FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6179
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THIOKOL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-2678716
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2475 Washington Blvd., Ogden, Utah 84401-2398
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(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code..........(801) 629-2052
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 1995
- ----------------------------- -------------------------------
Common Stock, $1.00 par value 18,541,117 shares
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THIOKOL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
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<S> -----
PART I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements
Consolidated Statements of Operations - Three months ended
and Six months ended December 31, 1994 and 1993 3
Consolidated Balance Sheets -
December 31, 1994 and June 30, 1994 4
Consolidated Statements of Cash Flows - Six
months ended December 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------
THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
December 31 December 31
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $218,637 $240,695 $456,788 $498,359
Interest and other income 1,059 7,121 1,972 11,742
-------- -------- -------- --------
219,696 247,816 458,760 510,101
Deductions from income:
Cost of sales 176,411 198,824 369,295 412,146
General and administrative expense 17,855 17,473 34,802 33,902
Research and development expense 4,031 3,926 6,941 7,673
Interest expense 2,730 3,611 5,437 7,273
-------- -------- -------- --------
201,027 223,834 416,475 460,994
Income before income taxes and cumulative
effect of accounting changes 18,669 23,982 42,285 49,107
Income taxes 7,375 9,185 16,703 20,281
-------- -------- -------- --------
Income before cumulative effect
of accounting changes 11,294 14,797 25,582 28,826
Cumulative effect of accounting changes (63,838)
-------- -------- -------- --------
Net income (loss) $ 11,294 $ 14,797 $ 25,582 $(35,012)
======== ======== ======== ========
Net income (loss) per share:
Income before cumulative effect
of accounting changes $ .60 $ .73 $ 1.36 $ 1.41
Cumulative effect of accounting changes (3.12)
-------- -------- -------- --------
Net income (loss) $ .60 $ .73 $ 1.36 $ (1.71)
======== ======== ======== ========
Dividends per share $ .17 $ .17 $ .34 $ .34
======== ======== ======== ========
Average number of common and common
equivalent shares outstanding 18,755 20,230 18,841 20,419
See notes to consolidated financial statements
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THIOKOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31 June 30
1994 1994
-------- --------
ASSETS (Unaudited)
- ------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 79,974 $ 40,129
Receivables 139,230 195,414
Inventories 123,921 121,863
Prepaid expenses 7,440 4,496
-------- --------
Total current assets 350,565 361,902
Property, plant and equipment, at cost
less allowances for depreciation 324,158 322,070
Other assets
Costs in excess of net assets of businesses
acquired, less amortization 53,096 54,038
Patents and other intangible assets 18,333 19,557
Other noncurrent assets 46,329 42,919
-------- --------
$792,481 $800,486
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Short-term debt $ 32,152 $ 27,090
Accounts payable 31,516 40,285
Accrued compensation 39,333 46,442
Other accrued expenses 21,566 28,974
Income taxes 2,604
-------- --------
Total current liabilities 124,567 145,395
Long-term debt 87,875 87,916
Accrued retiree benefits 74,320 75,950
Deferred income taxes 16,839 16,838
Accrued interest and other non-current liabilities 90,956 89,852
Stockholders' equity
Common Stock (par value $1.00 per share)
Authorized - 200,000 shares
Issued - 20,455 shares including shares in Treasury 20,538 20,538
Additional paid-in capital 45,431 46,249
Retained earnings 383,535 364,249
-------- --------
449,504 431,036
Less cost of common stock in Treasury
2,024 shares, December 31, 1994 and
1,818 shares, June 30, 1994 (51,580) (46,501)
-------- --------
Total stockholders' equity 397,924 384,535
-------- --------
$792,481 $800,486
======== ========
See notes to consolidated financial statements
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THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Six Months Ended
December 31
--------------------
1994 1993
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Operating Activities
- --------------------
<S> <C> <C>
Net income (loss) $25,582 $(35,012)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting changes 63,838
Depreciation and amortization 19,240 19,397
Changes in operating assets and liabilities:
Receivables 56,200 30,437
Inventories and prepaid expenses (4,944) (991)
Accounts payable and accrued expenses (22,519) (29,982)
Income taxes (3,516) (6,438)
Other (3,846) (4,350)
-------- --------
Net cash provided by operating activities 66,197 36,899
Investing Activities
Purchases of property, plant and equipment (net) (19,222) (6,612)
Financing Activities
Net change in short-term debt 5,098 (1,295)
Repayment of long-term debt (35) (118)
Dividends paid (6,296) (6,821)
Purchase of common stock for treasury (7,141) (24,332)
Stock option transactions 1,244 7,355
-------- --------
Net cash used for financing activities (7,130) (25,211)
-------- --------
Increase in cash and cash equivalents 39,845 5,076
Cash and cash equivalents at beginning of year 40,129 31,365
-------- --------
Cash and cash equivalents at end of period $79,974 $ 36,441
======== ========
See notes to consolidated financial statements
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<PAGE>6
THIOKOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Basis of Presentation
- ---------------------
The accompanying interim consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. The balance sheet at June 30, 1994, reflects the Company's
audited consolidated financial statements at that date. In the opinion of
management all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended December 31, 1994, are not necessarily
indicative of the results to be expected for the fiscal year ending
June 30, 1995. The financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report to Stockholders and Annual Report on Form 10-K for the
fiscal year ended June 30, 1994.
