UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________.
Commission file number 1-6179
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
Indicate by check mark whether the registrant (1) has
filed all reports 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 share outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at October 31, 1996
Common Stock, $1.00 par value 18,235,563
<PAGE>
THIOKOL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
September 30, 1996
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations - Three months
ended September 30, 1996 and 1995 3
Consolidated Balance Sheets -
September 30, 1996 and June 30, 1996 4
Consolidated Statements of Cash Flows - Three
months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended
September 30
---------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $197,952 $222,943
Operating expenses:
Cost of sales 163,668 180,739
General and administrative 18,827 16,916
Research and development 2,789 3,182
- ----------------------------------------------------------------------------------------------------------
185,284 200,837
Income from operations 12,668 22,106
Equity income, Howmet 5,083
Interest income 7,163 575
Interest expense (708) (701)
- ----------------------------------------------------------------------------------------------------------
Income before income taxes 24,206 21,980
Income taxes 4,976 8,792
- ----------------------------------------------------------------------------------------------------------
Net income $ 19,230 $ 13,188
==========================================================================================================
Net income per share $ 1.03 $ .71
==========================================================================================================
Dividends per share $ .17 $ .17
==========================================================================================================
Average number of common and common
equivalent shares outstanding 18,623 18,561
==========================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30 June 30
1996 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Current assets
Cash and cash equivalents $ 7,326 $ 15,122
Receivables 157,129 162,595
Inventories 91,698 91,400
Deferred tax assets 28,008 27,819
Prepaid expenses 6,830 3,562
- --------------------------------------------------------------------------------------------------------
Total current assets 290,991 300,498
Property, plant and equipment, at cost
less allowances for depreciation 291,180 286,684
Other assets
Equity investment in Howmet 155,627 150,544
Costs in excess of net assets of businesses
acquired, less amortization 27,446 27,707
Patents and other intangible assets 15,708 16,369
Other non-current assets 37,158 36,545
- --------------------------------------------------------------------------------------------------------
$818,110 $818,347
========================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $ 54,133 $ 62,681
Accounts payable 23,040 25,882
Accrued compensation 32,784 42,175
Other accrued expenses 50,109 51,015
- --------------------------------------------------------------------------------------------------------
Total current liabilities 160,066 181,753
Long-term debt 2,093 2,187
Accrued retiree benefits 70,473 70,427
Deferred income taxes 40,015 39,839
Accrued interest and other non-current liabilities 80,969 76,327
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 44,323 44,184
Retained earnings 461,046 444,946
- --------------------------------------------------------------------------------------------------------
525,907 509,668
Less cost of common stock in treasury
2,298 shares, September 30, 1996 and
2,314 shares, June 30, 1996 (61,413) (61,854)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 464,494 447,814
- --------------------------------------------------------------------------------------------------------
$818,110 $818,347
========================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended
September 30
-------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 19,230 $ 13,188
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,281 8,874
Equity income (5,083)
Changes in operating assets and liabilities:
Receivables 5,456 86,381
Inventories and prepaid expenses (3,550) (6,333)
Accounts payable and accrued expenses (20,513) (13,710)
Income taxes 7,271 1,790
Other 3,622 4,470
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 16,714 94,660
Investing Activities
Purchases of property, plant and equipment (13,753) (3,790)
Proceeds from disposal of assets 422 157
- ------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (13,331) (3,633)
Financing Activities
Net change in short-term debt (8,543) (28,034)
Repayment of long-term debt (86) (84)
Dividends paid (3,130) (3,106)
Stock option transactions 580 1,063
- ------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (11,179) (30,161)
(Decrease) increase in cash and cash equivalents (7,796) 60,866
Cash and cash equivalents at beginning of year 15,122 13,216
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,326 $ 74,082
==================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
THIOKOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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, 1996, reflects
the Company's audited consolidated financial statements at that date. In
the opinion of management all adjustments considered necessary for a fair
presentation have been included. Operating results for the three months
ended September 30, 1996, are not necessarily indicative of the results to
be expected for the fiscal year ending June 30, 1997. 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, 1996.
