to $14.8 million or $.73 per share compared
to $14.6 million or $.72 per share last year. Net sales for the
quarter of $240.7 million decreased 22 percent compared to $307.5
million for the same period last year.
Net income for the quarter was favorably affected by receipt of
$6.7 million of interest from income tax refunds, higher fastening
systems income and lower interest expense. Propulsion systems'
results for the prior year's quarter included $3.1 million of
nonrecurring recoveries in U.S. Government revenues of tax related
costs expensed in prior periods. While propulsion segment sales
decreased during the quarter, operating profit margins as a
percentage of sales excluding nonrecurring tax related items were
unchanged from the prior year quarter.
Net income for the six months ended December 31, 1993, before
recognition of a one-time, non-cash cumulative effect of
accounting changes, was $28.8 million or $1.41 per share; a 3
percent increase compared to $28.1 million or $1.39 per share for
the prior year. Sales of $498.4 million for the six month period
decreased 16 percent from $596.5 million last year.
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 net loss for the six months ended December 31, 1993, including
the one-time after tax charge for the accounting changes, was
$35.0 million or $1.71 per share. The one-time after tax charge
of $63.8 million or $3.12 per share reflects the after tax
liability recognized at July 1, 1993, due to the adoption of SFAS
No. 106 and 112 of $51.6 and $12.2 million, respectively.
Space sales for the quarter of $114.9 million decreased 16 percent
or $21.4 million compared to 1993 and related operating income
decreased 40 percent to $8.1 million from prior year's $13.5
million. A decrease in sales related to the Space Shuttle solid
rocket motors (RSRM) was primarily caused by ongoing cost
containment efforts which should lead to higher operating margins
in the future. Final cancellation of the Advanced Solid Rocket
Motor (ASRM) program during the quarter has reduced sales and
margins in the Company's ASRM nozzle development program. The
decline in income during the quarter also resulted from the
recognition in the current period of Castor 120TM motor
development costs and the absence of nonrecurring recovery of tax
related costs reported last year.
Strategic sales decreased 35 percent to $39.0 million while
operating income of $5.7 million decreased 53 percent from $12.1
million in 1993. The sales decrease was caused primarily by the
completion of Peacekeeper motor deliveries during the first
quarter. The decrease in sales and income also resulted from
having recognized significant incentive fees on the Trident
program in the prior year.
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Tactical sales of $22.8 million decreased 21 percent while
operating income of $4.0 million increased $3.2 million over the
prior year. The sales decrease resulted principally from fewer
Standard Missile and Maverick deliveries. The majority of the
income increase is due to a favorable settlement of a six-year old
Standard Missile contract dispute.
Ordnance sales decreased 44 percent to $24.6 million compared to
$43.7 million last year and operating income of $.5 million
decreased $1.2 million from the prior year. The decrease in sales
and income resulted from lower operating levels at the government-
owned, company-operated ammunition plants and fewer flare
deliveries.
Huck's fastening systems segment sales of $39.4 million increased
2 percent for the quarter while operating income of $3.4 million
increased $1.9 million or 126 percent from last year. Higher
domestic industrial sales combined with lower costs and improved
efficiency contributed to the increase in income.
General and administrative expenses for the quarter decreased $.4
million or 2 percent compared to the prior year. The $2.8 million
decrease in interest expense resulted primarily from the reduction
in long-term debt at June 30, 1993.
During the first six months sales and profit derived from
production of and services for the RSRM accounted for
approximately 42 percent of total Company sales and 45 percent of
operating income. The current contract with NASA extends the
Company's production of the RSRM through fiscal year 2000.
NASA's proposed reduced production rate and emphasis on cost
containment should produce a slight decrease in RSRM sales this
year. However, the opportunity under contract incentives to
reduce costs over the life of the program provides for higher
margin opportunities in the future. 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 the quarter. The Company's contract for the
ASRM nozzle development had generated less than $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 decline materially this
year and in fiscal year 1995. The Peacekeeper program was
completed during the first quarter. Trident sales should remain
stable this year. Sales from the Company-operated U.S. Army
ordnance plants will decline significantly in the next two years.
Both of the Company-operated plants are on the Army's closure
list. Production at the Longhorn plant, under the current
operating contract, is scheduled to be discontinued this year.
The Company has entered into a contract with the U.S. Army to
maintain the facility and under the agreement has the right to
utilize it for commercial production purposes. The Louisiana
plant is targeted for closure in fiscal year 1995.
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In response to the declining Department of Defense environment,
the Company has taken steps to downsize operations to match
current and projected operating conditions by reductions in
employment, consolidation of facilities, and spending reductions.
Current year propulsion systems income is lower due to the absence
of certain nonrecurring tax recoveries which benefitted 1993
income.
Fastening systems income should continue to benefit this year from
strong domestic industrial sales and lower costs.
Liquidity and Capital Resources
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Cash flow provided by operations was $36.9 million compared to
$56.7 million in 1993. The difference resulted principally from
a small increase in inventories and prepaid expenses this year
compared to a $29.2 million decrease in inventories and prepaid
expenses in 1993 and a larger decrease in accounts payable and
accrued expenses this year. Cash flow was increased this year by
a $30.4 million decrease in receivables compared to a small
increase in receivables last year.
A decrease in cash used for investing activities was caused by a
$4.5 million decrease in purchases of property, plant and
equipment compared to last year and a $6.0 million acquisition in
1993.
A $23.3 million increase in purchases of common stock for treasury
over 1993, a slight net decrease in short-term debt compared to
a net increase in 1993, and a 71 percent increase in the quarterly
cash dividend over last year resulted in the $26.6 million
decrease in cash flow this year from financing activities compared
to 1993.
During the quarter 500,200 shares of common stock were repurchased
under the Company's share repurchase program announced in April
1993. Approximately one million shares remain to be repurchased
under the existing 2.5 million share authorization. The current
share repurchase program is targeted for completion by June 30,
1994.
Thiokol's current ratio at December 31, 1993, of 2.6 represented
an increase from 2.2 at June 30, 1993. Working capital at
December 31, 1993, of $230.0 million increased $14.5 million since
June 30, 1993.
The Company has current outstanding authorizations for capital
expenditures of $19.7 million.
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
uncompleted 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 $70-80 million capital
investment will be required over the next few years to complete
the nozzle facility.
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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, capital expenditures, dividend payments, and stock
repurchase program for the current fiscal year.
During the first quarter the Company negotiated a new $100 million
revolving credit facility with a group of banks which expires in
September 1996. As of December 31, 1993, no funds had been drawn
on this credit facility.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During the quarter the Company reached a settlement with the State
of Utah of a previously disclosed directive relating to water
discharges at the Company's Northern Utah facilities. The
settlement, among other things, specified a monetary payment of
$.5 million and completion of a waste water collection system and
treatment facility estimated to cost approximately $7.4 million.
The capital costs will be recovered through the pricing of the
Company's products and services to the United States Government.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Two 8-K reports were filed during the quarter. The items reported
on both 8-K reports filed on October 4, 1993, and October 7, 1993,
respectively, were related to item 5 - Other Events; no financial
statements were filed therewith.
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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.
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THIOKOL CORPORATION
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(Registrant)
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Date: 8 February 1994 /s/ James R. Wilson
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James R. Wilson, President,
Chief Executive Officer, and
Chief Financial Officer
Date: 8 February 1994 /s/ Royce W. Searle
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Royce W. Searle, Vice President
and Controller
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