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 December 31, 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 January 31, 1996
Common Stock, $1.00 par value 18,264,813
<PAGE>
THIOKOL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
December 31, 1996
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations - Three months
ended and Six months ended December 31, 1996 and 1995 3
Consolidated Balance Sheets -
December 31, 1996 and June 30, 1996 4
Consolidated Statements of Cash Flows - Six
months ended December 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
PART II. OTHER INFORMATION
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 Six Months Ended
December 31 December 31
---------------------------------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $209,997 $209,897 $407,949 $432,840
Operating expenses:
Cost of sales 165,574 175,461 329,242 356,200
General and administrative 21,196 17,461 40,023 34,377
Research and development 2,733 3,087 5,522 6,269
Restructuring (2,219) 5,906 (2,219) 5,906
- ---------------------------------------------------------------------------------------------------------------------
187,284 201,915 372,568 402,752
Income from operations 22,713 7,982 35,381 30,088
Equity income, Howmet 5,445 10,528
Interest income 272 29,050 7,435 29,625
Interest expense (462) (814) (1,170) (1,515)
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 27,968 36,218 52,174 58,198
Income taxes 9,269 13,927 14,245 22,719
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 18,699 $ 22,291 $ 37,929 $ 35,479
=====================================================================================================================
Net income per share $ 1.00 $ 1.20 $ 2.03 $ 1.91
=====================================================================================================================
Dividends per share $ .17 $ .17 $ .34 $ .34
=====================================================================================================================
Average number of common and common
equivalent shares outstanding 18,692 18,550 18,657 18,555
=====================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31 June 30
1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Current assets
Cash and cash equivalents $ 32,688 $ 15,122
Receivables 129,967 162,595
Inventories 92,236 91,400
Deferred income tax assets and prepaid expenses 33,269 31,381
- -------------------------------------------------------------------------------------------
Total current assets 288,160 300,498
Property, plant and equipment, at cost
less allowances for depreciation 288,693 286,684
Other assets
Equity investment in Howmet 161,072 150,544
Costs in excess of net assets of businesses
acquired, less amortization 27,185 27,707
Patents and other intangible assets 15,145 16,369
Other non-current assets 37,961 36,545
- -------------------------------------------------------------------------------------------
$818,216 $818,347
===========================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $ 24,883 $ 62,681
Accounts payable 28,964 25,882
Accrued compensation 33,848 42,175
Other accrued expenses 56,255 51,015
- -------------------------------------------------------------------------------------------
Total current liabilities 143,950 181,753
Noncurrent liabilities
Accrued retiree benefits 70,432 70,427
Deferred income taxes 40,027 39,839
Accrued interest and other non-current liabilities 83,411 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 44,271 44,184
Retained earnings 476,612 444,946
- -------------------------------------------------------------------------------------------
541,421 509,668
Less cost of common stock in treasury
2,283 shares, December 31, 1996 and
2,314 shares, June 30, 1996 (61,025) (61,854)
- -------------------------------------------------------------------------------------------
Total stockholders' equity 480,396 447,814
- -------------------------------------------------------------------------------------------
$818,216 $818,347
===========================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Six Months Ended
December 31
-----------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 37,929 $ 35,479
Adjustments to reconcile net income to net cash
provided by operating activities:
Restructuring (2,219) 5,906
Depreciation and amortization 19,777 17,791
Equity income (10,528)
Changes in operating assets and liabilities:
Receivables 33,661 84,394
Inventories and prepaid expenses (2,383) 18,782
Accounts payable and accrued expenses (10,604) (33,781)
Income taxes 10,856 (9,124)
Other 2,774 (20,373)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 79,263 99,074
Investing Activities
Investment in Howmet (146,000)
Purchases of property, plant and equipment (19,509) (15,641)
Proceeds from disposal of assets 928 6,033
- -------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (18,581) (155,608)
Financing Activities
Net change in short-term debt (37,595) 63,022
Repayment of long-term debt (174) (83)
Dividends paid (6,263) (6,208)
Purchase of common stock for treasury (3,976)
Stock option transactions 916 1,202
- -------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by financing activities (43,116) 53,957
Increase (decrease) in cash and cash equivalents 17,566 (2,577)
Cash and cash equivalents at beginning of year 15,122 13,216
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 32,688 $ 10,639
=============================================================================================================
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 six months ended
December 31, 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
The Company's defense and fastening systems restructuring programs were
completed during the 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 systems 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 systems 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, additional costs associated with the restructuring were
incurred. Excess reserves from both programs were credited to income. The
defense and the fastening systems segments recognized $1.3 million and $.8
million in income, respectively. Reserves remain for certain long-term
issues that are unresolved. The Company believes the reserve will be
adequate to cover future costs.