Restructuring And Impairment
As a result of a comprehensive review of the Company's operating
performance in Europe, a pre-tax restructuring charge of $5.9 million was
recognized in the second quarter of fiscal year 1996 related to the
anticipated shutdown of the fastening system's Germany manufacturing
operations. Approximately $.3 million of additional unaccrued period costs
will be incurred over the next 6 months relating to the transfer of
production equipment for continuing product lines to be manufactured at the
Company's plant in France. During the third quarter of 1996, the Company
notified the 82 affected employees of the Germany plant shutdown. The
charge includes $3.6 million of employee severance expense and $1.7 million
write down of long-lived assets
The severance benefits are included under "accrued compensation" in the
consolidated balance sheet and relate to the 82 employees classified as
follows:
Remaining Identified
Terminations Terminations
September 30 December 31
1996 1995
- ---------------------------------------------------------------------------
Production 43 57
Administration and finance 2 18
Sales 7
- ---------------------------------------------------------------------------
45 82
===========================================================================
During the 1993-1994 defense industry downturn, pricing pressures required
the Company to reduce operating costs to remain competitive. During the
third quarter of 1995, the Board determined a consolidation of the
Company's manufacturing facilities and associated write down of assets was
required. The Company recorded a $61.4 million pre-tax defense systems
<PAGE>
restructuring and related impairment charge including a $20 million write
down for impaired long-lived assets and a $23.6 million write down of
goodwill. Fair value of goodwill and fixed asset write downs was determined
by estimating discounted cash flows from future defense and non-shuttle
vehicle operations. Also included was an estimated restructuring loss of
$10.5 million on the disposition of fixed assets from two manufacturing
facilities (Huntsville and Omneco), and a $7.3 million cash restructuring
charge for costs related to the facility closures, including $2.3 million
of employee severance costs. The restructuring included 360 employee
terminations. Fair value of the Huntsville and Omneco assets was based on
estimated cash proceeds from asset sales net of the costs of disposal. The
closure of the Omneco facility is complete, except for the sale of the land
and building. The closure of the Huntsville facility is expected to be
completed in the second quarter of fiscal year 1997.
The severance benefits included in the consolidated balance sheet relate to
the 360 employees classified as follows:
Remaining Identified
Terminations Terminations
September 30 March 31
1996 1995
- ---------------------------------------------------------------------------
Production 17 267
Administration and finance 6 93
- ---------------------------------------------------------------------------
23 360
===========================================================================
A summary of restructuring reserve activity by program follows:
<TABLE>
<CAPTION>
U.S. Germany
Plants Plant
(in thousands) Shutdown Shutdown Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve Balance at March 31, 1995 $17,780 $17,780
Reductions (noncash) (555) (555)
Payments made (284) (284)
-----------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 16,941 16,941
Fastening Systems restructuring $5,906 5,906
Reductions (noncash) (8,699) (2,309) (11,008)
Payments made (875) (875)
-----------------------------------------------------------------------------------------------------------
Reserve Balance at June 30, 1996 7,367 3,597 10,964
Payments made (571) (1,380) (1,951)
-----------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ 6,796 $2,217 $ 9,013
===========================================================================================================
</TABLE>
Cash related restructuring charges of $2.5 million are expected to be paid
during the second quarter. The remaining expenses are expected to be paid
over future periods. The Company is negotiating with the government for
recovery of certain of these costs. The Company estimates a savings of
approximately $2.3 million in amortization and depreciation and
approximately $7 million in overhead reduction annually as a result of
these actions.
<PAGE>
Receivables
The components of receivables are as follows:
September 30 June 30
(in thousands) 1996 1996
- ---------------------------------------------------------------------------
Receivables under U.S. Government contracts
and subcontracts $ 85,481 $101,987
Income tax refund receivable and related interest 20,321 5,731
Trade accounts receivable 49,714 54,344
Other current receivables 1,613 533
- ---------------------------------------------------------------------------
$157,129 $162,595
===========================================================================
Receivables under government contracts and subcontracts include unbilled
costs and accrued profits primarily consisting of revenues recognized on
contracts that have not been billed. Such amounts are billed based on
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 $60.5 million, at September 30, 1996, 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 in fiscal year 2001. Unanticipated program 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 government or be directly reimbursed.
Circumstances which could erode cost management performance include a
failure of a Company supplied component, performance problems with the RSRM
leading to a major redesign and/or requalification effort, manufacturing
problems including supplier problems which result in RSRM production
interruptions or delays, and major industrial safety incidents. RSRM fee
advances in excess of related costs of $13.2 and $24.9 million at September
30, 1996 and June 30, 1996, respectively, are included in "other accrued
expenses and liabilities" in the balance sheet.
