<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 29, 1998
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
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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 29, 1998, there were outstanding 5,138,376 shares of the
registrant's common stock, par value $1.00 per share.
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PRIMEX TECHNOLOGIES, INC.
INDEX
Part I. Financial Information
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
March 29, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations -
Three Months Ended March 29, 1998 and
March 31, 1997 4
Condensed Consolidated Statements of Cash Flow -
Three Months Ended March 29, 1998 and
March 31, 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
March 29, December 31,
1998 1997
--------- -----------
(Unaudited)
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash.............................................................. $13,438 $ -
Receivables....................................................... 105,638 94,657
Inventories, Net.................................................. 43,741 35,157
Other Current Assets.............................................. 10,232 7,263
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Total Current Assets........................................... 173,049 137,077
Property, Plant and Equipment...................................... 262,981 260,189
Less: Accumulated Depreciation .................................... (165,463) (161,529)
------- --------
97,518 98,660
Goodwill........................................................... 44,180 44,821
Other Assets....................................................... 14,899 15,733
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Total Assets...................................................... $329,646 $296,291
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Short-Term Borrowings ............................................ $43,000 $24,100
Accounts Payable.................................................. 21,320 28,894
Contract Advances................................................. 53,843 35,070
Accrued Liabilities............................................... 29,418 32,522
-------- --------
Total Current Liabilities...................................... 147,581 120,586
Other Liabilities................................................. 26,578 22,904
-------- --------
Total Liabilities.............................................. 174,159 143,490
Shareholders' Equity:
Common Stock; $1.00 par value; 60,000,000 shares
authorized; issued and outstanding 5,138,376
shares at March 29, 1998 and 5,137,637 shares at
December 31, 1997 .............................................. 5,138 5,138
Other Shareholders' Equity........................................ 150,349 147,663
-------- --------
Total Shareholders' Equity..................................... 155,487 152,801
-------- --------
Total Liabilities and Shareholders' Equity........................ $329,646 $296,291
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
March 29, March 31,
1998 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Sales..................................... $112,251 $114,799
Operating Expenses:
Cost of Goods Sold.................. 88,789 95,713
Selling and Administration.......... 16,683 14,565
Research and Development............ 1,562 1,134
-------- --------
Operating Income.......................... 5,217 3,387
Interest Expense.......................... 476 1,552
Interest and Other Income................. 386 96
-------- --------
Income Before Income Taxes................ 5,127 1,931
Income Tax Provision...................... 2,159 1,060
-------- --------
Net Income.............................. $2,968 $871
======== ========
Net Income Per Share:
Basic............................... $0.58 $0.17
======== ========
Diluted............................. $0.55 $0.17
======== ========
Dividends Per Share....................... $0.15 $0.15
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 29, March 31,
1998 1997
---------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
- --------------------
<S> <C> <C>
Net Cash Provided (Used) by Operating Activities................ $(1,831) $51,352
INVESTING ACTIVITIES
- --------------------
Capital Expenditures............................................ (2,860) (569)
FINANCING ACTIVITIES
- --------------------
Net Short-Term Borrowing........................................ 18,900 -
Net Long-Term Debt Repayment.................................... - (70,000)
Dividends Paid.................................................. (771) (783)
-------- ---------
Net Cash Provided (Used) in Financing Activities.......... 18,129 (70,783)
-------- ---------
Net Increase (Decrease) in Cash................................. $13,438 $(20,000)
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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PRIMEX TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
($ in thousands)
(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 condensed 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 29, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements, and notes
thereto, for the year ended December 31, 1997, as presented in the Company's
Annual Report on Form 10-K.
In the first quarter of 1998 the Company adopted a 4-4-5 quarterly
accounting cycle having a fiscal year ending on December 31. The adoption of
this accounting cycle will have no significant effect on the comparability of
interim financial information.
