FINANCIAL INFORMATION

Consolidated Statements of Income                                     2

Consolidated Balance Sheets                                           3

Consolidated Statements of Cash Flows                                 4

Consolidated Statements of Stockholders' Equity                       5

Notes to Consolidated Financial Statements                            6

Management's Report on Financial Statements                          24

Report of Ernst & Young LLP, Independent Auditors                    25

Management's Discussion and Analysis of Financial
     Condition and Results of Operations                             26

Selected Financial Data                                              44



<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF INCOME

                                                                       Year Ended June 30
                                                          --------------------------------------------
(in millions, except per share data)                             1997            1996            1995
--------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>             <C>

Net sales                                                      $890.1          $889.5          $956.8

Operating expenses:
      Cost of sales                                             723.7           738.7           769.1
      General and administrative                                 80.5            69.8            71.9
      Research and development                                   12.5            13.3            15.0
      Restructuring and impairment                               (2.2)            5.9            61.4
--------------------------------------------------------------------------------------------------------
                                                                814.5           827.7           917.4

Income from operations                                           75.6            61.8            39.4

Equity income, Howmet                                            30.5             4.5
Interest income                                                  10.9            30.2            46.2
Interest expense                                                 (1.7)           (3.9)           (9.3)
--------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item               115.3            92.6            76.3
Income taxes                                                     32.9            34.3            24.0
--------------------------------------------------------------------------------------------------------
Income before extraordinary item                                 82.4            58.3            52.3
Extraordinary item - loss on early retirement of debt                                            (4.8)
--------------------------------------------------------------------------------------------------------
Net income                                                     $ 82.4          $ 58.3          $ 47.5
=======================================================================================================

Net income per share:
      Income before extraordinary item                         $  4.41         $  3.14         $  2.78
      Extraordinary item                                                                         ( .25)
--------------------------------------------------------------------------------------------------------
Net income                                                     $  4.41         $  3.14         $  2.53
========================================================================================================
</TABLE>

See notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS

                                                                             June 30
                                                                     --------------------------
(in millions)                                                           1997          1996
-----------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>

ASSETS
Current Assets
   Cash and cash equivalents                                          $  51.4       $  15.1
   Receivables                                                          146.4         162.6
   Inventories                                                           84.6          91.4
   Deferred income tax assets and prepaid expenses                       29.3          31.4
-----------------------------------------------------------------------------------------------
      Total Current Assets                                              311.7         300.5

Property, Plant and Equipment
   Land                                                                  17.2          17.4
   Buildings and improvements                                           231.2         224.8
   Machinery and equipment                                              332.7         338.9
   Construction in progress                                              14.0          13.2
-----------------------------------------------------------------------------------------------
                                                                        595.1         594.3
   Less allowances for depreciation                                    (311.9)       (307.6)
-----------------------------------------------------------------------------------------------
                                                                        283.2         286.7

Other Assets
   Equity investment in Howmet                                          178.0         150.5
   Costs in excess of net assets of businesses acquired, net             26.7          27.7
   Patents and other intangible assets, net                              14.1          16.4
   Other noncurrent assets                                               40.7          36.5
-----------------------------------------------------------------------------------------------
                                                                        259.5         231.1
-----------------------------------------------------------------------------------------------
                                                                      $ 854.4       $ 818.3
===============================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Short-term debt                                                    $  22.7       $  62.7
   Accounts payable                                                      36.3          25.9
   Accrued compensation                                                  43.1          42.2
   Other accrued expenses and liabilities                                37.4          51.0
-----------------------------------------------------------------------------------------------
      Total Current Liabilities                                         139.5         181.8

Noncurrent Liabilities
   Accrued retiree benefits other than pensions                          70.4          70.4
   Deferred income taxes                                                 41.3          39.8
   Accrued interest and other noncurrent liabilities                     82.1          78.4
-----------------------------------------------------------------------------------------------
      Total Noncurrent Liabilities                                      193.8         188.6

Commitments and Contingent Liabilities
Stockholders' Equity
   Common stock (par value $1.00 per share)
      Authorized - 200 shares
      Issued - 20.5 shares including shares in treasury                  20.5          20.5
   Additional paid-in capital                                            44.7          44.2
   Retained earnings                                                    514.3         445.1
-----------------------------------------------------------------------------------------------
                                                                        579.5         509.8
   Less common stock in treasury, at cost
      (2.1 shares at June 30, 1997 and 2.3 shares at June 30, 1996)     (58.4)        (61.9)
-----------------------------------------------------------------------------------------------
          Total Stockholders' Equity                                    521.1         447.9
-----------------------------------------------------------------------------------------------
                                                                      $ 854.4       $ 818.3
===============================================================================================

See notes to consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                          Year Ended June 30
                                                               -------------------------------------
(in millions)                                                    1997          1996          1995
----------------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>           <C>

OPERATING ACTIVITIES
Net income                                                      $ 82.4       $  58.3       $ 47.5
Adjustments to reconcile net income to net cash
   provided by operating activities:
      Restructuring and impairment                                (2.2)          5.9         61.4
      Extraordinary item                                                                      4.8
      Depreciation                                                30.0          33.0         34.5
      Amortization                                                10.2           9.0          5.5
      Equity income                                              (30.5)         (4.5)
      Deferred income taxes                                       (7.8)        (11.7)         5.0
      Changes in operating assets and liabilities:
          Receivables                                             16.1         103.9        (69.5)
          Inventories and prepaid expenses                         6.8          41.8         (8.1)
          Accounts payable and accrued expenses                    1.8         (17.3)        13.0
          Income taxes                                             9.5          (9.5)         8.7
          Other -- net                                            (2.2)        (26.1)        (1.3)
----------------------------------------------------------------------------------------------------
             Net cash provided by operating activities           114.1         182.8        101.5

INVESTING ACTIVITIES
Investment in Howmet                                                          (146.0)
Acquisition, net of acquired cash                                                            (8.9)
Purchases of property, plant and equipment                       (33.1)        (29.1)       (33.8)
Proceeds from disposal of assets                                   2.6           6.1           .4
----------------------------------------------------------------------------------------------------
             Net cash used for investing activities              (30.5)       (169.0)       (42.3)

FINANCING ACTIVITIES
Net change in short-term debt                                    (38.0)          2.5         32.6
Repayment of long-term debt                                        (.1)          (.2)       (85.7)
Premiums paid on early retirement of debt                                                    (4.8)
Purchase of common stock for treasury                                           (4.3)       (19.8)
Stock option transactions                                          4.0           2.5          4.2
Dividends paid                                                   (13.2)        (12.4)       (12.6)
----------------------------------------------------------------------------------------------------
             Net cash used for financing activities              (47.3)        (11.9)       (86.1)
----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                  36.3           1.9        (26.9)
Cash and cash equivalents at beginning of year                    15.1          13.2         40.1
----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                      $ 51.4       $  15.1       $ 13.2
====================================================================================================

See notes to consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                                   Additional                                        Total
                                                  Common Stock      Paid-In     Retained      Treasury Stock      Stockholders'
                                               -----------------                           --------------------
(in millions)                                   Shares   Amount     Capital     Earnings    Shares     Amount        Equity
-------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>      <C>        <C>       <C>          <C>        <C>           <C>

BALANCE, JUNE 30, 1994                           20.5     $20.5      $46.2     $364.3       (1.8)      $(46.5)       $384.5
-------------------------------------------------------------------------------------------------------------------------------
Net income                                                                       47.5                                  47.5
Dividends paid                                                                  (12.6)                                (12.6)
Purchase of common stock for treasury                                                        (.7)       (19.8)        (19.8)
Exercise of stock options and related                                                                                          
     income tax benefits                                              (1.7)                   .2          5.9           4.2
-------------------------------------------------------------------------------------------------------------------------------

BALANCE, JUNE 30, 1995                           20.5      20.5       44.5      399.2       (2.3)       (60.4)        403.8
-------------------------------------------------------------------------------------------------------------------------------
Net income                                                                       58.3                                  58.3
Dividends paid                                                                  (12.4)                                (12.4)
Purchase of common stock for treasury                                                        (.1)        (4.3)         (4.3)
Exercise of stock options and related                                                                                          
     income tax benefits                                               (.3)                   .1          2.8           2.5
-------------------------------------------------------------------------------------------------------------------------------

BALANCE, JUNE 30, 1996                           20.5      20.5       44.2      445.1       (2.3)       (61.9)        447.9
-------------------------------------------------------------------------------------------------------------------------------
Net income                                                                       82.4                                  82.4
Dividends paid                                                                  (13.2)                                (13.2)
Exercise of stock options and related                                                                                          
     income tax benefits                                                .5                    .2          3.5           4.0
-------------------------------------------------------------------------------------------------------------------------------

BALANCE, JUNE 30, 1997                           20.5     $20.5      $44.7     $514.3       (2.1)      $(58.4)       $521.1
===============================================================================================================================

See notes to consolidated financial statements.
</TABLE>


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------

Basis of  Consolidation  and Use of Estimates:  The  consolidated  financial
statements include the accounts of Thiokol  Corporation and its wholly-owned
subsidiaries.  The Company  participates in teaming arrangements and records
its share of sales and profits related to such ventures on the percentage of
completion  method.  The Company's  minority interest in Howmet is accounted
for under the equity  method.  All  significant  intercompany  accounts  and
transactions   have  been   eliminated  from  the   consolidated   financial
statements. The consolidated financial statements are prepared in conformity
with generally accepted  accounting  principles which requires management to
make estimates and assumptions. Estimates of contract costs and revenues are
utilized in the earnings recognition process that affect reported amounts in
the financial statements and accompanying notes.
Actual results may differ from those estimates.

Revenue  Recognition  Under Long-Term  Contracts:  Propulsion  systems sales
encompass  products and services  performed  principally under contracts and
subcontracts with various United States Government (government) agencies and
aerospace prime contractors.  Sales under cost-type contracts are recognized
as costs are incurred and include a portion of total  estimated  earnings to
be  realized  in the ratio that costs  incurred  relate to  estimated  total
costs. Sales under  fixed-price-type  contracts are recognized  generally on
the  percentage  of  completion  method,  when  deliveries  are made or upon
completion  of  specified   tasks.   Cost  or  performance   incentives  are
incorporated into certain contracts and are generally recognized when awards
are earned,  or when  realization  is reasonably  assured and amounts can be
estimated.  Adjustments  in  estimates,  which can affect both  revenues and
earnings,  are made in the period in which the information necessary to make
the  adjustment  becomes  available.  Provisions  for  estimated  losses  on
contracts are recorded when identified.

Cash and Cash  Equivalents:  Cash and cash  equivalents  represent  cash and
short-term investments that are highly liquid maturing within three months.

Inventories:  Inventories  are  stated  at the  lower  of  cost  or  market.
Propulsion systems inventories  include estimated  recoverable costs related
to long-term fixed price contracts,  including  direct  production costs and
allocable  indirect  costs,  less related  progress  payments  received.  In
accordance with industry practice,  such costs include amounts which are not
expected to be realized  within one year.  The  government may acquire title
to, or a security  interest in, certain  inventories as a result of progress
payments  made on contracts  and  programs.  Inventories  for the  fastening
systems segment are determined by the first in, first out (FIFO) method.
<PAGE>

Property,  Plant and Equipment:  Property, plant and equipment is carried at
cost and depreciated over the assets'  estimated useful lives,  using either
the straight-line or accelerated  methods.  Building and improvements useful
lives vary between 15 and 40 years and other assets lives vary between 3 and
20 years.

