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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1997 or
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[ ] 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
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Alliant Techsystems Inc.
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(Exact name of registrant as specified in its charter)
Delaware 41-1672694
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 Second Street N.E., Hopkins, Minnesota 55343-8384
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 931-6000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of May 31, 1997, 12,977,830 shares of the registrant's voting common stock
were outstanding (excluding 885,783 treasury shares). The aggregate market
value of such stock held by non-affiliates of the registrant on such date was
$425,853,842.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to stockholders for the fiscal year ended March
31, 1997 are incorporated by reference into Parts I, II and IV. Portions of the
definitive Proxy Statement for the 1997 Annual Meeting of stockholders are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
Alliant Techsystems Inc. (the "Company" or the "Registrant") was
incorporated as a Delaware corporation and a wholly owned subsidiary of
Honeywell Inc. ("Honeywell") on May 2, 1990, in connection with Honeywell's plan
to spin off to its stockholders the following business operations (the
"Businesses") of Honeywell: Defense and Marine Systems Business; Test
Instruments Division (subsequently renamed Metrum Information Storage); and
Signal Analysis Center. On September 28, 1990, (i) Honeywell declared a
distribution (the "Spin-off") payable to the holders of record of Honeywell
common stock on October 9, 1990 (the "Record Date") of one share of the
Company's common stock, par value $.01 per share (the "Common Stock"), together
with the associated preferred stock purchase rights, for every four shares of
Honeywell common stock outstanding on the Record Date, and (ii) Honeywell
transferred to the Company substantially all of the assets and liabilities of
the Businesses. As a result of the Spin-off, 100% of the Company's Common Stock
was distributed to Honeywell's stockholders on a pro rata basis.
In January 1991, the Company changed its fiscal year end from December 31
to March 31, effective with the fiscal year that began April 1, 1991 and ended
March 31, 1992.
In December 1992, the Company divested the Metrum Information Storage
business.
In October 1993, the Company acquired Accudyne Corporation ("Accudyne") and
Kilgore Corporation ("Kilgore"), and in November 1993, the Company acquired
Ferrulmatic, Inc. ("Ferrulmatic"). Each of these acquisitions was accounted for
as a purchase, and the financial statements included in this report include the
acquired companies' assets and liabilities and their results of operations since
the date of their acquisition. Effective March 31, 1994, Accudyne, Kilgore and
Ferrulmatic were merged into the Company.
In March 1995, the Company acquired certain assets and operations of the
Hercules Aerospace Company division ("HAC") of Hercules Incorporated
("Hercules"). The acquisition of HAC (the "HAC Acquisition") was accounted for
as a purchase, and the financial statements included in this report include the
acquired operations' assets and liabilities and their results of operations
since the date of their acquisition.
In March 1996, Company management, after evaluating its strategic plans for
the future, elected to discontinue its role as an owner of foreign
demilitarization businesses located in the former Soviet republics of Ukraine
and Belarus.
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In February 1997 the Company divested its Marine Systems Group. The
financial statements included in this report account for this divested business
as a discontinued operation.
The Company's principal executive offices are located at 600 Second Street
N.E., Hopkins, Minnesota 55343-8384 (telephone number: (612) 931-6000).
(b) Financial Information About Industry Segments
The Company's business is conducted in a single industry segment.
Incorporated herein by reference are the following portions of the Company's
Annual Report to Stockholders (the "Annual Report") for the fiscal year ended
March 31, 1997 ("fiscal year 1997"):
<TABLE>
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Page Number(s)
Portion of Annual Report in Annual Report
<S> <C>
Note 22 of Notes to Financial Statements................... 39
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(c) Narrative Description of Business
General
During fiscal year 1997, the Company conducted its business through four
business groups: Aerospace Systems, Defense Systems, Marine Systems (which was
sold in February 1997) and Emerging Business. Effective April 1, 1997, the
Company reorganized its business into four business groups -- Conventional
Munitions, Defense Systems, Space and Strategic Systems, and Emerging Business
- -- and a program office established to pursue the ICBM Prime Integration
Program. The description of the Company's business that follows reflects the
reorganized business structure currently in effect.
Conventional Munitions
Conventional Munitions supplies, designs and develops medium caliber
ammunition, tank ammunition, munitions propellants, commercial gun powders,
solid rocket propulsion systems, flares, warheads, and composite structures for
the U.S. and allied governments as well as for commercial applications. It
operates in four business units: Ammunition Systems, Ordnance, Tactical
Propulsion and Kilgore Operations.
Ammunition Systems - The Ammunition Systems business unit produces,
designs, and develops medium caliber ammunition, tank ammunition, submunitions,
and advanced warhead systems for missiles and other weapon systems.
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The Company is a leading supplier of medium caliber ammunition and fuzes.
Production programs include 25mm Bushmaster rounds for the U.S. Army's Bradley
Fighting Vehicle, the Marine Corps Light Armored Vehicle, the U.S. Navy's
shipboard defense systems, and platforms of the U.S. allies; the PGU-32 25mm
round for the AV-8B aircraft; PGU-38 25mm enhanced combat rounds for the U.S.
Air Force's AC-130 gunship; Lightweight 30mm ammunition for the Apache
helicopter; and GAU-8/A 30mm family of armor-piercing, high-explosive
incendiary, and target practice rounds currently used by the U.S. Air Force's
A-10 aircraft. Development efforts include improving the performance of medium
caliber ammunition for the advanced threats of the future. The Company is also
the sole source producer of the M758/M759 fuze for medium caliber ammunition.
In the tank ammunition area the Company produces and develops tactical and
training tank rounds which are used for the M1A1/M1A2 Abrams tanks of the U.S.
Army, Army Reserve, National Guard, Marine Corps, and U.S. allies. Such rounds
include the M830A1 multi-purpose round and the M831A1 and M865 training rounds.
The Company is the sole producer of the M830A1 multi-purpose round, which is the
U.S. Army's most advanced tactical ammunition round in production. The Company
is one of two suppliers to the U.S. Government for the M831A1 and M865 training
rounds. Opportunities being pursued include advanced kinetic-energy rounds,
developed for future threats, and rounds that will meet specifications for
international sales.
In submunitions and advanced warhead systems, the Company currently has a
three-year engineering contract to develop a new multi-mode Anti-Materiel
warhead for the U.S. Air Force. The Company's Advanced Medium Range Air-to-Air
Missile ("AMRAAM") P3I warhead has passed a critical design review, and is being
qualified by Raytheon, which could lead to the Company being a supplier of
warheads for the AMRAAM missiles.
Ammunition Systems operations are conducted at Hopkins, Elk River and New
Brighton, Minnesota, Totowa, New Jersey, and Wilmington, Illinois.
Ordnance - The Ordnance business unit has the capability to manufacture
annually over 100 million pounds of solid extruded propellant for ammunition and
rockets for the U.S. and foreign military services. The unit, through New River
Energetics, Inc., a wholly owned subsidiary, also manufactures and commercially
markets gun powders for both reloaders and manufacturers of sporting ammunition.
Primary production programs include propellants for multiple training and
war reserve 120mm tank rounds, for artillery propelling charges, and for 30mm
ammunition and 25mm ammunition. The Company is also the sole source supplier of
Mk90 propellant grains for use in the HYDRA 70 rocket and launch motors for the
TOW II missile.
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In addition to the military programs, the Company produces a wide range of
commercial gun powders and has activated stand-by military capacity for
commercial chemical commodity sales.
Development opportunities being pursued include automotive air bag
propellants, improved smokeless gun powders, and modular charges for advanced
artillery systems.
Ordnance operations are conducted at two locations: Radford Army
Ammunition Plant in Radford, Virginia and the Sunflower Army Ammunition Plant in
DeSoto, Kansas. Military and commercial gun powder was produced at a facility
in Kenvil, New Jersey until late 1996, when those operations were consolidated
at the Radford facility, which is also the U.S. Army's Group Technology Center
for propellant development and production.
Tactical Propulsion - The Tactical Propulsion business unit supplies and
develops solid propulsion systems for various U.S. Department of Defense ("DoD")
tactical weapons. Principal products include solid rocket motors, gas
generators and tactical missile warheads for the U.S. Army, Navy and Air Force.
Other Products include high-strength, low-weight pressure vessels and structures
made of metals and composites.
Current production programs include propulsion systems for AMRAAM, AGM-130,
Sparrow, Sensor Fuzed Weapon ("SFW"), Hellfire II/Longbow, Maverick and TOW II.
AMRAAM and SFW are the unit's largest production programs and have firm funding
support through the end of the decade. AGM-130 is an air-to-ground stand-off
attack missile used by the U.S. Air Force. Boeing North American is the sole
prime contractor for AGM-130 and the Company is the sole source propulsion
supplier. The SFW system is presently in Full Rate Production and has become
one of the unit's largest programs. The Company is the sole source supplier on
the SFW submunition propulsion deployment system. The unit has been the U.S.
Army's primary supplier of flight motors for TOW II since the program's
inception in 1981. Production programs in related areas include warheads for
the Maverick and AMRAAM missile systems, metal cases for the U.S. Army's
Tactical Missile System ("ATACMS") surface-to-surface missile, gas generators
for the Trident II (D5) and Tomahawk Cruise missiles, composite launch tubes for
the Army's Javelin anti-tank missile, and composite overwrapped pressure vessels
for use on satellites.
Major development programs include the propulsion systems for the Evolved
Sea Sparrow Missile ("ESSM"), the AIM-9X Evolved Sidewinder, the AMRAAM
Propulsion Enhancement Program ("PEP"), the Predator anti-tank system
("Predator"), and the advanced smart 120mm kinetic energy tank round ("TERM-
KE"). The Company recently completed successful development tests on the ESSM
and AMRAAM PEP programs. The Company is co-developing the propulsion system for
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the ESSM Program which is a NATO program involving 13 nations. Hughes Missile
Systems Company is the prime contractor. The Company is the sole developer of a
higher performance AMRAAM rocket motor, under contract from the U.S. Navy, with
production planned to commence in U.S. Government fiscal year 1998. The prime
contractor on Predator is Lockheed Martin, and the prime contractor on TERM-KE
is Alliant Defense Electronics Systems, Inc., a subsidiary of the Company. The
Company is the sole propulsion source on both Predator and TERM-KE. The Company
recently won a contract with Hughes on a propulsion and thrust vector control
system for the U.S. Navy/Air Force advanced short range air-to-air missile.
Other new business opportunities being pursued include: Standard Missile Second
Stage and Follow-on-to-TOW.
The Tactical Propulsion business unit is located in Rocket Center, West
Virginia.
Kilgore Operations - The Kilgore Operations business unit produces and
develops infrared countermeasure flares, 20mm ammunition, and a wide spectrum of
pyrotechnic devices for the U.S. and foreign governments. It also makes
pyrotechnics for various commercial activities.
Kilgore is the world's leading supplier of infrared countermeasure
products. Production programs include the MJU-7A/B, M206, MJU-10/B, MJU-32/B
and MJU-38/B U.S. countermeasures. In addition, Kilgore-designed flare
products, such as the 55mm KC-004/A flares, are routinely provided for export.
Kilgore is currently manufacturing an Israeli flare design under a Foreign
Military Funding contract. Kilgore has manufactured over six (6) million
infrared flares over the last decade. Kilgore was the original designer for the
MJU-10/B and first sequenced version of the MJU-7 and 1x1 inch flares. Kilgore
has patented a variety of advanced countermeasure designs. On-going
development efforts include sole source supplier to Lockheed Martin for the
infrared flares for the F-22 aircraft and performing development efforts for
advanced flares for the U.S. Navy. Kilgore is also the only current producer of
the MK 186 TORCH shipboard countermeasure.
Kilgore has been one of the two suppliers for the U.S. Navy Phalanx MK149
20mm ammunition as well as an international supplier of 20mm ammunition.
Current production programs include the M55 TP ammunition. New business
opportunities include the M56 high explosive series.
Over 100 different pyrotechnic products have been produced by Kilgore. The
pyrotechnic product lines include impulse cartridges, marine location markers,
explosive squibs, colored smoke and signaling devices, screening devices, and
commercial day/night signals. Current programs include efforts for NATO and
non-NATO countries for improved signaling and screening devices as well as
standard pyrotechnic products.
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Kilgore also supports a variety of intra-company production programs such
as primers and tracers for tank ammunition, flashtubes for the GAU-8/A, and
critical components for the TERM-KE program.
Kilgore operations are conducted in Toone, Tennessee.
Defense Systems
Defense Systems develops and supplies smart munitions, electronic systems,
and unmanned vehicles through three business areas: Tactical Systems, Defense
Electronics Systems, and Unmanned Vehicle Systems.
Tactical Systems - The Tactical Systems business area develops and produces
electronics and fuzes, demolition munitions, weapons systems, and guided
weapons.
In the electronics and fuzing area, the Company develops and manufactures
stand-alone fuzes for mortar, artillery, and rocket munitions; electronic
systems; and battlefield management systems. Sole source fuze production
programs are the M734/M745 fuzes for mortar rounds; and the M732A2 proximity
fuze for artillery. The Company is also developing the XM773 Multi-Option Fuze
Artillery, which provides point detonation, delay, variable time, and proximity
functions. In electronics, the Company has developed and is producing an
automatic fire control system and integrated on-board electronics for the
Paladin self-propelled Howitzer, which provides the Paladin with a "shoot and
scoot" capability for increased survivability and effectiveness. The Company is
also developing advanced Global Positioning Systems applications for secure
guidance and communications. In the battlefield monitoring systems, the Company
has developed a Remote Sentry system that utilizes proprietary acoustic sensor
technology in combination with other sensors, signal processing and advanced
communication techniques to autonomously detect, identify and locate hostile
forces well behind enemy lines. The Remote Sentry system is in the process of
completing Advanced Technology Demonstration testing in the summer of 1997,
which will be followed by the Rapid Force Projection Initiative Advanced Concept
Technology Demonstration phase for the next two years. It will have application
for future reconnaissance, surveillance and target acquisition systems.
In the demolition munitions area, the Company develops and produces
munition systems, demolitions, and air delivered systems. In munitions systems
the Company is currently working on advanced systems for delivery from
artillery, trucks, tracked vehicles and helicopters. Primary production programs
are the Volcano system, a modular system delivered from ground and air
platforms, and Shielder, a Vehicle-Launched Smart Anti-tank Munition System, for
which the Company is systems prime to the U.K.'s Ministry of Defence. The
Company is pursuing several other international opportunities in this area. The
Company is also producing the Selectable Lightweight
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Attack Munition, a hand-emplaced anti-materiel munition with multiple activation
modes for the U.S. Special Forces and the U.S. Army. The Company has also
developed the Penetration Augmentation Munition ("PAM") for applications such as
concrete bridge abutments and the Badger Fighting Position Excavator ("Badger")
for U.S. and international applications. The Badger allows the soldier to
significantly reduce foxhole digging time while increasing his safety and
effectiveness. In the air-delivered munitions area, the Company is the sole
producer of the Gator air-delivered scatterable munition system and provides
tactical munitions dispensers ("TMDs") for the Combined Effects Munition, Gator
and the Sensor Fuzed Weapon programs.
In the weapon systems area, the Company is developing the Objective
Individual Combat Weapon ("OICW") and is jointly pursuing the Cased Telescoped
Weapon System ("CTWS") with some foreign partners. OICW is a lightweight,
shoulder-fired weapon to selectively replace the M16 rifle/M203 grenade
launcher. The OICW is the lethality element of the Force XXI Land Warrior. The
system consists of a combinatorial weapon, ballistic fire control system with
thermal sight, and both a 20mm high explosive ("HE") bursting munition with a
remote autonomous fuze and a 5.56mm kinetic energy round. The Company is
responsible for systems integration and development of the HE ammunition. The
Company was one of two recipients in February 1995 of a 12-month system design
and subsystem technology demonstration. In March, 1996 both firms were selected
to continue phase 3 work under a Proof of Principle contract, which includes
firing tests of a prototype OICW in the fall of 1997, leading to a downselect in
early 1998. CTWS is a non-developmental item consisting of a medium caliber
gun, ammunition and an ammunition handling system. It is a candidate weapon
system for the Future Scout and Cavalry System, the Advanced Amphibious Assault
Vehicle and the U.K.'s Tracer vehicle programs. It is based on a French/British
developed product. The Company executed an exclusive business relationship with
the developer, Case Telescoped Ammunition International, in April, 1997 to sell
a single UK/US/French product.
In the guided weapons area, the primary programs are the Sense and Destroy
Armor ("SADARM") munition and the Smart Target Activated Fire and Forget 120mm
tank round ("STAFF"). SADARM is being developed by the Company together with
the prime contractor, Aerojet (a business segment of GenCorp., Inc.). SADARM has
entered low rate initial production, and is presently the only tube artillery
smart munition in production. The SADARM munition is used on 155mm Howitzers and
combines millimeter wave and infrared sensor and signal processing technologies.
In addition, SADARM is currently being evaluated for potential application to
air and rocket delivery systems. The Company is also participating in a
Northrop-Grumman competitive program to develop an improved seeker for the
Brilliant Anti Tank ("BAT") munition Preplanned Product Improvement ("BAT
P/3/I") Program. The objective of the program is to demonstrate systems
performance against cold/stationary tank and armored combat vehicle units and
sparsely located Surface to Surface Transporter Erector Launcher vehicles. BAT
is a hit-to-kill guided submunition intended for delivery on the battlefield
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by the ATACMS missile. Downselect for the Engineering/Manufacturing Development
("EMD") phase is scheduled during the fiscal year ending March 31, 1999 ("fiscal
year 1999"). The Company is also in engineering development with STAFF, a smart
top-attack projectile. The Company is currently pursuing the XM982 155mm smart
extended range artillery projectile and is teamed with Talley Defense Systems
and Motorola in the competition for the EMD phase which will be awarded in the
fiscal year ending March 31, 1998 ("fiscal year 1998").
Tactical Systems operations are conducted at Hopkins and New Brighton,
Minnesota and Janesville, Wisconsin,
Defense Electronics Systems - The Defense Electronics business unit is
conducted through Alliant Defense Electronics Systems, Inc., a wholly owned
subsidiary of the Company. Principal products include millimeter wave and laser
radar "LADAR") seeker technology and products, smart weapon systems, missile
warning systems, electronic warfare systems, test equipment, chaff and chaff
dispensing systems, and advanced imaging and document management software.
Principal customers are U.S. and foreign governments. Software capabilities are
marketed to both commercial and government customers.
Major programs include the XM-1007 smart tank cartridge, the AAR-47 Missile
Warning System, the Common Munitions BIT/Reprogramming Equipment ("CMBRE"), and
Demonstration of Advanced Solid State Laser Radar ("DASSL").
The XM-1007 is currently in development for application to a recently
redirected tank extended range munition ("TERM") requirement that includes
beyond line of sight missions using scout vehicles for target location and
potential target designation. The Company is the sole development prime
contractor for the XM-1007. Production is anticipated to begin early in the
next decade.
The AAR-47 Missile Warning System is a passive electro-optic threat warning
device used to protect low, slow flying helicopters and fixed wing aircraft
against missile attack from ground to air missiles. The Company recently
completed a production contract for the system and is currently engaged in a
central processor unit ("CPU") upgrade (both hardware and software) for improved
probabilities of detection, longer warning times, and lower false alarm rates.
Production deliveries of the upgraded CPU will begin in fiscal year 1999. The
Company will enter a competitive bid for an upgraded sensor program during
fiscal year 1998.
The CMBRE is a portable field tester with a common interface to support the
U.S. inventory of smart weapons. The Company recently completed First Article
Testing ahead of contract schedule and anticipates shipping pre-production
units in fiscal year 1998 and production units in fiscal year 1999.
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LADAR is the preferred seeker technology for future precision guided
weapons surpassing Imaging InfraRed ("IIR") and Synthetic Aperture Radar
("SAR"). It combines the active ranging capability of SAR with the optical
resolution of IIR at a cost less than either. The Company, teamed with prime
contractor Texas Instruments, was recently selected by a joint service
evaluation team for Phases 2-4 of the DASSL program after a six month Phase I
system design and technology competition.
The Company is one of the foremost developers and producers of chaff and
chaff dispensing systems. The Company intends to pursue technology initiatives
to provide the U.S. and its allies with vanishing and environmentally
degradeable chaff which permits more realistic training world wide.
The Company through its Advanced Imaging Strategies provides a family of
software products known as DocMaestro /TM/. These are state-of-the-art imaging
and document management tools that provide easy access and navigation to
electronic documents with automatic hyperlinks, and electronic documents on
demand through the internet/intranet.
Defense Electronic Systems operations are conducted in Clearwater, Florida.
Unmanned Vehicle Systems - Unmanned Vehicle Systems develops and produces
unmanned vehicles and tactical control systems.
In May 1996 the Company was awarded a contract for a 24-month Advanced
Concept Technology Demonstration of the Outrider(TM) Tactical Unmanned Aerial
Vehicle. The program, which includes options for low rate initial production,
involves the development, production, and deployment of an unmanned aerial
vehicle ("UAV") system that will provide near-real time reconnaissance,
surveillance and target acquisition information to U.S. Marine air/ground task
forces, Army brigades, and deployed Navy units. The Outrider(TM) UAV will have
an operational range of 200 kilometers and a target on-station time of three
hours.
The Tactical Control System ("TCS") is an interoperable command, control
and data receipt platform for all tactical UAV's. The TCS will provide a
complete UAV control and data dissemination capability. The Company is under
contract for building and demonstrating TCS control of the Outrider(TM) UAV.
Unmanned Vehicle Systems operations are conducted in Hopkins, Minnesota and
Hondo, Texas.
Space and Strategic Systems
Space and Strategic Systems designs and produces solid rocket propulsion
systems for space launch vehicles, strategic missile systems, and provides
reinforced composite structures and components for aircraft and spacecraft.
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The space propulsion business represents the largest portion of the group's
sales base and includes a broad product portfolio encompassing all vehicle
payload classes (small to heavy lift). The Company is presently producing solid
propulsion systems for Titan IVB, Delta II, Delta III, Pegasus(R), and Taurus
launch vehicles. The Company produces the Titan SRMU space boosters, which
serve as the strap-on propulsion system (two per vehicle) for the U.S. Air Force
upgraded Titan IVB heavy-lift launch vehicle. The Company also has a follow-on
contract for Titan launch operations support which extends into 2003. Delta II
is a medium-lift expendable launch vehicle developed for both government and
commercial applications. Each Delta II vehicle employs nine solid strap-on
boosters, all of which are produced by the Company for McDonnell Douglas
Corporation. In fiscal year 1997, McDonnell Douglas awarded the Company
additional production quantities for Delta II. The Company is presently
developing and will produce, under contract to McDonnell Douglas, a new strap-on
booster for the new, larger medium-lift Delta III expendable launch vehicle. The
Pegasus(R) air launched vehicle is used to deploy small U.S. Government, foreign
government and commercial payloads. Each Pegasus(R) vehicle contains three
solid propulsion stages, all of which are produced by the Company. The
Pegasus(R) motors are also used as upper stages on the Taurus ground launched
vehicle which was first launched in 1994, and is also used to deploy small U.S.
Government and commercial payloads. The Company has a long-term, exclusive
supply agreement with Orbital Sciences Corporation for Pegasus(R) and Taurus
motors.
The strategic propulsion business, which now consists of one large
production program and various operational service contracts, has been involved
with substantially all of the land and sea based strategic propulsion systems
since their inception. Currently, the principal strategic propulsion production
program is Trident II (D5), a submarine-launched intercontinental ballistic
missile composed of three solid propulsion stages. The Company, through a joint
venture with Thiokol Corporation, developed and produced the first and second
propulsion stages of the Trident II (D5) missile under a contract with Lockheed
Martin Corporation and has recently completed qualification process to also
produce the third stage of the missile. In addition to the Trident II
production contract, the Company has contracts with Lockheed Martin to support
both the U.S. Navy's existing fleet of Trident I (C4) missiles and the
operational D5 units. The Company developed and produced the Peacekeeper third
stage motor for the U.S. Air Force, and continues to provide aging and
surveillance services support to the missile system. The Company also continues
to provide surveillance services to the U. S. Air Force for Minuteman third
stage motors it previously produced.
The composite structures operation designs and fabricates a broad range of
structures from carbon/carbon, graphite, aramid, and glass fiber reinforced
composite materials. Applications include instrument benches and dimensionally
stable assemblies for satellites, space based antennae, aircraft and engine
components, space launch vehicle tanks and structures, and other specialty
structures. Target markets include both government and commercial users. Key
programs are
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concentrated primarily in the commercial and government satellite, launch
vehicle and aircraft segments. The Company is under contract to Lockheed Martin
to develop composite cryogenic liquid hydrogen fuel tanks for the NASA X-33
Phase II reusable launch vehicle. It is also working jointly with Lockheed
Martin to build the fiber-placed liquid hydrogen tank for the full-scale
operational VentureStar(TM) when production begins in 2000. The Company recently
received a contract from Lockheed Martin to produce the inlet duct for its
version of the Joint Strike Fighter aircraft to be built for the U.S. Navy, Air
Force and Marines. The Company is presently under contract to develop the inlet
bypass offtake screens and pivot shafts on the U.S. Air Forces' F-22 fighter
aircraft. The Company is also under contract to produce a counterbalance
mechanism for the C-17 transport aircraft and the production of composite door
springs for the Boeing Company's 767 aircraft. Development of a counterbalance
mechanism for the Boeing Company's 767 aircraft is underway. Other programs and
opportunities include additional aircraft and engine structures, other
components and assemblies for spacecraft, military land vehicles, and various
structures for reusable and expendable launch vehicles.
Space and Strategic Systems operations are conducted in Magna and
Clearfield, Utah.
Emerging Business
Emerging Business activities include environmental remediation/facility
management, safety management services, ordnance reclamation, battery production
and advanced technology applications. It operates primarily through three
business units: Global Environmental Solutions, Power Sources Center and
Advanced Technology Applications.
Global Environmental Solutions - The Company's environmental remediation/
facility management ("ER"), safety management services ("SMS"), and ordnance
reclamation ("OR") businesses are conducted through Global Environmental
Solutions ("GES"). GES is a relatively new business venture that has generated
modest sales through fiscal year 1997.
The ER business provides services to handle waste and contaminants
associated with the disposal of propellant, explosives and pyrotechnic
materials. GES has a contract at Twin City Army Ammunition Plant to perform
environmental monitoring and remediation.
The SMS business assists customers in analyzing and safeguarding against
potential manufacturing hazards and in meeting both internal and external safety
requirements. Primary emphasis is placed on meeting OSHA and EPA regulatory
compliance.
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The OR business disassembles and disposes of surplus munitions items, and
dismantles and recycles military rocket motors and munitions. The brass, steel,
aluminum and energetic material by-products of the dismantled surplus munitions
are reclaimed for sale into commercial markets. Through fiscal year 1996, this
activity consisted primarily of Company-financed projects in the former Soviet
Union which were conducted jointly with agencies or representatives of the
governments of Belarus and Ukraine through two joint stock companies, Belconvers
and Alliant Kiev, respectively. In March 1996, Company management, after
evaluating its strategic plans for the future, elected to discontinue its role
as an owner of foreign demilitarization businesses located in the former Soviet
republics of Ukraine and Belarus. During fiscal year 1997, the Company
completed its withdrawal from the Company's joint venture in Belarus. During
fiscal year 1997, the Company also entered into an agreement with the government
of Ukraine under which the Company intends to transfer its ownership interest in
its Ukraine joint venture to the government of Ukraine or its representative
after the joint venture has repaid its debt to the Company, which is expected to
take at least five years.
In the United States, GES has contracts with the Naval Undersea Warfare
Center in Newport, Rhode Island, to dispose of lithium-filled boilers that power
the MK50 torpedo, and with the U.S. Army at Rock Island, Illinois, for
reclamation of eight inch gun projectiles, six inch gun projectiles and M117
bombs. The torpedo boiler and six inch and eight inch gun projectile operations
are conducted on a Company facility, but any resulting hazardous components are
shipped to a hazardous waste disposer for treatment and disposal. GES recently
transferred its rocket motor demilitarization system from the Company's Magna,
Utah facility to the Redstone Arsenal in Huntsville, Alabama, where the U.S.
Government intends to operate the system to demilitarize large rocket motors.
The M117 bomb disposal is being conducted at a government-owned, government-
operated facility in Crane, Indiana.
The environmental contracting and ordnance reclamation businesses are
highly regulated and environmental contractors can face exposure to liability
for releases of hazardous materials under environmental laws. The operations of
GES are in substantial compliance with regulatory requirements.
GES operations are conducted principally at Elk River and Hopkins,
Minnesota, and Magna, Utah.
Power Sources Center - Power Sources Center develops and manufactures
specialty batteries for use in the Company's own products, and to U.S. and
foreign military and aerospace customers. Its principal products are lithium
reserve batteries which have very long shelf lives, and the newly emerging
lithium-ion polymer batteries, which offer very high energy density combined
with packaging flexibility. The Company is developing a new miniature battery
production line capable of producing six million batteries per year for
artillery fuzes, and a flexible manufacturing line for "wearable" lithium-ion
polymer batteries for the U.S. Army. The Company was recently selected by
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<PAGE>
the U.S. Navy to supply large rechargeable batteries for underwater vehicles.
The Company also produces specialty batteries, such as space-qualified battery
modules for space probes such as Galileo and Huygens. Power Sources Center
operations are conducted at Horsham, Pennsylvania.
Advanced Technology Applications - The Advanced Technology Applications
("ATA") business includes Rugged Mobile Computing Solutions, Sensor Systems
Solutions and Information Systems Solutions.
Rugged Mobile Computing Solutions provides the RoughWriter(TM), a rugged
version of the IBM Thinkpad(R), into the public safety, industrial and
transportation markets. It also supplies several rugged devices built to DoD
specifications. Sensor Systems Solutions is a technology leader in real time,
high fidelity, physics-based simulation. Its principal project is in
simulating/stimulating the Navy's Aegis radar. It has also developed, in support
of the National Institutes of Justice, the System for Effective Control of Urban
Environmental Security (SECURES(TM)), a system for the real time detection and
location of gunshots in an urban environment. The SECURES(TM) system was
demonstrated in Dallas, Texas in late 1996, and is now being marketed
commercially. Information Systems Solutions provides a variety of products and
services into the intelligence and DoD markets. The principal product lines
include ADARIO and BANDIT, which are high performance intelligent data
formatting and multiplexing front ends for recording systems; and
Electromagnetic Emissions testing and related design and engineering services,
which involve testing, design and product modification, to meet a breadth of
commercial, DoD and security requirements.
