UNITED STATES
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, 1998
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
CORDANT TECHNOLOGIES INC.
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, 1998: 36,485,106
<PAGE>
CORDANT TECHNOLOGIES INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 1998
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations - Three months
ended and Nine months ended March 31, 1998 and 1997 3
Consolidated Balance Sheets -
March 31, 1998 and June 30, 1997 4-5
Consolidated Statements of Cash Flows - Nine
months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-14
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-29
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 29
ITEM 5. Other Information 30-33
ITEM 6. Exhibits and Reports on Form 8-K 34
SIGNATURES 34
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
March 31 March 31
----------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $562.7 $226.6 $1,150.7 $634.5
Operating expenses:
Cost of sales 426.7 184.3 887.1 513.5
Selling, general and administrative 56.0 18.6 113.3 58.6
Research and development 8.4 3.2 16.2 8.7
Restructuring - - - (2.2)
- -------------------------------------------------------------------------------------------------------------------
491.1 206.1 1,016.6 578.6
Income from operations 71.6 20.5 134.1 55.9
Equity income of affiliates .4 8.2 15.7 18.7
Interest income 2.7 1.8 6.2 9.2
Interest expense (5.8) (.3) (9.3) (1.5)
Other, net (1.3) - (2.4) -
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 67.6 30.2 144.3 82.3
Income taxes 26.0 9.4 48.8 23.6
- -------------------------------------------------------------------------------------------------------------------
Income before minority interest and
extraordinary item 41.6 20.8 95.5 58.7
Minority interest (8.8) - (10.6) -
- -------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 32.8 20.8 84.9 58.7
Extraordinary item -- loss on early
retirement of debt - - (7.1) -
- -------------------------------------------------------------------------------------------------------------------
Net income $ 32.8 $ 20.8 $ 77.8 $ 58.7
===================================================================================================================
Income per share before extraordinary item:
Basic $ .90 $ .57 $ 2.32 $ 1.61
Diluted $ .87 $ .56 $ 2.25 $ 1.58
Net Income per share:
Basic $ .90 $ .57 $ 2.13 $ 1.61
Diluted $ .87 $ .56 $ 2.06 $ 1.58
===================================================================================================================
Dividends per share $ .10 $ .085 $ .30 $ .255
===================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
March 31 June 30
1998 (a) 1997
- -------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 76.2 $ 51.4
Receivables 272.2 146.4
Inventories 235.6 84.6
Prepaid expenses and other current assets 47.5 29.3
Restricted trust (b) 727.4 -
- -------------------------------------------------------------------------------------
Total current assets 1,358.9 311.7
Property, plant and equipment, at cost
less allowances for depreciation 559.2 283.2
Other assets
Equity investment in Howmet - 178.0
Costs in excess of net assets of businesses
acquired, net 397.5 26.7
Patents and other intangible assets, net 128.2 14.1
Other noncurrent assets 109.5 40.7
- -------------------------------------------------------------------------------------
Total assets $2,553.3 $854.4
=====================================================================================
<FN>
(a) Since December 2, 1997, Cordant has consolidated the financial
statements of its 62 percent ownership interest in Howmet International
Inc. Prior to December 2, 1997, Cordant's then 49 percent interest in
Howmet International Inc. was accounted for under the equity method.
(b) The Restricted Trust holds a note receivable from Pechiney, S.A. and
related letters of credit that secure Pechiney, S.A.'s agreement to
repay the Pechiney Notes due January 2, 1999. Management believes that
it is extremely remote that the Company will use any assets other than
those in the Restricted Trust to satisfy any payments related to the
Pechiney Notes. (See footnote entitled "Restricted Trust and Related
Pechiney Notes Payable.")
</FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
March 31 June 30
1998 (a) 1997
- ---------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Short-term debt $ 6.9 $ 22.7
Accounts payable 108.4 36.3
Accrued compensation 68.4 43.1
Other accrued expenses 195.5 37.4
Pechiney notes (b) 727.4 -
- ---------------------------------------------------------------------------------------------
Total current liabilities 1,106.6 139.5
Noncurrent liabilities
Accrued retiree benefits 165.5 70.4
Deferred income taxes 42.2 41.3
Accrued interest and other noncurrent liabilities 191.7 80.3
Long-term debt 365.8 1.8
- ---------------------------------------------------------------------------------------------
Total noncurrent liabilities 765.2 193.8
Minority interest 109.8 -
Stockholders' equity
Common stock (par value $1.00 per share)
Authorized - 200 shares
Issued - 41.1 shares at March 31, and 20.5 shares 41.1 20.5
at June 30, (includes treasury shares)
Additional paid-in capital 46.9 44.7
Retained earnings 560.5 514.3
Cumulative translation adjustment (3.4) -
- ---------------------------------------------------------------------------------------------
645.1 579.5
Less common stock in treasury, at cost
4.6 shares, March 31, 1998 and
2.1 shares, June 30, 1997 (73.4) (58.4)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 571.7 521.1
- ---------------------------------------------------------------------------------------------
$2,553.3 $854.4
=============================================================================================
<FN>
(a) Since December 2, 1997, Cordant has consolidated the financial
statements of its 62 percent ownership interest in Howmet International
Inc. Prior to December 2, 1997, Cordant's then 49 percent interest in
Howmet International Inc. was accounted for under the equity method.
(b) The Restricted Trust holds a note receivable from Pechiney S.A. and
related letters of credit that secures Pechiney S.A.'s agreement to
repay the Pechiney Notes due January 2, 1999. Management believes that
it is extremely remote that the Company will use any assets other than
those in the Restricted Trust to satisfy any payments related to the
Pechiney Notes. (See footnote entitled "Restricted Trust and Related
Pechiney Notes Payable.")
</FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORDANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
Nine Months Ended
March 31
--------------------------
1998 (a) 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 77.8 $ 58.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 10.6 -
Extraordinary item 7.1 -
Restructuring - (2.2)
Depreciation and amortization 51.4 29.8
Equity income (15.7) (18.7)
Changes in operating assets and liabilities:
Receivables 6.6 9.9
Inventories (3.5) 6.7
Accounts payable and accrued expenses (31.7) (5.6)
Income taxes 12.1 4.1
Other (12.7) (2.4)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 102.0 80.3
Investing Activities
Acquisitions, net of acquired cash of $27.2 (156.6) -
Purchases of property, plant and equipment (net) (46.0) (24.7)
- -----------------------------------------------------------------------------------------------------
Net cash used for investing activities (202.6) (24.7)
Financing Activities
Net change in short-term debt .7 (38.8)
Issuance of long-term debt 492.6 -
Repayment of long-term debt (329.6) (.2)
Dividends paid (10.9) (9.4)
Premiums paid on early retirement of debt (13.7) -
Foreign currency rate changes (.8) -
Purchase of common stock for treasury (18.7) -
Stock option transactions 5.8 2.1
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 125.4 (46.3)
Increase in cash and cash equivalents 24.8 9.3
Cash and cash equivalents at beginning of year 51.4 15.1
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 76.2 $ 24.4
=====================================================================================================
<FN>
(a) Since December 2, 1997, Cordant has consolidated the financial
statements of its 62 percent ownership interest in Howmet International
Inc. Prior to December 2, 1997, Cordant's then 49 percent interest in
Howmet International Inc. was accounted for under the equity method.
</FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CORDANT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis Of Presentation
- ---------------------
On May 5, 1998, the Thiokol Corporation announced effective immediately the
change of the corporate name to Cordant Technologies Inc. (the Company). The
Company's three business segments will retain their present names (Thiokol
Propulsion, Huck International, Inc., and Howmet International Inc.) and are
referred to as a part of Cordant Technologies.
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 balance sheet at that date. The Company
increased its ownership in Howmet International Inc. (Howmet) from 49
percent to 62 percent on December 2, 1997. Accordingly, Howmet's earnings,
cash flows, and balance sheet at March 31, 1998, have been consolidated with
the Company's. As a result, the first nine months of operating results for
the current year include five months of Howmet earnings reported under the
equity method and four months of Howmet earnings on a consolidated basis.
Minority interest in income and equity is also reported for the 38 percent
of Howmet the Company does not own. Due to the consolidation of Howmet in
the Company's financial statements, comparison of financial information for
the respective periods is difficult and may not be relevant. 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,
1998, 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, incorporated by
reference in the Annual Report on Form 10-K for the fiscal year ended June
30, 1997.
Certain reclassifications were made to the 1997 financial statements to
conform with the 1998 presentation.
Receivables
- -----------
The components of receivables are as follows:
March 31 June 30
(in millions) 1998 1997
- -----------------------------------------------------------------------------
Trade accounts receivable $149.9 $ 54.0
Receivables under U.S. Government contracts
and subcontracts 74.3 92.4
Retained receivables 48.0 -
- -----------------------------------------------------------------------------
$272.2 $146.4
=============================================================================
<PAGE>
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 totaling $104.7 million, at March 31, 1998, 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.
Trade accounts receivable primarily relate to well established corporations
and bad debt expense has historically been minor.
Howmet has an agreement to sell, on a revolving basis, an undivided interest
in a defined pool of accounts receivable. The $48 million retained
receivables represents the receivables set aside in the event the sold
receivables are not fully collected.