Intangibles: Costs in excess of the net assets acquired (goodwill), patents,
and other  intangible  assets are being amortized on a  straight-line  basis
over periods between 10 and 40 years.  Accumulated  amortization amounted to
$40.9 and $37.6 million at June 30, 1997 and 1996, respectively.

Impairment of Long-Lived  Assets:  In accordance with Statement of Financial
Accounting  Standards  (SFAS)  No. 121  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of," the Company
records  impairment  losses on  long-lived  assets used in  operations  when
events and circumstances  indicate that the assets might be impaired and the
undiscounted  cash flows  estimated to be generated by those assets are less
than net book value.

Contingent Matters: The Company accrues costs for contingent matters when it
is  probable  that a  liability  has been  incurred  and the  amount  can be
reasonably determined.  At the time a liability is recognized,  a receivable
is recorded for the estimated future recovery from third parties,  insurance
carriers, or from the government.  Costs allocated to commercial business or
not otherwise recoverable from third parties are expensed when the liability
is recorded.  Except for current amounts receivable and payable,  contingent
amounts are included in "other  noncurrent  assets" and in "accrued interest
and noncurrent liabilities".

Foreign  Currency  Translation:  The  financial  statements of the Company's
foreign  operations are translated  into United States dollars in accordance
with SFAS No. 52, "Foreign Currency Translation." Foreign exchange gains and
losses incurred on foreign currency transactions are included in net income.
The Company  operates  its  business  in various  foreign  currencies.  As a
result,  it is  subject to  translation  exposures  that arise from  foreign
currency  exchange rate movements  over time periods which  generally do not
exceed three months.  The Company enters into forward exchange  contracts to
hedge  identifiable  export sales and purchases  with any resulting  gain or
loss deferred and accounted for as part of the transaction. Foreign currency
exchange contracts are not significant.

Income Taxes: Provisions for federal, state, local, and foreign income taxes
are  calculated  based on current tax laws.  The  provision for income taxes
includes, in the current period, the cumulative effect of any changes in tax
rates from those used  previously  in  determining  deferred  tax assets and
liabilities. Deferred taxes are provided to recognize the income tax effects
of amounts which are included in different  reporting  periods for financial
statement and tax purposes.
<PAGE>

Income  Per  Share:  Income per share is  calculated  based on the  weighted
average  common and common  equivalent  shares  outstanding.  The equivalent
shares,  in thousands,  for 1997,  1996, and 1995 were 18,688,  18,566,  and
18,794, respectively.

In February 1997,  the Financial  Accounting  Standards  Board (FASB) issued
SFAS No. 128,  "Earnings per Share".  This  statement  replaces the previous
standard,  Accounting  Principles  Board (APB) Opinion No. 15, "Earnings per
Share".  Effective for periods ending after December 15, 1997,  SFAS No. 128
requires  companies to report both "basic" and "diluted" earnings per share.
Beginning  with the second  quarter  ending  December 1997, the Company will
report both "basic" and  "diluted"  earnings per share for all periods.  The
impact of SFAS No. 128 on the  Company's  earnings per share is not expected
to be significant.

New Accounting Standards:  In June 1997, the FASB issued two new statements,
SFAS  No.  130,   "Reporting   Comprehensive   Income"  and  SFAS  No.  131,
"Disclosures about Segments of an Enterprise and Related  Information".  The
Company  believes the new  standards  will not have an impact the  Company's
financial statements.

Reclassification:  Certain  reclassifications were made to the 1995 and 1996
financial statements to conform with the 1997 presentation.


NOTE 2. RESTRUCTURING AND IMPAIRMENT
------------------------------------

     The Company's propulsion and fastening systems  restructuring  programs
were completed in the second quarter of fiscal year 1997. The  restructuring
programs,  initiated  to reduce the  Company's  operating  costs and improve
profitability,  involved personnel reductions,  closing of certain locations
and relocating operations in the United States and Europe.  Charges included
severance,  goodwill  write-off and fixed assets  disposals.  The propulsion
system  restructuring  plan  announced in the third  quarter of fiscal 1995,
included  domestic  pre-tax charges of $61.4 million.  The fastening  system
restructuring  plan  announced in the second quarter of fiscal 1996 included
foreign pre-tax charges of $5.9 million.  During the second quarter of 1997,
the restructuring was substantially  completed and excess reserves from both
programs  were  closed  and  credited  to  income.  The  propulsion  and the
fastening  systems  segments  recognized  $1.4  million  and $.8  million in
income,  respectively.  The restructuring  plan included charges for certain
issues  that have not  currently  been  resolved  and the  Company  believes
remaining reserves will be adequate to cover future costs.


<PAGE>

NOTE 3. RECEIVABLES
-------------------

The components of receivables are as follows:
<TABLE>
<CAPTION>

                                                                          June 30
                                                                 -------------------------
(in millions)                                                       1997           1996
------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>
Receivables under U.S. Government contracts and subcontracts:
   Amounts billed                                                   $ 63.7        $ 48.1
   Unbilled costs and accrued profits                                 28.7          53.9
------------------------------------------------------------------------------------------
   Total U.S. Government receivables                                  92.4         102.0
Trade accounts receivable                                             52.8          54.3
Income tax refund receivable and related interest                                    5.7
Other current receivables                                              1.2            .6
------------------------------------------------------------------------------------------
                                                                    $146.4        $162.6
==========================================================================================
</TABLE>

     Unbilled  costs and  accrued  profits  consist  primarily  of  revenues
recognized on contracts  that have not been billed.  Such amounts are billed
based  on  contract  terms  and  delivery  schedules.  It is  expected  that
approximately  $5 million of the unbilled amounts at June 30, 1997, will not
be billed within one year. The balance includes  approximately $10.1 million
of  disputed  costs  with  the  federal   government  related  primarily  to
government  approved  benefit  costs  that arose  under  cost  reimbursement
contracts with Army  ammunition  plants in Texas and Louisiana.  The Company
has filed a suit  seeking  reimbursement  of these  and  future  costs  with
interest. Cost and incentive-type  contracts and subcontracts are subject to
government  audit and review.  It is anticipated that  adjustments,  if any,
will not have a material  effect on the  Company's  results of operations or
financial condition.

     Cost  management  award fees totaling $84.8 million,  at June 30, 1997,
have been  recognized  on the current Space  Shuttle  Reusable  Solid Rocket
Motor (RSRM) contract.  Realization of such fees is reasonably assured based
on actual and  anticipated  contract  cost  performance.  However,  all cost
management  award fees remain at risk until  contract  completion  and final
NASA review. The current RSRM contract is expected to be completed in fiscal
year 2001.  Unanticipated  program  problems  which  erode  cost  management
performance  could cause some or all of the recognized cost management award
fees to be reversed and would be offset against  receivable amounts from the
government or be directly  reimbursed.  Circumstances which could erode cost
management performance include, but are not limited to, 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.

<PAGE>

NOTE 4. INVENTORIES
-------------------

Inventories are summarized as follows:
<TABLE>
<CAPTION>
                                                                                     June 30
                                                                              ---------------------
(in millions)                                                                    1997       1996
---------------------------------------------------------------------------------------------------
<S>                                                                             <C>        <C>  
Finished goods                                                                  $27.0      $42.4
Raw materials and work-in-process                                                55.7       43.1
Inventoried costs related to U.S. Government and other long-term contracts       27.8       22.6
Progress payments received on long-term contracts                               (25.9)     (16.7)
---------------------------------------------------------------------------------------------------
                                                                                $84.6      $91.4
===================================================================================================
</TABLE>


NOTE 5. EQUITY INVESTMENT IN HOWMET
-----------------------------------

During the second  quarter of fiscal year 1996,  the Company and the Carlyle
Group (Carlyle),  a private merchant investment bank, formed a jointly owned
company,  Blade Acquisition Corp. (Blade), to acquire Howmet Corporation and
the Cercast Group of companies,  referred to  collectively  in the financial
statements  as Howmet.  Howmet  manufactures  and sells its products in both
domestic  and foreign  markets.  Carlyle owns 51 percent and Thiokol owns 49
percent of Blade voting common stock.  In addition to the Company's  initial
$96 million equity investment in Blade voting common stock, the Company also
invested  $50  million  in  Blade  for  9  percent  paid-in-kind  non-voting
preferred stock. The Company accounts for its 49 percent minority investment
in Blade using the equity method.

     On  December  13,  1995,  the  Howmet  acquisition  was  completed  for
approximately  $771.6  million  ($746.4  million  plus an  additional  $25.2
million of related fees and expenses).  The Howmet  acquisition by Blade was
accounted for by the purchase method. The acquisition was financed by a $250
million equity  investment  from the Company and Carlyle,  $470.2 million of
Howmet  nonrecourse  debt,  and a $51.4  million  receivable  facility.  The
Company has a three-year option to acquire  Carlyle's  interest in Howmet at
fair market value  beginning  after December 13, 1998.  Subject to favorable
Howmet financial and operating  performance and favorable  conditions in the
financial markets,  the Company expects to exercise its option, or otherwise
increase its ownership percentage.

     As part of the  purchase,  Howmet  received  indemnifications  from the
seller,  secured by bank  letters of credit,  for  liabilities  over amounts
reserved relating to environmental and certain other obligations existing at
the purchase date.

<PAGE>


     A summary of Howmet financial information is as follows:


                                                   June 30
                                        -----------------------------
(in millions)                               1997             1996
----------------------------------------------------------------------
Current assets                           $  316.6          $  324.7
Noncurrent assets                           692.0             782.2
----------------------------------------------------------------------
Total assets                             $1,008.6          $1,106.9
======================================================================

Current liabilities                      $  251.8          $  260.3
Current portion long-term debt               50.2              78.6
----------------------------------------------------------------------
Total current liabilities                   302.0             338.9
Long-term debt                              238.1             366.7
Other noncurrent liabilities                164.8             150.3
----------------------------------------------------------------------
Total liabilities                           704.9             855.9
Preferred stock                              57.4              52.5
Common stockholders' equity                 246.3             198.5
----------------------------------------------------------------------
Total liabilities and equity             $1,008.6          $1,106.9
======================================================================


                                      July 1, 1996     December 14, 1995
                                            to                 to
(in millions)                         June 30, 1996      June 30, 1997
-------------------------------------------------------------------------
Net sales                                $1,205.0            $596.2
Cost of goods sold                          898.4             463.4
Gross profit                                306.6             132.8
Operating income                            138.3              51.2
Net income                                   57.1               6.7
-------------------------------------------------------------------------


<PAGE>


     A reconciliation  of Howmet's net income to the Company's equity income
and investment in Howmet follows:

                                                           June 30
                                                 --------------------------
(in millions)                                       1997             1996
---------------------------------------------------------------------------
Howmet net income                                 $ 57.1           $  6.7
Less preferred paid-in-kind                         (4.9)            (2.5)
---------------------------------------------------------------------------
Net income available to common shareholders         52.2              4.2
---------------------------------------------------------------------------
Company's 49% interest in Howmet                    25.6              2.0
Add preferred paid-in-kind dividend                  4.9              2.5
---------------------------------------------------------------------------
Thiokol equity income                               30.5              4.5
Less currency translation adjustment                (3.0)
---------------------------------------------------------------------------
Beginning investment in Howmet                     150.5            146.0
---------------------------------------------------------------------------
Ending investment in Howmet                       $178.0           $150.5
===========================================================================


NOTE 6. FINANCING ARRANGEMENTS
------------------------------

The Company has credit  commitments  from a group of banks  aggregating $165
million under two Revolving Credit  Agreements,  of which $162.8 million was
available at June 30, 1997. The funds available under the credit  facilities
may be used for any corporate purpose and are available through October 1997
($15 million) and May 2001 ($150  million).  The credit  agreements  contain
covenants  restricting,  among other things,  the Company's ability to incur
funded debt, limitations on sale and leaseback transactions, and the sale of
assets.