In addition, ATA provides communication engineering services and wireless
video surveillance equipment to federal, state and local law enforcement
organizations and DoD Special Operations Forces. ATA operations are conducted
at Annapolis, Maryland, Arlington, Virginia, Wanamassa, New Jersey and San
Antonio, Texas.
ICBM Prime Integration Program
The ICBM Prime Integration Program office was established to compete for
the contract to become the Prime Integrator of the InterContinental Ballistic
Missile (ICBM) program for the U.S. Air Force. The Air Force is currently
transitioning from an associated contractors concept to a prime integrating
contractor concept. A stated objective of the Air Force in implementing this
program change is to integrate the ICBM weapon system in accordance with
applicable contract compliance documents for the remainder of their life cycles
while ensuring this change in management structure remains transparent to
operators and sustainers (i.e., no increase in current repair times and, as a
minimum, no degradation to weapon system accuracy, reliability, availability and
survivability performance characteristics as defined in applicable contract
compliance documents).
The Prime Integrator who is awarded this contract will be responsible for:
13
<PAGE>
. Distributing the System Engineering/Technical Assistance ("SE/TA") work scope
between the Prime Integrator as the prime and its team members where the tasks
can be most efficiently accomplished.
. Taking over responsibility for a significant number of subcontracts. This will
entail assignment of some of the contracts from the Air Force to the Prime
Integrator and negotiation/new subcontract issue for several others.
. Providing the necessary personnel/organization, facilities, business systems,
management information systems, training/certification to facilitate the Prime
Integrator functioning in the prime contractor role.
. Determining the best approach for two large scale hardware replacement
programs (Guidance Replacement Program, Propulsion Replacement Program).
. Assisting the Air Force in its transition from an oversight to an insight role
in management of the ICBM weapon system.
The Company's key team members and their areas of responsibility are Boeing
North American, Inc. (ground systems, guidance and control), Textron, Inc. (re-
entry systems), Logicon R & D Associates (software), and Thiokol Corporation in
a joint venture with the Company (propulsion). The Company's proposal to act as
Prime Integrator is due in August 1997, and the contract award is scheduled to
be made in January 1998.
The ICBM Prime Integration Program office is located in Magna, Utah.
Raw Materials
Key raw materials used in the Company's operations include aluminum, steel,
steel alloys, graphite fiber, hydroxy terminated polybutadiene, epoxy resins and
adhesives, nitrocellulose, diethylether, x-ray film, plasticizers and nitrate
esters, and ammonium perchlorate. The Company also purchases chemicals,
electronic, electro-mechanical and mechanical components, subassemblies, and
subsystems which are integrated with the Company's own manufactured parts for
final assembly into finished products and systems.
The Company closely monitors its sources of supply in order to assure an
adequate supply of raw materials and other supplies needed in its manufacturing
processes. U.S. Government contractors like the Company are frequently limited
to procuring materials and components from sources of supply approved by the
DoD. In addition, as defense budgets contract, suppliers of specialty chemicals
and materials consider dropping low volume items from their product lines, which
has required qualification of new suppliers for raw materials on several
programs.
14
<PAGE>
Major Customers
The Company's sales are predominantly derived from contracts with agencies
of, and prime contractors to, the U.S. Government. The various U.S. Government
customers exercise independent purchasing decisions, and sales to the U.S.
Government generally are not regarded as constituting sales to one customer, but
instead, each contracting entity is considered to be a separate customer.
U.S. Government sales, including sales to U.S. Government prime
contractors, for fiscal year 1997, fiscal year 1996 and fiscal year 1995, were
$927.1 million, $887.5 million, and $441.2 million, respectively. During fiscal
year 1997, approximately 85 percent of the Company's sales were derived from
contracts with the U.S. Government or U.S. Government prime contractors.
U.S. Government Contracts and Regulations
The Company's U.S. Government business is performed under cost-plus
contracts (cost-plus-fixed-fee, cost-plus-incentive-fee, or cost-plus-award fee)
and under fixed-price contracts (firm fixed-price, fixed-price incentive, or
fixed-price-level-of-effort).
Cost-plus-fixed-fee contracts provide for reimbursement of costs, to the
extent that such costs are allowable, and the payment of a fixed fee. Cost-
plus-incentive-fee contracts and cost-plus-award-fee contracts provide for
increases or decreases in the contract fee, within specified limits, based upon
actual results as compared to contractual targets for such factors as cost,
quality, schedule and performance. Cost-plus contracts accounted for
approximately 36 percent of the Company's U.S. Government business in fiscal
year 1997. Cost-plus-fixed-fee contracts accounted for approximately 22 percent
of the business; and cost-plus-incentive-fee and cost-plus-award-fee contracts
accounted for approximately 14 percent of the business.
Under firm fixed-price contracts, the Company agrees to perform certain
work for a fixed price and, accordingly, realizes all the benefit or detriment
resulting from decreases or increases in the costs of performing the contract.
Fixed-price incentive contracts are fixed-price contracts providing for
adjustment of profit and establishment of final contract prices by a formula
based on the relationship which final total costs bear to total target cost.
The final contract price under a fixed-price incentive contract is a function of
cost, which may be affected by schedule and performance. Fixed-price-level-of-
effort contracts are generally structured with a fixed price per labor hour
subject to the customers' labor hour needs up to a contract cap. Fixed-price
contracts accounted for approximately 64 percent of the Company's U.S.
Government business in fiscal year 1997. Firm fixed price contracts accounted
for approximately 55 percent of the business; and fixed price incentive and
fixed-price-level-of-effort contracts accounted for approximately 9 percent of
the business.
15
<PAGE>
Under U.S. Government regulations, certain costs, including certain
financing, research and development, and marketing costs and expenses related to
the preparation of competitive bids and proposals and international sales, are
not reimbursable. The U.S. Government also regulates the methods under which
costs are allocated to U.S. Government contracts.
U.S. Government contracts are, by their terms, subject to termination by
the U.S. Government either for its convenience or default by the contractor.
Cost-plus contracts provide that, upon termination, the contractor is entitled
to reimbursement of its allowable costs; and if the termination is for
convenience, a total fee proportionate to the percentage of the work completed
under the contract. Fixed-price contracts provide for payment upon termination
for items delivered to and accepted by the U.S. Government; and, if the
termination is for convenience, for payment of fair compensation for work
performed plus the costs of settling and paying claims by terminated
subcontractors, other settlement expenses, and a reasonable profit on the costs
incurred or committed. If a contract termination is for default, however, (i)
the contractor is paid an amount agreed upon for completed and partially
completed products and services accepted by the U.S. Government, (ii) the U.S.
Government is not liable for the contractor's costs with respect to unaccepted
items, and is entitled to repayment of advance payments and progress payments,
if any, related to the terminated portions of the contracts, and (iii) the
contractor may be liable for excess costs incurred by the U.S. Government in
procuring undelivered items from another source.
In addition to the right of the U.S. Government to terminate, U.S.
Government contracts are conditioned upon the continuing availability of
Congressional appropriations. Congress usually appropriates funds for a given
program on a fiscal-year basis even though contract performance may take many
years. Consequently, at the outset of a major program, the contract is usually
partially funded, and additional monies are normally committed to the contract
by the procuring agency only as appropriations are made by Congress for future
fiscal years.
Licenses are required from U.S. Government agencies for export from the
United States of many of the Company's products. Certain of the Company's
products currently are not permitted to be exported.
In common with other companies which derive a substantial portion of their
sales from contracts with the U.S. Government for defense-related products, the
Company is subject to business risks, including changes in governmental
appropriations, national defense policies or regulations, and availability of
funds. Any of these factors could adversely affect the Company's business with
the U.S. Government in the future.
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<PAGE>
Competitive Bidding for Major Programs
The Company obtains defense contracts through the process of competitive
bidding. Contracts from which the Company has derived and expects to derive a
significant portion of its sales (including contracts relating to certain
program opportunities discussed or referenced herein) were or will be obtained
through competitive bidding in which, in many instances, numerous bidders
participated or will participate. There can be no assurance that the Company
will continue to be successful in having its bids accepted or, if accepted, that
awarded contracts will generate sufficient sales to result in profitability for
the Company. Additionally, inherent in the competitive bidding process is the
risk that if a bid is submitted and a contract is subsequently awarded, actual
performance costs may exceed the projected costs upon which the submitted bid or
contract price was based. To the extent that actual costs exceed the projected
costs on which bids or contract prices were based, the Company's profitability
could be materially adversely affected.
Competition
The Company's ability to compete for defense contracts depends to a large
extent on the effectiveness and innovativeness of its research and development
programs, its ability to offer better program performance than its competitors
at a lower cost to the U.S. Government customer, and its readiness in
facilities, equipment and personnel to undertake the programs for which it
competes. In some instances, programs are sole sourced or work directed by the
U.S. Government to a single supplier. In such cases, there may be other
suppliers who have the capability to compete for the programs involved, but they
can only enter or reenter the market if the U.S. Government should choose to
reopen the particular program to competition. The Company's principal sole
source contracts are for the following programs: Trident (D5) missile (through
the joint venture with Thiokol), Titan IV SRMU space boosters, AGM-130 and SFW
propulsion systems, M830A1 multi-purpose tank ammunition round, Volcano mine and
M758 fuze for medium caliber ammunition, the M732A2 proximity fuze, and the
M734/M735 mortar fuzes.
The Company generally faces competition from a number of competitors in
each business area. However, Primex Technologies, Inc. ("Primex") is the sole
competitor in the Conventional Munitions Ammunition Systems business area for
medium caliber ammunition and tank ammunition, and the sole domestic competitor
for commercial gun powders produced by the Conventional Munitions Ordnance
business unit. The Company shares the production of tank ammunition training
rounds with Primex, and Primex is currently the sole source for the M829A2
Kinetic Energy round, while the Company is the sole source for the M830A1 multi-
purpose round. The Company also shares the 25mm and 30mm medium-caliber
ammunition market with Primex, its sole domestic competitor.
17
<PAGE>
The downsizing of the munitions industrial base has resulted in a reduction
in the number of competitors, through consolidations and departures from the
industry. This has reduced the number of competitors for some programs, but has
strengthened the capabilities of some of the remaining competitors. In
addition, it is possible that there will be increasing competition from the
remaining competitors in business areas where they do not currently compete,
particularly in those business areas dealing with electronics.
Novation of U.S. Government Contracts
As required by federal procurement regulations providing for the U.S.
Government to recognize the Company as the successor in interest to Honeywell on
contracts between Honeywell and the U.S. Government, Honeywell has entered into
novation agreements with the Company and the U.S. Government which provide,
among other things, for Honeywell to directly or indirectly guarantee or
otherwise become liable for the performance of the Company's obligations under
such contracts (the "Guaranteed Contracts") which were transferred to the
Company in connection with the Spin-off. Such novation agreements provide that
the Company assumes all obligations under the Guaranteed Contracts and that the
U.S. Government recognizes the transfer of such Guaranteed Contracts and related
assets. While these Guaranteed Contracts are scheduled to be performed over a
period of time, it is not expected that they will be fully and finally
discharged for a number of years. The Company has agreed to perform all of its
obligations under each Guaranteed Contract and to indemnify Honeywell against
any liability Honeywell may incur under the novation agreements by reason of any
failure by the Company to perform such obligations.
The Company has entered into similar novation agreements in connection with
the divestiture of Metrum Information Storage ("MIS") and the former Marine
Systems Group. In these cases, however, the Company, as the seller, has
guaranteed performance of the buyer's obligations under the contracts
transferred to the buyer, and the buyers of MIS and Marine Systems,
respectively, rather than the Company, have the performance and indemnification
obligations described in the last sentence of the preceding paragraph.
The Company and Hercules have agreed to use all reasonable efforts to enter
into novation agreements with the U.S. Government, as required by federal
procurement regulations applicable to contracts between or relating to HAC and
the U.S. Government (the "Acquired Government Contracts") which were acquired by
the Company in the HAC Acquisition. Such novation agreements are expected to
provide, among other things, that the Company assumes all obligations under the
Acquired Government Contracts and that the U.S. Government recognizes the
transfer to the Company of the Acquired Government Contracts and related assets.
The Acquired Government Contracts are scheduled to be performed over time; it is
not expected that they will be fully and finally discharged for several years.
Hercules has agreed to
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<PAGE>
indemnify the Company against any liability which the Company may incur under
such novation agreements by reason of any prior failure by Hercules to perform
its obligations under the novated contracts. The Company has agreed to indemnify
Hercules against any liability which Hercules may incur under such novation
agreements by reason of any failure by the Company to perform its obligations
under the novated contracts.
Research and Development
The expense incurred on Company-sponsored research and development
activities related to new products or services and the improvement of existing
products or services was $16.2, $14.1, and $11.8 million for fiscal year 1997,
fiscal year 1996 and fiscal year 1995, respectively. The expense incurred
during the same periods for research and development activities that were
customer-sponsored (primarily funded by the U.S. government) was $231.3, $281.8,
and $117.7 million, respectively.
Backlog
The aggregate amount of contracted backlog orders on April 1, 1997, and
April 1, 1996, was $1,438.9, and $1,682.7 million, respectively. It is expected
that approximately 84 percent of sales during the fiscal year ending March 31,
1998, will fill orders that were in backlog at April 1, 1997. The backlog
represents the value of contracts for which goods and services are yet to be
provided. The backlog consists of firm contracts and although they can be and
sometimes are modified or terminated, the amount of modifications and
terminations historically has been limited compared to total contract volume.
Seasonality
The Company's business is not seasonal in nature. However, since the
Company's sales on certain production contracts are not recorded until product
is delivered to the customer, extra effort is expended to complete and deliver
product prior to fiscal year end, which has typically resulted in higher sales
in the fourth fiscal quarter.
Export Sales
Export sales from the United States to unaffiliated customers for the
Company were $75.0, $71.9 million, and $52.0 million for fiscal year 1997,
fiscal year 1996, and fiscal year 1995, respectively.
Employees
As of March 31, 1997, the Company employed approximately 6,800 active
employees (including approximately 1,350 employees of government-owned company-
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<PAGE>
operated facilities), of which approximately 1,975 were covered by collective
bargaining agreements. Set forth below is a table indicating the number of such
agreements, the number of employees covered and the expiration dates of the
agreements:
<TABLE>
<CAPTION>
Number of Expiration Number of Employees
Location Contracts Date Represented
- -------- --------- ---------- -----------
<S> <C> <C> <C>
Rocket Center, WV........... 2 8/14/97 210
9/14/97 10
Magna, UT................... 1 2/15/99 220
Janesville, WI.............. 1 3/21/01 166
Minneapolis, MN area........ 1 9/30/99 328
Radford, VA................. 2 10/06/98 1,012
DeSoto, KS.................. 1 11/18/98 29
</TABLE>
Although relations between the Company and its unionized and non-unionized
employees and their various representatives are generally considered
satisfactory, there can be no assurance that new labor contracts can be
concluded without work stoppages.
Patents
As of March 31, 1997, the Company owned approximately 260 U.S. patents,
approximately 280 foreign patents, and had approximately 50 U.S. patent
applications and 90 foreign patent applications pending. Although the conduct
of the Company's business involves the manufacture of various products that are
covered by patents, the Company's management does not believe that any one
single existing patent or license is material to the success of its business as
a whole. Management believes that research, development and engineering skills
make a more important contribution to the Company's business. The U.S.
Government typically receives royalty-free licenses to inventions made under
U.S. Government contracts, with the Company retaining all other rights,
including all commercial rights, with respect to such inventions. In addition,
the Company's proprietary information, including trade secrets, is protected
through the requirement that employees execute confidentiality agreements as a
condition of employment, and the Company's policy of protecting proprietary
information from unauthorized disclosure.
Environmental Matters
The Company's operations are subject to a number of federal, state and
local environmental laws and regulations. For example, under the federal Clean
Water Act ("CWA"), the Company's facilities may be required to obtain permits
and to construct pollution control equipment to reduce the levels of pollutants
being discharged into surface waters. Under the federal Clean Air Act ("CAA"),
the Company's facilities may be required to obtain permits and install pollution
control equipment to limit the
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<PAGE>
emission of various kinds of air pollutants. The Company may also be required to
comply with the provisions of the federal Resource Conservation and Recovery Act
("RCRA") which regulates the generation, storage, handling, transportation,
treatment and disposal of hazardous and solid wastes. In addition, the Company
could be subject to the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), which imposes liability for the
cleanup of releases of hazardous substances. Such liability may involve, for
example, releases at off-site locations as well as at presently and formerly
owned or leased facilities. Environmental laws and regulations change
frequently, and it is difficult to predict what impact these environmental laws
and regulations may have on the Company in the future. When the Company becomes
aware of environmental concerns for which it is potentially liable, the Company
works with the various governmental agencies in investigating the situation,
proposing remedial and/or corrective action and performing the agreed-upon
action without unreasonable delay.
With respect to the disposal of material at environmental treatment,
recycling, storage, disposal, or similar sites that occurred prior to the Spin-
off, the Company has agreed to assume the liability and indemnify Honeywell for
the Company's proportional share of the costs of remedial and/or corrective
action allocated to Honeywell as a "potentially responsible party." The
Company's proportional share is the percentage that the volume of such material
generated by the Businesses bears to the total volume of such material generated
by Honeywell at each such site. The Company does not believe that its ultimate
contribution or liability relating to these matters, individually or in the
aggregate, would be reasonably likely to have a material adverse effect on the
business of the Company taken as a whole.
As part of the HAC Acquisition, the Company has generally assumed
responsibility for environmental compliance at the facilities utilized by the
operations acquired in the HAC Acquisition (the "Aerospace Facilities"). There
may also be significant environmental remediation costs associated with the
Aerospace Facilities that will, with respect to some facilities, be funded in
the first instance by the Company, subject to reimbursement or indemnification
as described below. Management believes that much of the compliance and
remediation costs associated with the Aerospace Facilities will be reimbursable
under U.S. Government contracts, and that those environmental remediation costs
not covered through such contracts will be covered by Hercules under agreements
entered into in connection with the HAC Acquisition (the "Environmental
Agreements"). Under the Environmental Agreements, Hercules has agreed to
indemnify the Company for environmental conditions relating to releases or
hazardous waste activities occurring prior to the closing of the HAC
Acquisition, fines relating to pre-closing environmental compliance,
environmental claims arising out of breaches of Hercules' representations and
warranties and certain compliance requirements at the Kenvil, New Jersey
facility ("Kenvil Facility"). The indemnity obligation is subject to a total
deductible of $1.0 million for all claims (including non-environmental claims)
that the Company may assert under the HAC Acquisition purchase agreement (the
"Purchase Agreement"). In addition, Hercules is not required
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<PAGE>
to indemnify the Company for any individual claims below $50,000. Hercules is
obligated to indemnify the Company for the lowest cost response of remediation
required at the facility. The limitations of Hercules' indemnification
obligations do not apply to amounts incurred by Hercules in connection with the
performance of remedial actions relating to preacquisition conditions at the
Clearwater, Florida facility ("Clearwater Facility") or in connection with its
obligation to comply with certain environmental regulations at the Kenvil
Facility. The Clearwater Facility is being leased from Hercules on a year-to-
year basis. Pursuant to the Environmental Agreements, Hercules will be
responsible for conducting any remedial activities and seeking reimbursement
from the U.S. Government with respect to the Kenvil Facility and the Clearwater
Facility.
There can be no assurance that the U.S. Government or Hercules will
reimburse the Company for any particular environmental costs or reimburse the
Company in a timely manner. U.S. Government reimbursements for non-CERCLA
cleanups are financed out of a particular agency's operating budget. The
ability of a particular governmental agency to make timely reimbursements for
cleanup costs will be subject to national budgetary constraints. Where the
Company is required to first conduct the remediation and then seek reimbursement
from the U.S. Government or Hercules, the Company's working capital may be
materially affected until the Company receives such reimbursement.
Additional Information
Incorporated herein by reference are the following portions of the Annual
Report:
<TABLE>
<CAPTION>
Page Number(s)
Portion of Annual Report in Annual Report
<S> <C>
Business Groups; Business Overview;
Sales as a percent of total revenues; Inside Front
Competencies; Major Programs; End Users........ Cover Foldout
Conventional Munitions........................... 5-7
Space and Strategic Systems...................... 8-11
ICBM Prime Integration Program................... 11
Defense Systems.................................. 12-14
Emerging Business................................ 15-16
Selected Financial Data.......................... 18
Discontinued Operations.......................... 21
Environmental Matters............................ 23
Risk Factors..................................... 24
Note 6 of Notes to Financial Statements.......... 31
Note 15 of Notes to Financial Statements......... 36-37
Note 17 of Notes to Financial Statements......... 37
Note 18 of Notes to Financial Statements......... 37-38
Note 19 of Notes to Financial Statements......... 38
Note 21 of Notes to Financial Statements......... 39
</TABLE>
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<PAGE>
ITEM 2. PROPERTIES
At March 31, 1997, the Company occupied manufacturing/assembly, warehouse,
test, research and development and office properties having an aggregate floor
space of approximately 11.8 million square feet, which either is owned or leased
by the Company, or is occupied under facilities contracts with the U.S.
Government. The table below provides summary information regarding these
properties, and indicates whether they are used principally by Conventional
Munitions ("CM"), Defense Systems ("DS"), Space and Strategic Systems ("SSS"),
Emerging Business ("EB"), and/or ICBM Prime Integration Program ("ICBM"):
23
<PAGE>
<TABLE>
<CAPTION>
Government
Owned Leased Owned (2) Total
-----------------------------------------------
Principal Properties(1) (thousands of square feet)
-----------------------
<S> <C> <C> <C> <C>
Florida
Clearwater (DS)............................. -- 112 -- 112
Illinois
Wilmington (CM)............................. -- -- 440 440
Iowa
Burlington (CM)............................. -- 20 -- 20
Kansas
DeSoto (CM)................................. -- -- 730 730
Maryland
Annapolis (EB).............................. 60 -- -- 60
Minnesota
Elk River (CM/EB)........................... 143 -- -- 143
Hopkins (CM/DS/EB)(3)....................... 536 -- -- 536
New Brighton (CM/DS)........................ -- -- 1,522 1,522
New Jersey
Totowa (CM)................................. 93 20 -- 113
Pennsylvania
Horsham (EB)................................ -- 53 -- 53
Tennessee
Toone (CM).................................. 224 -- -- 224
Texas
Hondo (DS).................................. -- 25 -- 25
Utah
Clearfield (SSS)............................ -- 658 -- 658
Magna (EB/ICBM/SSS)......................... 1,869 -- 498 2,367
Tekoi (SSS)................................. -- 25 -- 25
Virginia
Arlington (EB).............................. -- 11 -- 11
Radford (CM)................................ -- -- 3,726 3,726
West Virginia
Rocket Center (CM).......................... 96 -- 826 922
Wisconsin
Janesville (DS)............................. 219 13 -- 232
----- ---- ----- ------
Subtotal........................ 3,240 937 7,742 11,919
Other Properties(4)
-------------------
EB................................................. -- 24 -- 24
CM/DS.............................................. -- 17 -- 17
----- ---- ----- ------
Subtotal........................ -- 77 -- 77
----- ---- ----- ------
TOTAL....................................... 3,240 978 7,742 11,996
===== ==== ===== ======
(27%) (8%) (65%) (100%)
</TABLE>
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<PAGE>
(1) Excludes properties in the following states aggregating 576,700 square feet
of space that is owned or leased, but is no longer occupied by the Company:
Colorado (265,000 owned square feet, 106,000 square feet of which is
leased); Minnesota (306,000 leased square feet, which is subleased); and
Virginia (5,700 leased square feet, which is subleased).
(2) These properties are occupied rent-free under five-year facilities
contracts that require the Company to pay for all utilities, services, and
maintenance costs.
(3) This facility also serves as the Company's corporate headquarters.
(4) Principally sales and other offices, each of which has less than 10,000
square feet of floor space.
In addition to the properties listed above, the Company owns proving
grounds totaling 3,045 acres, with several small storage and testing buildings,
in Elk River, Minnesota, and 1,200 acres of undeveloped land in Hot Springs,
South Dakota. The Company leases an aggregate of 1,400 acres of land in Socorro,
New Mexico for use as a test range and load-assemble-and-pack facility.
Since the Spin-off, the Company has implemented a significant program of
consolidating its operations and facilities, due in part to an underutilization
of facilities. The Company continues to explore opportunities for further
facility consolidations. The Company considers its properties to be in generally
good condition and adequate for the needs of its business.
Incorporated herein by reference are the following portions of the Annual
Report:
<TABLE>
<CAPTION>
Page Number(s)
Portion of Annual Report in Annual Report
<S> <C>
Property and Depreciation...................... 29
Note 4 of Notes to Financial Statements........ 30
Note 12 of Notes to Financial Statements....... 34
Note 13 of Notes to Financial Statements....... 34
Facilities and Offices......................... 43
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
At the time of its acquisition, HAC was involved in two lawsuits alleging
violations of the False Claims Act (known as "qui tam" actions) brought by
former employees who had been subject to a HAC reduction-in-force. The first qui
tam action captioned United States ex rel., Katherine A. Colunga, et al. v.
Hercules Incorporated was filed in the U.S. District Court for the District of
Utah, Central Division. The first complaint was filed under seal on October 24,
1989. The second amended complaint was filed on April 16, 1992. With respect
to the first qui tam action, the alleged false claims appear to be principally
based on an allegedly deficient quality control program. Hercules' management
has advised the Company that it does not believe that alleged
25
<PAGE>
recordkeeping violations provide a valid basis for statutory penalties when
viewing the integrity of the overall quality control process. The second qui tam
action captioned United States ex rel., Benny D. Hullinger, et al. v. Hercules
Incorporated was filed under seal in the U.S. District Court for the District of
Utah, Central Division. The original complaint was filed under seal on March 11,
1992, and removed from under seal on August 15, 1994. The first amended
complaint was filed on November 9, 1994. The complaint alleges various causes of
action, including labor and material mischarging and misuse of special tooling
and government property. Damages are not specified. The U.S. Government
investigated both qui tam cases and declined to take part in either lawsuit.
Pursuant to the terms of the Purchase Agreement, all liability associated
with and all responsibility for continuing defense of litigation incurred in the
ordinary course of business of HAC has been assumed by the Company, except for
the qui tam lawsuits described above. In addition, pursuant to the terms of the
Purchase Agreement, the Company has agreed to indemnify and reimburse Hercules
for a portion of the claims arising out of, relating to, or incurred in
connection with Hercules' qui tam lawsuits. Specifically, the Company has agreed
to indemnify and reimburse Hercules for a portion of the claims (collectively,
the "Litigation Claims") arising out of, relating to, or incurred in connection
with the above HAC qui tam actions (collectively, the "Hercules Actions"). The
Company's liability to Hercules for the Litigation Claims (other than with
respect to Litigation Claims consisting of external attorney's and investigative
fees and related costs and expenses (collectively, the "Legal Costs")) is
limited to approximately $4 million. The Company also has agreed to reimburse
Hercules for 40 percent of all Legal Costs incurred from and after the closing
of the HAC Acquisition with respect to the Hercules Actions. The Company and
Hercules have also entered into a Joint Defense Agreement with respect to the
Hercules Actions.
In addition to the qui tam actions, at the time of its acquisition, HAC was
subject to the administrative orders described below. Pursuant to a letter to
Hercules, dated March 9, 1995, the New Jersey Department of Environmental
Protection (the "NJDEP") informed Hercules that it is considering enforcement
actions in connection with the Kenvil Facility's alleged failure to comply with
prior Administrative Consent Orders ("ACOs") and other alleged violations
previously identified by the NJDEP. Under the Environmental Agreements, Hercules
is responsible for the ACO's, for addressing preacquisition environmental
conditions at the Kenvil Facility, and for related penalties, costs, and
business interruption losses incurred by the Company. Penalties associated with
these alleged violations are being negotiated with the NJDEP, and it is expected
that, under the Environmental Agreements, Hercules will be responsible for all
or substantially all of any monetary sanctions assessed against the Company. In
January 1993, the federal Environmental Protection Agency ("EPA") issued an
administrative Complaint, Compliance Order and Notice of Opportunity on Hearing
(the "Complaint") to the Radford, Virginia facility (the "Radford Facility")
alleging non-compliance with certain performance standards and closure
requirements established by the EPA for underground storage tanks ("USTs"). The
Complaint requires the Radford Facility to
26
<PAGE>
bring the USTs into compliance and imposes a penalty assessment of approximately
$235,000. The Company settled with the EPA for $70,000, which was paid in April
1997, and is subject to indemnification by Hercules under the Environmental
Agreements.
In connection with the GAU-8/A contract for target practice rounds, the
Company has been served with three grand jury subpoenas, dated February 4, 1991,
July 19, 1994 and October 27, 1994, for documents. All subpoenas were issued by
the U.S. District Court, Northern District of Illinois, Eastern Division. The
Company has supplied all documents requested to date.
In March 1997 the Company received a partially unsealed complaint, filed on
an unknown date, in a qui tam action by a former employee alleging violations of
the False Claims Act. The action alleges labor mischarging to the Intermediate
Nuclear Force contract at the Company's Bacchus Works facility in Magna, Utah.
Damages are not specified. The Company and Hercules have agreed to share
equally the external attorney's fees and investigative fees and related costs
and expenses of this action until such time as a determination is made as to the
applicability of the indemnification provisions of the Purchase Agreement.
The Company has also been served with complaints in two civil actions, each
captioned United States v. Alliant Techsystems Inc. and filed in the U.S.
District Court for the District of Minnesota, alleging violations of the False
Claims Act, the Truth in Negotiations Act, and common law and equitable theories
of recovery. The first complaint was filed February 21, 1997, and relates to a
contract for 120mm tank ammunition, and the second complaint was filed March 10,
1997, and relates to a contract for the AT4 shoulder-fired weapon. Both
complaints allege that the contracts in question were defectively priced.
Damages are not specified.
Under the provisions of the False Claims Act, a civil penalty of between
$5,000 and $10,000 can be assessed for each claim, plus three times the amount
of any damages sustained by the U.S. Government. In addition to damages, a
judgment against the Company in such a suit or a finding of liability in a
separate criminal action could carry penalties of suspension or debarment which
would make some or all of the Company's operations ineligible to be awarded any
U.S. Government contracts for a period of up to three years. The amount of
damages, if any, involved in the above actions filed under the False Claims Act
cannot be determined at this time.