Inventories
- -----------
Inventories for the Fastening Systems segment are determined by the
first-in, first-out (FIFO) method. Inventories for the investment castings
segment are determined by both the FIFO and last-in, first-out (LIFO)
method. 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.
<PAGE>
The components of inventories are as follows:
March 31 June 30
(in millions) 1998 1997
- -----------------------------------------------------------------------------
Raw materials and work-in-process $179.4 $55.7
Finished Goods 56.5 27.0
Inventoried costs related to U.S. Government
and other long-term contracts 34.4 27.8
Progress payments received on long-term
contracts (30.9) (25.9)
LIFO valuation adjustment (3.8) -
- -----------------------------------------------------------------------------
$235.6 $84.6
=============================================================================
At March 31, 1998, inventories include $120.4 million that are valued using
LIFO.
Purchase of Howmet International Inc.
- -------------------------------------
On December 13, 1995, the Company and The Carlyle Group (Carlyle), a private
merchant bank, 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 owned 51 percent
and Cordant owned 49 percent of the Howmet 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 accounted for its 49 percent
minority voting common stock investment in Howmet using the equity method.
On December 2, 1997, the Company increased its ownership in Howmet to 62
percent by acquiring an additional 13 million shares of Howmet common stock
for approximately $183.8 million, which included the exercise of an option
for 2 million shares of stock. Simultaneously with this transaction, Carlyle
sold 15.35 million shares of Howmet common stock in an Initial Public
Offering (IPO). After the transactions, the Company, Carlyle, and the public
own approximately 62, 22.65 and 15.35 percent, respectively, of Howmet
common stock. Beginning with December 1997, Howmet's earnings and cash flows
have been consolidated with Cordant's, and the balance sheets at March 31,
1998, have also been consolidated. The first nine months of operating
results for the current year include five months of Howmet's earnings
reported under the equity method and four months of Howmet earnings on a
consolidated basis. Additional detailed financial information on Howmet is
available in Howmet's Annual Report to Stockholders incorporated by
reference in the Annual Report on Form 10-K for Howmet's fiscal year ended
December 31, 1997.
<PAGE>
The following pro forma information is not necessarily indicative of the
results which would have resulted had the acquisition occurred at the
beginning of each period presented, nor is it necessarily indicative of
future results. The unaudited consolidated pro forma results of operations
assuming consummation of the purchase as of the beginning of each period,
are as follows:
<TABLE>
<CAPTION>
Pro-Forma
-------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31 March 31
-------------------------------------------------------------
(In millions, except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $562.7 $537.9 $1,660.7 $1,506.3
Income before
extraordinary item $ 32.8 $ 18.3 $ 83.0 $ 52.4
Income per diluted share before
extraordinary item $ .87 $ .49 $ 2.20 $ 1.41
Net income $ 32.8 $ 18.3 $ 75.9 $ 52.4
Net income per diluted share $ .87 $ .49 $ 2.01 $ 1.41
</TABLE>
Extraordinary item
- ------------------
During December 1997, Howmet refinanced its debt to take advantage of
favorable interest rates and to reduce restrictive covenants. As part of the
refinancing, Howmet incurred pre-tax charges of $20.2 million, including a
$6.5 million non-cash charge for the write-off of unamortized debt issuance
costs. Howmet repaid $146 million of debt at a 10-percent fixed interest
rate and refinanced $198 million of new debt under a new revolving bank
facility at a substantially lower variable rate.
Stock Split
- -----------
On January 22, 1998, the Company's Board of Directors declared a two-for-one
stock split in the form of a stock dividend payable March 13, 1998, for each
stockholder of record on February 27, 1998. A regular quarterly dividend of
$.10 per common share, reflecting the split, was also declared payable March
13, 1998, for each stockholder of record on February 27, 1998. All earnings
per share amounts for all periods presented reflect the stock split. The
stock split affected the stockholder's equity section of the balance sheet
in the current year due to reclassifying the par value amount of the common
shares issued from retained earnings to common stock.
<PAGE>
Restricted Trust and Related Pechiney Notes Payable
- ----------------------------------------------------
In 1988, Pechiney Corporation, which was a wholly-owned subsidiary of
Pechiney, S.A., issued indebtedness maturing in 1999 (Pechiney Notes) to
third parties in connection with the purchase of American National Can
Company. As a result of the acquisition, Pechiney Corporation (now named
Howmet Holdings Corporation or Holdings), became a wholly-owned subsidiary
of Howmet. The Pechiney Notes remained at Holdings, but Pechiney, S.A.,
which retained American National Can Company, agreed with Howmet to be
responsible for all payments due on or in connection with the Pechiney
Notes. Accordingly, Pechiney, S.A. issued its own note to Holdings in an
amount sufficient to satisfy all obligations under the Pechiney Notes. The
Pechiney, S.A. note was deposited in a trust (Restricted Trust) for the
benefit of Holdings. If Pechiney, S.A. fails to make any payments required
by its note, the trustee under the Restricted Trust (Trustee) has
irrevocable letters of credit in the aggregate amount of $772 million issued
to the Restricted Trust by Banque Nationale de Paris (BNP), a French bank
which has an A+ credit rating from Standard and Poor's Ratings Group (S&P),
to draw upon to make such payments. In the event there is an impediment to a
draw under the BNP letters of credit held by the Trustee, the Trustee has
substantially identical "back-up" letters of credit in the aggregate amount
of $772 million issued to the Restricted Trust by Caisse Des Depots et
Consignations, a French bank which has an AAA credit rating from S&P. In
addition, the holders of the Pechiney Notes have a third set of letters of
credit (also issued by BNP), which can be drawn upon by such holders in the
event that principal and/or interest payments on the Pechiney Notes are not
made. Pechiney S.A. is solely responsible as reimbursement party for draws
under the various letters of credit referenced above, and by agreement with
the banks, neither Holdings nor Howmet has any responsibility therefor.
However, Holdings remains liable as the original issuer of the Pechiney
Notes in the event that Pechiney, S.A. and both banks fail to meet their
obligations under their respective letters of credit. Management believes
that it is extremely remote that Howmet will be required to use any of its
assets other than those in the Restricted Trust to satisfy any payments due
on or in connection with the Pechiney Notes. Upon repayment of the Pechiney
Notes, the Restricted Trust terminates and any assets of the Restricted
Trust are to be returned to Pechiney, S.A.
The Pechiney Notes are due on January 2, 1999, and may not be prepaid prior
to that date. Interest is at three-month London Interbank Offered Rates
(LIBOR), plus 25 basis points (6.32 percent for the quarter ended March 31,
1998). Interest is paid quarterly, and was paid shortly after the quarter
end. Interest expense on these notes was $33.2 million for the nine months
ended March 31, 1998. Interest income from the Restricted Trust for the
aforementioned period was equal to the interest expense, and is netted in
the financial statements.
<PAGE>
Earnings per share
- ------------------
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Statement 128
replaced the previously reported "primary and fully diluted earnings per
share" with "basic and diluted earnings per share." Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. However, due to the limited
dilutive impact, diluted earnings per share approximate the Company's
previously reported primary earnings per share. All earnings per share
amounts for all periods are presented to conform to the Statement 128
requirements. All earnings per share discussions are based on a "diluted"
earnings per share basis.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
-----------------------------------------------------------
(In millions, except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator
Income before minority interest and
extraordinary item $41.6 $20.8 $ 95.5 $58.7
Minority interest (8.8) - (10.6) -
- ---------------------------------------------------------------------------------------------------------------
Numerator for basic and diluted
earnings per share $32.8 $20.8 $ 84.9 $58.7
===============================================================================================================
Denominator
Denominator for basic earnings per
share -- weighted-average shares 36.4 36.6 36.5 36.5
Effect of dilutive securities
Employee stock options 1.2 .9 1.2 .8
- ---------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per
share -- weighted-average shares
and assumed conversions 37.6 37.5 37.7 37.3
- ---------------------------------------------------------------------------------------------------------------
Income per share before extraordinary item:
Basic $ .90 $ .57 $ 2.32 $ 1.61
Diluted $ .87 $ .56 $ 2.25 $ 1.58
- ---------------------------------------------------------------------------------------------------------------
Per share effect of extraordinary item:
Basic $ - $ - $ (.19) $ -
Diluted $ - $ - $ (.19) $ -
===============================================================================================================
</TABLE>
<PAGE>
Environmental Matters
- ---------------------
The Company's Propulsion and Fastening Systems segments' estimated liability
for all environmental remediation is $21 million. This amount is classified
in "other accrued expenses" and "accrued interest and other noncurrent
liabilities."
Howmet has received test results indicating levels of polychlorinated
biphenyls ("PCBs") at its Dover, N.J. plant which will require remediation.
Various remedies are possible and could involve expenditures ranging from $2
million to $22 million or more. Howmet has recorded a $2 million long-term
liability for this plant. Besides the above-mentioned remediation work
required at the Company's Dover, N.J. plant, liabilities exist for clean-up
costs associated with hazardous types of materials at eight other on-site
and off-site waste disposal facilities. Howmet has been, or may be, named a
potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act, or similar state laws at these
locations. At March 31, 1998, $4.3 million of accrued environmental
liabilities are included in the consolidated balance sheet for these eight
sites. The indemnification discussed below applies to the costs associated
with the Dover, N.J. and the eight other locations.
