<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 28, 1997 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-10582
ALLIANT TECHSYSTEMS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-16726904
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 SECOND STREET N.E.
HOPKINS, MINNESOTA 55343-8384
(Address of principal executive office) (Zip Code)
(612) 931-6000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under 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 17, 1997, the number of shares of the registrant's common
stock, par value $.01 per share, outstanding was 13,122,535 (excluding 741,078
treasury shares).
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Income Statements (Unaudited)
(In thousands except QUARTERS ENDED SIX MONTHS ENDED
per share data) ------------ ------------ ------------ -------------
September 28 September 29 September 28 September 29
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 266,954 $ 247,648 $ 518,593 $ 477,821
Cost of sales 221,125 205,325 429,044 399,338
---------- ---------- ---------- ----------
Gross margin 45,829 42,323 89,549 78,483
Operating expenses
Research and development 2,636 4,344 4,674 7,144
Selling 8,801 8,040 19,049 15,218
General and administrative 12,127 9,475 22,271 19,263
---------- ---------- ---------- ----------
Total operating expenses 23,564 21,859 45,994 41,625
---------- ---------- ---------- ----------
Income from operations 22,265 20,464 43,555 36,858
Miscellaneous income (expense) (36) (96) 64 150
---------- ---------- ---------- ----------
Earnings before interest and taxes 22,229 20,368 43,619 37,008
Interest expense (7,380) (9,106) (14,937) (18,386)
Interest income 1,071 61 1,896 316
---------- ---------- ---------- ----------
Income from continuing operations 15,920 11,323 30,578 18,938
Income from discontinued operations, net of
income taxes 1,504 3,793
---------- ---------- ---------- ----------
Net income $ 15,920 $ 12,827 $ 30,578 $ 22,731
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per common and common
equivalent share:
Continuing operations $ 1.18 $ .85 $ 2.28 $ 1.42
Discontinued operations .11 .28
---------- ---------- ---------- ----------
Net income $ 1.18 $ .96 $ 2.28 $ 1.70
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average number of common and
common equivalent shares (thousands) 13,496 13,421 13,407 13,383
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets (Unaudited)
------------------ --------------
(In thousands except share data) September 28, 1997 March 31, 1997
------------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 86,608 $ 122,491
Marketable securities 378 378
Receivables 190,294 191,675
Net inventory 59,233 68,125
Deferred income tax asset 37,244 37,244
Other current assets 7,437 5,329
----------- -----------
Total current assets 381,194 425,242
Net property, plant, and equipment 338,817 355,560
Goodwill 121,917 123,618
Deferred charges 10,107 10,925
Prepaid and intangible pension assets 82,896 80,569
Other assets 2,021 116
Net assets of discontinued operations 9,654 8,674
----------- -----------
Total assets $ 946,606 $ 1,004,704
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 30,475 $ 29,024
Notes payable 931 2,302
Accounts payable 67,704 85,451
Contract advances and allowances 46,336 64,500
Accrued compensation 23,366 28,392
Accrued income taxes 7,049 9,156
Accrued restructuring and facility consolidation 11,776 23,414
Other accrued liabilities 77,298 83,958
----------- -----------
Total current liabilities 264,935 326,197
Long-term debt 221,108 237,071
Post-retirement and post-employment benefits liability 139,868 143,373
Pension liability 33,408 37,079
Other long-term liabilities 37,902 42,192
----------- -----------
Total liabilities 697,221 785,912
Stockholders' Equity:
Common stock - $.01 par value
Authorized - 20,000,000 shares
Issued and outstanding 13,122,351 shares at September
28, 1997 and 13,081,538 at March 31, 1997 131 131
Additional paid-in-capital 247,698 248,612
Retained earnings 34,939 4,361
Unearned compensation (1,570) (1,324)
Pension liability adjustment (2,304) (2,304)
Common stock in treasury, at cost (741,262 shares held at
September 28, 1997 and 782,075 at March 31, 1997) (29,509) (30,684)
----------- -----------
Total stockholders' equity 249,385 218,792
----------- -----------
Total liabilities and stockholders' equity $ 946,606 $ 1,004,704
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows (Unaudited)
(In thousands) SIX MONTHS ENDED
------------------ ------------------
September 28, 1997 September 29, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 30,578 $ 22,731
Adjustments to net income to arrive at cash
used for operations:
Depreciation 20,839 22,876
Amortization of intangible assets and unearned
compensation 3,111 3,982
Loss (gain) on disposal of property 76 (90)
Changes in assets and liabilities:
Receivables 1,381 (3,776)
Inventory 8,892 (989)
Accounts payable (17,747) (24,780)
Contract advances and allowances (18,164) 2,124
Accrued compensation (5,026) (3,632)
Accrued income taxes (2,107) (206)
Accrued restructuring and facility consolidation (11,638) (12,238)
Accrued environmental liability (324) (1,335)
Other assets and liabilities (20,487) (13,136)
Operating activities of discontinued operations (980) (12,020)
---------- ----------
Cash used for operations (11,596) (20,489)
---------- ----------
INVESTING ACTIVITIES
Capital expenditures (6,015) (11,655)
Acquisition of business (2,000)
Proceeds from disposition of property, plant, and equipment 158 2,380
Investing activities of discontinued operations (960)
---------- ----------
Cash used for investing activities (7,857) (10,235)
---------- ----------
FINANCING ACTIVITIES
Net borrowings on line of credit 12,000
Payments made on long-term debt (14,512) (22,500)
Net purchase of treasury shares (5,054) (2,341)
Proceeds from exercised stock options 4,508 1,715
Other financing activities, net (1,372) (431)
---------- ----------
Cash used for financing activities (16,430) (11,557)
---------- ----------
Decrease in cash and cash equivalents (35,883) (42,281)
Cash and cash equivalents - beginning of period 122,491 45,532
---------- ----------
Cash and cash equivalents - end of period $ 86,608 $ 3,251
---------- ----------
---------- ----------
See Notes to Financial Statements
</TABLE>
<PAGE>
Notes to Financial Statements (Unaudited)
1. In interim accounting periods, the Company absorbs operating expenses based
upon sales volume using the anticipated relationship of such costs to sales
for the year. Accordingly, the Company had $2.2 million and $4.8 million
of underabsorbed operating expenses recorded in other current assets at
September 28, 1997, and September 29, 1996, respectively. Unabsorbed
expenses at September 28, 1997, will be absorbed over the remainder of
fiscal 1998.