NET INCOME PER SHARE
The following sets forth the number of shares of common stock
included in the computation of basic and diluted net income per share for the
three months ended March 29, 1998 and March 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 29, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Denominator for basic earnings per share-
Weighted average shares outstanding and vested 5,150,904 5,228,615
Effect of dilutive securities:
Employee Stock Options 23,395 -
Restricted Stock Unit Grants 198,853 33,484
--------- ---------
Dilutive potential common shares 222,248 33,484
--------- ---------
Denominator for diluted earnings per share 5,373,152 5,262,099
========== =========
</TABLE>
6
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PRIMEX TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
($ in thousands)
(Unaudited)
INVENTORIES
<TABLE>
<CAPTION>
March 29, 1998 December 31, 1997
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<S> <C> <C>
Inventories consist of the following:
Raw materials and work in progress.......... $46,885 $34,832
Finished goods.............................. 4,763 8,232
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51,648 43,064
Less revaluation to LIFO.................... 7,907 7,907
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$43,741 $35,157
====== ======
</TABLE>
Inventories valued using the last-in, first-out (LIFO) method are
based on an annual determination of quantities and costs as of year end;
therefore, March 29, 1998 balances reflect certain estimates relating to
inventory quantities and costs at December 31, 1998. Inventory balances at March
29, 1998 and December 31, 1997 are net of reductions for progress payments in
the amount of $9,032 and $9,657, respectively.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards 130,
"Reporting Comprehensive Income," in the first quarter of 1998. Comprehensive
income includes net income and all other changes in equity during a period
except those resulting from investments by and distributions to the Company's
shareholders. On this basis, the Company's comprehensive income which includes
currency translation adjustments, totaled $2,966 and $841 for the first quarter
of 1998 and 1997, respectively.
STOCK OPTION PLAN
On January 2, 1998, a total of 250,000 stock options were granted to
certain key employees under Appendix II to the 1996 Long-Term Incentive Plan of
Primex Technologies, Inc., as amended. The exercise price of these options is
$33.88 per share, which was the fair market value of the Company's common stock
on the date of the grant. These options become vested in one-third installments
over a three-year period beginning January 2, 1999 and have a ten-year term from
the date of grant. All options granted were outstanding on March 29, 1998. The
Company accounts for stock-based employee compensation using the intrinsic value
method; accordingly, no compensation cost has been recognized for the stock
options granted.
DISPOSITIONS
On April 15, 1998, the Company sold substantially all of the assets
related to its high-powered pulsed energy device product line for $9,500 paid in
cash at the closing. The company may receive an additional $500 cash subject to
certain contingencies and purchase-price adjustments. The Company will retain
certain contingent contractual obligations and environmental responsibilities
associated with the assets transferred. Sales of products and services in this
product line were $16,833 for the year ending December 31, 1997 and $3,698 and
$3,697 for the first three months of 1998 and 1997, respectively.
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 Condensed Consolidated Statements of
Operations for the three months ended March 29, 1998 and March 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 29, 1998 March 31, 1997
-------------- --------------
(Unaudited)
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<S> <C> <C>
Sales:
Tank and other large caliber ammunition............... 33.6% 29.5%
Medium caliber ammunition............................. 10.5% 24.3%
Ball Powder(R) propellant............................. 9.7% 11.5%
Electronic products................................... 13.3% 9.3%
Space products........................................ 7.9% 8.4%
Other products and services........................... 25.0% 17.0%
------- ------
100.0% 100.0%
Cost of goods sold......................................... 79.1% 83.4%
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Gross profit............................................... 20.9% 16.6%
Selling and administrative expense......................... 14.9% 12.7%
Research and development expense .......................... 1.4% 1.0%
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Operating income........................................... 4.6% 2.9%
Interest expense........................................... 0.4% 1.4%
Interest and other income.................................. 0.3% .1%
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Income before income taxes................................. 4.5% 1.6%
Income tax provision....................................... 1.9% .9%
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Net income................................................. 2.6% .7%
======= ======
</TABLE>
RESULTS OF OPERATIONS
Sales of $112.3 million for the first quarter of 1998 represent a
decrease of $2.5 million or 2.2% compared to the first quarter of 1997. This
decrease reflects lower Ordnance Division sales of $79.7 million compared to
$85.5 million during the first quarter of 1997. These lower sales were partially
offset by higher Aerospace Division sales of $32.6 million compared to $29.3 in
the first quarter of 1997. Ordnance Division sales in the first quarter of 1997
benefited from a higher than normal level of medium caliber shipments associated
with a production recovery from the prior year. Additionally, shipments of Ball
Powder(R) propellant during the first quarter of 1998 were approximately 19.0%
below shipments in the first quarter of 1997. The increase in Aerospace Division
sales from first quarter of 1997 to the corresponding period in 1998 reflects a
39.8% increase in electronics sales which were primarily driven by shipments of
EmPower(TM) airline passenger seat power supply systems. The increase in other
product sales reflects higher shipments associated with artillery propelling
charges and commercial pipe joint components during the first quarter of 1998
compared to 1997.
Gross margin as a percentage of sales increased to 20.9% during the
first quarter of 1998 compared to 16.6% in the first quarter of 1997, primarily
as a result of product mix and the absence of cost overruns. Gross margin in the
first quarter of 1997 was negatively impacted by
8
<PAGE>
unfavorable cost performance on ammunition demilitarization and medium caliber
programs experienced during 1997.