<PAGE>
Receivables
The components of receivables are as follows:
December 31 June 30
(in thousands) 1996 1996
- ---------------------------------------------------------------------------
Receivables under U.S. Government contracts
and subcontracts $ 75,922 $101,987
Income tax refund receivable and related interest 1,523 5,731
Trade accounts receivable 51,035 54,344
Other current receivables 1,487 533
- ---------------------------------------------------------------------------
$129,967 $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 $71.9 million, at December 31, 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 safety incidents. RSRM advances in
excess of related costs of $14.5 and $24.9 million at December 31, 1996 and
June 30, 1996, respectively, are included in "other accrued expenses" in
the balance sheet.
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.
<PAGE>
Inventories are summarized as follows:
December 31 June 30
(in thousands) 1996 1996
- ---------------------------------------------------------------------------
Finished goods $ 41,737 $ 42,364
Raw materials and work-in-process 44,487 43,126
Inventoried costs related to U.S. Government
and other long-term contracts 31,406 22,623
Progress payments received on long-term contracts
(25,394) (16,713)
- ---------------------------------------------------------------------------
$ 92,236 $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:
December 31 June 30
(in thousands) 1996 1996
- ---------------------------------------------------------------------------
Current assets $ 298,800 $ 324,666
Noncurrent assets 715,328 782,270
- ---------------------------------------------------------------------------
Total assets $1,014,128 $1,106,936
===========================================================================
Current liabilities $ 315,049 $ 338,881
Noncurrent liabilities 425,364 516,999
- ---------------------------------------------------------------------------
Total liabilities 740,413 855,880
Preferred stock 54,900 52,511
Common stockholders' equity 218,815 198,545
- ---------------------------------------------------------------------------
Total liabilities and equity $1,014,128 $1,106,936
===========================================================================
Three Months Ended Six Months Ended
December 31 December 31
(in thousands) 1996 1996
- ---------------------------------------------------------------------------
Net sales $283,461 $561,998
Cost of goods sold 214,660 428,052
Gross profit 68,801 133,946
Operating income 27,120 55,336
Net income $ 9,854 $ 18,998
===========================================================================
A reconciliation of Howmet's net income to the Company's equity income and
investment in Howmet are as follows:
Six Months Ended
December 31
(in thousands) 1996
- ---------------------------------------------------------------------------
Howmet net income $ 18,998
Less preferred paid-in-kind dividend (2,390)
- ---------------------------------------------------------------------------
Net income available to common shareholders 16,608
- ---------------------------------------------------------------------------
Company's 49% interest in Howmet 8,138
Add preferred paid-in-kind dividend 2,390
- ---------------------------------------------------------------------------
Equity income 10,528
Beginning of period equity investment in Howmet 150,544
- ---------------------------------------------------------------------------
Equity investment in Howmet at December 31, 1996 $161,072
===========================================================================
<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
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 "other accrued expenses"
and "accrued interest and other non-current liabilities." 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 $9.5 million 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 Company's effective income tax rate was lower for both the quarter and
six months ended December 31, 1996, compared to the same periods ended
December 31, 1995. 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. The
current year's first quarter and the prior year's second quarter each
benefited from certain income tax credits, which contributed to the lower
effective income tax rate for the six month periods in both years. The
effective income tax rate for the quarter ending December 31, 1996, was 33
percent compared to 38 percent for the same period ending December 31,
1995. The effective income tax rate for the six months ending December 31,
1996, was 27 percent compared to 38 percent for the same period ending
December 31, 1995.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
Results of Operations
Income for the Second Quarter
Net income for the second quarter ended December 31, 1996 was $18.7 million
or $1.00 per share versus last year's income of $22.3 million or $1.20 per
share. Last year's income included interest income from federal income
taxes, research and other tax credits of $20.6 million or $1.11 per share
after tax, and fastening systems restructuring and other charges of $11.4
million or $.62 per share after tax. The current year's quarter benefited
$1.3 million or $.07 per share after tax from the recognition of excess
reserves due to the completion of restructuring activities in both the
defense and fastener segments. The current quarter included $5.1 million of
equity income or $.27 per share after tax from the Company's 49 percent
investment in Howmet. Excluding unusual items in both years, the current
year's quarterly income increased 33 percent.
