SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
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
2475 Washington Boulevard, Ogden, Utah 84401
Telephone Number: (801) 629-2000
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.
Common Stock, $1.00 par value, outstanding at April 30, 1997: 18,317,014
<PAGE>
THIOKOL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
March 31, 1997
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations - Three months
ended and Nine months ended March 31, 1997 and 1996 3
Consolidated Balance Sheets -
March 31, 1997 and June 30, 1996 4
Consolidated Statements of Cash Flows - Nine
months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
PART II. OTHER INFORMATION
ITEM 5. Other Information 18-20
ITEM 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
<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 Nine Months Ended
March 31 March 31
---------------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $226,587 $228,937 $634,536 $661,777
Operating expenses:
Cost of sales 184,338 192,213 513,580 548,413
General and administrative 18,636 20,317 58,659 54,694
Research and development 3,161 3,159 8,683 9,428
Restructuring (2,219) 5,906
- ---------------------------------------------------------------------------------------------------------------------
206,135 215,689 578,703 618,441
Income from operations 20,452 13,248 55,833 43,336
Equity income, Howmet 8,228 1,696 18,756 1,696
Interest income 1,743 464 9,178 30,089
Interest expense (289) (1,562) (1,459) (3,077)
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 30,134 13,846 82,308 72,044
Income taxes 9,322 4,317 23,567 27,036
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 20,812 $ 9,529 $ 58,741 $ 45,008
=====================================================================================================================
Net income per share $ 1.12 $ .52 $ 3.15 $ 2.43
=====================================================================================================================
Dividends per share $ .17 $ .17 $ .51 $ .51
=====================================================================================================================
Average number of common and common
equivalent shares outstanding 18,738 18,551 18,635 18,554
=====================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31 June 30
1997 1996
- ---------------------------------------------------------------------------------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 24,404 $ 15,122
Receivables 152,664 162,595
Inventories 83,991 91,400
Deferred income tax assets and prepaid expenses 30,409 31,381
- ---------------------------------------------------------------------------------------------------
Total current assets 291,468 300,498
Property, plant and equipment, at cost
less allowances for depreciation 287,094 286,684
Other assets
Equity investment in Howmet 169,300 150,544
Costs in excess of net assets of businesses
acquired, less amortization 26,924 27,707
Patents and other intangible assets 14,615 16,369
Other non-current assets 41,532 36,545
- ---------------------------------------------------------------------------------------------------
$830,933 $818,347
===================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $ 22,179 $ 62,681
Accounts payable 35,323 25,882
Accrued compensation 35,468 42,175
Other accrued expenses 43,027 51,015
- ---------------------------------------------------------------------------------------------------
Total current liabilities 135,997 181,753
Noncurrent liabilities
Accrued retiree benefits 70,433 70,427
Deferred income taxes 41,156 39,839
Accrued interest and other non-current liabilities 84,147 78,514
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 43,641 44,184
Retained earnings 494,282 444,946
- ---------------------------------------------------------------------------------------------------
558,461 509,668
Less cost of common stock in treasury
2,221 shares, March 31, 1997 and
2,314 shares, June 30, 1996 (59,261) (61,854)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 499,200 447,814
- ---------------------------------------------------------------------------------------------------
$830,933 $818,347
===================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
March 31
-------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 58,741 $ 45,008
Adjustments to reconcile net income to net cash
provided by operating activities:
Restructuring (2,219) 5,906
Depreciation and amortization 29,842 27,255
Equity income (18,756) (1,696)
Changes in operating assets and liabilities:
Receivables 9,885 110,102
Inventories and prepaid expenses 7,729 23,526
Accounts payable and accrued expenses (5,626) (24,635)
Income taxes 4,117 (11,916)
Other (3,419) (22,250)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 80,294 151,300
Investing Activities
Investment in Howmet (146,000)
Purchases of property, plant and equipment (26,886) (21,258)
Proceeds from disposal of assets 2,159 6,161
- --------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (24,727) (161,097)
Financing Activities
Net change in short-term debt (38,762) 19,391
Repayment of long-term debt (168) (176)
Dividends paid (9,405) (9,323)
Purchase of common stock for treasury (4,321)
Stock option transactions 2,050 2,094
- --------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities (46,285) 7,665
Increase (decrease) in cash and cash equivalents 9,282 (2,132)
Cash and cash equivalents at beginning of year 15,122 13,216
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 24,404 $ 11,084
==============================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
THIOKOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 nine months
ended March 31, 1997, 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
- ----------------------------
The Company's defense and fastening systems restructuring programs were
completed in the current year's second quarter. The restructuring programs,
initiated to reduce the Company's operating costs and improve
profitability, involved a reduction of personnel and the closing of certain
locations and relocation of operations in both the United States and
