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 June 27, 1999
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 specified in its charter)
VIRGINIA 06-1458069
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10101 NINTH STREET NORTH, ST. PETERSBURG, FLORIDA 33716-3807
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(727) 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 July 30, 1999, there were outstanding 9,994,880 shares of the registrant's
common stock, par value $1.00 per share.
<PAGE>
PRIMEX TECHNOLOGIES, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
June 27, 1999 and December 31, 1998............................ 3
Condensed Consolidated Statements of Operations -
Three Months Ended June 27, 1999 and June 28, 1998;
Six Months Ended June 27, 1999 and June 28, 1998 .............. 4
Condensed Consolidated Statements of Cash Flow -
Six Months Ended June 27, 1999 and June 28, 1998............... 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 9
Item 3. Quantitative and Qualitative Disclosure of
Market Risk.................................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Item 6. Exhibits and Reports on Form 8-K............................... 15
Signatures..................................................... 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 27, DECEMBER 31,
1999 1998
---------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash ............................................ $ -- $ 3,193
Receivables ..................................... 112,417 131,390
Inventories, Net ................................ 67,898 67,085
Deferred Tax Asset .............................. 8,136 6,436
Prepaid Expenses and Other Current Assets ....... 4,213 2,013
--------- ---------
Total Current Assets ...................... 192,664 210,117
Property, Plant and Equipment ..................... 291,874 287,640
Less: Accumulated Depreciation .................... (174,554) (168,734)
--------- ---------
117,320 118,906
Goodwill, Net ..................................... 112,872 117,617
Other Assets ...................................... 27,131 24,695
--------- ---------
Total Assets .............................. $ 449,987 $ 471,335
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-Term Borrowings .......................... $ 14,200 $ 10,800
Accounts Payable ............................... 40,925 40,624
Contract Advances .............................. 556 18,922
Accrued Liabilities ............................ 39,529 42,797
--------- ---------
Total Current Liabilities ................. 95,210 113,143
Long-Term Debt .................................... 150,000 160,000
Other Liabilities ................................. 34,038 32,709
--------- ---------
Total Liabilities ......................... 279,248 305,852
Shareholders' Equity
Common Stock; $1.00 par value; 60,000,000 shares
authorized; issued and outstanding 9,994,880
shares at June 27, 1999 and 10,163,952
shares at December 31, 1998 ................... 9,995 10,164
Other Shareholders' Equity ...................... 160,744 155,319
--------- ---------
Total Shareholders' Equity ........... 170,739 165,483
--------- ---------
Total Liabilities and Shareholders' Equity $ 449,987 $ 471,335
========= =========
</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)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ---------------------
JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales ...................... $133,285 $111,068 $250,657 $223,319
Operating Expenses:
Cost of Goods Sold ....... 102,063 84,152 190,783 172,941
Selling and Administration 17,307 19,069 34,598 35,752
Research and Development . 2,927 2,389 5,036 3,951
-------- -------- -------- --------
Operating Income ........... 10,988 5,458 20,240 10,675
Interest Expense ........... 2,854 307 5,557 783
Other Income, Net .......... 329 792 644 1,178
Non-Recurring Income ....... -- 2,700 -- 2,700
-------- -------- -------- --------
Income Before Income Taxes . 8,463 8,643 15,327 13,770
Income Tax Provision ....... 3,321 3,579 6,131 5,738
-------- -------- -------- --------
Net Income ................. $ 5,142 $ 5,064 $ 9,196 $ 8,032
======== ======== ======== ========
Net Income Per Share:
Basic ................... $ 0.51 $ 0.49 $ 0.91 $ 0.78
======== ======== ======== ========
Diluted ................. $ 0.48 $ 0.47 $ 0.86 $ 0.75
======== ======== ======== ========
Dividends Per Share ........ $ 0.075 $ 0.075 $ 0.15 $ 0.15
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
($ IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
---------------------
JUNE 27, JUNE 28,
1999 1998
-------- --------
OPERATING ACTIVITIES
- --------------------
Net Cash Provided (Used) by Operating
Activities.................................... $ 17,598 $ (5,028)
INVESTING ACTIVITIES
- --------------------
Capital Expenditures ............................... (8,795) (6,331)
Acquisition ........................................ (440) --
Proceeds From Disposition of Business .............. -- 10,000
-------- --------
Net Cash Provided (Used) in Investing
Activities.................................... (9,235) 3,669
FINANCING ACTIVITIES
- --------------------
Net Short-Term Borrowing ........................... 3,400 2,900
Net Long-Term Debt Repayment ....................... (10,000) --
Repurchases of Common Stock ........................ (3,501) --
Proceeds From Stock Options Exercised .............. 61 --
Dividends Paid ..................................... (1,516) (1,541)
-------- --------
Net Cash Provided (Used) in Financing
Activities .................................. (11,556) 1,359
-------- --------
Net Increase (Decrease) in Cash .................... $ (3,193) $ --
======== ========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(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 and six-month periods ended June 27, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements, and
notes thereto, for the year ended December 31, 1998, as presented in the
Company's Annual Report on Form 10-K.