In connection with the Howmet acquisition, Pechiney, S.A. (Howmet's previous
owner) indemnified Howmet for environmental liabilities relating to Howmet
and stemming from events occurring or conditions existing on or prior to the
acquisition, to the extent that such liabilities exceed a cumulative $6
million. It is highly probable that changes in any of the aforementioned
accrued liabilities will result in an equal change in the amount receivable
from Pechiney, S.A. pursuant to this indemnification. 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.
In addition to the above environmental matters, and unrelated to Howmet
operations, Howmet and Pechiney, S.A. are jointly and severally liable for
environmental contamination and related costs associated with certain
discontinued mining operations owned and/or operated by a
predecessor-in-interest until the early 1960s. These liabilities include
approximately $21.3 million in remediation and natural resource damage
liabilities at the Blackbird Mine site in Idaho and a minimum of $8 million
in investigation and remediation costs at the Holden Mine site in
Washington. Pechiney, S.A. has agreed to indemnify Howmet for such
liabilities. In connection with these environmental matters, Howmet has
recorded a $29.3 million liability which is classified in "accrued interest
and other noncurrent liabilities," and an equal $29.3 million receivable
from Pechiney, S.A. which is classified in "other noncurrent assets."
Pechiney, S.A. is currently funding such amounts related to these
liabilities.
Accounting Standards
- --------------------
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This statement revises employers' disclosures about pensions and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. This statement is effective for fiscal years
beginning after December 15, 1997, and will be adopted by the Company in its
annual report for the newly adopted calendar year 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
On May 5, 1998, Thiokol Corporation announced effective immediately the
change of the corporate name to Cordant Technologies Inc. (the Company). The
Company's three business segments will retain their present names (Thiokol
Propulsion Systems, Huck International, Inc., and Howmet International Inc.)
and are referred to as a part of Cordant Technologies.
Results of Operations
- ---------------------
The Company increased its ownership in Howmet from 49 percent to 62 percent
on December 2, 1997. Accordingly, beginning in December, Howmet's earnings,
cash flows, and the balance sheet for Howmet have been consolidated with the
Company's. As a result, the first nine months of operating results for the
current year include five months of Howmet earnings reported under the
equity method and four months of Howmet earnings on a consolidated basis.
Minority interest in income and equity is also reported for the 38 percent
of Howmet the Company does not own. Due to the consolidation of Howmet in
the Company's financial statements, comparison of financial information for
the respective periods is difficult and may not be relevant. In order to
facilitate an understanding of the Company's data, separate Howmet
comparative data and analysis have been included below for the respective
periods being reported.
The Company has adopted FASB statement 128 "Earnings per Share," discussed
in the notes to the financial statements above. All of the following
discussion reflects diluted earnings per share, which approximates the
primary earnings per share method previously reported by the Company. All
earnings per share amounts have been adjusted for the two-for-one stock
dividend on March 13, 1998.
Income for the Third Quarter
- ----------------------------
Net income for the third quarter ended March 31, 1998, was $32.8 million, or
$.87 per share, compared to the prior year's quarter net income of $20.8
million or $.56 per share. The current quarter's net income increased 58
percent over the prior year. Excluding the income increase from the Howmet
consolidation, operating income increased 43 percent from the prior year
period. The 13 percent increase in Howmet ownership in December 1997
contributed $2.8 million or $.07 per share for the quarter.
<PAGE>
Summary unaudited financial information follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------------------------------------------
Better/
(in millions, except per share data) 1998 1997 (Worse) Percent
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Propulsion systems $144.2 $152.2 $ (8.0) (5)
Fastening systems 90.1 74.4 15.7 21
Investment castings 328.4 - 328.4 -
- --------------------------------------------------------------------------------------------------------
Total sales $562.7 $226.6 $336.1 148
========================================================================================================
Operating income:
Propulsion systems $ 18.4 $ 13.7 $ 4.7 34
Fastening systems 13.2 8.4 4.8 57
Investment castings 43.8 - 43.8 -
Unallocated corporate expense (3.8) (1.6) (2.2) (138)
========================================================================================================
Total operating income 71.6 20.5 51.1 249
Equity income of affiliates .4 8.2 (7.8) (95)
Interest income 2.7 1.8 .9 50
Interest expense (5.8) (.3) (5.5) (1,833)
Other, net (1.3) - (1.3) -
Income taxes (26.0) (9.4) (16.6) (177)
- --------------------------------------------------------------------------------------------------------
Income before minority interest 41.6 20.8 20.8 100
Minority interest (8.8) - (8.8) -
- --------------------------------------------------------------------------------------------------------
Net income $ 32.8 $ 20.8 $ 12.0 58
========================================================================================================
Net income per share:
Basic $ .90 $ .57 $ .33 58
Diluted $ .87 $ .56 $ .31 55
</TABLE>
Selected Financial Data
<TABLE>
<CAPTION>
For the Quarter Ended 3/31/98
1998 1997 (a)
-------------------------------------------- ------------
(in millions) Cordant Howmet Consolidated Cordant
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flow from operations $31.7 ($ 5.4) $26.3 $ 1.0
Capital expenditures (net) (6.7) (16.6) (23.3) (8.3)
Dividends (3.6) - (3.6) (3.1)
- ---------------------------------------------------------------------------------------
Free Cash flow $21.4 ($22.0) ($ .6) ($10.4)
=======================================================================================
</TABLE>
(a) Howmet was not consolidated until December 1997.
<PAGE>
BUSINESS SEGMENT SALES AND INCOME FOR THE QUARTER
Propulsion Systems
- ------------------
Propulsion Systems sales for the quarter decreased 5 percent compared to the
prior year, primarily as a result of cost containment initiatives on the
Space Shuttle Reusable Solid Rocket Motor (RSRM) program. Propulsion Systems
operating income increased 34 percent from the prior year's quarter due to
margin increases in the commercial launch motor and Trident programs, and
reduced corporate overhead allocations due to increased ownership in Howmet.
During the quarter, the RSRM contract accounted for approximately 16 percent
of consolidated net sales and 17 percent of consolidated operating income.
Current year RSRM sales are expected to approximate the prior year's sales.
The current NASA cost-plus-award-fee contract provides for Company
production of the Space Shuttle solid rocket motors through fiscal year
2001. The Company is respondng to a request for a proposal for a follow-on
contract. The Company's proposal includes two alternate approaches which
would extend the program through fiscal year 2003 or 2005 depending on the
approach NASA chooses.
Fastening Systems
- -----------------
Fastening Systems sales for the quarter increased $15.7 million or 21
percent over last year. Aerospace sales increased $10.9 million and
industrial sales increased $4.8 million over the prior year. The gain
reflects continued strength in both commercial aircraft and industrial
markets.
Operating income for the current quarter increased $4.8 million or 57
percent over the prior year's quarter. Aerospace and industrial income
increased $2.4 million each from the prior year. Stronger domestic aerospace
and industrial markets provided the improvement. Fastening Systems margins
increased to 14.7 percent from 11.3 percent last year. The increased margins
were primarily the result of volume increases, continuing cost control
initiatives, and lean manufacturing practices.
Fastening Systems book-to-bill ratios, which are orders divided by
shipments, for the quarter ended March 31, were as follows:
1998 1997
------------------------------------------------------------------
Aerospace 1.04 1.26
Industrial 1.05 1.09
Total 1.05 1.18
<PAGE>
Investment Castings
- -------------------
On December 2, 1997, the Company purchased an additional 13 percent of
Howmet common stock, increasing the Company's ownership percentage to 62
percent. The current quarter includes consolidated Howmet results. The
following unaudited information summarizes Howmet's results, including the
38 percent minority share, before consolidation for the three months ended
March 31:
<TABLE>
<CAPTION>
(in millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Net sales $328.4 $312.6
Cost of goods sold 243.1 231.6
Gross profit 85.3 81.0
Operating income 44.8 35.8
Net income $ 24.5 $ 15.5
========================================================================
</TABLE>
Following is a reconciliation of Howmet's contribution to the Company's
income for the three months ended March 31:
<TABLE>
<CAPTION>
(in millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Howmet net income $ 24.5 $ 15.5
Less preferred paid-in-kind dividend (1.4) (1.2)
------------------------------------------------------------------------
Income available to common shareholders 23.1 14.3
------------------------------------------------------------------------
Company's interest in Howmet income 14.3 7.0
Add preferred paid-in-kind dividend 1.4 1.2
------------------------------------------------------------------------
Howmet's contribution to the Company's
income $ 15.7 $ 8.2
=========================================================================
</TABLE>
Howmet's sales increased 11 percent on a comparable basis with the prior
year, adjusting for the sale of the refurbishment business. The sales
increase came from both the commercial aircraft and industrial gas turbine
markets. Howmet's earnings were $24.5 million for the quarter, an increase
of 58 percent from $15.5 million in the prior year's quarter. Income
benefited from higher sales volume and from a 53 percent reduction in
interest expense. The current quarter pre-tax income benefited from reduced
stock appreciation rights accrual of $5.2 million from the prior year. This
reduced accrual will continue through calendar year 1998. The prior year
period included an after-tax $2.1 million benefit from a pricing settlement
with a customer, which has not and is not expected to reoccur.