Receivables
- -----------
The components of receivables are as follows:
December 31 June 30
1994 1994
-------- --------
Receivables under U.S. Government contracts
and subcontracts:
Amounts billed $ 54,114 $ 57,615
Unbilled costs and accrued profits 41,772 91,505
-------- --------
Total receivables under U.S. Government contracts
and subcontracts 95,886 149,120
Accounts receivable 42,029 44,620
Other current receivables 1,315 1,674
-------- --------
$139,230 $195,414
======== ========
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.
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 $22.4 million 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, under terms of the contract, all of the cost management
award fees remain at risk until completion of the current contract and final
National Aeronautical and Space Administration (NASA) review. Unanticipated
problems which erode cost management performance could cause a reversal of
some or all of the amounts previously recognized and would be offset against
NASA receivable amounts or be directly reimbursed.
<PAGE>7
THIOKOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Inventories
- -----------
Inventories are stated at the lower of cost or market. Space systems 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. Inventories
for the fastening systems segment are determined by the first in, first out
(FIFO) method. Inventories are summarized as follows:
December 31 June 30
1994 1994
-------- --------
Finished goods $ 61,474 $ 56,064
Raw materials and work-in-progress 45,406 47,300
Inventoried costs related to U.S.
Government and other long-term contracts 38,444 36,735
Progress payments received on
long-term contracts (21,403) (18,236)
-------- --------
$123,921 $121,863
======== ========
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 to such systems,
principally under contracts and subcontracts with the Department of Defense and
aerospace prime contractors, for use primarily in defense applications.
The fastening systems segment consists of high technology, 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. Separate reporting of the two segments
was accomplished to better reflect the Company's current organization and
management structure, resources employed, and product markets and lines of
business.
The following fiscal year 1994 amounts have been restated to conform with the
segment realignment.
<PAGE>8
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THIOKOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Three Months Ended Six Months Ended
December 31 December 31
-------------------- --------------------
1994 1993 1994 1993
<S> -------- -------- -------- --------
Net Sales <C> <C> <C> <C>
Space Systems $109,798 $114,897 $222,452 $227,571
Defense Systems 55,323 86,379 131,230 191,787
Fastening Systems 53,516 39,419 103,106 79,001
-------- -------- -------- --------
Consolidated net sales $218,637 $240,695 $456,788 $498,359
======== ======== ======== ========
Operating Profit
Space Systems $ 12,767 $ 8,115 $ 26,037 $ 19,446
Defense Systems 4,828 10,163 14,118 21,016
Fastening Systems 4,185 3,441 8,730 6,796
-------- -------- -------- --------
Operating profit 21,780 21,719 48,885 47,258
Interest and other income 970 7,124 1,538 11,622
Interest expense (2,730) (3,611) (5,437) (7,273)
Unallocated corporate expense (1,351) (1,250) (2,701) (2,500)
-------- -------- -------- --------
Consolidated income before income
taxes and cumulative effect of
accounting changes $ 18,669 $ 23,982 $ 42,285 $ 49,107
======== ======== ======== ========
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<PAGE>9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
---------------------
Net income for the second quarter ended December 31, 1994, was
$11.3 million or $.60 per share, a 24 percent decrease compared to
$14.8 million or $.73 per share last year. Earnings per share
compared to 1994 was favorably impacted by the reduction in
outstanding common shares due to the share repurchase program.
Sales for the quarter of $218.6 million decreased 9 percent compared
to $240.7 million last year.
The lower 1995 quarterly income was due to the receipt in the
prior-year quarter of $6.7 million or $.20 per share of interest
income from tax refunds. Excluding the $6.7 million in interest
income in 1994, net income for the quarter increased 6 percent.
The quarter was favorably affected by higher cost management
incentive fees recognized on the RSRM program, lower interest
expense and higher fastening systems income. The 9 percent
decline in sales reflected a continuing decrease in defense sales
resulting primarily from lower operating levels at the government-
owned, company operated ammunition plants (GOCO's) and lower revenue
from strategic and tactical defense programs. Partially offsetting
these decreases were higher fastening systems sales.
Net income for the six months ended December 31, 1994, was $25.6
million or $1.36 per share; an 11 percent decrease compared to $28.8
million or $1.41 per share last year before recognition of fiscal year
1994 accounting changes. Sales of $456.8 million for the six month
period decreased 8 percent from $498.4 million last year.
