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 September 30, 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 October 31, 1997: 18,298,875
<PAGE>
THIOKOL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
September 30, 1997
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations - Three months
ended September 30, 1997 and 1996 3
Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997 4
Consolidated Statements of Cash Flows - Three
months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 5. Other Information 14-16
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended
September 30
------------------------
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net sales $237.7 $198.0
Operating expenses:
Cost of sales 189.4 163.7
General and administrative 20.3 18.8
Research and development 2.4 2.8
- ----------------------------------------------------------------------------------
212.1 185.3
Income from operations 25.6 12.7
Equity income, Howmet 11.0 5.1
Interest income 1.7 7.1
Interest expense (.3) (.7)
- ----------------------------------------------------------------------------------
Income before income taxes 38.0 24.2
Income taxes 9.4 5.0
- ----------------------------------------------------------------------------------
Net income $ 28.6 $ 19.2
==================================================================================
Net income per share $ 1.51 $ 1.03
==================================================================================
Dividends per share $ .20 $ .17
==================================================================================
Average number of common and common
equivalent shares outstanding 18.9 18.6
==================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
September 30 June 30
1997 1997
- -----------------------------------------------------------------------------------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 48.2 $ 51.4
Receivables 159.3 146.4
Inventories 84.4 84.6
Deferred income tax assets and prepaid expenses 32.0 29.3
- -----------------------------------------------------------------------------------------------------
Total current assets 323.9 311.7
Property, plant and equipment, at cost
less allowances for depreciation 277.7 283.2
Other assets
Equity investment in Howmet 189.2 178.0
Costs in excess of net assets of businesses
acquired, net 26.4 26.7
Patents and other intangible assets, net 13.6 14.1
Other noncurrent assets 40.7 40.7
- -----------------------------------------------------------------------------------------------------
$871.5 $854.4
=====================================================================================================
Liabilities and stockholders' equity
Current liabilities
Short-term debt 15.8 22.7
Accounts payable 36.0 36.3
Accrued compensation 32.3 43.1
Other accrued expenses 46.6 37.4
- -----------------------------------------------------------------------------------------------------
Total current liabilities 130.7 139.5
Noncurrent liabilities
Accrued retiree benefits 70.6 70.4
Deferred income taxes 41.3 41.3
Accrued interest and other noncurrent liabilities 87.9 82.1
- -----------------------------------------------------------------------------------------------------
Total noncurrent liabilities 199.8 193.8
Stockholders' equity
Common stock (par value $1.00 per share)
Authorized - 200 shares
Issued - 20.5 shares including shares in treasury 20.5 20.5
Additional paid-in capital 46.0 44.7
Retained earnings 539.2 514.3
- -----------------------------------------------------------------------------------------------------
605.7 579.5
Less common stock in treasury, at cost
2.2 shares, September 30, 1997 and
2.1 shares, June 30, 1997 (64.7) (58.4)
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 541.0 521.1
- -----------------------------------------------------------------------------------------------------
$871.5 $854.4
=====================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THIOKOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
Three Months Ended
September 30
---------------------------
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 28.6 $ 19.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10.5 10.3
Equity income (11.0) (5.1)
Changes in operating assets and liabilities:
Receivables (13.4) 5.5
Inventories and prepaid expenses (3.2) (3.6)
Accounts payable and accrued expenses (10.0) (20.5)
Income taxes 8.1 7.3
Other (2.4) 3.6
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7.2 16.7
Investing Activities
Purchases of property, plant and equipment (3.1) (13.8)
Proceeds from disposal of assets - .4
- ------------------------------------------------------------------------------------------------
Net cash used for investing activities (3.1) (13.4)
Financing Activities
Net change in short-term debt (6.4) (8.5)
Issuance of long-term debt 8.0 -
Repayment of long-term debt (.1) (.1)
Dividends paid (3.7) (3.1)
Purchase of common stock for treasury (7.9) -
Stock option transactions 2.8 .6
- ------------------------------------------------------------------------------------------------
Net cash used for financing activities (7.3) (11.1)
Decrease in cash and cash equivalents (3.2) (7.8)
Cash and cash equivalents at beginning of year 51.4 15.1
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 48.2 $ 7.3
================================================================================================
</TABLE>
See notes to consolidated financial statements.