     Short-term  debt  consisted of  borrowings  with  various  domestic and
foreign  banks.  The  weighted  average  interest  rate on  short-term  debt
outstanding  was 3.37  percent  and 5.15  percent at June 30, 1997 and 1996,
respectively.

     In March 1995, the Company  retired $85.5 million of private  placement
notes which were due to mature on June 30, 1996 ($37  million)  and June 30,
1999 ($48.5 million).  An  extraordinary  loss of $4.8 million (net of a tax
benefit of $2.9 million) was recorded for the payment of redemption premiums
and expenses.

     A long term  obligation  is  included in  "accrued  interest  and other
noncurrent   liabilities"  of  $1.9  and  $2.4  million  in  1997  and  1996
respectively.


<PAGE>


NOTE 7. INCOME TAXES
--------------------

The  provision  for income  taxes  applicable  to both  domestic and foreign
operations are as follows:

(in millions)                                  1997        1996       1995
----------------------------------------------------------------------------
Current Taxes:
  Federal                                     $34.3       $39.3      $14.8
  Foreign                                       1.1         1.4         .5
  State                                         5.3         5.3        3.7
----------------------------------------------------------------------------
                                               40.7        46.0       19.0
Deferred Taxes:
  Federal                                      (5.7)       (9.6)       4.6
  Foreign                                      (1.2)        (.8)
  State                                         (.9)       (1.3)        .4
----------------------------------------------------------------------------
                                               (7.8)      (11.7)       5.0
----------------------------------------------------------------------------
                                              $32.9       $34.3      $24.0
============================================================================

     A  reconciliation  of the United States statutory rate to the effective
income  tax rate  applicable  to  income  before  the  cumulative  effect of
accounting changes follows:

                                               1997        1996       1995
----------------------------------------------------------------------------
Statutory rate                                 35.0%       35.0%      35.0%
  Effect of:
    State taxes, net of federal benefit         2.3         3.0        3.5
    R&D and other credits                                  (4.5)     (11.2)
    Tax refund                                 (2.6)        (.3)     (11.8)
    Non-deductible restructuring charge                     4.1       13.1
    Dividend received deduction                (7.4)       (1.4)
    Other                                       1.2         1.1        2.9
----------------------------------------------------------------------------
Effective rate                                 28.5%       37.0%      31.5%
============================================================================
<PAGE>

     Deferred  income taxes arise because of differences in the treatment of
income and expense  items for  financial  reporting and income tax purposes.
Deferred  income  taxes are not provided on certain  unremitted  earnings of
international  subsidiaries  as the earnings  are deemed to be  indefinitely
reinvested  and the  effect of such  taxes  would not be  significant  after
foreign tax credits.  The effect of temporary  differences that give rise to
deferred tax balances are as follows:

<TABLE>
<CAPTION>

                                                                          June 30
                                                                  ------------------------
(in millions)                                                         1997         1996
------------------------------------------------------------------------------------------
<S>                                                                <C>          <C>
Recognition of income on contracts reported on different
     methods for tax purposes than for financial reporting         $  52.1      $  46.3
Tax refund interest income                                                          1.6
Depreciation expense                                                  48.2         45.3
Employee benefit expenses                                             12.9         11.6
Other                                                                  5.2          3.8
------------------------------------------------------------------------------------------
     Gross deferred tax liabilities                                  118.4        108.6
Provision for estimated expenses                                     (46.0)       (40.3)
Employee benefit expenses                                            (48.3)       (46.9)
Foreign losses                                                       (13.5)       (14.5)
Other                                                                 (9.0)        (9.1)
------------------------------------------------------------------------------------------
     Gross deferred tax assets                                      (116.8)      (110.8)
Valuation allowance                                                   13.1         14.2
------------------------------------------------------------------------------------------
     Net deferred tax assets                                        (103.7)       (96.6)
------------------------------------------------------------------------------------------
     Net deferred tax liabilities                                  $  14.7      $  12.0
==========================================================================================
Balance Sheet Classification:
Current assets                                                     $ (26.6)     $ (27.8)
Noncurrent liabilities                                                41.3         39.8
------------------------------------------------------------------------------------------
     Net deferred tax liabilities                                  $  14.7      $  12.0
==========================================================================================
</TABLE>

     Total income tax payments were $31.9,  $55.8,  and $34.8 million during
1997, 1996, and 1995, respectively.

     Due to the  completion  of a Federal  tax audit of  fiscal  years  1983
through 1985, the Company recorded, in 1995, a refund receivable,  including
interest,  of $85.4  million.  After  provision  for payment of taxes on the
interest  received in 1996, the Company netted  approximately $65 million in
cash. The refund related  primarily to additional  research and  development
tax credits and the timing of certain income and deduction  items. A portion
of the refund  ($17.5  million)  was  applied to reduce the 1995  income tax
expense and $43.5 million of the refund was recognized as interest income in
1995. The remainder of the refund ($24.4  million)  related to timing issues
and was used to increase liabilities for deferred taxes and related interest
for future tax payments.
<PAGE>

     During fiscal year 1996, the Internal  Revenue  Service (IRS) completed
its audit of federal  income tax returns for fiscal years 1986 through 1993.
Based upon  anticipated  final  results for the years under audit,  interest
accruals were decreased in 1996 resulting in recognition of $27.5 million of
interest income.  Also, as a result of substantial  audit  completion,  $4.2
million of research and other tax credits were recognized.

     During fiscal 1997,  the  anticipated  tax refund in the amount of $3.2
million  was  received,  along with  $20.4  million  in  interest.  Of those
amounts,  $3  million  was  applied  to  reduce  1997  income  tax  expense.
Approximately  $8.7  million  was  recognized  as  interest  income  and the
remaining $11.9 million was used to increase  liabilities for deferred taxes
and related interest for future tax payments.


NOTE 8. PREFERRED STOCK PURCHASE RIGHTS
---------------------------------------

On May 22, 1997, the Board of Directors adopted a new  stockholders'  rights
plan and  redeemed  the  existing  stockholders'  rights under the old plan.
Under the new plan,  the  Company  declared a dividend  distribution  of one
Preferred Share Purchase Right for each outstanding common share. Each Right
entitles its holder to buy one  one-hundredth  of a share of a new series of
the Company's  preferred stock at an exercise price of $240. The Rights will
only become  exercisable  if a person or group acquires or makes an offer to
acquire 15 percent or more of the Company's  common stock.  If any person or
group acquires 15 percent or more of the Company's common stock,  each Right
will entitle the holder (other than such acquirer) to purchase  common stock
of the  Company  having a market  value of twice the  exercise  price of the
Right. If the Company is acquired in a merger or other business combination,
after a person  has  acquired  15 percent  or more of the  Company's  common
stock,  each Right will  entitle the holder to purchase  common stock of the
acquiring  company  having a market value of twice the exercise price of the
Right.  The Rights may be  redeemed  by the Company at the price of $.01 per
Right prior to the acquisition of 15 percent or more of the Company's common
stock. The Rights expire on May 22, 2007.


NOTE 9. RETIREMENT PLANS
------------------------

The Company has  noncontributory  defined  benefit  pension  plans  covering
certain employees.  The benefits for participating employees are based on an
average of the employee's  highest five  consecutive  years' earnings during
the ten years preceding retirement and on credited service.

     The  Company's  funding  policy is to  contribute  amounts to the plans
sufficient  to  meet  the  minimum  funding  requirements  of  the  Employee
Retirement  Income Security Act of 1974,  plus any additional  amounts which
the Company may determine to be appropriate.

<PAGE>


     The  annual  cost for all  Company-sponsored  defined  benefit  pension
plans,  exclusive of the  curtailment  gain in 1995,  includes the following
components:

(in millions)                          1997            1996         1995
----------------------------------------------------------------------------
Service cost                          $ 12.7        $  12.7         $ 12.6
Interest cost                           41.0           37.5           36.7
Actual gain on plan assets             (59.1)        (115.0)         (32.5)
Net amortization and deferral            8.1           66.9          (12.9)
----------------------------------------------------------------------------
Net pension cost                      $  2.7        $   2.1         $  3.9
============================================================================

     Reconciliation  of the funded  status of all  defined  benefit  pension
plans at June 30 is as follows:
<TABLE>
<CAPTION>

(in millions)                                                        1997         1996
-----------------------------------------------------------------------------------------
<S>                                                                <C>           <C>
Actuarial present value of benefits:
   Vested benefits                                                 $507.9        $464.1
   Non vested benefits                                                7.7           4.7
-----------------------------------------------------------------------------------------
       Accumulated benefit obligation                               515.6         468.8
Effect of projected future compensation increases                    82.8          79.1
-----------------------------------------------------------------------------------------
       Projected benefit obligation                                 598.4         547.9
Fair value of plan assets                                           622.7         605.3
-----------------------------------------------------------------------------------------
   Plan assets in excess of projected benefit obligation             24.3          57.4
Unrecognized net losses                                              47.7          17.6
Unrecognized transition obligation                                  (17.4)        (20.9)
Unrecognized prior service cost                                       9.3           (.7)
-----------------------------------------------------------------------------------------
   Pension asset                                                   $ 63.9        $ 53.4
=========================================================================================
</TABLE>

     The accumulated  benefit obligation and the corresponding  unrecognized
net experience loss and prior service cost increased in 1997 principally due
to changing the  retirement  age  assumption  and changing to the 1994 Group
Annuity  Mortality  table.  Additional  assumptions  used in determining net
pension cost for all defined benefit pension plans were as follows:

                                                 1997      1996      1995
----------------------------------------------------------------------------
Discount rate                                    7.5%      7.5%      8.0%
Rate of increase in compensation levels          4.75      4.75      5.5
Expected long-term rate of return on assets      9.0       9.0       9.0
----------------------------------------------------------------------------
<PAGE>

     Assets  of  the  Company-sponsored  plans  are  invested  primarily  in
equities and bonds.  Certain  pension  plans contain  restrictions  on using
excess  pension  plan  assets  in the event of a change  in  control  of the
Company.

