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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 (FEE REQUIRED)
----------------------
For the fiscal year ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
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Commission file number 1-6179
THIOKOL CORPORATION
Incorporated in the State of Delaware IRS Employer Identification
No. 36-2678716
Principal Executive Offices
2475 Washington Boulevard, Ogden, Utah 84401
Telephone Number: (801) 629-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
------------------- on Which Registered
Common Stock, par value -------------------
$1.00 per share New York Stock Exchange
Common Stock Purchase Rights Chicago Stock Exchange
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. ___
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
--- ---
Aggregate market value of Registrant's voting stock held by non-affiliates,
based upon the closing price of said stock on the New York Stock
Exchange-Composite Transaction Listing on August 31, 1995, ($34.875 per share):
$634,743,135.
Number of shares of Common Stock outstanding as of August 31, 1995:
18,274,495.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the fiscal year ended June 30,
1995: Parts I, II, and IV.
2. Portions of definitive Proxy Statement dated September 22, 1995: Parts III
and IV.
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<PAGE>
PART I
ITEM 1. BUSINESS
Thiokol Corporation (the "Company") manufactures solid rocket propulsion
systems and related products, ordnance, flares, gas generators, actuators, and
provides services for the aerospace and defense markets and specialty fastening
systems for aerospace and industrial applications. Founded in 1930, Thiokol
Corporation and its successor, Thiokol Chemical Corporation (old Thiokol),
operated in various corporate forms until merged in 1982 with Morton-Norwich
Products, Inc., and operated thereafter as a division of Morton Thiokol, Inc.
After the 1989 spin-off of the specialty chemicals, salt and
automotive-restraint businesses to a newly-formed publicly-traded company,
Morton International, Inc., the Company's aerospace and defense business
operated independently as Thiokol Corporation. In 1991, the Company acquired the
aerospace and industrial fastener business of Huck Manufacturing Company. The
Company operates this fastening systems segment of the business as a
wholly-owned subsidiary, Huck International, Inc. Huck acquired the threaded
lock bolts, locknuts and related product line assets of the Deutsch
Manufacturing Company in 1994; and the assets of Automatic Fastener Company,
manufacturer of blind fasteners for automotive and industrial applications, in
January of 1995. During fiscal year 1995, the Company established the Defense
and Launch Vehicles Division reflecting the consolidation of certain of its
defense and solid propulsion product lines.
Business Segments
The Company operates in three business segments: (i) Space; (ii) Defense;
and (iii) Fastening Systems. This business segmentation reflects the Company's
reorganization of its business units during fiscal year 1995.
Space Systems. The space systems segment consists of solid rocket
propulsion systems and related products, research and development, and launch
support services for the National Aeronautics and Space Administration (NASA),
and commercial space applications. Such systems include the Reusable Solid
Rocket Motor (RSRM) used for NASA's Space Shuttle. The current Buy III Space
Shuttle contract awarded to the Company in 1991 to build 142 solid rocket motor
boosters for the NASA Space Shuttle program has $1.6 billion remaining through
its projected completion date in fiscal year 2000. The delivery rate and the
Company's contract accrual rate for financial statement purposes is subject to
continuing NASA's funding, NASA's Shuttle flight scheduling and program
performance. The Company has been notified that NASA's production schedule is
being reduced from eight to seven flight sets per year. The NASA contract is
subject to termination for convenience by the Federal Government with the
Company retaining such rights of recovery for costs and expenses provided by the
government procurement laws and regulations, and contract terms and conditions.
NASA has announced plans to
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restructure and reorganize the Shuttle program to include a single prime
contractor or prime contractor group to manage many program functions now
managed by NASA. Such restructuring will occur over a transition period of
several years. The Company anticipates continuing participation in the Shuttle
program. The Company's position as a contractor to NASA is expected over time,
most probably with completion of the Buy III contract, to shift to the role of a
subcontractor to the prime contractor. The Company's service contract at the
Kennedy Space Center in Florida includes stacking of RSRM motors, mating them to
the external fuel tank and orbiter, prelaunch testing and recovery of the
RSRM's. An option until October 1995 to renew this service contract has not been
exercised by the prime contractor, Lockheed/Martin Aeronautics, thereby
effectively reducing the Company's long-term participation in the Shuttle's RSRM
solid rocket motor launch oversight, launch, and recovery activities at the
Kennedy Space Center. During fiscal year 1995, the Company received notification
from NASA of the termination of the Company's contract to manage and convert
NASA's Yellow Creek, Mississippi facility for the production of nozzles used in
the Shuttle's RSRM solid rocket motors, which eliminates the relocation
requirements from the Company's facilities in Northern Utah. The Company expects
to recover all costs, expenses and investments made or incurred in connection
with the performance of the Yellow Creek contract.
The Company's family of Castor motors is used in the first and second
stages of a number of expendable launch vehicles and as strap-on boosters for
medium and heavy lift vehicles for space, defense, and commercial applications.
The Company's CASTOR 120(R) motor has been designed as a low-cost 120,000
pound class motor for the small launch vehicle market. This motor is designed
for first and second stage propulsion and for strap-on booster applications. The
CASTOR 120 motor has been selected as the propulsion system for the Lockheed
Launch Vehicle, the Orbital Science Taurus(R) launch vehicle and the McDonnell
Douglas Med-Lite launch vehicles. The application of the CASTOR 120 motor
includes launch vehicles for placement of communications, mapping and scientific
satellites into earth orbit. The Company is currently under contract to provide
four Castor motors to Lockheed/Martin Aeronautics for its LLV family of launch
vehicles and one motor to Orbital Science. Although the first demonstration
launch vehicle utilizing the CASTOR 120 motor failed to properly place the
satellite payload in orbit, the Company anticipates technical problems
associated with the launch vehicle will be resolved and there will be minimal
delay in the future launch schedule of the Lockheed Launch Vehicle system. The
motor loss is covered by insurance.
The CASTOR IVA motor is designed with 110,000 pounds of thrust for use as
strap-on boosters. The Company is currently under contract for the production
and delivery of 24 CASTOR IVA motors to Lockheed/Martin Aeronautics for the
Atlas IIAS program. The Company CASTOR IVB motors equipped with thrust vector
control deliver 100,000 pounds of thrust and have been selected to support the
Target Critical Measurement Program.
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With the restructuring of the Company's Defense and Launch Vehicles
Division, the Huntsville, Alabama facility will be closed and its CASTOR IVA's
and CASTOR IVB motor production transferred to the Company's Promontory, Utah,
facility.
The Company's family of STAR(TM) motors manufactured at its Elkton,
Maryland, facilities provide upper stage propulsion systems for a number of
launch vehicle systems. The STAR motors also provide satellite positioning for
space, defense, and commercial applications. The Company has successfully tested
movable nozzle technology for STAR motor applications. During fiscal year 1995,
the Company's STAR motors successfully completed 12 missions including the
European Ariane-IV, the Japanese H-2, Chinese Long March, and the Delta II and
Titan IV.
Defense Systems. The Defense Systems segment of the Company's business
consists of design, manufacturing and related services and sale of propulsion
systems, gas generators and ordnance to the Federal Government and for
qualifying foreign military sales.
For strategic and tactical markets, the Company produces or is otherwise a
qualified producer on a number of propulsion-related programs and products.
Major strategic programs include a joint venture arrangement with Alliant
Technologies, Inc., which was restructured and consolidated during 1995 to
produce the first, second and third stages of United States Navy submarine
launched, Trident II missile systems. The Company has an Air Force contract to
monitor the service life of the Minuteman III, Stage I and Stage III motors and
a development contract for the Minuteman propulsion replacement program
including the development and qualification of new materials, propellants and
refurbishment of components for the Minuteman Stage I.
The Company is a qualified manufacturer of tactical propulsion systems and
related products for the Aegis, Standard, HARM, Patriot, Sea Gnat, Harpoon,
Hellfire, Sidewinder, and Maverick fixed price programs. The Company has also
been awarded a contract for the development of insensitive munition technology
for the Mark 104 Standard Missile. The Standard, HARM, Patriot, Sidewinder and
Hellfire programs are scheduled for substantial completion of motor production
during fiscal year 1996. Continuing declines in the level of Department of
Defense spending on strategic and tactical programs and production over capacity
within the industry and the Company's defense systems product lines resulted in
the Company's reorganizing and consolidating operations forming the Defense and
Launch Vehicles Division. The accounting for this restructuring for financial
statement purposes is described in Note A and Note B of the Company's
consolidated financial statements. The Company is consolidating certain of its
tactical motor manufacturing operations from the Huntsville, Alabama, facility
to the Company's facilities in Northern Utah and Elkton, Maryland, which should
be completed during fiscal year 1996. Other tactical programs not otherwise
transferred will not be renewed as they are completed in anticipation of the
closure of the Huntsville facility. The Company's Omneco
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Operations in Carson City, Nevada, manufacturer of metal parts for tactical
propulsion systems, will also be closed and operations discontinued during the
first half of fiscal year 1996.
The Company's gas generator operations consist of research, development,
production, and sale of solid propellant gas generators. This family of products
is designed for a variety of functions for space, defense, and commercial
applications including thrust vector control actuation, missile launch eject
systems and altitude control, and propulsion for dispensing ordnance.
The Company's flare operations consist of research, development and
production of visible and infrared illuminating and decoy flares for primarily
military applications as well as search and rescue missions.
Ordnance operations consist of research, development, production and sale
of munitions, munitions simulators for training, and the manufacture and sale of
conventional artillery mortar and rocket munitions and components.
The Company has developed technology used for demilitarization of both
solid and liquid propulsion systems. The Company has received a contract funded
by the Federal Government's Defense Nuclear Agency for the conversion of liquid
propellant from missile systems located in the former Soviet Union into
commercial materials. The Company is also conducting solid rocket propulsion
studies for conversion of solid propulsion motor propellants to commercially
usable explosives for the mining industry.
The Company provides services to the United States Army under facilities
and operations management contracts for Army-owned ammunition factories near
Marshall, Texas and Shreveport, Louisiana. The Louisiana Army Ammunition Plant
ceased loading operations during fiscal year 1995. Both plants are operated
under a facilities contract permitting the Company use of a facility for both
Department of Defense and third party contracts. The Company is pursuing
contracts that can be produced in these facilities.
The Company continues work on a number of product developments including
support work on a heavy-lift launch vehicle system, hybrid propulsion, booster
technologies, propellant, and nozzle technology for Theater Missile Defense
applications. Development work continues in both solid and liquid explosives
technologies for both commercial and military applications. Present technology
used in conjunction with the Company's propulsion motor case is being developed
and tested for commercial applications. During fiscal year 1995, the Company
organized the TCR Composites Division for the commercial development of a lower
cost carbon fiber resin technology. The Company's Science and Engineering group
maintains ongoing research projects funded under various Company, commercial and
government programs and provides support to the Company's space and defense
propulsion system programs. Federal export
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laws, controls and regulations impact or otherwise restrict the export of the
Company's propulsion products and technical knowledge.
Fastening Systems. The fastening systems segment consists of the
development, production and sale of threaded and non-threaded fasteners
consisting of lock bolts, blind bolts, locknuts, blind rivets, cap screws, and
product installation tooling. Fasteners and fastening systems are sold to
customers directly by the Company and through a distribution network, domestic
and foreign. The fasteners are manufactured from high strength metal and metal
alloys and are sold under various trade names and trademarks to aerospace and
industrial markets. Product installation tooling is also manufactured and
marketed to provide customers complete fastener installation systems. The
aerospace market consists of both commercial and military aerospace
manufacturing companies, domestic and foreign. Customer product qualification is
important for aerospace market acceptance of the Company's fasteners. The
Company's fasteners have been qualified by major domestic and foreign aerospace
companies. Principal domestic and foreign industrial markets include automotive,
truck, trailer, railcar, and mining applications. The construction industry
utilizes the Company's products for certain structural applications such as
bridges and building columns.
Competition
Space Systems. The Company is the sole source supplier of RSRM solid rocket
motors, the only domestically human-rated solid rocket propulsion, for NASA's
Space Shuttle program. The Company, Alliant Technologies, Inc. and the CSD
Division of United Technologies, Inc. are the major suppliers of heavy-lift
solid propulsion launch vehicles for space and strategic applications and are
competitive with each other with regard to medium, light and strap-on launch
vehicles for commercial space applications. Both foreign governments and foreign
private enterprises have solid rocket propulsion systems competitive with
propulsion systems manufactured by the Company. Principal competitive factors
are cost, technical performance, quality, reliability, depth and capability of
personnel and adequacy of facilities.
Defense Systems. The Company's defense-related solid rocket propulsion
systems, services and related products are competitive with Alliant
Technologies, Inc. and CSD's strategic programs. The Company is also competitive
with the Aerojet Division of Gen Corp. and the ARC Division of Sequa Corporation
on a number of tactical motor programs.
Reductions in Department of Defense expenditures and for the quantity being
procured for strategic and tactical solid rocket motor programs have
substantially increased the competitive pressure for these products. Price,
quality, reliability, performance, depth and capability of personnel and
adequacy of facilities are the principal competitive factors in the defense
market for strategic and tactical solid propulsion products.
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Fastening Systems. Fastening systems are manufactured by a number of
competitors with no one manufacturer having a major position in the aerospace or
industrial fastening markets. Competitive with the Company's threaded and
non-threaded fastening systems are alternative fastening methods. The Company's
fastening systems compete on quality, delivery, price and ability to provide
customer fastening installation solutions through specific purpose tooling and
fasteners. Competition for orders from aerospace original equipment
manufacturers is often dependent on customer qualification of the Company's
fasteners. The Company maintains a proprietary patented position for certain of
its fastener designs for which certain limited licenses have been granted to
competitors. The Company also manufactures certain fasteners under licenses from
competitors.
Research and Development
Company-sponsored research and development activities relate to new
products and services and improvement of existing products and services. The
Company's R&D cost was $15.0 million, $15.4 million and $15.7 million and
represents 1.6 percent, 1.5 percent and 1.3 percent of revenues for fiscal years
1995, 1994, and 1993, respectively, while the amount spent during the same
periods for customer-sponsored R&D (primarily U.S. government-funded) was
approximately $25.1 million, $25.5 million and $23.2 million respectively.
Environmental Matters
Compliance with federal, state, and local environmental requirements with
respect to the Company's facilities, including formerly owned and operated
facilities, while having the potential to be a significant cost and liability,
are not at this time expected to have a material adverse effect on the Company's
financial condition or upon the competitive position of the Company or its
subsidiaries. Capital expenditures and amounts expensed related to environmental
matters respectively were $5.3 million and $9.7 million for fiscal year 1995 and
are estimated to be $2.6 million and $9.6 million for fiscal year 1996. The
Company maintains ongoing programs for environmental site evaluations, continues
its cooperation with federal and state agencies in site investigations, and
engages in environmental remediation activities of its sites and sites of third
parties where appropriate. The Company continues working on the reduction of
ozone depleting and other hazardous chemicals, the cost of which will be
recovered under the pricing of its products.
The Company is involved with two Environmental Protection Agency (EPA)
superfund sites designated under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") in Morris County, New Jersey, operated
about thirty years ago by the Company for government contract work. The Company
has negotiated a consent decree with the EPA concerning the Rockaway Borough
Well Field Site, ("Klockner") Site. At this site, the Company's estimated cost
for response costs, site
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remediation and future operation and maintenance costs is approximately $5.8
million of which approximately $.75 million will be spent during fiscal year
1996. The Company has received notice from the State of New Jersey that it has
been identified along with others as a "potentially responsible party" at the
Rockaway Township Well Field ("Denville") Site. The Company is negotiating with
the State of New Jersey to complete site remediation requirements. Anticipated
costs for remediation and future operation and maintenance at this site are
estimated to be approximately $4.5 million. Management believes that it has
valid claims, regarding both sites, for insurance recovery.
During fiscal year 1995, the Company settled a third party claim covering
environmental issues at the Woodbine, Georgia site operated by the Company from
1963 to 1976. Under the terms of the agreement, the Company agreed to pay $.425
million for past costs incurred by the third party relating to ownership of the
site. The Company has also agreed to investigate and remediate certain solid
waste management units (SWMU's) related to past operations conducted by the
Company with an estimated cost of $.6 million. The third party retains all other
environmental liability for the site.
During fiscal year 1995, the Company paid $105,000 for two Northern Utah
environmental projects under an agreement with the Utah Department of
Environmental Quality to complete the Company's Settlement Agreement with the
State regarding wastewater treatment issues at the Promontory, Utah, facilities.
A subsidiary of the Company paid a $10,000 fine to the Environmental Protection
Agency to settle wastewater discharge issues at its Kingston, New York,
facility.
The Company believes that the eventual cost for site remediation matters
known at this time, before any recoveries from insurance, third party
contributions by other responsible parties including the federal government, is
estimated to be $21 million. The Company has established a receivable in the
amount of $11 million for expected reimbursement or recovery for environmental
claims, costs and expenses from third parties, insurance and federal government.
The Company's policy and accounting for environmental matters is set forth in
Note A and Note L of the Company's consolidated financial statements. Resolution
of the environmental matters discussed above could have a material effect on a
future period's income or cash flows if the Company is unsuccessful in obtaining
reimbursement from other parties, including its insurance carriers, and is
unable to recover such costs from the federal government. The Company believes
that after recoveries from third parties, insurance carriers and the federal
government, any net liability for which it may ultimately be responsible in
excess amounts currently accrued, would not be material to the Company's
financial condition and results of operations.
During fiscal year 1995, the Company successfully negotiated an agreement
with the federal government to recover certain environmental costs and expenses
incurred in connection with the performance of government contracts in the
forward pricing on certain of the Company's government contracts.
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Employees
The approximate number of employees of the Company on June 30, 1995, was
7,200 compared to 8,000 on June 30, 1994. Space Systems employees totaled
approximately 3,200 on June 30, 1995, compared to 3,400 on June 30, 1994.
Defense Systems employees totaled approximately 1,600 on June 30, 1995,
reflecting the recognition and formation of the Company's Defense and Launch
Vehicles Division. Fastening systems employees totaled approximately 1,700 on
June 30, 1995, compared to 1,500 on June 30, 1994. Reduced employment levels,
except for fastening systems, reflect lower levels of business activity in
non-Shuttle related propulsion programs and the reorganization and formation of
the Company's Defense and Launch Vehicles Division. Reductions in
Shuttle-related employment reflect continuing improvements in production
efficiencies. Ordnance-related employment levels are down due to closure of the
Louisiana Army ammunition plants and low level of production activity at the
Marshall, Texas, plant. Increased fastening systems employment levels reflect an
acquisition and improved volumes for industrial fasteners.
Raw Materials
Although most of the raw materials used by the Company are readily
available, certain key raw material suppliers (such as suppliers of propellant
raw materials and nozzle and case component materials) must be approved by the
federal government. With a limited number of such approved suppliers, delivery
of these materials could be disrupted at the supplier level at any time and have
a material adverse impact on production and delivery schedules until government
approval of alternative suppliers is obtained.
Seasonality
The business of the Company is not subject to seasonal fluctuations.
Patents and Trademarks
The Company has approximately 415 patents and patent applications, of which
317 relate to the Space and Defense Systems business segments, and 98 relate to
the fastening systems segment. As a government contractor, the Company conducts
independent research and development (IR&D) to enable it to maintain its
competitive position. Research and development work is also performed under
contracts with the Department of Defense, NASA, and other government agencies
(Contract R&D).
Approximately 86 percent of the Company's patents in the Space and Defense
Systems business segment were developed under Company funded IR&D related
budgets. The Company has full ownership interest in its patents developed under
these budgets and lesser rights in the patents it developed under Contract R&D
programs.
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The Space and Defense Systems business segment patents have the following
remaining duration: approximately 74 percent of the patents have a duration of
more than 10 years; 12 percent, 5-10 years; and 14 percent less than 5 years.
Patent coverage includes propulsion system design, case, nozzle and propellants.
Patents also cover gas generators, ordnance and flare-related products. Under
contracts with the federal government, licenses have been granted to the
government for limited use of certain patented technology.
Fastening Systems segment patents have the following remaining duration:
approximately 49 percent of the patents have a duration of more than 10 years;
29 percent, 5-10 years; and 22 percent less than 5 years. Major aerospace
fastening systems covered by patents include the lightweight grooved
proportional lock bolt with a remaining patent life of 7 years, and the
"Unimatic" blind bolt with a remaining patent life of more than 10 years. The
"Unimatic" blind rivet has a remaining patent life of 7 years. Major industrial
fastening systems covered by patents include "Huck-Fit" lock bolts, "Magna-Lok"
blind rivets, and "Magna-Grip" lock bolts with patent lives remaining of more
than 10 years. Certain of the Company's fastener products are manufactured under
licenses from competitors.
Although the Company believes that its present competitive position is
enhanced by its patent and its technical expertise, know-how and proprietary
information, no patent or group of patents is material to the conduct of the
business of the Company.
Trademarks are important for product identification in the fastening
systems segment of the business but are not significant to the Company's
propulsion business.
Customers
The customers of the Space and Defense Systems business segment are
primarily the federal government and its prime and subcontractors. Commercial
propulsion customers, primarily in the light and medium launch vehicle market,
are being developed but are not yet material to the Company's customer base.
federal government contracts and subcontracts entered into by the Company, are
by their terms, subject to termination by the government or the prime contractor
either for convenience or default. Such contracts are also subject to funding
appropriations by Congress. Since the federal government provided, directly and
indirectly, approximately 72 percent of the Company's business in fiscal year
1995, the termination or discontinuance of funding of a substantial portion of
such business would have a material adverse effect on its operations. No single
non-government customer is material to the overall business conducted by the
Company. Fastening systems customers are comprised of industrial and aerospace
original equipment manufacturers and distributors, domestic and foreign, doing
business with the Company on a purchase order basis. Foreign customers and sales
base are developing but are not yet material to the Company's customer and sales
base.
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Backlog Orders
The Company's backlog of propulsion systems orders on June 30, 1995, and
June 30, 1994, was $2.3 billion and $2.5 billion, respectively. The NASA Space
Shuttle solid rocket motor booster and related contracts comprise approximately
83 percent of the backlog. It is expected that approximately 30 percent of the
orders in backlog on June 30, 1995, will be completed by June 30, 1996; and the
remainder thereafter through fiscal year 2000. The backlog represents the value
of contracts for which goods and services are to be provided and includes $.5
billion in government contracts for which funds have been approved. The backlog
is believed to consist of firm contracts and although they can be changed or
canceled, the amount of changes and cancellations for which the Company would
not receive reimbursement is not expected to be materially significant to the
Company's business. The contract backlog consists of a combination of cost plus
award fee, cost plus fixed fee, cost plus incentive fee, fixed price incentive
fee, and firm fixed price contracts. The Company's fastening systems backlog was
approximately $45 million on June 30, 1995.
ITEM 2. PROPERTIES
The Company operates manufacturing, research and development facilities at
15 locations, and administrative and sales offices, warehouses and service
centers at approximately 22 locations worldwide. The Company considers its
manufacturing facilities, warehouses, and other properties to be generally in
good operating condition and suitable for their intended purposes. All
Company-owned property is held in fee with no encumbrances. Company leased
property obligations are set forth in Note M of the Company's consolidated
financial statements.
Selected key facilities at the Company's Utah Space Operations have been
recently upgraded and modernized to achieve performance and operating
efficiencies. The NASA facilities at Iuka, Mississippi ("Yellow Creek"), will
not be developed for nozzle fabrication as the result of the Company's receipt
of a notice of contract termination from NASA during fiscal year 1995 for the
development of such facility. The Company's Space and Defense Systems business
segment facilities are considered adequate and sufficient to meet operating
needs.
During fiscal year 1995, the Company reviewed capacity utilization for its
strategic and tactical propulsion and ordnance product lines and consolidated
and reorganized these operations into the Defense and Launch Vehicles Division.
As a result of such restructuring, the Company's operations will be discontinued
and facilities closed at Huntsville, Alabama and Carson City, Nevada during
fiscal year 1996.
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Loading operations at the Shreveport, Louisiana, Army Ammunition plant have
been completed. Under maintenance contracts with the United States Army, the
Company maintains this plant in an inactive status. The Marshall, Texas, Army
Ammunition plant is maintained under an agreement with the Army that permits the
Company to compete and perform government ordnance contracts and commercial
production.
The Fastening Systems facilities are sufficient and adequate to meet
anticipated improvements in the aerospace fastening market. Industrial fastening
systems facilities were expanded in fiscal year 1995 to eliminate certain
production constraints to improve production capabilities and lower costs. The
Branford, Connecticut, facility was added as a result of an asset acquisition.
During fiscal year 1995, additions to property, plant, and equipment
totaled $33.8 million and the net property, plant and equipment added as the
result of an acquisition totaled $4.8 million.
The following table sets forth manufacturing locations and the approximate
square footage.
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<TABLE>
Buildings (000's Square Feet)
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Manufacturing Location Company Government
by Segment Owned Leased Owned Total
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<S> <C> <C> <C> <C>
Space and Defense Systems
Segments:(1)
Northern 2,145 650 549 3,344
Elkton, Maryland 378 378
Huntsville, Alabama(2) 32 967 999
Shreveport, Louisiana 2,731 2,731
Marshall, Texas 1,408 1,408
Carson City, Nevada(2) 164 164
Fastening Systems Segment:
Domestic:
Branford, Connecticut 65 65
Carson, California 153 153
Kingston, New York 105 105
Lakewood, California 114 114
Tucson, Arizona 76 10 86
Waco, Texas 371 371
International:
Us, France 60 60
Osterode, Germany 25 25
Shropshire, United Kingdom 50 50
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(1) The Company's Space and Defense Systems business segments share
facilities in Northern Utah and Elkton, Maryland.
(2) Closure of these facilities is expected to be completed during fiscal
year 1996.
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
Litigation and Regulation
Aetna Casualty & Surety Co., et., al. v. Pacific Engineering and Production
Company of Nevada, et. al., Clark County, Nevada, District Court, filed on
September 16, 1988, was settled on September 13, 1992, upon payment into escrow
by all defendants of agreed upon settlement amounts. These claims resulted from
explosions which occurred on May 4, 1988, at the ammonium perchlorate (AP) plant
of defendant Pacific Engineering located in Henderson, Nevada. Some of the
explosions involved AP manufactured pursuant to orders from the Company for use
in Space Shuttle solid rocket motors. Plaintiffs alleged that the Company was
responsible, at least in part, for the design and operation of certain storage
equipment and activities at the Pacific Engineering plant. The Company's
settlement contribution of $18.7 million was funded by its aircraft products
liability carrier under a continuing partial reservation of rights. During
fiscal year 1995, the Company, the insurance carrier, and the federal government
concluded a settlement of all outstanding insurance coverage issues without
additional liability to the Company, bringing this litigation to a final
conclusion.