2. During the six months ended September 28, 1997, the Company made principal
payments on its Bank Term Loan of $14.5 million. No borrowings were
outstanding against its revolving line of credit at September 28, 1997.
Letters of credit totaling $36.9 million reduced the available line of
credit to $238.1 million.
The remaining scheduled minimum loan payments on outstanding long-term debt
are as follows: fiscal 1998, $14.6 million; fiscal 1999, $31.9 million;
fiscal 2000, $31.9 million; fiscal 2001, $23.2 million; fiscal 2002 and
thereafter, $150.0 million.
3. The major categories of other current and long-term accrued liabilities are
as follows:
PERIOD ENDING
----------------------------------------
SEPTEMBER 28, 1997 MARCH 31, 1997
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Employee benefits and insurance 32,199 35,546
Legal accruals 21,266 25,041
Other accruals 23,833 23,371
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Other accrued liabilities-current 77,298 83,958
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Litigation settlement--long-term -- 4,500
Environmental remediation liability 18,844 19,169
Deferred tax liability 18,462 18,462
Other long-term 596 61
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Other long-term liabilities 37,902 42,192
---------------------------------------------------------------------------
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The decrease in other accrued liabilities since March 31, 1997 primarily
represents payments made for legal settlement and litigation matters,
including the $4.0 million installment paid in April 1997 in connection
with the Accudyne "qui tam" settlement, reached in June 1995.
4. Alternative minimum taxes of $2.1 million were paid during the six-month
period ended September 28, 1997. No taxes were paid for the comparable
period of the prior year. The effective income tax rate of 0 percent on
continuing operations in the current six-month period reflects recognition
and utilization of $30.6 million of available federal and state loss
carryforwards (gross) for tax purposes.
5. During fiscal 1996, the Company began a program to repurchase up to $50.0
million of its common stock. During the six-months ended September 28,
1997, the Company repurchased an additional 139,600 shares for
approximately $6.0 million. The Company has substantially completed its
stock repurchase program, having repurchased approximately 1.26 million
shares of common stock over the life of the program, at an average price of
$39.09 per share, for an aggregate cost of $49.4 million.
On October 24, 1997, the Company entered into an agreement with Hercules
Incorporated providing for the disposition of the 3.86 million shares of
Alliant common stock held by Hercules. The shares represent the stock
issued by the Company in connection with the March 15, 1995 acquisition of
the Hercules Aerospace Company operations from Hercules.
<PAGE>
Under the agreement with Hercules, the Company will register for public
offering approximately 2.82 million shares held by Hercules. No new shares
will be issued in the offering, and the Company will not receive any of the
proceeds of the offering. The remaining shares held by Hercules will be
subject to a put/call arrangement under which Hercules can require the
Company to purchase the shares in four equal installments during 1998, and
the Company can require Hercules to sell the shares to the Company in four
equal installments during 1998. The price for shares purchased under the
put/call arrangement will be equal to the per share net proceeds realized
by Hercules in the secondary public offering, plus simple interest at a
rate of 6.25% per annum. The Company's present intention is to purchase
the shares covered by the put/call arrangement, although no definitive
decision has been made to do so.
On October 22, 1997, the Company's Board of Directors authorized the
Company to repurchase up to an additional 1.0 million shares of its
common stock on the open market. It is currently expected that any
purchases made under this buy-back plan would be subject to market
conditions and the Company's compliance with its debt covenants. The
Company's debt covenants currently permit it to expend up to
approximately $60 million in total, in connection with share repurchases.
The Company intends to seek to amend its bank credit agreement covenants
to permit the additional share repurchases. There can be no assurance
that the Company will repurchase all or any portion of the shares or as
to the timing or terms thereof.
6. Contingencies:
As a U.S. Government contractor, the Company is subject to defective
pricing and cost accounting standards non-compliance claims by the
government. Additionally, the Company has substantial government contracts
and subcontracts, the prices of which are subject to adjustment. The
Company believes that resolution of such claims and price adjustments made
or to be made by the government for open fiscal years (1994 through 1997)
will not materially exceed the amount provided in the accompanying balance
sheets.