<PAGE>
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:
September 30 June 30
(in thousands) 1996 1996
- ---------------------------------------------------------------------------
Finished goods $40,799 $42,364
Raw materials and work-in-process 43,995 43,126
Inventoried costs related to U.S. Government
and other long-term contracts 26,333 22,623
Progress payments received on long-term
contracts (19,429) (16,713)
- ---------------------------------------------------------------------------
$91,698 $91,400
===========================================================================
Equity Investment In Howmet
During the second quarter of fiscal year 1996, the Company and the Carlyle
Group (Carlyle), a private merchant investment firm, formed a jointly owned
company, Blade Acquisition Corp. (Blade), to acquire Howmet Corporation and
the Cercast Group of companies, referred to collectively in the financial
statements as Howmet. Carlyle owns 51 percent and Thiokol owns 49 percent
of the Blade voting common stock. In addition to the Company's $96 million
equity investment in Blade voting common stock, the Company also invested
$50 million in Blade for 9 percent paid-in-kind non-voting preferred stock.
The Company accounts for its 49 percent minority voting common stock
investment in Blade using the equity method.
On December 13, 1995, the acquisition of Howmet was completed for
approximately $771.6 million ($746.4 million plus an additional $25.2
million of related fees and expenses). The acquisition of Howmet by Blade
was accounted for by the purchase method. The acquisition was financed by a
$250 million equity investment from the Company and Carlyle, $470.2 million
of Howmet nonrecourse debt, and a $51.4 million receivable facility. The
Company has a three-year option to acquire Carlyle's interest in Howmet at
fair market value beginning after December 13, 1998. Subject to favorable
Howmet financial and operating performance and favorable conditions in the
financial markets, the Company expects to exercise its option.
As part of the purchase, Howmet received indemnifications from the seller,
secured by bank letters of credit, for liabilities over amounts reserved
relating to environmental and certain other obligations existing at the
purchase date.
<PAGE>
A summary of Howmet's financial information is as follows:
September 30 June 30
(in thousands) 1996 1996
- --------------------------------------------------------------------------
Current assets $ 284,255 $ 324,666
Noncurrent assets 761,931 782,270
- --------------------------------------------------------------------------
Total assets $1,046,186 $1,106,936
==========================================================================
Current liabilities $ 314,271 $ 338,881
Noncurrent liabilities 472,014 516,999
- --------------------------------------------------------------------------
Total liabilities 786,285 855,880
Preferred stock 53,692 52,511
Common stockholders' equity 206,209 198,545
- --------------------------------------------------------------------------
Total liabilities and equity $1,046,186 $1,106,936
==========================================================================
Three Months Ended
September 30
(in thousands) 1996
- --------------------------------------------------------------------------
Net sales $278,537
Cost of goods sold 213,392
Gross profit 65,145
Operating income 28,216
Net income $ 9,144
==========================================================================
A reconciliation of Howmet's net income to the Company's equity income and
investment in Howmet are as follows:
Three Months Ended
September 30
(in thousands) 1996
- --------------------------------------------------------------------------
Howmet net income $ 9,144
Less preferred paid-in-kind dividend (1,181)
- --------------------------------------------------------------------------
Net income available to common shareholders 7,963
- --------------------------------------------------------------------------
Company's 49% interest in Howmet 3,902
Add preferred paid-in-kind dividend 1,181
- --------------------------------------------------------------------------
Equity income 5,083
Beginning of period equity investment in Howmet 150,544
- --------------------------------------------------------------------------
Equity investment in Howmet at September 30, 1996 $155,627
==========================================================================
<PAGE>
The consolidated pro forma results of operations for three month ended
September 30, 1996 and 1995, assuming the acquisition of Howmet as of July
1, 1994 are as follows:
Three Months Ended
September 30
---------------------------
(in thousands, except per share data) 1996 1995
- --------------------------------------------------------------------------
Net income $19,230 $11,395
Net income per share $ 1.03 $ .61
- --------------------------------------------------------------------------
The unaudited pro forma financial information is not necessarily indicative
of the results that would have occurred had the acquisition of Howmet taken
place for the periods presented nor are results of future operations
assured.
Environmental Matters
The Company is 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 both the Rockaway
Borough Well Field ("Klockner") site, as well as on the Rockaway Township
Well Field ("Denville") site. With respect to the Company's liability for
response costs, site remediation, and future operation maintenance costs on
both sites, the Company has recorded a $10.1 million liability. In addition
to the above sites the Company is involved with other locations involving
environmental issues.
