<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
---------
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
----------------- ---------------
Commission file number: 0-28942
PRIMEX TECHNOLOGIES, INC.
(Exact name of registrant as specific in its charter)
VIRGINIA 06-1458069
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10101 NINTH STREET NORTH, ST. PETERSBURG, FLORIDA 33716-3807
(Address of principal executive offices) (Zip Code)
(813) 578-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of March 31, 1997, there were outstanding 5,222,572 shares of the
registrant's common shares, par value $1.00 per share
<PAGE>
PRIMEX TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flow -
Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
- --------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -------------------------------
PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash ............................................. $ -- $ 20,000
Receivables ...................................... 119,155 123,658
Inventories, Net ................................. 49,217 57,241
Other Current Assets ............................. 8,852 5,843
--------- ---------
Total Current Assets ......................... 177,224 206,742
Property, Plant and Equipment ........................ 254,592 254,350
Less Accumulated Depreciation ........................ (153,150) (149,327)
--------- ---------
101,442 105,023
Goodwill ............................................. 46,744 47,385
Other Assets ......................................... 14,864 14,593
--------- ---------
Total Assets ..................................... $ 340,274 $ 373,743
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts Payable ................................. $ 13,874 $ 30,147
Contract Advances ................................ 45,755 --
Accrued Liabilities .............................. 34,403 28,873
--------- ---------
Total Current Liabilities .................... 94,032 59,020
Long-Term Debt ................................... 75,000 145,000
Other Liabilities ................................ 25,738 24,589
--------- ---------
Total Liabilities ............................ 194,770 228,609
Stockholders' Equity
Common Stock; $1.00 par value; 60,000,000 shares
authorized; issued and outstanding 5,222,572
shares at March 31, 1997 and 5,220,276 shares at
December 31, 1996, ............................. 5,223 5,220
Other Stockholders' Equity ....................... 140,281 139,914
--------- ---------
Total Stockholders' Equity ................... 145,504 145,134
--------- ---------
Total Liabilities and Stockholders' Equity ....... $ 340,274 $ 373,743
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDING
--------------------------
MARCH 31, MARCH 31,
1997 1996
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Sales ................................................$114,799 $ 102,081
Operating Expenses:
Cost of Goods Sold ............................... 95,713 85,961
Selling and Administration ....................... 14,565 12,214
Research and Development ......................... 1,134 1,078
Other Charges .................................... -- 7,500
-------- ---------
Operating Income (Loss) .............................. 3,387 (4,672)
Interest Expense ..................................... 1,552 2,313
Interest and Other Income ............................ 96 287
-------- ---------
Income (Loss) Before Income Taxes .................... 1,931 (6,698)
Income Tax Provision (Benefit) ....................... 1,060 (1,027)
-------- ---------
Net Income (Loss) ....................................$ 871 $ (5,671)
======== =========
Net Income (1997)/Proforma Net Loss (1996) Per
Share ................................................$ .16 $ (1.08)
======== =========
Dividends Per Share ..................................$ .15 $ --
======== =========
Average Common and Common Equivalent Shares
Outstanding (Thousands) .......................... 5,552 5,220
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDING
MARCH 31, MARCH 31,
1997 1996
--------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Cash Provided by Operating Activities ........... $ 51,352 $ 9,582
INVESTING ACTIVITIES
Capital Expenditures ................................ (569) (1,505)
Disposition of Property Plant and Equipment ......... -- 59
-------- -------
Net Cash Used in Investing Activities ........... (569) (1,446)
FINANCING ACTIVITIES
Net Long-Term Debt Repayment ........................ (70,000) --
Net Transfers to Olin ............................... -- (8,136)
Dividends Paid ...................................... (783) --
-------- -------
Net Cash Used in Financing Activities ........... (70,783) (8,136)
-------- -------
Net Decrease in Cash ................................ $(20,000) $ --
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
of Primex Technologies, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company transactions and accounts have
been eliminated. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements, and notes
thereto, for the year ended December 31, 1996 as presented in the Company's
Annual Report on Form 10-K.