On March 22, 1999 the Company effected a two-for-one stock split by paying
a 100% stock dividend to shareholders of record as of February 22, 1999. All
share and per share information included in the accompanying condensed
consolidated financial statements and related notes have been adjusted to
reflect the stock split for all periods presented.
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 and
six-month periods ended June 27, 1999 and June 28, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Denominator for basic net income per share:
Weighted average shares
outstanding and vested ................ 10,077,219 10,302,424 10,138,712 10,302,116
Effect of dilutive securities:
Employee Stock Options ................. 59,789 96,226 71,345 71,508
Restricted Stock Unit Grants ........... 509,122 417,970 495,641 407,838
---------- ---------- ---------- ----------
Dilutive potential common shares ......... 568,911 514,196 566,986 479,346
---------- ---------- ---------- ----------
Denominator for diluted
net income per share .................. 10,646,130 10,816,620 10,705,698 10,781,462
========== ========== ========== ==========
</TABLE>
6
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
INVENTORIES
JUNE 27, 1999 DECEMBER 31, 1998
------------- -----------------
Inventories consist of the following:
Raw materials and work in progress .. $67,045 $65,909
Finished goods ...................... 8,482 8,805
------- -------
75,527 74,714
Less revaluation to LIFO ............ 7,629 7,629
------- -------
$67,898 $67,085
======= =======
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, June
27, 1999 balances reflect certain estimates relating to inventory quantities and
costs at December 31, 1999. Inventory balances at June 27, 1999 and December 31,
1998 are net of reductions for progress payments in the amount of $5,786 and
$282 respectively.
COMPREHENSIVE INCOME
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 and minimum pension liability adjustments,
totaled $5,139 and $4,863 for the three-month periods and $9,195 and $7,830 for
the six-month periods ended June 27, 1999 and June 28, 1998, respectively.
LONG-TERM INCENTIVE PLAN
Options for the purchase of 439,000 and 6,600 shares of the Company's
common stock were granted to certain key employees on January 4, and May 4,
1999, respectively, under the 1996 Long-Term Incentive Plan of Primex
Technologies, Inc., as amended. The exercise price of the January and May option
grants are $21.13 and $20.94 per share, respectively, which was the fair market
value of the Company's common stock on the date of the grant. These options
generally vest over a three-year period beginning one year from the date of
grant and have a ten-year term from the date of grant.
On February 1, 1999, 13,400 restricted stock units with an aggregate value
of $290 were granted to certain employees of the Company. This restricted stock
grant vests over a two-year period.
STOCK REPURCHASE
In August 1998, the board of directors authorized the repurchase, at
management's discretion, of up to 500,000 shares of the Company's common stock.
During the six month period ended June 27, 1999, the Company purchased and
retired 173,858 shares of common stock at an aggregate cost of $3,501.