The current estimated liability for all of the Company's environmental
remediation is $20 million, and is classified in "accrued interest and
other." The Company believes that any liability beyond the above amount
recorded will not have a material adverse effect on the Company's future
results of operations or financial position. The Company collected
approximately $8.7 million from insurance companies during fiscal year
1996. The Company expects to recover from insurance, third parties and the
government additional amounts as expenses are incurred.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED)
Results of Operations
Income for the First Quarter
Net income for the first quarter ended September 30, 1996 was $19.2 million
or $1.03 per share, a 45 percent increase compared to $13.2 million or $.71
per share last year. Net income for the first quarter included recognition
of $7 million of pre-tax interest income related to federal income taxes
and a $3 million refund of income taxes resulting in a net after-tax impact
of $7.35 million or $.39 per share. Sales for the current quarter of $198
million decreased 11 percent when compared to $222.9 million last year.
The increase in net income for the quarter resulted from the recognition of
$5.1 million of equity income from the Company's 49 percent investment in
Howmet and the tax refund and related interest. The prior year's quarter
was favorably impacted by an increase in the cost management incentive fee
recognized on the Space Shuttle Reusable Solid Rocket Motor (RSRM) program.
Lower defense system and fastening system income also impacted the current
quarter. Summary financial information follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30
----------------------------------------------------------------
(in thousands except per share data) 1996 1995 Change Percent
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Space systems sales $ 94,287 $106,130 $(11,843) (11)%
Defense systems sales 42,850 60,036 (17,186) (29)
Fastening systems sales 60,815 56,777 4,038 7
- -------------------------------------------------------------------------------------------------------------------------
Total sales $197,952 $222,943 $(24,991) (11)%
- -------------------------------------------------------------------------------------------------------------------------
Space systems income $ 8,008 $ 14,643 $ (6,635) (45)%
Defense systems income 3,423 5,067 (1,644) (32)
Fastening systems income 2,852 4,016 (1,164) (29)
Unallocated corporate expense (1,615) (1,620) 5 (0)
- -------------------------------------------------------------------------------------------------------------------------
Operating income 12,668 22,106 (9,438) (43)%
Equity income, Howmet 5,083 5,083
Tax interest and other income 7,163 575 6,588 1,146
Interest expense (708) (701) (7) 1
Income taxes (4,976) (8,792) 3,816 (43)
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 19,230 $ 13,188 $ 6,042 46 %
- -------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 1.03 $ .71 $ .32 45 %
- -------------------------------------------------------------------------------------------------------------------------
Average equivalent shares outstanding 18,623 18,561 62 %
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
BUSINESS SEGMENT SALES AND INCOME FOR THE QUARTER
Space Systems
Space Systems sales decrease is primarily due to completing the KSC Space
Shuttle processing contract during the first quarter last year. RSRM
contract margins were increased in the first quarter last year resulting in
a retroactive profit accrual ($4.8 million). RSRM margins remained constant
for the quarter with the first quarter last year excluding the retroactive
impact. The RSRM experienced unusual nozzle erosion on the last flight
(STS-flight 79 on September 16, 1996), which requires engineering
evaluations prior to the next scheduled flight. Although this erosion was
experienced, flight safety was not jeopardized. The Company periodically
evaluates the RSRM profit recognition based on Company performance against
contractual incentives. The Company did not increase its RSRM profit
recognition in the current quarter and, as a result, did not recognize
retroactive profit as compared to the prior year quarter. The Company will
evaluate the RSRM profit rate during the second quarter.
During the quarter, sales and profit derived from production of the RSRM
accounted for approximately 45 percent of consolidated net sales and 65
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. Current long-term NASA planning includes a
follow-on RSRM contract. NASA's continued emphasis on cost containment
combined with the Company's emphasis on cost reductions should produce a
decrease in RSRM sales in fiscal year 1997.
Non RSRM Space sales and income remain dependent on the Company's
successful requalification and flight performance of the Castor(R) IV-A
motors and successful flight performance of the Castor(R) 120 motors under
contract.
Defense Systems
The decline in Defense Systems sales of $17.2 million and income of $1.6
million reflects a decrease in the level of Navy Trident program activity
and the completion of various defense programs last year. Sales in the
current quarter were favorably affected by higher demilitarization program
revenues and missile defense sales.