Prior to December 31, 1996, the company was a wholly-owned subsidiary of
Olin Corporation ("Olin") comprised of Olin's former Ordnance Division and
Aerospace Division. The accompanying 1996 condensed consolidated financial
statements include the former combined operations of the Ordnance and Aerospace
Divisions which have been prepared as if the Company had operated as a separate
stand-alone entity and include only those assets and liabilities transferred to
the Company, and revenues and expenses attributable to the Company's operations.
Management believes that the method used to allocate costs during 1996 is
reasonable, however, such allocations may not be indicative of operations as an
independent public company.
NET INCOME (LOSS) PER SHARE
Net income per share for 1997 is computed using the weighted average
number of common shares and dilutive common equivalent shares outstanding during
the applicable period. The calculation of 1996 net income per share amounts on a
proforma basis assumes that all common shares outstanding immediately after the
December 31, 1996 distribution of Company stock were outstanding for all periods
prior to the distribution.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share", which
simplifies the calculation of earnings per share and makes it comparable to
international earnings per share standards. The statement will become effective
December 31, 1997, and requires restatement of historical earnings per share.
The adoption of Statement 128 is not expected to have a significant impact on
the Company's earnings per share amounts.
6
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
INVENTORIES MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
INVENTORIES
Inventories consist of the following (in thousands):
Raw materials ......................................... $ 9,811 $18,356
Work-in-progress ...................................... 43,165 39,999
Finished goods ........................................ 5,402 7,927
------- -------
58,378 66,282
LIFO reserve .......................................... 9,161 9,041
------- -------
$49,217 $57,241
======= =======
</TABLE>
Inventories valued using the last-in, first-out (LIFO) method are based
on annual determination of quantities and costs as of year end; therefore, March
31, 1997 balances reflect certain estimates relating to inventory quantities and
costs at December 31, 1997.
CONTRACT ADVANCES
Contract advances represent payments received by the Company for costs
which have not yet been incurred. Advances are liquidated as costs on the
related contracts are recognized.
LONG TERM BORROWINGS
During February 1997, the Company entered into hedging transactions, in
the form of interest rate swap agreements, to protect against increases in
market interest rates on its long-term debt. The notional principal subject to
interest rate swap agreements at March 31, 1997 was $60 million on which
interest exposure was limited to 6.38%.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following table sets forth certain data, expressed as a percentage of
sales, from the Company's Consolidated Statement of Income for the quarters
ended March 31, 1997 and March 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended
---------------------
March 31, March 31,
1997 1996
-------- --------
(Unaudited)
---------
<S> <C> <C>
Sales:
Tank and other large caliber ammunition ......... 31.8% 32.2%
Medium caliber ammunition ....................... 28.4% 23.3%
BALL POWDER(R)Propellant ........................ 11.5% 15.1%
Electronic products ............................. 9.3% 7.9%
Space products .................................. 8.4% 7.3%
Other products and services ..................... 10.6% 14.2%
----- -----
100.0% 100.0%
Cost of goods sold .................................. 83.4% 84.2%
----- -----
Gross profit ........................................ 16.6% 15.8%
Selling and administrative expense .................. 12.7% 12.0%
Research and development expense .................... 1.0% 1.1%
Other charges ....................................... -- 7.3%
----- -----
Operating income (loss) ............................. 2.9% (4.6)%
Interest expense .................................... 1.4% 2.3%
Interest and other income ........................... .1% .3%
----- -----
Income (loss) before income taxes ................... 1.6% (6.6)%
Income tax provision (benefit) ...................... .9% (1.0)%
----- -----
Net income (loss) .................................. .7% (5.6)%
===== =====
</TABLE>
RESULTS OF OPERATIONS
During the first quarter of 1997, the Company's sales increased by $12.7
million or 12.5% over the first quarter of 1996. This increase was principally
due to increased shipments of medium caliber ammunition compared with the first
quarter of 1996 which resulted from elimination of production delays that
reduced medium caliber ammunition sales during 1996. Sales increases during the
first quarter of 1997 were partially offset by a decline in commercial BALL
POWDER(R) Propellant sales which were 14% lower in the first quarter of 1997
compared to the first quarter of 1996 due to continued weakness in this market.
Sales of large caliber tank ammunition, space and electronic products increased
slightly during the first quarter of 1997 as compared with 1996 levels.