The Company is also a defendant in other suits and claims, some of which
are covered by insurance, and in other investigations of varying natures. While
the results of litigation and other proceedings cannot be predicted with
certainty, in the opinion of management, 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
27
<PAGE>
during a specific period could have a material effect on the quarterly or annual
operating results for that period.
Incorporated herein by reference is the following portion of the Annual
Report:
<TABLE>
<CAPTION>
Page Number(s)
Portion of Annual Report in Annual Report
<S> <C>
Environmental Matters............................... 23
Environmental Remediation and Compliance............ 29
Note 6 of Notes to Financial Statements............. 31
Note 15 of Notes to Financial Statements............ 36-37
Note 17 of Notes to Financial Statements............ 37
Note 19 of Notes to Financial Statements............ 38
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal year 1997.
28
<PAGE>
SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages and positions (in each
case as of June 1, 1997) are as follows:
<TABLE>
<CAPTION>
Name (Age) Position
<S> <C>
Richard Schwartz (61)....... Chairman of the Board, President and Chief
Executive Officer
Peter A. Bukowick (53)...... Executive Vice President
Hugo Fruehauf (57).......... Group Vice President--Defense Systems
Robert E. Gustafson (48).... Vice President--Human Resources
Roger P. Heinisch (59)...... Vice President--Engineering
Arlen D. Jameson (56)....... Vice President--ICBM Prime Integration Program
Galen K. Johnson (43)....... Vice President and Treasurer
William R. Martin (56)...... Vice President--Washington, D.C. Operations
Scott S. Meyers (43)........ Vice President and Chief Financial Officer
Paula J. Patineau (43)...... Vice President and Controller
Paul A. Ross (60)........... Group Vice President--Space and Strategic Systems
Kristi Rollag Wangstad (42). Vice President--Public Affairs
Donald E. Willis (53)....... Group Vice President--Emerging Business; Vice
President--Strategic Planning
Daryl L. Zimmer (54)........ Vice President and General Counsel
Charles H. Gauck (58)....... Secretary
</TABLE>
Except as noted below, each of the above individuals became an executive
officer at or about the time of the Spin-off (September 28, 1990), serves at the
pleasure of the Company's Board of Directors, and is subject to reelection
annually on the date of the Company's Annual Meeting of stockholders. The
following became executive officers on the dates indicated: Mr. Schwartz,
January 9, 1995; Mr. Bukowick, March 15, 1995; Mr. Fruehauf, September 11, 1995;
Mr. Gustafson, July 22, 1996; Mr. Jameson, April 1, 1997; Mr. Johnson, May 27,
1992; Mr. Martin, January 8, 1996; Mr. Meyers, March 1, 1996; Ms. Patineau,
January 29, 1997; and Mr. Ross, April 1, 1997. No family relationship exists
between any of the executive officers or between any of them and any director of
the Company. Information regarding the five-year employment history (in each
case with the Company unless otherwise indicated) of each of the executive
officers is set forth below.
29
<PAGE>
Mr. Schwartz has been Chairman of the Board of Directors since January
1997, and President and Chief Executive Officer since January 1995. Prior to
that, he was Executive Vice President of Hercules since January 1991 and the
President of HAC since October 1989, in each case until January 1995. He also
served as a director of Hercules from 1989 until January 1995.
Mr. Bukowick has held his present position since April 1997. From March
1995 until April 1997, he was Group Vice President - Aerospace Systems. Prior to
that, he was President pro tempore of HAC from January 1995 until March 1995,
and Vice President, Technology of HAC from 1992 until December 1994. From 1989
until 1992, he was President, Packaging Films Group of Hercules.
Mr. Fruehauf has held his present position since September 11, 1995. Prior
to that, he was President of EFRATOM Time and Frequency Products, Inc. since
1983.
Mr. Gustafson has held his present position since July 1996. From the Spin-
off until July 1996 he served as Director of Compensation and Benefits.
Mr. Heinisch has held his present position since May 1997. From January
1995 until May 1997, he served as Vice President - Engineering, Information
Systems and Technology. From October 1990 until January 1995, he served as Vice
President - Engineering.
Mr. Jameson has held his present position since April 1997. Prior to that
he was President of Arrowsmith Technologies, Inc., a software company, from
March 1996 until November 1996. From 1962 until February 1996, he served in the
U.S. Air Force, most recently as Deputy Commander-in-Chief, U.S. Strategic
Command from 1994 until February 1996, and prior to that, as Commander,
Twentieth Air Force, from 1992 until 1994.
Mr. Johnson has been Vice President since April 1997 and Treasurer since
May 1992.
Mr. Martin has held his present position since January 1996. From March
1995 until January 1996, he served as Vice President - Business Development of
the Company's Aerospace Systems Group. From July 1991 until March 1995 he served
as Vice President - Business Development and Washington Office Operations of
HAC.
Mr. Meyers has held his present position since March 1996. Prior to that,
he was Executive Vice President and Chief Financial Officer of Magnavox
Electronic Systems Company since January 1990.
Ms. Patineau has held her present position since January 1997. From June
1996 until January 1997, she served as acting Controller. From April 1992 until
July 1996, she served as Director of Financial Reporting/Accounting Services.
30
<PAGE>
Mr. Ross has held his present position since April 1997. From April 1995
until April 1997, he served as Vice President and General Manager, Space and
Strategic Division, Aerospace systems Group. From August 1994 until March 1995,
he was Vice President of Operations of HAC. Prior to joining HAC, he was
employed by Rockwell International, most recently as Vice President of
Production Operations, Rocketdyne Division, from June 1991 until August 1994.
Ms. Rollag Wangstad has held her present position since October 1992. From
the Spin-off until October 1992, she served as Vice President--External
Relations.
Mr. Willis has been Vice President - Strategic Planning since April 1997,
and Group Vice President - Emerging Business since March 1995. From the Spin-off
until March 1995, he served as Vice President--Strategic Development and
Planning.
Mr. Zimmer has held his present position since the Spin-off.
Mr. Gauck has held his present position since the Spin-off.
31
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Company Common Stock is listed and traded on the New York Stock Exchange
("NYSE") under the symbol ATK. The following table sets forth the high and low
sales prices of the Common Stock for each full quarterly period within the two
most recent fiscal years, as reported on the NYSE Composite Tape:
<TABLE>
<CAPTION>
Period High Low
<S> <C> <C>
Fiscal year ended March 31, 1997:
Quarter ended June 30, 1996.................. $49.125 43.75
Quarter ended September 29, 1996............. 53.50 46.25
Quarter ended December 29, 1996.............. 57.375 47.625
Quarter ended March 31, 1997................. 54.75 42.00
Fiscal year ended March 31, 1996:
Quarter ended July 2, 1995................... $ 41.75 $35.625
Quarter ended October 1, 1995................ 47.50 41.50
Quarter ended December 31, 1995.............. 53.00 44.625
Quarter ended March 31, 1996................. 50.50 46.25
</TABLE>
The number of holders of record of Company Common Stock as of May 31, 1997,
was 13,019.
The Company has not, since the Spin-off, paid cash dividends. The Company's
dividend policy will be reviewed by the Board of Directors of the Company at
such future times as may be appropriate in light of relevant factors existing at
such times, including the extent to which the payment of cash dividends may be
limited by covenants contained in its bank Credit Agreement (the "Credit
Agreement") and the Indenture pursuant to which its 11-3/4% Senior Subordinated
Notes due 2003 (the "Notes") were issued (collectively, the "Debt Agreements").
The Credit Agreement, as amended and restated in November 1996, currently limits
the aggregate sum of dividends plus certain other restricted payments to $75
million. The Notes limit the Company's dividends and certain other restricted
payments to an amount equal to 50% of cumulative net income after March 15,
1995, provided that after such payments the Company's ratio of earnings (before
interest, taxes, depreciation and amortization) to fixed charges equals or
exceeds three to one. The Debt Agreements also prohibit
32
<PAGE>
dividend payments if loan defaults exist or certain financial covenant ratios
are not maintained.
Incorporated herein by reference are the following portions of the Annual
Report:
<TABLE>
<CAPTION>
Page Number(s)
Portion of Annual Report in Annual Report
<S> <C>
Consolidated Income Statements -- Primary and fully diluted
earnings (loss) per common and common equivalent share............. 26
Earnings Per Share Data.............................................. 30
Note 7 of Notes to Financial Statements.............................. 31-32
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference is the following portion of the Annual
Report:
<TABLE>
<CAPTION>
Page Number(s)
Portion of Annual Report in Annual Report
<S> <C>
Selected Financial Data.............................................. 18
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference is the following portion of the Annual
Report:
<TABLE>
<CAPTION>
Page Number(s)
Portion of Annual Report in Annual Report
<S> <C>
Management's Discussion and Analysis................................. 19-24
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference are the following portions of the Annual
Report:
33
<PAGE>
<TABLE>
<CAPTION>
Page Number(s)
Portion of Annual Report in Annual Report
<S> <C>
Financial Highlights................................................. 1
Report of Independent Auditors....................................... 25
Report of Management................................................. 25
Consolidated Income Statements....................................... 26
Consolidated Balance Sheets.......................................... 27
Consolidated Statements of Cash Flows................................ 28
Notes to the Consolidated Financial Statements....................... 29-40
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the executive officers of the Company is set forth
following Item 4 in Part I of this Report. The other information required by
this Item will be included in the definitive proxy statement for the 1997 Annual
Meeting of stockholders (the "Proxy Statement"), to be filed within 120 days
after the Company's fiscal year ended March 31, 1997, and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
<TABLE>
<CAPTION>
Annual
Report Page Form 10-K
Numbers(s) Page Number
<S> <C> <C>
1. Financial Statements (incorporated by reference
from the Annual Report):
Financial Highlights............................ 1
Report of Independent Auditors.................. 25
Consolidated Income Statements.................. 26
Consolidated Balance Sheets..................... 27
Consolidated Statements of Cash Flows........... 28
Notes to the Consolidated Financial Statements.. 29-40
2. Financial Statement Schedules (included
in this Report):
Independent Auditors' Report...................................... 44
Schedules:
II - Valuation Reserves..................................... 45
</TABLE>
All schedules, other than indicated above, are omitted because of the
absence of the conditions under which they are required or because the
information required is shown in the financial statements or notes thereto.
3. Exhibits. (The following exhibits are filed with this Report unless the
exhibit number is followed by an asterisk (*), in which case the exhibit is
incorporated by reference from the document listed. The applicable
Securities and Exchange Commission File Number is 1-10582 unless otherwise
indicated. Exhibit numbers followed by a pound sign (#) identify exhibits
that are either a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K. Excluded from this
list of exhibits, pursuant to Paragraph (b) (4) (iii) (A) of Item 601 of
Regulation S-K, may be one or more instruments defining the rights of
holders of long-term debt of the Registrant. The Registrant hereby agrees
that it will, upon request of the Securities and Exchange Commission,
furnish to the Commission a copy of any such instrument.)
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
3(i).1* Restated Certificate of Incorporation, effective July 20, 1990
(Exhibit 3.1 to Amendment No. 1 to Form 10 Registration Statement
filed with the Securities and Exchange Commission on July 20, 1990
(the "Form 10")).
3(i).2* Certificate of Correction, effective September 21, 1990 (Exhibit 3.1
to Registration Statement on Form S-4, File No. 33-91138, filed with
the Securities and Exchange Commission on April 13, 1995 (the "Form
S-4")).
3(i).3* Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Registrant, effective September
28, 1990 (Exhibit 3.3 to the Form S-4).
3(ii)* By-Laws, as amended through May 27, 1992 (Exhibit 3.3 to Form 10-K for
the fiscal year ended March 31, 1992 (the "FY92 Form 10-K")).
4.1* Form of Certificate for common stock, par value $.01 per share
(Exhibit 4.1 to Amendment No. 1 to the Form 10).
4.2* Rights Agreement, dated as of September 24, 1990, between the
Registrant and Manufacturers Hanover Trust Company (Exhibit 4.2 to
Post-Effective Amendment No. 1 to the Form 10).
4.2.1* First Amendment to Rights Agreement, dated as of August 4, 1992,
between the Registrant and Chemical Bank (successor to Manufacturers
Hanover Trust Company) (Exhibit 4.2.1 to Form 10-K for the fiscal year
ended March 31, 1993 (the "FY93 Form 10-K")).
4.2.2* Rescission Agreement, dated as of May 26, 1993, between the Registrant
and Chemical Bank (Exhibit 4.2.2 to FY93 Form 10-K).
4.2.3* Second Amendment to Rights Agreement, dated as of October 28, 1994,
between the Registrant and Chemical Bank (Exhibit 4 to Form 8-K dated
October 28, 1994 (the "October 1994 Form 8-K")).
4.3* Indenture, dated as of March 1, 1995, between the Registrant and First
Bank National Association, as trustee (including a form of Initial
Note) (Exhibit 4.1 to the Form S-4).
4.4* Form of Exchange Note (Exhibit 4.2 to Form S-4).
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
4.5* Registration Rights Agreement, dated as of March 14, 1995, among the
Registrant, the Lenders referred to therein, Morgan Guaranty Trust
Company of New York, as Documentation Agent, and Chemical Bank, as
Administrative Agent (Exhibit 4.3 to the Form S-4).
4.6* Amended and Restated Credit Agreement dated as of March 15, 1995 and
amended and restated as of November 14, 1996 among the Registrant, the
Lenders referred to therein, Morgan Guaranty Trust Company of New
York, as Documentation Agent, and The Chase Manhattan Bank, as
Administrative Agent (including forms of Note, Assignment and
Assumption Agreement, and Amended and Restated Subsidiary Guaranty
Agreement (Exhibit 4 to Form 8-K dated November 14, 1996).
4.7* Security Agreement, dated as of March 15, 1995, between the Registrant
and J.P. Morgan Delaware, as Collateral Agent (without exhibits)
(Exhibit 10.4 to Form S-4).
4.8* Patent Security Agreement, dated as of March 15, 1995, between the
Registrant and J.P. Morgan Delaware, as Collateral Agent (without
exhibits) (Exhibit 10.5 to the Form S-4).
4.9* Pledge Agreement, dated as of March 15, 1995, between the Registrant
and J.P. Morgan Delaware, as Collateral Agent (Exhibit 10.6 to
Form S-4).
4.10* Purchase Agreement, dated March 7, 1995, among the Registrant and the
Initial Purchasers (Exhibit 10.37 to Form S-4).
10.1* Distribution Agreement, dated as of September 24, 1990, between
Honeywell Inc. and the Registrant (Exhibit 10.1 to Amendment No. 2 to
the Form 10).
10.2* Environmental Matters Agreement, dated as of September 24, 1990,
between Honeywell Inc. and the Registrant (Exhibit 10.3 to Post-
Effective Amendment No. 1 to the Form 10).
10.3* Intellectual Property Agreement, dated as of September 24, 1990,
between Honeywell Inc. and the Registrant (Exhibit 10.4 to Amendment
No. 2 to the Form 10).
10.3.1* Amendment No. 1 to Intellectual Property Agreement, dated as of
September 24, 1990 (Exhibit 10.4.1 to FY92 Form 10-K).
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
10.3.2* Amendment No. 2 to Intellectual Property Agreement, dated as of
September 24, 1990 (Exhibit 10.4.2 to FY92 Form 10-K).
10.3.3* Amendment No. 3 to Intellectual Property Agreement, dated July 30,
1992 (Exhibit 10.4.3 to Form 10-Q for the quarter ended October 3,
1993 (the "FY94 Second Quarter Form 10-Q")).
10.4* Tax Sharing Agreement, dated as of September 28, 1990, between
Honeywell Inc. and the Registrant (Exhibit 10.5 to Amendment No. 2 to
the Form 10).
10.5* Government Subpoena Agreement between Honeywell Inc. and the
Registrant (Exhibit 10.11 to Amendment No. 2 to the Form 10).
10.6*# Separation Agreement, dated as of November 4, 1994, between the
Registrant and Toby G. Warson (Exhibit 10.4 to Form 10-Q for the
quarter ended October 2, 1994 (the "FY95 Second Quarter 10-Q")).
10.7*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.3 to FY95
Second Quarter 10-Q).
10.7.1*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.1 to
Form 10-Q for the quarter ended July 4, 1994).
10.7.2*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.35 to Form
10-K for the fiscal year ended March 31, 1996 (the "FY96 Form 10-K").
10.8*# Form of Deferral Agreement (Exhibit 10.2 to FY95 Second Quarter 10-Q).
10.9*# Form of Indemnification Agreement between the Registrant and its
directors and officers (Exhibit 10.6 to Amendment No. 1 to the Form
10).
10.10*# Split Dollar Life Insurance Plan (Exhibit 10.0 to Form 10-Q for the
quarter ended June 30, 1996 (the "FY97 First Quarter 10-Q").
10.11*# Form of Retention Agreement between the Registrant and certain of its
officers (Exhibit 10.18 to Amendment No. 1 to the Form 10).
10.12*# Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive
Plan (Appendix D to Proxy Statement, dated February 11, 1995).
10.13*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.12 to Form
10-K for the fiscal year ended December 31, 1990 (the "1990 Form
10-K")).
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
10.14*# Form of Employment Restrictions Agreement (Exhibit 10.13 to the 1990
Form 10-K).
10.15*# Hercules Supplementary Employee Retirement Plan (SERP) (assumed by the
Registrant as to certain of its employees) (Exhibit 10.38 to Form S-
4).
10.16*# Management Compensation Plan (Exhibit 10.14 to Amendment No. 1 to the
Form 10).
10.17*# Flexible Perquisite Account description. (Exhibit 10.1 to FY95 Second
Quarter 10-Q).
10.18*# Restricted Stock Plan for Non-Employee Directors (Exhibit 10.13 to
Amendment No. 1 to Form 10).
10.18.1*# Non-Employee Restricted Stock Plan (Appendix B to Proxy Statement
dated July 3, 1996).
10.18.2*# Form of Restricted Stock Agreement (Exhibit 10.2 to Form 10-Q for the
quarter ended September 29, 1996).
10.19*# Deferred Fee Plan for Non-Employee Directors (as amended and restated
November 24, 1992) (Exhibit 10.18 to FY93 Form 10-K).
10.20*# Change of Control Employment Agreement (Exhibit 10.19 to the 1990 Form
10-K).
10.21*# Non-employees directors per diem arrangement (Exhibit 10.20 to FY92
Form 10-K).
10.22*# Form of Employment Agreement (Exhibit 10.1 to Form 10-Q for the
quarter ended October 1, 1995 ("FY96 Second Quarter 10-Q")).
10.23# Income Security Plan.
10.24*# Retirement Plan for Non-Employee Directors (Exhibit 10.25 to FY94
Second Quarter Form 10-Q).
10.25*# Form of Employment Letter Agreement, dated October 27, 1994, between
the Registrant and Richard Schwartz (Exhibit 10.1 to Form 10-Q for the
quarter ended January 1, 1995 ("FY95 Third Quarter 10-Q")).
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
10.26*# Indemnification Agreement, dated as of October 28, 1994, between the
Registrant and Richard Schwartz (Exhibit 10.2 to FY95 Third Quarter
10-Q).
10.30*# Restricted Stock Agreement, dated as of January 9, 1995, between the
Registrant and Richard Schwartz (Exhibit 10.9.1 to Form S-4).
10.30.1*# Restricted Stock Agreement, dated as of January 9, 1995, between the
Registrant and Richard Schwartz (Exhibit 10.9.2 to Form S-4).
10.31*# Compensation Arrangement between the Registrant and Hugo Fruehauf
(Exhibit 10.2 to FY96 Second Quarter 10-Q).
10.31.1*# Restricted Stock Agreement between the Registrant and Hugo Fruehauf
(Exhibit 10.31.2 to FY96 Form 10-K).
10.32*# Compensation Arrangement between the Registrant and Scott S. Meyers
(Exhibit 10.32 to FY96 Form 10-K).
10.33*# Compensation Arrangement between the Registrant and Lawrence H.
Tveten (Exhibit 10.33 to FY96 Form 10-K).
10.33.1*# Arrangements with Executive (Exhibit 10 to Form 10-Q for the quarter
ended December 29, 1996).
10.33.2*# Arrangement with Executive (Exhibit 10 to Form 8-K dated February 28,
1997).
10.34*# Letter Agreement between the Registrant and Dean M. Fjelstul (Exhibit
10.34 to FY96 Form 10-K).
10.35# Compensation Arrangement with Arlen D. Jameson.
10.35.1# Performance Share Agreement between the Registrant and Arlen D.
Jameson.
10.36*# Honeywell Supplementary Retirement Plan (SRP) (assumed by the
Registrant as to certain of its employees) (Exhibit 10.22 to FY92
Form 10-K)
10.37*# Honeywell Supplementary Executive Retirement Plan for Compensation in
Excess of $200,000 (assumed by the Registrant as to certain of its
employees (Exhibit 10.23 to FY92 Form 10-K)
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
10.38*# Honeywell Supplementary Executive Retirement Plan for CECP
Participants (assumed by the Registrant as to certain of its
employees formerly employed by Honeywell) (Exhibit 10.24 to FY92 Form
10-K)
10.39* Purchase and Sale Agreement, dated as of October 28, 1994, between
the Registrant and Hercules Incorporated (the "Purchase Agreement"),
including certain exhibits and certain schedules and a list of
schedules and exhibits omitted (Exhibit 2 to October 1994 Form 8-K).
10.40* Master Amendment to Purchase Agreement, dated as of March 15, 1995,
between the Registrant and Hercules Incorporated, including exhibits
(Exhibit 2.2 to Form 8-K dated March 15, 1995).
10.41* Asset Purchase Agreement dated as of December 22, 1996 by and between
the Registrant and Hughes Aircraft Company (excluding schedules and
exhibits) (Exhibit 2.1 to Form 8-K dated February 28, 1997).
10.41.1* Amendment to Asset Purchase Agreement dated February 28, 1997 by and
between the Registrant and Hughes Aircraft Company (excluding
schedules and exhibits) (Exhibit 2.2 to Form 8-K dated February 28,
1997).
11 Computation of Earnings Per Common and Common Equivalent Share.
13 Annual Report (only those portions specifically incorporated herein
by reference shall be deemed filed with the Securities and Exchange
Commission).
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule
</TABLE>
41
<PAGE>
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Company filed the following report
on Form 8-K:
<TABLE>
<CAPTION>
Date of Report Items Reported
- -------------- --------------
<S> <C>
February 28, 1997 Item 2. Acquisition or Disposition of Assets
Item 7(b). Pro forma financial information
Item 7(c). Exhibits
</TABLE>
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: June 23, 1997 By /s/ Charles H. Gauck
--------------------
Charles H. Gauck
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title
/s/ Richard Schwartz Director, Chairman of the Board, President and
- --------------------------- Chief Executive Officer (Principal Executive
Richard Schwartz Officer)
/s/ Scott S. Meyers Vice President and Chief Financial Officer
- --------------------------- (Principal Financial Officer)
Scott S. Meyers
/s/ Paula J. Patineau Vice President and Controller (Principal
- --------------------------- Accounting Officer)
Paula J. Patineau
* Director
- ---------------------------
R. Keith Elliott
* Director
- ---------------------------
Thomas L. Gossage
* Director
- ---------------------------
Joel M. Greenblatt
* Director
- ---------------------------
Jonathan G. Guss
* Director
- ---------------------------
David E. Jeremiah
* Director
- ---------------------------
Gaynor N. Kelley
* Director
- ---------------------------
Joseph F. Mazzella
* Director
- ---------------------------
Daniel L. Nir
Date: June 23, 1997 *By /s/ Charles H. Gauck
--------------------------
Charles H. Gauck
Attorney-in-Fact
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
Alliant Techsystems Inc.:
We have audited the consolidated financial statements of Alliant Techsystems
Inc. and subsidiaries as of March 31, 1997 and 1996, and for each of the years
ended March 31, 1997, March 31, 1996, and March 31, 1995 and have issued our
report thereon dated May 14, 1997; such financial statements and report are
included in your 1997 Annual Report to Stockholders (Exhibit 13) and are
incorporated herein by reference. Our audit also included the financial
statement schedule of Alliant Techsystems Inc., listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
May 14, 1997
44
<PAGE>
SCHEDULE II
ALLIANT TECHSYSTEMS INC.
VALUATION RESERVES
For the Years Ended March 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance
Beginning Additions Charged Deductions from Balance at
of Period Purchased Company to Income Reserves Close of Period
--------- ----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets to
which they apply--allowance
for doubtful accounts:
Receivables--Current
--------------------
Year ended March 31, 1997.... $ 60 -- $ 61 (1) $ 14 (2) $ 107
Year ended March 31, 1996.... $ 75 -- -- $ 15 (2) $ 60
Year ended March 31, 1995.... $ 76 -- -- $ 1 (2) $ 75
Reserves deducted from assets to
which they apply--reserve for
estimated loss on disposal of
discontinued operations:
Net Assets of Discontinued
--------------------------
Operations
----------
Year ended March 31, 1997.... $13,700 -- -- $2,574 (2) $11,126
Year ended March 31, 1996.... -- -- $ 13,700 -- $13,700
Year ended March 31, 1995.... -- -- -- -- --
Reserves deducted from assets to
which they apply--allowance for
amortization of intangibles:
Goodwill
--------
Year ended March 31, 1997.... $ 3,940 -- $3,315 (3) $ 7,255
Year ended March 31, 1996.... $ 668 -- $3,272 (3) $ 3,940
Year ended March 31, 1995.... $ 246 -- $ 422 (3) $ 668
Debt Issuance Costs
-------------------
Year ended March 31, 1997.... $ 2,433 -- $4,666 (4) -- $ 7,099
Year ended March 31, 1996.... -- -- $2,433 (4) -- $ 2,433
Year ended March 31, 1995.... $ 3,405 -- $ 820 (4) $4,225 (5) --
Notes: (1) Represents amounts included in operating expense.
(2) Represents uncollectible amounts written off less recoveries.
(3) Represents amounts included in cost of sales.
(4) Represents amounts included in interest expense.
(5) Represents debt issuance costs written off in connection with retirement of debt.
</TABLE>
45
<PAGE>
ALLIANT TECHSYSTEMS INC.
FORM 10-K
EXHIBIT INDEX
The following exhibits are filed electronically with this report unless the
exhibit number is followed by an asterisk (*), in which case the exhibit is
incorporated by reference from the document listed. The applicable Securities
and Exchange Commission File Number is 1-10582 unless otherwise indicated.
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document
Number which incorporated by reference, if applicable)
<S> <C>
3(i).1* Restated Certificate of Incorporation, effective July 20, 1990
(Exhibit 3.1 to Amendment No. 1 to Form 10 Registration Statement
filed with the Securities and Exchange Commission on July 20, 1990
(the "Form 10")).
3(i).2* Certificate of Correction, effective September 21, 1990 (Exhibit 3.1
to Registration Statement on Form S-4, File No. 33-91138, filed with
the Securities and Exchange Commission on April 13, 1995 (the "Form
S-4")).
3(i).3* Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Registrant, effective September
28, 1990 (Exhibit 3.3 to the Form S-4).
3(ii)* By-Laws, as amended through May 27, 1992 (Exhibit 3.3 to Form 10-K for
the fiscal year ended March 31, 1992 (the "FY92 Form 10-K")).
4.1* Form of Certificate for common stock, par value $.01 per share
(Exhibit 4.1 to Amendment No. 1 to the Form 10).
4.2* Rights Agreement, dated as of September 24, 1990, between the
Registrant and Manufacturers Hanover Trust Company (Exhibit 4.2 to
Post-Effective Amendment No. 1 to the Form 10).
4.2.1* First Amendment to Rights Agreement, dated as of August 4, 1992,
between the Registrant and Chemical Bank (successor to Manufacturers
Hanover Trust Company) (Exhibit 4.2.1 to Form 10-K for the fiscal year
ended March 31, 1993 (the "FY93 Form 10-K")).
4.2.2* Rescission Agreement, dated as of May 26, 1993, between the Registrant
and Chemical Bank (Exhibit 4.2.2 to FY93 Form 10-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
4.2.3* Second Amendment to Rights Agreement, dated as of October 28, 1994,
between the Registrant and Chemical Bank (Exhibit 4 to Form 8-K dated
October 28, 1994 (the "October 1994 Form 8-K")).
4.3* Indenture, dated as of March 1, 1995, between the Registrant and First
Bank National Association, as trustee (including a form of Initial
Note) (Exhibit 4.1 to the Form S-4).
4.4* Form of Exchange Note (Exhibit 4.2 to Form S-4).
4.5* Registration Rights Agreement, dated as of March 14, 1995, among the
Registrant, the Lenders referred to therein, Morgan Guaranty Trust
Company of New York, as Documentation Agent, and Chemical Bank, as
Administrative Agent (Exhibit 4.3 to the Form S-4).
4.6* Amended and Restated Credit Agreement dated as of March 15, 1995 and
amended and restated as of November 14, 1996 among the Registrant, the
Lenders referred to therein, Morgan Guaranty Trust Company of New
York, as Documentation Agent, and The Chase Manhattan Bank, as
Administrative Agent (including forms of Note, Assignment and
Assumption Agreement, and Amended and Restated Subsidiary Guaranty
Agreement (Exhibit 4 to Form 8-K dated November 14, 1996)).
4.7* Security Agreement, dated as of March 15, 1995, between the Registrant
and J.P. Morgan Delaware, as Collateral Agent (without exhibits)
(Exhibit 10.4 to Form S-4).
4.8* Patent Security Agreement, dated as of March 15, 1995, between the
Registrant and J.P. Morgan Delaware, as Collateral Agent (without
exhibits) (Exhibit 10.5 to the Form S-4).
4.9* Pledge Agreement, dated as of March 15, 1995, between the Registrant
and J.P. Morgan Delaware, as Collateral Agent (Exhibit 10.6 to Form
S-4).
4.10* Purchase Agreement, dated March 7, 1995, among the Registrant and the
Initial Purchasers (Exhibit 10.37 to Form S-4).
10.1* Distribution Agreement, dated as of September 24, 1990, between
Honeywell Inc. and the Registrant (Exhibit 10.1 to Amendment No. 2 to
the Form 10).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
10.2* Environmental Matters Agreement, dated as of September 24, 1990,
between Honeywell Inc. and the Registrant (Exhibit 10.3 to Post-
Effective Amendment No.1 to the Form 10).
