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 September 26,
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 Identification No.)
incorporation or organization)
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 October 29, 1999, there were outstanding 9,994,880 shares of the
registrant's common stock, par value $1.00 per share.
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PRIMEX TECHNOLOGIES, INC.
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 26, 1999 and December 31, 1998.................................3
Condensed Consolidated Statements of Operations -
Three Months Ended September 26, 1999 and September 27 1998;
Nine Months Ended September 26, 1999 and September 27, 1998..............4
Condensed Consolidated Statements of Cash Flow -
Nine Months Ended September 26, 1999 and September 27, 1998..............5
Notes to Condensed Consolidated Financial Statements.....................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................9
Item 3. Quantitative and Qualitative Disclosure of
Market Risk ............................................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................14
Item 6. Exhibits and Reports on Form 8-K........................................14
Signatures..............................................................14
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRIMEX TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
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<CAPTION>
SEPTEMBER 26, DECEMBER 31,
1999 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash ................................................................ $ -- $ 3,193
Receivables ......................................................... 123,422 131,390
Inventories, Net .................................................... 68,680 67,085
Deferred Tax Asset .................................................. 8,036 6,436
Prepaid Expenses and Other Current Assets ........................... 4,975 2,013
--------- ---------
Total Current Assets ............................................ 205,113 210,117
Property, Plant and Equipment ............................................ 295,315 287,640
Less: Accumulated Depreciation ........................................... (178,705) (168,734)
--------- ---------
116,610 118,906
Goodwill, Net ............................................................ 116,320 117,617
Other Assets ............................................................. 26,828 24,695
--------- ---------
Total Assets ........................................................ $ 464,871 $ 471,335
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-Term Borrowings ............................................... $ -- $ 10,800
Accounts Payable .................................................... 50,111 40,624
Contract Advances ................................................... -- 18,922
Accrued Liabilities ................................................. 38,681 42,797
--------- ---------
Total Current Liabilities ....................................... 88,792 113,143
Long-Term Debt ........................................................... 165,000 160,000
Other Liabilities......................................................... 35,306 32,709
--------- ---------
Total Liabilities.................................................... 289,098 305,852
Shareholders' Equity
Common Stock; $1.00 par value; 60,000,000 shares
authorized; issued and outstanding 9,994,880
shares at September 26, 1999 and 10,163,952
shares at December 31, 1998 ....................................... 9,995 10,164
Other Shareholders' Equity .......................................... 165,778 155,319
--------- ---------
Total Shareholders' Equity ...................................... 175,773 165,483
--------- ---------
Total Liabilities and Shareholders' Equity .......................... $ 464,871 $ 471,335
========= =========
</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)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales ....................... $129,837 $112,753 $380,494 $336,072
Operating Expenses:
Cost of Goods Sold ....... 96,982 88,607 287,765 261,548
Selling and Administration 18,765 15,947 53,363 51,699
Research and Development . 2,535 2,294 7,571 6,245
-------- -------- -------- --------
Operating Income ............ 11,555 5,905 31,795 16,580
Interest Expense ............ 3,185 529 8,742 1,312
Other Income, Net ........... 292 740 936 1,918
Non-Recurring Income ........ -- 220 -- 2,920
-------- -------- -------- --------
Income Before Income Taxes .. 8,662 6,336 23,989 20,106
Income Tax Provision ........ 3,319 2,536 9,450 8,274
-------- -------- -------- --------
Net Income .................. $ 5,343 $ 3,800 $ 14,539 $ 11,832
======== ======== ======== ========
Net Income Per Share:
Basic .................. $ 0.53 $ 0.37 $ 1.44 $ 1.15
======== ======== ======== ========
Diluted ................ $ 0.50 $ 0.35 $ 1.36 $ 1.10
======== ======== ======== ========
Dividends Per Share ......... $ 0.075 $ 0.075 $ 0.225 $ 0.225
======== ======== ======== ========
</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)
(UNAUDITED)
NINE MONTHS ENDED
----------------------------
SEPTEMBER 26, SEPTEMBER 27,
1999 1998
------------- --------------
OPERATING ACTIVITIES
Net Cash Provided (Used) by Operating Activities $ 27,720 $(10,693)
INVESTING ACTIVITIES
Capital Expenditures ...................... (12,467) (10,718)
Acquisitions .............................. (6,940) --
Proceeds From Disposition of Business ..... -- 10,000
-------- --------
Net Cash Used in Investing Activities .......... (19,407) (718)
FINANCING ACTIVITIES
Net Short-Term Borrowing (Repayment) ...... (10,800) 14,900
Net Long-Term Debt Borrowing .............. 5,000 --
Repurchases of Common Stock ............... (3,501) (1,177)
Proceeds From Stock Options Exercised ..... 61 --
Dividends Paid ............................ (2,266) (2,312)
-------- --------
Net Cash Provided (Used) in Financing Activities (11,506) 11,411
-------- --------
Net Decrease in Cash ........................... $ (3,193) $ --
======== ========
See accompanying notes to condensed consolidated financial statements.