Summary unaudited financial information follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31
----------------------------------------------------
(in thousands except per share data) 1996 1995 Change Percent
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Space systems $ 98,467 $ 92,638 $ 5,829 6 %
Defense systems 44,564 60,811 (16,247) (27)
Fastening systems 66,966 56,448 10,518 19
- -------------------------------------------------------------------------------------------------
Total sales $209,997 $209,897 $ 100 0 %
=================================================================================================
Operating Income:
Space systems $ 14,562 $ 12,447 $ 2,115 17 %
Defense systems 4,614 7,461 (2,847) (38)
Fastening systems 5,152 (10,304) 15,456 150
Unallocated corporate expense (1,615) (1,622) 7 (0)
- -------------------------------------------------------------------------------------------------
Total operating income 22,713 7,982 14,731 185
Equity income, Howmet 5,445 5,445
Tax interest and other income 272 29,050 (28,778) (99)
Interest expense (462) (814) 352 (43)
Income taxes (9,269) (13,927) 4,658 (33)
- -------------------------------------------------------------------------------------------------
Net income $ 18,699 $ 22,291 $ (3,592) (16)%
=================================================================================================
Earnings per share $ 1.00 $ 1.20 $ (.20) (17)%
=================================================================================================
Average equivalent shares outstanding 18,692 18,550 142
=================================================================================================
</TABLE>
<PAGE>
BUSINESS SEGMENT SALES AND INCOME FOR THE QUARTER
Space Systems
Space Systems sales and income increased primarily due to the addition of
sales on solid rocket booster technology to a foreign customer of $4
million and higher Reusable Solid Rocket Motor (RSRM) margins on the Space
Shuttle contract which resulted in a retroactive profit accrual of $3.7
million. Sales and income in the STAR family series of motors declined.
During the quarter, the RSRM contract accounted for sales and profit of
approximately 43 percent of consolidated net sales and 49 percent of
consolidated operating income. The current NASA 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 should produce a decrease in RSRM
sales in fiscal year 1997.
Defense Systems
The decline in Defense Systems sales of $16.3 million and income of $2.8
million reflects the completion of various defense programs last year.
Sales in the current quarter were favorably affected by higher missile
defense revenues and demilitarization program sales. Income was favorably
impacted by the release of $1.3 million of excess reserves from the
successful completion of the defense systems restructuring program which
begin in the third quarter of fiscal year 1995. (See notes to the financial
statements.)
Fastening Systems Sales
Fastening Systems sales increased $10.5 million or 19 percent over last
year. The growth reflects stronger worldwide commercial aircraft markets.
Industrial sales were stronger than anticipated as a result of improved
foreign markets. Emphasis on cost reduction resulted in improved margins
over a year ago and the prior quarter. During the second quarter, the
Germany manufacturing operation closure and relocation of distribution was
completed.