10.3* Intellectual Property Agreement, dated as of September 24, 1990,
between Honeywell Inc. and the Registrant (Exhibit 10.4 to Amendment
No. 2 to the Form 10).
10.3.1* Amendment No. 1 to Intellectual Property Agreement, dated as of
September 24, 1990 (Exhibit 10.4.1 to FY92 Form 10-K).
10.3.2* Amendment No. 2 to Intellectual Property Agreement, dated as of
September 24, 1990 (Exhibit 10.4.2 to FY92 Form 10-K).
10.3.3* Amendment No. 3 to Intellectual Property Agreement, dated July 30,
1992 (Exhibit 10.4.3 to Form 10-Q for the quarter ended October 3,
1993 (the "FY94 Second Quarter Form 10-Q")).
10.4* Tax Sharing Agreement, dated as of September 28, 1990, between
Honeywell Inc. and the Registrant (Exhibit 10.5 to Amendment No. 2 to
the Form 10).
10.5* Government Subpoena Agreement between Honeywell Inc. and the
Registrant (Exhibit 10.11 to Amendment No. 2 to the Form 10).
10.6* Separation Agreement, dated as of November 4, 1994, between the
Registrant and Toby G. Warson (Exhibit 10.4 to Form 10-Q for the
quarter ended October 2, 1994 (the "FY95 Second Quarter 10-Q")).
10.7* Form of Non-Qualified Stock Option Agreement (Exhibit 10.3 to FY95
Second Quarter 10-Q).
10.7.1* Form of Non-Qualified Stock Option Agreement (Exhibit 10.1 to Form 10-
Q for the quarter ended July 4, 1994).
10.7.2* Form of Non-Qualified Stock Option Agreement (Exhibit 10.35 to Form
10-K for the fiscal year ended March 31, 1996 (the "FY96 Form 10-K").
10.8* Form of Deferral Agreement (Exhibit 10.2 to FY95 Second Quarter 10-Q).
10.9* Form of Indemnification Agreement between the Registrant and its
directors and officers (Exhibit 10.6 to Amendment No. 1 to the Form
10).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
10.10* Split Dollar Life Insurance Plan (Exhibit 10.0 to Form 10-Q for the
quarter ended June 30, 1996 (the "FY97 First Quarter 10-Q").
10.11* Form of Retention Agreement between the Registrant and certain of its
officers (Exhibit 10.18 to Amendment No. 1 to the Form 10).
10.12* Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive
Plan (Appendix D to Proxy Statement, dated February 11, 1995).
10.13* Form of Non-Qualified Stock Option Agreement (Exhibit 10.12 to Form
10-K for the fiscal year ended December 31, 1990 (the "1990 Form 10-
K")).
10.14* Form of Employment Restrictions Agreement (Exhibit 10.13 to the 1990
Form 10-K).
10.15* Hercules Supplementary Employee Retirement Plan (SERP) (assumed by
the Registrant as to certain of its employees (Exhibit 10.38 to Form
S-4).
10.16* Management Compensation Plan (Exhibit 10.14 to Amendment No. 1 to the
Form 10).
10.17* Flexible Perquisite Account description. (Exhibit 10.1 to FY95 Second
Quarter 10-Q).
10.18* Restricted Stock Plan for Non-Employee Directors (Exhibit 10.13 to
Amendment No. 1 to Form 10).
10.18.1* Non-Employee Restricted Stock Plan (Appendix B to Proxy Statement
dated July 3, 1996).
10.18.2* Form of Restricted Stock Agreement (Exhibit 10.2 to Form 10-Q for the
quarter ended September 29, 1996).
10.19* Deferred Fee Plan for Non-Employee Directors (as amended and restated
November 24, 1992) (Exhibit 10.18 to FY93 Form 10-K).
10.20* Change of Control Employment Agreement (Exhibit 10.19 to the 1990
Form 10-K).
10.21* Non-employees directors per diem arrangement (Exhibit 10.20 to FY92
Form 10-K).
10.22* Form of Employment Agreement (Exhibit 10.1 to Form 10-Q for the
quarter ended October 1, 1995 ("FY96 Second Quarter 10-Q")).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
10.23 Income Security Plan.
10.24* Retirement Plan for Non-Employee Directors (Exhibit 10.25 to FY94
Second Quarter Form 10-Q).
10.25* Form of Employment Letter Agreement, dated October 27, 1994, between
the Registrant and Richard Schwartz (Exhibit 10.1 to Form 10-Q for the
quarter ended January 1, 1995 ("FY95 Third Quarter 10-Q")).
10.26* Indemnification Agreement, dated as of October 28, 1994, between the
Registrant and Richard Schwartz (Exhibit 10.2 to FY95 Third Quarter
10-Q).
10.30* Restricted Stock Agreement, dated as of January 9, 1995, between the
Registrant and Richard Schwartz (Exhibit 10.9.1 to Form S-4).
10.30.1* Restricted Stock Agreement, dated as of January 9, 1995, between the
Registrant and Richard Schwartz (Exhibit 10.9.2 to Form S-4).
10.31* Compensation Arrangement between the Registrant and Hugo Fruehauf
(Exhibit 10.2 to FY96 Second Quarter 10-Q).
10.31.1* Restricted Stock Agreement between the Registrant and Hugo Fruehauf
(Exhibit 10.31.2 to FY96 Form 10-K).
10.32* Compensation Arrangement between the Registrant and Scott S. Meyers
(Exhibit 10.32 to FY96 Form 10-K).
10.33* Compensation Arrangement between the Registrant and Lawrence H. Tveten
(Exhibit 10.33 to FY96 Form 10-K).
10.33.1* Arrangements with Executive (Exhibit 10 to Form 10-Q for the quarter
ended December 29, 1996).
10.33.2* Arrangement with Executive (Exhibit 10 to Form 8-K dated February 28,
1997).
10.34* Letter Agreement between the Registrant and Dean M. Fjelstul (Exhibit
10.34 to FY96 Form 10-K).
10.35 Compensation Arrangement with Arlen D. Jameson.
10.35.1 Performance Share Agreement between the Registrant and Arlen D.
Jameson.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and document from
Number which incorporated by reference, if applicable)
<S> <C>
10.36* Honeywell Supplementary Retirement Plan (SRP) (assumed by the
Registrant as to certain of its employees) (Exhibit 10.22 to FY92
Form 10-K)
10.37* Honeywell Supplementary Executive Retirement Plan for Compensation in
Excess of $200,000 (assumed by the Registrant as to certain of its
employees)(Exhibit 10.23 to FY92 Form 10-K)
10.38* Honeywell Supplementary Executive Retirement Plan for CECP
Participants (assumed by the Registrant as to certain of its
employees formerly employed by Honeywell) (Exhibit 10.24 to FY92 Form
10-K)
10.39* Purchase and Sale Agreement, dated as of October 28, 1994, between
the Registrant and Hercules Incorporated (the "Purchase Agreement"),
including certain exhibits and certain schedules and a list of
schedules and exhibits omitted (Exhibit 2 to October 1994 Form 8-K).
10.40* Master Amendment to Purchase Agreement, dated as of March 15, 1995,
between the Registrant and Hercules Incorporated, including exhibits
(Exhibit 2.2 to Form 8-K dated March 15, 1995).
10.41* Asset Purchase Agreement dated as of December 22, 1996 by and between
the Registrant and Hughes Aircraft Company (excluding schedules and
exhibits) (Exhibit 2.1 to Form 8-K dated February 28, 1997).
10.41.1* Amendment to Asset Purchase Agreement dated February 28, 1997 by and
between the Registrant and Hughes Aircraft Company (excluding
schedules and exhibits) (Exhibit 2.2 to Form 8-K dated February 28,
1997).
11 Computation of Earnings Per Common and Common Equivalent Share.
13 Annual Report (only those portions specifically incorporated herein
by reference shall be deemed filed with the Securities and Exchange
Commission).
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 10.23
ALLIANT TECHSYSTEMS INC. INCOME SECURITY PLAN
The purpose of the Alliant Techsystems Inc. Income Security Plan is to
provide certain income security to elected corporate officers and other
designated individuals or groups of individuals of Alliant Techsystems Inc. and
its Subsidiaries. The Board of Directors has determined that it is in the best
interests of the Company and its stockholders to secure the continued services,
dedication and objectivity of its management in light of the potential
occurrence of changes of control of the Company, without concern as to whether
such individuals might be hindered or distracted by personal uncertainties and
risks created by any such potential change of control. In adopting this Plan,
the Board of Directors also recognizes and anticipates that differing, or
enhanced, severance arrangements or benefits may be in the Company's interest
for particular employees, or in particular circumstances not now present or
anticipated. Adoption of this Plan is not intended to address all conceivable
situations in which providing such benefits would be in the Company's interest
and therefore, is not intended to preclude such other arrangements.
This Plan shall be administered by the Personnel and Compensation Committee
of the Company's Board of Directors, with the approval, as to matters involving
any publicly-traded Subsidiary of the Company, of the compensation committee of
such publicly-traded Subsidiary.
1. Definitions.
-----------
(a) "Annual Base Salary" shall mean Participant's annual, regular rate of
cash compensation excluding all other elements of compensation such as, without
limitation, incentive or other bonus awards, perquisites, stock options or stock
awards, and retirement and welfare benefits.
(b) The "Board" shall mean the Board of Directors of the Company.
-----
(c) "Cause" shall mean:
-----
(1) a Participant's conviction of a felony (or guilty or nolo
Contendere plea in connection therewith) or the indictment of Participant
on, or the Participant being charged with, a felony charge, if either (x)
such charge relates to the Company's business or any activities engaged in
by the Participant while on Company premises or while engaged in activities
related to the Company's business, or (y) such charge remains outstanding
for thirty (30) days or more; or
(2) a determination by the Board that a Participant has defrauded the
Company; or
(3) a determination by the Board that a Participant has committed a
material breach of the duties and responsibilities of the Participant as an
officer or employee of the Company, which breach is (i) demonstrably
willful and deliberate, or committed in bad faith or without reasonable
belief that the activity undertaken by the Participant is in the best
interests of the Company and (ii) if subject to cure, not remedied within
thirty (30) days after receipt of written notice from the Company
specifying such breach.
<PAGE>
(d) A "Change of Control" shall mean:
-----------------
(1) the acquisition by any "person" or group of persons (a "Person"),
as such terms are used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended and the regulations thereunder (the
"Exchange Act") (other than the Company or a Subsidiary or any Company
employee benefit plan (including its trustee)) of "beneficial ownership"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing, directly or indirectly, more
than fifty percent (50%) of the total number of shares of the Company's
then outstanding Voting Securities;
(2) consummation of a reorganization, merger or consolidation of the
Company, or the sale or other disposition of all or substantially all of
the Company's assets (a "Business Combination"), in each case, unless,
following such Business Combination, the individuals and entities who were
the beneficial owners of the total number of shares of the Company's
outstanding Voting Securities immediately prior to both (x) such Business
Combination, and (y) any Change Event occurring within twelve (12) months
prior to such Business Combination, beneficially own, directly or
indirectly, more than fifty percent (50%) of the total number of shares of
the outstanding Voting Securities of the resulting corporation, or the
acquiring corporation, as the case may be, immediately following such
Business Combination (including, without limitation, the outstanding Voting
Securities of any corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the total number of shares of the Company's outstanding
Voting Securities; or
(3) any other circumstances (whether or not following a "Change
Event") which the Board determines to be a Change of Control for purposes
of this Plan after giving due consideration to the nature of the
circumstances then presented and the purposes of this Plan. Any
determination made under this subsection (d)(3) shall be irrevocable except
by vote of a majority of the members of the Board who voted in favor of
making such determination.
For purposes of this subsection (d), a "Change of Control" shall not
result from any transaction precipitated by the Company's insolvency,
appointment of a conservator, or determination by a regulatory agency that
the Company is insolvent.
(e) "Change of Control Date" shall mean the first date on which a Change
-----------------------
of Control occurs.
(f) "Change Event" shall mean:
------------
(1) the acquisition after the date this Plan is adopted by the Board,
by any Person (other than the Company or a Subsidiary, or any Company
employee benefit plan (including its trustee)) of "beneficial ownership"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company directly or indirectly representing fifteen
percent (15%) or more of the total number of shares of the Company's then
outstanding Voting Securities (excluding the sale or issuance of such
securities directly by the Company, or where the acquisition of such
securities is made by such Person from five (5) or
<PAGE>
fewer shareholders in a transaction or transactions approved in advance by
the Board);
(2) the public announcement by any Person of an intention to acquire
the Company through a tender offer, exchange offer, or other unsolicited
proposal; or
(3) the individuals who, as of the date this Plan is adopted by the
Board, are members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least a majority of the Board; provided, however,
that if the nomination for election of any new director was approved by a
vote of a majority of the Incumbent Board, such new director shall, for the
purposes of this definition, be considered a member of the Incumbent Board.
(g) "Committee" shall mean the Personnel and Compensation Committee of the
---------
Board.
(h) "Company" shall mean Alliant Techsystems Inc. and its successors and
-------
assigns.
(i) "Date of Termination" shall mean the date on which a Participant's
employment with the Company or a Subsidiary terminates, including by reason of a
Qualifying Termination.
(j) "Disability" means, with respect to a Participant, a determination by
the Board that such Participant has become disabled within the meaning of the
Company's long term disability plan in effect at that time.
(k) "Executive Life Insurance" shall mean any life insurance policy
insuring the life of the Participant which is in force as of any Change of
Control Date, including policies with accumulated cash value.
(l) "Participant" shall mean each elected encumbant corporate officer, and
each other individual or group of individuals as designated from time to time by
the Committee as being entitled to the benefits provided under the Plan. Unless
otherwise determined by the Committee, a Participant shall cease to be covered
by the Plan automatically if such Participant ceases to be an elected corporate
officer, or otherwise within a designated Participant group, provided that such
change of status occurs prior to a Change of Control. Attached as Exhibit A is a
list of the Participants as of the date this Plan is adopted by the Board.
(m) "Plan" shall mean the Alliant Techsystems Inc. Income Security Plan.
----
(n) "Qualifying Termination" shall mean any of the following:
----------------------
(1) A termination of a Participant's employment by action of the
Company or a Subsidiary, as applicable, within two (2) years after a Change
of Control Date, for any reason other than a termination for Cause or on
account of a Participant's Disability;
(2) A termination of employment by written election of the
Participant, delivered within two (2) years after a Change of Control Date,
for one or both of the following reasons specified by such Participant:
<PAGE>
(i) Change of Compensation. A reduction by the Company or a
Subsidiary, as applicable, in such Participant's Annual Base Salary or
Target Annual Incentive Award below the rates in effect immediately
prior to such Change of Control, or the failure by the Company and
such Subsidiary to continue Participant's eligibility in any Welfare
Benefits in which such Participant was participating immediately prior
to such Change of Control unless such Welfare Benefits are terminated
by the Company in their entirety, or the elimination of eligibility
affects all employees of status comparable to the Participant, or such
Participant is permitted to participate in other plans providing
materially comparable Welfare Benefits to such Participant;
(ii) Change of Location. The Company or a Subsidiary, as applicable,
requiring such Participant to be based anywhere other than such
Participant's work location immediately prior to the Change of Control
Date, as it may be changed thereafter with Participant's consent, or a
location within 75 miles from such location; unless such relocation is
agreed to in writing by both the Company and the Participant, or is
permitted by the terms of such Participant's employment agreement with
the Company;
provided that, in the case of any such termination of employment by the
Participant pursuant to paragraphs (i) or (ii) above, such termination
shall not be deemed to be a Qualifying Termination unless the Company
receives written notice of such Participant's claim of a Qualifying
Termination within sixty (60) days after the occurrence of the events
constituting the Participant's reason for such termination and the Company
or Subsidiary does not within thirty (30) days after receipt of such notice
cure the stated reason therefor; or
(3) A termination of a Participant's employment by the Company or a
Subsidiary within twelve (12) months after a Change Event if the
Participant can demonstrate that such termination or reason for termination
(i) was at the specific request of a third party with which the Company or
the Subsidiary had entered into negotiations or an agreement with regard to
a subsequent Change of Control; or (ii) otherwise occurred in connection
with, or in anticipation of, such Change in Control.
In the event that upon a Change of Control the Company ceases to be a
publicly traded corporation, (x) such event will not, in and of itself
constitute a reason for a Qualifying Termination under paragraph (2) above
unless one of the reasons set forth in paragraphs (i) or (ii) above also occurs;
and (y) Participants shall be entitled to the benefits of Section 4(c)(y), if
applicable, whether or not there has been a Qualifying Termination. For
purposes of this Plan, a termination of a Participant's employment by the
Company or the Participant on account of the Participant's death, Disability or
Retirement shall not constitute a Qualifying Termination.
(o) "Retirement" shall mean the voluntary retirement of a Participant
pursuant to a retirement plan of the Company or any relevant Subsidiary.
(p) "Stock Award" shall mean any grant, award or issuance of a stock
option, restricted stock grant, performance share award or similar compensation
award, which, if earned, would either result in the Participant receiving the
Company's securities, or the opportunity to purchase the Company's securities,
or which would pay a cash amount based upon the value of the Company's
securities, whether under
<PAGE>
benefit plans now existing or hereafter adopted, or which are otherwise granted
to a Participant.
(q) "Subsidiary" or "Subsidiaries" shall mean (i) any person or
persons that is or are directly or indirectly controlled by the Company or (ii)
any other person or persons in which the Company has a significant equity
interest, as determined by the Board.
(r) "Target Annual Incentive Award" shall mean Participant's target
annual cash incentive bonus award as determined at the start of the Company's
fiscal year in which the Change of Control occurs.
(s) "Voting Securities" shall mean any shares of the capital stock or
other securities of the Company that are generally entitled to vote in elections
for directors.
(t) "Welfare Benefits" shall mean coverage and benefits provided to
the Participant under the Company's then applicable health, disability,
executive placement or life insurance programs or under a retirement plan
generally applicable to employees of status comparable to a Participant.
2. Obligations of Company Upon Change Event. Upon the occurrence of a
Change Event, the Board shall be prohibited from making any subsequent
amendments to the Plan in its then current form unless such amendment does not
adversely effect then eligible Participants with respect to any Change of
Control occurring within one (1) year after such Change Event, provided,
however, that notwithstanding the occurrence of a Change Event, subject to the
provisions of Section 1(n)(3), the Company and any Subsidiary, as applicable,
shall remain free in all respects to terminate a Participant, modify a
Participant's terms of employment, change or remove such Participant from
corporate offices, or otherwise take actions which would effect a Participant's
compensation or benefits, whether or not an employee is or remains a Participant
under the Plan, subject only to that Participant's individual employment
agreement, if any. The occurrence of a Change Event shall not obligate the
Company to pay any benefits pursuant to Section 4.
3. Trust Funding. At times, in amounts and on terms determined by the
Committee, but in no event later than the date of a Change of Control described
in Section 1(d)(2), or five (5) business days after a Change of Control
described in Section 1(d)(1) or 1(d)(3) (the "Required Funding Date"), the
Company shall establish a trust fund (the "Trust"), of which eligible
Participants shall be the beneficiaries, to secure the Change of Control
severance payments and benefits to be provided in the manner described in
Sections 4(a) and 7. The Trust shall be funded in cash by the Company not later
than the Required Funding Date, or an earlier date if authorized by the
Committee. Interest earned on amounts deposited by the Company into the Trust
shall be due to the Company, and any surplus incurred shall be retained by the
Company. In the event that a Participant becomes eligible for benefits pursuant
to Section 4, that Participant shall be taxed on the full amount held in the
Trust for that Participant's benefit, and the Company will directly pay such
taxes due from the Trust.
4. Obligations of Company Upon Qualifying Termination. In the event of a
--------------------------------------------------
Qualifying Termination, then
(a) Subject to the limitations set forth below, the Company shall
provide Participant monthly payments beginning on the Participant's Date of
Termination and ending the day following the later of (x) the two-year
anniversary (or in
<PAGE>
the case of the Chief Executive Officer, the three-year anniversary) of the
Change of Control Date, or (y) the first anniversary of the Participant's Date
of Termination (the "Compensation Continuation Period") in an amount which, if
annualized, shall equal the sum of Participant's Annual Base Salary, plus
Participant's Target Annual Incentive Awards, each as in effect immediately
prior to Participant's Date of Termination, or if higher, as in effect
immediately prior to the Change of Control Date; provided, however, that if
Participant shall become employed in any capacity during the Compensation
Continuation Period, payments required under this Section shall be reduced, or
eliminated in their entirety, by any and all cash compensation paid or accrued
for the benefit of such Participant by such new employer, determined monthly
with amounts in excess of payments due hereunder being carried forward to reduce
future bi-weekly payments due.
(b) During any applicable Compensation Continuation Period, the
Company shall continue to provide Welfare Benefits to Participant and
Participant's dependents at the level of coverage elected by Participant during
the open enrollment period immediately preceding Participant's Date of
Termination; provided however, that if Participant becomes employed by another
employer and is eligible to receive Welfare Benefits under another employer-
provided plan, Company may terminate or reduce Welfare Benefits provided
hereunder so that the total benefits to which Participant is eligible (from such
new employer and as provided hereunder) are comparable to the Welfare Benefits
required hereunder.
(c) (x) Any unvested Stock Awards shall thereupon immediately vest and
(i) in the case of options, shall be exercisable for the lesser of the normal
expiration date or three (3) years after the Date of Termination, and (ii) in
the case of Performance Shares shall vest as of the Date of Termination on a pro
rata basis according to the expired portion of the total measuring period over
which performance for such award is to be measured, and based upon deemed
attainment of the target performance, or if greater, based upon the actual
performance achieved, and (y) if the Company's Common Stock ceases to be listed
for trading on the New York Stock Exchange, American Stock Exchange or the
National Market List of the National Association of Securities Dealers, Inc.,
Automated Quotation System (a "Trading System") and any such Stock Award is not
replaced with an award for securities which are traded on a Trading System
(which replacement award shall have the same or greater current value, as
determined in good faith by the Board, or the Board of Directors of the
Company's successor), then the Participant shall be entitled to receive the
value of any such Stock Award (including any pro rata portion of Performance
Shares, as described above) in cash (within ten (10) days of the date on which
the Company's Common Stock ceases to be traded on a Trading System) in an amount
calculated based upon the highest price paid for the purchase of shares of
Company Common Stock by a Person (as defined in section 1(d) hereof) as of any
date within six (6) months before or subsequent to the Change of Control.
(d) Notwithstanding anything else herein to the contrary, a
Participant hereunder who becomes entitled to the payments set forth in Section
4 hereof shall, for purposes of calculation of retirement qualified and
unqualified plan benefits or eligibility, and for purposes of COBRA eligibility,
be considered to have been employed as of the last day of any applicable
Compensation Continuation Period.
(e) Any Executive Life Insurance programs in force on the life of a
Participant as of the Change of Control Date shall be continued in force until
the end of a Salary Continuation Period, and thereafter the policy, including
the cash value
<PAGE>
thereof transferred to the Participant with a lump sum cash payment sufficient
to pay actual taxes due on account of such transfer.
5. Non-exclusivity of Rights. Other than as specifically set forth
herein, nothing in this Plan shall prevent or limit the Participant's continuing
or future participation in any plan, program, policy or practice (collectively,
an "Arrangement") provided by the Company or a Subsidiary and for which the
Participant may qualify, nor shall anything in this Plan limit or otherwise
affect such rights as the Participant may have under any contract or agreement
(collectively, "Agreement") with the Company or a Subsidiary. Unless otherwise
agreed in writing by the Company and a Participant, whenever a Participant would
be entitled to payment of any salary, incentive bonus, Welfare Benefits or other
compensation or benefits under an Arrangement or Agreement other than this Plan,
the Participant shall be entitled to receive (including by way of partial
application of each of this Plan and such other Arrangement and/or Agreement)
the payments and Welfare Benefits most favorable to the Participant (as
determined in good faith by the Participant and evidenced in a written election
by the Participant delivered to the Company within ten (10) business days after
the Date of Termination), provided, however, that nothing herein shall be
construed or shall operate in such a manner as shall permit a Participant to
receive the same type of payment or Welfare Benefit under more than one of this
Plan or such other Arrangement and/or Agreement.
6. Full Settlement. The Company's obligation to make the payments
provided for in this Plan and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Participant or
others. The Company agrees to pay, to the full extent permitted by law, all
reasonable hourly legal fees and related expenses which the Participant may
reasonably incur as a result of any contested denial by the Company of the
benefits set forth herein (including as a result of any contest by the
Participant about the amount of any payment pursuant to this Plan) if, and only
if, it is determined by a court of competent jurisdiction that such denial or
payment failure was knowingly wrongful. It may be made a condition of payments
hereunder that a Participant deliver a full and complete release of the Company
from all claims other than for the making of payments and the performance of
obligations hereunder.
7. Certain Additional Payments by the Company. (a) Anything in this Plan
to the contrary notwithstanding and except as set forth below, in the event it
shall be determined that any payment or distribution by the Company to or for
the benefit of the Participant (whether paid or payable or distributed or
distributable pursuant to the terms of this Plan or otherwise, but determined
without regard to any additional payments required under this Section (6) (a
"Payment")) would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986 or any interest or penalties are incurred by the
Participant with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Participant shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Participant of all taxes on the Gross-Up Payment including, without limitation,
any income taxes, employment taxes, excise taxes, and interest and penalties
imposed upon the Gross-Up Payment, the Participant retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
8. Confidential Information. The Participant shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data
<PAGE>
relating to the Company, which shall have been obtained by the Participant
during the Participant's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Participant or representatives of the Participant in violation of this
Plan). After termination of the Participant's employment with the Company, the
Participant shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it.
9. Non-Compete. In order for any Participant to become eligible for
receipt of the payments and benefits set forth herein, the Participant shall
agree and acknowledge that, during the one year following Participant's Date of
Termination, said Participant shall not, in any capacity whatsoever, compete
with the business of the Company as carried on by the Company, in any geographic
area in which the Company is doing or did business. In the event the provisions
of this Section 9 are found to be invalid or unenforceable as set forth herein,
then this Section 9 shall be thereupon deemed amended to the extent and in the
manner necessary to render its provisions valid and enforceable.
10. Successors.
----------
(a) This Plan is personal to the Participant and without the prior
written consent of the Company shall not be assignable by the Participant
otherwise than by will or the laws of descent and distribution. This Plan shall
inure to the benefit of and be enforceable by the Participant's legal
representatives.
(b) This Plan shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Plan in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Plan, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Plan by operation of law, or
otherwise.
11. Scope of Plan. The Participant and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
the Participant and the Company, the employment of the Participant by the
Company is "at will" and prior to the Change of Control Date, the Participant's
employment may be terminated by either the Participant or the Company at any
time prior to the Change of Control Date, in which case the Participant shall
have no further rights under this Plan. In addition, in the event Participant's
employment is terminated as a result of Participant's death or Disability,
Participant shall have no further rights under this Plan. From and after the
Change of Control Date this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof.
12. Changes to Plan; Waiver of Terms. This Plan may be altered, amended
or modified at any time by the Board subject only to Section 2. A waiver of any
term, covenant, agreement, or condition contained in this Plan shall not be
deemed a waiver of any other term, covenant, agreement or condition, and any
waiver of any default in
<PAGE>
any such term, covenant, agreement or condition shall not be deemed a waiver of
any later default or of any other term, covenant, agreement or condition.
<PAGE>
Exhibit A
LIST OF INCOME SECURITY PLAN PARTICIPANTS AS OF MARCH 18, 1997
Elected Corporate Officers
- --------------------------
Peter A. Bukowick
Hugo Fruehauf
Charles H. Gauck
Robert E. Gustafson
Roger P. Heinisch
Galen K. Johnson
William R. Martin
Scott S. Meyers
Paula J. Patineau
Richard Schwartz
Kristi Rollag Wangstad
Donald E. Willis
Daryl L. Zimmer
<PAGE>
Exhibit 10.35
Compensation Arrangement with Arlen D. Jameson
- A special incentive of 6000 shares of Alliant stock that will be delivered
to you at the time that Alliant is named winner of the ICBM Modernization
contract (this stock incentive is contingent upon Board approval and is
subject to normal tax withholding). Of course, the shares will not be
awarded if we do not win the program. This incentive assumes that the
program stays on track as currently defined and there is a prime contract.
A change away from a prime contract would require a re-evaluation of the
special incentive. This stock incentive is offered in lieu of any other
annual or long-term incentive during the ICBM proposal activity.
- An initial base annual salary at the time of hire of $200,000. At the time
we win the program, your annual compensation will be restructured to a
total target amount of $215,000, comprised of a base annual salary of
$160,000 plus a target annual incentive amount of $55,000. From the date
we win the program through the end of FY98 (March 31, 1998), your target
incentive will be prorated for time. For the first year of employment
after contract award, our minimum guaranteed incentive will be $40,000.
Based on present timing, this may be over two Alliant fiscal years. Actual
incentives earned may be up to 200% of target for outstanding performance
by you individually, your business unit, and the corporation in total.
- Additionally, once the program is won, you will also participate in
Alliant's Long Term Incentive Plan, which under today's design is an annual
grant of stock options in the May/June timeframe. Our current intent is to
target your future grants at 4000 options per year. This number could
change to the extent that we recalibrate the number of options for all
executives. I anticipate that your first option grant would be issued in
1998.
- If we do not win the ICBM program, we will attempt to place you in an
alternative, mutually-acceptable position within the company; however, if
we are unable to do so, we will provide a severance amount of $100,000.
After the award date, the severance amount available in the event of any
company initiated termination (other than for cause) will be structured as
follows: $100,000 for the next six months, $70,000 for the next 12 months,
and after that period of time the severance amount available will be
reduced to the greater of normal severance (one week's base pay per full
year of service) or three months base salary. All severance payments are
lump sum.
- We offer a comprehensive benefit program covering retirement, healthcare,
dental care, life insurance, short and long term disability, health and
dependent care reimbursement accounts, etc.
<PAGE>
- You will be eligible to participate in the Alliant 401(K) plan immediately
upon beginning employment with Alliant. This plan provides for pre and
post tax savings and a 50% company match up to the first 6% of your
contributions. The company match vests immediately upon employment. You
will also be permitted to rollover into the Alliant 401(K) plan the present
balance from your current qualified savings plan, to the extent allowable
by law.
- Ten days of vacation will be deposited in your vacation accrual account
when you commence employment, and then you will accrue vacation days at the
normal company rate which increases with tenure.
- While in this assignment, you will be provided with a car.