McDonnell Douglas v. Thiokol Corporation, United States District Court,
Central District of California, was filed in July 1992 by plaintiff claiming
damages of $17 million for breach of warranty and tort damages, plus about $19
million in prejudgment interest. The action is based upon the failure in 1984 of
two STAR 48 satellite placement motors, manufactured to plaintiff's
specifications at the Company's Elkton division, to lift telecommunication
satellites into geosynchronous orbit. In its action, plaintiff seeks recovery of
its costs incurred to conduct its failure analysis and motor redesign. These two
STAR 48 motors were the subject of litigation brought by different plaintiffs in
California state courts and resolved in favor of the Company. The courts
determined the Company did not negligently manufacture the STAR 48 motors and
that there was no cause of action against the Company for breach of warranty.
The Company is defending the present suit under an agreement with its insurance
carrier pursuant to which past and future costs of defense are being reimbursed
subject to a reservation of rights. Although the damage claim is not covered by
insurance and the ultimate outcome of the current litigation is uncertain at
this time, the Company believes it has substantial legal defenses and that the
outcome of this suit will not have a material adverse effect on the financial
condition of the Company. The action originally scheduled for trial during the
fall of 1994 has been postponed and rescheduled a number of times by the Court,
with a new trial date set for the fall of 1995.
Miscellaneous.
The Company is involved in a number of other pending legal and
administrative proceedings which are not expected individually or in the
aggregate to have a material adverse effect upon the Company's financial
condition.
13
<PAGE>
Depending on the amount and the timing of an unfavorable resolution of
these matters, it is possible that the Company's future results of operations or
cash flows could be materially affected in a particular period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's stockholders during the
fourth quarter of fiscal year 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT (as required by Instruction 3. to Item
401(b) of Registration S-K)
Generally, Executive Officers are elected by the Board of Directors at its
first meeting following the Annual Meeting of Stockholders. The officers
generally serve until the next such meeting, or until their successors are
elected and qualified. The next Annual Meeting of Stockholders will be held on
October 26, 1995.
The Executive Officers of the Company on June 30, 1995, were:
Positions Held During Past Five
Name and Age Years and Terms of Office
- ------------ -------------------------
James R. Wilson (54). . . . . . . . . President and Chief Executive Officer
since October 1993; Executive Vice
President, Chief Financial Officer
and Treasurer (1992-October 1993);
Vice President and Chief Financial
Officer (1989-92).
Richard L. Corbin (49). . . . . . . . Senior Vice President and Chief Financial
Officer since May 1994; Chief Financial
Officer and Vice President, Administration
Space Systems Division of General
Dynamics Corporation (1976-94).
14
<PAGE>
Positions Held During Past Five
Name and Age Years and Terms of Office
- ------------ -------------------------
H George Faulkner (51). . . . . . . . Vice President Fastening Systems, since
October 1994, President Huck Interna-
tional, Inc., a company subsidiary since
1991; President of Huck Manufacturing
Co. (1983-91).
James E. McNulty (51). . . . . . . . .Executive Vice President Human Resources
and Administration since 1991; Vice Presi-
dent Human Resources (1989-91).
Joseph A. Lombardo (62). . . . . . . .Vice President Space Operations since
April 1992; (1989-April 1992) Assistant
General Manager Space Operations; prior
to 1989, NASA Marshall Space Flight
Center.
Winston N. Brundige (50). . . . . . . Vice President and General Manager,
Defense and Launch Vehicles Division
since July 1994; Vice President and Divi-
sion Manager Elkton Division (1991-June
1994); Director of Production (1990-91).
R. Robert Harris (61). . . . . . . . .Vice President and General Counsel since
1989.
Robert K. Lund (57). . . . . . . . . .Vice President, Science and Engineering
and Technical Director since 1991; Tech-
nical Director Advanced Technology
(1989-91).
Luther C. Johnson (55). . . . . . . . Vice President and General Manager
Ordnance Operations since 1992; Vice
President Tactical Operations (1987-92).
Royce W. Searle (62). . . . . . . . . Vice President and Controller since 1989.
Nicholas J. Iuanow (35). . . . . . . .Treasurer since 1994; Assistant Treasurer
of the Company (1989-93).
Edwin M. North (50). . . . . . . . . .Secretary since 1990.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information concerning the market for the Company's common equity and
related security holder matters is included in the section "Dividends and Recent
Market Prices" and "Quarterly Financial Highlights" on page 47 of the Company's
Annual Report to Stockholders for fiscal year 1995, and is incorporated herein
by reference in Exhibit Number 13. As of August 31, 1995, there were 6,499
stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five fiscal years ended June 30, 1995, is
included on page 48 of the Company's Annual Report to Stockholders for fiscal
year 1995 and is incorporated herein by reference in Exhibit Number 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three fiscal years ended June 30, 1995, is included on pages
43 through 46 of the Company's Annual Report to Stockholders for fiscal year
1995 and is incorporated herein by reference in Exhibit Number 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company as of June 30, 1995 and
1994, and the consolidated statements of income, cash flows, and stockholders'
equity for each of the three years for the periods ended June 30, 1995, 1994,
and 1993 and notes to consolidated financial statements are included on pages 29
through 42 of the Company's Annual Report to Stockholders for fiscal year 1995
and are incorporated herein by reference in Exhibit Number 13.
Quarterly financial highlights are included on page 42 of the Company's
Annual Stockholders' Report to Stockholders for the fiscal year ended June 30,
1995, and are incorporated herein by reference in Exhibit Number 13.
16
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors and nominees for director is
included on pages 4 through 5 of the Company's definitive Proxy Statement dated
September 22, 1995 and is incorporated herein by reference. Information
concerning disclosure of delinquent files pursuant to Item 405 of Regulation S-K
is set forth on page 8 of the Company's definitive Proxy Statement dated
September 22, 1995, and is incorporated herein by reference.
Information concerning the Company's Executive Officers is included on
pages 14 through 15 of Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation for fiscal year 1995 is
included on pages 9 through 13 of the Company's definitive Proxy Statement dated
September 22, 1995, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning beneficial ownership of the Company's common stock
is included on page 8 of the Company's definitive Proxy Statement dated
September 22, 1995, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
included on page 14 of the Company's definitive Proxy Statement dated September
22, 1995, and is incorporated herein by reference.
17
<PAGE>
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 consolidated financial statements are included on pages 28
through 42 the Company's Annual Report to Stockholders for the fiscal year ended
June 30, 1995, and are incorporated herein by reference in Exhibit Number 13:
Consolidated Statements of Income -- Years ended June 30, 1995, 1994,
and 1993.
Consolidated Balance Sheets -- June 30, 1995, and June 30, 1994.
Consolidated Statements of Cash Flows -- Years ended June 30, 1995,
1994, and 1993.
Consolidated Statements of Stockholders' Equity -- Years ended June
30, 1995, 1994, and 1993.
Notes to Consolidated Financial Statements.
Management's Report on Financial Statements.
Report of Ernst & Young LLP, Independent Auditors.
2. Financial Statement Schedules
All schedules for which provision is made under the applicable accounting
regulation of the Securities and Exchange Commission are omitted as they are
either not required under the related instructions or are otherwise
inapplicable.
18
<PAGE>
3. Index to Exhibits
Exhibit
Number Description
------- -----------
(3) Certificate of Incorporation and By-Laws.
3.01 Restated Certificate of Incorporation of the Company,
effective July 3, 1989: Incorporated by reference as Exhibit
3 to Form 10-K for fiscal year ended June 30, 1989.
3.02 Amended By-Laws of the Company: Incorporated by reference to
Annex IV to Proxy Statement/Prospectus dated May 22, 1989,
for Special Stockholders meeting held June 23, 1989.
3.03 Amended By-Laws of the Company June 19, 1993, increasing
Board of Directors: Incorporated by reference as Exhibit 3
to Form 10-K for fiscal year ended June 30, 1993.
(4) Instruments defining the rights of security holders including
indentures.
4.01 Rights Agreement dated January 26, 1989, between the Company
and The First National Bank of Chicago: Incorporated by
reference to Exhibit 1 to Form 8-A dated February 8, 1989.
4.02 Amendment dated June 22, 1989, to Rights Agreement between
the Company and The First National Bank of Chicago:
Incorporated by reference to Exhibit 2 to Form 8-K dated
1989.
4.03 Amendment No. 2 to Rights Agreement dated January 18, 1990,
between the Company and The First National Bank of Chicago:
Incorporated by reference to Exhibit 3 to Form 8-K dated
January 18, 1990.
4.04 See Exhibits 3.01, 3.02 and 3.03 above.
(10) Material contracts.
10.01 (1)Key Executive Long-Term Incentive Plan effective for
fiscal year 1990: Incorporated by reference as Exhibit 10 to
Form 10-K for fiscal year ended June 30, 1989.
19
<PAGE>
Exhibit
Number Description
------- -----------
10.02 (1)Key Executive Long-Term Bonus Plans effective fiscal
year 1991: Incorporated by reference as Exhibit 10 to Form
10-K for fiscal year ended June 30, 1991.
10.03 (1)Key Executive Annual Bonus Plan (Plan 1) effective for
fiscal year 1990: Incorporated by reference as Exhibit 10 to
Form 10-K for fiscal year ended June 30, 1989.
10.04 (1)Staff Annual Bonus Plan effective for fiscal year 1991:
Incorporated by reference as Exhibit 10 to Form 10-K for
fiscal year ended June 30, 1990.
10.05 (1)Staff Executive Annual Bonus Plan (Plan 2) effective for
fiscal year 1990: Incorporated by reference as Exhibit 10 to
Form 10-K for fiscal year ended June 30, 1989.
10.06 (1)1989 Stock Awards Plan: Incorporated by reference to
Annex VI to Proxy Statement/Prospectus dated May 22, 1989,
for Special Stockholders Meeting held June 23, 1989.
10.07 (1)1989 Stock Awards Plan as amended by stockholder approval
October 15 1993: Incorporated by reference to the definitive
Proxy Statement dated September 11, 1992.
10.08 (1)Survivor Income Benefits Plan, amended through March 24,
1983: Incorporated by reference as Exhibit 10 to Form 10-K
for fiscal year ended June 30, 1989.
10.09 (1)Arrangements, whereby the Company compensates its
independent auditors for tax services to certain key
executives, for which there is no written document:
Incorporated by reference as Exhibit 10 to Form 10-K for
fiscal year ended June 30, 1989.
10.10 (1)Form of Employment Agreement between the Company and
certain of its executive officers including the Chief
Executive Officer and the other four highest paid executive
officers: Incorporated by reference as Exhibit 10 to Form
10-K for fiscal year ended June 30, 1989.
20
<PAGE>
Exhibit
Number Description
------- -----------
10.11 (1)Amended Form of Employment Agreement between certain of
its executive officers including the five most highly
compensated: Incorporated by reference as Exhibit 10 to Form
10-K for fiscal year ended June 30, 1990.
10.12 (2)Consulting Agreement effective July 1, 1993, as amended,
between the Company and U. Edwin Garrison, the terms of
which are described and are incorporated by reference from
the 1994 Proxy Statement dated September 23, 1994.
10.13 Note Agreement $120,000,000 dated June 19, 1990:
Incorporated by reference as Exhibit 10 to Form 10-K for
fiscal year ended June 30, 1990.
10.14 Credit Agreement dated 09/30/93 among Thiokol Corporation
and The First National Bank of Chicago, Bank of America
National Trust and Savings Association, NBD Bank, N.A. and
The Northern Trust Company: Incorporated by reference as
Exhibit 10 to Form 10-K for fiscal year ended June 30, 1994.
10.15 (1)(2)Thiokol Corporation Pension Plan (Second Restatement
Effective January 1, 1989): Incorporated by reference as
Exhibit 10 to Form 10-K for fiscal year ended June 30, 1994.
10.16 (1)(2)Thiokol Corporation Supplemental Executive Retirement
Plan (Effective July 1, 1992): Incorporated by reference as
Exhibit 10 to Form 10-K for fiscal year ended June 30, 1992.
10.17 Huck International, Inc. Personal Retirement Account Plan
(Second Restatement Effective as of January 1, 1992):
Incorporated by reference as Exhibit 10 to Form 10-K for
fiscal year ended June 30, 1995.
10.18 Huck International, Inc. Supplemental Executive Retirement
Plan (Effective January 1, 1992): Incorporated by reference
as Exhibit 10 to Form 10-K for fiscal year ended June 30,
1995.
21
<PAGE>
Exhibit
Number Description
------- -----------
(11) Statement re computation of per share earnings.
Statement re computation of per share earnings of the
Company and subsidiaries for the three years ended June 30,
1995, 1994 and 1992.
(13) Annual Report to security holders.
Applicable sections of the Annual Report to Stockholders of
the Company for fiscal year 1995 incorporated by reference.
(22) Subsidiaries of the registrant.
Subsidiaries of the Company.
(24) Consents.
Consent of Ernst & Young LLP, independent auditors.
(27) Financial Data Schedule.
(b) REPORTS ON FORM 8-K
None.
- -------------
(1)Participation by the Company's Chief Executive Officer and four most
highly compensated Executive Officers as a group in the compensation plans
identified in Exhibit 10 described on page 9 in the Company's definitive Proxy
Statement dated September 22, 1995, which description is incorporated herein by
reference. Each management contract or compensatory plan or arrangement required
to be filed as an Exhibit to this Form 10-K pursuant to Item 14c.
(2)A description of these contracts are set forth in the Company's
definitive Proxy Statement dated September 22, 1995, and are filed as Exhibits
pursuant to Form 10-K, Part IV, Item 14(a)3.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of the 25th day of
September 1995.
THIOKOL CORPORATION
(Registrant)
s/Richard L. Corbin
By__________________________
Richard L. Corbin
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 in the capacities indicated, as of the 25th day of September 1995.
SIGNATURE TITLE
s/James R. Wilson
- ----------------------------- President, Chief Executive Officer and
James R. Wilson Director (Principal Executive Officer)
s/Richard L. Corbin Senior Vice President and Chief
- ----------------------------- Financial Officer (Principal Financial
Richard L. Corbin Officer)
s/Royce W. Searle Vice President and Controller
- ----------------------------- (Principal Accounting Officer)
Royce W. Searle
s/U. Edwin Garrison
- ----------------------------- Director, Chairman of the Board
U. Edwin Garrison
<PAGE>
s/Neil A. Armstrong
- ----------------------------- Director
Neil A. Armstrong
s/James R. Burnett
- ----------------------------- Director
James R. Burnett
s/Michael P.C. Carns
- ----------------------------- Director
Michael P.C. Carns
s/Edsel D. Dunford
- ----------------------------- Director
Edsel D. Dunford
s/L. Dennis Kozlowski
- ----------------------------- Director
L. Dennis Kozlowski
s/Charles S. Locke
- ----------------------------- Director
Charles S. Locke
s/James M. Ringler
- ----------------------------- Director
James M. Ringler
s/Donald C. Trauscht
- ----------------------------- Director
Donald C. Trauscht
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
THIOKOL CORPORATION
(in thousands, except per share data)
Year Ended June 30
---------------------------
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
Primary
Average shares outstanding: 18,538 19,658 20,068
Additional shares assuming exercise of
dilutive stock options--based on
treasury stock method using average
market prices: 256 315 316
------ ----- -----
Total shares: 18,794 19,973 20,384
====== ====== =======
Net (loss) income: $47,463 $(3,515) $63,797
(Loss) earnings per share: $ 2.53 $ (.18) $ 3.13
======= ======== =======
Fully Diluted
Average shares outstanding: 18,538 19,658 20,068
Additional shares assuming exercise of
dilutive stock options--based on
treasury stock method using the year-end
market price, if higher than average
market price: 326 315 641
------ ------ ------
Total shares: 18,864 19,973 20,709
====== ====== ======
Net (loss) income: $47,463 $(3,515) $63,797
(Loss) earnings per share: $ 2.52 $ (.18) $ 3.08
======= ======== =======
</TABLE>
<PAGE>
EXHIBIT (22)
SUBSIDIARIES OF THIOKOL CORPORATION
The following is a list of operating subsidiary corporations of the Company
as of June 30, 1995. Certain subsidiaries not considered significant have been
omitted.
State or Other
Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
Huck International, Inc.........................................Delaware
Huck S.A........................................................France
Huck International GmbH & Co....................................Germany
Huck International Ltd..........................................United Kingdom
<PAGE>
EXHIBIT (24)
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Thiokol Corporation of our report dated July 31, 1995, included in the
1995 Annual Report to Shareholders of Thiokol Corporation.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8, Nos. 33-18630, 33-2921, 33-10316, 2-76672, 2-90885 and
33-38322) pertaining to certain Retirement Savings and Investment Plans and
Stock Option Plans of Thiokol Corporation of our report dated July 31, 1995,
with respect to the consolidated financial statements of Thiokol Corporation
incorporated by reference in the Annual Report (Form 10-K) of Thiokol
Corporation for the year ended June 30, 1995.
ERNST & YOUNG LLP
Salt Lake City, Utah
September 22, 1995
HUCK INTERNATIONAL, INC.
PERSONAL RETIREMENT ACCOUNT PLAN
(Second Restatement Effective as of January 1, 1992)
<PAGE>
HUCK INTERNATIONAL, INC.
PERSONAL RETIREMENT ACCOUNT PLAN
--------------------------------
(Second Restatement Effective as of January 1, 1992)
TABLE OF CONTENTS
-----------------
Article 1
PREAMBLES
---------
1.01 The Plan 1
1.02 Applicable Law 1
1.03 Applicability of Plan 1
1.04 Defined Terms 1
Article 2
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.01 Eligibility 2
2.02 Participation 2
Article 3
SERVICE CREDITS
---------------
3.01 Years of Service for Eligibility and Vesting 4
3.02 Break in Service Rules 5
Article 4
RETIREMENT AND BENEFITS
-----------------------
4.01 Accrued Benefit 7
4.02 Account Balance 7
4.03 Normal Retirement 9
4.04 Delayed Retirement 9
4.05 Early Retirement 10
4.06 Disability Retirement 10
4.07 Other Termination of Employment 11
4.08 Deductions for Retiree Medical Premiums 12
Article 5
PAYMENT OPTIONS AND DEATH BENEFITS
----------------------------------
5.01 Payment of Retirement Benefits 13
5.02 Payment of Death Benefits 15
5.03 Cash Out of Benefits 16
5.04 Beneficiary Designations 17
5.05 Payment of Small Amounts 18
5.06 Distribution of Annuity Contract 18
5.07 Direct Rollovers; Withholding 18
Article 6
FINANCING
---------
6.01 Trust Agreements 20
6.02 Trust Funds; Exclusive Benefit of Participants
and Beneficiaries 20
<PAGE>
HUCK INTERNATIONAL, INC.
PERSONAL RETIREMENT ACCOUNT PLAN
--------------------------------
(Second Restatement Effective as of January 1, 1992)
TABLE OF CONTENTS
-----------------
(Continued)
6.03 Contributions 20
6.04 Expenses 20
6.05 Nonreversion 20
Article 7
ADMINISTRATION
--------------
7.01 The Committee and Plan Administrator 22
7.02 Manner of Action 23
7.03 Authority and Duties of the Committee 23
7.04 Compensation and Expenses of the Committee 24
7.05 Application for Benefits 24
7.06 Denial of Claims 24
7.07 Indemnity for Liability 25
Article 8
AMENDMENT, TERMINATION, AND MERGER
----------------------------------
8.01 Amendments to Conform With Law 26
8.02 Other Amendments and Termination 26
8.03 Form of Amendment 26
8.04 Limitations on Amendments 26
8.05 Allocation and Distribution on Termination 27
8.06 Merger 28
Article 9
SPECIAL RULES
-------------
9.01 Limitations on Commencement and Form of Benefit
Payments 29
9.02 Limitations on Amount of Benefit Payments 31
9.03 Limitations on Benefit Payments to Certain
Highly Compensated Employees 36
9.04 Top-Heavy Plan Rules 37
9.05 Benefits upon Reemployment and Suspension of
Benefits 44
9.06 Adoption of Plan by Related Corporations 46
9.07 Transfer Rules 46
9.08 Leased Employees 47
Article 10
MISCELLANEOUS PROVISIONS
------------------------
10.01 Non-Alienation of Benefits 49
10.02 Payments for the Benefit of a Payee 49
10.03 Location of Participants and Beneficiaries 50
10.04 Unclaimed Benefits 50
<PAGE>
HUCK INTERNATIONAL, INC.
PERSONAL RETIREMENT ACCOUNT PLAN
--------------------------------
(Second Restatement Effective as of January 1, 1992)
TABLE OF CONTENTS
-----------------
(Continued)
10.05 Forfeitures 50
10.06 Approval of Commissioner of Internal Revenue 51
10.07 Action by Employer 51
10.08 Employer's Rights 51
10.09 Construction 51
Article 11
DEFINITIONS
-----------
11.01 Accrued Benefit 53
11.02 Actuarial Equivalent 53
11.03 Affiliate 53
11.04 Beneficiary 53
11.05 Break in Service 53
11.06 Code 54
11.07 Committee 54
11.08 Company 54
11.09 Compensation 54
11.10 Delayed Retirement Benefit 54
11.11 Delayed Retirement Date 54
11.12 Disability Retirement Benefit 54
11.13 Disability Retirement Date 54
11.14 Early Retirement Benefit 54
11.15 Early Retirement Date 54
11.16 Earnings 54
11.17 Effective Date 55
11.18 Employee 55
11.19 Employer 55
11.20 Employment Commencement Date 55
11.21 ERISA 55
11.22 Fund 55
11.23 Hour of Service 55
11.24 Normal Retirement Age 56
11.25 Normal Retirement Benefit 56
11.26 Normal Retirement Date 56
11.27 Participant 57
11.28 PBGC 57
11.29 Period of Service 57
11.30 Period of Severance 57
11.31 Plan 57
11.32 Plan Administrator 57
11.33 Plan Year 57
11.34 Reemployment Commencement Date 57
11.35 Reemployment Date 57
11.36 Severance from Service Date 57
11.37 Total and Permanent Disability or Totally
and Permanently Disabled 57
<PAGE>
HUCK INTERNATIONAL, INC.
PERSONAL RETIREMENT ACCOUNT PLAN
--------------------------------
(Second Restatement Effective as of January 1, 1992)
TABLE OF CONTENTS
-----------------
(Continued)
11.38 Trustee 58
11.39 Vested 58
11.40 Year of Service 58
<PAGE>
ARTICLE 1
PREAMBLES
---------
1.01 The Plan.
---------
Effective November 1, 1991, the Thiokol Corporation acquired Huck
International, Inc. from the Federal-Mogul Corporation. Prior to the
acquisition, Huck International, Inc. ("Employer") participated in the
Federal-Mogul Corporation Personal Retirement Account Plan for Salaried
Employees, a cash balance pension plan. Effective January 1, 1992, the Employer
has established the Huck International, Inc. Personal Retirement Account Plan to
provide benefits which are similar to those that were provided under the
Federal-Mogul Plan and to include nonbargained hourly employees.
The Plan was amended and restated effective as of January 1, 1992 to
incorporate modifications to the direct rollover provision and to add the
$150,000 pay cap required by the Omnibus Budget Reconciliation Act of 1993.
The Plan was again restated effective January 1, 1992 to clarify the
terms of the Plan, to reflect the enactment of the Family and Medical Leave Act
of 1993 and the Retirement Protection Act of 1994, and to reflect changes
requested by the Internal Revenue Service.
1.02 Applicable Law.
---------------
The Plan is intended to qualify as a defined benefit pension plan
under Section 401(a) of the Internal Revenue Code of 1986, as amended. In
addition, it is intended that the Plan meet the applicable requirements of the
Employee Retirement Income Security Act of 1974, as amended. Where not governed
by these laws, by regulations promulgated under them, or by other federal laws,
the Plan shall be administered and construed in accordance with Delaware law.
1.03 Applicability of Plan.
----------------------
The provisions set forth herein apply only to Employees (and
beneficiaries of such Employees) who are eligible to participate in the Plan on
or after the Effective Date.
1.04 Defined Terms.
--------------
Throughout the Plan, various terms are used repeatedly, which terms
have very specific and definite meanings when capitalized in the text. For
convenience, these terms are collected and defined in Article 11. Wherever such
capitalized terms appear in the Plan, they shall have the meanings specified in
that Article.
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.01 Eligibility.
------------
(a) In General. In order to be eligible to participate in the Plan, an
individual must:
(1) be an Employee of the Employer,
(2) not be covered under a collective agreement, unless the
agreement expressly provides for participation in the Plan,
(3) have attained at least age 21,
(4) have completed one Year of Service,
(5) not be employed as a leased employee within the meaning of
Section 414(n) of the Code, and
(6) not be a member of a group described under subsection (b).
(b) Special Groups. Notwithstanding subsection (a), the Employees at
Lakewood, California, shall not be eligible to participate in the Plan, except
that such Employees who are paid on a salaried basis shall not be excluded on
account of this subsection after December 31, 1994. The Employees at Branford,
Connecticut, shall not be eligible to participate in the Plan, except that such
Employees who are paid on a salaried basis shall not be excluded on account of
this subsection after March 31, 1995.
2.02 Participation.
--------------
(a) Meaning of Participation. Participation entitles an individual to
begin accruing service for benefit computation purposes. However, mere
participation in the Plan does not guarantee an ultimate benefit from the Plan.
A Participant or his Beneficiary will receive a benefit only if (1) the Partici-
pant has accrued an Account Balance at the time he ceases participation, (2)
the Participant obtains a Vested right to all or a portion of his Account
Balance, and (3) the Participant or his Beneficiary survives to receive payments
under the applicable payment option.
(b) Commencement of Participation. An individual shall commence
participation in the Plan as of the later of November 1, 1991 or the first day
of the month coincident with or immediately following the date he first
satisfies the eligibility requirements of Section 2.01, provided that he is
still employed by the Employer on such date. If he is not still employed on such
date, but is subsequently reemployed by the Employer, he shall commence
participation in the Plan immediately on his date of rehire, unless he incurred
a Break in Service of one year or more that equaled or exceeded the greater of
five years or his prior Years of Service, in either of which case, his prior
service shall be ignored and he shall be treated as a new Employee on his date
of rehire, such that he will commence participation on the entry date otherwise
specified herein for a new Employee following his date of rehire, provided that
he is still employed on that date.
(c) Termination of Participation. Except as otherwise provided, active
participation in the Plan shall terminate for a Participant when he ceases to
satisfy the conditions of Section 2.01. Provided, however, that a former
Participant who is entitled to benefits under the Plan may be referred to as a
"Participant," even after participation has ceased, for the sole purpose of
recognizing his right to benefit payments.