The Company is subject to various local and national laws relating to
protection of the environment and is in various stages of investigation or
remediation of potential, alleged, or acknowledged contamination. The
Company records environmental remediation and the related ongoing
monitoring and maintenance liabilities when the event obligating the
Company has occurred and the cost is both probable and reasonably
estimable. At September 28, 1997, the accrued liability for environmental
remediation of $34.5 million represents management's best estimate of the
probable and reasonably estimable costs related to the Company's known
remediation obligations. It is expected that a portion of the
Company's environmental costs will be reimbursed to the Company. As
collection of those reimbursements is estimated to be probable, the Company
has recorded amounts receivable of approximately $10.6 million at September
28, 1997. Such receivable primarily represents the expected reimbursement
of costs associated with the operations acquired from Hercules Incorporated
in March 1995 (Aerospace acquisition). As part of the Aerospace
acquisition, the Company generally assumed responsibility for environmental
compliance at the acquired facilities. It is expected that much of the
compliance and remediation costs with respect to these facilities will be
reimbursable through pricing adjustments in U.S. Government contracts,
and that those environmental remediation costs not covered through such
contracts will be covered by Hercules under various agreements. The
Company's accrual for environmental remediation liabilities and the
associated receivable for reimbursement have been discounted, and are
recorded net of $10 million and $3 million, respectively, to reflect the
present value of the expected future cash flows, using a discount rate,
net of estimated inflation, of 5 percent. At September 28, 1997, the
estimated discounted range of reasonably possible costs of study and
remediation is between $34 million and $70 million. The Company does not
anticipate that resolution of the environmental contingencies in excess
of amounts accrued, net of recoveries, will materially affect future
operating results. In future periods, new laws, rules and regulations,
advances in technologies, outcomes of negotiations/litigations with
regulatory authorities and other parties, additional information about the
ultimate remedy selected at new and existing sites, changes in the extent
and type of site utilization, the number of parties found liable at each
site, and their ability to pay could significantly change the Company's
estimates.
<PAGE>
The Company is a defendant in numerous lawsuits that arise out of, and
are incidental to, the conduct of its business. Such matters arise out
of the normal course of business and relate to product liability,
intellectual property, government regulations, including environmental
issues, and other issues. Certain of the lawsuits and claims seek
damages in very large amounts. In these legal proceedings, no director,
officer, or affiliate is a party or a named defendant.
The Company is involved in three "QUI TAM" lawsuits brought by former
employees of the operations acquired from Hercules in March 1995. One
involves allegations relating to submission of false claims and records,
delivery of defective products, and a deficient quality control program.
The second involves allegations of mischarging of work performed under
government contracts, misuse of government equipment, other acts of
financial mismanagement and wrongful termination claims. The government
did not join in either of these lawsuits. Under the terms of the
agreements relating to the Aerospace acquisition, all litigation and legal
disputes arising in the ordinary course of the acquired operations will be
assumed by the Company except for a few specific lawsuits and disputes
including the two QUI TAM lawsuits referred to above. The Company has
agreed to indemnify and reimburse Hercules for a portion of litigation
costs incurred, and a portion of damages, if any, awarded in these
lawsuits. Under terms of the purchase agreement with Hercules, the
Company's maximum settlement liability is approximately $4 million, for
which the Company has fully reserved at September 28, 1997. In the third
QUI TAM lawsuit, the Company received a partially unsealed complaint in
March 1997 alleging labor mischarging on a government contract. Damages
are not specified. The government is currently investigating the claim and
has not determined whether it will join the lawsuit. In late fiscal 1997,
the Company was also served with two complaints in civil actions alleging
violations of the False Claims Act and the Truth in Negotiations Act of
which one has subsequently been settled during the quarter, without
material impact to the Company. The remaining complaint alleges defective
pricing on a government contract. Damages were not specified.
While the results of litigation cannot be predicted with certainty,
management believes, based upon the advice of counsel, that the actions
seeking to recover damages against the Company either are without merit,
are covered by insurance and reserves, do not support any grounds for
cancellation of any contract, or are not likely to materially affect the
financial condition or results of operations of the Company, although the
resolution of any of such matters during a specific period could have a
material effect on the quarterly or annual operating results for that
period.
It is reasonably possible that management's current estimates of
liabilities for the above contingencies could change in the near term, as
more definitive information becomes available.
7. Interest paid during the three and six-month periods ended September 28,
1997 totaled $11.4 and $14.4 million, respectively. Interest paid during
the three and six-month periods ended September 29, 1996 totaled $14.3 and
$20.1 million, respectively.
The Company has entered into interest rate swap agreements as hedging
transactions to protect against increases in market interest rates on its
floating rate bank financing. At September 28, 1997, the notional amount
of interest rate swap agreements was $50.0 million. Under the swap
agreements, the Company currently pays an average fixed rate of 6.3 percent
and receives interest at a rate equal to three-month LIBOR (5.7 percent at
September 28, 1997). These agreements have a remaining term of 9 months.
During the quarter, the Company entered into treasury rate-lock agreements
to hedge against increases in market interest rates on the anticipated
refinancing of its senior subordinated notes, which are callable on March
1, 1999. These agreements provide for a rate lock of 6.15% on the then
most recently issued U.S. 10-year treasury note between now and March 1,
1999, on a notional amount of $100 million. The Company's actual
refinancing rate will depend on its credit rating and respective borrowing
margin over the treasury rate at that time.