<PAGE>
Income Year-To-Date
- -------------------
Income before an extraordinary item for the nine months ended March 31,
1998, was $84.9 million or $2.25 per share, a 45 percent increase compared
to $58.7 million or $1.58 per share last year. Net income for the nine
months ended March 31, 1998, was $77.8 million or $2.06 per share, a 33
percent increase compared to $58.7 million or $1.58 per share last year. The
current year included Howmet debt refinancing charges of $7.1 million or
$.19 per share, and a $3.4 million or $.09 per share charge for IPO and a
one-time incremental stock appreciation rights accrual as a result of the
IPO. The Company's 13 percent increase in Howmet ownership contributed $3.4
million or $.09 per share in the current period. The current period
benefited by $6.2 million or $.17 per share from reduced income tax rates.
The reduced rates result 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.
The prior year's income included federal income tax and interest refunds of
$7.8 million or $.21 per share and release of excess restructuring reserves
of $1.3 million or $.03 per share.
<PAGE>
Summary unaudited financial information follows:
<TABLE>
<CAPTION>
Nine Months Ended
March 31
-----------------------------------------------------------
Better/
(in millions, except per share data) 1998 1997 (Worse) Percent
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Propulsion systems $ 463.8 $432.3 $ 31.5 7
Fastening systems 253.3 202.2 51.1 25
Investment casting 433.6 - 433.6 -
- -----------------------------------------------------------------------------------------------------------
Total sales $1,150.7 $634.5 $516.2 81
===========================================================================================================
Operating income:
Propulsion systems $ 56.0 $ 44.3 $ 11.7 26
Fastening systems 34.6 16.4 18.2 111
Investment castings 55.5 - 55.5 -
Unallocated corporate expense (12.0) (4.8) (7.2) (150)
- -----------------------------------------------------------------------------------------------------------
Total operating income 134.1 55.9 78.2 140
Equity income of affiliates 15.7 18.7 (3.0) (16)
Interest income 6.2 9.2 (3.0) (33)
Interest expense (9.3) (1.5) (7.8) (520)
Other, net (2.4) - (2.4) -
Income taxes (48.8) (23.6) (25.2) (107)
- -----------------------------------------------------------------------------------------------------------
Income before minority interest and
extraordinary item 95.5 58.7 36.8 63
Minority interest (10.6) - (10.6) -
- -----------------------------------------------------------------------------------------------------------
Income before extraordinary item 84.9 58.7 26.2 45
Extraordinary item - loss on early
retirement of debt (7.1) - (7.1) -
- -----------------------------------------------------------------------------------------------------------
Net income $ 77.8 $ 58.7 $ 19.1 33
===========================================================================================================
Income per share before extraordinary item:
Basic $ 2.32 $ 1.61 $ .71 44
Diluted $ 2.25 $ 1.58 $ .67 42
Net income per share:
Basic $ 2.13 $ 1.61 $ .52 32
Diluted $ 2.06 $ 1.58 $ .48 30
</TABLE>
<PAGE>
Selected Financial Data
- -----------------------
<TABLE>
<CAPTION>
For the Nine Months Ended 3/31/98
1998 1997
------------------------------------------------------------
(in millions) Cordant Howmet (b) Consolidated Cordant
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flow from operations $ 81.9 $ 20.1 $102.0 $ 80.3
Capital expenditures (net) (14.3) (31.7) (46.0) (24.7)
Dividends (10.9) - (10.9) (9.4)
- ---------------------------------------------------------------------------------------------
Free Cash flow $ 56.7 ($11.6) $ 45.1 $ 46.2
=============================================================================================
Total Debt (a) $166.2 $206.7 $372.9 $ 24.2
Less cash & cash equivalents 54.3 21.9 76.2 24.4
- ---------------------------------------------------------------------------------------------
Net Debt (Cash) Position $111.9 $184.8 $296.7 ($ .2)
=============================================================================================
<FN>
(a) Excludes Pechiney note payable.
(b) Howmet's results since December 2, 1997.
See Liquidity and Capital Resources section for explanations.
</FN>
</TABLE>
Propulsion Systems
- ------------------
Propulsion Systems sales and income increased $31.5 million and $11.7
million, respectively. The prior year nine months included a $1.3 million
restructuring reserve release. The sales gains were due to increases in
Missile Defense, Commercial Launch Motor, and Space Shuttle RSRM programs.
The higher income was due to Commercial Launch Motor, STAR TM Motors,
Missile Defense, and reduced corporate overhead allocations due to increased
ownership in Howmet.
Fastening Systems
- -----------------
Fastening Systems sales for the nine month period increased $51.1 million or
25 percent over last year. Aerospace sales increased $38.5 million and
industrial sales increased $12.6 million over the prior year. The growth
reflects stronger worldwide commercial aircraft and domestic industrial
markets. Management believes future sales are expected to remain flat as the
commercial aerospace business cycle approaches its peak.
<PAGE>
Operating income for the nine month period was $19.1 million higher than the
prior year, excluding the restructuring reserve release of $.9 million in
the prior year. Aerospace and industrial income increased $14.2 million and
$4.9 million, respectively, over the prior year. Stronger domestic aerospace
and industrial markets provided the improvement. Fastening Systems margins
increased to 13.7 percent from 7.7 percent last year, excluding the $.9
million restructuring reserve release in the prior year. The increased
margins were primarily the result of volume increases, continuing cost
control initiatives, and lean manufacturing practices.
Fastening Systems book-to-bill ratios, which are orders divided by
shipments, for the nine months ended March 31, were as follows:
1998 1997
---------------------------------------------------------
Aerospace 1.17 1.30
Industrial 1.05 1.05
Total 1.11 1.17
Investment Castings
- -------------------
On December 2, 1997, the Company purchased an additional 13 percent of
Howmet common stock, increasing the Company's ownership percentage to 62
percent. The nine month period includes consolidated Howmet results for four
months at 62 percent and Howmet equity income at 49 percent for five months.
The following unaudited information summarizes Howmet's results, including
the 38 percent minority share, before consolidation:
Nine Months Ended
March 31
--------------------------------------
(in millions) 1998 1997
-------------------------------------------------------------------------
Net sales $943.6 $874.6
Cost of goods sold 694.9 659.6
Gross profit 248.7 215.0
Operating income 116.3 91.1
Income before extraordinary item 58.4 34.5
Net income $ 46.1 $ 34.5
=========================================================================
<PAGE>
Following is a reconciliation of Howmet's contribution to the Company's
income before extraordinary item for the nine months ended March 31:
(in millions) 1998 1997
- ---------------------------------------------------------------------------
Howmet income before extraordinary item $ 58.4 $ 34.5
Less preferred paid-in-kind dividend (4.0) (3.6)
- ---------------------------------------------------------------------------
Income available to common shareholders 54.4 30.9
- ---------------------------------------------------------------------------
Company's interest in Howmet income 30.2 15.1
Add preferred paid-in-kind dividend 4.0 3.6
- ---------------------------------------------------------------------------
Howmet's contribution to the Company's income
before extraordinary item $ 34.2 $ 18.7
===========================================================================
Howmet's sales for the nine month period increased 13 percent on a
comparable basis with the prior year period, adjusting for the sale of the
refurbishment business. The sales increase came from the commercial aircraft
market.
Howmet's earnings before extraordinary item were $58.4 million for the
period, an increase of 69 percent from $34.5 million in the prior year's
period. Income benefited from higher sales volume, operating performance, a
33 percent reduction of net interest expense, and a lower effective tax
rate. Howmet's current period includes an extraordinary charge of $12.3
million, net of taxes for debt refinancing to take advantage of favorable
interest rates and to reduce restrictive covenants. Howmet's nine months
earnings were reduced by $5.8 million after-tax for IPO expenses and a
one-time incremental stock appreciation rights accrual recorded in December
1997 as a result of the IPO. The prior year period included an after-tax
$2.1 million benefit from a pricing settlement with a customer, which has
not and is not expected to reoccur.
Income Taxes
- ------------
The Company had an effective income tax rate of 32 percent, compared with 29
percent for the same nine month period in the prior year. The current year
higher rate is due primarily from consolidating Howmet, whose effective tax
rate since December has been 44 percent. Howmet's tax rate for the remainder
of fiscal year 1998 is expected to approximate the statutory 40 percent
rate, which will cause the Company's effective rate to continue to increase.
In addition, Cordant must continue to accrue tax at a 7 percent rate on its
share of Howmet net income. The Company's effective income tax rate would
have been higher if not for a reduced rate resulting 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.
<PAGE>
Other Activities
- ----------------
Selling, general and administrative
- -----------------------------------
For the quarter and nine months ended March 31, 1998, selling, general and
administrative expenses increased $37.4 million and $54.7 million,
respectively, compared to the prior year. Howmet's general and
administrative expenses were $35.4 million and $52.2 million for the quarter
and nine month period, respectively. The Fastening Systems segment
administrative expenses increased for the three and nine month periods
mainly due to a $3.3 million charge for year 2000 compliance. This increase
was partially offset by a decrease in Fastening Systems segment selling
costs for both the quarter and nine month periods.