     Generally  pension costs charged to and  recovered  through  government
contracts  approximate amounts  contributed to pension plans.  Pension costs
for financial  statement purposes are calculated in conformity with SFAS No.
87, "Employers' Accounting for Pensions." Historically, the annual amount of
pension cost recovered  through  government  contracts and included in sales
has  exceeded  the  amount  of  pension  cost   included  in  the  financial
statements.  As a result, the Company has deferred $47.2 million of revenues
to provide a better matching of revenues and expenses.  This revenue will be
recognized when the financial statement pension cost exceeds amounts charged
to contract  pension cost.  The $47.2 million of deferred  revenue is netted
against the pension asset in "other noncurrent assets" in the balance sheet.

     Under  provisions  of SFAS No.  88,  "Accounting  for  Settlements  and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
workforce reductions and benefit freezes resulted in the recognition of $6.1
million of net curtailment gains in 1995.

     The Company sponsors certain  supplemental plan arrangements to provide
retirement  benefits to specified groups of participants.  Contributions are
included in an Internal Revenue Code (IRC) qualified  restricted trust which
is subject to the Company's creditors.

     The Company has  matching  and  nonmatching  401 (k) savings  plans for
eligible  employees.  Company  contributions  to the matching savings plans,
which are based on a limited percentage of participant  contributions,  were
$6.0, $6.4, and $7.3 million in 1997, 1996, and 1995, respectively.


NOTE 10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
----------------------------------------------------

The  Company  provides  certain  nonvested  health  care and life  insurance
benefits for substantially all of its retirees and eligible dependents.  The
plan is contributory,  with retiree  contribution  levels adjusted annually,
and  contains  other  cost-sharing   features   including   deductibles  and
coinsurance.  The  Company's  cost for  retiree  medical  is  limited to a 4
percent  annual  increase for  employees  retiring  after  February 1, 1993.
Current eligibility requirements include ten years of credited service after
attaining age forty-five.

     The Company's policy is to fund the cost of retiree medical benefits at
management's  discretion  or as amounts are expended.  Voluntary  Employees'
Beneficiary  Association  trusts and other trusts under IRC regulations were
established  in 1994 for government  contract  reimbursement  purposes.  The
amounts funded are tax deductible in the year of contribution.

<PAGE>


     The  annual  retiree  medical  and life  insurance  costs  include  the
following components:

(in millions)                                     1997      1996    1995
----------------------------------------------------------------------------
Service cost - attributed to service during
   the period                                    $ 2.6     $ 2.2     $2.3
Interest cost on accumulated postretirement
   benefit obligation                              8.2       8.0      7.3
Return on assets                                  (1.3)     (1.8)     (.6)
Net amortization and deferral                      1.5       1.9       .5
----------------------------------------------------------------------------
Retiree medical and life insurance costs         $11.0     $10.3     $9.5
============================================================================

     The following  table  reconciles the plan's funded status to the amount
included in the Company's balance sheet at June 30:
<TABLE>
<CAPTION>

(in millions)                                                         1997         1996
-----------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>
Accumulated postretirement benefit obligation:
     Retirees                                                       $106.0       $ 89.2
     Fully eligible active plan participants                          10.7          9.3
     Other active plan participants                                   19.8         15.7
-----------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation                  136.5        114.2
Plan assets at fair value, primarily listed stocks and bonds         (19.2)       (16.4)
-----------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess
     of plan assets                                                  117.3         97.8
Unrecognized net experience loss                                     (46.9)       (27.4)
-----------------------------------------------------------------------------------------
Accrued retiree benefits other than pensions                        $ 70.4       $ 70.4
=========================================================================================
</TABLE>

     Accumulated  postretirement  benefit  obligation and the  corresponding
unrecognized  net  experience  loss  increased  in 1997  principally  due to
changing  the  retirement  age  assumption  and  changing  to the 1994 Group
Annuity Mortality table.  Additional  assumptions to measure the accumulated
postretirement obligation and cost were as follows:
<TABLE>
<CAPTION>

                                                                 1997          1996          1995
---------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>           <C> 
Discount rate                                                     7.5%          7.5%          8.0%
Health care cost trend rate decreasing to 6% by 2001              8.0%          8.0%          9.0%
Expected long-term rate of return on assets                       8.0%          8.0%          8.0%
---------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

     Increasing  the assumed  health care cost trend rate by one  percentage
point would increase the accumulated  postretirement  benefit  obligation at
June  30,  1997  and  1996,   by   approximately   $6.8  and  $5.7  million,
respectively,  and  increase  retiree  medical  costs by  approximately  $.4
million each year.


NOTE 11. CONTINGENT MATTERS
---------------------------

On  July  17,  1996,  the  Company  filed  an  action  seeking   payment  of
government-approved  benefits costs that arose under its  cost-reimbursement
contracts   with  the   government   for   operation   and   management   of
government-owned, contractor-operated (GOCO) Army ammunition plants in Texas
and  Louisiana.  The Company seeks $10.1 million for costs  incurred to date
and $33.9 million for future estimated  payments with interest.  The Company
expects to prevail in this litigation, but if it does not, the Company would
as of June 30,  1997,  recognize  approximately  $10.1  million in  non-cash
charges.

     The Company is also  currently  involved  in a number of  lawsuits  and
other contingencies which are not expected  individually or in the aggregate
to have a material  adverse effect upon the Company's  financial  condition.
However,  depending on the amount and timing of an unfavorable resolution of
these  contingencies,  it is possible that the Company's  future  results of
operations  or cash  flows  could be  materially  affected  in a  particular
period.


NOTE 12. ENVIRONMENTAL MATTERS
------------------------------

The Company is  involved  with two  Environmental  Protection  Agency  (EPA)
superfund  sites in Morris  County,  New  Jersey  formerly  operated  by the
Company for  government  contract  work.  The Company has not  incurred  any
significant  costs relating to these  environmental  sites.  The Company has
signed a consent decree with the EPA on the Rockaway Borough Well Field site
and on the  Rockaway  Township  Well Field site.  The Company has recorded a
$11.3 million  liability for response costs,  site  remediation,  and future
operation  and  maintenance  costs on both  sites.  In addition to the above
sites the Company is involved with other locations  involving  environmental
issues.

     The Company's estimated liability for all environmental  remediation is
$21 million,  and is classified in "other accrued  expenses and liabilities"
and  "accrued  interest  and  other  noncurrent  liabilities."  The  Company
believes  that any  liability  exceeding  amounts  recorded  will not have a
material  adverse  effect on the Company's  future  results of operations or
financial position. The Company has collected  approximately $9.5 million in
environmental  related  recoveries from insurance  companies  through fiscal
year June 30,  1997.  The  Company  expects to recover  from the  government
additional  amounts as expenses are incurred.  The Company estimates it will
spend   approximately   $2.1  and  $4.2  million  of  the  total  liability,
respectively, over the next two years.


<PAGE>


NOTE 13. LEASE COMMITMENTS
--------------------------

The  Company  has  operating  leases  that are  principally  short-term  and
primarily  for  building  and  office  space and other real  estate.  Rental
expense charged was $14.5, $10.9, and $10.8 million in 1997, 1996, and 1995,
respectively. Renewal and purchase options are available on certain of these
leases.  Future minimum rental  commitments under  non-cancelable  operating
leases total  approximately $37 million with $9.1 and $8.1 million committed
in 1998 and 1999 respectively,  and in declining amounts thereafter. Certain
plant  facilities and equipment are provided for use by the government under
short-term or cancelable arrangements.


NOTE 14. STOCK OPTION AND PERFORMANCE UNIT PLANS
------------------------------------------------

The  Company's  Stock  Option Plans  provide  that grants of stock  options,
shares of  restricted  stock,  and other  awards may be made to key  Company
employees  and its  affiliates in which the Company has a direct or indirect
equity interest. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>

                                                                                                 Weighted Average
                                                                                  Shares            Per Share
-----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>   
Options outstanding at June 30, 1994, (648,935 exercisable shares)                818,035             $17.04
Granted                                                                           173,500             $24.43
Lapsed                                                                             (4,000)            $24.44
Exercised                                                                        (246,964)            $14.95
-----------------------------------------------------------------------------------------------------------------
Options outstanding at June 30, 1995, (571,071 exercisable shares)                740,571             $19.49
Granted                                                                           433,800             $35.58
Lapsed                                                                            (25,175)            $26.59
Exercised                                                                        (104,902)            $19.77
-----------------------------------------------------------------------------------------------------------------
Options outstanding at June 30, 1996, (625,394 exercisable shares)              1,044,294             $25.97
Granted                                                                           198,024             $39.50
Lapsed                                                                             (5,400)            $35.95
Exercised                                                                        (129,297)            $23.20
-----------------------------------------------------------------------------------------------------------------
Options outstanding at June 30, 1997, (692,021 exercisable shares)              1,107,621             $28.67
=================================================================================================================
</TABLE>

     Options  outstanding at June 30, 1997,  have  expiration  dates ranging
from June 1998 to February 2007.

     Limited  appreciation  rights were  outstanding  covering 84,225 option
shares.  Limited  appreciation rights are paid automatically in cash in lieu
of other related options upon a change in control of the Company.

<PAGE>


     During  fiscal  year 1996,  230,000  stock  options  were  contingently
granted to certain Howmet employees. Such options were granted at $35.50 per
option  (190,000)  and $40.94 per option  (40,000),  the market price on the
date of grant,  but will only vest if the  Company  acquires  100 percent of
Howmet.  In the event the Company  does  acquire 100 percent of Howmet,  any
increase in market  price from the date of grant to the date of  acquisition
(vesting date) will be expensed by the Company. At June 30, 1997, this would
have resulted in a charge to earnings of $7.7 million.

     Shares of common stock reserved for both  outstanding and future grants
of  options  and other  stock-based  awards  at June 30,  1997 and 1996 were
2,057,340 and 1,186,637 shares, respectively.

     On July 1, 1996,  the  Company  adopted  SFAS No. 123  "Accounting  for
Stock-Based  Compensation".  In accordance  with the  provisions of SFAS No.
123,  the  Company  has  chosen  to  continue  to  account  for  stock-based
compensation  using the intrinsic value method under APB Opinion No. 25 and,
accordingly, does not recognize compensation cost. If the Company recognized
compensation  cost based on the fair value of the  options  granted at grant
date as  prescribed  by SFAS No. 123, net income and earnings per share on a
pro forma basis would have been reduced approximately 2 percent in both 1997
and 1996.

     Information  regarding stock options  outstanding and exercisable as of
June 30, 1997, is as follows:

<TABLE>
<CAPTION>
                                                                                Price Range
----------------------------------------------------------------------------------------------------------------
                                                         $11.69         $24.06         $35.50         $40.94
                                                        to $15.31      to $34.38      to $38.63      to $55.69
----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>            <C>
Options Outstanding:
   Number                                                279,791        405,730        356,800         65,300
   Weighted average exercise price                        $14.81         $28.62         $36.96         $43.00
   Weighted average remaining contractual life
                                                        4.4 years      7.3 years      8.8 years      8.9 years
Options Exercisable:
   Number                                                279,791        405,730              0          6,500
   Weighted average exercise price                        $14.81         $28.62          $0.00         $41.69
----------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------

Under SFAS No. 107, "Fair Value  Disclosures  about Financial  Instruments,"
the Company is required to disclose the fair value of financial instruments,
including  off-balance-sheet  financial instruments,  when fair value can be
reasonably  estimated.  The following  methods and assumptions  were used in
estimating fair values:
<PAGE>

Cash and cash equivalents: The carrying amount approximates fair value.