- During the period of time preceding Alliant's win of the ICBM program,
Alliant will provide you with a furnished apartment. Also, during this
period, we will provide for travel home every other week. Travel of the
same value can be used by your wife to visit Utah as long as the total
trips are no greater than one every other week.
- Upon winning the program, it is anticipated that you would move your family
to Salt Lake City. You will receive a broad relocation package. This
includes third party purchase of your current primary residence, movement
of household goods, and closing costs of your current and new residences.
<PAGE>
Exhibit 10.35.1
PERFORMANCE SHARE AGREEMENT ALLIANT TECHSYSTEMS LOGO
NUMBER OF MEASURING SOCIAL SECURITY
GRANTED TO GRANT DATE PERFORMANCE PERIOD NUMBER
SHARES
Arlen D. Jameson 02/10/97 6,000 1 YEAR ###-##-####
7100 Valburn Drive
Austin, TX 78731
1. The Grant. Alliant Techsystems Inc., a Delaware corporation (the "Company")
hereby grants to the individual named above (the "Employee"), as of the above
Grant Date, the above Number of Performance Shares (the "Shares"), on the
terms and conditions set forth in this Performance Share Agreement (this
"Agreement") and in the Alliant Techsystems Inc. 1990 Equity Incentive Plan
(the "Plan").
2. Measuring Period. The Shares shall be payable, in the form provided in
Paragraph 4 below, and to the extent provided in Paragraph 3 below, as soon
as practical after the end of the above Measuring Period.
3. Performance Goals. Up to 100% of the Shares shall be payable, depending upon
if, the Business Unit achieves the Performance Goals set forth in the
accompanying Performance Accountability Chart.
4. Form of Payment. Any shares payable pursuant to Paragraph 3 above shall be
paid in shares of Common Stock of the Company ("Stock"), except to the extent
that the Personnel and Compensation Committee of the Company's Board of
Directors, in its discretion, determines that cash be paid in lieu of some or
all of such shares of Stock.
5. Forfeiture. As of the Employee's death or Termination of Employment (as
defined in the Plan), the Employee shall forfeit all Shares for which the
Measuring Period has not ended prior to or as of such Termination of
Employment. If the Employee's death or Termination of Employment occurs at
or after the end of the Measuring Period, the Shares shall be payable to the
extent herein provided, as if such death or Termination of Employment had not
occurred.
6. Rights. Nothing herein shall be deemed to grant the Employee any rights as a
holder of Stock unless and until certificates for shares of Stock are
actually issued in the name of the Employee as provided herein.
<PAGE>
7. Income Taxes. The Employee is liable for any federal, state and local income
taxes applicable upon payment of the Shares. Upon demand by the Company, the
Employee shall promptly pay to the Company in cash, and/or the Company may
withhold from the Employee's compensation or from the shares of Stock or any
cash payable in lieu of some or all of such shares of Stock, an amount
necessary to pay, any income withholding taxes required by the Company to be
collected upon such payment.
8. Acknowledgment. This grant will not be effective until the Employee dates
and signs the form of Acknowledgment below and returns to the Company a
signed copy of this Agreement. By signing the Acknowledgment, the Employee
agrees to the terms and conditions referred to in Paragraph 1 above and
acknowledges receipt of a copy of the Prospectus related to the Plan.
ACKNOWLEDGMENT: ALLIANT TECHSYSTEMS INC.
/s/ Arlen D. Jameson
- ------------------------
EMPLOYEE'S SIGNATURE /s/ Richard Schwartz
Richard Schwartz
President and Chief
17 Feb. 97 Executive Officer
- ------------------------
DATE
###-##-####
- ------------------------
SOCIAL SECURITY NUMBER
PRIVATE
PERFORMANCE ACCOUNTABILITY CHART
AEROSPACE SYSTEMS
Arlen D. Jameson
Business Unit: ICBM Modernization
---------------------------------
Business Unit
Performance Goals 2/10/98 Actual
- ---------------------- ------- ------
Win ICBM Modernization 6,000
Contract
Performance Shares Grant = 6,000
Grant = 6,000 Shares for Win ICBM Modernization Contract
<PAGE>
EXHIBIT 11
ALLIANT TECHSYSTEMS INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
March March March
31, 1997 31, 1996 31, 1995
--------- -------- ---------
<S> <C> <C> <C>
Primary calculation:
Net income (loss) $ 59,159 $ 47,801 $(74,108)
========= ======== ========
Weighted average shares outstanding
during the period 13,015 13,034 10,052
Shares issuable in connection with
stock plans less shares purchasable
with proceeds using the average
per share purchase price or the
respective periods as shown below 387 397 285
--------- -------- --------
Total common and common equivalent
Shares - primary 13,402 13,431 10,337
========= ======== ========
Primary earnings (loss) per common and
common equivalent share $ 4.41 $ 3.56 $ (7.17)
========= ======== ========
Average share price for the period $ 48.81 $ 44.96 $ 32.19
========= ======== ========
Fully diluted calculation:
Net income (loss) $ 59,159 $ 47,801 $(74,108)
========= ======== ========
Weighted average shares outstanding
during the period 13,015 13,034 10,052
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 384 444 340
--------- -------- --------
Total common and common equivalent
shares - fully diluted 13,402 13,478 10,392
========= ======== ========
Fully diluted earnings (loss) per
common and common equivalent share $ 4.41 $ 3.55 $ (7.13)
========= ======== ========
Higher of average or period end
share price $ 48.81 $ 48.38 $ 38.13
========= ======== ========
Note: For the year ended March 31, 1995, the inclusion of common stock
equivalents in the primary and fully diluted earnings per share shown
above have an anti-dilutive effect on the per share loss reported.
Consistent with the provisions of Accounting Principles Board No. 15,
the Company's earnings per share reported on its income statement for
the year ended March 31, 1995, exclude common stock equivalents in the
earnings per share amounts reported. Accordingly, such per share
amounts do not agree with the amounts shown above.
</TABLE>
<PAGE>
EXHIBIT 13
[LOGO]
Alliant
Achieving Ever Higher
Levels of Performance
[PHOTO OF TITAN IVB ROCKET LAUNCH]
1997 Annual Report
<PAGE>
Business Groups
Conventional Munitions
[Photo of U.S. Army tank ammunition]
Business Overview
Leading designer, developer, and manufacturer of medium-caliber and
large-caliber ammunition, munitions propellants, tactical missile propulsion
systems, warheads, metal parts, composite structures for weapons systems,
infrared decoy flares, and commercial gun powder. Operations in Illinois,
Kansas, Minnesota, New Jersey, New Mexico, Tennessee, Virginia, and West
Virginia. Approximately 3,100 employees. Fiscal year 1997 sales: $499 million.
Sales as a percent of total revenues
[Pie Chart Appears Here] 44%
Competencies
. Design and production of munitions and warheads with outstanding repeatability
. Low-cost producer of rocket motors
. Safe manufacture of high-energy propellants
. Propellants and hardware for insensitive munitions
. Design and production of composite structures and metal parts for defense
applications
. Low-cost manufacturing
. Rapid development with integrated product teams
Major Programs
. 120mm training and tactical tank ammunition
. Medium-caliber training and tactical ammunition
. Rocket motors, warheads, and parts for AGM-130, AIM-9X, AMRAAM, Hellfire,
Hydra-70, Maverick, TOW II, and other tactical missiles
. Propellants for tank and medium caliber ammunition
. Gun powders for sporting reloaders and ammunition manufacturers
. Composite structures for weapons systems such as the Javelin antitank weapon
. Infrared decoy flares for aircraft protection
End Users
[Pie Chart Appears Here] U.S. Army - 63%
Commercial - 14%
U.S. Air Force - 10%
U.S. Navy - 8%
International - 5%
Space and Strategic Systems
[Photo of NASA X-33 Reusable Launch Vehicle]
Business Overview
Leading designer, developer, and manufacturer of solid rocket propulsion systems
for space and strategic applications and composite structures for military and
commercial aircraft and spacecraft. Provider of operations and technical support
services for space launches. Operations in California, Florida, and Utah.
Approximately 1,800 employees. Fiscal year 1997 sales: $339 million.
Sales as a percent of total revenues
[Pie Chart Appears Here] 30%
Competencies
. Low-cost producer of large rocket motors with repeatable performance
. Development of products through integrated product teams
. Quality and process control systems to ensure safe, consistent manufacturing
. Design and fabrication of low-cost, high-performance composite structures
using automated fiber placement and filament winding processes
Major Programs
. Titan IV SRMU strap-on boosters and launch support services
. Delta II and Delta III GEM strap-on boosters
. Pegasus(R) and Taurus(R) launch vehicle solid propulsion systems
. Trident II (D5) Fleet Ballistic Missile solid propulsion system
. Peacekeeper Intercontinental Ballistic Missile contract support
. Cryogenic hydrogen tanks for NASA X-33 Advanced Technology Demonstrator and
VentureStar(TM) Reusable Launch Vehicle
. Composite structures for F-22, Joint Strike Fighter, Boeing 767, and C-17
aircraft
. Satellite system composite piece parts, instrument benches, and dimensionally
stable assemblies
End Users
[Pie Chart Appears Here] U.S. Air Force - 43%
Commercial - 22%
U.S. Navy - 20%
NASA - 9%
Other DoD - 6%
<PAGE>
Defense Systems
[Photo of U.S. Army's Objective Individual Combat Weapon]
Business Overview
Leading designer, developer, and manufacturer of tactical weapons systems,
air-delivered munitions, battlefield management systems, unmanned aerial
vehicles, antitank and demolition systems, fuzes, electronic warfare and test
equipment systems, shoulder-fired weapons systems, artillery fire control,
terminal sensors and seekers (MMW, UIR, LADAR, acoustic), and electronic
document software products. Operations in Florida, Minnesota, Texas, and
Wisconsin. Approximately 1,000 employees. Fiscal year 1997 sales: $253 million.
Sales as a percent of total revenues
[Pie Chart Appears Here] 22%
Competencies
. Munitions design and systems integration through integrated product teams
. Design and integration of sensors and control electronics for smart weapons
. Development and manufacture of specialty warheads
. Packaging of electronic systems to survive gun launch
. Electronic warfare and test equipment systems
. Guidance, navigation, and control subsystems for weapons
. Low-cost repeatable products
Major Programs
. Outrider(TM) Tactical Unmanned Aerial Vehicle (TUAV)
. Sense and Destroy Armor (SADARM) munition
. Tank Extended Range Munition - Kinetic Energy (TERM-KE)
. Smart Target Activated Fire and Forget (STAFF) munition
. VOLCANO and Shielder munition systems
. Brilliant Anti-Armor (BAT) P/3/I Submunition seeker
. Munitions for special operations forces
. Electronic warfare and test equipment systems
. Mortar and artillery fuzes
. Objective Individual Combat Weapon (OICW)
. DocMaestro(TM) electronic document software products
. Cased telescoped gun and ammunition system
End Users
[Pie Chart Appears Here] U.S. Army - 73%
U.S. Navy - 9%
International - 7%
U.S. Air Force - 7%
Commercial - 4%
Emerging Business
[Photo of lithium battery]
Business Overview
Provider of environmental remediation, waste disposal, ordnance reclamation, and
safety management services. Supplier of lithium reserve and rechargeable lithium
ion polymer batteries for military and aerospace applications. Provider of
information systems and acoustic processing equipment, secure data equipment,
simulation environments. Operations in Maryland, Minnesota, New Jersey,
Pennsylvania, Texas, Utah, and Virginia. Approximately 250 employees. Fiscal
year 1997 sales: $41 million.
Sales as a percent of total revenues
[Pie Chart Appears Here] 4%
Competencies
. Data acquisition, signal processing and analysis
. High-fidelity environmental simulation
. Development of leading-edge battery technology
. Automated production of low-cost, high-performance lithium batteries
. Munitions and propellant reclamation
. Uncooled infrared sensors
. Electro-magnetic emission testing and shielding
Major Programs
. Lithium and polymer batteries for aerospace and defense applications
. Analog/Digital Adaptable Recording Input/Output (ADARIO)
. Synthetic test range environments
. Reclamation of conventional ordnance
. Uncooled infrared camera subsystems
. Computer ruggedization for industrial, government, and military applications
. System for the Effective Control of Urban Environment Security (SECURES(TM))
gunshot detection system
End Users
[Pie Chart Appears Here] U.S. Army - 27%
International - 20%
Commercial - 17%
Other DoD - 17%
U.S. Air Force - 11%
U.S. Navy - 8%
<PAGE>
The Alliant Way is our commitment to excellence in everything we do. As leaders
in our field, we want to set the standard for delivering low-cost, high-quality
solutions to our customers every time.
We will act with integrity, operate safely, and grow the value of our company to
our people, our shareholders, and our communities.
Alliant Techsystems is a prime supplier of aerospace and defense technologies to
the U.S. and its allies, specializing in propulsion systems, conventional and
smart munitions, composite structures, and unmanned vehicles. Our 6,800 people
operating in 23 states represent some of the finest talent in the country.
<PAGE>
Financial Highlights 1
<TABLE>
<CAPTION>
Year Ended Year Ended
(Amounts in thousands except per share data) March 31, 1997 March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 1,089,397 $ 1,020,605
Change in accounting estimate-environmental liabilities(1) 17,442 -
Income from continuing operations 36,659 48,424
Income from discontinued operations, net of income tax 4,819 5,617
Gain (loss) on disposal of discontinued operations, net of income tax 17,681 (6,240)
Net income 59,159 47,801
- ----------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common and common equivalent share-primary and fully diluted:
Continuing operations:
Continuing operations excluding environmental charge 4.03 3.61
Environmental charge(1) (1.30) -
Continuing operations 2.73 3.61
Discontinued operations(2) 1.68 (.05)
Net income 4.41 3.56
- ----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 52,721 58,623
Cash provided by operations 92,110 89,081
Capital expenditures 28,522 25,593
======================================================================================================================
Total assets 1,009,704 1,035,142
Total debt to total capitalization 55.1% 71.6%
- ----------------------------------------------------------------------------------------------------------------------
Common shares outstanding 13,081,538 12,965,542
Number of employees 6,800 6,900
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects the impact of the adoption of the Statement of Position 96-1
"Environmental Remediation Liabilities." See Note 19 to the financial
statements.
(2) Reflects the results of discontinued operations and the related gain (loss)
on disposition of those operations. See Note 18 to the financial statements.
Cover
Cape Canaveral Air Station, Florida, February 23, 1997. Alliant Techsystems
Solid Rocket Motor Upgrade (SRMU) boosters successfully launch the first flight
of the Lockheed Martin Titan IVB rocket, America's largest and most powerful
expendable space launch vehicle.
Contents
Business Groups, Foldout
Financial Highlights, 1
Letter to Shareholders, 2
Review of Operations, 5
Community Investment, 17
Selected Financial Data, 18
Management's Discussion
and Analysis, 19
Consolidated Financial
Statements, 26
Notes to Consolidated
Financial Statements, 29
Board of Directors, 41
Corporate Officers, 42
Corporate Information, 43
<PAGE>
2 Letter to Shareholders
[PHOTO]
Peter A. Bukowick
Executive Vice President
Richard Schwartz
Chairman, President,
and Chief Executive
Officer
Scott S. Meyers
Vice President
and Chief Financial
Officer
To Our Shareholders
Two years ago Alliant acquired Hercules Aerospace and made the commitment to
achieve higher levels of performance for the company. Fiscal year 1997 marks the
second year of delivering on that commitment. We have significantly increased
sales, operating profit margins, and cash flow, and reduced operating expenses.
I am proud of this performance and the people who made it happen.
These results reflect the success of our strategies to strengthen our core
businesses, pursue new growth opportunities, and use our strong cash flow to
increase shareholder value. I am confident these strategies have created the
momentum to achieve even higher levels of performance in the future.
Fiscal 1997 Performance Highlights
In fiscal year 1997 we:
. Increased sales in all businesses and grew earnings from continuing
operations (excluding a nonrecurring environmental charge) to $4.03 per share
from $3.61 last year, up 12 percent. Total reported net income rose 24 percent
to $4.41 per share versus $3.56.
. Completed our $50 million share repurchase program in May 1997.
. Generated strong cash flow from increased sales and income and improved
working capital management.
. Achieved our operating margin target range of 8 to 10 percent, excluding the
environmental charge.
. Realigned our organization to concentrate on the unique aspects of the
conventional and smart weapons markets and appointed Dr. Peter A. Bukowick to
the post of Executive Vice President overseeing all business operations.
. Strengthened the company's financial flexibility by selling our Marine
Systems Group for $141 million in cash. This transaction allowed us to reduce
debt by an additional $89 million, lowering our total debt-to-capitalization
ratio from 72 percent at the beginning of the year to 55 percent at year end. We
now are much better positioned to pursue additional strategic initiatives
including acquisitions and/or share repurchase programs.
. Secured significant new orders with large follow-on potential, including a
$39 million contract to produce the fiber-placed composite fuel tanks for the X-
33 Advanced Technology Demonstrator, a $109 million contract to produce 120mm
training ammunition for the U.S. Army's M1A1/A2 Abrams main battle tank, and a
$56 million contract to build the Outrider(TM) Tactical Unmanned Aerial Vehicle.
. Ended the year with a strong backlog of $1.4 billion or 17 months of sales,
reflecting our leading market positions and positive market trends.
<PAGE>
3
Stock Price Performance
Despite our strong performance, the stock price declined to $42 1/8 at the end
of the year after we lost our pursuit of the Evolved Expendable Launch Vehicle
and the Wind Corrected Munitions Dispenser programs. These were upside
opportunities and do not affect the basic strength of our core plan. With the
stock price back above $50 by mid-June, we believe the investment community has
refocused on our strong fundamentals and growth potential.
Growing From a Position of Strength
Our products and capabilities support many of the nation's high-priority defense
programs. We are number one or two in our core markets of:
Propulsion Systems. We are part of the Titan IV, Delta II and III, Pegasus(R)
and Taurus(R) teams, all core U.S. space launch systems, and the Trident II
Intercontinental Ballistic Missile, the nation's key strategic weapon system.
Our propulsion systems are on many U.S. tactical weapons, including the Advanced
Medium Range Air to Air Missile (AMRAAM), Sensor Fuzed Weapon, and the Hellfire,
Maverick, and AIM-9X tactical missiles.
Munitions and Smart Weapons. We're the number-one U.S. munitions developer and
producer, supplying training and tactical tank ammunition for the U.S. Army's
main battle tank and medium-caliber ammunition for guns on armored vehicle
platforms. Our training ammunition is fundamental in helping sustain troop
readiness, and we have a growing capability in defense electronics systems for
current and future precision-guided munition systems and unmanned aerial
surveillance systems.
Composites. In our fastest growing market, we have invested in advanced
technology to become a leading supplier of aerospace composite structures. We
support current aircraft, next-generation commercial and military aircraft,
commercial and government satellites, and the X-33 Advanced Technology
Demonstrator, which will be scaled up to the Lockheed Martin VentureStar(TM),
America's next-generation reusable launch vehicle.
Growing Through Performance, New Business, and Acquisitions
We are committed to increasing shareholder value by building a portfolio of
businesses capable of generating a 15-percent average annual earnings per share
growth rate. Our growth strategy centers on 1) strengthening our core
businesses, 2) pursuing internal and external growth opportunities, and 3)
leveraging our financial strength.
To strengthen our core businesses, we have focused on improving margins through
plant consolidations, gaining greater synergy through business realignment, and
resolving performance issues with our current programs. Dedication to delivering
ESTABLISHING HIGHER LEVELS OF PERFORMANCE FOR ALLIANT TECHSYSTEMS
*Results of continuing operations exclusive of non-recurring charges for
restructuring change of control, litigation settlement, and environmental
liability reserves.
Sales
(Dollars in millions)
[CHART APPEARS HERE]
753 544 504 1020 1089
93 94 95 96 97
1,500 1,200 900 600 300
Operating Expenses*
(Percentage of sales)
[CHART APPEARS HERE]
10.8% 11.0% 11.0% 8.6% 8.6%
93 94 95 96 97
15% 12% 9% 6% 3%
Operating Profit*
(Percentage of sales)
[CHART APPEARS HERE]
5.2% 4.8% 2.0% 9.7% 8.1%
93 94 95 96 97
10% 8% 6% 4% 2%
EBITDA Cash Flow*
(Dollars in millions)
[CHART APPEARS HERE]
59 38 24 158 141
93 94 95 96 97
200 160 120 80 40
<PAGE>
4
high-quality products at an affordable price every time is paying off in both
customer satisfaction and margin improvement. Our progress toward this goal was
affirmed when we received in June our third straight "Supplier of the Year"
award from Hughes Missile Systems Company, which is a tremendous recognition of
our workforce.
Our internal growth strategy is to capture new business in our core markets.
Some of the major opportunities we are pursuing include the Air Force's ICBM
Prime Integration Program, the Cased Telescoped Weapon System, the next-
generation kinetic energy tank ammunition round, and the U.S. Army's rifle for
the 21st century -- the Objective Individual Combat Weapon. We also are
achieving internal growth by establishing global strategic alliances with major
prime contractors, capitalizing on our unique product and technical
capabilities.
Our external growth strategy is to pursue acquisitions that strengthen and
complement our core businesses, add critical mass, or offer growth potential in
expanding markets. We will evaluate acquisition opportunities against all other
investment alternatives to select the best options for growing the long-term
value of our business.
Alliant's financial strength and strong cash flow enable us to select the best
options to create value for Alliant and our shareholders. We will invest in new
business pursuits in our core markets, further reduce debt, buy back shares, or
pursue strategic acquisitions.
Market Trends Support Our Growth Strategies
We see long-term demand for our products, which are staples in Department of
Defense initiatives for training, combat, and national strategic requirements.
Because they support our nation's most critical defense systems, our products
enjoy strong funding support in the U.S. defense budget, now stabilized after
more than a decade of decline.
Telecommunications and space launch markets are expanding rapidly, and we
offer one of the broadest lines of space propulsion systems in the industry,
covering all major commercial and military space launch payload classes. We are
accelerating production to keep pace with this growing demand.
In weapons systems development, the focus continues to be on smart or
precision-guided systems, allowing us to leverage our unique capabilities in
electronics packaging into significant growth opportunities including the
Outrider(TM) Tactical Unmanned Aerial Vehicle, the U.S. Army's Sense and Destroy
Armor (SADARM) munition, and next-generation smart tank rounds.
The increased need for high-performance, lightweight materials for aircraft,
spacecraft, and satellites has doubled our composites structures business in the
last three years. With six of only 10 fiber placement machines in the U.S., we
have invested in the technology and expertise to become a leading supplier of
composite structures for aerospace applications.
Delivering on Our Commitment to Shareholders
We have delivered on our commitment to achieve higher levels of performance. We
are confident in our ability to reach our goal of 15-percent average annual
earnings per share growth through a combination of sales growth, profit margin
improvements, and the use of our strong cash flow to further reduce debt,
repurchase stock, or make strategic acquisitions.
We have a team dedicated to making our goals a reality, achieving even higher
levels of performance for our company.
Sincerely,
/s/ Richard Schwartz
Chairman, President, and Chief Executive Officer
June 16, 1997
<PAGE>
Conventional Munitions 5
Conventional Munitions
[Photo]
[Photo] Tom Rockne
Program Manager
120mm Training Tank Ammunition
120MM Tank Ammunition Production
State-of-the-art technology such as this control panel on a computerized
numerically controlled lathe at Ferrulmatic Operations in Totowa, New Jersey,
minimizes machining process variations in the production of metal parts,
including cores for U.S. Army 120mm tank ammunition training rounds pictured in
the foreground. The result is highly consistent and repeatable performance by
120mm tank ammunition, which played a key role during the ground offensive in
Operation Desert Storm. The Conventional Munitions Group is the largest producer
of 120mm tank ammunition for the U.S. Army, with more than 2 million training
and tactical rounds delivered since 1985.
<PAGE>
6 Conventional Munitions
CONVENTIONAL MUNITIONS
[PHOTO]
PETER A. BUKOWICK
Group Vice President (Acting)
"Conventional Munitions is the number-one U.S. producer of low-cost, high-
quality munitions and a leader in military and commercial gunpowder, tactical
missile propulsion systems, and flares."
Market Position
Leading supplier of conventional medium-caliber and large-caliber ammunition to
the U.S. Department of Defense. U.S. Army's largest supplier of 120mm tank
ammunition. Major producer of munitions propellants and commercial gunpowder.
One of the world's leading suppliers of solid propulsion systems, warheads, and
structures for tactical missile systems, with participation on key programs such
as Maverick, Hellfire, AMRAAM, Sensor Fuzed Weapon, and AIM-9X. Leading producer
of fiber-placed composite structures for weapons systems.
Industry Trends
Department of Defense munitions budgets have stabilized at $1.8 billion to $2
billion annually. Munitions will remain a price-driven commodity, demanding that
we be the low-cost, high-quality producer. Consolidation of ammunition plants
driven by excess capacity is providing opportunities to increase production
volume at key facilities. The use of composite structures in weapons systems is
expected to grow dramatically in response to the need for enhanced performance
and lighter weight.
Strategies.
. Operate with safety as the first consideration.
. Deliver high-quality, repeatable parts at very competitive prices.
. Increase international sales and win new business in advanced tank ammunition,
medium caliber gun upgrades, and warhead systems production.
. Gain efficiencies through the consolidation of plants and facilities with
similar technologies.
. Increase participation on tactical missiles by leveraging new metal parts
manufacturing capabilities.
. Grow composite structures business by capitalizing on state-of-the-art fiber
placement production capacity.
. Increase strategic supplier agreements with major systems integrators.
OPERATING HIGHLIGHTS
June 1996 Awarded four medium caliber ammunition production contracts with
combined value of $30 million.
June 1996 Received contract from Hunting Engineering Ltd. to supply lightweight
30mm ammunition for the United Kingdom's AH-64 Apache attack helicopter.
October 1996 Resumed shipments of tactical tank ammunition rounds following
successful resolution of technical issues, resulting in sales of more than $70
million in fiscal year 1997.
November 1996 Awarded U.S. Army contract valued at $40 million for production of
propellant grains for the Hydra 70 Rocket System. Additional production could
come from direct foreign sales of the Hydra 70 system over the next several
years.
December 1996 Selected by Hughes Missile Systems Company to develop and produce
AIM-9X short-range air-to-air missile. As a team member, the Conventional
Munitions Group will design, develop, and manufacture the missile's solid
propulsion rocket motor and thrust vector control system.
January 1997 Received contract valued at $109 million to produce 120mm training
ammunition for use by the U.S. Army's M1A1/A2 Abrams main battle tank.
January 1997 Began full-scale production of commercial gunpowder at Radford Army
Ammunition Plant following consolidation of operations from Kenvil, New Jersey,
to lower costs and increase efficiency.
February 1997 Achieved certification of flare manufacturing operations at
Kilgore Operations, Toone, Tennessee, to the ISO 9001 quality management
standard and ammunition production operations at the Joliet Army Ammunition
Plant to the ISO 9002 standard.
March 1997 Achieved certification of munitions propellant manufacturing
operations at the Radford Army Ammunition Plant to the ISO 9002 quality
management standard.
<PAGE>
7
[Photo]
[Photo] Gary Martin
Program Manager
MK90 Rocket Motor Propellant
MUNITIONS PROPELLANT MANUFACTURING
Amber Jenkins, a process engineer at the Conventional Munitions Group propellant
manufacturing facility at the Radford Army Ammunition Plant (RAAP) in Radford,
Virginia, calibrates the thickness of NOSIH-AA-2 propellant which is used in the
MK90 propellant grain for the U.S. Army's multi-purpose Hydra 70 Rocket. The
propellant is manufactured under rigid quality and process controls to ensure
the highest degree of performance repeatability and yield among the 180,000
Hydra 70 rocket motors produced annually for the U.S. Army. RAAP is the only
active facility in the U.S. manufacturing solventless double-base propellant,
which also is used in 120mm tank ammunition produced by the Conventional
Munitions Group.
[Photo of AIM-9X tactical missile]
TACTICAL MISSILE SYSTEMS
Conventional Munitions is a member of the Hughes Missile Systems Company team
selected to build the AIM-9X short-range air-to-air missile, which will provide
enhanced capabilities for U.S. Navy and Air Force fighter aircraft. The group's
Tactical Business unit will design, develop, and manufacture the missile's solid
propulsion rocket motor and thrust vector control system at the Allegany
Ballistics Laboratory in Rocket Center, West Virginia. Through our involvement
in programs such as Maverick, Hellfire, AMRAAM, Sensor Fuzed Weapon, and
Sparrow, we have become one of the world's leading suppliers of solid propulsion
systems, warheads, and structures for tactical missiles.
<PAGE>
8 Space and Strategic Systems
Space and Strategic Systems
[PHOTO]
[PHOTO]
Jeff Foote
Program Manager
Titan SRMU and launch support
LARGE SOLID ROCKET MOTORS
Mark Chilcutt, left, and Leroy Jacquez, solid propulsion operations, perform a
mold assembly operation as the center segment of a Titan IVB Solid Rocket Motor
Upgrade (SRMU) is lowered onto a core for assembly in preparation for solid
propellant casting at Space and Strategic Systems' large solid rocket motor
production facility in Magna, Utah. Modernized in the mid-1980s with an
investment of over $300 million, the facility today is considered the safest,
most modern, automated solid propulsion manufacturing plant in the world. Strict
and uncompromising attention to process control ensures the delivery of low-
cost, high-quality repeatable motors for space launch vehicles and strategic
systems.
<PAGE>
9
OPERATING HIGHLIGHTS
April 1996 Awarded contract valued at $98 million from Lockheed Martin
Astronautics to define launch site engineering requirements and procedures and
assist in the assembly of Alliant-produced Solid Rocket Motor Upgrade strap-on
propulsion systems and their integration into the Titan IVB space launch
vehicle.
July 1996 Received contract valued at $39 million from Lockheed Martin to build
composite fuel tanks for the NASA X-33 Advanced Technology Demonstrator, which
will be scaled up to the VentureStar(TM), America's next-generation Reusable
Launch Vehicle.
December 1996 Completed sixth planned static test firing on schedule as part of
the qualification phase of the U.S. Navy's Propulsion Consolidation Program for
the Trident II (D5) Intercontinental Ballistic Missile. An additional first
stage motor is scheduled for static test in June 1997. Completion of the
qualification phase of the program is expected in mid-June 1997.