(d) Resumption of Participation. An individual whose participation has
terminated pursuant to subsection (c) above shall resume participation only in
accordance with the Plan's Break in Service rules in Article 3, the Account
Balance rules in Section 4.02(d), the cash-out rule of Section 5.03 or the
reemployment or transfer rules in Article 9.
ARTICLE 3
SERVICE CREDITS
---------------
Except as otherwise provided, it is intended that this Article comply
with Treasury Regulation Section 1.410(a)-7 for elapsed time measurement of
service and the following provisions shall be construed in accordance with that
regulation.
3.01 Years of Service for Eligibility and Vesting.
---------------------------------------------
(a) General Definition. An Employee's Years of Service, for purposes
of eligibility and vesting, shall be equal to the number of whole years within
the Employee's Period of Service, whether or not such Periods of Service were
completed consecutively. Aggregation shall be on the basis that 12 months or 365
days equal one year, and that 30 days are deemed to equal one month in the case
of aggregation of fractional months. No more than one Year of Service shall be
granted for any one 12-month period of time.
Notwithstanding the foregoing, in the case of a Part-Time Employee,
for the purpose of eligibility, the Employee shall be credited with a Year of
Service if he is credited with at least 1,000 Hours of Service at the end of the
eligibility computation period. An eligibility computation period shall be (1)
the one-year period starting on the date the Employee is credited with his first
Hour of Service with the Employer or an Affiliate, (2) the first Plan Year that
starts after such date, and (3) subsequent Plan Years.
A Part-Time Employee shall be an Employee who is scheduled to work
less than 40 Hours of Service per week.
(b) Service Spanning Rule. For purposes of subsection (a) above, an
Employee's Period of Service shall be deemed to include the following Periods of
Severance: (1) any Period of Severance resulting from an Employee's quit,
discharge, or retirement if the Employee performs an Hour of Service for the
Employer within 12 months from his Severance from Service Date; and (2) the
portion of a Period of Severance, resulting from a reason other than quit,
discharge, or retirement, between the date the Employee does in fact quit, is
discharged, or retires and the date he again performs an Hour of Service for the
Employer, provided that such Hour of Service is performed within 12 months of
the date on which the Employee was first absent from service.
(c) Other Service Counted. An individual's Years of Service also shall
include years, measured on the same elapsed time basis as described in
subsections (a) and (b) above, during which such individual:
(1) was employed by the Employer in a category of employees
excluded from the Plan;
(2) was employed by an employer which is a member of a controlled
group of corporations (as defined in Code Section 1563(a) without
regard to subsections (a)(4) and (e)(3)(C)) including the Employer,
by an employer which is a trade or business under common control
(as defined in Section 414(b) or (c) of the Code) with the Employer,
or by an employer which is an affiliated service group (as defined
in Section 414(m)(2) and (5) of the Code) including the Employer;
(3) was a leased employee (as defined in Section 414(n)(2)
of the Code) who performed services for the Employer, to the extent
provided by Code Section 414(n) and the regulations thereunder;
(d) Service Excluded. Notwithstanding subsections (a), (b), and (c),
an Employee's Years of Service shall not include Years of Service disregarded
under the Break in Service rules of Section 3.02.
3.02 Break in Service Rules.
-----------------------
(a) Impact on Vested Employee. Subject to the cash-out rules of
Section 5.03, if an Employee with a Vested right to all or any portion of his
Accrued Benefit (derived from Employer contributions) incurs a Break in Service
but is subsequently reemployed by the Employer, he shall recommence partici-
pation in the Plan on the first day during which he completes an Hour of Service
following his reemployment. Furthermore, upon the Employee's completion of at
least one Year of Service following his Reemployment Commencement Date, all
Years of Service earned prior to the Break in Service shall be taken into
account and aggregated with any Years of Service earned subsequent to his
reemployment, including service earned during the one year wait.
(b) Impact on Non-Vested Employee. If an Employee with no Vested right
to any portion of his Accrued Benefit (derived from Employer contributions)
incurs a Break in Service but is subsequently reemployed by the Employer, he
will be considered a new Employee, for participation purposes, if the number of
his consecutive one-year Breaks in Service equals or exceeds the greater of (1)
five years or (2) the aggregate number of his Years of Service before such
Breaks in Service. However, if the number of the Employee's consecutive one-year
Breaks in Service is less than the greater of (1) or (2), then the Employee
shall participate immediately upon his reemployment. Furthermore, if the
Employee completes at least one Year of Service after his Reemployment
Commencement Date, all Years of Service earned prior to the Break in Service
shall be taken into account and aggregated with any Years of Service earned
subsequent to his reemployment, including service earned during the one-year
wait. The Employee's pre-Break service shall only be restored if the number of
consecutive one-year Breaks in Service is less than the greater of (A) five
years or (B) the aggregate number of Years of Service before such Breaks in
Service. If the number of consecutive one-year Breaks in Service equals or
exceeds the greater of (A) or (B), then the Employee's prior Years of Service
shall be disregarded for all purposes under the Plan.
(c) Other Rules. An Employee who separates from the service of the
Employer but who returns before incurring a Break in Service shall recommence
participation in the Plan and shall receive credit for all of his pre-Break
Years of Service immediately upon his return to employment with the Employer.
ARTICLE 4
RETIREMENT AND BENEFITS
-----------------------
4.01 Accrued Benefit.
----------------
(a) Amount. Subject to the limitations of Articles 8 and 9, a
Participant's Accrued Benefit shall be equal to the lifetime annuity (described
in Section 5.01(b)(1)) payable commencing as of a date coincident with or
following his Normal Retirement Date. For the purposes of the preceding
sentence, in calculating the Accrued Benefit prior to the attainment of the
Normal Retirement Date, the PBGC interest rate under Sections 4.02(b) and 11.02
shall be deemed to be 4 percent (4%), compounded annually, when projecting the
Account Balance and calculating the Actuarial Equivalent for the period from the
calculation date to the Normal Retirement Date. In no event shall the Accrued
Benefit be less than the Accrued Benefit calculated using such interest rate. If
a Participant's monthly retirement benefit becomes payable before the Normal
Retirement Date, the benefit shall not be less than such minimum Accrued
Benefit, actuarially reduced using a 4 percent (4%) annual interest rate. The
Accrued Benefit shall also be adjusted to reflect payment under an optional form
of payment.
(b) Vested Rights. A Participant shall have no Vested right to his
Accrued Benefit at any date except as specifically provided by the following
Sections of this Article, or as otherwise provided by the Plan.
4.02 Account Balance. An account ("Account Balance") shall be
established under the Plan on behalf of each Participant. A Participant's
accumulated Account Balance shall be a hypothetical account balance which shall
be merely a bookkeeping entry and which shall be equal to the sum of (a) and (b)
at any point in time.
(a) Benefit Credits to Accounts. As of the last day of each calendar
month of active participation under the Plan, if a Participant is an active
Employee or on short-term disability leave as of the last day of such month,
there shall be credited to the Account Balance of the Participant the following
amount:
(i) two percent (2%) of the Earnings received by the
Participant for each such calendar month which ends prior to his
attainment of age 30;
(ii) three percent (3%) of the Earnings received by the
Participant for each such calendar month which ends prior to his
attainment of age 40 but subsequent to his attainment of age 30;
(iii) four percent (4%) of the Earnings received by the
Participant for each such calendar month which ends prior to his
attainment of age 50 but subsequent to his attainment of age 40;
(iv) six percent (6%) of the Earnings received by the
Participant for each such calendar month which ends prior to his
attainment of age 60 but subsequent to his attainment of age 50;
and
(v) eight percent (8%) of the Earnings received by the
Participant for each such calendar month which ends subsequent to
his attainment of age 60.
The Benefit Credits for a Plan Year shall not be less than the product
of the applicable percentage and the Participant's Earnings for the entire Plan
Year (but not in excess of the limitation in Section 11.16).
(b) Interest Equivalent Credits. As of the last day of each calendar
month commencing on and after the date active participation begins, a
Participant's Account Balance shall receive a credit of an amount equal to the
product of (1) one-twelfth (1/12) of the PBGC immediate interest rate, and (2)
the Participant's Account Balance on such day. The PBGC immediate interest
rate shall mean the immediate interest rate published by the PBGC to value
lump sum benefits payable as of the first day of the applicable Plan Year.
(c) Coordination With Long-Term Disability. During a period of
long-term disability, as hereinafter defined, a Participant shall remain a
Participant in the Plan and Interest Equivalent Credits, but no Benefit Credits,
shall continue to be made or credited with respect to his Account Balance on his
behalf during the period of his Total Disability until he retires under the
Plan, elects to terminate his employment or ceases to be disabled, if earlier.
For purposes of this Section 4.02, a Participant shall be deemed to have a
long-term disability if he is Totally Disabled.
(d) Reemployment.
-------------
(1) If a Participant is reemployed and he is treated as a
new Employee pursuant to Section 3.02(a) (rule of parity), his
prior Account Balance shall not be restored upon reemployment.
(2) If a Participant has received a distribution of his
entire Account Balance and Accrued Benefit, his prior Account
Balance shall not be restored upon reemployment.
(3) If paragraphs (1) and (2) are not applicable and the
Participant received any prior distribution, upon reemployment
the Participant's Account Balance shall equal the amount of his
entire Account Balance at his initial termination of employment
(including any forfeited amounts) and increased by the Interest
Equivalent Credits thereon that are applicable from the date of
termination to the date of reemployment. Upon a subsequent
distribution, the Account Balance at that time shall be reduced
by the sum of the amount of the prior distributions and interest
thereon equal to the amount of the Interest Equivalent Credits in
effect from the date of the distribution to the date of the
subsequent distribution.
(4) If paragraphs (1) and (2) are not applicable and the
Participant did not receive any distribution, upon reemployment,
his entire Account Balance shall be restored, including any
amounts that may have been forfeited upon a Break in Service,
including interest thereon equal to the amount of the Interest
Equivalent Credits in effect from the date of the forfeiture to
the date of the restoration of the forfeiture.
4.03 Normal Retirement.
------------------
(a) Requirements. A Participant shall obtain a fully Vested right to a
Normal Retirement Benefit upon his attainment of Normal Retirement Age, provided
he is employed by the Employer at that time.
(b) Date. A Participant may retire on his Normal Retirement Date.
Payment of a Participant's Normal Retirement Benefit shall commence as of the
Participant's Normal Retirement Date, provided that the Participant has in fact
retired.
(c) Amount. A Participant's monthly Normal Retirement Benefit shall be
equal to his Accrued Benefit calculated as of his Normal Retirement Date,
subject to adjustment for optional forms of payment.
4.04 Delayed Retirement.
-------------------
(a) Requirements. A Participant who continues to work for the Employer
after his Normal Retirement Date shall continue to participate in the Plan and
shall continue to accrue benefits under the same terms and conditions as applied
before his Normal Retirement Date. A Participant who continues to work for the
Employer after his Normal Retirement Date shall have a Vested right to a Delayed
Retirement Benefit.
(b) Date. Payment of a Participant's Delayed Retirement Benefit shall
commence as of the Participant's Delayed Retirement Date. Payment of a
Participant's Delayed Retirement Benefit may commence before his actual
retirement if payment is required by Section 9.01.
(c) Amount. A Participant's monthly Delayed Retirement Benefit shall
be equal to the Actuarial Equivalent of his Account Balance calculated as of his
Delayed Retirement Date, or if greater, the Accrued Benefit described in Section
4.01(a), subject to adjustments for optional forms of payment.
4.05 Early Retirement.
-----------------
(a) Requirements. A Participant who retires on an Early Retirement
Date with a Vested right to his Accrued Benefit shall be entitled to an Early
Retirement Benefit.
(b) Date. Payment of a Participant's Early Retirement Benefit shall
commence as of his Early Retirement Date, provided that the Participant has in
fact retired, has made timely application for benefits, and consented to early
commencement of benefits pursuant to Section 9.01.
(c) Amount. A Participant's monthly Early Retirement Benefit shall be
equal to the Actuarial Equivalent of his Account Balance calculated as of the
date on which his benefits become payable, or if greater, the Accrued Benefit
described in Section 4.01(a), subject to adjustments for optional forms of
payment and early commencement of benefit payments.
4.06 Disability Retirement.
----------------------
(a) Requirements. A Participant who is determined to be Totally and
Permanently Disabled by the Plan Administrator shall have a fully Vested right
to a Disability Retirement Benefit. A Disability Retirement Benefit shall be
payable only to a Participant whose employment with the Employer is terminated
as a result of his disability.
The Plan Administrator shall determine if a Participant is Totally and
Permanently Disabled. For purposes of this Plan, Total and Permanent Disability
shall be defined as the Participant's permanent physical inability (caused by
accident or illness) to continue, for a period of two (2) consecutive years, to
perform the work or engage in the occupation for which the Participant in
question was employed at the time of the inception of his Total and Permanent
Disability by the Employer, and, for all periods of time thereafter, to perform
any work or engage in any occupation, as determined by the Plan Administrator in
its discretion, and within the meaning of the term "Disability" as that term is
utilized in the United States Social Security Amendments of 1965, as appearing
in Section 416(i)(1) of the United States Social Security Act. Such term shall
not include any condition arising by reason of (i) the engagement of an Employee
in a felonious act, (ii) self-infliction of an injury, or (iii) performance of
military service. The Plan Administrator may require a Participant who retires
due to his alleged Total and Permanent Disability to submit to medical or
physical examination of any reasonable duration at Employer expense promptly
when he applies for a Total and Permanent Disability Retirement Benefit and
thereafter at such reasonable times as the Plan Administrator may prescribe.
(b) Date. A Participant's Disability Retirement shall be effective as
of the first day of any month following the date as of which he has incurred a
Total and Permanent Disability, and payment of the Participant's Disability
Retirement Benefit shall commence as of such date, provided that the Par-
ticipant continues to be disabled under subsection (a), has made timely
application for benefits, and has not elected to defer payments in accordance
with Section 9.01.
If, at any time, the Plan Administrator determines that the
Participant is no longer Totally and Permanently Disabled, the benefit under
this Section shall cease and the Participant's right, if any, to other benefits
shall be determined under the other applicable provisions of the Plan, without
regard to this Section.
(c) Amount. The Participant's monthly Disability Retirement Benefit
shall be equal to the Actuarial Equivalent of his Account Balance calculated as
of his Disability Retirement Date, or if greater, the Accrued Benefit described
in Section 4.01(a), subject to adjustments for optional forms of payment and
early commencement of benefit payments.
4.07 Other Termination of Employment.
--------------------------------
(a) Requirements. A Participant whose employment with the Employer and
all Affiliates terminates before he is eligible to retire under any previous
Section of this Article shall be subject to the rules of this Section. Such a
Participant whose termination occurs before he has completed 2 Years of
Service shall have no Vested right to a benefit, unless the rules of Section
9.04 apply and require otherwise, or unless the Participant is reemployed and
subsequently qualifies for a Vested benefit as otherwise provided herein;
rather, the Participant's Accrued Benefit shall be totally forfeited in
accordance with Section 10.05. A Participant covered by this Section who termi-
nates employment with 2 or more Years of Service, however, shall have a Vested
right to a benefit under the Plan.
(b) Date. Payment of a Participant's Deferred Vested Benefit shall
commence as of the date that would have been his Normal Retirement Date if he
had remained in employment until Normal Retirement Age. However, a terminated
Participant shall be permitted to receive his benefit at any time after
terminating employment upon filing a written request for payment with the Plan
Administrator, specifying the month in which payment is to begin or be made, and
consenting to early commencement of payments pursuant to Section 9.01.
(c) Amount. A Participant's benefit under this Section shall be equal
to the Actuarial Equivalent of the product of his Account Balance, determined as
of the date his benefit becomes payable, and the Participant's Vested percentage
determined under subsection (d), or if greater, the vested portion of the
Accrued Benefit described in Section 4.01(a), subject to adjustments for
optional forms of payment.
(d) Vesting Schedule. A Participant's Vested interest in his Account
Balance shall be determined as follows:
Participant's Vested
Years of Service Percentage
---------------- ----------
Less than 2 0%
2 25%
3 50%
4 75%
5 or more 100%
The non-Vested portion of the Participant's Account Balance, if any,
shall be forfeited in accordance with Section 10.05.
4.08 Deductions for Retiree Medical Premiums. With respect to those
individuals to whom a benefit continues to be payable under the Plan, there
shall be deducted from one or more benefit payments payable to any such retired
Participant (upon his written authorization and direction) electing hospital,
medical, surgical, or other similar coverage as provided in a plan of the
Employer and as authorized by the Employer, an amount equal to the amount of the
required retiree contributions as may be established from time to time for such
coverage. The amount so deducted may be withheld from each or any payment
payable to such retired Participant in the Plan Year to which such deduction
applies or, if such amounts are payable with respect to a Participant who is
then entitled but has elected not to receive benefits payable to him under the
Plan, amounts shall be paid from the Fund at the end of the Plan Year to which
such deduction applies and a corresponding amount shown as a debit to such
Participant's Account Balance. The Trustee may pay any such amounts directly to
the insurance company or any other organization (including the Employer)
responsible for paying such benefits, as directed by the Plan Administrator.
ARTICLE 5
PAYMENT OPTIONS AND DEATH BENEFITS
----------------------------------
This Article sets forth the various options for payment of benefits
payable under Article 4 and describes benefits payable in the event of a
Participant's death both before and after retirement. The commencement and form
of benefit payments hereunder are subject to the special rules in Section 9.01.
5.01 Payment of Retirement Benefits.
-------------------------------
(a) Normal Form of Benefit. The normal form of retirement benefit
under the Plan is a lifetime annuity, as described in subsection (b)(1) below.
(b) Benefit Options. A Participant may, subject to the rules in
subsections (c) and (d) below, elect any one of the following options for
payment of his retirement benefit, each of which shall be the Actuarial
Equivalent of the Participant's Account Balance at the time benefit payments are
to commence. However, if the lump sum benefit as described in paragraph (4) is
greater than the Participant's Account Balance, the amount of an annuity shall
be the Actuarial Equivalent of such lump sum amount.
(1) Lifetime Annuity. This option provides equal monthly
payments for the lifetime of the Participant, with no further
payments after death.
(2) Joint and Survivor Annuity. This option provides equal
monthly payments for the lifetime of the Participant, with
continuing monthly payments after the Participant's death and for
the lifetime of the Participant's surviving spouse, with each
monthly payment after the Participant's death equal to 50 percent
(50%) of the monthly amount payable before the Participant's
death.
(3) Term Certain Annuity. This option provides monthly
payments over a specified term of years not to be less than 2
years and not to exceed 15 years.
(4) Lump Sum Payment. This option is a single sum payment
equal to the greater of the Participant's vested Account Balance
as of the date the benefit becomes payable or the Actuarial
Equivalent of the Accrued Benefit. The Accrued Benefit for such
purpose shall be determined under Section 4.01(a) and the
Actuarial Equivalent of the vested Accrued Benefit shall be
determined using the PBGC immediate and deferred interest rates
for the valuation of lump sum benefits in effect on the first day
of the Plan Year that the benefit becomes payable.
(c) Automatic Option. Unless a contrary election has been made
pursuant to subsection (d) below for another option:
(1) The automatic option for any Vested Participant, who has
been married for at least one year on his benefit starting date,
shall be the 50 percent (50%) joint and survivor annuity
described in (b)(2) above. A Participant who has been married for
less than one year on his benefit starting date shall
nevertheless be deemed to have been married for one year on such
date. Provided, that if the Participant and his spouse do not
remain married for at least one year the Participant shall be
treated as not having been married on his benefit starting date,
his spouse shall have no right to a survivorship benefit under
the Plan and the Participant shall be permitted to elect a
different payment option with respect to payments to be made
following the termination of the marriage, unless otherwise
provided in a "qualified domestic relations order" as defined in
ERISA Section 206(d)(3)(B).
(2) The automatic option for any Vested Participant who is
not married on his benefit starting date shall be the lifetime
annuity.
(d) Election. A Participant may elect an option for payment of
retirement benefits, waive the automatic option of subsection (c) above, revoke
an option or a waiver of the automatic option, or change any previous
election, waiver, or revocation at any time within 90 days of the starting
date of his benefit under the Plan. Such action shall be taken by filing an
election form (as prescribed and provided by the Plan Administrator) with the
Plan Administrator. The election form must be signed by the Participant, and if
it waives the automatic option of subsection (c) above, and the Participant is
married, the Participant's spouse must consent in writing to the waiver which
must either (1) designate a distribution option (and a Beneficiary, if
applicable) that cannot be changed without subsequent spousal consent, or (2)
expressly permit designations by the Participant without any requirement of
further consent by the spouse.
The spouse's consent to a waiver must clearly indicate the spouse's
consent to the waiver and acknowledge its effect. The spouse's signature must be
witnessed by an unrelated representative of the Plan or by a notary public.
An election or revocation of an election under this Article 5 shall be
effective and shall be irrevocable upon the commencement of benefits pursuant to
such election or revocation.
(e) Notice. Within a reasonable time before the starting date of a
Participant's retirement benefit (and within any time limits prescribed by
regulations under the Code), the Plan Administrator shall provide the
Participant with a written notice explaining the terms and conditions of each
option, and in particular, of (1) the automatic 50 percent (50%) joint and
survivor annuity for married Participants, (2) the Participant's right to make,
and the effect of, a waiver of the automatic option, (3) the right of the
Participant's spouse to consent or not to consent to such a waiver, and (4) the
right to make, and the effect of, a revocation of a previous waiver or election.
(f) Definitions. For purposes of this Section 5.01 and Section 5.02,
the "starting date" of a Participant's benefit means the date his benefit is
first payable under the terms of the Plan whether or not benefit payments
actually have commenced or, in the case of a benefit not payable in the form of
an annuity, the date all events have occurred which entitle the Participant to
his benefit under the Plan.
5.02 Payment of Death Benefits.
--------------------------
(a) Death Prior to Annuity Starting Date. In the event that a
Participant shall die prior to his annuity starting date, his Beneficiary shall
be entitled to receive, in a single lump sum payment, the Participant's
accumulated Account Balance as provided under Section 4.02, determined as of the
Participant's date of death. The Beneficiary of a married Participant shall be
such Participant's spouse unless such spouse consents to the designation of
another Beneficiary, as provided in Section 5.01. Notwithstanding the foregoing,
if a Participant's spouse is eligible to receive a preretirement survivor
benefit under subsection (b) below, the provisions of subsection (b) shall be
applicable in lieu of the provisions of this subsection except that the amount
of the preretirement survivor benefit shall be a single life annuity for the
life of the spouse that is an Actuarial Equivalent of the Account Balance as
of the date the preretirement survivor benefit becomes payable.
(b) Survivor Annuity.
-----------------
(1) If a Participant dies--
(A) with a Vested benefit or while an Employee,
(B) before an annuity starting date,
(C) and is survived by a spouse to whom the Participant has
been married throughout the one-year period ending on the
Participant's death, then a preretirement survivor annuity shall
be payable to the surviving spouse for the spouse's lifetime.
(2) The preretirement survivor annuity shall begin on the first
day of the month following the Participant's death or such later date
elected by the spouse but not later than the date the Participant
would have attained his Normal Retirement Date.
(3) The amount of the preretirement survivor annuity shall be
equal to the amount that would have been payable to the surviving
spouse if the Participant had begun retirement benefits payable in the
form of a 50 percent (50%) joint and survivor annuity on the date the
preretirement survivor annuity is to begin, and the Participant then
died.
(4) In lieu of the preretirement survivor annuity, the spouse may
elect a lump sum benefit which is an Actuarial Equivalent of the
survivor annuity.
(c) No Other Death Benefits. Other than the benefits described above,
or the benefit payable to a Participant's Beneficiary pursuant to a retirement
benefit option elected or deemed elected by a Participant, no benefits shall be
paid from the Plan to any person after the death of a Participant, whether death
occurs before or after retirement.
5.03 Cash Out of Benefits.
---------------------
(a)(1) Involuntary Cash Out. Subject to Section 5.07(a)(3) (direct
rollovers), as soon as practicable following a Participant's retirement or other
termination of employment with the Employer, the Plan Administrator shall
make a lump sum distribution to the Participant, or in the case of the
Participant's death, to the Participant's Beneficiary, of any Vested retire-
ment benefit or survivor benefit, regardless of the Participant's or
Beneficiary's election, provided that such lump sum does not exceed $3,500. No
such distribution may be made, however, without the consent of the Participant
and the Participant's spouse after the starting date of the Participant's
retirement benefit under the Plan, or without the consent of the Participant's
surviving spouse if the Participant has died and the survivor annuity has
commenced. The nonvested portion of such benefit, if any, will be treated as a
forfeiture. For purposes of this Section, if the value of a Vested retirement
benefit or survivor benefit is zero, the Participant shall be deemed to have
received a distribution of such Vested retirement benefit or survivor benefit.
(2) Voluntary Cash Out. If the value of a Vested retirement benefit or
survivor annuity exceeds $3,500 if it were payable as a lump sum benefit, the
Plan Administrator may make an immediate lump sum distribution of the entire
value of the Vested benefit, but only with the written consent of the
Participant and his spouse, or in the case of the Participant's death, with the
consent of the Participant's surviving spouse. The nonvested portion of such
benefit, if any, will be treated as a forfeiture.
A Participant who is eligible to elect the voluntary cash out
described above may elect an immediate annuity, from the optional forms provided
by Section 5.01(b), in lieu of an immediate cash out of his Vested benefit.
(b) Determination of Amount of Benefits. The amount of any Vested
benefit cashed out under this Section shall be computed in accordance with
Section 5.01(b)(4).
(c) Spouse's Consent. The spouse's consent required under this Section
must be in writing, clearly indicating the spouse's consent and acknowledging
its effect, with the spouse's signature witnessed by an unrelated representative
of the Plan or by a notary public.
(d) Timing and Effect. If a Participant's Accrued Benefit is cashed
out in accordance with this Section, then the non-vested portion of such Accrued
Benefit shall be forfeited, provided that such cash-out distribution is made no
later than the close of the second Plan Year following the Plan Year in which
the Participant's employment terminates. If the cash-out distribution occurs
after the close of such second Plan Year, and if the Participant later returns
to covered employment under the Plan, and the non-vested portion of the
Participant's Accrued Benefit shall not be forfeited, but the Participant's
final Accrued Benefit shall be reduced by the amount previously cashed out under
this Section.
5.04 Beneficiary Designations.
-------------------------
Every Participant shall have the right to designate a Beneficiary (or
Beneficiaries) to receive any benefit that is payable under the Plan upon his
death. The designation shall specify the share to be received by each
Beneficiary and shall indicate how any remaining benefit is to be paid in the
event of the death of the designated Beneficiary. The designation may be changed
from time to time by the Participant by filing a new designation.