Receivables: The fair value of receivables, due to the collection of certain
receivables  over an extended  period,  is based on the discounted  value of
expected future cash flows. The carrying amount approximates fair value.

Short-term  and  long-term  debt:  The  carrying  value of  short-term  debt
approximates fair value. The fair value of long-term debt is estimated based
on the current  borrowing rates for similar issues and also approximates the
carrying amount.

Off-balance-sheet  instruments:  Foreign currency exchange contracts are not
significant.


NOTE 16. OPERATIONS BY INDUSTRY SEGMENT
---------------------------------------

The  Company  previously   reported  its  operations  under  three  business
segments:  space,  defense,  and fastening systems.  In conjunction with the
Company's consolidation of its space and defense operations,  the Company is
reporting  results under two business  segments:  propulsion  and fastenings
systems. The previously reported space and defense systems amounts have been
combined to conform with the current presentation.

     The propulsion  systems segment consists of solid rocket propulsion for
NASA, the Department of Defense,  and various commercial customers for space
applications,  as well as, gas  generator and ordnance  products,  metal and
composite components, and services relating to such systems.

<PAGE>


     The fastening  systems segment consists of specialty  fastening systems
for a broad range of aerospace and industrial  applications  worldwide.  The
following table summarizes segment information:

<TABLE>
<CAPTION>
                                                                   Year Ended June 30
                                                          -----------------------------------
(in millions)                                                  1997         1996        1995
---------------------------------------------------------------------------------------------
<S>                                                          <C>          <C>         <C>
Net sales
     Propulsion systems                                      $606.1       $651.1      $729.1
     Fastening systems                                        284.0        238.4       227.7
---------------------------------------------------------------------------------------------
Consolidated net sales                                       $890.1       $889.5      $956.8
=============================================================================================


Segment operating profit (loss)
     Propulsion systems(1)                                   $ 55.1       $ 77.1      $ 25.6
     Fastening systems(2)                                      27.0         (6.3)       19.2
---------------------------------------------------------------------------------------------
        Segment operating profit                               82.1         70.8        44.8
     Equity income, Howmet                                     30.5          4.5
     Interest income                                           10.9         30.2        46.2
     Interest expense                                          (1.7)        (3.9)       (9.3)
     Unallocated corporate expense                             (6.5)        (9.0)       (5.4)
---------------------------------------------------------------------------------------------
Consolidated income before
     income taxes, and extraordinary item                    $115.3       $ 92.6      $ 76.3
=============================================================================================


Total Assets
     Propulsion systems                                      $350.2       $384.6      $436.3
     Fastening systems                                        247.5        242.7       268.1
     Corporate                                                256.7        191.0       106.3
---------------------------------------------------------------------------------------------
Consolidated assets                                          $854.4       $818.3      $810.7
=============================================================================================


Depreciation and Amortization Expense
     Propulsion systems                                      $ 27.7       $ 28.9      $ 28.5
     Fastening systems                                         11.9         12.3        11.0
     Corporate                                                   .6           .8          .5
---------------------------------------------------------------------------------------------
Consolidated depreciation and amortization expense           $ 40.2       $ 42.0      $ 40.0
=============================================================================================


Capital Expenditures
     Propulsion systems                                      $ 10.4       $ 17.2      $ 16.5
     Fastening systems                                         15.1         11.2        17.1
     Corporate                                                  7.6           .7          .2
---------------------------------------------------------------------------------------------
Consolidated capital expenditures                            $ 33.1       $ 29.1      $ 33.8
=============================================================================================
<FN>
----------
(1) Propulsion systems included a $61.4 million restructuring charge in 1995.
(2) The fastening systems loss in 1996 included a $5.9 million restructuring
     charge and $12.2 million of inventory charges.
</FN>
</TABLE>



     A proportionate  share of Corporate general and administrative  expense
is  allocated  and  reimbursed   through   propulsion   systems   contracts.
Intersegment, foreign operations, and export sales are not material.

     Net sales  under  government  contracts  and  subcontracts  amounted to
$543.7,  $618.4, and $689.5 million for 1997, 1996, and 1995,  respectively.
The sales as a  percentage  of  consolidated  net sales  were 61, 70, and 72
percent for 1997, 1996, and 1995, respectively.
<PAGE>

     Corporate  assets  consist  principally  of cash and cash  equivalents;
income tax receivable; property, plant, and equipment; investment in Howmet;
and other noncurrent assets.


NOTE 18. QUARTERLY FINANCIAL HIGHLIGHTS (Unaudited)
---------------------------------------------------
<TABLE>
<CAPTION>

                                                                     Fiscal Year 1997
                                                                    Three Months Ended
                                              -----------------------------------------------------------
(in millions, except per share data)            June 30         March 31        Dec. 31        Sept. 30
---------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>             <C>             <C>    
Net sales                                       $255.6          $226.5          $210.0          $198.0
Gross profit                                      45.5            42.2            44.4            34.3
Net income(1)                                     23.7            20.8            18.7            19.2
Net income per share(1)                            1.26            1.12            1.00            1.03
Cash dividends paid per share                       .20             .17             .17             .17
Market price
    High                                          76.25           60.88           47.38           46.88
    Low                                           54.88           44.50           41.25           34.63
---------------------------------------------------------------------------------------------------------

                                                                     Fiscal Year 1996
                                                                    Three Months Ended
                                              -----------------------------------------------------------
(in millions, except per share data)            June 30         March 31        Dec. 31         Sept. 30
---------------------------------------------------------------------------------------------------------
Net sales                                       $227.8          $228.9          $209.9          $222.9
Gross profit                                      37.5            36.7            34.4            42.2
Net income(2)                                     13.3             9.5            22.3            13.2
Net income per share(2)                             .71             .52            1.20             .71
Cash dividends paid per share                       .17             .17             .17             .17
Market price
    High                                          44.75           44.63           35.88           37.13
    Low                                           38.50           32.38           32.88           29.75
---------------------------------------------------------------------------------------------------------
<FN>
----------
(1)  The first  quarter of 1997  included  the  recognition  of interest  income
     related to income  taxes of $7 million  and a $3 million  tax credit  ($7.3
     million or $.39 per share after-tax). The third and fourth quarters of 1997
     included  recognition  of interest  income  related to income  taxes of $.8
     million  and $.9  million  ($.5  million  and $.6 million or $.03 per share
     after tax in each quarter), respectively.

(2)  The second  quarter of 1996  included the  recognition  of interest  income
     related  to income  taxes of $27.5  million  and $3.5  million  related  to
     research and other tax credits  ($20.6  million or $1.11  after-tax).  Also
     included was a  restructuring  charge of $5.9  million and a $12.2  million
     inventory  charge  resulting in a net after-tax  charge of $14.4 million or
     $.78 per share.
</FN>
</TABLE>

<PAGE>


MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
-------------------------------------------

     Management  has  prepared,  and is  responsible  for, the  consolidated
financial statements and all related financial  information contained in the
Annual Report. The consolidated financial statements,  which include amounts
based on estimates and judgments, were prepared in accordance with generally
accepted accounting principles  appropriate in the circumstances and applied
on a  consistent  basis.  Other  financial  information  in this  report  is
consistent with that in the consolidated financial statements.

     Management maintains an accounting system and related internal controls
which it believes provide  reasonable  assurance,  at appropriate cost, that
transactions   are  properly   executed  and   recorded,   that  assets  are
safeguarded,   and  that   accountability  for  assets  is  maintained.   An
environment that provides an appropriate  level of control is maintained and
monitored and includes examinations by an internal audit staff.

     Management recognizes its responsibilities for conducting the Company's
affairs in an ethical  and  socially  responsible  manner.  The  Company has
written standards of business conduct, including its business code of ethics
which  emphasize  the  importance of personal and  corporate  conduct,  that
demands  compliance  with federal and state laws governing the Company.  The
importance of ethical  behavior is regularly  communicated  to all employees
through ongoing  education and review  programs  designed to create a strong
compliance environment.

     The Audit  Committee  of the Board of  Directors  is  composed  of five
outside  directors.   This  Committee  meets  periodically  and  also  meets
separately  with  representatives  of  the  independent  auditors,   Company
officers, and the internal auditors to review their activities.

     The  consolidated  financial  statements  have been examined by Ernst &
Young LLP, independent auditors, whose report follows.



                                                 /s/ Richard L. Corbin
                                                 ---------------------------
                                                 Richard L. Corbin
                                                 Senior Vice President and
                                                 Chief Financial Officer


<PAGE>


REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
-------------------------------------------------

To the Stockholders and Board of Directors
Thiokol Corporation:

     We have audited the accompanying consolidated balance sheets of Thiokol
Corporation  as of June 30,  1997 and  1996,  and the  related  consolidated
statements of income,  stockholders'  equity, and cash flows for each of the
three years in the period ended June 30, 1997.  These  financial  statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally  accepted auditing
standards.  Those  standards  require  that we plan and perform the audit to
obtain reasonable  assurance about whether the financial statements are free
of material  misstatement.  An audit  includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An  audit  also  includes  assessing  the  accounting  principles  used  and
significant estimates made by management,  as well as evaluating the overall
financial  statement  presentation.  We believe  that our  audits  provide a
reasonable basis for our opinion.

     In our opinion,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the consolidated  financial  position of
Thiokol Corporation at June 30, 1997 and 1996, and the consolidated  results
of its  operations  and its cash  flows for each of the  three  years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles.



/s/ Ernst & Young
-----------------------
Ernst & Young

Salt Lake City, Utah
August 1, 1997



<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996


     Net income for 1997 was $82.4  million or $4.41 per share,  an increase
of 40 percent  compared to $58.3 million or $3.14 last year.  Net income for
1996 included  recognition of $21.3 million  after-tax  ($1.15 per share) of
income related to income taxes and after-tax  fastening  systems  charges of
$8.5  million   ($.46  per  share)  for   inventory  and  $5.9  million  for
restructuring  ($.32 per  share).  Net  income for 1997  included  after-tax
income  related  to income tax  refunds  and  interest  on the  refunds  and
restructuring credits totaling $9.7 after-tax or $.52 per share.