February 1997 Held first successful static test firing of the solid rocket
motor for the new McDonnell Douglas Delta III intermediate-lift expendable space
launch vehicle, opening the way for delivery of the first production flight set
by the end of 1997.
February 1997 Launched the Lockheed Martin Titan IVB rocket powered by two
Alliant-produced Solid Rocket Motor Upgrade boosters, culminating a nine-year
development effort and marking the first flight of America's next-
generation heavy-lift space launch vehicle. (See photograph of launch on cover.)
February 1997 Supported successful installation of two new scientific
instruments by producing a high-precision composite optical platform for the
Hubble Space Telescope. Astronauts from the Space Shuttle Discovery performed
the work as part of the second servicing mission to the orbiting astronomical
observatory.
February 1997 Achieved certification of all Space and Strategic Systems
manufacturing facilities to the ISO 9001 quality management standard.
SPACE AND STRATEGIC SYSTEMS
[PHOTO]
PAUL A. ROSS
Group Vice President
"Space and Strategic Systems is an established leader in low-cost, high-
quality solid rocket motors and the rapidly growing market for composite
structures."
Market Position
World's leading producer of solid rocket motors for expendable space launch
vehicles encompassing all vehicle payload classes. Major programs include Titan
IV, Delta II, Delta III, Pegasus,(R) and Taurus(R) launch vehicles. Principal
strategic propulsion program is U.S. Navy Trident II (D5) Intercontinental
Ballistic Missile. One of the world's leading producers of composite structures,
including instrument benches, satellite assemblies, space-based antennae,
aircraft components, and space launch vehicle structures.
Industry Trends
A robust commercial and government launch market is driving demand for solid
rocket motors. Nearly 500 new communications spacecraft are expected to be
launched between now and 2010, representing a large market in commercially
funded satellite and booster development. The market for advanced composite
materials, which is expanding in response to requirements for greater
performance and lower weight in aircraft and spacecraft, will continue to be a
major growth area in coming years.
Strategies
. Continue to operate automated facilities with a focus on safety.
. Build on investments in automated facilities and expertise in energetic
materials, rocket motor design, and systems management to become the world's
leading producer of low-cost, high-quality solid rocket motors. Develop
additional strategic alliances to win new business.
. Capitalize on state-of-the-art manufacturing capabilities and strong composite
structures business base to expand production from precision components to
subassemblies and grow market position in structures for aircraft engines.
<PAGE>
10 Space and Strategic Systems
[Photos of Delta II space launch vehicle and Trident ICBM]
SPACE AND STRATEGIC PROPULSION SYSTEMS
We are a leader in solid rocket propulsion for space and strategic systems,
supplying rocket motors for the McDonnell Douglas Delta II medium-lift space
launch vehicle (left) and the U.S. Navy's Trident II (D5) Intercontinental
Ballistic Missile. Our work on these programs has grown to encompass the solid
propulsion system for the next generation Delta III intermediate-lift vehicle
and all three stages of the Trident II under the Navy's Propulsion Consolidation
Program. During fiscal year 1997, we conducted successful static test firings of
the Delta III motor and the motors for each stage of the Trident.
[Photo]
[Photo] Mark Messick
Program Manager
X-33 Liquid Hydrogen Tanks
HIGH-PERFORMANCE COMPOSITE STRUCTURES FOR SPACE VEHICLES
Above: A fiber placement machine is building the composite liquid hydrogen fuel
tanks for Lockheed Martin's X-33 Advanced Technology Demonstrator (pictured at
right) at Space and Strategic Systems' composites manufacturing facility in
Clearfield, Utah. The group also will produce the tanks for the VentureStar(TM)
Reusable Launch Vehicle, the full-scale version of the X-33 and America's next-
generation space launch vehicle. Alliant has become the world's premier producer
of composite structures built with fiber placement, using an automated, low-cost
process patented in the early 1980s. Our composite structures business, which
has doubled over the last three years, will continue to grow as new applications
emerge for high-strength, lightweight composite materials.
<PAGE>
ICBM Prime Integration Program 11
[Photo of F-22 fighter aircraft]
HIGH-PERFORMANCE COMPOSITE
STRUCTURES FOR MILITARY AIRCRAFT
Above: We are building the fiber-placed composite stabilizer pivot shaft for the
Lockheed Martin F-22, the U.S. Air Force's next-generation fighter aircraft. The
strength, light weight, and stability of advanced composite structures make them
ideally suited for high-performance tactical aircraft such as the F-22.
[Photo of ICBM launch]
INTERNAL GROWTH THROUGH NEW BUSINESS
[Photo] ARLEN D. JAMESON
Vice President,
ICBM Prime Integration Program
Building on our experience and leadership in systems integration and solid
propulsion, we are pursuing the prime contractor role for the U.S. Air Force's
ICBM (Intercontinental Ballistic Missile) Prime Integration Program, which will
extend the life of America's land-based ICBM systems well into the next century.
Heading our effort is Arlen D. Jameson, Lieutenant General, U.S. Air Force
(Retired), who held leadership posts within the Air Force's strategic command
throughout much of his 34-year career. General Jameson leads a team of companies
representing the expertise that has provided outstanding ICBM program
performance for over 30 years. Our team includes Boeing for guidance and
ground/vehicle integration, Logicon for software, Thiokol for propulsion, and
Textron for re-entry vehicles. The program, which has the potential for
significant revenues over the next 15 years, is well suited to the expertise of
Alliant and our teammates. We are committed to cost-effective maintenance of
America's land-based strategic missile capability.
<PAGE>
12 Defense Systems
Defense Systems
[Photo]
[Photo] Blake Larson
Program Manager
Sense and Destroy Armor (SADARM)
SMART WEAPON SENSOR TECHNOLOGY
Technician group leader Barb Roach inspects the millimeter wave radar system for
the Sense and Destroy Armor (SADARM) smart artillery round at the SADARM
production facility in Hopkins, Minnesota. With more than 10 years of research
and development activity in sensor technology and fusion, Defense Systems
pioneered the use of millimeter wave radar that can withstand harsh gun launches
in smart weapons systems such as SADARM, the XM943 Smart Target Activated Fire
and Forget (STAFF) tank ammunition round, and the Tank Extended Range Munition-
Kinetic Energy (TERM-KE) munition. SADARM, the U.S. Army's first smart artillery
projectile, entered production in fiscal year 1997.
<PAGE>
13
OPERATING HIGHLIGHTS
May 1996 Awarded contract to build the Outrider(TM) Tactical Unmanned Aerial
Vehicle, which flies pre-programmed reconnaissance missions to provide
battlefield surveillance information to military commanders.
June 1996 Received contract exceeding $100 million from the United Kingdom
Ministry of Defence for Shielder vehicle-launched antitank system. Contract
includes options that can be exercised through 1999. Production is anticipated
through 2000.
June 1996 Won contract to complete prototype build of Objective Individual
Combat Weapon, U.S. Army's next-generation rifle.
October 1996 Reached agreement with represented workers at Minnesota
manufacturing and test facilities regarding procedures for outsourcing
production work, resulting in lower future cost structure.
November 1996 Acquired Lundy Division of Advanced Technology Materials, Inc., a
manufacturer of next-generation chaff, dispenser systems for chaff, and avionics
spare parts, enhancing strategic position in important electronic warfare
market.
March 1997 Awarded production contract valued at $32 million for manufacture of
Sense and Destroy Armor (SADARM) smart artillery munition. Contract follows
completion of engineering and manufacturing development and $10 million
production contract earlier in the year.
March 1997 Successfully held first flight of the Outrider(TM) TUAV,
demonstrating the basic flight performance capabilities of the first fully
integrated modular air vehicle.
March 1997 Introduced DocMaestro(TM) family of software products for easy, low-
cost conversion, storage, indexing, and use of electronic documents.
March 1997 Received U.S. Army Material Command Outstanding Achievement Award in
Value Engineering for government fiscal year 1996.
DEFENSE SYSTEMS
[Photo] HUGO FRUEHAUF
Group Vice President
"Defense Systems is meeting the U.S. military's increased
demand for low-cost, high-quality smart tactical weapons
systems, defense electronic systems, and unmanned aerial
vehicle systems."
Market Position
Working in major precision guided munitions development and production programs,
including Sense and Destroy Armor, Smart Target Activated Fire and Forget, and
Tank Extended Range Munition - Kinetic Energy. Leading producer of low-cost
mortar and artillery fuzes and demolitions for special operations forces. Sole-
source provider of VOLCANO and Shielder antitank systems. Developing and
manufacturing the Outrider(TM) Tactical Unmanned Aerial Vehicle (TUAV), the
newest Department of Defense remotely piloted surveillance aircraft.
Industry Trends
Demand for systems upgrades is growing as development of new weapons platforms
declines and enhanced capability is needed for guns, ammunition, and electronic
warfare systems on existing tanks, artillery, infantry fighting vehicles, and
tactical aircraft. All U.S. military services want systems that provide
battlefield monitoring, including unmanned aerial vehicles (UAVs). Demand for
UAVs could extend to weapons systems and non-defense and commercial
applications. Budgets for precision guided munitions are expected to remain
strong.
Strategies
. Focus on safe operations and safe-to-use products.
. Develop low-cost technologies and packaging techniques for application to gun-
launched munitions to increase accuracy and lethality.
. Develop unmanned air vehicle systems that provide real-time battlefield
surveillance information to field commanders.
<PAGE>
14 Defense Systems
[PHOTO]
Jerry Rayne
Program Manager
Outrider(TM) Tactical Unmanned Aerial Vehicle
UNMANNED AERIAL VEHICLE SYSTEMS
Technician Jack Skurdalsvold assembles the Outrider(TM) Tactical Unmanned Aerial
Vehicle (TUAV) at Defense Systems' TUAV integration facility in Hopkins,
Minnesota. Delivery of the first Outrider(TM) TUAV system is expected in mid-
1997. Defense Systems is working under a $56 million Advanced Concept Technology
Demonstration contract to develop, produce, and field the Outrider(TM) TUAV,
which will provide real-time reconnaissance, surveillance, and target
acquisition information to Army brigade, Marine air/ground task force, and
deployed Navy combat commanders. Other potential markets for the Outrider(TM)
TUAV system include international and commercial applications such as traffic
control and border patrol.
[PHOTOS OF OBJECTIVE INDIVIDUAL COMBAT WEAPON AND
CASED TELESCOPED WEAPON SYSTEM]
NEXT-GENERATION GUN SYSTEMS
Defense Systems is leading an international team in the competitive development
of the U.S. Army's Objective Individual Combat Weapon, left, which will
provide increased survivability for the 21st century soldier. Demonstrations
will be held in 1997 in preparation for final contractor selection. We also are
teamed with CTA International to market and produce the Cased Telescoped Weapon
System, right, for use in new U.S. and European land combat vehicles such as the
U.S. Army Future Scout and Cavalry System/United Kingdom Tracer, the Army's
Future Infantry Vehicle and Bradley Fighting Vehicle, and the Marine Corps'
Advanced Amphibious Assault Vehicle. If adopted by the Department of Defense,
these programs would have production extending well into the next century.
<PAGE>
Emerging Business 15
[PHOTO]
[PHOTO]
David Roller
Program Manager
Lithium Ion Polymer Battery Technology
LITHIUM ION POLYMER BATTERIES
Laboratory technician Rebecca Morris, left, and research scientist David Swanson
place a lithium ion polymer battery into its cell package as part of a flexible
manufacturing pilot program designed to rapidly prototype high-performance
polymer batteries for military use at Power Sources Center (PSC) in Horsham,
Pennsylvania. PSC is in a strong position to benefit from anticipated growth in
rechargeable polymer batteries, which provide performance, weight, and packaging
advantages, and from the increasing use of commercial battery technologies by
the military. A major supplier of military and aerospace batteries, PSC has
produced more than 27 million lithium reserve batteries used in munitions and
fuzes.
<PAGE>
16 Emerging Business
[PHOTO]
[PHOTO of SECURES(TM) installation on telephone pole]
Ed Page
Program Manager
System for the Effective Control of Urban Environment Security (SECURES(TM))
LAW ENFORCEMENT TECHNOLOGY
Based on sophisticated sonar technology originally developed for naval warfare
and surveillance, SECURES(TM) (System for the Effective Control of Urban
Environment Security) uses pole-mounted acoustic sensors to detect, analyze, and
relay the location of gunfire in urban environments to ensure rapid response by
police. During fiscal year 1997, the National Institute of Justice and the
Dallas Police Department conducted a successful eight-week field test of
SECURES.(TM) Results of the test are being incorporated into the SECURES(TM)
product prior to commercial market introduction. The U.S. Army also is
considering deployment of SECURES(TM) to Bosnia as a sniper detection system.
SECURES(TM) is one of several products under development by Advanced Technology
Applications to meet the information needs of federal, state, and local law
enforcement officials.
EMERGING BUSINESS
[PHOTO]
DONALD E. WILLIS
Group Vice President
"The Emerging Business Group is capturing unrealized value in non-core and
commercial markets to grow shareholder value."
Market Position
Leading supplier of ordnance reclamation services, military and aerospace
batteries, information systems and acoustic processing equipment, secure data
equipment, and simulation training environments.
Industry Trends
U.S. demand for ordnance reclamation and remediation services is expected to
remain stable. The battery market is being driven by increasing use of
rechargeable polymer batteries and adoption of commercial technologies by the
military. Advanced technology markets will show greater use of technology for
law enforcement and rapid growth in mobile computing.
Strategy
. Grow U.S. ordnance reclamation market share and expand offering
of remediation and management services, emphasizing safety.
. Become the leading supplier of reserve batteries and components
for rechargeable batteries.
. Increase share of law enforcement markets through SECURES(TM)
and the RoughWriter(TM) rugged laptop computer.
. Continue to find applications for military technologies in the
commercial marketplace.
OPERATING HIGHLIGHTS
July 1996 Awarded contract valued at $8 million for Power Sources Center to
operate a fully automated production line for the manufacture of miniature
lithium batteries.
October 1996 Formed joint venture between Power Sources Center and Valence
Technology Inc. to develop and manufacture rechargeable solid polymer batteries
for military markets.
November 1996 Received contract valued at $5 million for Global Environmental
Solutions to dismantle obsolete Navy projectiles.
January 1997 Awarded contract valued at $1 million for Power Sources Center to
develop and implement flexible manufacturing processes for lithium ion polymer
batteries.
February 1997 Completed successful field test of SECURES(TM) gunshot
detection system by the Dallas Police Department.
<PAGE>
Community Investment 17
[PHOTO]
THE ALLIANT ACADEMY
Above: Kevin Erickson, a development engineer with our Defense Systems Group in
Hopkins, Minnesota, and an Alliant Academy volunteer, with fourth-grade students
at Alice Smith Elementary School in Hopkins. The Alliant Academy links
elementary teachers from the school districts in Hopkins, Minneapolis, and
Mounds View, Minnesota, with Alliant volunteers for an entire school year.
Working in partnership, the teachers and volunteers develop ways to bring math,
science, and technology concepts to life for fourth-, fifth-, and sixth-grade
students. Short-term and long-term projects, facility tours, field trips,
inventors' fairs, and other activities are used to augment the curriculum. The
year-long experience provides teachers with an ongoing resource, students with
role models, and volunteers with a rewarding way to share their talents.
[PHOTO]
SUPPLIER PARTNERSHIPS
Left, Kay Kuba, President of GCI Systems, a minority- and woman-owned small
business in New Brighton, Minnesota, and Vicki Zarada, Alliant computer buyer.
GCI Systems supplies computer equipment to Alliant.
Commitment to Community
We are committed to making Alliant Techsystems a positive force in the
communities where we live and work by investing our human and financial
resources, operating in an environmentally responsible manner, and working in
partnership with our suppliers.
Community Investment
Investing in our communities means committing time, expertise, and dollars to
critical community needs we are equipped to address. As a company, we invest in
initiatives that help teachers better understand and adopt the national math and
science standards, including the Alliant Academy, the First program, and the
SciMathMN Teachers Academy. Our giving is aimed at improving student
achievement, providing role models, and removing social barriers to academic
success. As individuals, we invest in our communities through our Community
Matching Gifts program and Volunteerism Council grants.
Environmental Management
We are committed to producing products and services for our customers in an
environmentally responsible manner. We believe that forward-looking, proper, and
cost-effective management of air, land, and water resources is key to our long-
term success. We will provide a safe and healthful workplace for our employees
and for the communities where we operate. To ensure that we deliver on this
commitment, we have established quantifiable goals for environmental
performance. We also periodically assess our operating facilities and strive for
continuous improvement in pollution prevention and waste minimization.
Supplier Partnerships
We seek out high-quality business partners who share our commitment to operating
according to the highest standards of business ethics and conduct. These include
small, minority- and women-owned businesses who deserve the right to compete for
our business. Supplier diversity is important to us and to our customer, the
U.S. Department of Defense. During the government's fiscal year 1996, we placed
nearly 7 percent of our purchases with minority- and women-owned small
businesses. Finding these partners is a key accountability, and one we also urge
our suppliers to adopt.
Reduction of Reported Emissions
[CHART APPEARS HERE]
Percent from baseline
0 11% 54% 87% 90% 94%
91 92 93 94 95 96
Baseline equals 1991 levels
Alliant facilities have reduced emissions to the environment. This chart
summarizes emissions we reported to the U.S. Environmental Protection Agency as
part of the Emergency Planning and Community Right-to-Know Act of the Superfund
Amendments and Reauthorization Act (SARA), Title III, Section 313.
<PAGE>
18 Selected Financial Data
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------------------------
March 31, March 31, March 31, March 31, March 31,
(Amounts in thousands except per share data) 1997 1996 1995(1) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations
Sales $1,089,397 $1,020,605 $ 504,190 $544,236 $ 752,612
Cost of sales 907,695 834,298 438,558 458,602 631,910
Change in accounting estimate-environmental liabilities(2) 17,442 - - - -
Research and development 16,207 14,126 11,763 12,132 13,377
Selling 35,778 33,143 24,820 23,672 37,469
General and administrative 41,881 40,186 19,066 23,893 30,622
Restructuring charges - - 35,600 - 103,281
Change of control charges - - 23,039 - -
Litigation settlement charges - - 15,000 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 70,394 98,852 (63,656) 25,937 (64,047)
Interest expense, net (34,386) (37,427) (7,076) (2,800) (6,678)
Other income (expense), net 651 657 (2,332) (3,081) 1,872
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 36,659 62,082 (73,064) 20,056 (68,853)
Income tax provision (benefit) - 13,658 - - (24,552)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 36,659 48,424 (73,064) 20,056 (44,301)
Income (loss) from discontinued operations, net of income taxes 4,819 5,617 456 12,418 (38,715)
Gain (loss) on disposal of discontinued operations,
net of income taxes 17,681 (6,240) - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of accounting change 59,159 47,801 (72,608) 32,474 (83,016)
Cumulative effect of accounting change, net of income taxes - - (1,500) - (31,181)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 59,159 $ 47,801 $ (74,108) $ 32,474 $(114,197)
===================================================================================================================================
Earnings (loss) per common and common equivalent share:
Continuing operations $2.73 $3.61 $ (7.27) $ 1.98 $ (4.58)
Discontinued operations 1.68 (.05) .05 1.23 (4.01)
Cumulative effect of accounting change - - (.15) - (3.23)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $4.41 $3.56 $ (7.37) $ 3.21 $ (11.82)
===================================================================================================================================
Financial Position
Working capital $ 94,045 $ 42,978 $ 70,007 $(16,489) $ 37,970
Property, plant, and equipment, net 360,560 382,513 484,985 85,094 53,919
Total assets 1,009,704 1,035,142 1,022,235 419,437 435,229
Long-term debt 237,071 350,000 395,000 - 65,485
Total equity 218,792 157,477 140,370 91,980 65,595
Other Data
Depreciation and amortization $ 52,721 $ 58,623 $ 16,283 $ 15,323 $ 17,530
Capital expenditures 28,522 25,593 12,635 13,499 7,319
Gross margin as a percentage of sales 15.1%(2) 18.3% 13.0% 15.7% 16.0%
===================================================================================================================================
</TABLE>
(1) Hercules Aerospace Company was acquired from Hercules Incorporated on March
15, 1995. For the fiscal year ended March 31, 1995, results of operations
include Hercules Aerospace Company (Aerospace) from March 15, 1995, through
March 31, 1995. For the fiscal year ended March 31, 1997, and 1996, results
of operations include Aerospace for the entire year. See Note 21 to the
financial statements.
(2) Includes the impact of the fiscal 1997 adoption of Statement of Position 96-
1 "Environmental Remediation Liabilities," which resulted in a $17.4 million
or $1.30 per share charge to earnings. See Note 19 to the financial
statements.
<PAGE>
Management's Discussion and Analysis 19
The following discussion should be read in conjunction with the financial
statements and notes beginning on page 26.
Results of Operations
Sales--Sales from continuing operations in fiscal 1997 were $1,089.4 million, an
increase of $68.8 million or 6.7 percent from sales of $1,020.6 million in
fiscal 1996.
Aerospace Systems Group sales in fiscal 1997 were $593.3 million, an
increase of $24.7 million or 4.3 percent from $568.6 million in fiscal 1996. The
increase was driven primarily by increased sales on the Delta III propulsion
program and composite structures programs.
Defense Systems Group sales in fiscal 1997 were $497.7 million, an increase
of $43.0 million or 9.5 percent from $454.7 million in fiscal 1996. The increase
was driven principally by increases in Tank Ammunition sales of approximately
$89 million, primarily due to the resolution of technical issues which had
delayed fiscal 1996 shipments. Additionally, sales were increased approximately
$27 million due to a fiscal 1997 contract award to produce the Outrider/TM/
Tactical Unmanned Aerial Vehicle (TUAV). These sales increases were partially
offset by decreases due to program completions in fiscal 1996 of approximately
$40 million on the Combined Effects Munition program (CEM) and $19 million on
the Shoulder Launched Multipurpose Assault Weapon (SMAW) program.
Emerging Business Group sales in fiscal 1997 were $41.4 million, an
increase of $10.4 million from $31.0 million in fiscal 1996, primarily
attributable to higher volume in the battery manufacturing operations.
Sales from continuing operations of $1,020.6 million in fiscal 1996
represented a $516.4 million increase over fiscal 1995 sales of $504.2 million.
Fiscal 1996 sales included $568.6 million generated by the Aerospace Systems
Group (Aerospace operations), which the Company acquired from Hercules Inc. on
March 15, 1995 (Aerospace acquisition), compared to fiscal 1995 Aerospace sales
of $20.3 million.
Company sales for fiscal 1998 are expected to be approximately $1 billion.
Gross Margin--The Company's gross margin as a percentage of sales was 15.1
percent, 18.3 percent, and 13.0 percent in fiscal 1997, 1996, and 1995,
respectively. The decreased gross margin in fiscal 1997 was largely attributable
to the Company's adoption of Statement of Position No. 96-1 (SOP 96-1),
"Environmental Remediation Liabilities" (see further discussion of SOP 96-1
below), which resulted in a one-time, non-cash charge of $17.4 million. Fiscal
1997 gross margin as a percentage of sales before adoption of SOP 96-1 was 16.7
percent, a decrease of 1.6 percent compared to the fiscal 1996 gross margin rate
of 18.3 percent. The decrease was primarily attributable to cost growth of
approximately $28 million on certain tactical propulsion, fuzing, ammunition,
and ordnance reclamation contracts. These decreases in gross margin were
partially offset by improvements on various ordnance programs, as well as by
negotiated settlements reached with the U.S. Government totaling approximately
$12 million for reimbursement of previously incurred costs on a rocket motor
propulsion contract and another contract that had been terminated by the U.S.
Government due to an arms-limitation treaty into which it had entered.
Fiscal 1996 gross margin as a percentage of sales was 18.3 percent,
compared to 13.0 percent in fiscal 1995. The significant increase in fiscal 1996
was primarily attributable to the acquisition of the Aerospace operations on
March 15, 1995. Additionally, fiscal 1995 gross margin included gross margin
write-offs (i.e., estimated costs of completing a contract in excess of contract
revenues) of approximately 1 percent, representing cost growth on the SMAW and
lightweight 30mm medium caliber ammunition programs, and another 1 percent on
other programs due to identification of financial and technical issues.
Fiscal 1998 gross margin is expected to be in the 17.5 percent to 18.5
percent range.
Research and Development--The Company's research and development expenditures
were $16.2 million or 1.5 percent of sales in fiscal 1997, compared with $14.1
million or 1.4 percent of sales in fiscal 1996 and $11.8 million or 2.3 percent
of sales in fiscal 1995. The slight increase in research and development
expenditures as a percent of sales in fiscal 1997 compared to fiscal 1996 was
driven primarily by costs incurred on the Evolved Expendable Launch Vehicle
(EELV) program. Fiscal 1996 expenditures of 1.4 percent of sales represented a
decrease compared to fiscal 1995 expenditures of 2.3 percent of sales due to a
change in executive management which resulted in a more focused approach to
program pursuits. The Company also spent $231.3 million on government-customer
funded research and development contracts in fiscal 1997, a decrease of $50.5
million compared to expenditures of $281.8 million in fiscal 1996 and $117.7
million in fiscal 1995. The decrease in fiscal 1997 compared to fiscal 1996
primarily represents the completion of a rocket motor development program. The
significant increase in fiscal 1996 government-funded research compared to
fiscal 1995 was due primarily to the Aerospace acquisition.
Fiscal 1998 spending for research and development as a percent of sales is
expected to approximate fiscal 1997 levels.
<PAGE>
Selling--The Company's selling expenses totaled $35.8 million or 3.3 percent of
sales in fiscal 1997, compared with $33.1 million or 3.2 percent of sales in
fiscal 1996. Fiscal 1997 selling costs include approximately $4 million of
expenditures for the Company's pursuit of the U.S. Government's Intercontinental
Ballistic Missile (ICBM) Prime Integration Program, expected to be awarded in
early calendar year 1998. Fiscal 1996 selling costs as a percentage of sales of
3.2 percent decreased significantly compared to fiscal 1995 levels of 4.9
percent. The fiscal 1996 decline is attributed primarily to the elimination of
duplicative selling expenses, subsequent to the acquisition of the Aerospace
operations on March 15, 1995, as well a more focused approach to program
pursuits. Fiscal 1998 selling expenses, as a percent of sales, are expected to
increase to approximately 4 percent, due in large part to continued spending on
the ICBM Prime Integration Program.
General and Administrative--General and administrative costs for fiscal 1997
totaled $41.9 million or 3.8 percent of sales, compared with $40.2 million or
3.9 percent of sales in fiscal 1996, and $19.1 million or 3.8 percent of sales
in fiscal 1995. Fiscal 1997 general and administrative costs as a percent of
sales decreased slightly from fiscal 1996 levels, reflecting ongoing cost
control efforts. Fiscal 1998 general and administrative costs as a percent of
sales are expected to approximate fiscal 1997 levels.
Restructuring Charges--The Company initiated a restructuring program in the
quarter ending March 31, 1995, which resulted in a fiscal 1995 fourth-quarter
pre-tax charge of $35.6 million. The program was designed to achieve greater
efficiency and competitiveness and improve margins. Approximately $12.2 million
of the non-cash portion of the charge consists of accruals for certain pension-
related liabilities in accordance with Statement of Financial Accounting
Standards (SFAS) No. 88 "Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits."
In mid-fiscal 1996, various executive management changes were made within
the Defense Systems Group. The new management re-evaluated business strategies
for the group, including its restructure plans. While the significant components
of the restructure plan did not change, the anticipated timing of certain
severance and facility closure costs pushed into fiscal 1997. Cash expenditures
under this restructuring program, primarily for employee-related costs, totaled
approximately $9 million and $12 million in fiscal 1997 and fiscal 1996,
respectively. The balance of the reserve at March 31, 1997, represents
specifically identified incremental employee severance and facility closure
costs expected to be incurred in fiscal 1998. Amounts charged for restructuring
reserves include estimates of costs related to facility closure and employee
severance costs. These costs are subject to change near term, although not
currently anticipated, due to changes in assumptions and the period over which
such costs are expected to be incurred.
Change of Control--In August 1994, six new directors nominated by Capstay
Partners, L.P. were elected to the Company's Board of Directors, resulting in a
"change of control" as defined in the Company's compensation and benefit plans
and in agreements with certain employees. These change of control agreements
resulted in the Company incurring an "unusual" charge of $23.0 million in fiscal
1995.
Litigation Settlement--The Company had been a defendant in a "qui tam" lawsuit
under the False Claims Act (Accudyne "qui tam"). On June 23, 1995, the Company
and claimants reached agreement to settle the lawsuit. Accordingly, the Company
recorded an unusual charge of $15.0 million as of the fourth quarter of fiscal
1995.
Interest Expense--Interest expense was $35.1 million in fiscal 1997, a decrease
of $4.2 million, compared to $39.3 million in fiscal 1996. Fiscal 1996 interest
expense increased by $31.4 million from $7.9 million in fiscal 1995. The
decrease in fiscal 1997 interest expense compared to fiscal 1996 reflects
reduced average borrowings outstanding due to regularly scheduled paydowns, as
well as an $88.6 million prepayment of long-term debt with a portion of the sale
proceeds generated by the February 28, 1997, sale of the Marine Systems Group.
The significant increase in interest expense in fiscal 1996 compared to fiscal
1995 reflects increased borrowings to fund the Aerospace acquisition, completed
on March 15, 1995.
The Company has entered into hedging transactions to protect against
increases in market interest rates on its long-term debt. At March 31, 1997, the
notional amount of interest rate swap agreements was approximately $83 million.
Under the swap agreements, the Company currently pays an average fixed rate of
6.7 percent and receives interest at a rate equal to three-month LIBOR (5.6
percent at March 31, 1997). These agreements have remaining terms of one to two
years, with certain cancellation options. The interest rate cap agreements limit
the Company's LIBOR exposure to 7.0 percent, and expire on October 1, 1997. The
notional amount of amortizing interest rate cap agreements at March 31, 1997 was
$22.5 million.
<PAGE>
Income Taxes--Fiscal 1997 taxes on income from continuing operations reflect a
zero-percent tax rate, compared to a 22-percent tax rate in fiscal 1996. These
rates vary from statutory tax rates principally due to partial utilization of
available tax loss carryforwards. The fiscal 1997 income tax provision includes
a $12.1 million tax expense on income from discontinued operations. The fiscal
1996 income tax provision includes a tax benefit of $7.8 million for
discontinued operations. Fiscal 1995 taxes reflect a zero-percent tax rate. This
varies from statutory tax rates principally because SFAS No. 109 does not permit
current recognition of deferred tax benefits in excess of the amount more likely
than not to be realized.