5
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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 nine-month periods ended September
26, 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
nine-month periods ended September 26, 1999 and September 27, 1998.
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Denominator for basic net income per share:
Weighted average shares
outstanding and vested ............... 10,032,180 10,281,544 10,103,201 10,295,258
Effect of dilutive securities:
Employee Stock Options ................. 78,707 56,872 73,799 66,630
Restricted Stock Unit Grants ........... 527,567 430,882 506,283 415,520
---------- ---------- ---------- ----------
Dilutive potential common shares .......... 606,274 487,754 580,082 482,150
---------- ---------- ---------- ----------
Denominator for diluted
net income per share ................... 10,638,454 10,769,298 10,683,283 10,777,408
========== ========== ========== ==========
</TABLE>
6
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PRIMEX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
INVENTORIES
SEPTEMBER 26, 1999 DECEMBER 31, 1998
------------------ -----------------
Inventories consist of the following:
Raw materials and work in progress... $67,238 $65,909
Finished goods ...................... 8,771 8,805
------- -------
76,009 74,714
Less revaluation to LIFO ............ 7,329 7,629
------- -------
$68,680 $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,
September 26, 1999 balances reflect certain estimates relating to inventory
quantities and costs at December 31, 1999. Inventory balances at September 26,
1999 and December 31, 1998 are net of reductions for progress payments in the
amount of $6,154 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 $5,343 and $3,800 for the three-month periods and
$14,538 and $11,630 for the nine-month periods ended September 26, 1999 and
September 27, 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 nine month period ended September 26, 1999, the Company purchased and
retired 173,858 shares of common stock at an aggregate cost of $3,501.
7
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PRIMEX TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
ACQUISITIONS
The Company acquired a commercial product line during the first quarter
1999 and Versatron Corporation's actuator division during the third quarter 1999
(the "acquired business units"). The aggregate purchase price for these acquired
business units was $6,940 excluding additional consideration of up to $2,000,
contingent on certain future events. Operations of the acquired business units,
which have been accounted for using the purchase method of accounting, are
included in the Company's results of operations and financial position
subsequent to the date of their acquisition. The aggregate purchase price,
excluding future contingent consideration, has been allocated to the net assets
of the acquired business units based upon their respective fair market values.
Future contingent consideration is recorded as additional purchase price when
paid. Goodwill is being amortized over periods not exceeding forty years. As a
result of the nature of the assets and liabilities of the acquired business
units, there were no material identifiable intangible assets. The pro forma
operating results, assuming these acquisitions had been made at the beginning of
the year, would not be materially different from reported operating results.
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.