<PAGE>
8. Effective April 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company has
elected to continue following the guidance of Accounting Principles Board
No. 25, "Accounting for Stock Issued to Employees" for measurement and
recognition of stock-based transactions with employees, and therefore the
adoption of SFAS No. 123 did not have a significant impact on the Company's
financial position or results of operations.
9. Earnings per common share are computed based upon the weighted average
number of common shares and common equivalent shares, consisting of the
dilutive effect of stock options outstanding during each year. Earnings
per common share assuming full dilution are substantially the same.
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings Per Share," which will require companies to present
basic earnings per share (EPS) and diluted earnings per share, instead of
the primary and fully diluted EPS that is currently required. The new
standard requires additional informational disclosures and also makes
certain modifications to the currently applicable EPS calculations defined
in Accounting Principles Board No. 15. The new standard is required to be
adopted by all public companies for reporting periods ending after December
15, 1997 (the Company's third quarter of fiscal 1998), and will require
restatement of EPS for all prior periods reported. Under the requirements
of SFAS No. 128, the Company's EPS would be as follows:
QUARTERS ENDED
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SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
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Basic earnings per share:
Continuing operations 1.22 .87
Discontinued operations -- .12
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Total Basic Earnings Per Share $1.22 $.99
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Diluted earnings per share:
Continuing operations 1.18 .85
Discontinued operations -- .11
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Total Diluted Earnings Per Share $1.18 $.96
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10. Certain reclassifications have been made to the fiscal 1997 financial
statements, as previously reported, to conform to the current
classification. These reclassifications did not affect the net income from
operations, as previously reported.
11. The figures set forth in this quarterly report are unaudited but, in the
opinion of the Company, include all adjustments necessary for a fair
presentation of the results of operations for the three and six month
periods ended September 28, 1997, and September 29, 1996. The Company's
accounting policies are described in the notes to financial statements in
its fiscal 1997 Annual Report on Form 10-K.
12. On October 10, 1996, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 96-1 (SOP 96-1) entitled
"Environmental Remediation Liabilities." The SOP provides authoritative
guidance on specific accounting issues relative to recognition,
measurement, display, and disclosure of environmental remediation
liabilities. The Company adopted SOP 96-1 in the fourth quarter of fiscal
1997.
13. In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income," which requires businesses to disclose comprehensive income and its
components in the Company's general-purpose financial statements.
Additionally, the FASB also issued SFAS No. 131 "Disclosures About Segments
of an Enterprise and Related Information." Both statements require
additional disclosure only, and as such, are expected to have no financial
impacts to the Company. The statements are effective for the Company's
fiscal year ended March 31, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES
Sales from continuing operations for the quarter ended September 28, 1997
totaled $267.0 million, an increase of $19.4 million, or 7.8 percent, from
$247.6 million for the comparable quarter in the prior year. Conventional
Munitions Group sales were $113.3 million for the quarter ended September 28,
1997, an increase of $8.4 million, or 8.0 percent, compared to $104.9 million
in the comparable quarter of the prior year. The sales increase was
primarily driven by a $12 million increase in tank ammunition sales due in
large part to the resolution of technical issues on the M830A1 tactical tank
round, which had delayed production and shipments through early fiscal 1997.
These tank ammunition increases were partially offset by decreases in other
programs. Space and Strategic Group sales were $95.9 million for the quarter
ended September 28, 1997, an increase of $19.1 million, or 24.9 percent,
compared to $76.8 million in the comparable quarter of the prior year. The
current year quarter included a sales increase of $6 million from the
composite structures business, due in large part to work performed on the
X-33 contract, where the Company is building the liquid hydrogen fuel tanks
for what could become the next-generation space launch vehicle. The period
also included a $10 million sales increase in solid rocket propulsion
systems, as the next generation medium-lift rocket program (Delta III) is
ramped up for production, as well as increased Titan sales. Defense Systems
Group sales were $51.7 million for the quarter ended September 28, 1997, a
decrease of $11.3 million, or 17.9 percent, compared to $63.0 million for the
comparable quarter of the prior year. The decrease was largely attributable
to decreased revenues on antitank mines and artillery fire control systems,
partially offset by increased revenues attributable to the Outrider-TM-
program, awarded to the Company in the first quarter of fiscal 1997.
Emerging Business Group sales were $8.5 million for the quarter ended
September 28, 1997, compared to $9.0 million for the comparable quarter of
the prior year.
Sales from continuing operations for the six month period ended September 28,
1997 totaled $518.6 million, an increase of $40.8 million, or 8.5 percent,
from $477.8 million for the comparable period of the prior year.