If a Participant fails to designate a Beneficiary, or if all
designated Beneficiaries predecease the Participant, any death benefit still
payable under the Plan shall be paid to the Participant's surviving spouse, or
if there is no surviving spouse, then to the Participant's estate. If a
Beneficiary survives the Participant but fails to collect all amounts payable on
behalf of the Beneficiary, the balance shall be paid to the Beneficiary's
estate.
A Participant's designation of Beneficiary shall be made on a form
prescribed by, provided by, and filed with the Plan Administrator. In any case
where the Participant is married and has designated a primary Beneficiary other
than his spouse, the designation form must be signed by the Participant's
spouse, indicating the spouse's consent to the designation and acknowledgment
of its effect, and the spouse's signature must be witnessed by an unrelated
representative of the Plan or by a notary public.
5.05 Payment of Small Amounts. Notwithstanding any provision of the
Plan to the contrary, if any Accrued Benefit has value which is less than or
equal to $3,500 if it were payable as a lump sum benefit, the Plan Administrator
may authorize actuarially equivalent payments on a quarterly, semi-annual or
lump sum basis.
5.06 Distribution of Annuity Contract. The Plan Administrator may, in
its sole discretion, direct the distribution of a nontransferable annuity
contract to a Participant, or in the case of death benefit payments, to his
Beneficiary. Any such contract shall provide for payments in a form and amount
identical to the form and amount of benefits due the Participant or Beneficiary
under the provisions of this Plan, and at the option of the Plan Administrator,
such contract shall be made noncommutable before its delivery to the Participant
or Beneficiary. Delivery of such contract shall be in full satisfaction of the
Participant's or Beneficiary's rights under the Plan, and the Participant or
Beneficiary shall no longer have any interest in the trust Fund but shall look
solely to the insurer issuing such contract for the payment of his benefits.
5.07 Direct Rollovers; Withholding.
------------------------------
(a) Direct Rollovers.
(1) In General. In the case of a distribution (or a withdrawal)
that would be an eligible rollover distribution within the meaning of
Code Section 402 if made to the Participant or Beneficiary
("distributee"), the distributee may elect (subject to spousal consent
requirements if applicable) to the extent required by law and
regulation and in the manner prescribed by the Committee, to have such
distribution paid directly to an eligible retirement plan (as defined
in Code Section 401(a)(31)). The amount of such direct rollover shall
be limited to the amount of the eligible rollover distribution which
would otherwise be includible in the distributee's gross income in
the absence of a direct transfer and without regard to the rollover
rules of Code Sections 402 and 403. No election may be made by a
distributee pursuant to this Section unless the distributee has
received the notice prescribed by paragraph (2).
(2) Notice. The Committee shall furnish to a distributee a
written notice at the time prescribed in paragraph (3) which
describes--
(A) the rules under which the distributee may elect to have
an eligible rollover distribution paid in a direct rollover to
an eligible retirement plan;
(B) the rules that require withholding of tax on the
eligible rollover distribution if it is not paid in a direct
rollover;
(C) the rules under which the distributee will not be
subject to tax if the distribution is contributed to an eligible
retirement plan within 60 days of the distribution; and
(D) if applicable, special rules regarding the taxation of
the distribution as specified in Code Sections 402(d) and (e)
(relating to income averaging and other tax rules).
(3) Notification Period. The notice required by paragraph (2)
shall be furnished to the distributee not more than 90 days and not
less than 30 days before the Benefit Starting Date. The Plan shall
make no payment for 30 days following the date the Participant has
been furnished with the notice unless the distribution is subject to
Section 6.1(b)(2) (cash out of small benefits) and the Participant,
after receipt of the notice, has affirmatively elected to make or not
to make a direct rollover, but in no event shall the Plan make a
distribution before the date benefits are otherwise payable under the
rules of the Committee.
(b) Withholding. In the case of an eligible rollover distribution
which is not directly transferred to an eligible retirement plan pursuant to
subsection (a), the Plan shall reduce the amount of the distribution by the
amount of the tax required to be withheld by law and regulations.
ARTICLE 6
FINANCING
---------
6.01 Trust Agreements.
-----------------
The Employer shall execute a trust agreement establishing a Trust to
hold contributions to the Plan and earnings thereon for the payment of all or
any part of the benefits under the Plan. The trust Fund shall be segregated from
the Employer's own assets and held by the Trustee under the terms of the trust
agreement. Any trust agreement shall constitute a part of this Plan and all
rights which may accrue to any person under this Plan shall be subject to all
the terms and provisions of such trust agreement. The Employer may from time to
time modify any trust agreement to accomplish the purpose of the Plan and may
replace any Trustee and appoint a successor Trustee.
6.02 Trust Funds; Exclusive Benefit of Participants and Beneficiaries.
-----------------------------------------------------------------
Except as provided in Sections 6.04 and 6.05, it shall be impossible
for any part of the corpus or income of the trust Fund to be used for or
diverted to purposes other than for the exclusive benefit of the Participants
and their Beneficiaries.
6.03 Contributions.
--------------
The Employer shall make such contributions to the trust Fund as shall
be required under accepted actuarial principles to meet the minimum funding
standard requirements of Code Section 412, subject to the right of the Employer
to discontinue the Plan. Forfeitures arising under the Plan for any reason shall
be used to reduce the Employer's contributions under the Plan.
6.04 Expenses.
---------
The compensation of the Trustee, any reasonable and proper attorneys'
or management fee incurred in the administration of the trust Fund or other
reasonable and proper Plan expenses shall be paid by the Trust, to the extent
that they are not paid directly by the Employer.
6.05 Nonreversion.
-------------
The Employer shall have no right, title, or interest in the
contributions made to the trust Fund under the Plan and no part of the trust
Fund shall revert to the Employer, except that--
(a) Upon termination of the Plan and the allocation and distribution
of the trust Fund as provided in this Plan, any funds remaining in the trust
Fund after the satisfaction of all fixed and contingent liabilities under the
Plan shall, to the extent permitted by law, revert to the Employer.
(b) If a contribution is made to the trust Fund by the Employer by a
mistake of fact, then such contribution (adjusted for losses but not gains)
may be returned to the Employer within one year after the payment of the
contribution.
(c) If any part or all of a contribution is disallowed as a deduction
under Section 404 of the Code, then to the extent the contribution is disallowed
as a deduction, such disallowed portion (adjusted for losses but not gains)
shall be returned to the Employer within one year after the disallowance
pursuant to rules of the Internal Revenue Service.
(d) If, subsequent to the initial effective date of the Plan, the
Commissioner of Internal Revenue or his representative issues a determination
letter stating that the Plan does not initially qualify under Section 401(a) of
the Code, any contribution made to the Plan by the Employer and to which the
letter relates may be returned to the Employer, but only if an application for
determination on qualification of the Plan under Code Section 401(a) has been
made by the time prescribed by law for filing the Employer's federal income tax
return for the taxable year in which the Plan is adopted, or such later date as
the Secretary of the Treasury may prescribe.
ARTICLE 7
ADMINISTRATION
--------------
7.01 The Committee and Plan Administrator.
-------------------------------------
(a) The Company shall be the "Plan Administrator" of the Plan as used
in ERISA. The Compensation Committee of the Board of Directors of the Company
shall appoint a Plan Administration Committee consisting of three or more
members which shall be responsible for carrying out the Company's duties as Plan
Administrator and (except for duties specifically vested in the Trustee) for the
administration of the provisions of the Plan. Such Committee shall be the "named
fiduciary" under the Plan within the meaning of such term as used in ERISA for
plan administration.
(b) The Compensation Committee shall have the right at any time, with
or without cause, to remove any member of the Committee. A member of the
Committee may resign and his resignation shall be effective upon delivery of
his written resignation to the Company. Upon the resignation or removal of a
member, or the failure or inability for any reason of any member of the
Committee to act hereunder, the Compensation Committee shall appoint a successor
member. All successor members of the Committee shall have all the rights,
privileges, and duties of their predecessors, but shall not be held accountable
for the acts of their predecessors.
(c) Any member of the Committee may, but need not, be an employee or a
director, officer, or shareholder of the Employer or an Affiliate, and such
status shall not disqualify him from taking any action or render him accountable
for any distribution or other material advantage received by him under the
Plan, provided that no member of the Committee who is a Participant or
Beneficiary in the Plan shall take part in any action of the Committee on any
matter involving solely his rights under the Plan.
(d) Promptly after the appointment of the original members of the
Committee and from time to time thereafter, promptly after the appointment of
any successor member of the Committee, the Trustee shall be notified in writing
by the Company as to the names of the persons appointed as members or successor
members of the Committee.
(e) The members of the Committee shall elect one of their number as
chairman and shall elect a secretary who may, but need not, be a member of the
Committee. All resolutions, proceedings, acts, and determinations of the
Committee shall be recorded by the secretary or under his supervision, and all
such records, together with such documents and instruments as may be necessary
for the administration of the Plan, shall be preserved in the custody of the
secretary.
7.02 Manner of Action.
-----------------
A majority of the members of the Committee at the time in office shall
constitute a quorum for the transaction of business. All resolutions adopted,
and other actions taken by the Committee at any meeting shall be by vote of a
majority of those present at any such meeting and constitute a quorum. Upon
concurrence in writing of a majority of the members at the time in office,
action of the Committee may be taken without a meeting.
7.03 Authority and Duties of the Committee.
--------------------------------------
(a) The Committee shall have the duties described in the Plan and the
duty and authority to interpret and construe the Plan, and to make all
determinations, in regard to all questions of eligibility, the status, and
rights of Participants, Beneficiaries and other persons under the Plan, and
the manner, time, and amount of payment of any distributions under the Plan. The
Committee shall make any findings of fact necessary for the determination of any
benefit payable by the Plan. The Employer shall, from time to time, upon request
of the Committee, furnish to the Committee such data and information as the
Committee shall require in the performance of its duties.
(b) The Committee shall direct the Trustee to make payments of amounts
to be distributed from the trust Fund.
(c) The members of the Committee and any other named fiduciaries under
the Plan may allocate their responsibilities among themselves and may designate
any individual, partnership, or corporation to carry out any of their
responsibilities. Any such allocation or designation shall be reduced to writing
and such writing shall be kept with the records of such named fiduciary.
(d) The Committee may adopt such rules and procedures as it deems
desirable for the conduct of its affairs and the administration of the Plan,
provided that any such rules and procedures shall be consistent with the
provisions of the Plan and ERISA.
(e) The Committee may employ such counsel (who may be counsel for the
Employer or the Company) and agents and may arrange for such clerical and other
services as it may require in carrying out the provisions of the Plan. The
Committee shall be entitled to rely upon, and shall be fully protected in any
action taken by it in good faith reliance upon any opinions or reports of such
counsel and agents and the actuary and accountants appointed by the compensation
committee of the Board and any information received from the Employer or
Trustee.
7.04 Compensation and Expenses of the Committee.
-------------------------------------------
A member of the Committee shall serve without compensation for
services as such if he is an Employee of the Company or an Affiliate. He may
receive reimbursement from the trust Fund or from the Company or the Employer of
expenses properly and actually incurred. All administrative expenses incurred by
the Committee, or a member thereof, in carrying out the duties of the Committee,
shall be paid by the trust, the Company, or the Employer pursuant to Section
6.04.
7.05 Application for Benefits.
-------------------------
Each person eligible for a benefit under the Plan shall apply for such
benefit by signing an application form to be furnished by the Committee. Each
such person shall also furnish the Committee with such documents, evidence,
data, or information in support of such application as it considers necessary or
desirable.
7.06 Denial of Claims.
-----------------
(a) Initial Denial. If any claim for benefits is wholly or partially
denied, the Committee shall furnish a written notice to a claimant of the
adverse decision within 90 days after receipt of the claim, unless special
circumstances require an extension of time for the processing of the claim. If
such an extension is required, a written notice of the extension shall be
furnished to the claimant before the termination of the initial 90-day period.
In no event shall the extension exceed a period of 90 days after the expiration
of the initial period. The extension notice shall indicate the special
circumstances requiring the extension and the date by which the Committee
expects to render a decision.
The notice of an adverse decision shall state in a manner calculated
to be understood by the claimant--
(1) the specific reasons for the denial;
(2) a specific reference to pertinent Plan provisions on which
the denial is based;
(3) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of
why such material or information is necessary; and
(4) appropriate information as to the steps to be taken if the
Participant or Beneficiary wishes to submit his claim for review.
(b) Appeal Procedure. Within 65 days after the receipt by the claimant
of the written notification of a denial of a claim, the claimant may file with
the Committee a written request to review the denial of the claim, request
pertinent documents, and submit issues and comments in writing. A final decision
by the Committee on the claim shall be made no later than 60 days after the
receipt of the request for review, unless special circumstances require an
extension. Such extension shall not exceed 60 additional days. The decision
shall be in writing, shall include reasons for the decision (including specific
references to pertinent Plan provisions), and shall be written in a manner
calculated to be understood by the claimant.
7.07 Indemnity for Liability.
The Employer or the Company shall jointly and severally indemnify each
Employee, each member of the Committee, and each member of the Board of
Directors who is a fiduciary of the Plan or trust from the effects and
consequences of their acts, omissions, and conduct as such fiduciaries, except
to the extent that such effects and consequences shall result from their own
gross negligence or willful misconduct.
ARTICLE 8
AMENDMENT, TERMINATION, AND MERGER
----------------------------------
8.01 Amendments to Conform With Law.
-------------------------------
The Employer reserves the right to make by amendment such changes in,
additions to, and substitutions for the provisions of the Plan, to take effect
retroactively or otherwise, as is deemed necessary or advisable for the purpose
of conforming the Plan to Section 401 of the Code or to any other present or
future federal law and regulations relating to trusts and plans of this or
similar nature.
8.02 Other Amendments and Termination.
---------------------------------
The Employer also reserves the right to amend the Plan at any time,
and from time to time, in any manner which it deems desirable including, but not
by way of limitation, to change or modify benefits payable under the Plan, and
to change any provision relating to the distribution or payment, or both, of
any of the assets of the Trust. The Employer further reserves the right to
terminate this Plan pursuant to ERISA Section 4041.
8.03 Form of Amendment.
------------------
Any amendment shall be made by an instrument in writing, signed by a
duly authorized officer or officers of the Employer certifying that said
amendment has been authorized by the Board of Directors.
8.04 Limitations on Amendments.
--------------------------
The provisions of this Article are subject to and limited by the
following restrictions:
(a) No amendment shall operate either directly or indirectly to give
the Employer any interest whatsoever in any funds or property held by the
Trustee, or to permit corpus or income of the trust to be used for or diverted
to purposes other than the exclusive benefit of persons who are Participants or
Beneficiaries, except as provided in Sections 6.04 and 6.05 (relating to
expenses and reversions to the Employer).
(b) Except as provided in Section 412(c)(8) of the Code or to conform
to the requirements of law and regulation or as permitted by Treasury
regulations, no amendment shall operate either directly or indirectly to deprive
any Participant of his nonforfeitable interest in his Accrued Benefit. For the
purpose of the preceding sentence, the right to an early retirement benefit, a
retirement-type subsidy (as defined by Treasury regulations), or an optional
form of benefit shall be treated as an Accrued Benefit with respect to benefits
attributable to service before the amendment, except as provided in Treasury
regulations.
(c) If the Employer amends the vesting schedule, each Participant
having at least three Years of Service with the Employer may elect to have the
percentage of his nonforfeitable Accrued Benefit computed under the Plan without
regard to the amendment. The election period shall begin on the date the Plan
amendment is adopted and end on the latest of the following dates:
(1) the date which is 60 days after the day the Plan amendment is
adopted,
(2) the date which is 60 days after the day the Plan amendment is
effective, or
(3) the date which is 60 days after the day the Participant is
issued written notice of the Plan amendment by the Employer.
(d) The Employer shall provide security to the Plan as provided under
Section 401(a)(29) of the Code if (1) it adopts an amendment to the Plan that
has the effect of increasing the current liability of the Plan (as defined in
Section 412(l) of the Code) for the Plan Year and (2) the funded current
liability percentage of the Plan (as defined in Section 412(l) of the Code) is
less than 60 percent (60%) (including the amount of the unfunded current
liability under the Plan attributable to the amendment).
(e) No amendment providing for a significant reduction in the rate of
future benefit accruals shall be effective unless, after adoption of the
amendment and not less than 15 days before the effective date, the Employer
provides a written notice to affected persons pursuant to ERISA Section 204(h).
8.05 Allocation and Distribution on Termination.
-------------------------------------------
Upon a termination or a partial termination of the Plan, the rights of
the Participants who are employed by the Employer or an Affiliate on the date of
termination (and who in the case of a partial termination are affected thereby)
to the Accrued Benefits under the Plan to the date of such termination shall be
nonforfeitable to the extent then funded; provided, however, that in no event
shall any Participant or Beneficiary have recourse to other than the trust Fund
and, if applicable, the Pension Benefit Guaranty Corporation for payment of any
benefit under the Plan. In the event of a termination, an affected Participant
who has not attained the Early or Normal Retirement Age shall be deemed to have
satisfied the eligibility requirements for a deferred Vested benefit.
In the event of a termination of the Plan, the benefit of any highly
compensated Participant and any former highly compensated Participant (as
defined in Section 414(q) of the Code), shall be limited to a benefit that is
nondiscriminatory within the meaning of Section 401(a)(4) of the Code.
In the case of a partial termination of the Plan, assets shall be
allocated with respect to the benefits (to the extent funded) of the group of
Participants affected by the partial termination in accordance with the
requirements of regulations.
In the case of a complete termination of the Plan, the assets then
held in the trust Fund shall be allocated, after payment of all expenses of
administration or liquidation, in the manner prescribed by ERISA Section 4044.
If any assets remain, they shall revert to the Employer as provided in Section
6.05.
Distribution may be implemented through the continuance of the trust
Fund, the creation of a new trust fund for that purpose, by purchase of
nontransferable annuity contracts, a cash distribution, or by a combination
thereof, subject to the requirements of the Pension Benefit Guaranty
Corporation.
8.06 Merger.
-------
Notwithstanding any other provision of the Plan to the contrary, in
the case of any merger or consolidation of the Plan with, or transfer of assets
or liabilities of the Plan to, any other plan, each Participant shall, if the
transferee plan were then terminated, receive a benefit immediately after the
merger, consolidation or transfer which is equal to or greater than the benefit
he would have been entitled to receive immediately before the merger,
consolidation or transfer if the Plan had then been terminated.
ARTICLE 9
SPECIAL RULES
-------------
9.01 Limitations on Commencement and Form of Benefit Payments.
---------------------------------------------------------
(a) General Rule for Latest Commencement of Benefit Payments. In no
event shall payment of benefits to a Participant commence later than the 60th
day after the close of the Plan Year in which the latest of the following
occurs: (1) the date on which the Participant attains Normal Retirement Age; (2)
the date which is the 10th anniversary of the day the Participant commenced
participation in the Plan; (3) the date the Participant terminates employment
with the Employer and all Affiliates; or (4) the date specified by the
Participant in an election made pursuant to subsection (b) of this Section.
(b) Election for Early or Delayed Commencement of Benefit Payments.
Any election by a Participant for a benefit commencement date later than the
date specified by subsection (a), must be made by submitting to the Plan
Administrator a written statement, signed by the Participant, which describes
the benefit and the date on which payment of such benefit shall commence. The
Plan Administrator may prescribe a form to be used by Participants for this
purpose. Commencement of benefits may not be delayed by a Participant beyond age
70 1/2.
Except as provided in Section 5.03(a)(1), no payment of a benefit
prior to the Normal Retirement Date shall be made unless the Participant elects
in writing to receive the benefit after being furnished pursuant to regulations
with a written explanation of his right to defer the start of benefits to his
Normal Retirement Date.
(c) Overriding Rules. Notwithstanding any other provision of the Plan,
the commencement and form of benefit payments to a Participant or his
Beneficiary shall be governed by the following distribution rules--
(1) In no event shall payment of benefits to a Participant prior
to his death commence later than the April 1st following the calendar
year in which the Participant attains age 70 1/2.
(2) Such payment shall be made:
(A) in the form of a lump sum distribution, if otherwise
available under the Plan, which is the actuarial equivalent of
the Participant's Vested Accrued Benefit, or
(B) in accordance with regulations prescribed by the
Secretary of the Treasury, in the form of a lifetime annuity for
the life of such Participant or for the joint lives of such
Participant and his Beneficiary, or
(C) in accordance with such regulations, in the form of
periodic payments for a period which does not exceed the life
expectancy of the Participant or the life expectancy of the
Participant and his Beneficiary.
(3) If the Participant's Vested Accrued Benefit is to be
distributed in other than a lump sum, then the amount to be
distributed each year must be at least equal to the quotient obtained
by dividing the lump sum actuarial equivalent of the Participant's
entire Vested Accrued Benefit at the beginning of each Plan Year by
the life expectancy of the Participant or joint life expectancy of the
Participant and designated Beneficiary. Life expectancy and joint
life expectancy are computed by the use of the return multiples
contained in Section 1.72-9 of the Treasury Regulations. For pur-
poses of this computation, a Participant's and spouse's life
expectancy may be recalculated no more frequently than annually; the
life expectancy of a non-spouse Beneficiary may not be recalculated.
If the Participant's spouse is not the Beneficiary, the method of
distribution selected must satisfy the requirements of Section
1.401(a)(9)-2 of the Treasury Regulations.
(4) Upon the death of a Participant, the following distribution
provisions shall take effect:
(A) If the Participant dies after distribution of his
benefit has commenced, the remaining portion, if any, of such
benefit will continue to be distributed at least as rapidly as
under the method of distribution being used prior to the
Participant's death.
(B) If the Participant dies before distribution of his
benefit has commenced, the Participant's entire Vested interest
under the Plan, if any, will be distributed no later than five
years after the Participant's death except to the extent that an
election is made to receive distributions in accordance with (i)
or (ii) below:
(i) If any portion of the Participant's interest is
payable to a Beneficiary, distributions may be made in
substantially equal installments over the life or life
expectancy of the Beneficiary commencing no later than one
year after the Participant's death;
(ii) If the Beneficiary is the Participant's surviving
spouse, the date distributions are required to begin in
accordance with (i) above shall not be earlier than the date
on which the Participant would have attained age 70 1/2,
and, if the spouse dies before payments begin, subsequent
distributions, if any, shall be made as if the spouse had
been the Participant.
(C) For purposes of (B) above, payments will be calculated
by use of the return multiples specified in Section 1.72-9 of the
Treasury Regulations. Life expectancy of a surviving spouse may
be recalculated annually; in the case of any other Beneficiary,
such life expectancy will be calculated at the time payment first
commences without further recalculation.
(D) For purposes of (A), (B), (C) above, any amount paid to
a child of the Participant will be treated as if it had been paid
to the surviving spouse if the amount becomes payable to the
surviving spouse when the child reaches the age of majority.
9.02 Limitations on Amount of Benefit Payments.
------------------------------------------
(a) Single Plan: (1) Notwithstanding any other provisions of the
Plan, no Participant shall receive benefits in excess of the amount
permitted under Section 415 of the Code, which means that no
Participant shall receive under the Plan, and any other defined
benefit plans maintained by the Employer, benefits, which when
expressed on an annual basis in the form of a straight life annuity
commencing as of the Participant's Normal Retirement Age, exceed the
lesser of (A) the applicable dollar limitation for the limitation
year, or (B) the Participant's average annual compensation for the
three year period during which as an Employee he received the greatest
annual compensation.
(2) For the purposes of this Section, the following terms have
the meanings indicated:
(A) The term "limitation year" means the Plan Year.
(B) The term "applicable dollar limitation" means for any
limitation year, the amount determined in accordance with
regulations issued by the Secretary of the Treasury under Code
Section 415(d), which for the 1992 limitation year shall be
$112,221 as automatically adjusted for cost of living in
subsequent limitation years.
(C) The term "compensation" means, with respect to each
limitation year, a Participant's total wages, salary, bonuses,
overtime, commissions and other amounts received for services
rendered in the course of employment for the Employer, including
amounts received from accident or health insurance for personal
injuries or sickness to the extent includible in the Partici-
pant's gross income, amounts received as disability payments
whether or not includible in the Participant's gross income,
amounts paid or reimbursed by the Employer for moving expenses
to the extent not deductible by the Participant, and amounts
includible in the Participant's gross income for making an
election on the transfer of property in connection with the
performance of services. Items not includible in compensation
include Employer contributions under this Plan or made to any
other deferred compensation plan on behalf of the Participant if
the contributions are not includible in the Participant's gross
income before application of the Code Section 415 limits, amounts
realized from the Participant's exercise of a non-qualified stock
option or from the Participant's transfer of stock acquired under
a qualified stock option, and premiums paid by the Employer on
the behalf of the Participant for group term life insurance to
the extent not includible in the Participant's gross income.
(D) The term "social security retirement age" means the
applicable retirement age of the Participant under Section 216(l)
of the Social Security Act, except that such Section shall be
applied without regard to the age increase factor, and as if
the early retirement age under Section 216(l)(2) of such Act were
62.
(3) Provided, however, no benefit shall be deemed to exceed the
foregoing limitation if when added to the benefits paid to the
Participant from any other defined benefit plan or plans of the
Employer, such total benefits do not exceed $10,000 in any Plan Year
and the Employer has not maintained a defined contribution plan in
which the Employee was a participant.
(4) Provided, further, that the limitations in paragraphs (1) to
(3) above shall be reduced as follows:
(A) In the case of a Participant who has less than 10 Years
of Service under the Plan, the limitations in subsection
(a)(1)(B) above and the $10,000 limitation set out in the
foregoing subsection (a)(3) shall be multiplied by a fraction,
the numerator of which is the number of Years of Service less
than 10 years and the denominator of which is 10 years.
(B) In the case of a Participant who has less than 10 years
of participation under the Plan, the limitation in subsection
(a)(1)(A) above shall be multiplied by a fraction, the numerator
of which is the number of years of participation less than 10
years and the denominator of which is 10 years.
(C) In no event shall the reductions described in this
subsection (a)(4) reduce the limitations in subsections (a)(1)
and (3) above to an amount less than one-tenth (1/10) of the
applicable limitation (as determined without regard to this
subsection (a)(4)).
(5) Notwithstanding the foregoing, if payment of a Participant's
retirement benefit is to commence prior to attainment of the social
security retirement age, the applicable dollar limitation set forth
above shall be adjusted to the equivalent benefit commencing at such
age in a manner provided by Treasury regulations which is consistent
with the reduction for old-age insurance benefits commencing before
the social security retirement age under the Social Security Act.