Europe. The charges included severance, as well as the write-off of
goodwill and fixed assets. The defense system restructuring plan announced
in the third quarter of fiscal 1995, included domestic pre-tax charges of
$61.4 million ($49.2 million or $2.62 per share after tax). The fastening
system restructuring plan announced in the second quarter of fiscal 1996
included foreign pre-tax charges of $5.9 million ($5.9 million or $.32 per
share after tax). During the second quarter of the current fiscal year, the
restructuring was completed and the remaining excess reserves from both
programs were closed and credited to income. The defense and the fastening
systems segments recognized $1.4 million and $.8 million in income,
respectively. The restructuring charges included reserves for certain
issues that have not currently been resolved but which the Company believes
will be adequate to cover future costs if they are incurred.
<PAGE>
Receivables
- -----------
The components of receivables are as follows:
March 31 June 30
(in thousands) 1997 1996
- --------------------------------------------------------------------------
Receivables under U.S. Government contracts
and subcontracts $ 96,596 $101,987
Income tax refund receivable and related interest 5,731
Trade accounts receivable 54,216 54,344
Other current receivables 1,852 533
- --------------------------------------------------------------------------
$152,664 $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. The balance includes approximately
$11 million of disputed costs with the federal government related primarily
to government approved benefit costs that arose under cost reimbursement
contracts with the Army ammunition plant in Texas and Louisiana. The
Company has filed an action seeking reimbursement of these and future costs
with interest. 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 totaling $78.2 million, at March 31, 1997, 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 cost
management award fees remain at risk until contract completion 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 some or all of the recognized cost
management award fees to be reversed and would be offset against receivable
amounts from the government or be directly reimbursed. Circumstances which
could erode cost management performance include 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 safety incidents.
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.
Inventories for the fastening systems segment are determined by the
first-in, first-out (FIFO) method and are net of reserves for excess or
obsolete inventory.
<PAGE>
Inventories are summarized as follows:
March 31 June 30
(in thousands) 1997 1996
- ---------------------------------------------------------------------------
Finished goods $28,267 $42,364
Raw materials and work-in-process 52,810 43,126
Inventoried costs related to U.S.Government
and other long-term contracts 32,871 22,623
Progress payments received on long-term contracts
(29,957) (16,713)
- ---------------------------------------------------------------------------
$83,991 $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>
Summary unaudited Howmet financial information follows:
March 31 June 30
(in thousands) 1997 1996
- ---------------------------------------------------------------------------
Current assets $ 321,272 $ 324,666
Noncurrent assets 695,040 782,270
- ---------------------------------------------------------------------------
Total assets $1,016,312 $1,106,936
===========================================================================
Current liabilities $ 289,286 $ 338,881
Noncurrent liabilities 445,141 516,999
- ---------------------------------------------------------------------------
Total liabilities 734,427 855,880
Preferred stock 56,135 52,511
Common stockholders' equity 225,750 198,545
- ---------------------------------------------------------------------------
Total liabilities and equity $1,016,312 $1,106,936
===========================================================================
Three Months Ended Nine Months Ended
March 31 March 31
(in thousands) 1997 1997
- ---------------------------------------------------------------------------
Net sales $312,561 $874,559
Cost of goods sold 252,886 680,938
Gross profit 59,675 193,621
Operating income 35,787 91,123
Net income $ 15,506 $ 34,504
===========================================================================
A reconciliation of Howmet's net income to the Company's equity income and
investment in Howmet are as follows:
Nine Months Ended
March 31
(in thousands) 1997
- ---------------------------------------------------------------------------
Howmet net income $ 34,504
Less preferred paid-in-kind dividend (3,625)
- ---------------------------------------------------------------------------
Net income available to common shareholders 30,879
- ---------------------------------------------------------------------------
Company's 49% interest in Howmet 15,131
Add preferred paid-in-kind dividend 3,625
- ---------------------------------------------------------------------------
Equity income 18,756
Beginning of period equity investment in Howmet 150,544
- ---------------------------------------------------------------------------
Equity investment in Howmet at March 31, 1997 $169,300
===========================================================================
<PAGE>
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
significant costs relating to these environmental sites. The Company has
negotiated and signed a consent decree with the EPA on both the Rockaway
Borough Well Field site, as well as on the Rockaway Township Well Field
site. With respect to the Company's liability for response costs, site
remediation, and future operation and 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 Company's estimated liability for all environmental remediation is $20
million, and is classified in "other accrued expenses" and "accrued
interest and other non-current liabilities." The Company believes that any
liability exceeding amounts recorded will not have a material adverse
effect on the Company's future results of operations or financial position.