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THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ -------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales to external customers:
Ordnance .................. $104,335 $ 77,609 $304,284 $234,071
Aerospace ................. 25,502 35,144 76,210 102,001
-------- -------- -------- --------
Total consolidated sales ....... 129,837 112,753 380,494 336,072
Segment profit:
Ordnance .................. 7,596 4,602 20,089 11,726
Aerospace ................. 1,066 1,514 3,900 5,460
-------- -------- -------- --------
Total segment profit ........... 8,662 6,116 23,989 17,186
Reconciling item:
Non-recurring income ...... -- 220 -- 2,920
-------- -------- -------- --------
Total consolidated income before
income taxes .............. $ 8,662 $ 6,336 $ 23,989 $ 20,106
======== ======== ======== ========
</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 nine-month periods ended September 26, 1999 and September
27, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- -------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales:
Tank and other large
caliber ammunition ..... 32.1% 33.3% 31.2% 33.4%
Tactical missile and rocket
components and services 13.5% 3.4% 15.5% 2.7%
Medium caliber ammunition ... 12.7% 14.7% 13.7% 11.2%
Electronic products ......... 9.0% 15.4% 9.8% 14.7%
Ball Powder(R)propellant .... 8.7% 8.6% 8.8% 9.4%
Space products .............. 5.6% 9.6% 5.5% 8.8%
Other products and services . 18.4% 15.0% 15.5% 19.8%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............... 74.7% 78.6% 75.6% 77.8%
----- ----- ----- -----
Gross profit ..................... 25.3% 21.4% 24.4% 22.2%
Selling and administration expense 14.5% 14.2% 14.0% 15.4%
Research and development expense . 1.9% 2.0% 2.0% 1.9%
----- ----- ----- -----
Operating income ................. 8.9% 5.2% 8.4% 4.9%
Interest expense ................. 2.5% 0.5% 2.3% 0.4%
Other income ..................... 0.2% 0.7% 0.2% 0.6%
Non-recurring income ............. -- 0.2% -- 0.9%
----- ----- ----- -----
Income before income taxes ....... 6.6% 5.6% 6.3% 6.0%
Income tax provision ............. 2.7% 2.2% 2.5% 2.5%
----- ----- ----- -----
Net income ....................... 3.9% 3.4% 3.8% 3.5%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
The Company's sales of $129.8 million during the third quarter of 1999
increased by $17.1 million, or 15%, compared to the third quarter of 1998. Sales
of $380.5 million for the first nine months of 1999 were 13%, or $44.4 million,
higher than the corresponding period in 1998.
Third quarter 1999 Ordnance segment sales increased to $104.3 million
compared to $77.6 million in the corresponding period of 1998. This increase
reflects higher sales of large caliber ammunition, propellant and $21.2 million
of sales associated with business units acquired in November of 1998. These
Ordnance segment sales increases were partially offset by declines in the sale
of commercial products resulting from lower shipments of steel pipe joints.
Sales in the Aerospace segment decreased to $25.5 million during the third
quarter of 1999 compared to $35.1 million for the corresponding period of 1998.
This decrease reflects both lower levels of space product sales and a reduction
in sales of EmPower(TM) airline in-seat power supply systems following this
products introduction in 1998.
9
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Ordnance segment sales for the first nine months of 1999 increased to
$304.3 million compared to $234.1 million in the corresponding period of 1998.
This increase reflects higher sales of large and medium caliber ammunition,
propellant and $62.5 million of sales associated with business units acquired in
1998. These increases were offset in part by declines in the sale of artillery
propelling charges and commercial products resulting from lower shipments of
steel pipe joints during the first nine months of 1999. Aerospace segment sales
during the first nine months of 1999 decreased to $76.2 million compared to
$102.0 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 million related to a product line which was sold during 1998.
Gross margins as a percentage of sales increased to 25% during the
third quarter of 1999 from 21% for the corresponding period of 1998. For the
first nine months of 1999, gross margins as a percentage of sales increased to
24% from 22% during the first nine months of 1998. The gross margin improvement
for the first nine 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 large caliber ammunition and electronic products contracts.
Selling and administration expense as a percentage of sales were 14%
during the third quarter of 1999 and 14% for the first nine months of 1999
compared to 14% and 15%, respectively, for the corresponding periods of 1998.
Administration expense increases resulting from business units acquired in 1998
have been partially offset by lower Ordnance segment bid and proposal
expenditures which reflect a reduced level of activity compared to the 1998
periods and overall selling and administration expense reductions in the
Aerospace segment.
Research and development expenses increased $0.2 million, or 11%,
during the third quarter of 1999 and increased $1.3 million, or 21%, during the
first nine months of 1999 compared to the corresponding periods of 1998. These
higher expenditures reflect increased activity associated with the development
of aircraft cabin electronics products.