For purposes of such adjustment, the interest rate assumption shall
not be less than the greater of 5 percent (5%) or the interest rate
specified in the Plan for reducing benefits for early commencement of
payments. Additionally, the applicable dollar limitation shall be
adjusted to the actuarial equivalent of such amount if the retirement
benefit is to commence after attainment of the social security
retirement age. The manner of the adjustment shall be provided by
Treasury regulations based upon an interest rate assumption which
shall not be greater than the lesser of 5 percent (5%) or the interest
rate specified in the Plan for adjusting benefits to reflect late
commencement of payments. If the payment of the retirement benefit
is in a form other than a single life annuity, the applicable dollar
limitation shall be adjusted so that it is an actuarial equivalent of
a single life annuity, determined by applying an interest rate equal
to the greater of 5 percent (5%) or the rate specified in the Plan.
Effective for limitation years beginning after December 31, 1994,
actuarial equivalence under this paragraph shall be computed using the
mortality table prescribed by the Internal Revenue Service pursuant to
Code Section 417(e)(3), and for the purpose of adjusting the
limitation on any form of benefit subject to such Section, the
interest rate determined under such Code Section shall replace "5
percent (5%)" each place it appears in this paragraph.
(b) Defined Contribution Plan also Maintained by the Employer. If the
Employer maintains a defined contribution plan, as defined by Section 3(34) of
ERISA, in addition to this Plan, the otherwise permissible benefits as
determined under this Section, for any Participant who is also a participant in
such defined contribution plan, may be reduced so that the sum of the defined
benefit plan fraction and the defined contribution plan fraction for any
limitation year does not exceed 1.0. For purposes of this subsection, the
following definitions and special rules shall apply:
(1) "defined benefit plan fraction" for any limitation year means
a fraction,
(A) the numerator of which is the projected annual benefit
of the Participant under this Plan (determined as of the close of
the limitation year), and
(B) the denominator of which, for each limitation year is
the lesser of--
(i) the product of 1.25 multiplied by the dollar
limitation on benefits under Code Section 415 in effect for
such year, or
(ii) the product of 1.40 multiplied by the percentage
limitation on benefits under Code Section 415 for such year.
(2) "defined contribution plan fraction" for any limitation year
means a fraction,
(A) the numerator of which is the sum of the total additions
to the Participant's account for all years of his participation
under the defined contribution plan as of the close of the
limitation year, and
(B) the denominator of which is the sum of the lesser of the
following amounts for such year and for all prior years of the
Participant's Years of Service with the Employer:
(i) the product of 1.25 multiplied by the applicable
dollar limitation on total additions under Code Section 415
for such year, or
(ii) the product of 1.40 multiplied by the percentage
limitation on total additions under Code Section 415 for
such year.
(3) "total additions" with respect to each limitation year means
the sum of
(A) Employer contributions, and
(B) forfeitures allocated to the Participant's account in
the defined contribution plan, plus, if the Participant made
any employee contributions under that plan, the total of the
Participant's employee contributions for the limitation year,
(C) in addition, the following amounts shall be treated as
annual additions to a defined contribution plan of the Employer:
amounts allocated to an individual medical account, as de-
fined in Section 415(l)(1) of the Code, which is part of any
pension or annuity plan maintained by the Employer, and amounts
derived from contributions paid or accrued, which are
attributable to post-retirement medical benefits allocated to the
separate account of a key employee, as defined in Code Section
419A(d)(3), under a welfare benefit fund, as defined in Code
Section 419(e), maintained by the Employer.
(4) "employee contributions" means after-tax amounts contributed
to the defined contribution plan by the Participant, excluding
rollover contributions and deductible employee contributions, if any,
as provided by Code Section 415(c)(2).
(c) Multiple Plans. If the Employer maintains one or more other
qualified defined benefit plans, as defined by Section 414(j) of the Code, in
addition to this Plan, or more than one qualified defined contribution plan, as
defined by Section 414(i) of the Code, and any such plan covers one or more
Participants in this Plan, then the limitations of this Section shall be applied
by treating all defined benefit plans, including this Plan, as a single defined
benefit plan, and all defined contribution plans as one defined contribution
plan.
(d) Multiple Employers. If the Employer is a member of a group of
employers constituting (1) a controlled group of corporations (within the
meaning of Code Section 414(b) as modified by Section 415(h)), (2) trades or
businesses, whether or not incorporated, under common control (within the
meaning of Code Section 414(c) as modified by Section 415(h)), or (3) an
affiliated service group (as defined in Code Section 414(m)), and any other
member of such group maintains a plan or plans covering one or more Participants
in this Plan, then the foregoing limitations of this Section, including the
aggregation rules above, shall be applied by treating all the plans of such
other employers as plans maintained by the Employer.
(e) Employee Leasing. If the Employer is provided with services by
leased employees (within the meaning of Code Section 414(n)), then for purposes
of this Section, the leased employees shall be treated as Participants in the
Plan and contributions or benefits provided by the leasing organization which
are attributable to services performed for the Employer shall be treated as
provided by the Employer.
(f) Remedying Excess Benefits and Contributions. The Employer shall
have the right to make any adjustments to the benefits of any Participant under
this Plan or to the contributions under any defined contribution plan which
may be required in order to prevent disqualification under Code Section 415 of
the Plan or any other plan maintained by the Employer. Where adjustments are
required, such adjustments will be made first in the contributions under the
Employer's defined contribution plan.
(g) Notice to Participants. The Employer shall advise affected
Participants of any adjustments to their benefits required by the limitations
under this Section.
9.03 Limitations on Benefit Payments to Certain Highly Compensated
-------------------------------------------------------------
Employees.
- ----------
(a) Distribution Restriction.
-------------------------
(1) In General. Except as provided in paragraph (2), the annual
payments that may be made to a Participant described in subsection
(b) shall be restricted to an amount equal to the payments that would
be made under a single life annuity that is the Actuarial Equivalent
of the sum of the Participant's Accrued Benefit and other benefits
under the Plan.
(2) Exceptions. Distributions shall be made without regard to
paragraph (1) if--
(A) after payment of the benefit to the Participant, the
value of the Plan assets equals or exceeds 110 percent (110%) of
the value of the current liabilities of the Plan (as defined in
Code Section 412(l)(7)),
(B) the value of the benefits to the Participant is less
than 1 percent (1%) of the value of current liabilities, or
(C) the value of the Participant's benefits is less than
$3,500.
(b) Participants Subject to Limitation. The Participants subject to
the restriction of subsection (a) shall be those Participants who are--
(1) highly compensated employees or who are highly compensated
former employees (as defined in Code Section 414(q)), and
(2) within the group of the 25 highest paid of such highly
compensated or highly compensated former employees.
9.04 Top-Heavy Plan Rules.
---------------------
(a) General Rule. If, for any Plan Year, the Plan is a top-heavy plan
as determined under subsection (b), then the requirements in subsection (c)
shall apply to the extent indicated by that subsection. For purposes of this
Section, the term "Employer" shall include any member of a group of employers
constituting (1) a controlled group of corporations (within the meaning of Code
Section 414(b) as modified by Code Section 415(h)), (2) trades or businesses,
whether or not incorporated, under common control (within the meaning of Code
Section 414(c) as modified by Code Section 415(h)), or (3) an affiliated service
group (as defined in Code Section 414(m)).
For purposes of this Section, the term "Employee" means (A) an
Employee as otherwise defined in the Plan, who is or once was a Participant or
who would have been a Participant but for his failure to make mandatory employee
contributions or to receive compensation in excess of a stated amount, and (B)
any Beneficiary of a Participant, but in each case excluding any individual who
is a member of a unit of employees covered by a collective bargaining agreement
under which retirement benefits were the subject of good faith bargaining with
the Employer, unless a member of the bargaining unit is a key employee, in which
case the foregoing exclusion shall not apply.
(b) Top-Heavy Test. The Plan's status as a top-heavy plan for any Plan
Year shall be determined in accordance with the following five step procedure:
(1) Required Plan Aggregation. First, there shall be aggregated
with this Plan (A) each plan of the Employer in which a key employee
is a participant, (B) each other plan of the Employer which enables a
plan described in (A) to meet the requirements of Code
Section 401(a)(4) or Code Section 410, and (C) each plan
described in (A) or (B) which was terminated during the five
consecutive Plan Year period ending with the determination date.
(2) Key Employee Sum. Second, there shall be computed, as of each
determination date, the sum of the present values of the cumulative
accrued benefits of all key employees under all defined benefit plans,
including this Plan, required to be aggregated under (1), and the
account balances of all key employees under all defined contribution
plans required to be aggregated under (1).
For purposes of this computation, the present value of a
cumulative accrued benefit shall be determined as of the most recent
valuation date occurring within a 12-month period ending on the
determination date. The accrued benefit for a current participant
shall be determined as if the individual had terminated employment as
of such valuation date. In the first plan year of a defined benefit
plan, the accrued benefit of a current participant must be determined
as if the individual had terminated employment as of the last day of
the plan year.
For purposes of this computation, account balance means the
account balance as of the most recent valuation date occurring
within a 12-month period ending on the determination date, plus an
adjustment for contributions due as of the determination date. In
the case of a profit sharing plan or other plan not subject to the
minimum funding requirements of Code Section 412, the adjustment is
the amount of any contributions actually made after the valuation date
but on or before the determination date, except that in the first plan
year, the adjustment shall include any contributions made after the
determination date that are allocated as of a date within the first
plan year. In the case of a money purchase pension plan or other plan
subject to the minimum funding requirements of Code Section 412, the
adjustment is the amount of any contributions that would be allocated
as of a date not later than the determination date, even though such
amount is not yet required to be contributed, plus the amount of any
contribution actually made (or due to be made) after the valuation
date but before the expiration of the extended payment period under
Code Section 412(c)(10).
For purposes of this computation: (A) there shall be included in
the sum any distribution (other than rollover amounts or plan-to-plan
transfers not initiated by the Employee or made to another plan main-
tained by the Employer) made to an Employee from this Plan, from
another plan required to be aggregated under (1), or from a terminated
plan which if it had not been terminated would have been required to
be aggregated under (1), within the five-year period ending on the
determination date; (B) there shall be excluded from the sum any
rollover contribution and any plan-to-plan transfer initiated by the
Employee and accepted by this Plan or any other plan required to be
aggregated under (1) from a plan other than one maintained by the Em-
ployer; (C) there shall be excluded from the sum the account balance
and present value of the accrued benefit of any Employee who formerly
was a key employee but who is not a key employee for the year ending
on the determination date; and (D) there shall be excluded from the
sum any amounts attributable to tax deductible employee contributions
made pursuant to Code Section 219; and (E) there shall be excluded
from the sum the present value of the accrued benefit and the account
balance of any individual who has not performed services for the
Employer at any time during the five-year period ending on the
determination date.
(3) All Employee Sum. Third, under the same procedures as set
forth in (2) above, including the special rules in (A), (B), (C), (D)
and (E), there shall be computed the sum of present values of accrued
benefits and account balances for all Employees. For purposes of
this computation, the accrued benefit of an Employee other than a key
employee shall be determined under (A) the method, if any, that is
used for accrual purposes under all plans of the Employer, or (B) if
there is no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under Code Section
411(b)(1)(C).
(4) Top-Heavy Test Fraction. Fourth, the sum computed in (2)
shall be divided by the sum computed in (3), and if the resulting
fraction is 0.60 or less, neither the Plan nor any plan required to be
aggregated under (1) is a top-heavy plan for the Plan Year. If the
fraction is greater than 0.60, both the Plan and any plan required to
be aggregated under (1) are top-heavy plans for the Plan Year, unless
after the permissive plan aggregation described in (5) below, the
recomputed fraction is 0.60 or less.
(5) Permissive Plan Aggregation. At the election of the Plan
Administrator, plans of the Employer, other than those required to be
aggregated under (1), but which provide benefits or contributions com-
parable to this Plan, may be aggregated with this Plan and the plans
required to be aggregated under (1), provided that such aggregated
group would meet the requirements of Code Sections 401(a)(4) and 410.
Steps (2) through (4) above may then be repeated, based on this
permissively aggregated group, and if the top-heavy test fraction
computed in step (4) is 0.60 or less for this group, then neither the
Plan nor any plan required to be aggregated under (1) is a top-heavy
plan for the Plan Year; however, if the top-heavy test fraction
computed in step (4) is still greater than 0.60, both the Plan and any
plan required to be aggregated under (1) will be top-heavy plans for
the Plan Year, but no plan which is permissively aggregated under this
step (5) will be deemed to be top-heavy for such reason.
(c) Superseding Rules. For each Plan Year that the Plan is a top-heavy
plan, the requirements in (1) and (2) below shall supersede any other provisions
of the Plan which otherwise would apply for that Plan Year.
(1) Adjusted Code Section 415 Limitations. In order to reduce the
overall limitations on combined plan contributions and benefits under
Code Section 415, the number 1.00 shall be substituted for 1.25 in the
definitions of defined benefit fraction and defined contribution
fraction in Section 9.02(b)(1) and (2) of the Plan. The foregoing
sentence shall not apply if (A) the top-heavy test fraction in
subsection (b)(4), or the recomputed fraction after applying
subsection (b)(5), is 0.90 or less and (B) each non-key employee
receives an additional minimum benefit or contribution under a plan of
the Employer.
In the case of a non-key employee participating only in this or
another defined benefit plan, the additional minimum benefit for
each year of service counted is one percentage point, up to a maximum
of ten percentage points, of the Employee's average compensation for
the five consecutive years when the Employee had the highest aggregate
compensation from the Employer, computed as described in (2) below.
In the case of a non-key employee participating only in a defined
contribution plan, the additional minimum contribution is 1 percent
(1%) of the Employee's compensation. In the case of a non-key employee
participating in both this or another defined benefit plan and a
defined contribution plan, there is no additional minimum benefit, but
the additional minimum contribution shall be 2 1/2 percent (2 1/2%) of
the Employee's compensation.
(2) Minimum Benefits or Contributions for Non-Key Employee
Participants.
(A) For each Plan Year (or other accrual computation
period) for which this Plan is top-heavy, each non-key employee
Participant who is credited with at least 1,000 Hours of Service
in the Plan Year, and who does not participate in a defined
contribution plan of the Employer, shall accrue a benefit (to be
provided solely by Employer contributions and expressed as a life
annuity commencing at the Participant's Normal Retirement Age) of
not less than 2 percent (2%) of such Participant's highest
average compensation for the five consecutive years during
which such compensation was the highest. The minimum accrual is
determined without regard to any Social Security contribution.
The minimum accrual applies even though under other Plan
provisions, the Participant would not otherwise be entitled to
receive an accrual, or would have received a lesser accrual for
the year because of (i) the Plan's provisions for integration
with Social Security, or (ii) the Participant's failure to make
mandatory employee contributions, if required.
Notwithstanding the foregoing, no further minimum benefit
accruals shall be provided pursuant to this paragraph once the
Participant's accrued benefit attributable to Employer
contributions, expressed as a life annuity commencing at the
Participant's Normal Retirement Age, equals or exceeds 20 percent
(20%) of the Participant's highest average compensation for the
five consecutive years during which such compensation was the
highest. Although accruals of Employer derived benefits, whether
or not attributable to years for which the Plan is top-heavy, may
be used to satisfy this defined benefit plan minimum, all accrued
benefits attributable to employee contributions shall be ignored.
For purposes of the foregoing rules, compensation in years
after the close of the last Plan Year in which the Plan is
top-heavy shall be disregarded. Also for purposes of these rules,
a Participant's benefit accruals under any other defined benefit
plan of the Employer, in which any key employee participates or
which enables another defined benefit plan to meet the
requirements of Code Section 401(a)(4) or Code Section 410, shall
be considered benefit accruals under this Plan.
(B) In the case of any non-key employee Participant who is
also a participant in any defined contribution plan of the
Employer, the foregoing provisions of this paragraph (2) shall be
inapplicable for any Plan Year, provided that Employer
contributions and forfeitures for such Plan Year allocated under
the defined contribution plan on behalf of such non-key employee
Participant are equal to at least (i) 5 percent (5%) multiplied
by (ii) the non-key employee Participant's compensation for the
Plan Year.
(d) Special Definitions. For purposes of this Section, the following
terms shall have the meanings indicated:
(1) "compensation" means compensation as defined in Section
9.02(a)(2)(C).
(2) "determination date" means, with respect to any Plan Year,
the last day of the preceding Plan Year, except that in the case of
the first Plan Year, the determination date shall be the last day in
that Plan Year. Where one or more plans are required or permitted to
be aggregated with this Plan, and where all plan years do not
coincide, the key employee and all employee sums in subsection (b)
above each shall be determined separately for each plan on the
respective determination dates, and the results shall then be combined
for the determination dates falling within the same calendar year.
(3) "key employee" means each Employee or former Employee (and
the Beneficiaries of such individuals) who, at any time during the
Plan Year containing the determination date or during any of the four
preceding Plan Years,--
(A) is an officer of the Employer and who has annual
compensation in the Plan Year greater than 50 percent (50%) of
the applicable dollar limitation of Code Section 415(b)(1)(A) in
effect for the Plan Year;
(B) is one of the 10 Employees owning the largest interests
in the Employer and who has compensation from the Employer
greater than the applicable dollar limitation of Code Section 415
(c)(1)(A) in effect for the calendar year in which the
determination date falls;
(C) owns more than 5 percent (5%) of the outstanding stock
or voting power of all stock of the Employer; or
(D) owns more than 1 percent (1%) of the outstanding stock
or voting power of all stock of the Employer and who has annual
compensation from the Employer of more than $150,000. For
purposes of (A), no more than 50 Employees, or if less, the
greater of 3 Employees or 10 percent (10%) of all Employees,
shall be treated as officers. For purposes of (B), (C) and (D),
the constructive ownership rules of Code Section 318 shall apply
with the modification that 5 percent (5%) shall be substituted
for 50 percent (50%) in Section 318(a)(2). Also, for purposes of
(B), if two Employees have the same interest in the Employer,
the Employee having the greater annual compensation from the
Employer shall be treated as having a larger interest; following
application of this rule, an Employee shall be considered a key
employee, even if he is not among the first 10 largest owners, if
his ownership interest in the Employer is not less than at least
one of the top 10 owners and provided he has the requisite level
of compensation described in (B). Finally, for purposes of (C)
and (D), each employer that otherwise would be aggregated under
this Section's definition of "Employer" shall be treated as a
separate employer to determine ownership percentages.
(4) "non-key employee" means an Employee or former Employee
(and the Beneficiaries of such individuals) who is not a key
employee.
(5) "valuation date" means the date used for computing plan
costs for minimum funding in the case of any defined benefit
plan, including this Plan, and the last day of any of the plan
year in the case of any defined contribution plan.
(e) Anti-Cutback Rule. Notwithstanding the foregoing rules of this
Section, in no event shall any changes in the Plan's benefit structure,
including its vesting provisions, that result from a change in the Plan's
top-heavy status, cause the Accrued Benefit or account balance of any
Participant to be reduced in violation of Code Section 411. In the case of any
changes in the vesting provisions of the Plan, each Participant (1) who has
completed at least three Years of Service and (2) whose Vested rights are
adversely affected by the change, may elect, during the election period, to have
his Vested rights determined without regard to such change. The election period
shall begin on the date the change is adopted or becomes effective, whichever
is earlier, and end on the latest of (A) the date which is 60 days after the day
the change is adopted, (B) the date which is 60 days after the day the change
becomes effective, or (C) the date which is 60 days after the day the
Participant is issued written notice of the change.
9.05 Benefits upon Reemployment and Suspension of Benefits.
------------------------------------------------------
(a) Reemployment Prior to Normal Retirement Date.
(1) If a Participant who previously retired on an Early
Retirement Date pursuant to Section 4.05, a Disability Retirement Date
pursuant to Section 4.06, or terminated employment with a Vested right
to a Deferred Vested Benefit pursuant to Section 4.07, is reemployed
by the Employer prior to receiving any benefit from the Plan and prior
to his Normal Retirement Date, he shall again become a Participant in
the Plan as of his Reemployment Date. The benefit to which such
Participant shall subsequently become entitled to receive from the
Plan shall be based on the Plan in effect as of his subsequent
retirement or termination date.
(2) If a Participant who previously retired on an Early
Retirement Date pursuant to Section 4.05, a Disability Retirement Date
pursuant to Section 4.06, or terminated employment with a Vested right
to a Deferred Vested Benefit pursuant to Section 4.07, is reemployed
by the Employer prior to his Normal Retirement Date but after
beginning to receive benefits from the Plan, he shall again become a
Participant in the Plan as of his Reemployment Date. Any benefit then
being paid to such Participant shall cease as of his Reemployment
Date.
(3) A Participant who terminated employment without a right to a
Vested benefit under Section 4.07 shall have his Years of Service
reinstated only in accordance with the Break in Service rules of
Section 3.02.
(b) Reemployment Subsequent to Normal Retirement Date. If a
Participant who previously retired under the Early, Delayed, Normal, or
Disability retirement provisions of Article 4 or terminated employment with the
Employer under Section 4.07, is reemployed by the Employer after his Normal
Retirement Date, he shall again become a Participant in the Plan as of his
Reemployment Date. Subject to the suspension of the benefit rules of
subsection (c) below, any Plan benefit being paid to such Participant as a
result of his earlier retirement or termination of employment shall cease.
(c) Suspension of Benefit Payments while Employed after Normal
Retirement Date.
(1) Subject to Section 9.01, no benefit under this Plan shall be
paid to a Participant during any calendar month (or any four or five
week payroll period, if applicable) after his Normal Retirement Date
in which such Participant is employed by the Employer for 40 or more
Hours of Service. If a Participant who terminated employment prior to
his Normal Retirement Date is reemployed by the Employer after his
Normal Retirement Date and, subsequent to such reemployment, completes
40 or more Hours of Service for the Employer during any calendar
month, any benefits from this Plan that he had been receiving prior to
his reemployment shall be suspended during such reemployment.
(2) Notwithstanding paragraph (1) above, a Participant's benefit
shall not be withheld or suspended unless the Employer notifies him by
personal delivery or first class mail, during the first calendar month
(or payroll period, if applicable) in which the Plan withholds or
suspends payments, that his benefits are being withheld or suspended.
Such notice shall contain:
(A) a description of the specific reasons why benefit
payments are being suspended,
(B) a general description of Plan provisions relating to the
suspension of payments and a copy of those provisions,
(C) a statement that the applicable Department of Labor
regulations may be found in Section 2530.203-3 of the Code of
Federal Regulations, and
(D) a statement informing the Participant of the Plan's
procedure for reviewing the suspension of his Plan benefits.
(3) In lieu of the detailed notice described in paragraph (2)
above, if the Plan's summary plan description contains substantially
similar information as that required in paragraph (2) above, then the
notification to a Participant whose benefits are to be suspended or
withheld may refer him to the relevant pages of the summary plan
description. However, such Participant must be advised how to obtain a
copy of the summary or the relevant pages thereof. Any request for
such information must be honored within 30 days.
(4) Any Participant who may be affected by a withholding or a
suspension of benefits under this subsection (c) may request a review
by the Plan Administrator of such Participant's particular
situation. Such request for review may pertain to the suspension of
such Participant's benefits or to whether such Participant's specific
employment beyond his Normal Retirement Date constitutes service
sufficient to make the provisions of this subsection (c) applicable to
him. All requests shall be considered in the same manner as reviews
for other claims under the Plan.
(5) Benefit payments that have been suspended or withheld
pursuant to this subsection (c) must again commence to be paid to such
Participant no later than the first day of the third calendar month
following the month in which he ceases to be employed by the Employer
for at least 40 Hours of Service. The initial payment of such resumed
payments shall include the amounts withheld during the period between
the calendar month he ceased working at least 40 Hours of Service and
the calendar month in which payments are resumed (less any applicable
offsets as provided in part (6) below).
(6) In the case of a Participant who is reemployed by the
Employer after his Normal Retirement Date, any benefit payments
received by him in any calendar month subsequent to such
reemployment in which he completed 40 or more Hours of Service, shall
be deducted from any benefit payments he shall subsequently become
entitled to receive as a result of his later retirement. Such
deduction or offset in any calendar month shall not exceed 25 percent
(25%) of that month's total benefit payment which would have been
payable but for the off-set. The 25 percent (25%) limitation referred
to in the preceding sentence shall not apply to the initial payment
described in paragraph (5) above.
9.06 Adoption of Plan by Related Corporations.
-----------------------------------------
Any corporation which is related by ownership to the Employer,
including any subsidiary, direct or indirect, as well as any brother-sister
corporation, may, with the approval of the Employer's board of directors, by
resolution of such related corporation's own board of directors, adopt the Plan.
From and after the date when it shall have become a party to this Plan, any such
subsidiary shall, for all purposes of the Plan, be included within the meaning
of the term "Employer."
Special terms of the Plan, as they shall be applied to the employees
of such adopting corporation, shall be set forth in an Appendix attached to and
made part of the Plan. The Appendix shall set forth only special provisions
relating to such employees, and any other pertinent information or
specifications which would facilitate the effective operation of the Plan with
respect to such employees. All other provisions of the Plan, if not specifically
addressed in the Appendix, shall apply to the employees of the adopting
corporation.
9.07 Transfer Rules. As provided in Article 2, certain classifications
of Employees are excluded from participation in the Plan. An Employee who is
transferred to a covered classification of employment shall become a Participant
on the later of his date of transfer or the date specified in Section 2.02 after
the Employee meets the other requirements for participation under Section 2.01.
If a Participant transfers to employment with the Employer in which he is no
longer covered by the Plan, his Accrued Benefit shall be frozen as of the date
on which his employment status changes, and he shall not be entitled to any
distribution of his Accrued Benefit until his date of retirement or death.
Distribution may then be made in accordance with the provisions of the Plan as
they would otherwise apply to a Participant or his Beneficiary.
9.08 Leased Employees.
-----------------
(a) General Rule. Any leased employee of the Employer shall be
excluded from participation in the Plan but nonetheless shall be counted as an
employee of the Employer for certain Plan purposes as provided in Code Section
414(n). However, except as provided in (c) below, if by reason of counting him
as an employee for certain purposes as required by the preceding sentence (and
after taking into account the contributions and benefits provided by the
leasing organization as described in this subsection), the Plan fails to meet
the requirements of Code Section 401(a) or 410(b), the leased employee will be
eligible to participate in the Plan as if he were a common-law Employee. Years
of Service for such individual shall be calculated in accordance with the rules
set forth in Code Section 414 and the regulations issued thereunder. In all
events, contributions to or benefits provided by any tax qualified plan
maintained by the leasing organization which are attributable to services
performed for the Employer shall be treated as provided by the Employer.
(b) Definitions. For purposes of this Section, the term "leased
employee" means any person (other than an employee of the Employer) who,
pursuant to an agreement between the Employer and any other person ("leasing
organization"), has performed services for the Employer (or for the Employer and
related persons determined in accordance with Code Section 414(n)(6)(A)) on a
substantially full time basis for a period of at least one year, but only if
such services are of a type historically performed by employees in the business
field of the Employer.