Gross margin as a percentage of sales increased to 16.6% in the first
quarter of 1997 compared to 15.8% in the first quarter of 1996 primarily as a
result of the increase in medium caliber ammunition sales.
8
<PAGE>
Selling, administration, research and development expenses increased by $2.4
million or 18.1% in the first quarter of 1997 compared to the first quarter of
1996 reflecting the increased costs associated with the Company's status as an
independent public company.
Operating profit for the first quarter of 1997 increased by $8.1 million
compared to the first quarter of 1996. This increase results primarily from the
Company's recognition of charges during the first quarter of 1996 of $7.5
million associated with the settlement of claims at the Company's Marion
facility and a contract dispute with the Belgium Ministry of Defense.
The Company's effective tax rates differ from statutory tax rates due
principally to expenses associated with fines, penalties and goodwill which are
not deductible for federal and state income tax purposes.
Interest expense declined to $1.6 million in the first quarter of 1997
compared to $2.3 million for the first quarter of 1996. This decrease reflects
the combination of a lower level of debt and lower interest rates during 1997
compared to the same period for 1996.
First quarter 1997 net income of $0.9 million compares favorably to the $5.7
million loss incurred during the first quarter of 1996. The loss reported by the
Company for the first quarter of 1996 included $7.5 million of pre-tax charges
associated with the settlement of claims.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flow from operations increased to $51.4 million during the first
quarter of 1997 compared to $9.6 million in the first quarter of 1996, primarily
as a result of the Company receiving accelerated performance based payments of
$61.0 million under one of the Company's multi-year contracts. Funds from
operations were used to reduce long-term borrowing by $70.0 million during the
first quarter of 1997. During the first quarter of 1997, capital expenditures
declined to $0.6 million from $1.5 million in the first quarter of 1996 due to
the timing of current commitments. Additionally, funds from operations were
sufficient to pay a dividend of $.15 per share in the 1997 first quarter.
The Company has a revolving credit agreement ("RCA") under the terms of
which participating banks have committed a maximum of $160.0 million for cash
borrowing and letters of credit. The RCA expires on December 31, 2001. The RCA
contains covenants requiring the Company to maintain minimum ratios of (i)
earnings before interest and taxes to interest expense, and (ii) total debt to
earnings before interest, taxes, depreciation and amortization and contains
certain minimum tangible net worth requirements. Management believes that the
Company is currently in compliance with all covenants and requirements under
this credit facility. At March 31, 1997, the Company had unused availability
under the RCA facility of $85.0 million.
The Company, on April 1, 1997, announced a program to purchase odd-lot
shares. Management believes the cost of shares to be retired will not be
significant.
The Company believes, based on its working capital, fixed capital, and
dividend requirements, that future cash flow from operations and amounts
available under the Company's RCA are adequate to meet the Company's anticipated
cash requirements.
9
<PAGE>
FORWARD-LOOKING STATEMENTS
All forward-looking information in this report constitutes "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995,
and is based on management's current expectations of the Company's near term
results, based on current information available and pertaining to the Company.
Actual results may differ materially from those projected in the forward-looking
statements. These forward-looking statements involve risks and uncertainties,
including those related to demand for commercial powder, international business
opportunities, ammunition lot acceptance, and timing of contract funding and
continued receipt of accelerated payments under the multi-year tank ammunition
contract. Other factors that may also cause actual results to differ from the
forward-looking statements include changing economic and political conditions in
the United States and in other countries; changes in governmental laws and
regulations surrounding various matters, such as environmental remediation,
contract pricing, and international trading restrictions; changes in
governmental spending and budgetary policies, such as reductions in the level of
defense spending and redirection of Department of Defense program funding;
production and pricing levels of important raw materials, lower than anticipated
levels of plant utilization resulting in production inefficiencies and higher
costs, which related to the delay of new product introductions, improved
production processes or equipment, or labor relation issues; difficulties or
delays in the development, production, testing and marketing of products;
product margins and customer product acceptance; and costs and effects of legal
and administrative cases, proceedings settlements and investigations involving
the Company.