The Company has collected approximately $9.5 million in environmental
related recoveries from insurance companies during fiscal year 1996 and
1997. The Company expects to recover from the government additional amounts
as expenses are incurred.
INCOME TAXES
- ------------
The effective income tax rate for the quarter ending March 31, 1997, was
approximately 31 percent compared to approximately 38 percent for the same
period ending March 31, 1996. The effective income tax rate for the nine
months ending March 31, 1997, was approximately 29 percent compared to
approximately 38 percent for the same period ending March 31, 1996. The
primary reason for the lower rate is due to Howmet income which is taxed at
a lower effective rate of 7 percent. The Company's tax rate for both
periods also reflects certain income tax credits, which contributed to the
lower effective income tax rate.
ACCOUNTING STANDARDS
- --------------------
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share". This statement replaces the previous standard
Accounting Principles Board (APB) Opinion No. 15, "Earnings per Share".
Effective for periods ending after December 15, 1997, SFAS No. 128 requires
companies report both "basic" and "diluted" earnings per share. "Basic"
earnings per share will exclude common stock equivalents from the average
shares outstanding. "Diluted" earnings per share requires the addition of
common stock equivalents to the average shares outstanding. Average shares
outstanding is the denominator used in "basic" earnings per share
calculations. Accordingly, "basic" earnings per share will be higher than
"diluted" earnings per share. For the Company, "diluted" earnings per share
under the new standard is approximately equivalent to "primary" earnings
per share under APB No. 15, which has historically been reported. Beginning
with the second quarter ending December 1997, the Company will report both
"basic" and "diluted" earnings per share for all periods. The impact of
SFAS No. 128 on the Company's earnings per share is not expected to be
significant.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
RESULTS OF OPERATIONS
Income for the Third Quarter
- ----------------------------
Net income for the third quarter ended March 31, 1997 was $20.8 million or
$1.12 per share, compared to the prior year's quarter net income of $9.5
million or $.52 per share. The prior year's quarter was impacted by a
Fastening Systems inventory charge of $.16 per share. Excluding the prior
year's charge, the current year's quarterly net income increased $8.3
million or 66 percent.
Summary unaudited financial information follows:
<TABLE>
<CAPTION>
March 31
----------------------------------------------------------
(in thousands except per share data) 1997 1996 Change Percent
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Space systems $106,117 $101,883 $ 4,234 4 %
Defense systems 46,012 65,006 (18,994) (29)
Fastening systems 74,458 62,048 12,410 20
- ---------------------------------------------------------------------------------------------------------------------
Total sales $226,587 $228,937 $ (2,350) (1)%
=====================================================================================================================
Operating Income:
Space systems $ 11,706 $ 13,357 $ (1,651) (12)%
Defense systems 1,983 5,483 (3,500) (64)
Fastening systems 8,377 (3,971) 12,348 311
Unallocated corporate expense (1,614) (1,621) 7 -
- ---------------------------------------------------------------------------------------------------------------------
Total operating income 20,452 13,248 7,204 54
Equity income, Howmet 8,228 1,696 6,532 385
Tax interest and other income 1,743 464 1,279 276
Interest expense (289) (1,562) 1,273 (81)
Income taxes (9,322) (4,317) (5,005) 116
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 20,812 $ 9,529 $ 11,283 118 %
=====================================================================================================================
Earnings per share $ 1.12 $ .52 $ .60 115 %
=====================================================================================================================
Average equivalent shares outstanding 18,738 18,551 187 -
=====================================================================================================================
</TABLE>
<PAGE>
BUSINESS SEGMENT SALES AND INCOME FOR THE QUARTER
- -------------------------------------------------
Space Systems
- -------------
Space Systems sales increased primarily due to the addition of sales from
commercial launch motor and technology, and a retroactive profit accrual of
$3.7 million on the Reusable Solid Rocket Motor (RSRM) on the Space Shuttle
contract. Sales and income in the STAR family series of motors increased
over the prior quarter as well as last year's quarter. Space Systems income
is down 12 percent due to lower overall margins on space programs compared
to the prior year's quarter.