(c) Excluded Employees. Except as provided in Treasury regulations,
the Plan participation requirement of subsection (a) of this Section shall not
apply to any leased employee if: (1) such employee is covered by a pension plan
which is maintained by the leasing organization and meets the requirements of
subsection (d) of this Section, and (2) all such leased employees constitute 20
percent (20%) or less of the Employer's nonhighly compensated work force.
For purposes of this Section, the term "nonhighly compensated work
force" means the aggregate number of individuals who are: (i) other than highly
compensated employees of the Employer determined in accordance with Code Section
414(q), and (ii) either (A) employees of the Employer (without regard to
subsection (a) of this Section) and have performed services for the Employer (or
for the Employer and related persons determined in accordance with Code Section
414(n)(6)(A)) on a substantially full time basis for a period of at least one
year, or (B) leased employees of the Employer.
(d) Plan Requirements. A pension plan maintained by a leasing
organization meets the requirements of this subsection if it is a money purchase
pension plan which provides: (1) a nonintegrated employer contribution rate of
at least 10 percent (10%) of compensation, (2) full and immediate vesting, and
(3) immediate participation for each employee of the leasing organization (other
than employees who perform substantially all of their services for the leasing
organization and individuals whose compensation from the leasing organization
during the plan year and each of the three immediately preceding plan years is
less than $1,000).
For purposes of this Section, the term "compensation" means the total
compensation of the leased employee from the leasing organization for the entire
year, as described in Code Section 415(c)(3) and the regulations thereunder,
except that such term shall include (i) amounts excluded from gross income under
Code Section 402(a)(8) or 402(h)(1)(B), (ii) amounts which could have been
received in cash but for an election under a Code Section 125 cafeteria plan,
and (iii) amounts contributed to a Code Section 403(b) annuity contract pursuant
to a salary reduction agreement within the meaning of Code Section
3121(a)(5)(D).
(e) Recordkeeping Relief. Notwithstanding any other provision of the
Plan, if the Employer (1) does not maintain any top-heavy plans within the
meaning of Code Section 416(g) and (2) uses the services of leased employees
only for an insignificant percentage of its total workload, then the Employer
shall be exempt from the employee leasing recordkeeping requirements in
accordance with regulations prescribed by the Secretary of Treasury.
(f) Multiple Employers. If the Employer is a member of a group of
employers which constitutes (1) a controlled group of corporations (within the
meaning of Code Section 414(b)), (2) trades or businesses, whether or not
incorporated, under common control (within the meaning of Code Section 414(c)),
(3) an affiliated service group (as defined in Code Section 414(m)), or any
other group of entities required to be aggregated as prescribed by regulations
under Code Section 414(o), then the foregoing rules of this Section shall be
applied by treating all leased employees of such other employers as leased
employees of the Employer.
ARTICLE 10
MISCELLANEOUS PROVISIONS
------------------------
10.01 Non-Alienation of Benefits.
---------------------------
(a) General Rule. No right or benefit provided for in the Plan shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be
void. No such right or benefit shall be liable for or subject to the debts,
contracts, liabilities, engagements, or torts of any person entitled to such
right or benefit. No such right or benefit shall be subject to garnishment,
attachment, execution or levy of any kind.
(b) Limited Exceptions. Subsection (a) shall not apply to an
arrangement under which a Participant or Beneficiary directs the Plan to pay
all, or any portion, of a Plan benefit payment to a third party (including the
Employer). However, the arrangement must be revocable at any time by the
Participant or Beneficiary. In addition, the payee(s) of any such amounts shall
file a written acknowledgement with the Plan Administrator within 90 days after
the arrangement is entered into with respect to each such retired Participant or
Beneficiary stating that the payee(s) has no enforceable right in or to the
monthly benefit payment of any such retired Participant or Beneficiary (or
portion thereof) except to the extent of payments actually received pursuant to
the terms of the arrangement.
In addition, subsection (a) shall not apply to the enforcement of
federal tax levies as provided in Treasury Regulation Section 1.401(a)-13(b)(2).
Subsection (a) shall not apply to payments made in order to comply
with a "qualified domestic relations order" as defined in Code Section 414(p)
and ERISA Section 206(d)(3)(B).
10.02 Payments for the Benefit of a Payee.
------------------------------------
If the Employer finds that any person to whom a benefit is payable
under the terms of the Plan is unable to care for his affairs because of illness
or accident, is otherwise mentally or physically incompetent, or is unable to
give a valid receipt, the Employer may cause the payments becoming due to such
person to be paid to another individual for such person's benefit, without
responsibility on the part of the Employer to follow the application of such
payment. Any such payment shall be a payment for the account of such person and
shall operate as a complete discharge of the Employer from all liability under
the Plan.
10.03 Location of Participants and Beneficiaries.
-------------------------------------------
Each recipient of benefits from the Plan shall be responsible for
furnishing the Employer with his address. Any notices under the Plan shall be
deemed given if directed to such address and mailed by regular United States
mail. If any check mailed by regular United States mail to such address is
returned, mailing of checks will be suspended until a correct address is
furnished by the intended recipient.
10.04 Unclaimed Benefits.
--------------------
If all or any portion of the Vested Accrued Benefit payable to a
Participant or Beneficiary remains unpaid at the expiration of three years after
such benefit first became payable, solely by reason of the inability of the
Plan Administrator (after sending a registered letter, return receipt requested,
to the last known address, and after further diligent effort) to determine the
address of such Participant or Beneficiary, the remaining Accrued Benefit shall
be forfeited. If a Participant or Beneficiary is located after his Accrued
Benefit has been forfeited in accordance with the foregoing sentence, then the
Accrued Benefit that was forfeited shall be restored at the end of the Plan Year
in which the Participant or Beneficiary is located. Distribution of a benefit
will commence to the relocated Participant or Beneficiary at the time and in
the manner specified pursuant to Article 5, but in no event earlier than 60 days
after the end of the Plan Year in which the Participant or Beneficiary is
relocated, unless the Plan Administrator waives such later restriction.
10.05 Forfeitures.
------------
(a) Occurrence of Forfeitures. In the case of a Participant--
--------------------------
(1) who dies or otherwise terminates employment with the
Employer, and
(2) who at the time of his death or other termination had no
Vested right to a benefit under the Plan, or whose right to a benefit
was less than fully Vested under the Plan,
there shall be forfeited, as of the earlier of the Participant's date of death
or the date he first incurs a one year Break in Service, that portion of the
Participant's Accrued Benefit to which he had no Vested right.
(b) Use of Forfeitures. Any amount forfeited under the provisions of
subsection (a), or under any other provision of the Plan, may not be used to
increase the benefits which other Participants would otherwise receive under the
Plan. Rather, such forfeited amounts shall be used to reduce the Employer's
contribution under the Plan for the current Plan Year or succeeding Plan Years,
as required by the Code and ERISA.
10.06 Approval of Commissioner of Internal Revenue.
---------------------------------------------
The Plan and any amendments are contingent upon obtaining and
retaining such approval of the Commissioner of Internal Revenue and of any other
federal agency as the Employer finds necessary to establish the deductibility
for federal income tax purposes of contributions made by the Employer under the
Plan, and qualification of the Fund for tax exemption under the Code, and the
qualification of the Plan under ERISA. Any amendment of the Plan or the trust
may be made retroactively by the Employer to qualify or maintain the Plan as a
plan meeting the requirements of ERISA, the Code, and regulations issued under
those statutes, or of any other applicable provisions of federal law.
10.07 Action by Employer.
-------------------
Unless otherwise provided in the Plan, whenever the Employer under the
terms of the Plan is permitted or required to do or perform any act, such act
shall be done by the authority of the Employer's board of directors and
evidenced by proper resolution in consent form or duly certified by the
secretary of the Employer, or by such officer of the Employer who may, by proper
resolution, be duly authorized by the board of directors.
10.08 Employer's Rights.
------------------
While the Employer believes in the benefits, policies and procedures
described in the Plan, the language used in the Plan is not intended to create,
nor is it to be construed to constitute, a contract of employment between the
Employer and any of its Employees. The Employer retains all of its rights to
discipline or discharge Employees or to exercise its rights as to incidents and
tenure of employment. Employees retain the right to terminate their employment
at any time and for any reason, and the Employer retains a similar right.
10.09 Construction.
-------------
(a) Masculine/Feminine and Singular/Plural. Wherever any words are
used in the Plan in the masculine gender, they shall be construed as though they
also were used in the feminine gender in all cases where they would so apply,
and wherever any words are used in the Plan in the singular form, they shall be
construed as though they also were used in the plural form in all cases where
they would so apply.
(b) Headings. Section headings are inserted for convenience of
reference. They constitute no part of the Plan and are not to be considered in
the construction of the Plan.
(c) Severability. If any provisions of the Plan shall be for any
reason invalid or unenforceable, the remaining provisions nevertheless shall be
carried into effect.
ARTICLE 11
DEFINITIONS
-----------
11.01 "Accrued Benefit" means the benefit (as calculated under Section
4.01(a)) which a Participant has earned under the Plan on any given date,
without regard to his Vested right to such benefit, and expressed in the form of
a lifetime annuity payable monthly, commencing on the Participant's Normal
Retirement Date.
11.02 "Actuarial Equivalent" means, except as otherwise provided, a
benefit of equivalent actuarial value to another benefit being referenced,
computed as of a given Plan Year based on the following assumptions:
(a) Interest - The immediate and deferred interest rates
specified by the Pension Benefit Guaranty Corporation, as in effect on
the first day of such Plan Year, for the valuation of lump sum
benefits.
(b) Mortality - UP-1984 Unisex Mortality Table, set back four (4)
years for females and forward one (1) year for males, with male
annuity factors weighted 90 percent (90%) and female annuity factors
weighted 10 percent (10%).
11.03 "Affiliate" means (1) a corporation which is a member of the
same controlled group of corporations (within the meaning of Code Section
414(b)) as the Employer and (2) a trade or business (incorporated or
unincorporated) which is under common control with the Employer (as determined
under Code Section 414(c)).
11.04 "Beneficiary" means the person or persons to whom benefits may
be payable under the Plan following the Participant's death.
11.05 "Break in Service" means a 12-month Period of Severance.
Provided, however, that an Employee who is on a leave of absence authorized in
advance by the Plan Administrator, in accordance with the Employer's employment
policies (which shall be applied uniformly to all Employees), and who returns at
or prior to the expiration of such leave, shall not be considered as having
incurred a Break in Service. Provided further, that in the case of an Employee
who is absent from work for maternity or paternity reasons, the 12-consecutive
month period beginning on the first anniversary of the first date of such
absence shall not constitute a Break in Service. For this purpose, an absence
from work for maternity or paternity reasons means an absence (1) by reason of
the pregnancy of the Employee, (2) by reason of the birth of a child of the
Employee, (3) by reason of the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or (4) for purposes
of caring for such child for a period beginning immediately following such birth
or placement. Provided further, that no Break in Service shall occur on account
of a leave of absence pursuant to the Family and Medical Leave Act of 1993.
11.06 "Code" means the Internal Revenue Code of 1986, as amended.
11.07 "Committee" means the administrative committee, if any,
established pursuant to Article 7.
11.08 "Company" means the Thiokol Corporation.
11.09 "Compensation" means compensation as defined in Section
9.02(a)(2)(C).
11.10 "Delayed Retirement Benefit" means the benefit determined under
Section 4.04 which is payable to a Participant who has retired on a Delayed
Retirement Date.
11.11 "Delayed Retirement Date" means the first day of the month
coincident with or next following a Participant's actual retirement after his
Normal Retirement Date.
11.12 "Disability Retirement Benefit" means the benefit determined
under Section 4.06 which is payable to a Participant who has retired on a
Disability Retirement Date.
11.13 "Disability Retirement Date" means the date on which a
Participant's employment has terminated on account of disability, as determined
by the Plan Administrator pursuant to Section 4.06.
11.14 "Early Retirement Benefit" means the Accrued Benefit payable to
a Participant who has retired on an Early Retirement Date, calculated pursuant
to Section 4.05.
11.15 "Early Retirement Date" means the first day of any month
following the date on which a Participant has (a) attained age 55, (b) completed
5 or more Years of Service and (c) terminated employment with the Employer and
all Affiliates prior to his Normal Retirement Date.
11.16 "Earnings" means a Participant's base salary, excluding
overtime, bonuses or any other form of supplemental compensation paid to him by
the Employer in such Plan Year, but including any amount by which a Participant
has elected within permissible limits to reduce his salary under any qualified
cash or deferred arrangement maintained by the Employer, and any amounts
contributed to or deferred under a plan maintained by the Employer which meets
the requirements of Section 125 of the Code. Notwithstanding anything in the
Plan to the contrary, with respect to benefits accruing on or after January 1,
1992, no more than $200,000 shall be taken into account under this Plan in a
Plan Year and effective with respect to benefits accruing on or after January 1,
1994, no more than $150,000 (or such other amount as specified under Code
Section 401(a)(17)) shall be taken into account. The foregoing amounts shall be
adjusted for changes in the cost of living pursuant to rules of the Internal
Revenue Service. In determining the Earnings of a Participant for the purposes
of this Section, the rules of Code Section 414(q)(6) (relating to the treatment
of employees from the same family) shall apply, except that in applying such
rules, the term "family" shall include only the spouse of the Participant and
any lineal descendants of the Participant who have not attained age 19 before
the close of the Plan Year. If the application of the foregoing sentence results
in an amount in excess of the limitation of this Section, then such limitation
shall be prorated among the affected Employees in proportion to their Earnings
(determined without regard to such limitation). Notwithstanding any provision
herein to the contrary, Earnings shall be calculated using only those amounts
earned by a Participant while he is a Participant in the Plan.
11.17 "Effective Date" means January 1, 1992.
11.18 "Employee" means a common-law employee of the Employer or an
Affiliate or a Leased Employee to the extent required by Code Section 414(n).
11.19 "Employer" means Huck International, Inc.
11.20 "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service for the Employer.
11.21 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
11.22 "Fund" means the retirement fund which is established and
maintained to hold the assets of the Plan.
11.23 "Hour of Service" means:
(a) Hours Included. (1) Each hour for which an Employee is paid,
or entitled to payment, for the performance of duties for the
Employer or an Affiliate, credited to the Employee for the computation
period during which the duties are performed;
(2) each hour for which an Employee is paid, or entitled to
payment, by the Employer or an Affiliate on account of a period of
time during which no duties are performed, irrespective of whether the
employment relationship has terminated, due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty,
military duty or leave of absence; and
(3) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer or an
Affiliate, credited to the Employee for the computation period or
periods to which the award or agreement pertains rather than the
computation period during which the award, agreement or payment is
made.
(b) Hours Excluded. Notwithstanding subsection (a), an Employee's
Hours of Service shall not include:
(1) more than 501 Hours of Service under (a)(2) above, or under
(a)(3) above with respect to periods described in (a)(2) above, on
account of any single continuous period during which the Employee
performs no duties for the Employer, whether or not such period occurs
in a single Plan Year or other computation period used under the Plan;
(2) hours for which the Employee is directly or indirectly paid,
or entitled to payment, on account of a period during which no duties
are performed if such payment is made or due under a plan maintained
solely for the purpose of complying with applicable worker's
compensation, or unemployment compensation or disability insurance
laws;
(3) hours for a period during which payments are made to the
Employee solely to reimburse the Employee for medical or medically
related expenses incurred by the Employee; and
(4) hours credited under (a)(3) above if such hours also are
credited to the Employee under either (a)(1) or (a)(2) above.
(c) Incorporation of DOL Rules. Any questions concerning the
determination or crediting of Hours of Service shall be resolved in accordance
with Sections 2530.200b-2(a), (b) and (c) of the Department of Labor Rules and
Regulations for Minimum Standards, which are incorporated herein by reference.
Hours of Service shall be determined from records of the Employer for hours
worked and for hours for which payment is made or due.
11.24 "Normal Retirement Age" means the later of attainment of age 65
or the fifth anniversary of the date participation in the Plan commenced or
any other tax-qualified retirement plan maintained by the Employer.
11.25 "Normal Retirement Benefit" means the retirement benefit payable
to a Participant at his Normal Retirement Date.
11.26 "Normal Retirement Date" means the first day of the month
coincident with or next following a Participant's Normal Retirement Age.
11.27 "Participant" means an individual who has met the eligibility
requirements specified in Section 2.01 and who is participating in the Plan in
accordance with the remaining Sections of Article 2. Where so indicated by the
context, the term "Participant" also shall include a person who is retired or is
otherwise entitled to receive benefits.
11.28 "PBGC" means the Pension Benefit Guaranty Corporation, a body
corporate within the Department of Labor established under the provisions of
Title IV of ERISA.
11.29 "Period of Service" means a period of service commencing on the
Employee's Employment Commencement Date or Reemployment Commencement Date,
whichever is applicable, and ending on his Severance from Service Date.
11.30 "Period of Severance" means the period of time commencing on the
Severance from Service Date and ending on the Employee's Reemployment
Commencement Date.
11.31 "Plan" means the Huck International, Inc. Personal Retirement
Account Plan.
11.32 "Plan Administrator" means the person(s) or organization(s)
acting as plan administrator, as defined in ERISA, in accordance with Article 7.
11.33 "Plan Year" means the 12-month period commencing on January 1
and ending on December 31.
11.34 "Reemployment Commencement Date" means the first day, following
a Period of Severance which is not required to be taken into account under the
service spanning rules in Section 3.01, on which the Employee performs an Hour
of Service for the Employer.
11.35 "Reemployment Date" means the date on which a Vested Participant
who had retired or terminated employment returns to service with the Employer
and is first credited with an Hour of Service.
11.36 "Severance from Service Date" means the earlier of (1) the date
on which an Employee quits, retires, is discharged, or dies, or (2) the first
anniversary of the first date of a period in which an Employee remains absent
from service (with or without pay) with the Employer for any reason other than
quit, retirement, discharge, or death, such as vacation, holiday, sickness,
disability, leave of absence, or layoff.
11.37 "Total and Permanent Disability" or "Totally and Permanently
Disabled" means the permanent physical inability (caused by accident or illness)
to continue, for a period of two (2) consecutive years, to perform the work or
engage in the occupation for which the Participant in question was employed at
the time of the inception of his Total and Permanent Disability by the Employer,
and, for all periods of time thereafter, to perform any work or engage in any
occupation, as determined by the Plan Administrator in its discretion, and
within the meaning of the term "Disability" as that term is utilized in the
United States Social Security Amendments of 1965, as appearing in Section
416(i)(1) of the United Stated Social Security Act.
11.38 "Trustee" means the person(s) or organization(s) appointed by
the Employer to hold all or a portion of the Plan's assets and acting as trustee
of the Plan in accordance with any trust instrument(s) executed in connection
therewith.
11.39 "Vested" means nonforfeitable. A Vested Participant is a
Participant who has acquired a nonforfeitable right to all or a position of his
Accrued Benefit. A Vested Accrued Benefit or Vested retirement benefit is the
nonforfeitable portion of the Accrued Benefit earned by a Participant.
11.40 "Year of Service" has the meaning prescribed by Section 3.01.
IN WITNESS WHEREOF, HUCK INTERNATIONAL, INC. has caused this
instrument to be executed by its duly authorized officers effective as of the
1st day of January 1992.
HUCK INTERNATIONAL, INC.
ATTEST:
By __________________________
__________________________
By __________________________
__________________________
HUCK INTERNATIONAL, INC.
------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective January 1, 1992)
<PAGE>
HUCK INTERNATIONAL, INC.
------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective January 1, 1992)
TABLE OF CONTENTS
-----------------
Article I. Adoption of Plan
----------------------------
1.1 Adoption 1
1.2 Purpose 1
1.3 Construction 1
Article II. Coverage
---------------------
2.1 Participants 2
2.2 Transfer of Benefits 2
Article III. Benefits
----------------------
3.1 Separate Accounting 3
3.2 Credits to Accounts 3
3.3 Vesting/Forfeiture 4
3.4 Payment of Benefits 5
3.5 Preretirement Spousal Death Benefit 5
3.6 Income Tax Withholding 5
Article IV. Cost of Benefits
-----------------------------
4.1 Current Expense 6
4.2 No Employee Contributions 6
Article V. Administration
--------------------------
5.1 Administration 7
5.2 Finality of Determination 7
5.3 Expenses 7
5.4 Indemnification and Exculpation 7
Article VI. Limitation of Participant's Rights
-----------------------------------------------
6.1 No Contract of Employment 8
6.2 Unsecured Creditor 8
6.3 No Trust 8
6.4 Plan Binding 9
Article VII. Amendment or Termination
--------------------------------------
7.1 Right to Amend or Terminate Plan 10
7.2 Limitations 10
<PAGE>
HUCK INTERNATIONAL, INC.
------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective January 1, 1992)
TABLE OF CONTENTS
-----------------
(Continued)
Article VIII. Miscellaneous Provisions
---------------------------------------
8.1 Nonalienation of Benefits 11
8.2 Payments for the Benefit of Employee 11
8.3 Use of Words 11
8.4 Headings 11
8.5 Savings Clause 11
Article IX. Definitions
------------------------
9.1 Definitions 12
<PAGE>
HUCK INTERNATIONAL, INC.
------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective January 1, 1992)
Article I. Adoption of Plan
---------------------------
1.1 Adoption. Effective January 1, 1992, Huck International, Inc., a wholly
owned subsidiary of Thiokol Corporation ("Employer"), hereby adopts the Huck
International, Inc. Supplemental Executive Retirement Plan ("Plan").
1.2 Purpose. The sole purpose of the Plan is to supplement the retirement
benefits of certain key executive Employees who participate in the Huck
International, Inc. Personal Retirement Account Plan ("PRA"), a tax-qualified
retirement plan under section 401(a) of the Internal Revenue Code of 1986, as
amended, by expanding the compensation on which benefits are calculated, by
providing a higher contribution rate than the PRA, and by providing benefits
that cannot be paid by the PRA on account of Code section 415.
1.3 Construction. The Plan shall be construed in accordance with Delaware
law, except where preempted by federal law. It is intended that the Plan shall
be unfunded and maintained by the Employer primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees, so that the Plan constitutes a "top hat" plan and is
exempt from the requirements of Parts 2, 3, and 4 of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). All provisions of
the Plan shall be interpreted in accordance with such intentions.
Article II. Coverage
---------------------
2.1 Participants. An Employee shall be a Participant under the Plan if the
Employee is eligible to participate in the PRA for the Plan Year and is a
participant in the Thiokol Corporation Executive Plan or the Thiokol Key
Executive Bonus Plan.
2.2 Transfer of Benefits. Employees who participated in the Federal-Mogul
Supplemental Executive Retirement Agreement ("Prior Plan") on November 1, 1991
shall have the value of their accrued benefit transferred to this Plan as of the
Effective Date, if still employed by the Employer on the Effective Date.
Article III. Benefits
---------------------
3.1 Separate Accounting. A separate unfunded book account is maintained for
each Participant. A Participant's accrued benefit under the Plan is equal to the
Participant's account balance.
3.2 Credits to Accounts. A Participant's account balance will equal the sum
of the amounts in subsections (a), (b), and (c), and reduced by the amount in
subsection (d).
(a) Initial Account Balance. As of the Effective Date, an amount shall be
credited to the Participant's account equal to the accrued benefit, if
any, of the Participant in the Prior Plan plus interest for the period
from November 1, 1991 to the Effective Date at the rate that was in
effect under the Prior Plan on November 1, 1991.
(b) Benefit Credits. As of the last day of each calendar month of active
participation under the PRA, the following amount shall be credited
to the Participant's account:
(1) 2 1/2 percent of Plan Compensation received by the Participant
for each such calendar month which ends prior to his attainment
of age 30;
(2) 3 3/4 percent of Plan Compensation received by the Participant
for each such calendar month which ends prior to his attainment
of age 40 but subsequent to his attainment of age 30;
(3) 5 percent of Plan Compensation received by the Participant for
each such calendar month which ends prior to his attainment of
age 50 but subsequent to his attainment of age 40;
(4) 7 1/2 percent of Plan Compensation received by the Participant
for each such calendar month which ends prior to his attainment
of age 60 but subsequent to his attainment of age 50; and
(5) 10 percent of Plan Compensation received by the Participant for
each such calendar month subsequent to his attainment of age 60.
(c) Interest Equivalent Credits. A Participant's account balance shall
receive a credit as of the last day of each calendar month equal to
the product of (1) the immediate interest used by the PBGC to value
lump sum benefits for plans terminating as of the first day of the
Plan Year, compounded monthly at a simple annual rate and (2) the
Participant's account balance as of such last day of the calendar
month.
(d) PRA. When a Participant's benefit becomes payable, the Participant's
account balance shall be reduced by the account balance payable under
the PRA (after taking into account the limitations imposed by Code
section 415).
3.3 Vesting/Forfeiture. The vested percentage of a Participant's benefit
under this Plan shall be equal to the vested percentage of the Participant's
accrued benefit under the PRA; however, a Participant shall forfeit all benefits
under the Plan if--
(a) the Participant engages in a willful, deliberate, or gross act of
commission or omission which is injurious to the finances or
reputation of the Employer or any of its affiliates;
(b) prior to age 65, the Participant serves as a director, officer,
partner, employee, consultant, agent, or representative of any
business entity which sells any product or service in direct
competition with any product or service sold by the Employer or any
affiliate; or
(c) the Participant breaches any agreement with the Employer.
3.4 Payment of Benefits. The retirement benefit under this Plan shall be
paid to a Participant in the form of a single life annuity commencing in the
same month as the Participant's retirement benefits commence under the PRA. Such
single life annuity shall be an actuarial equivalent of the Participant's
account balance using the actuarial assumptions of the PRA or as otherwise
determined by the Committee. In lieu of the single life annuity, a Participant
may elect to receive his benefits in the form of a joint and survivor annuity or
a lump sum amount equal to his account balance, provided that the Committee
consents to such lump sum benefit.
3.5 Preretirement Spousal Death Benefit. If a married Participant dies
before his annuity starting date, the vested portion of his account balance
shall be applied to the purchase of a single life annuity contract payable for
the life of the surviving spouse, or if elected by the surviving spouse, the
vested portion shall be paid to the spouse in a lump sum amount provided that
the Committee consents.
3.6 Income Tax Withholding. The Company shall deduct from all payments
under this Plan the amount of any applicable income and employment tax
withholding requirements.
Article IV. Cost of Benefits
-----------------------------
4.1 Current Expense. The entire cost of providing benefits under the Plan
shall be paid by the Employer out of its current operating budget, and the
Employer's obligations under the Plan shall be an unfunded and unsecured promise
to pay. The Employer shall not be obligated under any circumstances to fund its
obligations under the Plan.
4.2 No Employee Contributions. No contributions by Employees are required
or permitted under the Plan.
Article V. Administration
-------------------------
5.1 Administration. The Plan shall be administered by the Committee. The
Committee shall have the same rights and authority granted to it under 7.01,
7.02, and 7.03 of the PRA, the terms of which are incorporated herein.