     Summary  unaudited  financial  information  for the twelve months ended
June 30, 1997 follows:

<TABLE>
<CAPTION>

(in millions except per share data)
-----------------------------------

                                                                             Better/
                                               1997            1996          (Worse)        Percent
----------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>            <C>             <C>
Sales 
Propulsion systems                            $606.1          $651.1         $(45.0)          (7)%
Fastening systems                              284.0           238.4           45.6           19 
----------------------------------------------------------------------------------------------------
    Total sales                               $890.1          $889.5         $  0.6           -  %
====================================================================================================

Operating income 
Propulsion systems                            $ 55.1          $ 77.1         $(22.0)         (29)%
Fastening systems                               27.0            (6.3)          33.3           -
Unallocated corporate expense                   (6.5)           (9.0)           2.5           28 
----------------------------------------------------------------------------------------------------
    Total Operating income                      75.6            61.8           13.8           22

Equity income, Howmet                           30.5             4.5           26.0          578
Interest income                                 10.9            30.2          (19.3)         (64)
Interest expense                                (1.7)           (3.9)           2.2           56
Income taxes                                   (32.9)          (34.3)           1.4            4 
----------------------------------------------------------------------------------------------------
    Net income                                $ 82.4          $ 58.3         $ 24.1           41 %
====================================================================================================   

Earnings per share                            $  4.41          $ 3.14        $  1.27          40 %
==================================================================================================== 

Average equivalent shares outstanding           18.7            18.6             .1           - 
====================================================================================================    

</TABLE>


<PAGE>


Business Segment Sales and Income For The Year
----------------------------------------------

     Propulsion  systems  sales  declined  compared to the prior year due to
defense  sales  being down $60  million  partially  offset by an increase in
space programs of $15 million.

     Propulsion systems income was down $22 million compared to last year as
a result of completion of the shuttle  processing  contract in 1996, reduced
margins on the RSRM contract,  and additional start-up and warranty costs on
commercial  launch motors.  Defense  related  programs income declined $11.2
million due to lower  activity as a result of reduced  government  spending,
completion of several defense  programs during fiscal year 1996, and closure
of two government-owned contractor-operated (GOCO) plants.

     Fastening  systems sales and income  increased  $45.6 million and $33.3
million, respectively,  over the prior year. Commercial aerospace sales were
up $38.9 million. The increase in sales provided a corresponding increase in
income.  Cost  reductions  due to plant  closures  and  consolidations,  and
closure of the  subsidiary  headquarters  also  contributed  to income.  The
current  year's  pre-tax  income  benefited $.8 million from the reversal of
excess restructuring  reserves versus the prior year's $18.1 million pre-tax
charges for inventory and restructuring. Excluding both non-recurring items,
current year income  increased 121 percent.  Current year fastening  systems
margins  increased to 9.2 percent from 5 percent in the prior year excluding
unusual items.

     Net income for 1997 included  $28.3 million or $1.52 per share from the
Company's investment in Howmet Corporation.

     Also  affecting  income was a 28.5 percent  effective  tax rate for the
current year compared to 37 percent for the prior year, reflecting the lower
7 percent tax rate on higher equity income from Howmet.


<PAGE>


     The following  unaudited  table  summarizes  the impact on earnings and
earnings per share of major unusual items affecting both years:

<TABLE>
<CAPTION>

 (in millions, except per share data)
-----------------------------------------------------------------------------------------------------------
                                                 1997            1997             1996            1996
                                               After-tax        Earnings        After-tax        Earnings
                                                 income         per share        income         per share
                                              ------------   --------------   -------------    ------------
<S>                                              <C>             <C>             <C>              <C>   
Income before unusual items                      $72.7           $3.89           $51.4            $2.77
Restructuring credit (charge)                      1.3             .07            (5.9)            (.32)
Huck inventory charges                             -               -              (8.5)            (.46)
Income tax interest income/credits                 8.4             .45            21.3             1.15 
-----------------------------------------------------------------------------------------------------------
Net income                                       $82.4           $4.41           $58.3            $3.14 
===========================================================================================================

</TABLE>

     Excluding  unusual items in both years,  net income in the current year
increased by 40 percent or $1.12 per share.

     General and  administrative  expense for 1997  increased  15 percent or
$10.7  million  compared  to  the  prior  year.  General  Corporate  expense
increased $7.7 million while selling and  administrative  costs increased $3
million in the fastening  systems segment.  Interest expense  decreased $2.2
million as a result of the reduction in short-term debt.


Prior Years Restructuring and Impairment
----------------------------------------

     As a  result  of a  comprehensive  review  of the  Company's  operating
performance in Europe,  a pre-tax  restructuring  charge of $5.9 million was
recognized  in the  second  quarter  of  1996  relating  to the  anticipated
shutdown of the  fastening  system's  Germany  operations.  During the third
quarter of fiscal year 1996, the Company notified the 82 affected  employees
of the Germany plant shutdown.  The charge included $3.6 million of employee
severance expense and $1.7 million write down of long-lived assets.
<PAGE>

     During the  1993-1994  defense  industry down turn,  pricing  pressures
required  the Company to review  operations  and reduce  operating  costs to
remain competitive. During the third quarter of 1995, the Board of Directors
determined a  consolidation  of the Company's  manufacturing  facilities and
associated  write down of assets was required.  The Company recorded a $61.4
million pre-tax defense systems  restructuring and related impairment charge
including  a $20 million  write down for  impaired  long-lived  assets and a
$23.6 million write down of goodwill. Fair value of goodwill and fixed asset
write downs was determined by estimating  discounted  cash flows from future
defense and non-shuttle vehicle  operations.  Also included was an estimated
restructuring  loss of $10.5 million on the disposition of fixed assets from
two  manufacturing  facilities  (Huntsville and Omneco),  and a $7.3 million
cash  restructuring  charge  for  costs  related  to the  facility  closures
including  $2.3  million of  employee  severance  costs.  The  restructuring
included 360 employee terminations.  Fair value of the Huntsville and Omneco
assets was based on  estimated  cash  proceeds  from asset  sales net of the
costs of disposal.  During the second quarter of 1997, the restructuring was
substantially  completed and excess  reserves from both programs were closed
and credited to income.  The propulsion and the fastening  systems  segments
recognized  $1.4  million  and $.8  million  in  income,  respectively.  The
restructuring  plan  included  charges  for  certain  issues  that  have not
currently been resolved and the Company believes  remaining reserves will be
adequate to cover future costs.

     A summary of restructuring reserve activity by program follows:
<TABLE>
<CAPTION>

                                                U.S.         Germany
                                               Plants         Plant
(in millions)                                 Shutdown       Shutdown        Total
-------------------------------------------------------------------------------------
<S>                                             <C>            <C>          <C>  
Reserve Balance at March 31, 1995               $17.8                       $ 17.8
Reductions (noncash)                              (.5)                         (.5)
Payments made                                     (.3)                         (.3)
-------------------------------------------------------------------------------------
Balance at June 30, 1995                         17.0                         17.0
Fastening systems restructuring                                $ 5.9           5.9
Reductions (noncash)                             (8.7)          (2.3)        (11.0)
Payments made                                     (.9)                         (.9)
-------------------------------------------------------------------------------------
Balance at June 30, 1996                          7.4            3.6          11.0
Reductions (noncash)                             (5.2)          (2.8)         (8.0)
Payments made                                     (.8)                         (.8)
-------------------------------------------------------------------------------------
Fiscal year 1997 restructuring credit           $ 1.4          $  .8        $  2.2
=====================================================================================
</TABLE>

<PAGE>


     The  Company  has  successfully  negotiated  with  the  government  for
recovery of certain of these costs. The Company  estimates  approximately $9
million to be recognized in Company  profits during fiscal year 1998 through
fiscal year 2000.


Equity Investment in Howmet
---------------------------

     In  December   1995  the  Company   purchased   49  percent  of  Howmet
Corporation.  The  Company's  1997 results  include  equity  income of $30.5
million, reflecting a full year of Howmet ownership compared to $4.5 million
of equity  income  for the 28 weeks of  Company  ownership  in 1996.  Howmet
experienced  an 18.5 percent  increase in sales for the twelve  months ended
June 30, 1997, compared to the same period in the prior year,  reflecting an
increased demand in the commercial  aerospace market and continued  strength
in the industrial gas turbine market.  Howmet's income increased in 1997 due
to: sales increasing 18.5 percent,  additional  revenue of $9.7 million from
the finalization of a pricing  adjustment with a major customer,  fixed cost
containment,  variable cost reduction, and other operational improvements, a
lower  effective  tax rate of 44 percent in 1997  compared  to 60 percent in
1996, and lower interest  expense due to lower debt and lower interest rates
in 1997 compared to 1996.  Partially  offsetting  the above  increases  were
additional  stock  appreciation  rights expense of $20.7 million recorded in
1997 versus 1996.


<PAGE>


1997 Fourth Quarter Results
---------------------------

     Summary unaudited financial information for the three months ended June
30, 1997 follows:
<TABLE>
<CAPTION>

(in millions except per share data)
-----------------------------------

                                                                           Better/
                                             1997            1996          (Worse)         Percent
                                         ------------   -------------   -------------   -------------
<S>                                         <C>             <C>             <C>             <C>
Sales 
Propulsion systems                          $173.8          $164.7          $ 9.1             6 %
Fastening systems                             81.8            63.0           18.8            30 
-----------------------------------------------------------------------------------------------------
    Total sales                             $255.6          $227.7          $27.9            12 %
=====================================================================================================

Operating income 
Propulsion systems                          $ 10.8          $ 18.6          $(7.8)          (42)%
Fastening systems                             10.6             4.0            6.6           165
Unallocated corporate expense                 (1.6)           (4.1)           2.5            61 
-----------------------------------------------------------------------------------------------------
    Total Operating income                    19.8            18.5            1.3             7
=====================================================================================================

Equity income, Howmet                         11.7             2.8            8.9           318
Interest income                                1.7             0.2            1.5           750
Interest expense                              (0.2)           (0.9)           0.7            78
Income taxes                                  (9.3)           (7.3)          (2.0)          (27)
-----------------------------------------------------------------------------------------------------
    Net income                              $ 23.7          $ 13.3          $10.4            78 %
=====================================================================================================

Earnings per share                          $  1.26         $   .71         $  .55           77 %
=====================================================================================================

Average equivalent shares outstanding         18.8            18.6             .2            - 
=====================================================================================================

</TABLE>


     Propulsion  systems sales  increased  over the prior year due to higher
commercial  launch motor and technology sales and Space Shuttle RSRM program
sales.

     Partially  offsetting  the sales  increase  were lower sales on various
completed  defense  programs  and the  closing  of two  GOCO  plants.  Lower
propulsion margins and program completions reduced quarterly income compared
to the prior year. The two plant  closings also  contributed to the decrease
in income.

     Fastening  systems  sales and income  increased  due to higher sales in
both the aerospace and industrial  markets,  excluding last year's  charges.
Aerospace  sales  and  income  increased  $14.6  million  and $6.5  million,
respectively,  while  industrial sales and income increased $4.1 million and
$.1 million  respectively.  Income growth was paced by commercial  aerospace
markets.  Worldwide sales increases combined with emphasis on cost reduction
resulted in improved  margins  over both last  quarter and the prior  year's
quarter.  Fastener margins improved to 13 percent for the quarter versus 6.3
percent for the prior year period on a recurring basis.

<PAGE>

Equity Investment in Howmet
---------------------------

     The 1997 fourth quarter results  include $10.9 million  after-tax ($.58
per share) of equity  income  related to Thiokol's  49 percent  ownership of
Howmet.  This was $8.3 million higher than the 1996 fourth quarter after-tax
amount.  Howmet's sales of $330.4 million in the fourth quarter of 1997 were
16.6 percent higher than 1996.  Howmet operating income of $47.2 million was
81.8  percent  higher  than 1996  despite  including a $2.1  million  higher
last-in  first-out (LIFO) charge and $7.2 million higher stock  appreciation
rights expense.  Howmet net income  increased due to a 16.6 percent increase
in sales over the prior year  quarter,  additional  revenue of $6.3  million
from the finalization of a pricing  adjustment with a major customer,  fixed
cost   containment,   variable  cost   reduction,   and  other   operational
improvements,  a 41 percent  tax rate for the 1997  quarter  compared  to 60
percent in 1996,  and a $2.4 million  decrease in interest  expense for 1997
compared to the same quarter in 1996.