Asian Economic Conditions
- -------------------------
The adverse Asian economic conditions caused no material impact to Fastening
Systems sales or earnings during the third quarter. Propulsion Systems sales
in Asia are minimal. The minor impact to Investment castings thus far has
been a postponement of some orders. To the extent the Asian economic
conditions impact the commercial aerospace market, and industrial gas
turbine markets, such impact may affect the Company.
RSRM Buy IV
- -----------
The Company's proposal for the RSRM Buy IV contract was submitted to NASA in
April 1998. The Buy IV Request for Proposal baseline requests 35 flight
sets, or 70 motors, and three flight support motors with contract completion
in approximately fiscal year 2005. NASA has also requested an alternate
proposal for 20 flight sets, or 40 motors, and one flight support motor,
with contract completion in approximately fiscal year 2003. Motor deliveries
and periods of performance may change in negotiations. Currently, the
Company anticipates follow-on contracts for RSRM motors through the life of
the Space Shuttle Program. The contract type is anticipated to be a
cost-plus-incentive/award-fee, similar to the current Buy III structure.
NASA has provided the Company with long lead material procurement
authorization to support a Buy IV production start in September 1998. The
contract is subject to annual Congressional funding.
Public Debt Offering
- --------------------
On March 3, 1998, the Company completed a public offering of $150 million of
6 5/8 percent senior notes due March 1, 2008. The notes were priced at
99.423 percent to yield 6.705 percent. The notes were offered pursuant to a
prospectus supplement dated February 26, 1998, under the Company's $300
million shelf registration statement that has been effective since October
1996. The net proceeds from the sale of the notes are being used to pay down
bank debt the Company incurred in December 1997, in connection with the
purchase of an additional 13 percent of Howmet International Inc. common
stock and for general corporate purposes. Fiscal Year Change
The Company will change its fiscal year-end from June 30 to a calendar year
effective December 31, 1998. The change by the Company is to coordinate
Cordant and Howmet reporting periods and to reduce the confusion that
accompanies a fiscal year versus a calendar year. Howmet currently reports
separately on a calendar year basis.
<PAGE>
Year 2000 Compliance
- --------------------
The Company has a decentralized Information Systems (I.S.) function, in
which each of its three major business segments operates autonomously with
its own I.S. organization. The Propulsion I.S. organization is two years
into a scheduled three-year Year 2000 date compliance project which
addresses all major production applications supported by the Propulsion
Group. The project is on schedule and is expected to be completed by
December 31, 1998. The estimated cost for the project is $4.1 million, which
is being expensed as incurred over the three-year life of the project. The
Propulsion I.S. organization has notified its vendors of application or
operating system software products to provide a status and commitment
regarding the readiness of their respective products for the Year 2000.
Early responses indicate that many vendors have solutions either in place or
have scheduled future versions to correct this problem.
Huck (Fastening Systems) I.S. has engaged an independent consulting firm to
provide a comprehensive assessment of its Year 2000 compliance exposure. The
scope of this engagement is to assess Huck's vulnerability to Year 2000
problems, determine the significance of individual findings and to recommend
specific actions. Huck uses primarily commercial, vendor-supported
application software products. Huck is currently working with their various
software vendors to validate that they will make their products compliant on
a timely basis. The estimated cost of the project is approximately $3.8
million.
Howmet (Investment castings) I.S. is actively working its Year 2000
compliance issues. All date logic problems on its central mainframe
applications have been identified and remedial action to correct or replace
the problematic code is currently under way. Work on Howmet's mainframe
applications is scheduled to be completed by December 31, 1998. Howmet is
currently reviewing its various remote plant facilities to identify and
begin implementing any needed changes to both local business applications
and shop floor control systems. The inventory and assessment phase of this
effort will be completed in June, 1998. To date, no material risk of
non-compliance has been identified.
<PAGE>
Howmet has also initiated formal communications with all of its significant
suppliers, including raw materials, services, and computer hardware/software
suppliers, and large customers to determine the extent to which Howmet's
manufacturing processes and interface systems are vulnerable to those third
parties' failure to resolve their own Year 2000 issues. However, at this
point, no material problems have been discovered or are anticipated.
Howmet expects to expense as incurred, future incremental costs for such
efforts of approximately $6 million. In addition, Howmet has diverted
internal resources with an annual cost of approximately $.6 million for each
of the 1998 and 1999 years.
There can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted and would not have an
adverse effect on the Company's systems.
Liquidity and Capital Resources
- -------------------------------
As previously discussed, the increase in the Company's Howmet ownership to
62 percent and subsequent consolidation has resulted in consolidating four
month's of Howmet's cash flows with that of the Company in the current nine
month period. Due to the consolidation of Howmet, comparison of the current
nine month period to the prior years' cash flows is difficult. As a result
of Howmet's financing agreements, Howmet is limited as to the amount of
dividends it can declare, which limits Cordant's access to Howmet's cash
flows and resources. Separate cash flow information for Howmet has been
included below for the respective periods being reported.
For the current nine months, net cash flows from operating activities were
$102 million compared to $80.3 million for the prior year. The current year
benefited from increased net income. The increase in depreciation and
amortization over the prior year was due to the addition of Howmet. The
decrease in accounts payable and accrued expenses was also due to the
addition of Howmet. Howmet's decreases in accounts payable and accrued
expenses were due to lower accrued interest expense and compensation. The
increase in inventory resulted from increases at Howmet, due to the
increased sales volume. Howmet's inventory increases were partially offset
by decreases in the Fastening and Propulsion inventories.
The purchase of an additional 13 percent of Howmet common stock used $183.8
million, less $27.2 million of acquired cash or $156.6 million. Capital
spending on property, plant and equipment used $46 million in the current
period compared to $24.7 million in the prior year. The increased capital
spending was due to the addition of Howmet, but was partially offset by
decreased capital spending in the other segments of the Company due to
timing issues and lower overall expenditures in the nine month period.
<PAGE>
Financing activities for the nine month period provided $125.4 million of
cash compared to $46.3 million of cash used in the prior year period. During
the quarter, Cordant issued $150 million of 6 5/8 percent senior notes to
replace the $138 million of bank debt previously incurred for the purchase
of Howmet common stock. In December, Howmet refinanced its debt to take
advantage of favorable interest rates. As part of the refinancing, Howmet
incurred pre-tax charges of $20.2 million, including a $6.5 non-cash million
charge for the write-off of unamortized debt issuance costs. Howmet repaid
$146 million of debt at a 10 percent fixed interest rate, and refinanced
$198 million of new debt under a new revolving bank facility at a
substantially lower variable rate.
During the nine month period, the Company repurchased 481,000 shares
(adjusted for the stock split) of the Company's common stock for $18.7
million. The Company did not repurchase shares in the prior year period.
There are approximately 2.5 million shares available for repurchase under
the Company's current share repurchase authorization. The Company will
repurchase shares in amounts and timing as the Company deems appropriate.
The initial public offering of Howmet stock in December, which redistributed
ownership of Howmet from Carlyle to the public and Cordant, did not generate
any cash to Howmet or to the Company.
On March 31, 1998, the Company's current ratio was 1.67 excluding the
Restricted Trust and the Pechiney Notes payable. The debt-to-equity ratio
was 65.2 percent, excluding the Pechiney Notes payable. The
debt-to-total-capital ratio was 43 percent and includes the $55 million
receivables facility at Howmet. Working capital was $252.3 million, an $80.1
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.
At March 31, 1998, Cordant had $300 million available in revolving credit
facilities with $300 million unused. In addition, on March 31, 1998, Howmet
had a $300 million revolving credit facility with $96 million available for
additional borrowing and/or letters of credit. On March 2, 1998, the Company
issued $150 million of 6 5/8 percent senior notes under the Company's $300
million shelf registration statement, which has been in effect since October
1996.
<PAGE>
A comparative cash flow statement for Howmet for the nine month period for
both years follows:
<TABLE>
<CAPTION>
Nine months ended
March 31
--------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income $ 46.1 $ 34.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 49.1 46.9
Equity income of affiliates (1.3) (.9)
Extraordinary item 12.3 -
Changes in operating assets and liabiliities:
Accounts receivable (11.4) 2.1
Inventories (13.9) 9.9
Accounts payable and accrued expenses (6.3) 1.6
Income taxes 24.6 11.7
Long-term SAR accrual 13.1 13.6
Other -- net 10.4 4.2
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 122.7 123.6
Investing activities
Purchases of property, plant and equipment - net (55.0) (30.5)
Proceeds from sale of refurbishment business - net of tax 44.9 -
- ----------------------------------------------------------------------------------------------------
Net cash used for investing activities (10.1) (30.5)
Financing activities
Issuance of long-term debt 243.2 51.8
Repayment of long-term debt (323.0) (164.8)
Premiums paid on early retirement of debt (13.7) -
Foreign currency rate changes (.2) (1.6)
- ----------------------------------------------------------------------------------------------------
Net cash used for financing activities (93.7) (114.6)
Increase (decrease) in cash and cash equivalents 18.9 (21.5)
Cash and cash equivalents at beginning of period 3.0 29.3
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 21.9 $ 7.8
====================================================================================================
</TABLE>
<PAGE>
Howmet Cash Flow
- ----------------
Howmet net cash flows provided from operations for the nine month period
were $122.7 million compared to $123.6 million for the same period in the
prior year. The 1997 inventory reductions were due to improved manufacturing
controls, scrap alloy sales, and timing of deliveries. In 1998, inventories
increased to meet increased customer demand and receivables increased as a
result of higher sales levels. Capital expenditures were $55 million in the
current nine month period compared to $30.5 million in the prior year. The
increase was due to expenditures for existing equipment replacement,
capacity expansion, and several projects to support new products and
enhanced process capabilities. Net cash used for financing activities
totaled $93.7 million for the current period.