During the quarter, the RSRM contract accounted for sales and profit of
approximately 41 percent of consolidated net sales and 58 percent of
consolidated operating income. The current NASA cost plus-type contract
extends the Company's production of the Space Shuttle solid rocket motors
through fiscal year 2001. 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 to earn incentive
fees should produce a decrease in RSRM sales in fiscal year 1997.
Defense Systems
- ---------------
The decline in Defense Systems sales and income reflects the completion of
various defense programs last year. Sales in the current quarter were
favorably affected by higher missile defense revenues and Minuteman program
sales.
Fastening Systems Sales
- -----------------------
Fastening Systems sales increased $12.4 million or 20 percent over last
year. The growth reflects stronger worldwide commercial aircraft markets.
Industrial sales were stronger than anticipated as a result of stronger
foreign and domestic markets. Emphasis on cost reduction resulted in
improved margins over last quarter and the prior year's quarter.
Operating income for the quarter was $8.4 million compared to the prior
year's quarter loss of $4 million. The prior year's quarter included a $5
million inventory write-off. Excluding the prior year's inventory charge,
operating margins were nearly eight times the prior year's or $7.3 million
higher. Stronger domestic aerospace markets and higher international sales
paced the improvement.
<PAGE>
Income Year-To-Date
- -------------------
Net income for the nine months ended March 31, 1997, was $58.7 million or
$3.15 per share; a 30 percent increase compared to $45 million or $2.43 per
share last year. The current year's income included $17.4 million of equity
income or $.94 per share after tax, from the Company's investment in Howmet
and $7.8 million of federal income tax and interest refunds or $.42 per
share after tax. The prior year's income included interest income from
income taxes, research and income tax credits of $21.3 million after tax or
$1.15 per share, and fastening systems charges of $14.4 million after tax
or $.78 per share. Sales of $634.5 million for the nine month period
decreased 4 percent from $661.8 million last year. Excluding unusual items
in both years, year-to-date income in the current year increased by 30
percent.
Summary unaudited financial information follows:
<TABLE>
<CAPTION>
Nine Months Ended
March 31
------------------------------------------------------
(in thousands except per share data) 1997 1996 Change Percent
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Space systems $298,871 $300,651 $ (1,780) (1)%
Defense systems 133,426 185,853 (52,427) (28)
Fastening systems 202,239 175,273 26,966 15
- -----------------------------------------------------------------------------------------------------
Total sales $634,536 $661,777 $(27,241) (4)%
=====================================================================================================
Operating Income:
Space systems $ 34,276 $ 40,447 $ (6,171) (15)%
Defense systems 10,020 18,011 (7,991) (44)
Fastening systems 16,381 (10,259) 26,640 (260)
Unallocated corporate expense (4,844) (4,863) 19 -
- -----------------------------------------------------------------------------------------------------
Total operating income 55,833 43,336 12,497 29
Equity income, Howmet 18,756 1,696 17,060 1,006
Tax interest and other income 9,178 30,089 (20,911) (69)
Interest expense (1,459) (3,077) 1,618 (53)
Income taxes (23,567) (27,036) 3,469 (13)
- -----------------------------------------------------------------------------------------------------
Net income $ 58,741 $ 45,008 $ 13,733 31 %
=====================================================================================================
Earnings per share $ 3.15 $ 2.43 $ .72 30 %
=====================================================================================================
Average equivalent shares outstanding 18,635 18,554 81 - %
=====================================================================================================
</TABLE>
<PAGE>
BUSINESS SEGMENT SALES AND INCOME FOR THE NINE MONTHS
- -----------------------------------------------------
Space Systems
- -------------
Space Systems sales and income decreased due to lower space program
margins, the completion of the Kennedy Space Center Space Shuttle
processing contract during the first quarter of last year, and lower sales
on the RSRM program due to continued emphasis on cost reductions. Sales
were favorably impacted by the addition of $12 million in sales on
commercial launch motor and technology programs. Income benefited from a
retroactive profit accrual of $3.7 million on the RSRM on the Space Shuttle
contract and from $4 million in sales from solid rocket motor technology to
a foreign customer.