Operating income for the quarter was $5.2 million compared to the prior
year's quarter loss of $10.3 million. The quarter benefited from the
release of $.8 million of excess reserves related to completion of the
Germany restructuring. (See notes to the financial statements.). The prior
year's quarter included a restructuring charge of $5.9 million and $7.2
million inventory write-off. Excluding the benefit related to the
completion of the restructuring program in the current quarter and the
prior year's restructuring and inventory charges of $13.1 million,
operating margins increased 51 percent or $1.4 million. The majority of the
increase is attributed to stronger domestic aerospace sales and income.
International sales and income also increased over last year.
<PAGE>
Income Year-To-Date
Net income for the six months ended December 31, 1996, was $37.9 million or
$2.03 per share; a 6 percent increase compared to $35.5 million or $1.91
per share last year. The current year's income included $9.8 million of
equity income or $.52 per share after tax from the Company's investment in
Howmet and $7.3 million of federal income tax and interest refunds or $.39
per share. The prior year's income included interest income from income
taxes, research and income tax credits of $20.6 million or $1.11 per share
after tax, and fastening systems charges of $11.4 million or $.62 per share
after tax. Sales of $407.9 million for the six month period decreased 6
percent from $432.8 million last year. Excluding unusual items in both
years, year-to-date income in the current year increased by 17 percent.
Summary unaudited financial information follows:
<TABLE>
<CAPTION>
Six Months Ended
December 31
-------------------------------------------------------
(in thousands except per share data) 1996 1995 Change Percent
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Space systems $192,754 $198,768 $ (6,014) (3)%
Defense systems 87,414 120,847 (33,433) (28)
Fastening systems 127,781 113,225 14,556 13
- -----------------------------------------------------------------------------------------------
Total sales $407,949 $432,840 $(24,891) (6)%
===============================================================================================
Operating Income:
Space systems $ 22,570 $ 27,090 $ (4,520) (17)%
Defense systems 8,037 12,528 (4,491) (36)
Fastening systems 8,004 (6,288) 14,292 (227)
Unallocated corporate expense (3,230) (3,242) 12 (0)
- -----------------------------------------------------------------------------------------------
Total operating income 35,381 30,088 5,293 18
Equity income, Howmet 10,528 10,528
Tax interest and other income 7,435 29,625 (22,190) (75)
Interest expense (1,170) (1,515) 345 (23)
Income taxes (14,245) (22,719) 8,474 (37)
- -----------------------------------------------------------------------------------------------
Net income $ 37,929 $ 35,479 $ 2,450 7 %
===============================================================================================
Earnings per share $ 2.03 $ 1.91 $ .12 6 %
===============================================================================================
Average equivalent shares outstanding 18,657 18,555 102 %
===============================================================================================
</TABLE>
<PAGE>
BUSINESS SEGMENT SALES AND INCOME FOR THE SIX MONTHS
Space Systems
Space Systems sales and income decreased primarily due to completion of the
Kennedy Space Center Space Shuttle processing contract during the first
quarter of last year. Also contributing to the decrease were lower sales on
the RSRM program due to continued emphasis on cost reductions and fewer
deliveries on the STAR family series of motors. Sales and income were
favorably impacted by the addition of $4 million in sales on the solid
rocket booster technology to a foreign customer and higher RSRM margins on
the Space Shuttle contract which resulted in a retroactive profit accrual
of $3.7 million.
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 $33.4 million and income of $4.5
million reflects the completion of various defense programs last year.
Sales for year were favorably affected by higher missile defense revenues
and demilitarization program sales. The current six month's income
benefited from the successful completion of the defense systems
restructuring program, which begin in the third quarter of fiscal year
1995, and resulted in the recognition of excess reserves of $1.3 million.
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 are expected to remain
stable 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, Maverick, Sidewinder, 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 Longhorn, 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 Sales
Fastening Systems sales increased $14.6 million or 13 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 has resulted in moderately improved margins over
last year's results.