Discontinued Operations
Marine Systems Group--On December 22, 1996, the Company entered into an
agreement to sell its Marine Systems Group, including substantially all of the
assets of that business, to Hughes Aircraft Company for $141.0 million in cash.
The sale was completed on February 28, 1997, resulting in a pre-tax gain to the
Company of approximately $27.2 million ($17.7 million, after tax), which the
Company recognized in the fourth quarter. The Company has accounted for the
operations of the Marine Systems Group as discontinued operations in these
financial statements.
Demilitarization Operations--During fiscal 1994, the Company entered into two
joint ventures in Belarus and Ukraine, for the purpose of establishing
demilitarization operations in those countries. In March 1996, Company
management, after evaluating its strategic plans for the future, elected to
discontinue its ownership of foreign demilitarization businesses
("Demilitarization operations"). Accordingly, the Company began actions to
transfer ownership of the joint ventures to host country governments or their
agents and in the fourth quarter of fiscal 1996, the Company estimated and
recorded a $6.2 million loss on disposal of discontinued operations (net of tax
benefit of $4.2 million).
During fiscal 1997, the Company stopped production efforts and completed
its withdrawal from the Belarus operation. In the fourth quarter of fiscal 1997,
the Company reached agreement with the Ukrainian government to transfer the
Company's interests in the operation to the Ukrainian government after payment
of a $19.8 million non-interest bearing long-term note receivable. Management's
best estimate of the value received for the net assets transferred under the
contractual obligation, after discounting for interest, is currently estimated
to be approximately $8.7 million and is recorded on the balance sheet as "Net
assets of discontinued operations" at March 31, 1997. The Company has also
provided a letter of credit to support approximately $2.5 million of bank
borrowings of the demilitarization operations.
Net Income/(Loss)--The Company recorded net income of $59.2 million in fiscal
1997, an increase of $11.4 million or 23.8 percent over net income of $47.8
million in fiscal 1996. Fiscal 1997 net income includes $22.5 million of income
from discontinued operations, compared to a $.6 million loss in fiscal 1996. The
fiscal 1997 increase in income from discontinued operations is reflective of the
Company's sale of the Marine Systems Group on February 28, 1997, which resulted
in an after-tax gain of $17.7 million. This increase in fiscal 1997 net income
was partially offset by the Company's adoption of SOP 96-1 "Environmental
Remediation Liabilities," which resulted in a $17.4 million reduction in net
income. Fiscal 1997 net income also benefited from the Company's ability to more
fully utilize previous tax loss carryforwards to reduce tax expense on
continuing operations in fiscal 1997 to zero percent, compared to 22 percent in
fiscal 1996. Net income of $47.8 million in fiscal 1996 compares to a net loss
of $74.1 million in fiscal 1995. Fiscal 1996 results include a full year of
operations of the Aerospace Systems Group, a significant contributor to the
improved results. The Aerospace operations were acquired from Hercules on March
15, 1995. Additionally, fiscal 1996 results were affected positively by improved
gross margins in the Defense Systems Group and reduced operating expenses as a
percent of sales due to a more focused approach to program pursuits and the
synergistic benefits of eliminating duplicative selling expenses as a result of
the Aerospace acquisition. Fiscal 1995 results included $73.6 million in unusual
charges associated with litigation settlement, change of control, and
restructuring charges.
Cumulative Effect of Change in Accounting for Post-Employment
Benefits--Effective April 1, 1994, the Company changed its method of accounting
for post-employment benefit obligations to comply with SFAS No. 112, "Employers
Accounting for Post-Employment Benefits." This new rule requires such
obligations to be accounted for on an accrual basis rather than the "pay-as-you-
go" basis. An accrued liability was established for such obligations as of April
1, 1994, resulting in a reduction of after-tax earnings for fiscal 1995 of $1.5
million or $.15 per share. Other than this cumulative effect charge, earnings
were not materially affected by this accounting change.
<PAGE>
22 Management's Discussion and Analysis
Liquidity, Capital Resources, and Financial Condition
Cash provided by operations during fiscal 1997 totaled $92.1 million, compared
with cash provided by operations of $89.1 million for fiscal 1996 and cash used
by operations of $58.1 million for fiscal 1995. Cash provided by operations for
fiscal 1997 reflects increased net income and improved working capital
management, partially offset by the decrease in net operating cash flow from the
Company's discontinued operations. Approximately $9 million was expended under
the Company's Defense Systems Group restructure plan, primarily for employee-
related costs. Additional restructure expenditures of approximately $12 million
were made in fiscal 1997, primarily for closure costs in connection with the
Company's closure plan of certain facilities acquired in the Aerospace
acquisition. Cash provided by operations for fiscal 1996 compared to cash used
by operations for fiscal 1995 primarily reflects increased fiscal 1996
profitability, as well as the fiscal 1995 impact of the restructuring programs,
change of control-related payments, and increased working capital.
As a result of the Accudyne "qui tam" litigation settlement recorded as of
the fourth quarter of fiscal 1995, the Company spent approximately $3.0 and $3.5
million in fiscal 1997 and 1996, respectively. The remaining $8.5 million, plus
interest, is expected to be expended through the fiscal year ending March 31,
1999, with $4.0 million payable in fiscal 1998.
As a result of operating losses incurred in prior years, primarily
resulting from restructuring charges, as well as one-time charges incurred in
fiscal 1995 for change of control and the litigation settlement, the Company has
tax loss carryforwards of approximately $24 million, which are available to
reduce future tax payments. Realization of the net deferred tax asset (net of
recorded valuation allowance) is dependent upon profitable operations and future
reversals of existing taxable temporary differences. Although realization is not
assured, the Company believes that it is more likely than not that such net
recorded benefits will be realized through the reduction of future taxable
income.
On February 28, 1997, the Company completed the sale of its Marine Systems
Group to Hughes Aircraft Company for $141.0 million in cash. In accordance with
the terms of its debt agreements, the Company used $88.6 million of the sale
proceeds to prepay a portion of its long-term debt.
The Company's future cash flow from operations is not expected to be
significantly affected in future periods as a result of these discontinued
operations.
Net outlays for capital expenditures during fiscal 1997 were $28.5 million
or 2.6 percent of sales, compared with fiscal 1996 outlays of $25.6 million or
2.5 percent of sales, and $12.6 million or 2.5 percent of sales in fiscal 1995.
Management expects total capital expenditures for fiscal 1998 to decrease to
approximately 2 percent of sales, due primarily to the completion in fiscal 1997
of tooling expenditures for the Delta III rocket launch program.
In fiscal 1995, the Company acquired the Aerospace operations from Hercules
for $306.0 million in cash and 3.86 million shares of stock valued at $112.0
million. During fiscal 1996, the Company received a net amount of $29.1 million
from Hercules as an adjustment to the purchase price. The adjustment was
primarily the result of receivable collections just prior to the closing of the
acquisition, which reduced assets and lowered the final purchase price.
Principal payments made on the Company's long-term debt during fiscal 1997
totaled $128.9 million, including the $88.6 million prepayment resulting from
the sale of the Marine Systems Group.
As of March 31, 1997, no borrowings were outstanding against the Company's
$275.0 million revolving line of credit. Letters of credit totaling $51.4
million at that date reduced the borrowings available under this credit line to
$223.6 million.
The Company's total debt (current portion of long-term debt, notes payable
and long-term debt) as a percentage of total capitalization decreased
significantly to 55.1 percent at March 31, 1997, compared with 71.6 percent at
March 31, 1996, which primarily reflects continued profitable operations and
strong cash flow from operations, as well as proceeds from the sale of the
Marine Systems Group, which was used largely for debt repayment.
The Company initiated a $50.0 million share repurchase program in fiscal
1996. In connection with that program, the Company has repurchased 1,122,580
shares of its stock in the open market as of March 31, 1997, at an average price
of $38.69 per share, for an aggregate amount of $43.4 million, of which $6.6
million was repurchased in fiscal 1997. The Company completed the $50.0 million
repurchase plan in the first quarter of fiscal 1998.
The Company satisfied all its needs for cash in fiscal 1997, primarily for
operating capital, capital expenditures, scheduled debt repayments, and share
repurchases, entirely from operating cash flows. Based on the financial
condition of the Company at March 31, 1997, management believes the internal
cash flows of the Company combined with the availability of funding under its
line of credit if needed, will be adequate to fund the future growth of the
Company as well as to service its long-term debt obligations. Management is
currently evaluating a number of options relative to the Company's cash balances
at March 31, 1997, among which include but are not limited to, further debt
repayment, share repurchases, or acquisitions of businesses that fit the
Company's long-term growth strategies.
<PAGE>
23
Environmental Matters
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. In October 1996, the American
Institute of Certified Public Accountants (AICPA) issued SOP 96-1 "Environmental
Remediation Liabilities," which required a change in, and provided clarification
to, the manner in which companies measure and recognize costs associated with
environmental remediation liabilities. Under the provisions of the SOP, the most
significant change in accounting for the Company is that all future anticipated
ongoing monitoring and maintenance costs associated with known remediation sites
is required to be accrued. Such costs were previously expensed as incurred. The
Company elected to adopt the provisions of the new rule early, as is permitted
under the SOP, which resulted in a non-cash charge of $17.4 million in the
fourth quarter of fiscal 1997. The charge is classified in cost of sales
expenses in the Company's consolidated income statement for the fourth quarter
ending March 31, 1997. At March 31, 1997, the accrued liability for
environmental remediation of $34.8 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 significant 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 March 31, 1997. Such
receivable primarily represents the reimbursement of costs associated with the
Aerospace operations. As part of the Aerospace acquisition, the Company
generally assumed responsibility for environmental compliance at Aerospace
operations facilities. It is expected that much of the compliance and
remediation costs associated with these facilities will be reimbursable under
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 thereof 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. It is expected that fiscal 1998 environmental
expenditures, net of expected recoveries, will approximate $5.2 million. Amounts
payable/receivable in periods beyond fiscal 1998 have been classified as non-
current on the Company's March 31, 1997, balance sheet. At March 31, 1997, the
estimated aggregate undiscounted amounts payable for environmental remediation
costs, net of expected reimbursements, are approximately $5.2, $5.0, $3.3, $1.7,
and $1.4 million for the fiscal years ending March 31, 1998, 1999, 2000, 2001,
and 2002, respectively. Estimated amounts payable thereafter total $14.6
million. At March 31, 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.
There were no material insurance recoveries related to environmental
remediations during fiscal 1997, 1996, or 1995.
In future periods, new laws or regulations, advances in technologies, and
additional information about the ultimate remedy selected at new and existing
sites, and the Company's share of the cost of such remedies, could significantly
change the Company's estimates. 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.
Litigation
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, 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 named a defendant.
The Company is involved in three "qui tam" lawsuits brought by former
employees of the Aerospace operations acquired from Hercules. 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 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 March 31,
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
<PAGE>
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. The
complaints allege defective pricing on two separate government contracts.
Damages in either case 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.
New Accounting Rules
In October 1996, the AICPA issued SOP 96-1 "Environmental Remediation
Liabilities," which required change in, and provided clarification to, the
manner in which companies measure and recognize costs associated with
environmental remediation liabilities. Under the provisions of the SOP, the most
significant change in accounting for the Company is that all future anticipated
ongoing monitoring and maintenance costs associated with known remediation sites
is required to be accrued. Such costs were previously expensed as incurred. The
Company elected to adopt the provisions of the new rule early, as is permitted
under the SOP, which resulted in a non-cash charge of $17.4 million in the
fourth quarter of fiscal 1997. The charge is classified in cost of sales
expenses in the Company's consolidated income statement for the period ending
March 31, 1997.
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 Opinion No.
25, "Accounting for Stock Issued to Employees," for measurement and recognition
of stock-based transactions with employees. The adoption of SFAS No. 123 did not
have an impact on the Company's financial position or results of operations.
In February 1997, the Financial Accounting Standards Board 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 EPS would be as follows:
<TABLE>
<CAPTION>
Years Ended March 31
---------------------
1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Basic earnings (loss) per share:
Continuing operations $2.82 $3.72 $(7.27)
Discontinued operations 1.73 (.05) .05
Cumulative effect of
accounting change -- -- (.15)
- ---------------------------------------------------------
Net income (loss) $4.55 $3.67 $(7.37)
=========================================================
Diluted earnings per share:
Continuing operations $2.73 $3.61 $(7.27)
Discontinued operations 1.68 (.05) .05
Cumulative effect of
accounting change -- -- (.15)
- ---------------------------------------------------------
Net income (loss) $4.41 $3.56 $(7.37)
=========================================================
</TABLE>
Inflation
In the opinion of management, inflation has not had a significant impact on 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 in cost-type contracts.
Risk Factors
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 involve 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, the Company's success in program pursuits,
continued access to capital markets, 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>
To the Stockholders of Alliant Techsystems:
We have audited the accompanying consolidated balance sheets of Alliant
Techsystems Inc. and subsidiaries as of March 31, 1997, and 1996, and the
related consolidated statements of income and of cash flows for each of the
years ended March 31, 1997, 1996, and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Alliant Techsystems Inc. and
subsidiaries at March 31, 1997, and 1996, and the consolidated results of its
operations and its cash flows for each of the years ended March 31, 1997, 1996,
and 1995, in conformity with generally accepted accounting principles.
As discussed in Note 10 to the financial statements, effective April 1, 1994,
the Company changed its method of accounting for post-employment benefit costs
to conform with Statement of Financial Accounting Standards No. 112.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
May 14, 1997
The management of Alliant Techsystems Inc. is responsible for the integrity,
objectivity, and consistency of the financial information presented in this
report. The financial statements have been prepared in accordance with generally
accepted accounting principles, and necessarily include some amounts based on
management's judgments and best estimates.
To meet its responsibilities, management relies on a comprehensive system of
internal controls designed to provide reasonable assurance that assets are
safeguarded and that transactions are appropriately recorded and reported. The
system is supported by the employment of qualified personnel and by an effective
internal audit function.
Our independent auditors provide an objective, independent review of
management's discharge of its responsibilities as they relate to the financial
statements. Their report is presented separately.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, recommends the independent auditors for appointment by the Board
subject to ratification by shareholders. The Committee also meets periodically
with the independent auditors, internal auditors, and representatives of
management to discuss audit results, the adequacy of internal controls, and the
quality of our financial accounting and reporting. The independent auditors and
the internal auditors have access to the Committee without the presence of
management.
/s/ Richard Schwartz
Richard Schwartz
Chairman, President, and Chief Executive Officer
/s/ Scott S. Meyers
Scott S. Meyers
Vice President and Chief Financial Officer
<PAGE>
26 Consolidated Income Statements
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
(Amounts in thousands except per share data) March 31, 1997 March 31, 1996 March 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $1,089,397 $1,020,605 $ 504,190
Cost of sales 907,695 834,298 438,558
Change in accounting estimate- environmental liabilities 17,442 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin 164,260 186,307 65,632
Operating expenses:
Research and development 16,207 14,126 11,763
Selling 35,778 33,143 24,820
General and administrative 41,881 40,186 19,066
Restructuring charges - - 35,600
Change of control charges - - 23,039
Litigation settlement charges - - 15,000
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 93,866 87,455 129,288
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 70,394 98,852 (63,656)
- ----------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (35,102) (39,279) (7,919)
Interest income 716 1,852 843
Other, net 651 657 (2,332)
- ----------------------------------------------------------------------------------------------------------------------------------
Total other expense (33,735) (36,770) (9,408)
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 36,659 62,082 (73,064)
Income tax provision - 13,658 -
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 36,659 48,424 (73,064)
Discontinued operations:
Income from discontinued operations, net of income taxes 4,819 5,617 456
Gain (loss) on disposal of discontinued operations, net of income taxes 17,681 (6,240) -
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of accounting change 59,159 47,801 (72,608)
Cumulative effect of accounting change net of income taxes - - (1,500)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 59,159 $ 47,801 $ (74,108)
==================================================================================================================================
Primary and fully diluted earnings (loss) per
common and common equivalent share:
Continuing operations $2.73 $3.61 $(7.27)
Discontinued operations 1.68 (.05) .05
Cumulative effect of accounting change - - (.15)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $4.41 $3.56 $(7.37)
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Balance Sheets 27
<TABLE>
<CAPTION>
(Amounts in thousands except share data) March 31, 1997 March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 122,491 $ 45,532
Marketable securities 378 348
Receivables 191,675 178,475
Net inventory 68,125 87,602
Deferred income tax asset 37,244 40,393
Other current assets 5,329 3,819
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 425,242 356,169
Net property, plant, and equipment 360,560 382,513
Goodwill 123,618 125,033
Deferred charges 10,925 12,316
Prepaid and intangible pension assets 80,569 85,142
Other assets 116 855
Net assets of discontinued operations 8,674 73,114
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,009,704 $1,035,142
==================================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 29,024 $ 45,000
Notes payable 2,302 2,756
Accounts payable 85,451 77,453
Contract advances and allowances 64,500 40,636
Accrued compensation 28,392 28,672
Accrued income taxes 9,156 9,310
Restructuring liability 5,876 26,782
Other accrued liabilities 106,496 82,582
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 331,197 313,191
Long-term debt 237,071 350,000
Post-retirement and post-employment benefits liability 143,373 143,930
Pension liability 37,079 42,184
Other long-term liabilities 42,192 28,360
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 790,912 877,665
Contingencies (see Notes 15 and 19)
Stockholders' equity:
Common stock-$.01 par value
Authorized-20,000,000 shares
Issued and outstanding 13,081,538 and 12,965,542 shares at
March 31, 1997, and 1996, respectively 131 130
Additional paid-in-capital 248,612 249,814
Retained earnings (deficit) 4,361 (54,798)
Unearned compensation (1,324) (2,552)
Pension liability adjustment (2,304) (1,189)
Common stock in treasury, at cost (782,075 and 898,071 shares held
at March 31, 1997, and 1996, respectively) (30,684) (33,928)
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 218,792 157,477
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,009,704 $1,035,142
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
28 Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
(Amounts in thousands) March 31, 1997 March 31, 1996 March 31, 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 59,159 $ 47,801 $ (74,108)
Adjustments to net income (loss) to arrive at cash
provided by (used for) operations:
Restructuring charges--non-cash portion -- -- 18,433
Change of control charges--non-cash portion -- -- 7,991
Litigation settlement charges--non-cash portion -- -- 15,000
Cumulative effect of accounting change--net of
income taxes -- -- 1,500
Depreciation 45,114 49,855 13,824
Amortization of intangible assets and earned
compensation 7,607 8,768 2,459
(Gain) loss on disposition of discontinued
operations, net of taxes (17,681) 6,240 --
Loss on sale of marketable securities -- -- 1,562
(Gain) loss on disposition of property (72) (135) 1,005
Changes in assets and liabilities:
Receivables (13,201) (409) (32,870)
Inventories 19,349 11,947 2,751
Accounts payable 7,726 29,564 (5,412)
Contract advances and allowances 23,863 (21,409) 7,862
Accrued compensation (280) 3,382 (7,716)
Accrued income taxes (154) (115) 1,127
Accrued restructure liability (22,946) (35,471) (4,800)
Accrued environmental liability 13,180 (178) 3,279
Other assets and liabilities (24,914) (29,167) (8,944)
Operating activities of discontinued operations (4,640) 18,408 (1,046)
- --------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operations 92,110 89,081 (58,103)
==============================================================================================================
Investing Activities
Capital expenditures (28,522) (25,593) (12,635)
Acquisition of businesses -- -- (305,891)
Purchase price finalization -- 29,115 --
Accrued transaction fees paid -- (6,000) --
Proceeds from sale of discontinued operations 141,000 -- --
Proceeds from the disposition of property 2,835 929 149
Investing activities of discontinued operations (2,483) (2,306) (6,700)
Proceeds from sale of marketable securities -- -- 3,759
Other investing activities, net -- 414 (988)
- --------------------------------------------------------------------------------------------------------------
Cash provided by (used for) investing activities 112,830 (3,441) (322,306)
- --------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt -- -- 425,000
Payments made on long-term debt and notes payable (128,905) (30,000) (53,465)
Payments made for debt issue costs -- -- (12,997)
Net purchase of treasury shares (2,616) (36,859) --
Proceeds from exercised stock options 3,995 1,773 1,793
Other financing activities, net (455) (686) (11)
- ----------------------------------------------------------------------------------------------------------------
Cash (used for) provided by financing activities (127,981) (65,772) 360,320
================================================================================================================
Increase (decrease) in cash and cash equivalents 76,959 19,868 (20,089)
Cash and cash equivalents at beginning of period 45,532 25,664 45,753
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 122,491 $ 45,532 $ 25,664
================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements 29
- --------------------------------------------------------------------------------
(Amounts in thousands except per share data)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation - The consolidated financial statements of the Company
include all wholly owned subsidiaries. Intercompany balances and transactions
between entities included in these financial statements have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported therein. Due to the inherent
uncertainty involved in making estimates, actual results reported in future
periods may differ from those estimates.
Long-Term Contracts - Sales under long-term contracts are accounted for under
the percentage of completion method and include cost reimbursement and fixed-
price contracts. Sales under cost reimbursement contracts are recognized as
costs are incurred. Sales under fixed-price contracts are either recognized as
the actual cost of work performed relates to the estimate at completion (cost-
to-cost) or based on results achieved, which usually coincides with customer
acceptance (units of delivery).
Profits expected to be realized on contracts are based on the Company's
estimates of total contract sales value and costs at completion. Estimated
amounts for contract changes and claims are included in contract sales only when
realization is estimated to be probable. Assumptions used for recording sales
and earnings are adjusted in the period of change to reflect revisions in
contract value and estimated costs. In the period in which it is determined that
a loss will be incurred on a contract, the entire amount of the estimated loss
is charged to income.
Research and development, selling, and general and administrative costs are
expensed in the year incurred.
Environmental Remediation and Compliance - Costs associated with environmental
compliance and preventing future contamination that are estimable and probable
are accrued and expensed, or capitalized as appropriate. Expected remediation
and monitoring costs relating to the remediation of an existing condition caused
by past operations, and which do not contribute to current or future revenue
generation, are accrued and expensed in the period that such costs become
estimable. Liabilities are recognized for remedial activities when they are
probable and the remediation cost can be reasonably estimated.
The cost of each environmental liability is estimated by engineering,
financial, and legal specialists within the Company based on current law and
existing technologies. Such estimates are based primarily upon the estimated
cost of investigation and remediation required and the likelihood that other
potentially responsible parties (PRPs) will be able to fulfill their commitments
at the sites where the Company may be jointly and severally liable. The
Company's estimates for environmental obligations are dependent on and affected
by changes in environmental laws and regulations, the nature and extent of
historical information and physical data relating to a contaminated site, the
complexity of the site, methods of remediation available, the technology that
will be required, the outcome of discussions with regulatory agencies and other
PRPs at multi-party sites, the number and financial viability of other PRPs,
future technological developments, and the timing of expenditures. Accordingly,
such estimates could change materially as the Company periodically evaluates and
revises such estimates based on expenditures against established reserves and
the availability of additional information.
Cash Equivalents - Cash equivalents are all highly liquid temporary cash
investments purchased with original maturities of three months or less. The fair
market value of such investments at March 31, 1997, approximates cost.
Marketable Securities - Marketable securities sold during fiscal 1995 represent
available-for-sale investments in a diversified mutual fund whose portfolio
consists of U.S. Treasury bills, bonds, and other government-backed obligations
and are recorded at estimated market value. There were no gross realized gains
recorded in fiscal 1997, 1996, and 1995. Gross realized losses for the same
periods were $0, $0, and $1,562, respectively, calculated using the specific
identified cost basis. Unrealized gains and losses were negligible at March 31,
1997, and 1996, respectively.
Inventories - Inventoried costs relating to long-term contracts and programs are
stated at actual production costs, including factory overhead, initial tooling,
and other related nonrecurring costs incurred to date, reduced by amounts
identified with sales recognized on units delivered or progress completed.
Inventoried costs relating to long-term contracts and programs are reduced by
charging any amounts in excess of estimated realizable value to cost of sales.
Progress payments received from customers relating to the uncompleted portions
of contracts are offset first against unbilled receivable balances, then against
applicable inventories. Any remaining progress payment balances are classified
as advance payments.
Property and Depreciation - Property, plant, and equipment is stated at cost and
depreciated over estimated useful lives. Machinery and test equipment is
depreciated using the double declining balance method, converting to straight-
line depreciation for the last third of the asset's life. All other depreciable
property is depreciated using the straight-line method.
Goodwill - Goodwill represents the excess of the cost of purchased businesses
over the fair value of their net assets at date of acquisition and is being
amortized on a straight-line basis over periods up to 40 years. The
recoverability of the carrying value of goodwill is periodically evaluated by
comparison with the estimated future undiscounted cash flows from related
operations.
Income Taxes - Deferred income taxes result from temporary differences between
the basis of assets and liabilities recognized for differences between the
financial statement and tax basis thereon, and for the expected future tax
benefits to be derived from tax losses and tax credit carryforwards. A valuation
allowance is recorded to reflect the likelihood of realization of deferred tax
assets.
<PAGE>
- -------------------------------------------------------------------------------
30 Notes to the Consolidated Financial Statements
- -------------------------------------------------------------------------------
Financial Instruments and Hedging - The Company uses interest rate swap and cap
agreements to manage interest costs and the risk associated with changing
interest rates. As interest rates change, the differential paid or received is
recognized in interest expense of the period.
Earnings Per Share Data - For the fiscal years ended March 31, 1997, 1996, and
1995, primary and fully diluted earnings (loss) per share is computed based on
weighted average common and common equivalent shares outstanding of 13,402,000,
13,431,000, and 10,052,000, respectively. Common stock equivalents are excluded
from the earnings (loss) per share calculation for fiscal 1995 because the
effect would be antidilutive. Common stock equivalents used in computing
earnings per share relate to stock options which, if exercised, would have a
dilutive effect on earnings per share for fiscal 1997 and 1996.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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:
<TABLE>
<CAPTION>
Years Ended March 31
--------------------------------------
1997 1996 1995
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Basic earnings (loss) per share:
Continuing operations $2.82 $3.72 $(7.27)
Discontinued operations 1.73 (.05) .05
Cumulative effect of
accounting change - - (.15)
- ------------------------------------------------------------------------------------
Net income (loss) $4.55 $3.67 $(7.37)
====================================================================================
Diluted earnings per share:
Continuing operations $2.73 $3.61 $(7.27)
Discontinued operations 1.68 (.05) .05
Cumulative effect of
accounting change - - (.15)
- ------------------------------------------------------------------------------------
Net income (loss) $4.41 $3.56 $(7.37)
====================================================================================
</TABLE>
Reclassifications - Certain reclassifications have been made to the 1996 and
1995 financial statements to conform to the 1997 classification.
2. Receivables
Receivables, including amounts due under long-term contracts (contract
receivables), are summarized as follows:
<TABLE>
<CAPTION>
Years Ended
----------------------------
Mar. 31, 1997 Mar. 31, 1996
- -----------------------------------------------------
<S> <C> <C>
Contract receivables
Billed receivables $ 74,063 $ 67,003
Unbilled receivables 114,801 110,511
Other receivables 2,811 961
- -----------------------------------------------------
$191,675 $178,475
=====================================================
</TABLE>
Receivable balances are shown net of reductions of $301,385 and $307,090 as of
March 31, 1997, and 1996, respectively, for progress payments received from
customers relating to completed portions of contracts.
Unbilled receivables represent the balance of recoverable costs and accrued
profit comprised principally of revenue recognized on contracts for which
billings have not been presented to the customer because the amounts were earned
but not billable as of the balance sheet date under the contractual terms. These
amounts include expected additional billable general overhead costs and fees on
flexibly priced contracts awaiting final rate negotiations, and are generally
billable and collectible within one year.
3. Inventories
Inventory balances are shown net of reductions of $18,933 and $84,233 as of
March 31, 1997, and 1996, respectively, for progress payments received from
customers relating to uncompleted portions of contracts.
4. Property, Plant, and Equipment
The major categories of property consist of the following:
<TABLE>
<CAPTION>
Years Ended
-----------------------------
Mar. 31, 1997 Mar. 31, 1996
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Land $ 23,624 $ 24,165
Buildings and improvements 164,225 160,717
Machinery and equipment 324,625 319,610
Property not yet in service 10,701 5,985
- ------------------------------------------------------------------------------------------------------------------------
523,175 510,477
Less accumulated depreciation (162,615) (127,964)
- ------------------------------------------------------------------------------------------------------------------------
$ 360,560 $ 382,513
========================================================================================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
31
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5. Goodwill and Deferred Charges
Goodwill and deferred charges consist of the following:
Years Ended
-----------------------------
Mar. 31, 1997 Mar. 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill, net of accumulated amortization:
1997 - $7,255, 1996 - $3,940 $123,618 $125,033
===========================================================================================================================
Debt issuance costs, net of
accumulated amortization:
1997 - $7,099, 1996 - $2,433 $ 7,721 $ 11,098
Other 3,204 1,218
- ---------------------------------------------------------------------------------------------------------------------------
$ 10,925 $ 12,316
===========================================================================================================================
6. Other Accrued Liabilities
The major categories of other current and long-term accrued liabilities are as follows:
Years Ended
-----------------------------
Mar. 31, 1997 Mar. 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Employee benefits and insurance $ 46,950 $ 38,201
Legal accruals 25,041 27,657
Other accruals 34,505 16,724
- ---------------------------------------------------------------------------------------------------------------------------
Other accrued liabilities - current $ 106,496 $ 82,582
===========================================================================================================================
Litigation settlement - long-term $ 4,500 $ 8,500
Environmental remediation liability 19,169 7,289
Deferred tax liability 18,462 9,496
Other long-term 61 3,075
- ---------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities $ 42,192 $ 28,360
===========================================================================================================================
</TABLE>
The increase in other current accrued liabilities is driven in large part
by severance and closure costs to be incurred in connection with the Company's
sale of the Marine Systems Group (see Note 18). The increase in other long-term
liabilities is primarily reflective of the Company's adoption of SOP 96-1
"Environmental Remediation Liabilities" (see Note 19).