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 $52.4 million and income of $8.0
million reflects the completion of various defense programs last year.
Sales for the year were favorably affected by higher missile defense
revenues. The current nine month's income benefited from the successful
completion of the defense systems restructuring program, which began in the
third quarter of fiscal year 1995, and resulted in the recognition in
income of excess reserves of $1.4 million during the current year's second
quarter (See notes to financial statements).
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 motor sales and profits have declined during the
year compared to 1996 as the U.S. Navy has reduced production levels.
Standard Missile, Patriot, Maverick, Sidewinder, Sea Gnat, and Hellfire
motor production was completed during fiscal 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.
The Army has terminated the Company's facilities maintenance contracts for
both the Texas and Louisiana Government-owned Company-operated Army
ammunition plants effective June 30, 1997. Sales and income from these
plants will not be significant during the year.
<PAGE>
Fastening Systems
- -----------------
Fastening Systems sales increased $27 million or 15 percent over the same
period of the previous year. This improvement reflects the growth in both
the worldwide commercial aircraft markets and in foreign industrial sales.
Emphasis on cost reduction combined with sales increases has resulted in
steadily improving margins over last year's results.
Operating income for the nine months was $16.4 million compared to the
prior year's loss of $10.3 million. The current nine month's income
benefited from the release of $.8 million of excess reserves related to
completion of the restructuring in Germany, during the second quarter (See
notes to financial statements). The prior year's income included a
restructuring charge of $5.9 million and $12.2 million of inventory
charges. Excluding the benefit related to the completion of the
restructuring program in the current year, and restructuring and inventory
charges in the prior year, operating margins have increased to 7.7 percent.
Income increases occurred in both the aerospace and industrial markets,
paced by commercial aerospace. Foreign industrial and aerospace income
increased over the prior year's nine months.
Fastening systems sales and income are anticipated to increase over fiscal
year 1996. Aerospace and industrial fastener revenues and operating margins
should increase over 1996 as the commercial aircraft and transportation
build rates continue to improve over prior year levels. International
operating margins were negatively impacted by low margin product sales and
product transfer costs. However, international margins are anticipated to
improve, as the shutdown of the manufacturing facility in Germany has been
completed.
EQUITY INCOME
- -------------
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 the nine month's earnings, and is expected to contribute materially to
income for the remainder of fiscal 1997. Howmet's financial results for the
nine months reflect continuing strong financial and operating performance
derived from the recovery of commercial aircraft markets and improvements
in industrial gas turbine margins.
INCOME TAXES AND OTHER ACTIVITIES
- ---------------------------------
The Company had an effective income tax rate of approximately 29 percent,
compared to approximately 38 percent for the same nine months period in the
prior year. The primary reason for the lower rate is due to Howmet income
which is taxed at a lower effective rate of 7 percent. (See the notes to
the financial statements.)
<PAGE>
For the quarter and nine months ended March 31, 1997, general and
administrative expenses decreased $1.7 million and increased $4 million,
respectively, compared to the prior year periods. The year-to-date increase
was due to higher administrative and marketing expenses in the fastener
segment incurred primarily in the second quarter.
The Company expects the level of operating and financial performance
achieved during the quarter to be sustainable through the next quarter with
earnings expected to be in the range of $1.10 to $1.15 per share. Provided
there are no major program disruptions or market changes, this earnings
trend is expected to continue into fiscal year 1998.