<PAGE>


RESULTS OF OPERATIONS FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

     Net income for 1996 was $58.3  million or $3.14 per share,  an increase
of 11  percent  compared  to $52.3  million  or $2.78  per  share  before an
extraordinary  charge in 1995. Income for 1996 included recognition of $21.3
million  after-tax  of income  related  to  income  taxes or $1.15 per share
after-tax.  Results for 1996 also  reflected  fastening  systems  charges of
$12.2 million for inventory and $5.9 million for  restructuring.  Income for
1995 included a refund of income taxes of $17.5 million and related interest
income  of $43.5  million,  resulting  in a net  after-tax  impact  of $44.5
million or $2.37 per share. Results for 1995 were also impacted by a defense
systems restructuring charge of $61.4 million or $2.62 per share. Net income
for 1995 was $47.5  million or $2.53 per share  including  an  extraordinary
loss of $4.8 million related to the early retirement of debt.

     Summary  unaudited  financial  information  for the twelve months ended
June 30 follows:

<TABLE>
<CAPTION>

(in millions, except per share data)
------------------------------------
                                                                            Better
                                               1996            1995         (Worse)         Percent
                                           ------------    ------------    ----------     -----------
<S>                                           <C>             <C>            <C>             <C>
Sales
Propulsion systems                            $651.1          $729.1         $(78.0)          (11)%
Fastening systems                              238.4           227.7           10.7             5 
-----------------------------------------------------------------------------------------------------
    Total sales                               $889.5          $956.8         $(67.3)           (7)%
=====================================================================================================

Operating Income
Propulsion systems                            $ 77.1          $ 87.0         $ (9.9)          (11)%
Fastening systems                               (0.4)           19.2          (19.6)         (102)
Restructuring and impairment                    (5.9)          (61.4)          55.5            90
Unallocated corporate expense                   (9.0)           (5.4)          (3.6)          (67)
-----------------------------------------------------------------------------------------------------
    Operating income                            61.8            39.4           22.4            57

Equity income, Howmet                            4.5                            4.5

Interest income                                 30.2            46.2          (16.0)          (35)
Interest expense                                (3.9)           (9.3)           5.4            58
Income taxes                                   (34.3)          (24.0)         (10.3)          (43
-----------------------------------------------------------------------------------------------------
    Income before extraordinary item            58.3            52.3            6.0            11 %
Extraordinary item - debt retirement                            (4.8)           4.8          
-----------------------------------------------------------------------------------------------------
    Net income                                $ 58.3          $ 47.5         $ 10.8            23 %
=====================================================================================================

Earnings per share                            $  3.14         $  2.53        $   .61           24 
=====================================================================================================

Average equivalent shares outstanding           18.6            18.8             .2             1 
=====================================================================================================

</TABLE>


     Operating  income  was  favorably   impacted  by  recognition  of  cost
management fees on the RSRM contract,  and lower general and  administrative
and research and development  costs.  Adversely  impacting  operating income
were lower margins and the  restructuring  charges and inventory  write down
for the fastening systems segment,  Castor IV(R) motor requalification costs
and completion of the Shuttle  Processing  Contract during the first quarter
of 1996.


<PAGE>


Business Segment Sales and Income For 1996
------------------------------------------

     Propulsion systems sales decreased due to NASA reducing the RSRM flight
sets from  eight to seven  per  year,  continued  Company  emphasis  on cost
reductions on the RSRM program ($30  million),  as well as the first quarter
termination of the RSRM  processing  work at the Kennedy Space Center ($22.5
million).  Castor IV(R) motor and Castor  120(R)  motor sales also  declined
while STAR motor  sales  increased.  The sales  decrease  also was caused by
significantly  lower operating  levels at the GOCO ammunition  plants ($17.8
million),  and lower  Standard  missile  ($12.6  million) and Trident ($11.5
million)  production.  A  sales  increase  in  flares  ($19.2  million)  and
Minuteman sales ($8.6 million)  partially offset the decrease.  The decrease
in income is primarily related to Castor IV(R)  requalification  costs ($3.6
million),  lower RSRM motor production ($3.4 million), the completion of the
RSRM processing  contract ($3.1  million),  and lower margins in other space
programs.  The 1995 income included a $6.1 million pension  curtailment gain
which accounts for a portion of the 1996 decline. The decrease was partially
offset  by  higher  RSRM  income  recognized  as a  result  of  higher  cost
management fees ($10.1 million).

     Fastening  systems  income  for  1996  decreased  38  percent  to $11.8
million,  excluding $18.1 of inventory and restructuring charges, from $19.2
million  in 1995.  Domestic  and  international  aerospace  sales  increased
significantly  in 1996.  Earnings from aerospace  continue to be impacted by
losses at the Lakewood  facility due to  manufacturing  inefficiencies.  The
Lakewood  losses  declined  significantly  in the  fourth  quarter  of 1996.
Industrial  operating results were impacted by weak transportation  markets.
Lower  international  operating  margins  resulted  from the  Germany  plant
losses,  lower margin sales,  and new product  marketing  costs. The Company
announced  in the  second  quarter  of fiscal  year 1996 the  closure of the
Germany operations.


<PAGE>


     The following  unaudited  table  summarizes  the impact on earnings and
earnings per share of major unusual items affecting both years:

<TABLE>
<CAPTION>

(in millions except per share data)
-----------------------------------
                                               1996          1996           1995          1995
                                            After-tax      Earnings       After-tax     Earnings
                                              Income       Per Share       Income       Per Share
                                            -----------  -------------  -------------  ------------
<S>                                            <C>           <C>           <C>            <C>   
Income before charges                          $51.4         $2.77         $ 57.0         $ 3.03
Restructuring charges                           (5.9)         (.32)         (49.2)         (2.62)
Fastening systems inventory charges             (8.5)         (.46)
Income tax interest income/credits              21.3          1.15           27.0           1.44
Income tax refund                                                            17.5            .93 
---------------------------------------------------------------------------------------------------
     Income before extraordinary item          $58.3         $3.14         $ 52.3         $ 2.78
Extraordinary item-debt retirement                                           (4.8)          (.25)
---------------------------------------------------------------------------------------------------
     Net income                                $58.3         $3.14         $ 47.5         $ 2.53 
===================================================================================================

</TABLE>


     General and administrative  expense for 1996 of $69.8 million decreased
3 percent  or $2.1  million  compared  to 1995.  General  Corporate  expense
decreased $3.9 million while selling and administrative costs increased $1.8
million in the fastening  systems segment.  Interest expense  decreased $5.4
million as a result of the reduction in long-term  debt in the third quarter
of 1995.

     During  fiscal  year  1996  Thiokol  purchased  49  percent  of  Howmet
Corporation  in December  1995. The investment in Howmet is accounted for on
the equity method and equity income of $4.5 million was  recognized in 1996.
Howmet sales of $1,017.1  million for the twelve  months ended June 30, 1996
increased  $127.4  million  from $889.7  million or 14.3  percent over 1995.
Income from operations for 1996, before  amortization of acquisition related
assets, was $82.1 million, a 22.4 percent increase over 1995.

     Also  impacting  income  was a 37  percent  effective  income  tax rate
compared to 31.5  percent for 1995  reflecting  lower  research tax credits,
refunds, and nondeductible restructuring charges.


<PAGE>


Future Operations/Business Environment
--------------------------------------

     The Company's  largest  business  segment is  propulsion  systems which
produces  high-technology  solid  propellant  motors  for space and  defense
applications. Production of and services for the RSRM represented 42 percent
of 1997 consolidated  sales and 52 percent of consolidated  operating income
before  recognition of the restructuring  credit.  The current contract with
the NASA extends the Company's  production  of the RSRM through  fiscal year
2001. NASA planning  includes  follow-on RSRM contracts with the Company and
projects replacing the shuttle program with another system in 2012. RSRM Buy
3 contract  incentives to reduce costs over the life of the contract  should
result  in  higher  incentive  fees  in  the  future  based  on  actual  and
anticipated  contract cost performance.  Cost management award fees of $84.8
million have been recognized on the current RSRM Buy 3 contract. Realization
of such fees is reasonably expected based on actual and anticipated contract
cost performance.  However,  all of the cost management award fees remain at
risk  until  completion  of the  current  contract  and final  NASA  review.
Unanticipated program problems which erode cost management performance could
cause  some  or all of the  recognized  cost  management  award  fees  to be
reversed and would be offset against  receivable amounts from the government
or be directly  reimbursed.  Circumstances which could erode cost management
performance include, but are not limited to, a failure of a Company supplied
component,  performance  problems with the RSRM leading to a major  redesign
and/or  requalification  effort,  manufacturing  problems including supplier
problems which result in RSRM production  interruptions or delays, and major
safety incidents.

     During the year, the Company consolidated it's Northern Utah Propulsion
operations to provide a more  efficient and  competitive  solid rocket motor
design, development,  and manufacturing  organization.  Consolidation costs,
consisting  primarily of employee severance  expense,  were minimal and were
offset by savings in the periods incurred.

<PAGE>

     The  level of  United  States  Government  funding  of  Space  programs
including the Space Station may impact the Space  Shuttle  launch  schedule.
Significant  reductions  in the launch  schedule  would lower the  Company's
production rates and reduce related revenue and profits to the Company . The
Company participates in the commercial satellite launch business through the
Castor and Star series of motors.  This business is projected to grow during
the next few years.  A second  Castor  120(R) flight is planned in the first
quarter of fiscal year 1998.  The success of the second  flight is important
to the  viability of the program.  During the fiscal year 1997,  the Company
expanded its  international  participation  in the commercial  launch market
with contract wins in Japan and Spain.

     With continuing reductions in federal government defense spending,  the
Company expects its defense sales and income to continue declining in fiscal
year  1998 and  begin  to  stabilize  in 1999.  Generally  the  industry  is
characterized by significant over capacity.  Decreased  defense spending has
created a highly competitive  pricing  environment for tactical programs and
has reduced margins on existing programs and new program  opportunities.  In
fiscal year 1998 the Company will be competing to  remanufacture  the United
States' existing Minuteman ballistic missiles.

     During fiscal year 1997, the Company recorded sales of $9.5 million and
a  loss  of  $1.1  million  related  to  the  Louisiana  and  Longhorn  GOCO
facilities.  Effective  June 30,  1997,  the Army  terminated  all  existing
production and maintenance contracts related to these facilities.  Sales and
profits from the ordnance  operations will be insignificant in 1998 as these
facilities are closed. In conjunction with the GOCO closing, the Company has
filed a $40 million  legal action  against the U.S.  Army to recover  future
expenditures  for employee post retirement  benefits.  The Company expects a
favorable resolution of this issue with the Army.