7
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SEGMENT INFORMATION
The Company's operations are classified into two reportable segments
which reflect management's organization of operations around business units that
offer different products and services. Each reportable segment is managed
separately and requires different technology and marketing strategies. The
Ordnance and Tactical Systems segment ("Ordnance") includes the development and
production of ammunition, propellant, shaped charged warheads and precision
metal assemblies. Additionally, Ordnance provides explosive load assemble and
pack services. The Aerospace and Electronics segment ("Aerospace") includes the
design, development and manufacturing of space, electronic, and solid propellant
products and systems.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales to external customers:
Ordnance .................................... $106,093 $ 76,804 $199,949 $156,462
Aerospace ................................... 27,192 34,264 50,708 66,857
-------- -------- -------- --------
Total consolidated sales ...................... 133,285 111,068 250,657 223,319
Segment profit:
Ordnance .................................... 6,795 3,866 12,493 7,124
Aerospace ................................... 1,668 2,077 2,834 3,946
-------- -------- -------- --------
Total segment profit .......................... 8,463 5,943 15,327 11,070
Reconciling item:
Non-recurring income ........................ -- 2,700 -- 2,700
-------- -------- -------- --------
Total consolidated income before income taxes . $ 8,463 $ 8,643 $ 15,327 $ 13,770
======== ======== ======== ========
</TABLE>
8
<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-month and six-month periods ended June 27, 1999 and June 28, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ---------------------
JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Sales:
Tank and other large caliber ammunition ........... 29.2% 35.2% 30.7% 34.3%
Tactical missile and rocket components and services 19.1% 4.1% 18.6% 4.1%
Medium caliber ammunition ......................... 15.9% 9.3% 14.3% 9.5%
Electronic products ............................... 9.9% 15.5% 10.3% 14.4%
Ball Powder(R) propellant ......................... 9.1% 9.9% 8.9% 9.8%
Space products .................................... 5.7% 8.8% 5.4% 8.3%
Other products and services ....................... 11.1% 17.2% 11.8% 19.6%
------ ------ ------- -------
100.0% 100.0% 100.0% 100.00%
Cost of Goods ....................................... 76.6% 75.8% 76.1% 77.4%
------ ------ ------- -------
Gross profit ........................................ 23.4% 24.2% 23.9% 22.6%
Selling and administration expense .................. 13.0% 17.2% 13.8% 16.0%
Research and development expense .................... 2.2% 2.1% 2.0% 1.8%
------ ------ ------- -------
Operating income .................................... 8.2% 4.9% 8.1% 4.8%
Interest expense .................................... 2.1% 0.3% 2.2% 0.3%
Other income ........................................ 0.2% 0.7% 0.2% 0.5%
Non-recurring income ................................ -- 2.5% -- 1.2%
------ ------ ------- -------
Income before income taxes .......................... 6.3% 7.8% 6.1% 6.2%
Income tax provision ................................ 2.4% 3.2% 2.4% 2.6%
------ ------ ------- -------
Net income .......................................... 3.9% 4.6% 3.7% 3.6%
====== ====== ======= =======
</TABLE>
RESULTS OF OPERATIONS
The Company's sales of $133.3 million during the second quarter of 1999
increased by $22.2 million, or 20% compared to the second quarter of 1998. Sales
of $250.7 million for the first six months of 1999 were 12%, or $27.3 million,
higher than the corresponding period in 1998.
Second quarter 1999 Ordnance segment sales increased to $106.1 million
compared to $76.8 million in the corresponding period of 1998. This increase
reflects higher sales of medium caliber ammunition and $18.2 million of sales
associated with tactical missile and rocket business units acquired in November
of 1998. These Ordnance segment sales increases were partially offset by
declines in the sale of other products and services resulting from lower
shipments of steel pipe joints. Sales in the Aerospace segment decreased to
$27.2 million during the second quarter of 1999 compared to $34.3 million for
the corresponding period of 1998. This decrease primarily reflects a lower level
of space product sales to international customers and a reduction in sales of
EmPower(TM) airline in-seat power supply systems.
9
<PAGE>
Ordnance segment sales for the first six months of 1999 increased to $199.9
million compared to $156.5 million in the corresponding period of 1998. This
increase reflects higher sales of large and medium caliber ammunition and $34.1
million of tactical missile and rocket product sales associated with business
units acquired in 1998. These increases were offset in part by declines in the
sale of other products and services resulting from lower shipments of steel pipe
joints and artillery propelling charges during the first six months of 1999.
Aerospace segment sales during the first six months of 1999 decreased to $50.7
million compared to $66.9 million in the corresponding period of 1998. This
decrease reflects a lower level of space and electronic products sales in
addition to a decrease of $3.7 related to a product line which was sold during
the first six months of 1998.
Gross margins as a percentage of sales decreased to 23% during the second
quarter of 1999 from 24% for the corresponding period of 1998. For the first six
months of 1999, gross margins as a percentage of sales increased to 24% from 23%
during the first six months of 1998. The gross margin improvement for the first
six months of 1999, compared to 1998, reflects a combination of operational
improvements in the Aerospace segment, a favorable mix of ammunition and rocket
products, and the recognition of favorable program performance on several
contracts in both segments.
Selling and administration expense as a percentage of sales decreased to
13% during the second quarter of 1999 and 14% for the first six months of 1999
compared to 17% and 16%, respectively, for the corresponding periods of 1998.
Administration expense increases resulting from business units acquired in 1998
have been offset by lower Ordnance segment bid and proposal expenditures which
reflect a reduced level of activity compared to the 1998 periods.
Research and development expenses increased $0.5 million, or 23%, during
the second quarter of 1999 and increased $1.1 million, or 27% during the first
six months of 1999 compared to the corresponding periods of 1998. These higher
expenditures reflect increased research and development activity associated with
electronic products.