Space systems sales of $109.8 million decreased 4 percent or $5.1
million compared to 1994, while related operating income of $12.8
million increased 57 percent from $8.1 million last year. The slight
decrease in sales resulted mainly from reduced STAR motor deliveries.
The income increase is due primarily to higher cost management
incentive fees recognized on the RSRM program resulting from
continued achievements on cost management performance. An increase
in the cost management incentive fee rate resulted in $3.5 million
of additional income for the quarter, of which $2.8 million
represented fee related to costs incurred in prior years. The
Company continuously evaluates actual and forecasted cost
performance and anticipates further incentive fee increases during
fiscal year 1995. Prior year income was negatively impacted by the
recognition of Castor 120 motor development costs.
Defense systems sales decreased 36 percent to $55.3 million and
operating income of $4.8 million declined 52 percent from 1994.
The sales and income decreases were caused by significantly lower
GOCO sales and reduced defense program revenues including the
Peacekeeper, Trident, Standard Missile and Sidewinder programs.
Prior year income benefited from the favorable settlement of a
Standard Missile contract dispute and the recognition of Trident
flight incentive fees.
Fastening systems sales of $53.5 million increased 36 percent from
$39.4 million in 1994 and income of $4.2 million increased 22
percent. Significantly higher domestic industrial sales, a small
acquisition in the third quarter of 1994 and improved foreign
revenues were the principal reasons for the sales increase. The
rise in income resulted from higher domestic industrial sales and
improved foreign operating results. Second quarter margins were
reduced by higher than expected costs to qualify several new
domestic aerospace products. Additional qualification costs are
also expected to be incurred in the third quarter. Performance
continues to be impaired by the sluggish commercial aircraft market
and the slow economic recovery in Europe.
<PAGE>10
The lower fiscal year 1995 effective income tax rate compared to
fiscal 1994 resulted primarily from a $1.5 million charge in the first
quarter of fiscal year 1994 due to the cumulative effect of a
retroactive federal tax rate increase.
General and administrative expense for the quarter of $17.9 million
increased 2 percent from 1994. The $.9 million decrease in interest
expense resulted primarily from the reduction of $35 million in
long-term debt at June 30, 1994.
During the first six months, sales and profit derived from
production of and services for the RSRM accounted for approximately
46 percent of consolidated net sales and 57 percent of consolidated
operating income. The current contract with NASA extends the
Company's production of the Space Shuttle solid rocket motors
through fiscal year 2000. NASA's continued emphasis on cost
containment to control its budget combined with the Company's
emphasis on cost reductions and NASA reducing the rate from
8 to 7 flights per year should produce a slight decrease in RSRM
sales in fiscal year 1995. 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. The Company believes there are long-term
growth opportunities in the expendable launch vehicle area and has
developed the Castor 120 motor for this market. The Company was
awarded on January 6, 1995, a contract for three Castor 120 motors
in support of future Lockheed Launch Vehicle missions.
Due to reductions in U.S. Government defense spending, the Company
expects its defense systems sales and income to decline in fiscal
years 1995 and 1996. The Peacekeeper program was completed during
the first quarter of fiscal year 1994. Trident sales have decreased
from 1994 levels as missile production is reduced. The Standard
Missile program will be completed during the first quarter of fiscal
year 1996. Decreased defense spending has created a highly
competitive pricing environment for tactical programs and a decline
in new program opportunities. The propulsion industry is characterized
by overcapacity. Industry consolidation of this business segment is
possible. Sales from the company-operated U.S. Army ordnance plants
will decline significantly in fiscal year 1995. Both of the
company-operated plants are on the Army's closure list but may be
maintained in an inactive status for an indefinite period. All U.S.
Army directed production is expected to be completed during fiscal
year 1995. The Company has negotiated long-term contracts for
maintaining the plants, managing inventory, and performing other
non-production related projects. In response to this current
environment, the Company has downsized operations and continues to
evaluate further actions to match current and projected operating
cost with the expected business base. The Company is pursuing
demilitarization opportunities in the United States and
internationally.
The Company, as part of a joint venture, manufactures the first and
second stage of the three stage Trident missile. The prime
contractor of the Trident program has issued a request for proposal
with the intent to lower program costs by combining propellant
activities and final motor assembly for all three stages at a single
site under common program management. The Company, along with its
joint-venture partner have responded to the request. While the
outcome is uncertain, the Company expects continuing involvement
with the Trident program.
Fastening systems accounted for approximately 18 percent of operating
profit for the six month period, compared to 14 percent last year.