Conventional Munitions Group sales for the six month period ended September
28, 1997 were $230.0 million, an increase of $34.0 million, or 17.3 percent,
compared to $196.0 million in the comparable period of the prior year. The
sales increase was attributable to increased tank ammunition sales, up
approximately $44 million compared to the six month period of the prior year,
due in large part to the resolution of technical issues on the M830A1
tactical tank round, which had delayed production and shipments through early
fiscal 1997. Sales of the tactical round were approximately $29 million
higher for the six month period ended September 28, 1997, when compared to
the same period of the prior year. The tank ammunition sales increase was
also partially driven by production increases of tank ammunition training
rounds, up $15 million for the six month period ended September 28, 1997,
compared to the comparable period of the prior year. These tank ammunition
increases were partially offset by decreases in other programs. Space and
Strategic Systems Group sales were $174.0 million for the six month period
ended September 28, 1997, an increase of $18.9 million, or 12.2 percent,
compared to $155.1 million in the comparable period of the prior year. The
sales increase was primarily driven by increases in solid rocket propulsion
systems and in the composite structures business, up approximately $19
million and $17 million, respectively, compared to the comparable period of
the prior year. The sales increases in composite structures and solid rocket
propulsion
<PAGE>
completely offset the absence in fiscal 1998 of $11 million of revenue
recognized in the fiscal 1997 period on the Evolved Expendable Launch Vehicle
(EELV) program, which the Company completed in fiscal 1997, as well as
decreased Trident (D5) volume, down $9 million compared to the comparable six
month period of the prior year. Defense Systems Group sales were $102.3
million for the six month period ended September 28, 1997, a decrease of
$18.3 million, or 15.2 percent, compared to $120.6 million in the comparable
period of the prior year. The decrease is largely attributable to decreased
revenues on antitank mines and artillery fire control systems, partially
offset by a $20 million increase in revenues attributable to the Outrider-TM-
program. Emerging Business Group sales were $17.2 million for the six month
period ended September 28, 1997, an increase of $.6 million or 3.6 percent,
compared to $16.6 million for the comparable period of the prior year.
Alliant Techsystems sales for fiscal 1998 are expected to be approximately $1
billion.
GROSS MARGIN
The Company's gross margin in the quarter ended September 28, 1997, was $45.8
million, or 17.2 percent of sales, compared to $42.3 million, or 17.1 percent of
sales for the comparable quarter of the prior year. The slight improvement in
margin, as a percent of sales, for the quarter ended September 28, 1997, is due
to a combination of factors, the most significant being improved margins in core
programs, including propulsion systems, composite structures, and ammunition
programs, offset by increased costs in U.S. demilitarization activities and
other Emerging Business pursuits.
Gross margin for the six month period ended September 28, 1997, totaled $89.5
million, or 17.3 percent of sales, compared to $78.5 million, or 16.4 percent of
sales for the comparable period of the prior year. The increase in gross margin
for the six month period ended September 28, 1997 is reflective of increased
sales volume, as well as sales mix. Gross margin improved, as a percent of
sales, due to a combination of factors, the most significant being improved
margins in core programs due to improved performance relative to the prior year,
including rocket propulsion systems, composite structures, and ammunition
programs, as well as the fact that gross margin results for the prior year six
month period ended September 29, 1996 were impacted by cost growth due to
technical issues on various tactical propulsion and fuzing programs. Fiscal
1998 gross margin, as a percentage of sales, is expected to be in the 17.5 -
18.5 percent range.
OPERATING EXPENSES
The Company's operating expenses for the quarter ended September 28, 1997
totaled $23.6 million, 8.8 percent of sales, compared to $21.9 million, or 8.8
percent of sales for the comparable quarter in the prior year. Reduced research
and development costs, due to the completion in fiscal 1997 of spending
associated with the Company's pursuit of EELV, were offset by increases in
selling, general, and administrative costs due in part to the Company's costs
incurred in fiscal 1998 in pursuit of the U.S. Government's Intercontinental
Ballistic Missile (ICBM) Prime Integration program.
Operating expenses for the six month period ended September 28, 1997, totaled
$46.0 million, 8.9 percent of sales, compared to $41.6 million, or 8.7 percent
of sales for the comparable period of the prior year. Reduced research and
development costs, due to the completion in fiscal 1997 of $1.8 million spending
associated with EELV, were offset by increases in selling, general, and
administrative costs, due in large part to the Company's costs of approximately
<PAGE>
$5.6 million incurred in fiscal 1998, in pursuit of ICBM. Operating expenses
for fiscal 1998, as a percentage of sales, are expected to be approximately 9.5
percent.
INTEREST EXPENSE
The Company's interest expense for the quarter ended September 28, 1997 was $7.4
million, a decrease of $1.7 million compared to $9.1 million for the comparable
quarter in the prior year. Interest expense for the six month period ended
September 28, 1997 was $14.9 million, a decrease of $3.5 million compared to
$18.4 million for the comparable six month period of the prior year. The large
decreases in the current year periods were driven by significantly reduced
borrowings outstanding in the current year, as compared to the comparable
periods of the prior year. Total borrowings outstanding (including notes
payable, and the current and long-term portions of long-term debt) at September
28, 1997, were $134.0 million less than total borrowings outstanding at
September 29, 1996, due to scheduled debt repayments, as well as an $88.6
million pre-payment of debt in late fiscal 1997, as a result of the sale of the
Company's former Marine Systems Group.
INTEREST INCOME
Interest income for the quarter ended September 28, 1997 was $1.1 million,
compared to $.1 million for the comparable quarter of the prior year, an
increase of $1.0 million. Interest income for the six month period ended
September 29, 1997 was $1.9 million, compared to $.3 million for the comparable
period of the prior year. The increase is driven by interest income earned on
increased average cash balances in the three and six-month periods ended
September 28, 1997.