Interest expense of $2.9 million for the second quarter of 1999 and $5.6
million for the first six months of 1999 compared to $0.3 million and $0.8
million for the corresponding period of 1998 reflect the higher levels of debt
outstanding during 1999 as compared to 1998. This increased level of debt is
associated with the acquisition completed in November 1998.
Non-operating income for the second quarter and first six months of 1998
includes $2.7 million of non-recurring income resulting from an award the
Company received concerning a breach of contract.
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 and from the favorable federal tax
treatment given to certain export sales.
Net income of $5.1 million for the second quarter and $9.2 million for the
first six months of 1999 reflect an increase of $0.1 million and $1.2 million,
respectively, over the corresponding periods of 1998. The improvement is
primarily due to higher gross margins and lower selling and administration
expense offset by increased financing costs.
10
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
Cash flow provided by operations was $17.6 million during the first six
months of 1999 compared to cash used by operations of $5.0 million during the
first six months of 1998.
Investing activities during the first six months of 1999 reflect an
increase in planned capital expenditures to $8.8 million from $6.3 million
during the first six months 1998. Additionally, investing activities during the
first six months of 1999 included an expenditure of $0.4 for the acquisition of
a new product line and during the first six months of 1998 included proceeds of
$10.0 million from the disposition of a product line.
On July 2, 1999, the Company acquired the net assets and business of
Versatron Corporation's actuator division for $6.5 million cash plus additional
payments of up to $2.0 million that are contingent on certain future events.
Operations of the acquired business, to be accounted for using the purchase
method of accounting, will be included in the Company's results of operations
and financial position in periods subsequent to the second quarter of 1999.
During the first six months of 1999, the Company repurchased and retired
173,858 shares of its common stock at an aggregate cost of $3.5 million. There
were no comparable expenditures during the first six months of 1998.
Cash dividends of $0.075 per share were paid during both the first and
second quarters of both 1999 and 1998.
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. To
facilitate short-term borrowing flexibility, certain RCA participating banks
have agreed to provide the Company uncommitted and unsecured short-term lines of
credit at interest rates similar to those under the RCA. Aggregate borrowings
under the RCA and short-term lines are limited to the committed RCA maximum.
Outstanding borrowings at June 27, 1999 were $104.2 million under the RCA
and short-term credit lines and were $60.0 under the Company's 7.5% Senior Notes
("Term Notes").
The Company's RCA and Term Notes both contain a number of financial
covenants including requirements 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 contain
certain minimum tangible net worth requirements. Management believes that the
Company is currently in compliance with all covenants and requirements of the
RCA and Term Notes. Under the terms of these financial covenants the Company has
up to an additional $20.3 million available for borrowings at June 27, 1999.
The Company believes, based on its anticipated working capital, fixed
capital requirements, and dividend policy, that future cash flow from operations
and amounts available under the RCA and short-term credit lines are adequate to
meet the Company's anticipated cash requirements in the foreseeable future.
11
<PAGE>
IMPACT OF YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk.
A team of internal staff and outside consultants is managing the Company's
processes for evaluating the risks and costs associated with this potential
problem. The Company's approach has involved three stages: (1) inventory and
assessment of hardware, software and embedded systems, (2) remediation or
replacement of those systems that are not year 2000 compliant and (3) testing
the systems.
The Company employs a number of information technology ("IT") systems in
its operations, including computer networking systems, financial systems and
other similar systems. The Company has recently implemented a number of these IT
systems for which it has obtained vendor warranties that these recently
implemented IT systems are Year 2000 compliant. The Company's assessment has
indicated that some of the Company's IT systems which have not recently been
implemented could be affected by the Year 2000 problems and accordingly, the
Company has either modified or converted these systems to make them Year 2000
compliant. The Company has completed remediation and systems testing required to
assure Year 2000 compliance of its IT business systems.
The Company also employs electronic equipment containing software and
embedded chips in its production and manufacturing process. The Company's
assessment has indicated that this electronic equipment is not likely to be
susceptible to a material system failure resulting from Year 2000 problems.
Selective equipment upgrades have been implemented where warranted and the
Company believes that it will complete any remaining modifications and
conversions, deemed necessary, including testing, without a material impact on
the Company. The remaining work to be performed will be completed prior to the
end of September 1999 and is being scheduled to minimize impact on production.
The Company has completed an assessment of Year 2000 issues associated with
major products that the Company has sold and believes that the Company has no
material exposure related to Year 2000 problems for products it has sold.