The Company is in the process of consolidating it's Northern Utah
operations. Thiokol's Space Operations, Defense and Launch Vehicles and the
Science and Engineering groups will be combined under one organization,
Aerospace Group. The consolidation will provide a more efficient and
competitive solid rocket motor manufacturing organization to compete in the
current environment. Consolidation costs will be minimal and are expected
to be offset by savings in the periods incurred.
On March 12, 1997, the Company announced the National Space Development
Agency of Japan had selected the Company's CASTOR IVA-XL solid rocket motor
as a strap-on booster for Japan's newest launch vehicle, the H-IIA. The
CASTOR IVA-XL is manufactured by the Utah Defense and Launch Vehicle
division. Initial contract value is estimated to be approximately $50
million, depending on the number of boosters procured. A few deliveries are
anticipated in fiscal year 1998 with the majority of sales expected in
fiscal year 1999.
Liquidity and Capital Resources
- -------------------------------
For the current nine months, net cash flows from operating activities were
$80.3 million compared to $151.3 million for fiscal 1996. The decrease in
cash flows primarily reflects collection of the $79.6 million federal
income tax receivable during the 1996 first quarter. In the "other"
category, last year's cash flow was affected by the non-cash interest
income from income taxes in the second quarter.
Investing activities consisted primarily of capital spending on property,
plant and equipment of $26.9 million compared to $21.3 million in 1996. The
prior year benefited from $4 million of additional proceeds from fixed
asset disposals. Last year's investing activities also reflects the
Company's 49 percent investment in Howmet Corporation for $146 million.
Financing activities used $46.3 million of cash compared to cash provided
in the prior year of $7.7 million. Short term debt decreased $38.8 million
compared to an increase in the prior year of approximately $19.4 million to
partially fund the purchase of Howmet. Last year also reflected the
repurchase of 124,600 shares of the Company's common stock for
approximately $4.3 million.
<PAGE>
There are 625,400 shares remaining for repurchase under the Company's
current share repurchase authorization at such times and conditions
determined to be appropriate by the Company.
At March 31, 1997, the Company's current ratio was 2.14, debt-to-equity
ratio was 4.8 percent, and working capital was $155.5 million, a $36.7
million increase from June 30, 1996.
The Company currently has outstanding authorizations for $19.7 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.
Significant additional debt may be incurred in the event the Company
exercises its option to acquire Carlyle's 51 percent equity interest in
Howmet. The combined companies' consolidated debt would significantly
increase the Company's debt-to-equity ratio.
At March 31, 1997, the Company had available $165 million in revolving
credit facilities with $163 million 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 public markets to issue long-term financing with amounts, type,
and timing as considered appropriate.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company sets forth below "Cautionary Statements" for the purpose of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Many of the factors described below are discussed in both current and
prior Company SEC filings and to the extent not otherwise discussed in
forward-looking statements should be considered in assessing the various
risks associated with the Company's conduct of its business and financial
condition. Risks which may impact the Company's forward-looking statements
include but are not necessarily limited to the following:
(i) The Company's National Aeronautical and Space Administration
(NASA) Reusable Solid Rocket Motor (RSRM) contract for the Space
Shuttle program is subject to substantial performance and
financial risks. Without cause, the contract may be terminated
for the convenience of the U.S. Government (government).
Deliveries under the contract may be delayed or extended at the
election of the government. Congress may change the funding
available to the contract. Actions by the government or the
Company may make the amount of the contract fee already booked
inappropriate, thus causing a retroactive award fee adjustment
including possible reimbursement to the government of fees the
government has paid to the Company. There is no assurance the
Company will be awarded additional RSRM contracts as a follow-on
upon completion of the current "Buy III" contract expected to
continue until fiscal year 2001. If the Company is awarded such a
follow-on contract, the profitability and cash flow from such
contract may not be at current levels. NASA's proposed
privatization of the Space Shuttle Program could adversely impact
the Company's RSRM contract in the out-years.
<PAGE>
(ii) The Company's maintenance of non-RSRM space and defense contracts
including commercial launch vehicles and programs (collectively
"programs") and the availability and award of future programs
with the government and prime contractors are subject to the risk
of termination or renegotiation by the customer or failure of
such programs to be funded. The Company's ability to successfully
compete and win new programs or retain current programs is also
dependent on the availability of program funding; competition by
others with the Company for such programs on price, quality,
technology, facilities, delivery, and product performance;
changes in Congressional funding objectives; and federal agency
demand and program management including but not limited to
program termination, consolidation, or privatization. Risk
factors also include the degree the Company successfully manages
current programs, obtaining or retaining new and existing
programs, and the profitability of such programs with
satisfactory return on investment on lower prices, costs, and
unit volumes of a contracting and competitive procurement
environment.