INCOME TAXES
The three and six month periods ended September 28, 1997, and the comparable
periods ended September 29, 1996, reflect an effective income tax rate of 0
percent. This tax rate differs from statutory tax rates due to the utilization
of available tax loss carry fowards. Recognition of such carryforwards is
expected to continue to reduce future tax expense. It is currently expected
that required payments for taxes in fiscal 1998 will continue to be reduced due
to the aforementioned tax loss carryfowards. However, the Company may be
subject to the provisions of the Alternative Minimum Tax (AMT), in which case
tax payments could be required. To the extent that AMT is required to be paid
currently, the resulting deferred tax asset can be carried forward indefinitely,
and can be recovered via reductions in tax payments on future taxable income.
NET INCOME
Net income reported for the three and six month periods ended September 28,
1997, was $15.9 million and $30.6 million, respectively, compared to $12.8
million and $22.7 million for the comparable periods of the prior year. The
increase was primarily due to a combination of increased sales volume, improved
gross margins, and reduced interest costs in the current year periods ended
September 28, 1997, as compared to the comparable periods of the prior year.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
<PAGE>
Cash used for operations totaled $11.6 million for the six month period ended
September 28, 1997, a decrease in cash usage of $8.9 million, when compared
with cash used for operations of $20.5 million in the comparable period of
the prior year. The lower level of cash usage in the period ended September
28, 1997 was primarily the result of lower interest expense. During the six
months ended September 28, 1997, the Company has spent approximately $11.7
million on its restructuring and facility consolidation programs.
Approximately $8 million of this spending represented severance and facility
consolidation costs associated with the Company's March, 1997 sale of its
Marine Systems Group. At September 28, 1997, the remaining accrued
restructure and facility consolidation liability primarily represents
specifically identified reserves for employee severance, related benefits,
and facility closure costs expected to be incurred in the upcoming year.
Cash used for investing activities for the six month period ended September
28, 1997 was $7.9 million, a $2.4 million decrease from cash used for
investing activities of $10.2 million in the comparable six month period of
the prior year. This difference was primarily the result of higher capital
expenditures in the prior year period, due to required tooling expenditures
in connection with a rocket propulsion contract. Additionally, in connection
with the Company's announced intention to acquire certain assets from a
division of Motorola, Inc., including patent and technology rights related to
military fuze production, the Company issued a $2.0 million deposit to the
seller. While negotiations have not been finalized, the asset purchase is
expected to be completed in the third quarter of fiscal 1998, for a purchase
price currently expected to be less than $15 million. Additional
consideration to the sellers may be required in the future, based on the
financial results of the business acquired. Results from the proposed
acquisition are not expected to have a material impact to the Company's
fiscal year 1998 results.
Net outlays for capital expenditures for the six month period ended September
28, 1997, totaled $6.0 million, or 1.2 percent of sales, a decrease as a
percentage of sales, compared to capital expenditures of $11.7 million, or 2.4
percent of sales, in the comparable period of the prior year. The increased
expenditures for the prior year period were primarily the result of increased
tooling expenditures for a rocket propulsion contract. The Company expects
expenditures, as a percentage of sales, to be approximately 2.0 percent of sales
for fiscal 1998.
At September 28, 1997, the Company had no borrowings outstanding against its
bank revolving credit facility. Outstanding letters of credit of $36.9 million
reduced amounts available on this facility to $238.1 million at September 28,
1997.
During fiscal 1996, the Company began a program to repurchase up to $50.0
million of its common stock. During the six month period ended September 28,
1997, the Company repurchased an additional 139,600 shares for approximately
$6.0 million. As of September 28, 1997, the Company has substantially completed
its stock repurchase program, having repurchased approximately 1.26 million
shares of common stock over the life of the program, at an average price of
$39.09 per share, for an aggregate cost of $49.4 million.
On October 24, 1997, the Company entered into an agreement with Hercules
Incorporated providing for the disposition of the 3.86 million shares of Alliant
common stock held by Hercules. The shares represent the stock issued by the
Company in connection with the March 15, 1995 acquisition of the Aerospace
Company operations from Hercules.
Under the agreement with Hercules, the Company will register for public
offering approximately 2.82 million shares held by Hercules. No new shares
will be issued in the offering, and the Company will not receive any of the
proceeds of the offering. The remaining shares held by Hercules will be
subject to a put/call arrangement under which Hercules can require the
Company to purchase the shares in four equal installments during 1998, and
the Company can require Hercules to sell the shares to the Company in four
equal installments during 1998. The price for shares purchased under the
put/call arrangement will be equal to the per share net proceeds realized by
Hercules in the secondary public offering, plus simple interest at a rate of
6.25% per annum. The Company's present intention is to purchase the shares
covered by the put/call arrangement, although no definitive decision has been
made to do so.
<PAGE>
On October 22, 1997, the Company's Board of Directors authorized the Company
to repurchase up to an additional 1.0 million shares of its common stock on
the open market. It is currently expected that any purchases made under
this buy-back plan would be subject to market conditions and the
Company's compliance with its debt covenants. The Company's debt
covenants currently permit it to expend up to approximately $60 million
in total, in connection with share repurchases. The Company intends to
seek to amend its bank credit agreement covenants to permit the
additional share repurchases. There can be no assurance that the Company
will repurchase all or any portion of the shares or as to the timing or
terms thereof.
The company's total debt (notes payable, current portion of long-term debt, and
long-term debt) as a percentage of total book capitalization decreased to 50
percent on September 28, 1997, compared to 55 percent on March 31, 1997. This
decrease reflects scheduled principal repayments made during fiscal 1998, as
well as increased equity, due primarily to fiscal 1998 net earnings to date.