Interest expense of $3.2 million for the third quarter of 1999 and $8.7
million for the first nine months of 1999 compared to $0.5 million and $1.3
million for the corresponding periods of 1998 reflect the higher levels of debt
outstanding during 1999 as compared to 1998. This increased level of debt is
associated with acquisitions completed in November 1998 and July 1999.
Non-operating income for the third quarter and first nine months of
1998 includes $0.2 and $2.9 million, respectively, 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 $5.3 million for the third quarter and $14.5 million for
the first nine months of 1999 reflect increases of $1.5 million and $2.7
million, respectively, over the corresponding periods of 1998. This improvement
is primarily due to higher sales and improved gross margins partially offset by
increased financing costs.
10
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LIQUIDITY AND SOURCES OF CAPITAL
Cash flow provided by operations was $27.7 million during the first
nine months of 1999 compared to cash used by operations of $10.7 million during
the first nine months of 1998.
Capital expenditures during the first nine months of 1999 have
increased to $12.5 million from $10.7 million during the first nine months of
1998. This increase reflects the capital demands of business units acquired in
November 1998. Additionally, investing activities during the first nine months
of 1999 included an expenditure of $6.9 for two business acquisitions and during
the first nine 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, accounted for using the purchase method of
accounting, are included in the Company's results of operations and financial
position in periods subsequent to the acquisition date.
During the first nine months of 1999, the Company repurchased and
retired 173,858 shares of its common stock at an aggregate cost of $3.5 million.
Similar expenditures during the first nine months of 1998 were $1.2 million for
the repurchase and retirement of 64,000 shares of common stock.
Cash dividends of $0.075 per share were paid during each of the first,
second and third 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 September 26, 1999 were $105.0 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 $25.7 million available for borrowings at September 26,
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>
RECENT EVENTS
In October, the Company and Raytheon Company agreed to enter into a
Strategic Alliance, which provides a vehicle to expand business opportunities
between the two companies. The Company's Ordnance and Aerospace segments are
both currently Raytheon Company suppliers. During the first nine months of 1999
approximately 5% of the Company's total sales were associated with Raytheon
Company contracts.
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. The
implementation of selective equipment upgrades where warranted was completed in
September 1999.
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 which reviewed potential
exposure to Year 2000 failures from sources external to the Company was
completed in September 1999. This evaluation included contingency planning in
the event of disruption to utility, communications or transportation services,
as well as Year 2000 system failures by key vendors and service
12
<PAGE>
providers. The Company believes that the most reasonably likely worst-case Year
2000 scenario would relate to problems with such systems and services of third
parties rather than with the Company's internal systems. While the Company
cannot identify all possible disruption scenarios, the Company has prepared
contingency plans specifying actions if failures occur in key internal systems
and / or critical third party systems and services. The contingency planning
process included 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. Throughout the remainder of the calendar
year these plans will be modified as needed as the Company learns more about the
preparation and potential exposure of third parties to Year 2000 disruptions.
Due to the large number of variables involved, the Company cannot provide an
estimate of the damage it might suffer if any of these scenarios were to occur.
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.
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 nine-months ended September 26, 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 of the Company 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 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 September 26, 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: November 8, 1999 /s/ GEORGE H. PAIN
-----------------------------------
Vice President, General Counsel and
Secretary
Date: November 8, 1999 /s/ JOHN E. FISCHER
------------------------------------
Vice President, Chief Financial and
Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 26, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDING SEPTEMBER 26,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-26-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 123,422
<ALLOWANCES> 0
<INVENTORY> 68,680
<CURRENT-ASSETS> 205,113
<PP&E> 295,315
<DEPRECIATION> 178,705
<TOTAL-ASSETS> 464,871
<CURRENT-LIABILITIES> 88,792
<BONDS> 165,000
0
0
<COMMON> 9,995
<OTHER-SE> 165,778
<TOTAL-LIABILITY-AND-EQUITY> 464,871
<SALES> 380,494
<TOTAL-REVENUES> 380,494
<CGS> 287,765
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<OTHER-EXPENSES> 7,571
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<INTEREST-EXPENSE> 8,742
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