Selling and administration expenses increased by $2.1 million in the
first quarter of 1998 compared to 1997 and as a percentage of sales increased to
14.9% in 1998 from 12.7% in 1997. The 1998 increase reflects a lower level of
sales in addition to an increase in the level of bid and proposal expenditures
associated with large and medium caliber ammunition and space products as well
as higher management incentive costs in the first quarter of 1998 compared to
the first quarter of 1997.
The Company's effective tax rates differ from statutory tax rates due
principally to expenses associated with goodwill which are not deductible for
federal and state income tax purposes.
Interest expense declined to $0.5 million in the first quarter of
1998 compared to $1.6 million for the first quarter of 1997. This decrease
reflects a lower average level of debt outstanding during 1998 compared to 1997.
Net income of $3.0 million for the first quarter of 1998 reflects an
increase of $2.1 million over first quarter 1997 net income of $0.9 million.
This improvement is primarily due to the combination of higher gross margins and
reduced interest costs realized during the first quarter of 1998 as compared to
the corresponding period in 1997.
LIQUIDITY AND SOURCES OF CAPITAL
Cash used by operating activities was $1.8 million during the first
quarter of 1998 compared to cash provided by operating activities of $51.4
million during the first quarter of 1997. The first quarter of 1997 benefited
from contract advances in the form of performance-based payments which
accelerated cash flow on a one time basis in that period.
Capital expenditures during the first quarter of 1998 increased to
$2.9 million from $0.6 million in the first quarter of 1997. This increase
reflects planned expenditures for both the Ordnance and Aerospace Divisions.
Additionally, funds from operations were sufficient to pay a dividend
of $0.15 per share in the first quarter of 1998 and 1997.
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 ratios of (i) minimum
earnings before interest and taxes to interest expense, and (ii) maximum total
debt to earnings before interest, taxes, depreciation and amortization and also
contains certain minimum tangible net worth requirements. The Company also
borrows from RCA participating banks on an uncommitted and unsecured short term
basis at rates similar to the RCA. Aggregate borrowings are limited to the
committed RCA maximum. Management believes that the Company is currently in
compliance with all covenants and requirements under this credit facility. At
March 29, 1998, the Company had unused availability under the RCA facility and
short term credit lines of $117.0 million.
9
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The Company believes, based on its working capital, fixed capital,
and dividend policy, that future cash flow from operations and amounts available
under the RCA are adequate to meet the Company's anticipated cash requirements
in the foreseeable future.
10
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FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact in this
report are "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995, and are based on management's current
expectations of the Company's near term results, based on current information
available and pertaining to the Company. The Company assumes no obligation to
update publicly any forward-looking statement. Actual results may differ
materially from those projected in the forward-looking statements. These
forward-looking statements involve risks and uncertainties, including, but not
limited to, the following: demand for commercial powder; international business
opportunities; ammunition lot acceptance; timing of contract funding and
continued receipt of performance-based payments under the multi-year tank
ammunition contract; 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,
whether 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.
11
<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. If such reviews, audits or investigations were to find
inappropriate activity by the Company, such finding could result in contract
repayments or administrative, civil or criminal liabilities including 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
investigations, claims and proceedings. Management
believes that all such investigations, claims and proceedings are routine
and incidental to the Company's business and
will not be materially adverse to the Company's results of operations or
financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) Reports filed on Form 8-K during this quarter
During the quarterly period ended March 29, 1998, no reports on
Form 8-K were filed by the Company.
12
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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 8, 1998 /s/ George H. Pain
-------------------------------
Vice President, General Counsel
and Secretary
Date: May 8, 1998
/s/ John E. Fischer
-------------------------------
Vice President, Chief Financial
Officer and Accounting Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the condensed consolidated balance sheet at March 29, 1998
and the condensed consolidated statement of operations for the
three months ending March 29 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-29-1998
<CASH> 13,438
<SECURITIES> 0
<RECEIVABLES> 105,638
<ALLOWANCES> 0
<INVENTORY> 43,741
<CURRENT-ASSETS> 173,049
<PP&E> 262,981
<DEPRECIATION> 165,463
<TOTAL-ASSETS> 329,646
<CURRENT-LIABILITIES> 147,581
<BONDS> 0
0
0
<COMMON> 5,138
<OTHER-SE> 150,349
<TOTAL-LIABILITY-AND-EQUITY> 329,646
<SALES> 112,251
<TOTAL-REVENUES> 112,251
<CGS> 88,789
<TOTAL-COSTS> 88,789
<OTHER-EXPENSES> 1,562
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 476
<INCOME-PRETAX> 5,127
<INCOME-TAX> 2,159
<INCOME-CONTINUING> 2,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,968
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.55
</TABLE>