In June 1995, the Company and claimants reached an agreement to settle the
Accudyne "qui tam" lawsuit. Terms of the agreement include payments by the
Company of $12.0 million, consisting of payments of $.5 million, $3.0 million
and $4.0 million, made in June 1995, April 1996, and April 1997, respectively,
and payment to be made of $4.5 million, plus interest at the three year Treasury
Bill rate, in June 1998. In addition, legal costs of approximately $3.0 million
have been paid. Accordingly, the Company recorded an unusual charge of $15.0
million as of the fourth quarter of the fiscal year ended March 31, 1995.
The Company utilizes a significant number of computer software programs and
operating systems across the entire organization, among these include
applications used in manufacturing, product development, financial business
systems, and various administrative functions. To the extent that the Company's
software applications contain source code that is unable to appropriately
interpret the upcoming calendar year "2000," some level of modification, or even
possibly replacement of such applications will be necessary. The Company is
currently in process of completing its identification of applications that are
not "Year 2000" compliant. Given information known at this time about Company
systems having such issues, coupled with the Company's on-going, normal
course-of-business efforts to upgrade or replace business critical systems, as
necessary, it is currently not expected that these "Year 2000" costs will have
any material adverse impacts on the Company's liquidity or its results of
operations.
Based on the financial condition of the Company at September 28, 1997, the
Company believes that future operating cash flows, combined with existing cash
balances, and the availability of funding under its line of credit, will be
adequate to fund the future growth of the Company, as well as to service its
long-term debt obligations.
INFLATION
In the opinion of management, inflation has not had a significant impact upon
the results of the Company's operations. The selling prices under contracts,
the majority of which are long term, generally include estimated costs to be
incurred in future periods. These cost projections can generally be negotiated
into new buys under fixed-price government contracts, while actual cost
increases are recoverable on cost-type contracts.
RISK FACTORS
<PAGE>
Except for the historical information contained herein, certain of the matters
discussed in this report are "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995, which involves risks and
uncertainties, including, but not limited to, changes in governmental spending
and budgetary policies, governmental laws and other rules and regulations
surrounding various matters such as environmental remediation, contract pricing,
changing economic and political conditions in the United States and in other
countries, international trading restrictions, outcome of union negotiations,
customer product acceptance, continued access to technical and capital
resources, and merger and acquisition activity within the industry. All
forecasts and projections in this report are "forward-looking statements" and
are based on management's current expectations of the Company's near term
results, based on current information available pertaining to the Company,
including the aforementioned risk factors. Actual results could differ
materially.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
Prior to the acquisition of the Company's Kenvil, New Jersey facility from
Hercules Incorporated ("Hercules") in March 1995 as part of the acquisition of
the Hercules Aerospace Company division of Hercules (the "Acquisition"), the New
Jersey Department of Environmental Protection ("NJDEP") informed Hercules that
it was considering enforcement actions in connection with the Kenvil facility's
alleged failure to comply with prior administrative consent orders and other
alleged violations previously identified by the NJDEP. In October 1997 the
registrant paid a penalty in the amount of $431,543 in connection with these
alleged violations. The registrant believes that Hercules is responsible for
substantially all of this penalty under agreements entered into in connection
with the Acquisition, and the registrant has made a claim against Hercules for
reimbursement of the amount paid.
In September 1997 the registrant settled a civil action captioned UNITED
STATES V. ALLIANT TECHSYSTEMS INC., which was filed in the U.S. District Court
for the District of Minnesota on February 21, 1997, related to a contract for
120mm tank ammunition, and alleged violations of the False Claims Act, the Truth
in Negotiations Act, and common law and equitable theories of recovery. The
registrant, without admitting liability with respect to the charges, paid
$228,750 in connection with the settlement.
Incorporated herein by reference is note 6 of Notes to Financial Statements
included in Item 1 of Part I of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On August 5, 1997, the registrant held its annual meeting of
stockholders.
(b) At the above annual meeting, the following persons were elected
directors to serve until the next annual meeting of stockholders:
Vincent J. Corbo; R. Keith Elliott, Thomas L. Gossage; Joel M.
Greenblatt; Jonathan G. Guss; David E. Jeremiah; Gaynor N. Kelley;
Joseph F. Mazzella; Daniel L. Nir; and Richard Schwartz.
(c) At the above annual meeting, the stockholders voted upon the following
proposals (1) election of directors; (2) ratification of the selection
of Deloitte & Touche as independent accountants for the fiscal year
ending March 31, 1998; (3) approval of the Alliant Techsystems Inc.