The current quarter's cash used from operations of $5.4 million resulted
primarily from increased receivables, decreased accrued interest expense,
and lower accrued compensation.
Estimated future cash flows from operations, current financial resources and
available credit facilities are expected to be adequate to fund Howmet's
anticipated working capital requirements and capital expenditures.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Thiokol Corporation v. Alliant Tech Systems, et al. In 1995, the Company
filed an action in U.S. District Court in Delaware claiming the defendants
infringed on the Company's patents on solid rocket motor case insulation.
The Company claims lost profits and/or royalties, plus interest. The
parties' cross motions for summary judgment were both denied in late 1997.
The liability phase of the case was tried before the judge and concluded
January 14, 1998. The judge has not yet ruled on liability. If the
defendants (or one of them) are found to be liable to the Company, then the
judge will schedule a damages phase of trial proceedings.
<PAGE>
ITEM 5. OTHER INFORMATION
The Company's Board of Directors approved the change in the name of the
Corporation from Thiokol Corporation to Cordant Technologies Inc. The name
change was effected under Delaware corporation law through a short form
merger effective May 5, 1998.
The Company's Board of Directors also amended the corporation's by-laws
effective April 23, 1998, dealing with changing the fiscal year-end;
scheduling and postponement of stockholders' meeting, advance notice of
stockholder business and nominations; inspections and polls; and board
meeting notice.
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 RSRM contract for NASA's 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. Future space shuttle
launches are highly dependent upon the international space station.
Delays in space station components may delay launches and affect
production rates for the RSRM. 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. The current "Buy III" contract is expected to continue
until fiscal year 2001. The Company has submitted its proposal on Buy
IV RSRM motors in April 1998 and will begin negotiations with NASA
later in the year. If the Company is awarded such follow-on contract,
the profitability and cash flow from such a 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. NASA has shown initial interest in developing a Liquid Fly
Back Booster (LFBB) as an alternate propulsion source or as a
replacement for the Company's RSRM motors. There will be no impact to
the Buy IV contract; and as a new technology development program the
LFBB will be an unlikely competitor to RSRM for many years, if it is
successfully developed.
<PAGE>
(ii) The Company's non-RSRM space and defense contracts including the
Minuteman regrain and 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. The Company's purchase of the additional
13 percent of Howmet's common stock increases the Company's exposure
to the cyclical nature of such market. 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 to 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 investment castings
segment represented by the Company's 62 percent equity investment in
Howmet, 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 and 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) Additional future increases in ownership percentage of Howmet will,
in part, be dependent on the favorable operational and financial
performance, favorable economic conditions, price of Howmet common
stock, 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. Financial covenants and
restrictions contained in certain Howmet credit agreements restrict
Howmet's ability to pay cash dividends to stockholders including the
Company. Significant intangible values comprise Howmet asset values,
which may not be realized by stockholders including the Company if
Howmet were sold or liquidated. Howmet remains liable as the original
issuer of the Purchase Notes held in a Restricted Trust secured by
Pechiney International, a French Company secured by $772 million in
letters of credit issued by Banque Nationale de Paris, a French bank
with a Standard & Poor's rating of A+ secured by substantially
identical "back up" letters of credit issued by Caisse des Depots et
Consignations, a French bank with a Standard & Poor's AAA credit
rating. In the event that Pechiney fails to meet its obligations
under the Restricted Trust and both banks fail to meet their
obligations under their respective letters of credit, such events,
which management believes are remote, would have a material effect on
Howmet's financial condition and value of the Company's 62 percent
equity ownership of Howmet.
<PAGE>
(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 with
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 Fastening 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 performance.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
Exhibit 3 (i) Articles of Incorporation
Exhibit 3 (ii) By-laws
Exhibit 27.1 Financial Data Schedule
Reports on Form 8-K
- -------------------
The Company filed two 8-K reports during the quarter ending March 31, 1998.
On February 26, 1998, an 8-K was filed containing the Prospectus and
Prospectus supplement relating to the offer and sale by the Company of debt
securities; financial statements were filed therewith. On March 3, 1998, an
8-K was filed containing the Indenture by and between the Company and Harris
Trust and Savings bank relating to the debt securities; no financial
statements were filed therewith.
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.
CORDANT TECHNOLOGIES INC.
(Registrant)
Date: May 13, 1998 /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>
Restated for FAS 128 Earnings Per Share Adoption.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997 JUN-30-1997
<PERIOD-START> JUl-01-1996 JUl-01-1996 JUl-01-1996
<PERIOD-END> SEP-30-1996 DEC-31-1996 MAR-31-1997
<CASH> 7 33 24
<SECURITIES> 0 0 0
<RECEIVABLES> 158 132 154
<ALLOWANCES> 1 2 2
<INVENTORY> 92 92 84
<CURRENT-ASSETS> 291 288 292
<PP&E> 600 603 608
<DEPRECIATION> 309 314 321
<TOTAL-ASSETS> 818 818 831
<CURRENT-LIABILITIES> 160 144 136
<BONDS> 2 2 2
<COMMON> 21 21 21
0 0 0
0 0 0
<OTHER-SE> 444 460 479
<TOTAL-LIABILITY-AND-EQUITY> 818 818 831
<SALES> 198 408 635
<TOTAL-REVENUES> 211 426 664
<CGS> 164 329 514
<TOTAL-COSTS> 169 340 530
<OTHER-EXPENSES> 16 33 49
<LOSS-PROVISION> 0 0 1
<INTEREST-EXPENSE> 1 1 1
<INCOME-PRETAX> 24 52 82
<INCOME-TAX> 5 14 23
<INCOME-CONTINUING> 19 38 59
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 19 38 59
<EPS-PRIMARY> 0.53 1.04 1.61
<EPS-DILUTED> 0.52 1.02 1.58
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Prior 2 Quarters Restated for FAS 128 Earnings Per Share Adoption.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998 JUN-30-1998
<PERIOD-START> JUL-01-1997 JUl-01-1997 JUl-01-1997
<PERIOD-END> SEP-30-1997 DEC-31-1997 MAR-31-1998
<CASH> 48 46 76
<SECURITIES> 0 0 0
<RECEIVABLES> 161 242 278
<ALLOWANCES> 2 6 6
<INVENTORY> 84 240 236
<CURRENT-ASSETS> 324 572 1359
<PP&E> 598 941 952
<DEPRECIATION> 320 391 393
<TOTAL-ASSETS> 872 2473 2553
<CURRENT-LIABILITIES> 131 384 1107
<BONDS> 10 326 366
<COMMON> 21 21 41
0 0 0
0 0 0
<OTHER-SE> 521 530 531
<TOTAL-LIABILITY-AND-EQUITY> 872 2473 2553
<SALES> 238 588 1151
<TOTAL-REVENUES> 250 607 1173
<CGS> 189 460 887
<TOTAL-COSTS> 195 473 911
<OTHER-EXPENSES> 17 55 106
<LOSS-PROVISION> 0 0 2
<INTEREST-EXPENSE> 0 4 9
<INCOME-PRETAX> 38 77 144
<INCOME-TAX> 9 23 49
<INCOME-CONTINUING> 29 54 95
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 7 7
<CHANGES> 0 0 0
<NET-INCOME> 29 45 78
<EPS-PRIMARY> 0.78 1.23 2.13
<EPS-DILUTED> 0.76 1.19 2.06
</TABLE>
Amended as of April 23, 1998
BY-LAWS
of
THIOKOL CORPORATION
Incorporated under the Laws of the State of Delaware
ARTICLE I
OFFICES AND RECORDS
Section 1.1. Delaware Office. The principal office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County
of New Castle, and the name and address of its registered agent is The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware.
Section 1.2. Other Offices. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time
to time require.
Section 1.3. Books and Records. The books and records of the
Corporation may be kept outside the State of Delaware at such place or
places as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. Annual Meeting; No Action by Written Consent. The annual
meeting of the stockholders of the Corporation shall be held on such date
and at such place and time as may be fixed by resolution of the Board of
Directors adopted at least ten (10) days prior to the date so fixed, for
the purpose of electing directors and for the transaction of such other
business as may properly come before the meeting. Subject to the rights of
the holders of any class or series of stock having a preference over the
Common Stock of the Corporation as to dividends or upon liquidation
("Preferred Stock"), any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
Section 2.2. Special Meeting. Subject to the rights of the holders of
any class of Preferred Stock, special meetings of the stockholders may be
called only by the Chairman of the Board or by the Board of Directors
pursuant to a resolution adopted by a majority of the Whole Board (as such
term is defined in Article EIGHTH of the Corporation's Restated Certificate
of Incorporation (the "Certificate of Incorporation")).