<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, 1997, 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, 1997, are not necessarily indicative of the results to
be expected for the fiscal year ending June 30, 1998. 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, 1997.
Receivables
- -----------
The components of receivables are as follows:
September 30 June 30
(in millions) 1997 1997
- ----------------------------------------------------------------------------
Receivables under U.S. Government contracts
and subcontracts $ 99.9 $ 92.4
Trade accounts receivable 57.8 52.8
Other current receivables 1.6 1.2
- ----------------------------------------------------------------------------
$159.3 $146.4
============================================================================
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
$6.1 million of costs related to government approved benefit costs that
arose under cost reimbursement contracts with Army ammunition plants in
Texas and Louisiana. The Company has filed a suit against the federal
government 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 $89.3 million, at September 30, 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, and materially impact company profitability and cash
flow, 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. Propulsion systems
inventories include estimated recoverable costs related to long-term fixed
price contracts including direct production costs and allocable indirect
costs, less related progress payments received. In accordance with industry
practice, such costs include amounts which are not expected to be realized
within one year. The government may acquire title to, or a security interest
in, certain inventories as a result of progress payments made on contracts
and programs. Inventories for the fastening systems segment are determined
by the first-in, first-out method.
Inventories are summarized as follows:
September 30 June 30
(in millions) 1997 1997
- ----------------------------------------------------------------------------
Finished goods $ 37.0 $ 27.0
Raw materials and work-in-process 44.9 55.7
Inventoried costs related to U.S. Government
and other long-term contracts 29.8 27.8
Progress payments received on long-term
contracts (27.3) (25.9)
- ----------------------------------------------------------------------------
$ 84.4 $ 84.6
============================================================================
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, Howmet International Inc. 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 Howmet voting common stock. The Company's initial equity investment in
Howmet consisted of $96 million in Howmet voting common stock, and $50
million in Howmet 9 percent paid-in-kind non-voting preferred stock. The
Company accounts for its 49 percent minority voting common stock investment
in Howmet using the equity method. (See Subsequent Event Note)
<PAGE>
Summary unaudited Howmet financial information follows:
September 30 June 30
(in millions) 1997 1997
- ----------------------------------------------------------------------------
Current assets $ 278.9 $ 316.6
Noncurrent assets 690.2 716.7
Restricted trust 727.0 727.0
- ----------------------------------------------------------------------------
Total assets $1,696.1 $1,760.3
============================================================================
Current liabilities $ 254.6 $ 251.8
Current portion long-term debt 34.2 50.2
- ----------------------------------------------------------------------------
Total current liabilities 288.8 302.0
Long-term debt 156.3 238.1
Pechiney notes 727.0 727.0
Other noncurrent liabilities 198.9 189.5
- ----------------------------------------------------------------------------
Total liabilities 1,371.0 1,456.6
Preferred stock 58.7 57.4
Common stockholders' equity 266.4 246.3
- ----------------------------------------------------------------------------
Total liabilities and equity $1,696.1 $1,760.3
============================================================================
Three Months Ended
September 30
----------------------------
(in millions) 1997 1996
- ----------------------------------------------------------------------------
Net sales $309.0 $278.5
Cost of goods sold 218.3 213.4
Gross profit 90.7 65.1
Operating income 40.0 28.2
Net income 21.2 9.2
============================================================================
A reconciliation of Howmet's net income to the Company's equity income and
investment in Howmet for the three months ended September 30 follows:
(in millions) 1997 1996
- ----------------------------------------------------------------------------
Howmet net income $ 21.2 $ 9.2
Less preferred paid-in-kind dividend (1.3) (1.2)
- ----------------------------------------------------------------------------
Net income available to common shareholders 19.9 8.0
- ----------------------------------------------------------------------------
Company's 49% interest in Howmet 9.7 3.9
Add preferred paid-in-kind dividend 1.3 1.2
- ----------------------------------------------------------------------------
Thiokol Equity income 11.0 5.1
Add currency translation adjustment .2
Beginning investment in Howmet 178.0 150.5
- ----------------------------------------------------------------------------
Ending investment in Howmet $189.2 $155.6
============================================================================
<PAGE>
ENVIRONMENTAL MATTERS
- ---------------------
The Company's estimated liability for all environmental remediation is $21
million, and is classified in "other accrued expenses" and "accrued interest
and other noncurrent 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.