Operating income for the six months was $8 million compared to the prior
year's loss of $6.3 million. The current six month's income benefited from
the release of $.8 million of excess reserves related to completion of the
restructuring in Germany. The prior year's income included a restructuring
charge of $5.9 million and $7.2 million inventory write-off. Excluding the
benefit related to the completion of the restructuring program in the
current year and the total of the restructuring and inventory charges of
$13.1 million in the prior year, operating margins are up slightly. An
increase in income in the aerospace market was offset in part by declines
in the domestic industrial market. Foreign industrial and aerospace income
increased over the prior year six months.
Fastening systems sales and income are anticipated to increase over fiscal
year 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 improve over prior year levels.
International margins are anticipated to improve, as the shutdown of the
Germany manufacturing facility has been completed.
EQUITY INCOME, INCOME TAXES AND OTHER ACTIVITIES
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 six month's earnings and is expected to contribute materially to
income for the remainder of fiscal 1997. Howmet's financial results for the
six months reflect continuing strong financial and operating performance
derived from the industry forecasted recovery of commercial aircraft
markets and improvements in the industrial gas turbine margins.
The Company had an effective income tax rate of 27 percent, compared to 38
percent for the same six 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 six months ended December 31, 1996, general and
administrative expenses increased $3.7 million and $5.6 million,
respectively, compared to the prior year. The increase was primarily due to
higher administrative and marketing expenses in the fastener segment.
Liquidity and Capital Resources
For the current six months, net cash flows from operating activities were
$79.3 million compared to $99.1 million for fiscal 1996. The decrease in
cash flows reflects collection of the $79.6 million federal income tax
receivable during the first quarter of 1996. Partially offsetting the
decrease in the current year was a decrease in accounts receivable and a
decrease in accrued liabilities. Also affecting the decrease in operating
cash flows is an increase in inventories and prepaids this year versus a
decrease in inventories in the prior year. The change in income taxes
reflects the prior year's payment of the income taxes associated with last
year's income tax refund. 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 $19.5 million compared to $15.6 million in 1996.
Last year's investing activities also reflects the Company's 49 percent
investment in Howmet Corporation for $146 million.
Financing activities used $43.1 million of cash compared to cash provided
in the prior year of $54 million. Short term debt decreased $37.6 million
compared to an increase in the prior year of approximately $55 million to
partially fund the purchase of Howmet and $15 million to finance the delays
caused by last year's congressional budget impasse. Last year also
reflected the repurchase of 114,600 shares of the Company's common stock
for approximately $4 million.
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.
<PAGE>
At December 31, 1996, the Company's current ratio was 2.0; debt-to-equity
ratio 5.6 percent; and working capital of $144.2 million, a $25.5 million
increase from June 30, 1996.
The Company has currently outstanding authorizations for $27 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 December 31, 1996, the Company had available $165 million revolving
credit facilities of which $163 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.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has announced the appointment of Daniel S. Hapke, to the
position of Vice President and General Counsel effective February 5, 1997.
On January 29, 1997, the Company announced plans to consolidate it's
Northern Utah operations, effective July 1, 1997 Thiokol's Space
Operations, Defense and Launch Vehicles and the Science and Engineering
groups will be combined under a new organization under Robert Crippen,
President 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.
The Annual Meeting of Thiokol Corporation Stockholders will be held at
10:00 a.m. local time on October 23, 1997 at the Salt Lake Marriott Hotel,
75 South W. Temple, Salt Lake City, Utah. Any stockholder who wishes to
bring business before the 1997 Annual Meeting must provide written notice
to be received by the Company on or before February 24, 1997.
<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
No 8-K reports were filed during the quarter ended December 31, 1996.
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 10, 1997 /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's Consolidated Balance Sheet at December 31, 1996, and
Consolidated Statements of Operations at December 31, 1996, 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> DEC-31-1996
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<COMMON> 20,538
0
0
<OTHER-SE> 459,858
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<SALES> 407,949
<TOTAL-REVENUES> 426,080
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<LOSS-PROVISION> 420
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