Section 2.3. Place of Meeting. The Board of Directors may designate
the place of meeting for any annual meeting or for any special meeting of
the stockholders called by the Board of Directors. If no designation is
made by the Board of Directors, the place of meeting shall be the principal
executive office of the Corporation.
Section 2.4. Notice of Meeting; Postponements. Written or printed
notice, stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called,
<PAGE>
shall be delivered not less than ten (10) days nor more than sixty (60)
days before the date of the meeting, either personally or by mail, to each
stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States
mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation. Such
further notice shall be given as may be required by law. Business
transacted at any special meeting shall be confined to the purpose or
purposes stated in the notice of such special meeting. Meetings may be held
without notice if all stockholders entitled to vote are present, or if
notice is waived by those not present. Any previously scheduled meeting of
the stockholders may be postponed, and (unless the Certificate of
Incorporation otherwise provides) any special meeting of the stockholders
may be cancelled, by resolution of the Board of Directors upon public
notice given prior to the date previously scheduled for such meeting of
stockholders.
Section 2.5. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation, a majority of the outstanding shares of
the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting as a
class, the holders of a majority of the shares of such class or series
shall constitute a quorum of such class or series for the transaction of
such business. The chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there
is such a quorum. No notice of the time and place of adjourned meetings
need be given except as required by law. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 2.6. Proxies. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing by the stockholder, or by his duly
authorized attorney in fact. Such proxy must be filed with the Secretary of
the Corporation or his representative at or before the time of the meeting.
No proxy shall be valid after three (3) years from the date of its
execution, unless the proxy shall otherwise provide.
Section 2.7. Inspectors of Elections; Opening and Closing the Polls.
The Board of Directors by resolution shall appoint one or more inspectors,
which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as
officers, employees, agents or representatives, to act at the meetings of
stockholders and make a written report thereof. One or more persons may be
designated as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate has been appointed to act or is able to
act at a meeting of stockholders, the Chairman of the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before
discharging his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to
the best of his or her ability. The inspectors shall have the duties
prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
Section 2.8. Notice of Stockholder Business. (a) At an annual meeting
of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting business must be (a) specified in
-2-
<PAGE>
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder entitled to
vote at the meeting. For business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not later than the close of
business on the 60th day nor earlier than the opening of business on the
90th day prior to the first anniversary of the preceding year's annual
meeting; provided that in the event that the date of the annual meeting
(other than the 1999 Annual Meeting) is more than 30 days before or more
than 60 days after such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the opening of business on the
90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the
10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation; and provided, further, that with
respect to the Corporation's 1999 Annual Meeting, a stockholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Corporation not later than the close of business on February
20, 1999 and not earlier than the opening of business on January 20, 1999.
In no event shall the public announcement of an adjournment of a
stockholder meeting commence a new time period for the giving of a
stockholder's notice as described above. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
proposal is made (i) the name and record address of such stockholder
proposing such business and such beneficial owner, (ii) the class and
number of shares of the Corporation which are beneficially owned by such
stockholder and such beneficial owner, and (iii) any material interest of
such stockholder and such beneficial owner in such business. The Chairman
of an annual meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and
in accordance with the provisions of this Section 2.8, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted. At any special
meeting of the stockholders, only such business shall be conducted as shall
have been brought before the meeting by or at the direction of the Board of
Directors.
(b) For purposes of this Section 2.8 and Section 2.9, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) Notwithstanding the provisions of Section 2.8 and Section 2.9, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in these By-Law shall be deemed
to affect any rights (i) of stockholders to request inclusion of proposals
in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (ii) of the holders of any series of Preferred Stock to
elect directors under specified circumstances.
-3-
<PAGE>
Section 2.9. Notice of Stockholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in this Section 2.9
shall be eligible for election as Directors. Nominations of persons for
election to the Board of Directors of the Corporation may be made at a
meeting of stockholders by or at the direction of the Board of Directors,
by any nominating committee or person appointed by the Board of Directors
or by any stockholder of the Corporation entitled to vote for the election
of Directors at the meeting who complies with the notice procedures set
forth in this Section 2.9. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not later than the close of
business on the 60th day nor earlier than the opening of business on the
90th day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting (other than the 1999 Annual Meeting) is more than 30 days before or
more than 60 days after such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the opening of business on
the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the
10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation; and provided, further, that with
respect to the Corporation's 1999 Annual Meeting, a stockholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Corporation not later than the close of business on February
20, 1999 and not earlier than the opening of business on January 20, 1999.
In no event shall the public announcement of an adjournment of a
stockholder meeting commence a new time period for the giving of a
stockholder's notice as described above. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposes to nominate
for election or re-election as a Director, all information relating to such
person that is required to be disclosed in solicitations of proxies for
election of Directors in an election contest, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act and Rule 14a-11
thereunder (including without limitation such person's written consent to
being named in the proxy statement as a nominee and to serving as a
Director if elected); and (b) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination is made (i)
the name and record address of such stockholder and such beneficial owner
and (ii) the class and number of shares of the Corporation which are
beneficially owned by such stockholder and such beneficial owner. The
Chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the
procedures prescribed by the By-Laws, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 2.10. Procedure for Election of Directors. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, except as otherwise set forth in any
Preferred Stock Designation (as defined in Article FOURTH of the
Certificate of Incorporation) with respect to the right of the holders of
any class or series of Preferred Stock to elect additional directors under
specified circumstances, a plurality of the votes cast thereat shall elect.
Except as otherwise provided by law, the Certificate of Incorporation, any
Preferred Stock Designation, the By-Laws of the Corporation or resolution
adopted by the Whole Board, all matters other than the election of
directors submitted to the stockholders at any meeting shall be decided by
the affirmative vote of a majority of the shares present in person or
represented by proxy at the meeting and entitled to vote on the matter.
-4-
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Certificate of Incorporation or by these By-Laws
required to be exercised or done by the stockholders.
Section 3.2. Number, Tenure and Qualifications. Subject to the rights
of the holders of any class or series of Preferred Stock to elect directors
under specified circumstances, the number of directors shall be fixed from
time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board. Commencing with the 1989 annual meeting of stockholders of
the Corporation, the directors, other than those who may be elected by the
holders of any series of Preferred Stock under specified circumstances,
shall be divided, with respect to the time for which they severally hold
office, into three classes, with the term of office of the first class to
expire at the 1990 annual meeting of stockholders, the term of office of
the second class to expire at the 1991 annual meeting of stockholders and
the term of office of the third class to expire at the 1992 annual meeting
of stockholders, with each director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the 1990 annual meeting, (i)
directors elected to succeed those directors whose terms then expire shall
be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election, with each director to hold
office until his or her successor shall have been duly elected and
qualified, and (ii) if authorized by a resolution of the Board of
Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created. In order
to be qualified to serve as a director, a person must (a) not have attained
the age of seventy (70) years and (b) either (i) be an officer or employee
of the Corporation and not (A) have voluntarily resigned from the position
or office he held at the time of his election as a director, (B) have
retired or been retired pursuant to the requirements of a pension, profit
sharing, or similar plan or (C) have, at the time of his election as a
director, held a position or office in the Corporation which has been
changed, other than by an upward or expanded promotion or (ii) in the case
of any person who is not an officer or employee of the Corporation, not (A)
have retired from or severed his connection with the organization with
which he was affiliated at the time of his election as a director or (B)
have held a position or office with an organization with which he was
affiliated at the time of his election as a director which has been
changed, other than by an upward or expanded promotion. Whenever any
director shall cease to be qualified to serve as a director his term shall
expire, but he shall continue to serve until his successor is elected and
qualified; provided, however, that no director's term shall so expire if
the Board of Directors shall have waived such qualification.
Section 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately
after, and at the same place as, the Annual Meeting of Stockholders. The
Board of Directors may, by resolution, provide the time and place for the
holding of additional regular meetings without other notice than such
resolution.
-5-
<PAGE>
Section 3.4. Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the
place and time of the meetings.
Section 3.5. Notice. Notice of any special meeting shall be given to
each director at his business or residence in writing, by hand delivery,
first-class or overnight mail, telegram or facsimile transmission, or
orally by telephone. If by first-class mail, such notice shall be deemed
adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least five (5) days before such
meeting. If by telegram or overnight mail, such notice shall be deemed
adequately delivered when the telegram is delivered to the telegraph
company or the notice is delivered to the overnight mail delivery company
at least forty-eight (48) hours before such meeting. If by facsimile
transmission or by telephone, the notice shall be given at least twelve
(12) hours prior to the time set for the meeting. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice of such meeting, except
for amendments to these By-Laws, as provided under Article VII, Section
7.1. A meeting may be held at any time without notice if all the directors
are present or if those not present waive notice of the meeting in writing,
either before or after such meeting.
Section 3.6. Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction
of business, but if at any meeting of the Board of Directors there shall be
less than a quorum present, a majority of the directors present may adjourn
the meeting from time to time without further notice. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. The directors present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a
quorum.