SUBSEQUENT EVENT
- ----------------
Subsequent to September 30, 1997, the Company announced that it intends to
purchase an aggregate of 13 million shares of Howmet International, Inc.
common stock from an affiliate of The Carlyle Group to increase its
ownership in Howmet from 49 percent to 62 percent. As previously announced,
the Company had agreed to purchase 11 million shares from Carlyle and was
granted an option to purchase up to an additional 4 million shares.
Thiokol's purchase of 11 million shares will be closed simultaneously with
an Initial Public Offering of Howmet shares being made by Carlyle, and
Thiokol's purchase of an additional 2 million shares pursuant to its option
will close within 30 days thereafter. The Company's purchase price will
equal the net proceeds per share that Carlyle receives in the initial public
offering after underwriters' discounts and commissions. Thiokol's estimated
cost of these purchases is between approximately $175 million and $200
million which will be financed from cash and current bank lines of credit.
Completions of the IPO and Thiokol's purchases of the additional Howmet
common stock are expected in December, subject to market conditions.
Following Thiokol's acquisition, the Company will own a majority of the
Howmet shares and will consolidate Howmet's operating results for financial
reporting purposes. Following the offering and the exercise, if any, of the
underwriters' overallotment option, Carlyle will own between 20.75 million
and 23 million Howmet shares of the 100 million shares outstanding. Thiokol
has an additional option and first right of refusal to acquire up to all of
these shares, which may be exercised during the two-year period beginning
two years after the offering at market price.
When the transaction is completed, Howmet will accrue material charges
related to transaction fees, debt restructuring, executive stock
appreciation rights and other related expenses. Such accruals will reduce
Howmet's and Thiokol's income for the quarter.
<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, 1997 was $28.6 million
or $1.51 per share, compared to the prior year's quarter of $19.2 million or
$1.03 per share. Excluding unusual items related to federal income tax
credits and refunds in both years, net income increased $14.5 million or 122
percent.
Summary financial information follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30
----------------------------------------------------
Better/
(in millions, except per share data) 1997 1996 (Worse) Percent
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Propulsion systems $159.3 $137.2 $22.1 16
Fastening systems 78.4 60.8 17.6 29
- -----------------------------------------------------------------------------------------------
Total sales $237.7 $198.0 $39.7 20
===============================================================================================
Operating income:
Propulsion systems $ 18.4 $ 11.4 $ 7.0 61
Fastening systems 9.0 2.9 6.1 210
Unallocated corporate expense (1.8) (1.6) (.2) (13)
- -----------------------------------------------------------------------------------------------
Total operating income 25.6 12.7 12.9 102
Equity income, Howmet 11.0 5.1 5.9 116
Interest income 1.7 7.1 (5.4) (76)
Interest expense (.3) (.7) .4 57
Income taxes (9.4) (5.0) (4.4) (88)
- -----------------------------------------------------------------------------------------------
Net income $ 28.6 $ 19.2 $ 9.4 49
===============================================================================================
Earnings per share $ 1.51 $ 1.03 $ .48 47
===============================================================================================
Average equivalent shares outstanding 18.9 18.6 (.3) (2)
===============================================================================================
</TABLE>
<PAGE>
BUSINESS SEGMENT SALES AND INCOME FOR THE QUARTER
- -------------------------------------------------
Propulsion Systems
- ------------------
Propulsion systems sales and income increased $22.1 million and $7 million
respectively over the prior year, primarily due to higher sales of $16.1
million and income of $4.1 million on the Space Shuttle Reusable Solid
Rocket Motor (RSRM) program. Technology transfer sales and income both
increased over the same period in the prior year. Also affecting income for
the quarter were flight incentive fees recognized on the Trident missile
program.