Industrial profit margins increased significantly over 1994. Domestic
and foreign aerospace profits continue to be low, due to a slow
commercial airplane market, a depressed European economy and higher
than expected aerospace certification costs. Due to continuing
efforts to improve manufacturing efficiencies and the strong
industrial markets, the Company anticipates sales and operating
margins to increase during 1995.
<PAGE>11
The Internal Revenue Service has completed its examination of federal
income tax returns through fiscal year 1985. Based upon preliminary
understandings, substantial tax refunds and interest payments may be
received by the Company. Such interest and a portion of the taxes
refunded will be recognized as income as audits are finalized.
Liquidity and Capital Resources
-------------------------------
Cash flow from operations was $66.2 million compared to $36.9 million
in fiscal year 1994. The difference resulted principally from a
$56.2 million decrease in receivables in 1995 compared to a $30.4
million decrease last year and a smaller decrease in accounts payable
and accrued expenses in 1995.
Investing activities consisted of purchases of property, plant and
equipment of $19.2 million compared to $6.6 million in 1994. Higher
capital expenditures are expected in the third and fourth quarters
of fiscal year 1995 reflecting efforts to increase industrial
fastener systems production capacity and initial capital spending at
the Yellow Creek nozzle facility.
Cash flow used for financing activities of $7.1 million decreased
$18.1 million from last year. The majority of the decrease was due
to a $17.2 million decrease in the purchase of common stock compared
to 1994. During 1995 approximately 286,000 shares of common stock
were repurchased under the 1.5 million share repurchase program
announced in June 1994. Earnings per share increased 9 percent
compared to 1994 due to the reduction in outstanding shares.
Thiokol's current ratio at December 31, 1994, was 2.8, a slight
increase from 2.5 at June 30, 1994. Working capital at December
31, 1994, of $226.0 million increased $9.4 million since June 30,
1994.
The Company has current outstanding authorizations for capital
expenditures of approximately $110 million. A large portion of
the capital investment will be expended to complete a nozzle
facility at NASA's Yellow Creek, Mississippi complex. The
Company has agreed with NASA to transfer its RSRM nozzle
manufacturing operation in Utah to the new facility at Yellow
Creek.
Future estimated cash flow from operations, current financial
resources and available credit facilities are expected to be
adequate to fund the Company's anticipated working capital
requirements, capital expenditures, dividend payments and stock
repurchase program for the current fiscal year. As of December
31, 1994, the Company had available, but unused, a revolving
credit facility of $100 million.
<PAGE>12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter the Company completed a settlement with the State
of Utah of a previously disclosed directive relating to water
discharges at the Company's Northern Utah facilities. As agreed to
with the State of Utah, payments of $38,000 and $66,800 were made to
the Bear River Association of Governments and the Bear River Health
Department respectively, thus completing the Company's obligation
under this matter.
Item 5. OTHER INFORMATION
On January 26, 1995, subsequent to the end of the quarter, the board
of directors of the Company was increased from eight to ten members
by appointing General Michael P.C. Carns, USAF retired, and former
TRW Inc. executive Edsel D. Dunford.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No 8-K reports were filed during the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
THIOKOL CORPORATION
(Registrant)
Date: February 6, 1995 /s/ Richard L. Corbin
----------------------- ---------------------------------
Richard L. Corbin
Senior Vice President
and Chief Financial Officer
/s/ Royce W. Searle
---------------------------------
Royce W. Searle
Vice President and Controller
and Chief Accounting Officer
This schedule contains summary financial information extracted from Thiokol
Corporation financial statements incorporated in the Form 10-Q for the period
ending December 31, 1994, and is qualified in its entirety by reference to such
financial statements.
[/LEGEND]
[RESTATED]
<TABLE>
<S> <C>
[PERIOD-TYPE] QTR-2
[FISCAL-YEAR-END] JUN-30-1994
[PERIOD-START] JUL-01-1994
[PERIOD-END] DEC-31-1994
[CASH] 79,974
[SECURITIES] 0
[RECEIVABLES] 140,341
[ALLOWANCES] 1,111
[INVENTORY] 123,921
[CURRENT-ASSETS] 350,565
[PP&E] 641,095
[DEPRECIATION] 316,937
[TOTAL-ASSETS] 792,481
[CURRENT-LIABILITIES] 124,567
[BONDS] 88,013
[COMMON] 20,538
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 377,386
[TOTAL-LIABILITY-AND-EQUITY] 792,481
[SALES] 456,788
[TOTAL-REVENUES] 458,760
[CGS] 369,295
[TOTAL-COSTS] 379,363
[OTHER-EXPENSES] 31,675
[LOSS-PROVISION] 180
[INTEREST-EXPENSE] 5,437
[INCOME-PRETAX] 42,285
[INCOME-TAX] 16,703
[INCOME-CONTINUING] 25,582
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 25,582
[EPS-PRIMARY] 1.36
[EPS-DILUTED] 1.35
</TABLE>