The Company expects defense systems sales and income to continue declining
during the remainder of fiscal 1997 on lower levels of federal government
defense spending. Trident sales and profits are expected to stabilize
during the year compared to 1996 predicated on the Navy's continuation of
the program at current levels and successful program performance. Standard
Missile, Patriot, Maverik, Sidewinder, and Hellfire motor production was
completed during 1996. Declining defense spending continues to create a
highly competitive pricing environment and reduced opportunities for new
tactical propulsion programs in an industry continuing to be characterized
by over capacity.
<PAGE>
The Army has announced the termination of the Company's facilities
maintenance contracts for both the Longhorn and Louisiana Government-owned
Company operated ("GOCO") Army ammunition plants effective June 30, 1997.
Sales and income from these GOCO plants will not be significant during the
year.
Fastening Systems Sales
Fastening Systems results show a $4 million sales increase reflecting
improving domestic aerospace markets and improvements in international
aerospace and industrial revenues. Operating income for the quarter was
negatively impacted by lower domestic industrial income caused by weak
transportation markets and $.8 million of unaccrued restructuring costs
related to moving equipment out of Germany. Aerospace sales increased which
have a lower margin than industrial sales which decreased compared to the
prior year quarter. This change in sales mix contributed to the decrease in
quarterly income. International industrial income positively impacted the
current quarter's income.
Fastening systems sales and income are anticipated to increase over 1996
(excluding the prior years inventory and restructuring charges). Sales and
income from industrial fasteners are projected to decrease slightly due to
a slowdown in the transportation markets. Aerospace fastener revenues and
operating margins should increase over 1996 as the commercial aircraft
build rates continue to increase after several years of decreases. Losses
at the Lakewood, California aerospace facility are expected to continue to
decline during the second quarter and break even is anticipated in the
third quarter of fiscal year 1997. International operating margins have
been negatively impacted by an increase in low margin product sales and new
product marketing costs. However, international margins are anticipated to
increase after the shutdown of the Germany facility is completed in the
second quarter.
<PAGE>
Income Taxes and Other Activities
The following table summarizes the impact on earnings and earnings per
share of major items affecting both years:
<TABLE>
<CAPTION>
September 30
-------------------------------------------------------------------
Earnings
After-tax income Per Share
------------------------------ -----------------------------
(in millions) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before unusual items $ 7.2 $ 13.2 $ .39 $ .71
Income tax interest income and refund 7.3 .39
Equity Income, Howmet 4.7 .25
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 19.2 $ 13.2 $ 1.03 $ .71
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the quarter, the Internal Revenue Service finalized the audit of tax
years 1986 through 1993, which will result in a net cash refund of accrued
interest and income taxes of approximately $14.6 million. The refund
favorably impacted net after tax income for the quarter by $7.35 million.
The remainder of the refund relating to timing issues will be used to pay
corresponding tax and interest liabilities. The Company has concluded all
audits through 1993 of its federal income tax liabilities.
An effective income tax rate of 20.6 percent compared to 40 percent last
year reflects recognition of a $3 million income tax credit for the period
1986 through 1993 and a lower effective tax rate on the Company's
recognition of Howmet equity income.
For the quarter, general and administrative expenses increased $1.9 million
to $18.8 million or 11 percent compared to last year. Unaccrued charges of
$.8 million relating to the German restructuring and relocation of the
fastening systems Corporate office negatively impacted income for the
quarter.
The Company recognized $4.7 million or $.25 per share net after tax income
reflecting the Company's proportional share of Howmet income accounted by
the equity method. Howmet equity income based on the Company's 49 percent
equity investment contributed materially to the Company's after tax income
for the quarter and is expected to contribute materially to income for the
remainder of 1997. Howmet's financial results for the quarter reflect
continuing strong financial and operating performance derived from the
industry forecasted recovery of commercial aircraft markets and
improvements in the industrial gas turbine markets.
Liquidity and Capital Resources
For the first quarter, net cash flows from operating activities were $16.7
million compared to $94.6 million for 1996. The change reflects collection
of the $79.6 million federal income tax receivable during the first quarter
of 1996 and the non cash recognition of Howmet equity income for the
current quarter. Investing activities consisted primarily of capital
spending on property, plant and equipment of $13.3 million compared to $3.6
million in 1996. Cash flows contributed from financing activities were
$11.2 million, a $30.2 million decrease compared to last year. Short term
debt decreased $8.5 million compared to $28 million last year.