During the quarter, the RSRM contract accounted for sales of approximately
42 percent of consolidated net sales and 48 percent of consolidated
operating income. Current year RSRM sales are expected to approximate the
prior year's sales. The NASA cost plus award fee contract provides for the
Company's production of the Space Shuttle solid rocket motors through fiscal
year 2001. Current NASA planning includes a follow-on RSRM contract. The
follow-on contract, Buy IV, should extend the life of the Space Shuttle
program until approximately fiscal year 2006. The Request for Proposal for
the Buy IV contract is expected to be released in the second or third
quarter of this fiscal year.
Fastening Systems
- -----------------
Fastening systems sales for the quarter increased $17.6 million or 29
percent over last year. Aerospace sales increased $13.7 million and
industrial sales increased $3.9 million over the prior year. The growth
reflects stronger worldwide commercial aircraft and domestic industrial
markets. Fastening system margins increased to 11.5 percent from 4.7 percent
last year, primarily the result of volume growth, pricing increases, and
continuing cost control initiatives.
Operating income for the quarter was $6.1 million higher than the prior
year. Aerospace and industrial income increased $5.3 million and $.8 million
respectively over the prior year. Stronger domestic aerospace and industrial
markets lead the improvement. Recent production problems of a major customer
may slow the current rate of revenue growth in the commercial aircraft
market.
EQUITY INCOME
- -------------
Howmet equity income, based on the Company's 49 percent equity investment,
contributed $10.3 million or 36 percent of the Company's after tax income
for the quarter. Subject to continuation of the strong aerospace market and
to maintaining its current operating performance, Howmet is expected to
contribute materially to income for the remainder of the current fiscal
year. Howmet's financial results for the quarter reflect increasing sales in
both the commercial aircraft and industrial gas turbine markets. Howmet's
sales increased by $30.5 million or 11 percent over the prior year's
quarter. Howmet's net income increased $12.5 million over the prior year's
quarter primarily due to the sales volume increase, fixed cost containment,
variable cost reductions, and other operational improvements. Howmet net
income also benefited significantly from a lower effective tax rate of 30.2
percent for the current quarter compared to 48.5 percent for the prior year.
The 1997 effective rate is lower due to higher earnings, thereby reducing
the proportional share of nondeductible expenses reflected in the lower
effective rate.
<PAGE>
INCOME TAXES AND OTHER ACTIVITIES
- ---------------------------------
The Company's effective income tax rate of 24.7 percent for the quarter,
compares with 20.6 percent last year. The prior year tax rate would have
been 33 percent, but benefited from a $3 million tax credit during the
quarter. The current year reduced rate results from a United States tax
benefit related to a reorganization of investments in certain overseas
operations, from the recognition of certain tax refunds, and from the return
to tax profitability of European operations enabling the use of tax loss
carry forward amounts. Howmet equity income was taxed at a 7 percent rate,
thereby reducing the Company's overall effective income tax rate.
For the quarter ended September 30, 1997, general and administrative
expenses increased $1.5 million, compared to the prior year's period. Higher
selling and administrative expenses occurred in the fastening segment as a
result of higher sales volume.
Subsequent to September 30, 1997, the Company announced that it intends to
purchase an aggregate of 13 million shares of Howmet International, Inc.
common stock from an affiliate of The Carlyle Group to increase its
ownership in Howmet from 49 percent to 62 percent. As previously announced,
the Company had agreed to purchase 11 million shares from Carlyle and was
granted an option to purchase up to an additional 4 million shares.