1997 Employee Stock Purchase Plan; and (4) a stockholder proposal.
The votes cast on each of the above proposals were as follows:
<PAGE>
PROPOSAL NUMBER 1: FOR WITHHELD
Vincent J. Corbo . . . . . . . 11,121,955 549,448
R. Keith Elliott . . . . . . . 11,125,035 546,368
Thomas L. Gossage. . . . . . . 11,118,924 552,479
Joel M. Greenblatt . . . . . . 11,120,136 551,267
Jonathan G. Guss . . . . . . . 11,128,843 542,560
David E. Jeremiah. . . . . . . 11,020,302 651,101
Gaynor N. Kelley . . . . . . . 11,135,779 535,624
Joseph F. Mazzella . . . . . . 11,014,943 656,460
Daniel L. Nir. . . . . . . . . 11,122,739 548,664
Richard Schwartz . . . . . . . 11,128,098 543,305
Broker non-votes: None
PROPOSAL NUMBER 2:
For. . . . . . . . . . . . . . 11,602,858
Against. . . . . . . . . . . . 36,242
Abstain. . . . . . . . . . . . 32,303
Broker non-votes . . . . . . . None
PROPOSAL NUMBER 3:
For. . . . . . . . . . . . . . 11,355,141
Against. . . . . . . . . . . . 292,531
Abstain. . . . . . . . . . . . 23,731
Broker non-votes . . . . . . . None
PROPOSAL NUMBER 4:
For. . . . . . . . . . . . . . 529,642
Against. . . . . . . . . . . . 9,678,244
Abstain. . . . . . . . . . . . 226,384
Broker non-votes . . . . . . . 1,237,133
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
11 Computation of Earnings Per Common and Common Equivalent Share
27 Financial Data Schedule
<PAGE>
(b) Reports on Form 8-K.
During the quarterly period ended September 28, 1997, the registrant
filed no reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANT TECHSYSTEMS INC.
Date: October 24, 1997 By: /s/ Charles H. Gauck
Name: Charles H. Gauck
Title: Secretary
(On behalf of the registrant)
Date: October 24, 1997 By: /s/ Scott S. Meyers
Name: Scott S. Meyers
Title: Vice President and Chief Financial
Officer
(Principal Financial Officer)
<PAGE>
ALLIANT TECHSYSTEMS INC.
FORM 10-Q
EXHIBIT INDEX
The following exhibits are filed herewith electronically or incorporated herein
by reference. The applicable Securities and Exchange Commission File Number is
1-10582.
Exhibit
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
11 Computation of Earnings Per Common and Common
Equivalent Share. . . . . . . . . . . . . . . . Filed herewith
electronically
27 Financial Data Schedule . . . . . . . . . . . . Filed herewith
electronically
<PAGE>
Exhibit 11
Computation of Earnings per Common and Common Equivalent Share
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
September 28 September 29 September 28 September 29
1997 1996 1997 1996
------------ ------------ ------------ ------------
Primary calculation:
<S> <C> <C> <C> <C>
Net income $ 15,920 $ 12,827 $ 30,578 $ 22,731
--------- --------- --------- ----------
--------- --------- --------- ----------
Weighted average shares outstanding
during the period 13,040 13,002 13,023 12,976
Shares issuable in connection with
stock plans less shares purchasable
with proceeds using the average per
share purchase price for the
respective periods as shown below 456 419 384 407
--------- --------- --------- ----------
Total common and common equivalent
shares - primary 13,496 13,421 13,407 13,383
--------- --------- --------- ----------
--------- --------- --------- ----------
Primary earnings per common and
common equivalent share $ 1.18 $ .96 $ 2.28 $ 1.70
--------- --------- --------- ----------
--------- --------- --------- ----------
Average share price for the period $ 59.12 $ 49.65 $ 52.52 $ 48.24
--------- --------- --------- ----------
--------- --------- --------- ----------
Fully diluted calculation:
Net income $ 15,920 $ 12,827 $ 30,578 $ 22,731
--------- --------- --------- ----------
--------- --------- --------- ----------
Weighted average shares outstanding
during the period 13,040 13,002 13,023 12,976
Shares issuable in connection with
stock plans less shares purchasable
with proceeds using the higher of the
average or period end share price as
shown below 495 455 494 460
--------- --------- --------- ----------
Total common and common equivalent
shares - fully diluted 13,535 13,457 13,517 13,436
--------- --------- --------- ----------
--------- --------- --------- ----------
Fully diluted earnings per common
and common equivalent share $ 1.18 $ .95 $ 2.26 $ 1.69
--------- --------- --------- ----------
--------- --------- --------- ----------
Higher of average or period
end share price $ 63.25 $ 52.38 $ 63.25 $ 52.38
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
10Q FILING FOR SIX MONTHS ENDED 9-28-97 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997
<PERIOD-START> APR-01-1997 APR-01-1996
<PERIOD-END> SEP-28-1997 SEP-29-1996
<CASH> 86,608 122,491
<SECURITIES> 378 378
<RECEIVABLES> 190,294 191,675
<ALLOWANCES> 130 107
<INVENTORY> 59,233 68,125
<CURRENT-ASSETS> 381,194 425,242
<PP&E> 520,366 518,175
<DEPRECIATION> 181,549 162,615
<TOTAL-ASSETS> 946,606 1,004,704
<CURRENT-LIABILITIES> 264,935 326,197
<BONDS> 221,108 237,071
0 0
0 0
<COMMON> 131 131
<OTHER-SE> 249,254 218,661
<TOTAL-LIABILITY-AND-EQUITY> 946,606 1,004,704
<SALES> 518,593 477,821
<TOTAL-REVENUES> 518,593 477,821
<CGS> 429,044 399,338
<TOTAL-COSTS> 429,044 399,338
<OTHER-EXPENSES> 4,674 7,144
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,937 18,386
<INCOME-PRETAX> 30,578 18,938
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 30,578 18,938
<DISCONTINUED> 0 3,793
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 30,578 22,731
<EPS-PRIMARY> 2.28 1.70
<EPS-DILUTED> 2.26 1.69
</TABLE>