     The fastening systems segment operates in both aerospace and industrial
markets.  The aerospace segment is greatly  influenced by build schedules of
commercial  aircraft which have increased  significantly  over last year and
are  anticipated  to increase  again in fiscal year 1998.  The  industry has
historically  been  quite  cyclical  and the  Company  anticipates  a modest
reduction  in late fiscal year 1999 or fiscal year 2000.  Military  aircraft
spending is expected to continue at low  production  levels.  As a result of
higher sales, continued  improvements in operations,  and the closure of the
Germany  facility,  the  Company  has  improved  operating  margins  in  the
fastening systems segment. Industrial sales in 1998 are expected to increase
over 1997  levels  if the build  schedules  in the  transportation  industry
continue to rise.

<PAGE>

     Howmet is a leading  manufacturer  of  investment  cast turbine  engine
components for the jet aircraft and industrial gas power generation markets.
Howmet operates in four major business areas: aerospace castings, blades and
vanes,  aerospace  structural  components,   industrial  gas  turbine  (IGT)
castings and aluminum castings. Howmet manufactures airfoils for every major
jet  aircraft  turbine  engine  program  currently  in  production  or under
development  by its  major  customers.  The  aerospace  castings  market  is
strongly  influenced  by both the  level of new  aircraft  construction  and
demand for  commercial  air travel both of which are expected to continue to
increase.

     Howmet is also a leading producer of airfoils for land-based industrial
gas turbine  engines.  These  engines are  primarily  used in utility  power
generation,  as well as in  mechanical  drive  applications  for oil and gas
processing and off-shore drilling.  Airfoil products  manufactured by Howmet
for the IGT market have performance and reliability  requirements similar to
those  produced for the aerospace  market,  but generally are  significantly
larger in size.


Other Matters
-------------

     The Company has operating leases,  the majority of which are short-term
and real estate related.  Rental expense  amounted to $14.5 million in 1997.
Renewal and  purchase  options  are  available  on certain of these  leases.
Future minimum rental  commitments  under  non-cancelable  operating  leases
total approximately $37 million with $9.1 and $8.1 million committed in 1998
and 1999, respectively, and in declining amounts thereafter.

     The Company is involved in various legal  proceedings and uncertainties
including  those related to  environmental  matters as discussed in Notes 11
and 12 to the consolidated financial statements.


Liquidity and Capital Resources
-------------------------------

     Cash flow provided by operations was $114.1 million  compared to $182.8
million in 1996. The decrease in cash flows primarily reflects collection of
a $79.6 federal income tax receivable during fiscal year 1996.  Current year
cash flow reflects a smaller positive cash flow from reductions in inventory
and prepaid expenses of $6.8 million compared to $41.8 million for 1996. The
current year benefited  $8.7 million from interest  income related to income
tax refunds and from a $3 million tax credit.  The prior year recognition of
$27.5  million of  interest  income  related  to income  taxes and the $18.1
million fastening system charge did not affect cash flow.

     Investing   activities  consisted  primarily  of  capital  spending  on
property,  plant and equipment of $33.1 million compared to $29.1 million in
1996. The prior year benefited from $3.5 million of additional proceeds from
fixed asset disposals.  Last year's  investing  activities also reflects the
Company's 49 percent investment in Howmet Corporation for $146 million.

     Financing  activities  used $47.3 million of cash compared to cash used
in the prior year of $11.9  million.  Short term debt  decreased $38 million
compared  to an increase in the prior year of  approximately  $2.5  million.
Last year also  reflected the  repurchase of 124,600 shares of the Company's
common stock for approximately $4.3 million.

     The Company's  current ratio  increased to 2.2 from 1.7 and the debt to
equity ratio  declined to 4.7 percent  from 14.5  percent  during the fiscal
year,  primarily  the result of a higher  cash  balance  and a  decrease  in
short-term  debt.  Working  capital  of  $172.2  million  at June 30,  1997,
increased $53.5 million from June 30, 1996. The Company's  current ratio and
working capital increased reflecting the Company's financial strength.

<PAGE>

     Estimated  future  cash  flows  from  operations,   current   financial
resources,  and available  credit  facilities are expected to be adequate to
fund  the  Company's  anticipated  working  capital  requirements,   capital
expenditures,  dividend payments, and stock repurchase program.  Significant
additional  debt may be  incurred  in the event the  Company  exercises  its
option to  acquire  Carlyle's  51 percent  equity  interest  in Howmet.  The
combined  companies'  consolidated  debt would  significantly  increase  the
Company's debt-to-equity ratio.

     In May of 1997 the Board of Directors,  authorized the repurchase of up
to 1.5 million  additional  shares of common  stock in amounts and timing as
the Company deems appropriate. This authorization replaces prior outstanding
authorizations.

     At June 30, 1997,  the Company had available  $165 million in revolving
credit  facilities  with $162.8 million  unused.  The Company's $300 million
shelf  registration   statement  filed  with  the  Securities  and  Exchange
Commission became effective October 16, 1996, and permits the Company access
to public  markets to issue  long-term  financing  with amounts,  type,  and
timing as considered appropriate.


Howmet Liquidity
----------------

     Howmet  generated  $176.6  million  cash flow from  operations  for the
twelve months ending June 30, 1997, and reduced  long-term debt $157 million
during that period.  Summary financial  information is provided in Note 5 to
the consolidated  financial statements.  On May 6, 1997, Howmet entered into
an agreement to sell certain assets of its refurbishment  business. The sale
is  subject  to  government  antitrust  review  under the  Hart-Scott-Rodino
Antitrust  Improvements  Act.  Howmet expects net after-tax cash proceeds of
approximately  $40 million and such proceeds will be used to further  reduce
debt and to fund capital expenditures.  The sale transaction is not expected
to have a material  effect on future net income.  Howmet expects future cash
flows from operations,  current  financial  resources,  and available credit
facilities to be adequate to fund anticipated working capital  requirements,
capital expenditures, and debt retirement.

<PAGE>

Risk Factors
------------

     Except  for  the  historical   information  contained  herein,  certain
statements in this annual report are "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995, which involve risks
and  uncertainties,  including  but not  limited to  changing  economic  and
political conditions in the United States and in other countries, changes in
governmental   spending  and  budgetary  policies,   governmental  laws  and
regulations  surrounding various matters such as environmental  remediation,
contract pricing, and international trading  restrictions,  outcome of union
negotiations,  customer product acceptance,  and continued access to capital
markets.  All forecasts and projections in this report are  "forward-looking
statements,"  and are  based on  management's  current  expectations  of the
Company's results,  based on current information available pertaining to the
Company and its products including the aforementioned  risk factors.  Actual
future  results  and trends  may differ  materially  from  projections  made
herein.


Dividends and Recent Market Prices
----------------------------------

     Dividends paid were $.71 per share for 1997, including a $.01 per share
redemption of stockholders' rights and $.68 per share for 1996 and 1995. The
Company increased its annual dividend rate for 1998 to $.80 per share.

     The high and low market prices of Thiokol  common stock for fiscal year
1997 were $76.25 per share and $34.63 per share, respectively. The principal
market for the  Company's  common  stock is the New York Stock  Exchange and
prices are based on the Composite Tape (ticker symbol TKC).


<PAGE>

<TABLE>
<CAPTION>


SELECTED FINANCIAL DATA


(dollars in millions, except per share data)                  1997        1996        1995         1994           1993
-----------------------------------------------------------------------------------------------------------------------------

<S>                                                           <C>         <C>         <C>          <C>            <C>    
Summary of operations
---------------------
Net sales by industry segment
     Propulsion systems                                       $606.1      $651.1      $729.1       $  868.2       $1,042.8
     Fastening systems                                         284.0       238.4       227.7          175.7          158.9
-----------------------------------------------------------------------------------------------------------------------------
         Consolidated net sales                                890.1       889.5       956.8        1,043.9        1,201.7
Operating profit (loss) by industry segment
     Propulsion systems (1)                                   $ 55.1      $ 77.1      $ 25.6       $   86.8       $  117.8
     Fastening systems (2)                                      27.0        (6.3)       19.2           16.9            7.8
-----------------------------------------------------------------------------------------------------------------------------
         Segment operating profit                               82.1        70.8        44.8          103.7          125.6
Income from operations (1)(2)                                   75.6        61.8        39.4           99.3          120.6
Equity Income, Howmet                                           30.5         4.5
Interest income  (3)(4)(5)                                      10.9        30.2        46.2           12.9            6.6
Interest expense                                                 1.7         3.9         9.3           14.4           25.5
Income before extraordinary item
       and cumulative effect of accounting changes              82.4        58.3        52.3           60.3           63.8
Net income (loss)                                               82.4        58.3        47.5           (3.5)          63.8

Income (loss) per share
-----------------------
Income before extraordinary item
       and cumulative effect of accounting changes            $  4.41     $  3.14     $  2.78      $    3.02      $    3.13
Extraordinary item                                                                      (0.25)
Cumulative effect of accounting changes                                                                (3.20)
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                             $  4.41     $  3.14     $  2.53      $    (.18)     $    3.13

Financial
---------
Total assets                                                  $854.4      $818.3      $810.7       $  805.3       $  834.2
Working capital                                                172.2       118.7       217.7          216.5          217.7
Current ratio                                                    2.2         1.7         2.1            2.4            2.2
Short-term and long-term debt                                 $ 24.6      $ 65.1      $ 65.4       $  115.1       $  149.6
Debt-to-equity                                                   4.7%       14.5%       16.2%          29.9%          33.8%
Stockholders' equity                                          $521.1      $447.9      $403.8       $  384.5       $  443.2
Stockholders' equity per share                                  27.88       24.12       22.14          20.52          21.94
Return on stockholders' equity (6)                              18.4%       14.4%       13.6%          13.6%          16.5%
Capital expenditures                                          $ 33.1      $ 29.1      $ 33.8       $   21.2       $   19.8
Provision for depreciation                                      30.0        33.0        34.5           36.0           38.6
Cash dividends paid                                             13.2        12.4        12.6           13.3            9.4
Cash dividends declared per share (7)                             .71         .68         .68            .68            .47

General
-------
Average number of common
     and common equivalent shares
     outstanding (in thousands)                               18,688      18,566      18,794       19,973         20,384
Approximate number of stockholders
     of record (8)                                             5,500       6,000       6,500        7,000          8,500
Approximate number of employees                                5,300       5,900       7,200        8,000          9,300
-----------------------------------------------------------------------------------------------------------------------------
<FN>

(1)  Includes pre-tax restructuring charge of $61.4 million in 1995.
(2)  Includes pre-tax  restructuring  and inventory  charges of $18.1 million in
     1996.
(3)  Includes $8.7 million of interest income from an income tax refund in 1997.
(4)  Includes $27.5 million of interest income relating to income taxes in 1996.
(5)  Includes  $43.5  million of  interest  income  from an income tax refund in
     1995.
(6)  Based on income  before an  extraordinary  item in 1995 and the  cumulative
     effects of an accounting change in 1994 and calculated on beginning of year
     stockholders' equity.
(7)  The 1997 dividends  included $.01 per share for redemption of stockholders'
     rights.
(8)  As of July 31 of the calendar year.
</FN>
</TABLE>