The Company has communicated with significant vendors, customers and other
third party service providers to evaluate whether they are making adequate
efforts to achieve Year 2000 compliance and to obtain Year 2000 readiness
statements. To date, the Company is not aware of any third parties with a Year
2000 issue that would materially impact the Company. However, the Company has no
means of ensuring that third parties will be Year 2000 ready, and the effect of
non-compliance by third parties is not determinable by the Company. The Company
has material relationships with the U.S. Government. Year 2000 non-compliance by
the U.S. Government, such as the inability to process payments to the Company,
could have a material impact on the Company.
A Company wide contingency planning effort is reviewing exposure to Year
2000 failures from sources external to the Company. This evaluation will be
completed in September 1999 and will include contingency plans in the event of
disruption to utility, communications or transportation services, as well as
Year 2000 system failures by key vendors and service providers. The contingency
planning process includes employee education as well as contingency plans for
possible manual operations, the use of outside staff, the redeployment of
internal staff, and the implementation of alternative information processing
procedures in the event of an internal system failure.
12
<PAGE>
The total cost of the Company's internal Year 2000 project is presently
estimated to be less than $1.0 million, which includes the purchase of new
software and equipment which will be capitalized.
The cost of the Company becoming Year 2000 compliant and the timing in
which the Company believes it will complete the necessary Year 2000
modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans, and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the success of the Company in identifying systems and programs
having Year 2000 issues, the nature and amount of programming required to
upgrade or replace the affected programs, the availability and cost of personnel
trained in this area, and the extent to which the Company might be adversely
impacted by vendors, customers and other third party service provider's failure
to remediate their own Year 2000 issues.
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; 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; unforeseen difficulties
associated with the integration of acquired businesses; and costs and effects of
legal and administrative cases, proceedings, settlements and investigations
involving the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
There have been no material changes in the Company's market risk during the
six-months ended June 27, 1999. Refer to page 23 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, for additional information
regarding market risk and risk management policies.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged primarily 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 U.S. 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 have a material adverse effect on the Company's results of operations or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 4, 1999, the Company held its Annual Meeting of Shareholders (the
"Annual Meeting"). The matters submitted to a vote by the shareholders were the
election of four directors, and the appointment of independent accountants for
the Company.
Votes cast for or withheld regarding the election of four directors were as
follows:
FOR WITHHELD
--------- --------
J. Douglas DeMaire - Term expiring 2001 .... 9,375,654 259,292
James G. Hascall - Term expiring 2002 ...... 9,378,050 256,896
David Lasky - Term expiring 2002 .......... 9,393,322 241,624
William B. Mitchell - Term expiring 2002 ... 9,392,904 242,042
There were no broker non-votes.
The foregoing represents four of the Company's nine Directors. The other
five directors, whose terms of office as directors continued after the Annual
Meeting, are as follows:
TERM EXPIRING IN 2000 TERM EXPIRING IN 2001
--------------------- ---------------------
Edwin M. Glasscock Bob Martinez
Robert H. Rau Anthony W. Ruggiero
Leon E. Salomon
At the Annual Meeting, the shareholders also ratified the appointment of
Ernst & Young LLP as independent public accountants for the Company. The holders
of 9,558,074 shares of common stock voted in favor; 40,922 voted against; 35,950
abstained from voting. There were no broker non-votes.
14
<PAGE>
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 June 27, 1999, no reports on Form
8-K were filed by the Company.
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: August 6, 1999 /s/ GEORGE H. PAIN
------------------------------------
Vice President, General Counsel and
Secretary
Date: August 6, 1999 /s/ JOHN E. FISCHER
-----------------------------------
Vice President, Chief Financial and
Accounting Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 27, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDING JUNE 27, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-27-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 112,417
<ALLOWANCES> 0
<INVENTORY> 67,898
<CURRENT-ASSETS> 192,664
<PP&E> 291,874
<DEPRECIATION> 174,554
<TOTAL-ASSETS> 449,987
<CURRENT-LIABILITIES> 95,210
<BONDS> 150,000
0
0
<COMMON> 9,995
<OTHER-SE> 160,744
<TOTAL-LIABILITY-AND-EQUITY> 449,987
<SALES> 250,657
<TOTAL-REVENUES> 250,657
<CGS> 190,783
<TOTAL-COSTS> 190,783
<OTHER-EXPENSES> 5,036
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,557
<INCOME-PRETAX> 15,327
<INCOME-TAX> 6,131
<INCOME-CONTINUING> 9,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,196
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.86
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