5.2 Finality of Determination. The determination of the Committee as to any
interpretations of this Plan, its correction of any defect or any omission, or
reconciliation of any inconsistency or disputed questions arising under this
Plan, including questions of construction and interpretation, shall be final,
binding, and conclusive upon all persons.
5.3 Expenses. The expenses of administering the Plan shall be borne by the
Company.
5.4 Indemnification and Exculpation. The members of the Committee, its
agents, and officers, directors, and employees of the Employer shall be
indemnified and held harmless by the Employer against and from any and all loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
them in connection with or resulting from any claim, action, suit, or proceeding
to which they may be a party or in which they may be involved by reason of any
action taken or failure to act under this Plan and against and from any and all
amounts paid by them in settlement (with the Employer's written approval) or
paid by them in satisfaction of a judgment in any such action, suit, or
proceeding. The foregoing provision shall not be applicable to any person if the
loss, cost, liability, or expense is due to such person's gross negligence or
willful misconduct.
Article VI. Limitation of Participant's Rights
-----------------------------------------------
6.1 No Contract of Employment. The Plan shall not be deemed to create an
express or implied contract of employment between the Company or the Employer
and any Participant and shall create no right in any Participant to continue in
employment for any specific period of time, or to continue at the Participant's
present rate of compensation or any other rate of compensation, or to create any
other rights in any Participant or obligations on the part of the Company or the
Employer, except as provided in this document or in any written employment
contract. The Plan shall not restrict the right of the Employer to terminate any
Participant, or restrict the right of any Participant to terminate his
employment. This Plan shall not confer any right of participation or right of
continuing participation in any Thiokol Corporation bonus plan.
6.2 Unsecured Creditor. The rights of any Employee or any person claiming
through the Employee under the Plan shall be solely those of an unsecured
general creditor of the Company. Any Employee, or any person claiming through
the Employee, shall only have the right to receive from the Employer those
payments as specified in this Plan. Each Participant agrees that he or any
person claiming through him shall have no rights or interests in any assets of
the Employer.
6.3 No Trust. No asset used or acquired by the Employer in connection with
the liabilities it has assumed under the Plan shall be deemed to be held under
any trust for the benefit of any Participant. Nor shall any such asset be
considered security for the performance of the obligations of the Employer, but
shall be, and remain, a general unpledged and unrestricted asset of the
Employer, except as provided by separate agreement and as permitted under
Internal Revenue Service and Department of Labor rules and regulations for
unfunded supplemental retirement plans.
6.4 Plan Binding. The Plan is binding on the beneficiaries, executor, and
administrator of the Participant, and upon the successors (by sale or otherwise)
of the Company who succeed to substantially all the assets and the business of
the Company.
Article VII. Amendment or Termination
--------------------------------------
7.1 Right to Amend or Terminate Plan. The Employer reserves the right to
unilaterally amend or terminate the Plan in whole or in part in any manner
deemed appropriate by its Board of Directors.
7.2 Limitations. Notwithstanding section 7.1, no such amendment or
termination shall reduce or otherwise affect the benefits payable to or on
behalf of any Participant that have accrued prior to such amendment or
termination without the written consent of the Participant (or beneficiary, if
applicable). In addition, the complete or partial termination of this Plan shall
have the same effect on the vesting of benefits accrued to date under this Plan
as in the case of a complete or partial termination of the PRA.
Article VIII. Miscellaneous Provisions
---------------------------------------
8.1 Nonalienation of Benefits. Any attempt to sell, transfer, alienate,
encumber, assign, pledge, collateralize, or attach any benefits under the Plan
shall be void and will not be recognized by the Employer.
8.2 Payments for the Benefit of Employee. If the Employer finds that any
person to whom a benefit is payable under the Plan is unable to care for his
affairs because of illness or accident, is otherwise mentally or physically
incompetent, or is unable to give a valid receipt, the Company may cause the
payments becoming due to such person to be paid to another individual for such
person's benefit, without responsibility on the part of the Company to follow
application of such payment. Any such payment shall be a payment on account of
such person and shall operate as a complete discharge of the Employer from all
liability under the Plan.
8.3 Use of Words. Wherever any words are used in the Plan in the masculine
gender, they shall be construed as though they also were used in the feminine
gender in all cases where they would so apply, and wherever any words are used
in the Plan in the singular form, they shall be construed as though they also
were used in the plural form in all cases where they would so apply, and vice
versa.
8.4 Headings. Headings of articles and sections herein are inserted for
convenience of reference. They constitute no part of the Plan and are not to be
considered in the construction of the Plan.
8.5 Savings Clause. If any provisions of the Plan shall be for any reason
invalid or unenforceable, the remaining provisions nevertheless shall be carried
into effect.
Article IX. Definitions
-----------------------
9.1 Definitions. Terms capitalized in the text of this Plan shall have the
meanings referred to below, unless the context requires otherwise. Terms not
defined herein shall be construed in reference to the same or similar terms as
used in the PRA.
(a) Code. The Internal Revenue Code of 1986, as amended.
(b) Committee. The Thiokol Plan Administration Committee.
(c) Effective Date. January 1, 1992.
(d) Employee. An individual who works under the direct supervision and
control of the Employer.
(e) Employer. Huck International, Inc., formerly known as Huck
Manufacturing Company.
(f) ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
(g) Participant. A key executive Employee who satisfies the conditions of
section 2.1.
(h) Plan. The Huck International, Inc. Supplemental Executive Retirement
Plan, as described in this instrument and any amendments.
(i) Plan Compensation. The employee's base salary (without regard to any
salary reduction agreements under Code section 401(k)), plus any
amount awarded to the employee under one of Thiokol Corporation's
executive bonus plans, other than the long-term incentive program and
stock options exercised and paid during the Plan Year.
(j) Plan Year. The 12-month period ending December 31.
(k) PRA. The Huck International, Inc. Personal Retirement Account Plan.
(l) Prior Plan. The Federal-Mogul Corporation Supplemental Executive
Retirement Plan, executed as of January 1, 1989.
* * * * * * * * * *
IN WITNESS WHEREOF, Huck International, Inc. has caused the Plan to be
executed effective as of January 1, 1992.
HUCK INTERNATIONAL, INC.
ATTEST:
By ---------------------------
- ------------------------- ---------------------------
- ------------------------
FINANCIAL INFORMATION
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Cash Flows 3
Consolidated Statements of Stockholders' Equity 4
Notes to Consolidated Financial Statements 5
Management's Report on Financial Statements 14
Report of Ernst & Young LLP, Independent Auditors 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Selected Financial Data 20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended June 30
--------------------------
<S> <C> <C> <C>
(in millions, except per share data) 1995 1994 1993
- ------------------------------------------------------------------------------
Net sales $956.8 $1,043.9 $1,201.7
Operating expenses:
Cost of sales 769.1 859.6 992.9
General and administrative 71.9 69.6 70.2
Research and development 15.0 15.4 15.7
Restructuring 61.4 2.3
----------------------------
917.4 944.6 1,081.1
Income from operations 39.4 99.3 120.6
Interest income 46.2 12.9 6.6
Interest expense 9.3 14.4 25.5
Income before income taxes, extraordinary ----------------------------
item and cumulative effect of
accounting changes 76.3 97.8 101.7
Income taxes 24.0 37.5 37.9
Income before extraordinary item and ----------------------------
cumulative effect of accounting changes 52.3 60.3 63.8
Extraordinary item - loss on early retirement
of debt (4.8)
Cumulative effect of accounting changes (63.8)
-----------------------------
Net income (loss) $ 47.5 $ (3.5) $ 63.8
=============================
Net income (loss) per share:
Income before extraordinary item and
cumulative effect of accounting changes $ 2.78 $ 3.02 $ 3.13
Extraordinary item (.25)
Cumulative effect of accounting changes (3.20)
-----------------------------
Net income (loss) $ 2.53 $ (.18) $ 3.13
=============================
- -------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
June 30
----------------------
<S> <C> <C>
(in millions) 1995 1994
- -----------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 13.2 $ 40.1
Receivables 268.1 200.2
Inventories 135.0 121.9
Prepaid expenses 4.1 4.5
----------------------
Total Current Assets 420.4 366.7
Property, Plant & Equipment
Land 17.4 17.3
Buildings and improvements 221.2 242.5
Machinery and equipment 358.7 342.5
Construction in progress 21.2 21.8
----------------------
618.5 624.1
Less allowances for depreciation (321.0) (302.0)
----------------------
297.5 322.1
Other Assets
Costs in excess of net assets of businesses
acquired, less amortization 28.8 54.0
Patents and other intangible assets 19.0 19.6
Other noncurrent assets 45.0 42.9
----------------------
92.8 116.5
----------------------
$810.7 $805.3
======================
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt $ 62.8 $ 27.1
Accounts payable 38.6 40.3
Accrued compensation 43.4 46.4
Other accrued expenses and liabilities 52.9 36.4
Current portion of deferred income taxes 5.0
----------------------
Total Current Liabilities 202.7 150.2
Noncurrent Liabilities
Long-term debt 2.5 87.9
Accrued retiree benefits other than pensions 72.8 76.0
Deferred income taxes 26.8 16.9
Accrued interest and other 102.1 89.8
----------------------
Total Noncurrent Liabilities 204.2 270.6
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 44.5 46.2
Retained earnings 399.2 364.3
----------------------
464.2 431.0
Less common stock in treasury, at cost
(2.3 shares and 1.8 shares at
June 30, 1995 and 1994) (60.4) (46.5)
----------------------
Total Stockholders' Equity 403.8 384.5
----------------------
$810.7 $805.3
======================
- -----------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30
-------------------------
<S> <C> <C> <C>
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Operating Activities
Net income (loss) $ 47.5 $ (3.5) $ 63.8
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Restructuring 61.4
Extraordinary item 4.8
Cumulative effect of accounting changes 63.8
Depreciation 34.5 36.0 38.6
Amortization 5.5 5.0 5.2
Changes in operating assets and liabilities:
Receivables (69.5) 26.3 (29.6)
Inventories and prepaid expenses (8.1) (.1) 45.4
Accounts payable and accrued expenses 13.0 7.4 (28.1)
Accrued income taxes 8.7 1.6 9.5
Other - net (1.3) (5.2) 11.7
Deferred income taxes 5.0 1.4 (94.9)
Net cash provided by operating --------------------------
activities 101.5 132.7 21.6
Investing Activities
Acquisitions, net of acquired cash (8.9) (12.1) (6.0)
Purchase of property, plant and equipment (33.8) (21.2) (19.8)
Proceeds from disposal of assets .4 1.2 .1
Net cash used for investing --------------------------
activities (42.3) (32.1) (25.7)
Financing Activities
Net change in short-term debt 32.6 (2.0) 10.4
Repayment of long-term debt (85.7) (34.7) (102.8)
Premiums paid on early retirement of debt (4.8)
Purchase of common stock for treasury (19.8) (51.7) (11.6)
Stock option transactions 4.2 9.8 13.1
Dividends paid (12.6) (13.3) (9.4)
Net cash used for financing --------------------------
activities (86.1) (91.9) (100.3)
--------------------------
(Decrease) increase in cash and cash equivalents (26.9) 8.7 (104.4)
Cash and cash equivalents at beginning of year 40.1 31.4 135.8
--------------------------
Cash and cash equivalents at end of year $13.2 $ 40.1 $ 31.4
==========================
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Addi- Total
Common Stock tional Treasury Stock Stock-
------------------ Paid-In Retained ------------------ holders'
Shares Amount Capital Earnings Shares Amount Equity
(in millions)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
---------------------------------------------------------------------
Net income 47.5 47.5
Dividends paid (12.6) (12.6)
Purchase of common stock for treasury (.7) (19.8) (19.8)
Exercise of stock options and
related income tax benefits (1.7) .2 5.9 4.2
---------------------------------------------------------------------
Balance, June 30, 1995 20.5 $20.5 $44.5 $399.2 (2.3) $(60.4) $403.8
=====================================================================
- -------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</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: Space and defense systems
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 that are highly liquid with maturities of less than three
months.
Inventories: Inventories are stated at the lower of cost or market. Space
and defense systems 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. During 1995,
the Company recognized a $20 million impairment loss as described in Note B.
Intangibles: Costs in excess of the net assets acquired (goodwill),
patents, and other intangible assets are being amortized on a straight-line
basis over periods between 10 and 40 years. Accumulated amortization amounted to
$33.9 and $29.7 million at June 30, 1995 and 1994, respectively. During 1995,
the Company recognized a $23.6 million impairment loss on the write down of
goodwill as described in Note B.
Impairment of Long-Lived Assets: In 1995 the Company adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The standard requires the Company to evaluate the net book
value of long-lived assets including property, plant and equipment and goodwill
whenever events or changes in circumstances indicate that the net book value may
not be recoverable. Under the standard, an assessment is made to determine if
the sum of the expected future undiscounted cash flows from the use of the
assets and eventual disposition is less than the net book value. If the sum of
the expected undiscounted cash flows is less than net book value, an impairment
loss is recognized. The impairment loss is determined by measuring the excess of
net book value over fair value (as estimated by projected future discounted cash
flows from the applicable operation). During 1995, the Company recognized an
impairment loss of $43.6 million due primarily to the sustained decline in
defense systems revenues as described in Note B.
Contingent Matters: The Company accrues costs for contingent matters when
it is probable that a liability has been incurred and the amount can be
reasonably determined. 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. Costs allocated to commercial business or not otherwise
recoverable from third parties are expensed when the liability is recorded. A
substantial portion of environmental costs, which are not recovered from
insurance carriers or other third parties, will be recovered through pricing 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 operates its business in various foreign currencies. As a result, it is
subject to the translation exposures that arise from foreign currency exchange
rate movements over periods of time which generally do not exceed three months.
The Company enters into forward exchange contracts to hedge identifiable export
sales and purchases with any resulting gain or loss being 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 provided to recognize the income tax effects of
amounts which are included in different reporting periods for financial
statement and tax purposes.
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 1995, 1994, and 1993 were 18,794, 19,973, and 20,384,
respectively.
Reclassification: Certain reclassifications were made to the 1994 and 1993
financial statements to conform with the 1995 presentation.
NOTE B. RESTRUCTURING CHARGE
In the third quarter of 1995, the Company recorded a pre-tax restructuring
charge of $61.4 million. The after-tax amount was $49.2 million or $2.62 per
share. The charge was taken in response to declining defense systems revenues
resulting primarily from reduced U.S. Government defense spending and excess
capacity within the defense systems segment and included costs for manufacturing
facility closures and a write down of long-lived assets associated with the
defense systems segment. The majority of the charge consisted of a non-cash,
pre-tax charge of $54.1 million to cover the write down to fair value of
goodwill ($23.6 million) and fixed assets ($20 million) of the defense systems
segment and the estimated loss on disposition of fixed assets related to the
closure of the Huntsville and Omneco manufacturing operations ($10.5 million).
Asset dispositions and facility closures should be completed during fiscal year
1996. Fair value of the goodwill and fixed asset write downs was determined by
measuring discounted cash flows from expected future defense and non-shuttle
launch vehicle operations. Fair value of the Huntsville and Omneco assets was
based on estimated cash proceeds from asset sales less costs of disposal. The
restructuring charge also included a $7.3 million pre-tax cash charge for costs
related to the facility closures including $2.3 million for employee termination
costs. The restructuring will result in approximately 360 employee terminations.
As of June 30, 1995, $.3 million had been utilized for employee terminations.
NOTE C. RECEIVABLES
The components of receivables are as follows:
<TABLE>
June 30
-------------------
<S> <C> <C>
(in millions) 1995 1994
- ------------------------------------------------------------------------
Receivables under U.S. Government contracts
and subcontracts:
Amounts billed $ 57.1 $ 57.6
Unbilled costs and accrued profits 71.3 96.3
---------------------
Total receivables under U.S. Government contracts
and subcontracts 128.4 153.9
Income tax refund receivable and related interest 85.4
Trade accounts receivable 50.5 44.6
Other current receivables 3.8 1.7
---------------------
$268.1 $200.2
=====================
- ------------------------------------------------------------------------
</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 $44.1 million of the unbilled amount at June 30,
1995, will be billed within 90 days. The remainder primarily relates to amounts
subject to final negotiations of contract terms and rates, of which
approximately $15 million is expected to be collected within two years. The
Company anticipates collection of the tax refund receivable during the first
quarter of fiscal year 1996.
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 $31.2 million at June 30, 1995, have been
recognized on the current Space Shuttle Reusable Solid Rocket Motor (RSRM)
contract. Realization of such fees is reasonably assured based on actual and
anticipated contract cost performance. However, all of the cost management award
fees remain at risk until completion of the current contract and final NASA
review. The current RSRM contract is expected to be completed not earlier than
fiscal year 2000. 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. Advances in excess of related costs of $23.4 and $4.8
million at June 30, 1995 and 1994, respectively, are included in other accrued
expenses and liabilities in the balance sheets.
NOTE D. INVENTORIES
Inventories are summarized as follows:
<TABLE>
June 30
-----------------
<S> <C> <C>
(in millions) 1995 1994
- ----------------------------------------------------------------------
Finished goods $ 61.4 $ 56.1
Raw materials and work-in-process 52.9 47.3
Inventoried costs related to U.S. Government
and other long-term contracts 27.8 36.7
Progress payments received on long-term contracts (7.1) (18.2)
--------------------
$135.0 $121.9
====================
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE E. FINANCING ARRANGEMENTS
The Company has credit commitments from a group of banks totaling $140
million under three Revolving Credit Agreements, of which $105.5 million was
available at June 30, 1995. The funds available under the credit facilities may
be used for any corporate purpose and are available through October 1995 ($40
million) and November 1999 ($100 million). The credit agreements contain
covenants restricting, among other things, the Company's ability to incur funded
debt, limitations on sale and leaseback transactions, and the sale of assets.
Short-term debt consisted of uncommitted short-term lines of credit and
foreign subsidiary borrowings with various domestic and foreign banks. The
weighted average interest rate on short-term debt outstanding at June 30, 1995
and 1994, was 6.11% and 5.54%, respectively.
In March 1995, the Company retired $85.5 million of private placement notes
which were due to mature on June 30, 1996 ($37 million) and June 30, 1999 ($48.5
million). An extraordinary loss of $4.8 million (net of a tax benefit of $2.9
million) was recorded for the payment of redemption premiums and expenses.
Long-term debt consisted of the following:
<TABLE>
June 30
----------------
<S> <C> <C>
(in millions) 1995 1994
- ------------------------------------------------------------------------
Private Placement Notes:
10.45% notes, due June 30, 1996 $37.0
10.48% notes, due June 30, 1999 48.5
Other $2.6 2.5
----------------
2.6 88.0
Less current maturities .1 .1
----------------
$2.5 $87.9
================
- ------------------------------------------------------------------------
</TABLE>
Interest paid on borrowings was $9.3, $14.4, and $25.5 million in 1995, 1994,
and 1993, respectively.
NOTE F. INCOME TAXES
The provisions for income taxes applicable to both domestic and foreign
operations are as follows:
<TABLE>
<S> <C> <C> <C>
(in millions) 1995 1994 1993
- ------------------------------------------------------------------------
Current Taxes:
Federal $14.8 $31.6 $116.2
Foreign .5 .4 .2
State 3.7 4.1 16.4
---------------------------
19.0 36.1 132.8
Deferred Taxes:
Federal 4.6 1.7 (81.8)
Foreign (.5) (1.6)
State .4 .2 (11.5)
---------------------------
5.0 1.4 (94.9)
---------------------------
$24.0 $37.5 $ 37.9
===========================
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
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>
<S> <C> <C> <C>
1995 1994 1993
- -----------------------------------------------------------------------
Statutory rate 35.0% 35.0% 34.0%
Effect of:
State taxes, net of federal benefit 3.5 3.1 3.2
R&D credit (11.2) (.8)
Tax refund (11.8)
Retroactive federal tax increase 1.5
Non-deductible restructuring charge 13.1
Other 2.9 (.5) .1
--------------------------
Effective rate 31.5% 38.3% 37.3%
==========================
- -----------------------------------------------------------------------
</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 are as follows:
<TABLE>
June 30
--------------------
<S> <C> <C>
(in millions) 1995 1994
- --------------------------------------------------------------------------
Recognition of income on contracts reported on
different methods for tax purposes than for
financial reporting $ 53.8 $ 47.9
Tax refund interest income 17.1
Depreciation expense 42.8 53.0
Employee benefit expenses 9.9 11.9
Other 2.4 .9
----------------------
Gross deferred tax liabilities 126.0 113.7
Provision for estimated expenses (40.5) (41.3)
Employee benefit expenses (47.3) (48.0)
Foreign operations (9.4) (7.4)
Other (6.2) (7.5)
-----------------------
Gross deferred tax assets (103.4) (104.2)
Valuation allowance 9.2 7.4
-----------------------
Net deferred tax assets (94.2) (96.8)
-----------------------
Net deferred tax liabilities $ 31.8 $ 16.9
=======================
Balance Sheet Classification:
Current $ 5.0
Non-current 26.8 $16.9
-----------------------
Net deferred tax liabilities $31.8 $16.9
=======================
- ---------------------------------------------------------------------------
</TABLE>
Total income tax payments were $34.8, $36, and $121.1 million during 1995,
1994, and 1993, 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.
Due to the completion of a Federal tax audit of fiscal years 1983 through
1985, the Company recorded a refund receivable, including interest, of $85.4
million. After provision for payment of taxes on the interest to be received,
the Company will net approximately $65 million in cash. The refund relates
primarily to additional research and development tax credits and the timing of
certain income and deduction items. A portion of the refund ($17.5 million) was
applied to reduce the 1995 income tax expense and $43.5 million of the refund
was recognized as interest income. The remainder of the refund ($24.4 million)
relates to timing issues and was used to increase liabilities for deferred taxes
and related interest for future tax payments. The Internal Revenue Service has
completed its audit of federal income tax returns for fiscal years 1986 through
1989. Based upon preliminary understandings, the Company anticipates a tax
refund including interest of an amount significantly less than the refund
recorded in 1995. A portion of the anticipated refund will be recognized as
income when the audit is finalized.
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, unless renewed
by the Board of Directors of the Company.
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,
exclusive of the curtailment gain in 1995, includes the following components:
<TABLE>
<S> <C> <C> <C>
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Service cost $ 12.6 $ 14.8 $ 15.9
Interest cost 36.7 36.2 34.3
Actual gain on plan assets (32.5) (22.4) (59.9)
Net amortization and deferral (12.9) (19.9) 20.7
-----------------------------------
Net pension cost $ 3.9 $ 8.7 $ 11.0
===================================
- -------------------------------------------------------------------------------
</TABLE>
The reconciliation of the funded status of all defined benefit pension
plans at June 30 is as follows:
<TABLE>
<S> <C> <C> <C>
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Actuarial present value of benefits:
Vested benefits $397.8 $391.8 $362.1
Nonvested benefits 2.6 2.5 6.2
-----------------------
Accumulated benefit obligation 400.4 394.3 368.3
Effect of projected future compensation increases 83.5 85.7 94.6
-----------------------
Projected benefit obligation 483.9 480.0 462.9
Fair value of plan assets 518.2 494.9 487.2
-----------------------
Plan assets in excess of projected
benefit obligation 34.3 14.9 24.3
Unrecognized net losses 40.2 47.9 29.5
Unrecognized transition obligation (24.0) (27.3) (30.6)
Unrecognized prior service cost (.8) 1.3 7.4
-----------------------
Pension asset $ 49.7 $ 36.8 $ 30.6
=======================
- -------------------------------------------------------------------------------
</TABLE>
The assumptions used in the determination of the net pension cost for all
defined benefit pension plans were as follows:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
- ---------------------------------------------------------------------------
Discount rate 8.0% 8.0% 8.0%
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.
Generally pension costs charged to and recovered through U.S. Government
contracts approximate amounts contributed to pension plans. Pension costs for
financial statement purposes are calculated in conformity with SFAS No. 87,
"Employers' Accounting for Pensions." Historically, the annual amount of pension
cost recovered through U.S. Government contracts and included in sales has
exceeded the amount of pension cost included in the financial statements. As a
result, the Company has deferred $29.5 million of revenues to provide a better
matching of revenues and expenses. This revenue will be recognized when the
financial statement pension cost exceeds amounts charged to contract pension
cost. The $29.5 million of deferred revenue is netted against the pension asset
in other noncurrent assets in the balance sheet.
Under the provisions of SFAS No. 88, "Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
workforce reductions and benefit freezes resulted in the recognition of $6.1
million of net curtailment gains in 1995.
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 million in 1995, 1994, and 1993.
The Company has matching and nonmatching savings plans for eligible
employees. Company contributions to the matching savings plans, which are based
on a limited percentage of participant contributions, were $7.3, $7.6, and $8.2
million in 1995, 1994, and 1993, respectively.
NOTE I. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides certain
nonvested and unfunded 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 in 1994.
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 or as
amounts are expended. Voluntary Employees' Beneficiary Association (VEBA) trusts
and other trusts under IRS regulations were established in 1994 for government
contract reimbursement purposes. The amounts funded are tax deductible in the
year of contribution under current IRS regulations.
The annual retiree medical and life insurance costs include the following
components:
<TABLE>
<S> <C> <C>
(in millions) 1995 1994
- ------------------------------------------------------------------------------
Service cost - attributed to service during the period $ 2.3 $2.4
Interest cost on accumulated postretirement benefit obligation 7.3 $6.5
Return on assets (.6)
Net amortization and deferral .5
--------------
Retiree medical and life insurance costs $ 9.5 $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:
<TABLE>
<S> <C> <C>
(in millions) 1995 1994
- -------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 80.4 $ 71.8
Fully eligible active plan participants 9.5 10.6
Other active plan participants 14.4 12.7
---------------
Total accumulated postretirement benefit obligation 104.3 95.1
Plan assets at fair value, primarily listed stocks
and bonds (11.5) (5.3)
---------------
Accumulated postretirement benefit obligation in
excess of plan assets 92.8 89.8
Unrecognized net experience loss (19.7) (13.8)
Unrecognized prior service cost (.3)
---------------
Accrued retiree benefits other than pensions $ 72.8 $ 76.0
===============
- -------------------------------------------------------------------------
</TABLE>
Assumptions used to measure the accumulated postretirement obligation and cost
were as follows:
<TABLE>
<S> <C> <C>
1995 1994
- -------------------------------------------------------------------------
Discount rate 8.0% 8.0%
Health care cost trend rate decreasing to 8% in 1996
and to 6% by 2001 9.0% 10.0%
Expected long-term rate of return on assets 8.0%
- -------------------------------------------------------------------------
</TABLE>
Increasing the assumed health care cost trend rate by one percentage point
would increase the accumulated postretirement benefit obligation at June 30,
1995 and 1994, by approximately $5.6 and $4.5 million, respectively and increase
retiree medical costs in 1995 and 1994 by approximately $.4 and $.3 million,
respectively.