10
<PAGE>
PART II. OTHER INFORMATION
- --------------------------------
ITEM 1. LEGAL PROCEEDINGS
- ----------------------------
The Company is primarily engaged in providing products and services under
contracts with the U.S. Government and, to a lesser degree, under foreign
Government contracts, some of which are funded by the U.S. Government. All such
contracts are subject to extensive legal and regulatory requirements and, from
time to time, agencies of the U.S. Government review, audit or investigate
whether the Company's operations are being conducted in accordance with these
requirements. Such reviews, audits or investigations could result in contract
repayments or administrative, civil or criminal liabilities including
repayments, fines or penalties being imposed upon the Company or could lead to
suspension or debarment from future Government contracting by the Company.
The Company has strict policies requiring its employees to comply with all
applicable legal standards relating to contract procurement and administration.
In addition, the Company requires adherence to high ethical standards by its
employees. The Company has an Ethics and Compliance Program in which each major
facility has an ethics officer who acts as a resource for encouraging and
monitoring compliance with these standards. It is the policy of the Company and
its subsidiaries to cooperate fully with all Governmental reviews, audits and
investigations of their affairs.
The Company is a party to a number of pending or threatened routine
investigations, claims and proceedings. While the Company cannot predict the
outcome of the pending or threatened proceedings, it does not believe that the
consequences will be materially adverse to its results of operation or financial
position or that the Company's liability with respect thereto will exceed the
amounts which have previously been charged to operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------------------------------------------
(a) Exhibits
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports filed on Form 8-K during this quarter
During the quarterly period ended March 31, 1997, the registrant
filed the following reports on Form 8-K:
<TABLE>
<CAPTION>
Date of Report Items Reported
<S> <C>
January 23 (amended January 24), 1997 Item 5. Other Events
Item 7. (c) Exhibits
February 10 (amended February 19), 1997 Item 4. Changes in Registrant's
Certifying Accountant
</TABLE>
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRIMEX TECHNOLOGIES, INC.
(Registrant)
Date: May 13, 1997 /s/ George H. Pain
-------------------------
Vice President, General Counsel
and Secretary
Date: May 13, 1997 /s/John E. Fischer
-------------------------
Vice President, Chief Financial
Officer and Accounting Officer
12
<PAGE>
EXHIBIT 11.
PRIMEX TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1997 1996
----------- --------
(NOTE)
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Weighted Average Shares Outstanding ................ 5,222,572 5,220,276
Shares Issuable in Connection with Stock Plans
329,527 --
---------- -----------
Weighted Average Common and Common
Equivalent Shares Outstanding ................... 5,552,099 5,220,276
========== ===========
Net Income (Loss) (In Thousands) ................... $ 871 $ (5,671)
========== ===========
Net Income (1997)/Proforma Net Loss (1996) Per
Share ........................................... $ .16 $ (1.08)
========== ===========
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
Weighted Average Shares Outstanding ................ 5,222,572 5,220,276
Shares Issuable in Connection with Stock Plans ..... 329,527 --
---------- -----------
Weighted Average Common and Common
Equivalent Shares Outstanding ................... 5,552,099 5,220,276
Net Income (Loss) (In Thousands) ................... $ 871 $ (5,671)
========== ===========
Net Income (1997)/Proforma Net Loss (1996)
Per Share $ .16 $ (1.08)
========== ===========
NOTE: The calculation of 1996 per share amounts on a pro forma basis assumes
that all common shares outstanding immediately after the December 31,
1996 distribution of Company stock were outstanding for all periods
prior to the distribution.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997
AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDING MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 119,155
<ALLOWANCES> 0
<INVENTORY> 49,217
<CURRENT-ASSETS> 177,224
<PP&E> 254,592
<DEPRECIATION> 153,150
<TOTAL-ASSETS> 340,274
<CURRENT-LIABILITIES> 94,032
<BONDS> 0
0
0
<COMMON> 5,223
<OTHER-SE> 140,281
<TOTAL-LIABILITY-AND-EQUITY> 340,274
<SALES> 114,799
<TOTAL-REVENUES> 114,799
<CGS> 95,713
<TOTAL-COSTS> 95,713
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,552
<INCOME-PRETAX> 1,931
<INCOME-TAX> 1,060
<INCOME-CONTINUING> 871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 871
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