Section 3.7. Vacancies. Subject to the rights of the holders of any
class or series of Preferred Stock, and unless the Board of Directors
otherwise determines, vacancies resulting from death, resignation,
retirement, disqualification, removal from office or other cause, and newly
created directorships resulting from any increase in the authorized number
of directors may be filled, only by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at
the annual meeting of stockholders at which the term of office of the class
to which they have been elected expires and until such director's successor
shall have been duly elected and qualified. No decrease in the number of
authorized directors constituting the Whole Board shall shorten the term of
any incumbent director.
Section 3.8. Executive and Other Committees. The Board of Directors,
immediately following each annual meeting of stockholders or a special
meeting of the same held for the election of a majority of directors, shall
immediately meet and shall appoint from its number by a majority vote of
the Whole Board an Executive Committee of such number of members as from
time to time may be selected by the Board, to serve until the next annual
or special meeting at which a majority of directors is elected or until the
respective successor of each is duly appointed. The Executive Committee
shall possess and may exercise all the powers and authority of the Board of
Directors in the management and direction of the business and affairs of
the Corporation, except as limited by law and except for the power to
change the membership or
6-
<PAGE>
to fill vacancies in the Board or any committee of the Board. The Board of
Directors, by majority vote of the Whole Board, may designate one or more
additional committees with such powers and responsibilities as shall be
specified in the designating resolution, subject to applicable law. The
Board shall have the power at any time to change the membership of any
committee, to fill vacancies in any such committees, to make rules for the
conduct of business of such committees, or to dissolve any of such
committees.
Section 3.9. Removal. Subject to the rights of the holders of any
class or series of Preferred Stock, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least 80 percent of the
voting power of all of the then-outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class.
ARTICLE IV
OFFICERS
Section 4.1. Elected Officers. The elected officers of the Corporation
shall be a Chairman of the Board of Directors, a Secretary, a Treasurer,
and such other officers (including, without limitation, a President) as the
Board of Directors from time to time may deem proper. The Chairman of the
Board of Directors shall be chosen from the directors. All officers chosen
by the Board of Directors shall each have such powers and duties as
generally pertain to their respective offices, subject to the specific
provisions of this ARTICLE IV. Such officers shall also have such powers
and duties as from time to time may be conferred by the Board of Directors
or by any Committee thereof.
Section 4.2. Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after each annual meeting of
the stockholders. If the election of officers shall not be held at such
meeting such election shall be held as soon thereafter as convenient. Each
officer shall hold office until his successor shall have been duly elected
and shall have qualified or until his death or until he shall resign, but
any officer may be removed from office at any time by the affirmative vote
of a majority of the members of the Whole Board.
Section 4.3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors.
The Chairman of the Board shall have the general management of the affairs
of the Corporation and shall perform all duties incidental to his office
which may be required by law and all such other duties as are properly
required of him by the Board of Directors. Except where by law the
signature of the President (if any) is required, the Chairman of the Board
shall possess the same power as the President to sign all certificates,
contracts, and other instruments of the Corporation which may be authorized
by the Board of Directors. He shall make reports to the Board of Directors
and the stockholders, and shall perform all such other duties as are
properly required of him by the Board of Directors. He shall see that all
orders and resolutions of the Board of Directors and of any committee
thereof are carried into effect.
Section 4.4. President. The President (if one shall have been chosen
by the Board of Directors) shall act in a general executive capacity and
shall assist the Chairman of the Board in
-7-
<PAGE>
the administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President shall, in the
absence of or because of the inability to act of the Chairman of the Board,
perform all duties of the Chairman of the Board and preside at all meetings
of stockholders and of the Board of Directors. The President may sign with
the Secretary, or an Assistant Secretary, or any other proper officer of
the Corporation authorized by the Board of Directors, certificates,
contracts, and other instruments of the Corporation as authorized by the
Board of Directors. In the event of the death, inability or refusal to act
of the President, the Board of Directors shall promptly meet for the
purpose of electing his successor.
Section 4.5. Removal. Any officer elected by the Board of Directors
may be removed by a majority of the members of the Whole Board whenever, in
their judgment, the best interests of the Corporation would be served
thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of
the election of his successor, his death, his resignation or his removal,
whichever event shall first occur, except as otherwise provided in an
employment contract or under an employee deferred compensation plan.
Section 4.6. Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board
of Directors for the unexpired portion of the term at any meeting of the
Board of Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for
shares of stock in such form as the appropriate officers of the Corporation
may from time to time prescribe. The shares of the stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof
in person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such
proof of the authenticity of the signature as the Corporation or its agents
may reasonably require.
The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon
a certificate has ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Fiscal Year. Until June 30, 1998, the fiscal year of the
Corporation shall begin on the first day of July and end on the thirtieth
day of June of each year. The period from July 1, 1998 until December 31,
1998 shall constitute a transitional fiscal period, with the
-8-
<PAGE>
Corporation thereafter having a fiscal year beginning on the first day of
January and ending on the last day of December of each year.
Section 6.2. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares
in the manner and upon the terms and conditions provided by law and its
Certificate of Incorporation.
Section 6.3. Seal. The corporate seal may bear in the center the
emblem of some object, and shall have enscribed thereunder the words
"Corporate Seal" and around the margin thereof the words "Thiokol
Corporation -- Delaware 1969."
Section 6.4. Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the
provisions of the General Corporation Law of the State of Delaware, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of the
stockholders or the Board of Directors need be specified in any waiver of
notice of such meeting.
Section 6.5. Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors,
and it shall be the duty of the Board of Directors to cause such audit to
be made annually.
Section 6.6. Resignations. Any director or any officer, whether
elected or appointed, may resign at any time by serving written notice of
such resignation on the Chairman of the Board, the President, or the
Secretary, and such resignation shall be deemed to be effective as of the
close of business on the date said notice is received by the Chairman of
the Board, the President, or the Secretary. No formal action shall be
required of the Board of Directors or the stockholders to make any such
resignation effective.
Section 6.7. Indemnification of Directors, Officers, Employees and
Agents. The Corporation shall provide indemnification as set forth in
Article NINTH of the Certificate of Incorporation.
ARTICLE VII
AMENDMENTS
Section 7.1. Amendments. These By-Laws may be amended, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the
notice of the meeting and, in the case of a meeting of the Board of
Directors, in a notice given not less than two days prior to the meeting;
provided, however, that, in the case of amendments by stockholders
notwithstanding any other provisions of these By-Laws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition
to any affirmative vote of the holders of any particular class or series of
the Voting Stock required by law, the Certificate of Incorporation, any
Preferred Stock Designation or these By-Laws, the affirmative vote of the
holders of at least 80 percent of the voting power of all the then
outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal any provision of these By-Laws.
-9-
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
THIOKOL MERGER COMPANY
INTO
THIOKOL CORPORATION
Thiokol Corporation, a corporation organized and existing under the
laws of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation owns all of the outstanding shares of
capital stock of Thiokol Merger Company, a Delaware corporation
incorporated on the 30th day of April, 1998, pursuant to the General
Corporation Law of the State of Delaware.
SECOND: That the Corporation, by the following resolutions of its
Board of Directors, duly adopted at a meeting held on the 23rd day of
April, 1998, determined to and did merge into itself said Thiokol Merger
Company by adopting the following resolutions:
RESOLVED, that Thiokol Merger Company be merged with and into the
Corporation and that the Corporation be the surviving corporation in
such merger.
RESOLVED, that the merger shall become effective upon the date
and time of the filing of a Certificate of Ownership and Merger with
the Secretary of State of the State of Delaware.
RESOLVED, that upon the effectiveness of the merger, the
Corporation shall assume all of the liabilities and obligations of
Thiokol Merger Company.
RESOLVED, that upon effectiveness of the merger, the name of
Thiokol Corporation shall be changed to "Cordant Technologies Inc."
and Article First of the Restated Certificate of Incorporation of
Thiokol Corporation, shall be amended to read as follows:
"FIRST: The name of the Corporation is Cordant Technologies
Inc.."
RESOLVED that except for the foregoing amendment to Article
First, the Restated Certificate of Incorporation shall remain
unchanged by the
-1-
<PAGE>
merger and in full force and effect until further amended in
accordance with the Delaware General Corporation Law.
RESOLVED that the proper officers of the Corporation be, and they
hereby are, directed to make and execute a Certificate of Ownership
and Merger setting forth a copy of the resolutions to so merge Thiokol
Merger Company and to assume its obligations, and to so change the
name of Thiokol Corporation, and the date of adoption thereof, and to
cause the same to be filed with the Secretary of State of the State of
Delaware and a certified copy recorded in the office of the Recorder
of Deeds of New Castle County and to do all acts and things
whatsoever, whether within or without the State of Delaware, which may
be necessary or proper to effect said merger and change of name.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be hereunto affixed and this certificate to be signed by its Chairman of
the Board, President and Chief Executive Officer and attested by its Vice
President and Corporate Secretary, this 23rd day of April, 1998.
THIOKOL CORPORATION
/s/ James R. Wilson
------------------------------------
Name: James R. Wilson
Title: Chairman of the Board, President and
Chief Executive Officer
ATTEST:
/s/ Edwin M. North
----------------------------
Name: Edwin M. North
Title: Vice President and
Corporate Secretary
-2-