The amount paid for retiree medical and life insurance costs in 1993 was
$6.5 million.
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 1994 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 can be reasonably estimated. 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 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 and
signed a consent decree with the EPA on the Rockaway Borough Well Field
("Klockner") site. The decree requires a remedial design plan which the Company
has submitted and is currently waiting for EPA approval. 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 a $5.8 million
liability. The Company is a "potentially responsible party" at the Rockaway
Township Well Field ("Denville") site. The total estimated cost for remediation
and future operations and maintenance at this site is $4.5 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 $21 million. The Company
has recorded an $11 million receivable that it expects to recover from
insurance, third parties and the U.S. Government as amounts are expended. The
Company estimates it will spend approximately $2.5 and $7.5 million of the total
liability respectively over the next two 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 $10.8, $9.9, and $11.9 million in 1995, 1994, and 1993,
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, 1995, 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 stock options, and 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 1995 is summarized as follows:
<TABLE>
Shares Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at June 30, 1994 818,035 $10.86 to $26.13
Granted 173,500 $24.06 to $24.44
Lapsed (4,000) $24.44
Exercised (246,964) $10.86 to $26.13
------------------------------
Options outstanding at June 30, 1995
(571,071 exercisable shares) 740,571 $10.86 to $26.13
=============================
- -------------------------------------------------------------------------------
</TABLE>
Options outstanding at June 30, 1995, have expiration dates ranging from
June 1997 to August 2004.
In addition, limited appreciation rights were outstanding covering 119,933
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, 1995, supplemental cash payment rights were outstanding with respect to
17,408 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, 1995 and 1994 were 1,310,221 and 1,557,185 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, 1995 and 1994, 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.
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>
1995 1994
-------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 13.2 $ 13.2 $ 40.1 $ 40.1
Receivables 268.1 264.1 200.2 195.4
Short-term debt 62.8 62.8 27.1 27.1
Long-term debt 2.6 2.6 88.0 95.3
- ------------------------------------------------------------------------------
</TABLE>
NOTE P. OPERATIONS BY INDUSTRY SEGMENT
The Company and its subsidiaries design, develop, manufacture, and sell
products classified in three principal industry segments.
The space systems segment consists of solid rocket propulsion for NASA, the
Department of Defense and various commercial customers for space applications.
The defense 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 and aerospace prime contractors, for use in defense applications.
The fastening systems segment consists of specialty fastening systems for a
broad range of aerospace and industrial applications worldwide.
The space systems segment and defense systems segment were reported
previously as one segment, propulsion systems. Separation of the segments
provides better reporting of the Company's current organization and management
structure, resources employed, and product markets and lines of business. The
following 1994 and 1993 amounts have been restated to conform with the segment
realignment.
<TABLE>
Year Ended June 30
----------------------------
<S> <C> <C> <C>
(in millions) 1995 1994 1993
- -----------------------------------------------------------------------------
Net Sales
Space Systems $467.4 $ 500.8 $ 519.3
Defense Systems 261.7 367.4 523.5
Fastening Systems 227.7 175.7 158.9
-----------------------------
Consolidated net sales $956.8 $1,043.9 $1,201.7
=============================
Segment operating profit (loss)
Space Systems $ 60.4 $ 51.5 $ 61.4
Defense Systems (1) (34.8) 35.3 56.4
Fastening Systems 19.2 16.9 7.8
-----------------------------
Segment operating profit 44.8 103.7 125.6
Interest income 46.2 12.9 6.6
Interest expense (9.3) (14.4) (25.5)
Unallocated corporate expense (5.4) (4.4) (5.0)
-----------------------------
Consolidated income before income
taxes, extraordinary item and
cumulative effect of accounting
changes $ 76.3 $ 97.8 101.7
=============================
Total Assets
Space Systems $268.0 267.6 $ 309.6
Defense Systems 168.3 243.8 263.9
Fastening Systems 268.1 238.3 207.9
Corporate 106.3 55.6 52.8
-----------------------------
Consolidated assets $810.7 $ 805.3 $ 834.2
=============================
Depreciation and Amortization Expense
Space Systems $ 15.9 $ 16.1 $ 18.1
Defense Systems 12.6 15.8 17.5
Fastening Systems 11.0 8.5 7.5
Corporate .5 .6 .7
-----------------------------
Consolidated depreciation and
amortization expense $ 40.0 $ 41.0 $ 43.8
=============================
Capital Expenditures
Space Systems $ 13.2 $ 11.2 $ 8.8
Defense Systems 3.3 1.8 4.1
Fastening Systems 17.1 7.8 6.7
Corporate .2 .4 .2
-----------------------------
Consolidated capital expenditures $ 33.8 $ 21.2 $ 19.8
=============================
- -----------------------------------------------------------------------------
(1) The defense systems loss in 1995 includes a $61.4 million restructuring
charge.
</TABLE>
A proportionate share of Corporate general and administrative expense is
allocated and reimbursed through space and defense systems contracts.
Intersegment, foreign operations, and export sales are not material.
Net sales under U.S. Government contracts and subcontracts amounted to
$689.5, $813.4, and $975.7 million for 1995, 1994, and 1993, respectively. The
sales as a percentage of consolidated net sales were 72, 78, 81 percent for
1995, 1994 and 1993 respectively.
Corporate assets consist principally of cash and cash equivalents, income
tax receivable, property, plant and equipment, and other noncurrent assets.
and equipment, and other noncurrent assets.
NOTE Q. QUARTERLY FINANCIAL HIGHLIGHTS (Unaudited)
<TABLE>
Fiscal Year 1995 Fiscal Year 1994
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 $267.4 $232.6 $218.6 $238.2 $279.4 $266.1 $240.7 $257.7
Gross profit 52.2 48.0 42.2 45.3 51.7 45.6 41.9 44.3
Income (loss) before extraordinary
item and cumulative effect
of accounting changes 61.8 (35.1) 11.3 14.3 16.1 15.4 14.8 14.0
Net income (loss) (1) 61.8 (39.9) 11.3 14.3 16.1 15.4 14.8 (49.8)
Income (loss) per share before
extraordinary item and cumulative
effect of accounting changes 3.29 (1.87) .60 .76 .84 .77 .73 .68
Net income (loss) per share (1) (2) 3.29 (2.12) .60 .76 .84 .77 .73 (2.42)
Cash dividends paid per share .17 .17 .17 .17 .17 .17 .17 .17
Market price:
High 31.88 28.75 28.25 26.25 27.00 29.00 26.75 24.38
Low 27.25 25.38 22.75 23.75 22.88 25.50 21.13 21.13
- -------------------------------------------------------------------------------------------------------
1) The first quarter of 1994 included the cumulative effect of accounting
changes of $63.8 million or $3.10 per share. The third quarter of 1995 included
a restructuring charge of $61.4 million resulting in a net after-tax charge of
$49.2 million or $2.62 per share and an extraordinary loss on early retirement
of debt of $4.8 million or $.25 per share. The fourth quarter of 1995 included
the recognition of an income tax refund resulting in a $17.5 million reduction
in current income tax expense and $43.5 million of interest income ($44.5
million or $2.37 per share after-tax).
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 a reduction of shares outstanding during the year.
</TABLE>
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 audited by Ernst & Young
LLP, independent auditors, whose report follows.
Richard L. Corbin
Senior Vice President and
Chief Financial Officer
<PAGE>
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, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1995. 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995 in conformity with generally accepted accounting principles.
As discussed in Notes I and J, in 1994 the Company changed its method of
accounting for postretirement benefits other than pensions and postemployment
benefits.
s/Ernst & Young LLP
Salt Lake City, Utah
July 31, 1995
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Results of Operations Fiscal Year 1995 Compared to Fiscal Year 1994
Net income for 1995 was $52.3 million or $2.78 per share before an
extraordinary item, a decrease of 13 percent compared to $60.3 million or $3.02
per share before accounting changes last year. Net income for 1995 was $47.5
million or $2.53 per share including an extraordinary loss of $4.8 million
compared to a net loss of $3.5 million or $.18 per share last year after
recognition of accounting changes. Net income for 1995 included a refund of
income taxes of $17.5 million and related interest income of $43.5 million
resulting in a net after-tax benefit of $44.5 million or $2.37 per share.
Results for 1995 also reflected a pre-tax defense systems restructuring charge
of $61.4 million. Earnings per share were favorably impacted (6 percent) in 1995
due to the reduction in outstanding shares as a result of the share repurchase
program.
Income from operations, excluding the restructuring charge, would have been
$100.8 million compared to $99.3 million last year. Operating income for 1995
when compared to 1994 was favorably affected by; higher Space Shuttle Reusable
Solid Rocket Motor (RSRM) income due to recognition of higher cost management
fees; a pension curtailment gain; a reduction in accrued health care costs due
to reductions in personnel; and higher fastening systems income. Operating
income for 1995 when compared to 1994 was adversely affected by; the
restructuring charge; the absence of Trident flight incentive fees and reduced
Trident missile production; and significantly lower operating levels at the
government owned, Company operated ammunition plants (GOCO's).
Sales for 1995 of $956.8 million decreased 8 percent or $87.1 million
compared to $1,043.9 million last year. A continuing decline in defense systems
sales ($105.6 million) and lower RSRM sales were partially offset by an increase
in fastening systems sales ($51.9 million). The majority of the defense systems
sales decline resulted from lower operating levels at the GOCO's ($63.9 million)
and lower Trident missile production ($26.3 million).
The $61.4 million restructuring charge was taken in response to declining
defense systems revenues resulting primarily from reduced U.S. Government
defense spending and excess capacity within the defense systems segment and
included costs for manufacturing facility closures and a write down of
long-lived assets associated with the defense systems segment. The majority of
the charge consisted of a non-cash, pre-tax $54.1 million write down of the
Huntsville, Alabama and Omneco (Carson City, Nevada) facilities and the portion
of goodwill and fixed assets not expected to be recovered through cash flows
from future defense and non-shuttle launch vehicle operations. In addition, a
$7.3 million pre-tax cash charge resulted from costs related to facility
closures including $2.3 million of employee termination costs. The restructuring
will result in approximately 360 employee terminations. After tax, the total
restructuring charge amounted to $49.2 million or $2.62 per share. As of June
30, 1995, $.3 million of cash flow had been utilized for the restructuring. As a
result of the restructuring, the Company anticipates approximately $3 million in
future annual cost savings from reductions in depreciation and amortization
expense.
The after-tax extraordinary loss of $4.8 million or $.25 per share resulted
from redemption premiums and expenses paid for the early retirement of $85.5
million of long-term debt.
Net income for the fourth quarter of $61.8 million or $3.29 per share
increased $45.7 million over the prior year's $16.1 million or $.84 per share.
The increase is due to the recognition of a refund of income taxes and related
interest income following the finalization of the Internal Revenue Service's
audit of tax years 1983-1985. The refund involved research and development tax
credits and the timing of certain income and deduction items. The effect on
fourth quarter net income from the tax refund was $44.5 million or $2.37 per
share. Net income for the quarter excluding the tax refund would have been $17.3
million. The quarter was favorably impacted by lower interest expense and higher
RSRM cost management fees and Kennedy Space Center RSRM processing fees.
Quarterly net income was negatively affected by lower Trident production and
incentive fees and lower operating levels at the GOCO's in comparison to 1994.
Sales for the quarter of $267.4 million decreased 4% or $12.1 million from last
year.
Space systems 1995 sales of $467.4 million decreased 7 percent or $33.4
million compared to 1994 while operating income increased 17 percent or $8.9
million to $60.4 million. The sales decrease is due primarily to continued
emphasis on cost reductions and increased efficiency on the RSRM program. STAR
motor and Castor IV motor sales also declined. The rise in income was primarily
the result of an increase over 1994 of approximately $13.5 million of additional
RSRM cost management incentive fee recognized, of which approximately $11.5
million related to fee earned on prior years' costs.
Defense systems 1995 sales of $261.7 million decreased 29 percent while
operating income of $26.6 million (before recognition of the restructuring
charge ) decreased 25 percent or $8.7 million. Including the restructuring
charge of $61.4 million the defense systems loss was $34.8 million. The sales
decrease was caused by significantly lower operating levels at the GOCO's and on
the Trident program. The decrease in income, before the restructuring charge,
resulted primarily from the sales decline and the absence of Trident incentive
fees in 1995 compared to $9.3 million recognized in 1994. Partially offsetting
the lower defense systems income was a $6.1 million pension curtailment gain
associated with the downsizing of certain defense operations.
Fastening systems 1995 sales of $227.7 million increased 30 percent from
$175.7 million in 1994 and income increased 14 percent to $19.2 million.
Significantly higher domestic industrial sales, small acquisitions in 1994 and
1995, and improved foreign operations were the principal sources of the sales
increase. Industrial profit margins increased over 1994. Aerospace operating
results were negatively impacted by the slow commercial aerospace market and
higher than anticipated production and product qualification costs at the
Lakewood, California facility which was purchased in 1994. As a result, profit
margins in 1995 were 8.4 percent compared to 9.6 percent in 1994. Fastening
systems profit margins in 1995 excluding the Lakewood operations would have been
10.4 percent.
General and administrative expense for 1995 of $71.9 million increased 3
percent or $2.3 million compared to the prior year. General Corporate expense
remained flat while selling and administrative costs increased in the fastening
systems segment as a result of the sales increases. Interest expense decreased
$5.1 million as a result of the reduction in long-term debt.
The lower 1995 effective income tax rate of 31.5% compared to 38.3% in 1994
resulted from the income tax refund ($17.5 million) offset in part by the effect
of approximately $29 million of goodwill write down and other non-deductible
costs included in the restructuring charge.
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 1993. 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 1994 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 1994 of $1,043.9 million decreased 13 percent compared to
$1,201.7 million in 1993. Space and defense 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 1993's $61.5 million. Sales and income derived from production of
the 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 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.
Defense sales in 1994 of $367.4 million decreased 30 percent or $156.1
million and operating income of $35.3 million decreased 37% or $21.2 million.
The sales decrease was caused primarily by completion of Peacekeeper motor
deliveries during the first quarter of 1994 and lower operating levels at the
GOCO's. The decline in income resulted from significantly lower Peacekeeper
sales, continued low tactical program operating margins reflecting reduced unit
volumes and a competitive pricing environment, and lower GOCO sales and 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 $10.1 million in 1993, 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 were negatively affected by the
recession in Europe.
General and administrative expense for 1994 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
June 30, 1993.
The provision for income taxes reflects effective rates of 38.3 percent in
1994 and 37.3 percent in 1993.
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 46 percent of 1995 consolidated sales and 59 percent of
consolidated operating income before recognition of the restructuring charge.
The current contract with NASA extends the Company's production of the RSRM
through fiscal year 2000. Current long term NASA planning includes a follow-on
RSRM contract. During the year, NASA reduced the future RSRM production rate
from 8 to 7 per year. The Company's contract to perform RSRM processing work at
the Kennedy Space Center (KSC) was not renewed and will be completed at the end
of the first quarter of fiscal year 1996. Revenues and profits projected to be
lost from the processing contract at KSC in 1996 are $21.7 and $1.6 million,
respectively. In addition to the reduced launch rate and termination of the RSRM
processing contract, NASA's continued emphasis on cost containment to control
its budget combined with the Company's emphasis on cost reduction should produce
a decrease in RSRM sales in fiscal year 1996. However, contract incentives to
reduce costs over the life of the contract should result in higher incentive
fees in the future based on actual and anticipated contract cost performance.
Cost management award fees of $31.2 million have been recognized on the current
(RSRM) contract. Realization of such fees is reasonably expected 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.
In July 1995, Company inspections revealed that on two previous Space
Shuttle flights hot gases had caused minor damage to O-ring seals located in the
forward section of the RSRM nozzle. Thiokol and NASA engineers are developing
corrective actions to modify existing flight hardware and future assembly
procedures. The Company believes that the issue will not materially affect the
amount of future RSRM award and incentive fees.
The level of U.S. Government funding of Space programs including the Space
Station may impact the Space Shuttle launch schedule. Further significant
reductions in the launch schedule would lower the Company's production rates and
reduce related revenue and profits to the Company. As a result of the 1995
restructuring, space systems income will be negatively impacted in 1996 by
approximately $6 million of costs to transfer equipment and requalify the Castor
IV program from the Huntsville, Alabama plant to the Northern Utah facility.
During the year the Company was awarded a contract for three Castor 120R motors
in support of future Lockheed Launch Vehicle missions.
The Company is pursuing both solid and liquid propellant demilitarization
opportunities in the United States and internationally. During 1995, the Company
was awarded a $26 million contract to assist the Russian government in disposing
of Inter-continental Ballistic Missile (ICBM) liquid propellant through
conversion into usable commercial chemicals.
Due to reductions in U.S. Government defense spending, the Company expects
its defense systems sales and income to continue declining in fiscal year 1996
and 1997. Trident sales and profits will decrease from 1995 levels due to a
reduction in missile production. The Standard Missile, Patriot, Sidewinder and
Hellfire motor production will be substantially completed during 1996. Decreased
defense spending has created a highly competitive pricing environment for
tactical programs and has significantly reduced new program opportunities. The
defense propulsion industry is characterized by overcapacity. The pre-tax $61.4
million restructuring charge was taken in 1995 in response to the sustained
reduction in U.S. Government defense spending, the current defense industry
environment, over capacity of defense systems facilities and a continued
decrease in the Company's defense systems sales. The actions taken, including
the closure and consolidation of selected manufacturing facilities and the write
down of long-lived assets, will assist in lowering costs and improving the
Company's competitive position in the defense and launch vehicle rocket motor
business.
All U.S. Army directed production at the Company-operated ordnance plants
was completed in fiscal year 1995. Both of the Company-operated plants are being
maintained under a facilities contract by the Company in an inactive status to
retain production capability. The Company has the right under the facilities
contracts to utilize the plants and equipment for production for both Department
of Defense and third party contracts. The Company is pursuing fixed-price
contracts that can be produced at either of the facilities. Sales and profits
from the ordnance plants will decline significantly in 1996.
The fastening systems segment continues to improve its position in both
industrial and aerospace fastening systems markets. Industrial fasteners
achieved record sales in 1995 due to significant increases in the heavy truck,
railcar and trailer/container markets. Industrial sales in 1996 may be near 1995
levels as the build schedules in the transportation industry are declining. The
aerospace segment is greatly 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 low
production levels. The Company expanded its industrial fastener base with the
acquisition of the assets of Automatic Fastener Corporation in January 1995.
Automatic Fastener, with annual sales of approximately $17 million, produces a
broad line of blind and specialty rivets for industrial applications, including
the automotive and light trucks market. The fastening systems segment and
Automatic Fastener had no overlap in blind fasteners.
The IRS has completed its examination of federal income tax returns through
fiscal years 1986 through 1989. Based upon preliminary understandings, the
Company anticipates a tax refund including interest of an amount substantially
less than the refund recorded in 1995. A portion of the anticipated refund will
be recognized as income when the audit is finalized.
Other Matters
The Company has operating leases, the majority of which are short-term and
real estate related. Rental expense amounted to $10.8 million in 1995. 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 $101.5 million compared to $132.7
million in 1994. The difference resulted principally from a $69.5 million
increase in receivables in 1995 compared to a $26.3 million decrease in 1994.
The 1995 increase was due to the recording of a $85.4 million income tax and
interest refund in 1995. Partially offsetting the use of cash from operating
activities was cash flow provided by net income of $47.5 million in 1995
compared to a net loss of $3.5 million in 1994. A $13.7 million increase in
deferred income tax liabilities in 1995 also contributed positive cash flow.
Investing activities, which consumed $42.3 million in cash in 1995,
included purchases of property, plant and equipment and a small acquisition.
Capital expenditures in 1995 of $33.8 million compared to $21.2 million in 1994
reflect efforts to increase industrial production capacity and cost efficiency
in the fastening systems segment. During 1995, the Company acquired certain
assets of Automatic Fastener Corporation of Branford, Connecticut for
approximately $8.9 million.
Cash flow used for financing activities of $86.1 million compares to $91.9
million last year. During 1995, the Company retired $85.5 million of long-term
debt which was due to mature in 1996 and 1999. The debt retirement was financed
through cash on hand and lower interest bearing short-term credit lines already
in place. The $32.6 million increase in short-term debt resulted from the
retirement of long-term debt and working capital requirements. During 1995, the
Company repurchased 710,162 shares of common stock ($19.8 million) under the 1.5
million share repurchase program compared to 2,034,238 shares ($51.7 million) in
1994. Under the current 1.5 million repurchase authorization 750,000 shares
remain to be repurchased. The Company anticipates purchases under the
authorization to be completed by June 1996.
Thiokol's current ratio at June 30, 1995, of 2.1 represented a decrease
from 2.4 at June 30, 1994. Working capital at June 30, 1995, of $217.7 million
increased $1.2 million since June 30, 1994. The Company's current ratio and
working capital were negatively impacted by the retirement of $85.7 million of
long-term debt utilizing cash on hand and issuance of short-term debt. The
Company debt to equity ratio declined to 16.2 percent at June 30, 1995, as a
result of the long-term debt retirement.
The Company has current outstanding authorizations for capital expenditures
of approximately $20 million. Through June 30, 1995, the Company had expended
approximately $16 million on construction of the nozzle facility at NASA's
Yellow Creek, Mississippi complex. During the fourth quarter, NASA announced
that due to budget considerations, construction work at the Yellow Creek nozzle
facility will be terminated. The Company has been reimbursed approximately $13
million for expenditures incurred on the Yellow Creek project and anticipates
reimbursement of the remaining $3 million in fiscal year 1996. The Company
anticipates receiving the $85.4 million tax refund during the first quarter of
fiscal year 1996.
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 fiscal year 1996. The
Company is currently in the process of filing a shelf registration statement
with the Securities and Exchange Commission for the possible issuance of debt
securities for long-term financing as considered appropriate. As of June 30,
1995, the Company had available revolving credit facilities of $140 million of
which $105.5 million remained unused.
Dividends and Recent Market Prices
Dividends paid were 68 cents, 68 cents, and 47 cents per share for 1995,
1994, and 1993, respectively.
The high and low market prices of Thiokol common stock for fiscal year 1995
were $31.88 per share and $22.75 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).
and prices are based on the Composite Tape (ticker symbol TKC).
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
(dollars in millions, except per share data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------
Summary of Operations
Net sales by industry segment
Space Systems $467.4 $ 500.8 $ 519.3 $ 555.6 $ 562.7
Defense Systems 261.7 367.4 523.5 649.2 692.7
Fastening Systems (1) 227.7 175.7 158.9 106.9
---------------------------------------------------
Consolidated net sales 956.8 1,043.9 1,201.7 1,311.7 1,255.4
Operating profit (loss) by industry segment
Space Systems $ 60.4 $ 51.5 $ 61.4 $ 58.5 $ 54.2
Defense Systems (2) (34.8) 35.3 56.4 61.2 51.2
Fastening Systems (1) 19.2 16.9 7.8 8.7
---------------------------------------------------
Segment operating profit 44.8 103.7 125.6 128.4 105.4
Income from operations (2) 39.4 99.3 120.6 116.8 97.2
Interest income (3) 46.2 12.9 6.6 9.2 13.1
Interest expense 9.3 14.4 25.5 24.2 22.3
Income before extraordinary item and cumulative
affect of accounting changes 52.3 60.3 63.8 63.0 53.4
Net income (loss) 47.5 (3.5) 63.8 63.0 53.4
Income (loss) Per Share
Income before extraordinary item and
cumulative effect of accounting changes $2.78 $ 3.02 $ 3.13 $ 3.12 $ 2.75
Extraordinary item (.25)
Cumulative effect of accounting changes (3.20)
--------------------------------------------------
Net income (loss) $2.53 $ (.18) $ 3.13 $ 3.12 $ 2.75
Financial
Total assets $810.7 $ 805.3 $ 834.2 $ 956.1 $ 849.1
Working capital 217.7 216.5 217.7 138.8 356.2
Current ratio 2.1 2.4 2.2 1.4 3.7
Short-term and long-term debt $ 65.4 $ 115.1 $ 149.6 $ 245.8 $ 220.0
Debt-to-equity 16.2% 29.9% 33.8% 63.5% 67.5%
Stockholders' equity $403.8 $ 384.5 $ 443.2 $ 387.3 $ 325.7
Stockholders' equity per share 22.14 20.52 21.94 19.44 16.69
Return on stockholders' equity (4) 13.6% 13.6% 16.5% 19.3% 19.5%
Capital expenditures $ 33.8 $ 21.2 $ 19.8 $ 37.4 $ 40.9
Provision for depreciation 34.5 36.0 38.6 39.0 36.7
Cash dividends paid 12.6 13.3 9.4 7.2 5.7
Cash dividends declared per share .68 .68 .47 .36 .30
General
Average number of common and common equivalent
shares outstanding (in thousands) 18,794 19,973 20,384 20,151 19,412
Approximate number of stockholders of record 6,500 7,000 8,500 9,100 9,600
Approximate number of employees (5) 7,200 8,000 9,300 11,200 11,500
- ------------------------------------------------------------------------------------------------------
1) Represents operations for an eight-month period in 1992.
2) Includes pre-tax restructuring charge of $61.4 million in 1995.
3) Includes $43.5 million of interest income from an income tax refund in 1995.
4) Based on income before an extraordinary item in 1995 and the cumulative
effect of accounting changes in 1994 and calculated on beginning of year
stockholders' equity.
5) As of July 31 of the respective year.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIOKOL
CORPORATION FINANCIAL STATEMENTS INCORPORATED BY REFERENCE AS EXHIBIT 13 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 13,216
<SECURITIES> 0
<RECEIVABLES> 269,149
<ALLOWANCES> 1,079
<INVENTORY> 134,984
<CURRENT-ASSETS> 420,461
<PP&E> 618,594
<DEPRECIATION> 321,043
<TOTAL-ASSETS> 810,685
<CURRENT-LIABILITIES> 202,702
<BONDS> 2,688
<COMMON> 20,538
0
0
<OTHER-SE> 383,193
<TOTAL-LIABILITY-AND-EQUITY> 810,685
<SALES> 956,812
<TOTAL-REVENUES> 1,003,025
<CGS> 769,069
<TOTAL-COSTS> 790,904
<OTHER-EXPENSES> 126,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,344
<INCOME-PRETAX> 76,240
<INCOME-TAX> 23,991
<INCOME-CONTINUING> 52,249
<DISCONTINUED> 0
<EXTRAORDINARY> (4,786)
<CHANGES> 0
<NET-INCOME> 47,463
<EPS-PRIMARY> 2.53
<EPS-DILUTED> 2.52
</TABLE>