Thiokol's purchase of 11 million shares will be closed simultaneously with
an Initial Public Offering of Howmet shares being made by Carlyle, and
Thiokol's purchase of an additional 2 million shares pursuant to its option
will close within 30 days thereafter. The Company's purchase price will
equal the net proceeds per share that Carlyle receives in the initial public
offering after underwriters' discounts and commissions. Thiokol's estimated
cost of these purchases is between approximately $175 million and $200
million which will be financed from cash and current bank lines of credit.
Completions of the IPO and Thiokol's purchases of the additional Howmet
common stock are expected in December, subject to market conditions.
Following Thiokol's acquisition, the Company will own a majority of the
Howmet shares and will consolidate Howmet's operating results for financial
reporting purposes. Following the offering and the exercise, if any, of the
underwriters' overallotment option, Carlyle will own between 20.75 million
and 23 million Howmet shares of the 100 million shares outstanding. Thiokol
has an additional option and first right of refusal to acquire up to all of
these shares, which may be exercised during the two-year period beginning
two years after the offering at market price.
<PAGE>
When the transaction is completed, Howmet will accrue material charges
related to transaction fees, debt restructuring, executive stock
appreciation rights and other related expenses. Such accruals will reduce
Howmet's and Thiokol's income for the quarter.
Liquidity and Capital Resources
- -------------------------------
For the first quarter, net cash flows from operating activities were $7.2
million compared to $16.7 million for the prior year. The current year $13.4
million increase in receivables was primarily due to timing differences in
cash receipts of $11.2 million. Accounts payable and accrued expenses in the
prior year included an $11.6 million decrease in customer advances on the
RSRM program.
Investing activities consisted primarily of net capital spending on
property, plant and equipment of $3.1 million compared to $13.4 million in
the prior year. The decrease in spending is due to timing issues and lower
overall expenditures in the current quarter. The Company currently has
outstanding authorizations for approximately $30 million in capital
spending.
Financing activities in the quarter used $7.3 million of cash compared to
$11.1 million of cash used in the prior year. The current quarter reflected
the repurchase of 107,900 shares of the Company's common stock for
approximately $7.9 million. The Company did not repurchase shares in the
prior year's quarter. During the quarter, the Company converted $8 million
in foreign short-term debt to long-term debt.
There are approximately 1.4 million shares remaining for repurchase under
the Company's current share repurchase authorization. The Company will
repurchase shares in amounts and timing as the Company deems appropriate.
At September 30, 1997, the Company's current ratio was 2.47, debt-to-equity
ratio was 4.7 percent, and working capital was $193.2 million, a $21 million
increase from June 30, 1997.
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.
<PAGE>
At September 30, 1997, the Company had available $165 million in revolving
credit facilities with $163 million unused. The Company will use existing
cash and credit facilities to finance the purchase of the additional 13
million shares of Howmet common stock. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on October 23,
1997. The results of the following matters presented to stockholders for
vote in person or by proxy include:
1) The election of two directors to serve for a three year term
expiring at the 2000 Annual Meeting.
Name For Withheld
------------------ ---------- ---------
Michael P.C. Carns 14,411,556 1,453,958
D. Larry Moore 14,357,541 1,507,973
2) Ratification of appointment of Ernst & Young, LLP as the
independent auditors for the Company for the fiscal year June
30, 1998.
For: 15,836,156 Withheld: 7,775
Abstain: 21,583
ITEM 5. OTHER INFORMATION
On October 10, 1997, the Company filed a form 8-K announcing an agreement
with Carlyle whereby Carlyle will sell common stock of Howmet International
Inc. to the public through an initial public offering and the Company will
purchase an additional 11 to 15 percent of Howmet from Carlyle.
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:
<PAGE>
(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.
(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.
<PAGE>
(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.
(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 Company expects to increase its ownership percentage in Howmet.
(See Subsequent Event Note) Additional future increases in ownership
percentage 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 or from purchases made in the public
market.
(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.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
Exhibit 27.1 Financial Data Schedule.
Reports on Form 8-K
- -------------------
No 8-K reports were filed during the quarter ended September 30, 1997.
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 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 September 30, 1997, and
Consolidated Statements of Operations at September 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1998
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<PERIOD-END> SEP-30-1997
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