<PAGE>
There are 625,400 shares remaining for repurchase under the Company's 1.5
million share repurchase authorization at such times and conditions
determined to be appropriate by the Company.
At September 30, 1996, the Company's current ratio was 1.8; debt-to-equity
ratio 12.1 percent; and working capital of $130.9 million, a $12.2 million
increase from June 30, 1996.
The Company has currently outstanding authorizations for $33 million in
capital spending. Estimated future cash flows 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. The
Company may incur significant additional debt in the event of the exercise
of its three year option to acquire Carlyle's 51 percent equity interest in
Howmet. The consolidated debt of the combined companies would significantly
increase the Company's debt-to-equity ratio.
At September 30, 1996, the Company had available $190 million revolving
credit facilities of which $171 million remains unused. The Company's $300
million shelf registration statement filed with the Securities and Exchange
Commission became effective October 16, 1996, and permits the Company
access to the public markets for the issuance of long-term financing with
amounts, type, and timing as considered appropriate.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 17, 1996, the Company filed an action seeking payment of
government-approved benefits costs that arose under its cost-reimbursement
contracts with the government for operation and management of GOCO Army
ammunition plants in Texas and Louisiana. The Company seeks approximately
$8 million for costs incurred to date and approximately $32 million for
future estimated costs with interest. The Company expects to prevail in
this litigation, but if it does not, the Company would as of September 30,
1996, recognize approximately $8 million in non-cash charges.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on October 24,
1996. The results of the following matters presented to stockholders for
vote in person or by proxy include:
1) The election of four directors to serve for a three year term
expiring at the 1999 Annual Meeting.
Name For Against
-------------------- --------------- -------
Neil A. Armstrong 16,211,749 64,412
Charles S. Locke 16,201,610 74,551
William O. Studeman 16,212,409 63,752
Donald C. Trauscht 16,212,626 63,535
2) Proposal to adopt the Thiokol Corporation 1996 Stock Awards Plan.
For: 10,556,389 shares. Against: 4,222,438 shares
Abstain: 78,767 shares.
3) Ratification of appointment of Ernst & Young, LLP as the
independent auditors for the Company for the fiscal year June 30,
1997.
For: 16,236,517 shares. Against: 14,766 shares
Abstain: 24,878 shares.
ITEM 5. OTHER INFORMATION
On October 18, 1996, the Company named Robert Crippen, 59, to the newly
created position of President, Thiokol Aerospace Group. Mr. Crippen, former
Director of the Kennedy Space Center and astronaut, has completed a 26 year
career with NASA.
<PAGE>
Cautionary statements identifying factors that may cause actual results to
differ from those results in forward looking statements have been filed by
the Company on Form 8-K, May 15, 1996, and Form 10-K for the fiscal year
ended June 30, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On July 30, 1996, the Company filed a Form 8-KA amending Item 2,
Acquisition or Disposition of Assets to Form 8-K, filed on December 31,
1995. The amendment reflects the Company's response to the Securities and
Exchange Commission's Comment Letter regarding the Company's then pending
Form S-3 Registration Statement.
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: November 12, 1996 /s/ Richard L. Corbin
--------------------------
Richard L. Corbin, Senior
Vice President and Chief
Financial Officer
/s/ Michael R. Ayers
--------------------------
Michael R. Ayers,
Vice President
and Controller
<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>
<RESTATED>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 7,326
<SECURITIES> 0
<RECEIVABLES> 158,452
<ALLOWANCES> 1,323
<INVENTORY> 91,698
<CURRENT-ASSETS> 290,991
<PP&E> 599,763
<DEPRECIATION> 308,583
<TOTAL-ASSETS> 818,110
<CURRENT-LIABILITIES> 160,066
<BONDS> 2,093
<COMMON> 20,538
0
0
<OTHER-SE> 443,956
<TOTAL-LIABILITY-AND-EQUITY> 818,110
<SALES> 197,952
<TOTAL-REVENUES> 210,531
<CGS> 163,668
<TOTAL-COSTS> 169,028
<OTHER-EXPENSES> 16,256
<LOSS-PROVISION> 339
<INTEREST-EXPENSE> 708
<INCOME-PRETAX> 24,206
<INCOME-TAX> 4,976
<INCOME-CONTINUING> 19,230
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<EXTRAORDINARY> 0
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<NET-INCOME> 19,230
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