(iii) Products and services, sold by the Company to domestic and
international commercial aerospace markets are subject to the
risks of the cyclical nature of the aerospace markets and the
phase of such cycle at any point in time. Delay or changes in
aircraft and component orders and build schedules may impact the
future demand for Company products, delivery, and profitability.
The Company's major aerospace customers are large and may
exercise their market power among a number of vendors, including
the Company, competing for their business by exerting pricing
pressure, delivery, inventory, and unit volume requirements.
Risks to the Company include management's ability to maintain
both product technology and manufacturing qualifications to meet
the needs of its major customers and regulatory agencies and
maintain or improve margins and return on investment in light of
competitive pricing pressures, unit demand and product
qualification, and product substitutions by major customers. The
Company's potential inability to maintain product technology,
pricing, as well as availability, delivery, and service are
important risk factors.
(iv) The products and services sold by the Company for domestic and
international, and industrial commercial markets, primarily
through the fastening systems business segment and the Company's
minority equity investment in Howmet Corporation, are subject to
the risks of the level of general economic activity and industry
capacity in mature industrial markets, product applications, and
technology associated primarily with aircraft, automotive,
transportation, power generation, construction, and other
industrial applications. The risks for the Company include
management's ability to successfully expand new and existing
product lines, to improve margins and returns on investment by
successfully implementing asset management, pricing and cost
reduction strategies. The Company's ability to maintain
competitive products, pricing, availability, delivery, and
service are important customer and competitor risk factors.
<PAGE>
(v) Many of the Company's products and manufacturing processes utilize
highly energetic and hazardous materials. Major liability,
employee safety, production disruptions, and asset destruction or
impairment risks exist. Unknown environmental hazards including
the designation of the Company as a responsible party in a
Superfund or similar state enforcement action by the Environmental
Protection Agency and environmental claims by third parties pose a
risk to the Company.
(vi) The exercise of the Company's option to purchase the remaining 51
percent of Howmet will in part be dependent on the favorable
operational and financial performance, favorable economic
conditions, and the availability of financing at reasonable costs
and on reasonable terms from the capital markets at the time the
Company exercises its option to acquire the balance of the equity
ownership of Howmet from the Carlyle Group.
(vii) Supplier and customer product qualifications are important to
the Company as a supplier and as a purchaser. As a supplier, loss
or failure to maintain product or manufacturing qualifications
from major customers including the government and major
commercial aerospace and aircraft manufacturers may result in
loss of markets and business for the Company. Vendor, component
parts, and raw materials qualifications are important to the
Company in the manufacture of its products including major
propulsion systems such as the RSRM. Vendor, component parts and
raw material qualifications may be limited and the loss of a
major vendor as a supplier has the potential to cause a major and
material delay in production or program management.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No 8-K reports were filed during the quarter ended March 31, 1997.
<PAGE>
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: May 13, 1997 /s/ Richard L. Corbin
-------------------------------------
Richard L. Corbin, Senior Vice
President and Chief Financial Officer
(Principal Financial Officer)
/s/ Michael R. Ayers
-------------------------------------
Michael R. Ayers, Vice President
and Controller (Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Thiokol
Corporation's Consolidated Balance Sheet at March 31, 1997, and
Consolidated Statements of Operations at March 31, 1997, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 24,404
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<RECEIVABLES> 154,190
<ALLOWANCES> 1,526
<INVENTORY> 83,991
<CURRENT-ASSETS> 291,468
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<DEPRECIATION> 320,870
<TOTAL-ASSETS> 830,933
<CURRENT-LIABILITIES> 135,997
<BONDS> 1,825
<COMMON> 20,538
0
0
<OTHER-SE> 478,662
<TOTAL-LIABILITY-AND-EQUITY> 830,933
<SALES> 634,536
<TOTAL-REVENUES> 663,849
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<OTHER-EXPENSES> 48,559
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</TABLE>