7. Long-Term Debt
The components of the Company's long-term debt are as follows:
<TABLE>
<CAPTION>
Years Ended
-----------------------------
Mar. 31, 1997 Mar. 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank term loan with quarterly principal
and interest payments through March 2001 $116,095 $245,000
11.75% Senior Subordinated Notes with semi-
annual interest payments, maturing 2003 150,000 150,000
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt 266,095 395,000
Less current portion (29,024) (45,000)
- ---------------------------------------------------------------------------------------------------------------------------
Long-term portion $237,071 $350,000
===========================================================================================================================
</TABLE>
In connection with the Aerospace acquisition (see Note 21), the Company
entered into a six-year, $500,000 bank credit facility which was comprised of a
$275,000 term loan and a $225,000 revolving working capital (revolver) and
letter of credit facility. In November 1996, this facility was amended to
increase the revolver and letter of credit facility from $225,000 to $275,000,
and to reduce the Company's borrowing interest rate margins. Outstanding letters
of credit totaling $51,448 reduced the available line of credit to $223,552 at
March 31, 1997. The Company is required to pay a commitment fee (0.275 percent
at March 31, 1997) on the $275,000 revolver, and is also charged for outstanding
letters of credit, in addition to an issuance fee, which varies and is
negotiated with each bank. The revolver and letter of credit fees are subject to
adjustment based on the Company's long-term debt rating. The interest rate
charged for borrowings under the bank credit facility is at the option of the
Company, either a floating rate based on a defined prime rate or a fixed rate
related to the London Interbank Offered Rate (LIBOR) plus a margin based on the
Company's debt rating. As of March 31, 1997, the unhedged interest rate on
outstanding borrowings under this facility was approximately 6.5 percent.
Borrowings are secured by substantially all of the assets of the Company.
Amounts outstanding under this agreement at March 31, 1997, based on current
rates for similar instruments with the same maturities, approximate fair market
value. There were no outstanding borrowings against the revolving line of credit
at March 31, 1997.
In addition to the bank credit facility, the Company has $150,000 of 11.75
percent senior subordinated notes outstanding. The senior subordinated notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after March 1, 1999, at certain defined redemption prices. The estimated fair
value of the Company's senior subordinated notes, based on bank quotes, is
approximately $162.8 million.
The Company's bank credit facility and senior subordinated notes limit the
payment of dividends and contain certain covenants with respect to the Company's
consolidated net worth, leverage, and debt and interest coverage. Additionally,
the Company's debt agreements impose certain restrictions on the incurrence of
additional indebtedness, sale of assets, mergers and consolidations,
transactions with affiliates, creation of liens, and certain other matters. In
connection with the sale of its Marine Systems Group in February 1997 (see Note
18), the Company prepaid $88.6 million of its long-term debt in accordance with
the terms of the bank credit facility. At March 31, 1997, the Company was in
compliance with all covenants and restrictions specified in its debt agreements.
At March 31, 1997, the aggregate maturities due over the next five fiscal
years under the bank term loan and the senior subordinated notes are $29,024 in
1998, $31,926 in 1999, $31,926 in 2000, $23,219 in 2001, and $0 in 2002. Amounts
due thereafter total $150,000.
The company's weighted average interest rate on short-term borrowings
during fiscal 1997 and 1996 was 7.2 percent and 7.3 percent, respectively.
<PAGE>
The Company has entered into hedging transactions to protect against increases
in market interest rates on its long-term debt. At March 31, 1997, the notional
amount of interest rate swap agreements was $83,000. Under the swap agreements,
the Company currently pays an average fixed rate of 6.7 percent, and receives
interest at a rate equal to three-month LIBOR (5.6 percent at March 31, 1997).
These agreements have remaining terms of one to two years, with certain
cancellation options. Fair value of the interest rate swap agreements at March
31, 1997, is $(.7) million. The interest rate cap agreements limit the Company's
LIBOR exposure to 7.0 percent, and expire on October 1, 1997. The notional
amount of amortizing interest rate cap agreements at March 31, 1997, was
$22,500. The recorded value of the interest rate cap agreements approximates
fair value at March 31, 1997. Counter parties to the interest rate swap and cap
agreements are major financial institutions who also participate in the
Company's bank credit facilities. Credit loss from counterparty non-performance
is not anticipated. The estimated fair market value amounts have been determined
using available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Therefore, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amounts.
8. Employee Benefit Plans
The Company's noncontributory defined benefit pension plans cover substantially
all employees. Plans provide either pension benefits of stated amounts for each
year of credited service, or pension benefits based on employee yearly pay
levels and years of credited service. The Company funds the plans in accordance
with Federal requirements calculated using appropriate actuarial methods.
Plan assets for the Company are held in a trust and are invested in a
diversified portfolio of equity securities and fixed income investments.
The sale of the Marine Systems Group resulted in curtailments as defined by
SFAS No. 88, "Employer's Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits." The net impact of the
curtailments was a credit to fiscal 1997 gain on disposal of discontinued
operations of $304, and a decrease in the accumulated benefit obligation as of
March 31, 1997, of $24,079. The workforce reduction associated with the fiscal
1995 restructuring program also resulted in curtailments as defined by SFAS No.
88. The impact of the fiscal 1995 curtailments was a charge to income of
$12,243, and an increase in the accumulated benefit obligation as of March 31,
1995, of $7,665.
The components of the Company's net periodic pension cost are
as follows:
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------------
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits
earned during the period $ 14,337 $ 13,662 $ 9,766
Interest cost of projected
benefit obligation 44,563 45,871 22,388
Return on assets (73,506) (110,907) 15,590
Net amortization and deferral 25,250 64,612 (32,307)
- -----------------------------------------------------------------------------------------------------------------
Net pension cost $ 10,644 $ 13,238 $ 15,437
=================================================================================================================
</TABLE>
The plans' funded status and amounts recognized in the Company's balance
sheets for its pension plans are summarized below:
<TABLE>
<CAPTION>
Plans Whose Accumulated
Benefits Exceed Assets
----------------------------------
Mar. 31, 1997 Mar. 31, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(294,386) $(296,277)
- -----------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (302,285) (300,779)
- -----------------------------------------------------------------------------------------------------------------
Projected benefit obligation (318,356) (324,480)
Plan assets at fair value 272,111 272,649
- -----------------------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of)
plan assets (46,245) (51,831)
Remaining unrecognized net
transition obligation (asset) (2,624) (3,472)
Unrecognized prior service cost 12,125 15,067
Unrecognized net loss 4,846 2,336
Accrued contribution to plans 2,861 3,496
Adjustment to recognize minimum liability (8,042) (7,780)
- -----------------------------------------------------------------------------------------------------------------
Unfunded pension liability
recognized in balance sheet $ 37,079 $ 42,184
=================================================================================================================
Plans Whose Assets
Exceed Accumulated Benefits
-------------------------------------------
Mar. 31, 1997 Mar. 31, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(448,931) $(416,094)
- -----------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (462,835) (429,466)
- -----------------------------------------------------------------------------------------------------------------
Projected benefit obligation (519,750) (512,722)
Plan assets at fair value 643,463 628,656
- -----------------------------------------------------------------------------------------------------------------
Funded status 123,713 115,934
Remaining unrecognized net
transition obligation (asset) -- --
Unrecognized prior service cost -- --
Unrecognized net gain (48,085) (38,739)
Accrued contribution to plans -- --
Adjustment to recognize minimum liability -- --
- -----------------------------------------------------------------------------------------------------------------
Prepaid premium expense
recognized in balance sheet $ 75,628 $ 77,195
=================================================================================================================
</TABLE>
<PAGE>
<TABLE> 33
Assumptions used in the accounting for defined benefit plans were:
Years Ended
------------------------------------------------
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate used in
determining present
values 7.50% 7.50% 8.25%
Annual increase in future
compensation levels 4.25% 4.25% 4.75%
Expected long-term rate
of return on assets 8.75% 8.75% 8.25%
===============================================================================
</TABLE>
The Company also sponsors a number of defined contribution plans.
Participation in one of these plans is available to substantially all employees.
The two principal defined contribution plans are Company-sponsored 401(K) plans
to which employees may contribute up to 18 percent of their pay. The Company
contributes in Company stock or cash amounts equal to 50 percent of employee
contributions up to 4 or 6 percent of the employee's pay. The amount expensed
for the Company match provision of the plans was $5,881, $5,780, and $3,606 in
fiscal 1997, 1996, and 1995, respectively. The significant increase in fiscal
1996 over amounts expensed in fiscal 1995 reflects the addition of the Aerospace
employees on March 15, 1995. The Company employs approximately 1,975 employees
(29 percent of its total employees) covered by collective bargaining agreements,
220 of whom are covered under agreements expected to be renegotiated during
fiscal 1998 due to current agreement expirations.
9. Post-Retirement Benefits
Generally, employees retiring from the Company after attaining age 55 who have
had at least five years of service are entitled to post-retirement health care
benefits and life insurance coverage until the retiree reaches age 65. The
portion of the premium cost born by the Company for such benefits is dependent
on the employee's years of service. Further contributions from retirees are also
required based on plan deductibles and co-payment provisions.
Post-retirement benefit costs, other than those related to pensions, in the
fiscal years ended March 31, 1997, 1996, and 1995, included the following
components:
<TABLE>
Years Ended
----------------------------------------------
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits
earned during the year $ 899 $ 842 $ 366
Interest cost on accumulated
post-retirement
benefit obligation 7,341 7,603 2,112
Net amortization and deferral 378 (25) --
Curtailment gain (45) (1,120) (25)
- -------------------------------------------------------------------------------
Net post-retirement
benefit cost $8,573 $ 7,300 $2,453
===============================================================================
</TABLE>
Curtailment gains recognized in fiscal 1996 were the result of the reduction
in employment in connection with restructuring programs.
The Company's post-retirement benefit obligations other than pensions
generally are not prefunded. The following table sets forth the status of the
retiree benefit obligations at March 31, 1997, and 1996:
<TABLE>
Years Ended
-----------------------------
Mar. 31, 1997 Mar. 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefits attributed to:
Retirees $112,449 $120,638
Fully eligible active employees 11,676 11,973
Other active employees 18,550 17,197
- -------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation $142,675 $149,808
Plan assets at fair value (4,797) (1,394)
- -------------------------------------------------------------------------------
Projected post-retirement benefit obligation $137,878 $148,414
Unrecognized net actuarial gain (loss) 2,979 (6,644)
Unrecognized prior service cost 180 245
- -------------------------------------------------------------------------------
Post-retirement benefit liability recognized
in the balance sheet $141,037 $142,015
===============================================================================
</TABLE>
An assumed discount rate of 7.5 percent was used to determine post-retirement
benefit costs other than pensions for fiscal 1997. The 1997 weighted average
annual assumed rate of increase in the per capita cost of covered benefits
(health care cost trend rates) is 5.0 percent. Increasing this rate by one
percentage point in each year would have increased the accumulated post-
retirement benefit obligation as of March 31, 1997, by $9,739 and increased the
aggregate of the service and interest cost components of post-retirement benefit
costs for fiscal 1997 by $586.
10. Post-Employment Benefits
The Company provides certain disability and workers' compensation benefits to
former or inactive employees. Effective April 1, 1994, the Company adopted SFAS
No. 112, "Employers' Accounting for Post-Employment Benefits." This statement
requires recognition of these benefits on an accrual basis. Prior to April 1,
1994, certain disability benefits were expensed as claims were reported. The
effect of adopting SFAS No. 112 was recognized immediately in fiscal 1995 as the
effect of a change in accounting principle and resulted in a charge of $1,500
net of taxes, or $0.15 per share against fiscal 1995 income.
11. Income Taxes
The components of the Company's income tax provision consist of:
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ --
State -- -- --
Deferred 12,115 16,801 --
- ------------------------------------------------------------------------------
Income tax provision $ 12,115 $ 16,801 $ 0
==============================================================================
</TABLE>
<PAGE>
34 Notes to the Consolidated Financial Statements
The items responsible for the differences between the federal statutory
rate and the Company's effective rate are shown as follows:
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed
at statutory federal rate $ 24,946 $ 26,729 $(25,938)
State income taxes-net of
federal impact 3,564 2,838 (3,705)
Permanent non-deductible costs 1,462 4,450 2,019
Unrecorded (recorded)
tax benefits (17,857) (17,216) 27,624
- -----------------------------------------------------------------------------------------------
Income tax provision $ 12,115 $ 16,801 $ 0
===============================================================================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and operating loss and
tax credit carryforwards. Significant items comprising the net deferred tax
asset shown on the statement of financial position are:
<TABLE>
<CAPTION>
Years Ended
-----------------------------
Mar. 31, 1997 Mar. 31, 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred sales $(17,442) $(18,363)
Accelerated depreciation (39,217) (29,994)
- ---------------------------------------------------------------------------
Deferred income tax liabilities (56,659) (48,357)
- ---------------------------------------------------------------------------
Reserves for employee benefits 49,954 53,285
Restructuring and environmental reserves 21,033 15,124
Research tax credits 22,400 -
Net operating loss carryforwards 23,973 33,683
Other reserves 32,427 45,957
- ---------------------------------------------------------------------------
Deferred income tax assets 149,787 148,049
Valuation allowance (74,346) (68,795)
- ---------------------------------------------------------------------------
Net deferred income tax asset $ 18,782 $ 30,897
- ---------------------------------------------------------------------------
Current deferred income tax asset 37,244 40,393
Noncurrent deferred income tax (liability) (18,462) (9,496)
- ---------------------------------------------------------------------------
Net deferred income tax asset $ 18,782 $ 30,897
===========================================================================
</TABLE>
During fiscal 1997, the deferred tax asset valuation allowance increased by
$5,551. This increase is primarily the result of the Company's analysis of the
likelihood of realizing the future tax benefit of tax loss carryforwards and
additional temporary differences. Realization of the net deferred tax asset (net
of recorded valuation allowance) is dependent on profitable operations and
future reversals of existing taxable temporary differences. Although realization
is not assured, the Company believes it is more likely than not that the net
recorded benefits will be realized through the reduction of future taxable
income. The amount of the net deferred tax assets considered realizable,
however, could be reduced in the near term if actual future taxable income is
lower than estimated, or if there are differences in the timing or amount of
future reversals of existing taxable temporary differences.
Federal and state operating loss carryforwards for tax purposes available
to offset future taxable income are $59,933 at March 31, 1997. These
carryforwards begin to expire in 2008. Research tax credits available to offset
future payments are $22,400, and begin to expire in 2006.
12. Leases
The Company leases land, buildings, and equipment under various operating leases
which generally have renewal options of one to five years. Rental expense for
the years ended March 31, 1997, 1996, and 1995, was $11,264, $11,417, and
$12,244, respectively.
Minimum rental commitments payable under noncancellable lease commitments
outstanding at March 31, 1997, are $10,874, $6,926, $4,890, $3,073, and $924,
respectively, for the fiscal years ending March 31, 1998, 1999, 2000, 2001, and
2002. Approximately $2,000 of these lease commitments remain accrued at March
31, 1997, as part of the restructuring charges referred to in Note 13.
13. Restructuring Charges
The Company initiated a restructuring program in the quarter ending March 31,
1995, which resulted in a fiscal 1995 fourth-quarter pre-tax charge of $35,600.
The program was designed to achieve greater efficiency and competitiveness, and
to improve margins. Approximately $12,200 of the non-cash portion of the charge
consists of accruals for certain pension-related liabilities in accordance with
SFAS No. 88 "Employers Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits."
In mid-fiscal 1996, various executive management changes were made in the
Defense Systems Group. As a result of these changes, new management re-evaluated
business strategies for the Group, including its restructure plans and, while
the significant components of the restructure plan did not change, the
anticipated timing of certain severance and facility closure costs pushed into
fiscal 1997. Cash expenditures under this restructuring program totaled
approximately $9,000 and $12,000 in fiscal 1997 and fiscal 1996, respectively,
primarily for employee-related costs. The Company experienced lower than
expected severance costs under the restructure plan due to higher than expected
employee attrition. As a result, the Company recorded credits of $1,900 and
$3,200 in the fourth quarters of fiscal 1997 and 1996, respectively, to reduce
the restructure accrual. The balance of the reserve at March 31, 1997,
represents specifically identified incremental employee severance and facility
closure costs expected to be incurred in fiscal 1998. Amounts charged for
restructuring reserves include estimates of costs related to facility closure
and employee severance costs which are subject to change in the near term
(although not currently anticipated) due to changes in assumptions and the
period over which such costs are expected to be incurred.
<PAGE>
35
14. Stockholders' Equity
Changes in stockholders' equity are summarized below:
<TABLE>
<CAPTION>
Common Stock Additional Retained Pension Unearned Cost
(Amounts in thousands $.01 Par Paid-In Earnings Liability Compen- Treasury
except share data) Shares Amount Capital (Deficit) Adjustment sation Shares Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994 9,818,416 $ 98 $128,014 $ (28,491) $ (7,085) $ (556) $ - $ 91,980
Net loss (74,108) (74,108)
Treasury shares received (61,784) (519) 52 (1,351) (1,818)
Pension liability adjustment 4,519 4,519
Exercise of stock options 136,060 1 946 1,275 2,222
Restricted stock grants 67,600 1 2,209 (2,235) 25
Amortization of restricted stock 1,188 1,188
Issuance to Hercules, Inc. 3,862,069 39 111,961 112,000
Stock value guarantees 3,606 3,606
Stock options Issued 3,241 (3,241)
Other net issuances 27,091 730 51 781
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1995 13,849,452 139 250,188 (102,599) (2,566) (4,792) - 140,370
Net income 47,801 47,801
Treasury shares received (983,333) (10) 43 (37,080) (37,047)
Pension liability adjustment 1,377 1,377
Exercise of stock options 80,223 1 (759) 2,701 1,943
Restricted stock grants 19,200 385 (836) 451
Amortization of restricted stock 3,033 3,033
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 12,965,542 130 249,814 (54,798) (1,189) (2,552) (33,928) 157,477
Net income 59,159 59,159
Treasury shares received (158,387) (2) (7,195) (7,197)
Pension liability adjustment (1,115) (1,115)
Exercise of stock options 157,023 2 (1,985) 5,978 3,995
Restricted stock grants 27,000 247 (1,246) 999
Amortization of restricted stock 1,894 1,894
Other net issuances 90,360 1 536 580 3,462 4,579
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 13,081,538 $ 131 $248,612 $ 4,361 $ (2,304) $ (1,324) $(30,684) $218,792
===================================================================================================================================
</TABLE>
The Company has authorized 5,000,000 shares of preferred stock, par value
$1.00, none of which has been issued.
The Company has authorized up to 2,620,679 shares to be granted under the
1990 Equity Incentive Plan of which 281,302 were available at March 31, 1997,
for future grants. Stock options are granted periodically at the fair market
value of the Company's common stock on the date of grant, and are generally
exercisable from one to three years from the date of grant. Stock options
covering an aggregate of 387,000 shares were issued on March 15, 1995, at $30.00
per share, pursuant to agreements entered into on October 27, 1994. This plan
also provides for the issuance of 250,000 stock appreciation rights which may be
issued in tandem with stock options. Restricted stock issued to non-employee
directors and certain key employees totaled 27,000, 19,200, and 67,600 for the
fiscal years ended March 31, 1997, 1996, and 1995, respectively. All restricted
stock granted before August 10, 1994, became fully vested as of that date due to
the change of control (see Note 16). Shares issued subsequent to that date total
101,700 and vest over periods of one to four years from the date of award. In
fiscal 1997 net restricted shares of up to 16,800 shares were reserved for
certain key officers which will vest on achievement of certain financial
performance goals through fiscal 1999.
In fiscal 1997, 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 APB 25 for measurement and recognition of
stock-based transactions with employees. Accordingly, compensation cost has not
been recognized for the awards made in the form of stock options. If
compensation cost for the Company's stock-based compensation plan had been
determined based on the fair value at the grant dates for awards under the plan
(consistent with the method provided in SFAS No. 123), the Company's net income
and earnings per share would have been reduced to the proforma amounts indicated
below:
<TABLE>
<CAPTION>
Years Ended
---------------------------------
Mar. 31, 1997 Mar. 31, 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $59,159 $47,801
Proforma $57,032 $47,057
Earnings per share As reported $ 4.41 $ 3.56
Proforma $ 4.26 $ 3.50
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
A summary of the Company's stock option
activity is as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------------------------------------
March 31, 1997 March 31, 1996 March 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 991,210 $ 30.23 852,433 $27.36 729,360 $ 14.43
Granted 150,650 46.28 232,340 39.08 701,271 30.36
Exercised (157,023) 25.43 (80,223) 24.21 (136,060) 16.34
Canceled (88,504) 32.77 (13,340) 37.38 (442,138) 14.14
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 896,333 $ 33.49 991,210 $30.23 852,433 $ 27.36
Options exercisable at year end 532,815 29.64 482,210 25.80 275,062 18.06
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the year $ 21.88 $18.29
==================================================================================================================================
</TABLE>
The weighted average fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model and represents the
difference between fair market value on the date of grant and the estimated
market value on the expected exercise date. The following weighted average
assumptions were used for grants in fiscal 1997 and 1996, respectively: risk-
free interest rates of 6.5 and 6.1 percent, expected volatility of 31.5 percent
in both years, and expected lives of seven years in both years.
A summary of stock options outstanding at March 31, 1997, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------
Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10-$24 156,179 7.4 yrs $18.63 156,179 $18.63
$25-$30 273,000 13.0 yrs 30.00 145,000 30.00
$31-$40 279,504 7.9 yrs 36.47 221,636 36.37
$41-$52 187,650 9.1 yrs 46.49 10,000 47.25
===================================================================================
</TABLE>
In fiscal 1995, limited stock appreciation rights (LSARs) were attached to
623,253 stock options, which became exercisable at the time of change of control
(see Note 16). The Company offered to certain executive officers a note
receivable and one stock option in exchange for deferring the LSAR payment
through November 8, 1997. This offer was accepted for 152,371 LSARs and 282,767
LSARs were exercised. Non-executive officers were offered a Stock Value
Guarantee (SVG) in exchange for their LSARs, in which the Company agreed to pay
any holder the excess, if any, of the guaranteed minimum price of $34.75 over
the amount that the holder receives upon the exercise of the stock option, and
the simultaneous market transaction sale of the stock received upon such
exercise, prior to the expiration date of June 30, 1997. SVGs were accepted on
188,115 shares of stock and 50,899 LSARs were exercised by non-executive
officers.
The Company initiated a $50,000 share repurchase plan in fiscal 1996. In
connection with that plan, the Company has repurchased 1,122,580 shares of the
Company's stock in the open market as of March 31, 1997, at an average price of
$38.69 per share, for an aggregate amount of $43,400.
In accordance with SFAS No. 87, "Employer's Accounting for Pensions," the
Company has recognized the minimum liability for underfunded pension plans equal
to the excess of the accumulated benefit obligation over plan assets. A
corresponding amount is recognized as an intangible asset to the extent of any
unrecognized prior service cost, with the remaining balance recorded as
reduction to equity. As of March 31, 1997, the minimum pension liability in
excess of the unrecognized prior service cost was $2,304.
15. Contingencies
As a U.S. Government contractor, the Company is subject to defective pricing and
cost accounting standards noncompliance 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 (1987 through 1997) will not materially exceed the amount provided
in the accompanying balance sheets.
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, 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 Aerospace operations acquired from Hercules. 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 operations will
be assumed by the Company except for a few specific lawsuits and disputes
<PAGE>
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 $4,000, for which the Company has fully reserved at March 31,
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. The
complaints allege defective pricing on two separate Government contracts.
Damages in either case were not specified.
While the results of litigation and other proceedings cannot be predicted with
certainty, in the opinion of management, 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.
16. Change of Control
In August 1994, six new directors nominated by Capstay Partners, L.P. were
elected to the Company's Board of Directors, resulting in a "change of control"
as defined in the Company's compensation and benefit plans and in agreements
with certain employees. These change of control agreements resulted in the
Company incurring an "unusual charge" totaling $23,039 in fiscal 1995.
17. Litigation Settlement
The Company had been a defendant in a "qui tam" lawsuit by claimants, including
present and former employees of Accudyne Corporation, alleging violations of the
False Claims Act. The alleged violations occurred prior to the acquisition of
Accudyne by the Company in October 1993.
To avoid the expense and disruption of protracted litigation, on June 23,
1995, the Company and claimants reached agreement to settle the lawsuit. Terms
of the agreement include payment by the Company of $12,000, consisting of
payments of $500 and $3,000 in 1995 and 1996, respectively, and payments to be
made of $4,000 in April 1997 and $4,500 in June 1998, plus interest at the
three-year Treasury Bill rate. Accordingly, the Company recorded an unusual
charge of $15,000 as of the fourth quarter of fiscal 1995, which includes legal
costs of approximately $3,000 which were agreed to be paid for by the Company.
18. Discontinued Operations
Marine Systems Group -- On December 22, 1996, the Company entered into an
agreement to sell its Marine Systems Group, including substantially all assets
of that business, to Hughes Aircraft Company for $141,000 in cash. The sale was
completed on February 28, 1997, resulting in a pre-tax gain to the Company of
approximately $27,200 ($17,681, after tax), which the Company recognized in the
fourth quarter. The Company has accounted for the operations of the Marine
Systems Group as discontinued operations in these financial statements.
Demilitarization Operations -- During fiscal 1994, the Company entered into two
joint ventures in Belarus and Ukraine for the purpose of establishing
demilitarization operations in those countries. In March 1996, Company
management, after evaluating its strategic plans for the future, elected to
discontinue its ownership of foreign demilitarization businesses
("Demilitarization operations"). Accordingly, the Company began actions to
transfer ownership of the joint ventures to host country governments or their
agents and in the fourth quarter of fiscal 1996, the Company estimated and
recorded a $6,240 loss on disposal of discontinued operations (net of tax
benefit of $4,160).
During fiscal 1997, the Company stopped production efforts, and completed its
withdrawal from the Belarus operation. In the fourth quarter of fiscal 1997, the
Company reached agreement with the Ukrainian government to transfer the
Company's interests in the operation to the Ukrainian government after payment
of a $19.8 million non-interest bearing long-term note receivable. Management's
best estimate of the value received for the net assets transferred under the
contractual obligation, after discounting for interest, is currently estimated
to be approximately $8.7 million, and is recorded on the balance sheet as "Net
assets of
<PAGE>
- --------------------------------------------------------------------------------
38 Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
discontinued operations" at March 31, 1997. The Company has also provided a
letter of credit to support approximately $2,500 of bank borrowings of the
demilitarization operations. Amounts estimated and recorded as net assets of
discontinued operations include significant assumptions made with regard to the
ultimate proceeds expected to be received and the timing that such proceeds are
expected to be received. These estimates are subject to changes in the near term
(although are not currently expected to) due to changes in assumptions. Those
changes could have a material impact on the Company's results in that period.
The consolidated income statements of the Company reflect the operating
results and the gain (loss) on disposal of discontinued operations separately
from continuing operations. The components of the loss from discontinued
operations are summarized as follows:
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $107,746 $186,677 $284,872
Income from discontinued
operations 7,415 5,071 456
Gain (loss) on disposal of assets 27,200 (10,400) --
Income tax (expense) benefit (12,115) 4,706 --
- --------------------------------------------------------------------------------------------------
Gain (loss) from discontinued
operations $ 22,500 $ (623) $ 456
==================================================================================================
</TABLE>
19. Environmental Remediation Liabilities
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. In October 1996, the AICPA
issued SOP 96-1 "Environmental Remediation Liabilities," which required a change
in, and provided clarification to, the manner in which companies measure and
recognize costs associated with environmental remediation liabilities. Under the
provisions of the SOP, the most significant change in accounting for the Company
is that all future anticipated ongoing monitoring and maintenance costs
associated with known remediation sites is required to be accrued. Such costs
were previously expensed as incurred. The Company elected to adopt the
provisions of the new rule early, as is permitted under the SOP, which resulted
in a non-cash charge of $17.4 million in the fourth quarter of fiscal 1997. The
charge is classified in cost of sales expenses in the Company's consolidated
income statement for the quarter ending March 31, 1997. At March 31, 1997, the
accrued liability for environmental remediation of $34.8 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
significant 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
March 31, 1997. Such receivable primarily represents the reimbursement of costs
associated with the Aerospace operations. As part of the Aerospace acquisition,
the Company generally assumed responsibility for environmental compliance at
Aerospace operations facilities. It is expected that much of the compliance and
remediation costs associated with these facilities will be reimbursable under
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. It is expected the fiscal 1998 environmental
expenditures, net of expected recoveries, will approximate $5.2 million. Amounts
payable/receivable in periods beyond fiscal 1998 have been classified as non-
current on the Company's March 31, 1997, balance sheet. At March 31, 1997, the
estimated aggregate undiscounted amounts payable for environmental remediation
costs, net of expected reimbursements, are approximately $5.2, $5.0, $3.3, $1.7,
and $1.4 million for the fiscal years ending March 31, 1998, 1999, 2000, 2001,
and 2002, respectively. Estimated amounts payable thereafter total $14.6
million. At March 31, 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.
20. Supplemental Cash Flow Information
Net income taxes paid (refunded) in the fiscal years ended March 31, 1997, 1996,
and 1995, totaled $107, $100, and $(1,100), respectively.
Amounts paid for interest were $39,015, $40,736, and $8,715 for fiscal 1997,
1996, and 1995, respectively. Amounts received for interest in those same
periods were $689, $1,789, and $564, respectively. The significant change in
interest paid during fiscal 1996, compared to fiscal 1995, reflects payments of
interest on debt issued in connection with the March 15, 1995, acquisition of
the Aerospace operations.
<PAGE>
39
21. Acquisition
On March 15, 1995, the Company acquired the Aerospace operations (Aerospace
acquisition) of Hercules for $276,776 in cash (net of a $29,115 purchase price
reimbursement received by the Company in fiscal 1996 from Hercules, reflecting
finalization of the purchase price), and 3.86 million shares of Common Stock
valued at $112,000, for an aggregate purchase price of approximately $388,776.
Unaudited pro forma results of operations of the Company for the year ended
March 31, 1995, as if the acquisition had been completed at the beginning of the
period are:
Year Ended
Mar. 31, 1995
- --------------------------------------------------------------------------------
Sales $1,120,822
Income (loss) before cumulative effect of accounting change $ (7,306)
Income (loss) per share from continuing operations $ (.78)
================================================================================
The unaudited pro forma results of operations are not necessarily indicative
of the results of operations that would have occurred had the businesses
actually been combined during the period presented nor is this information
indicative of expected future results of operations.
The Company used the purchase method of accounting to account for the
Aerospace acquisition. Accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based on fair value. The excess of
purchase price over the estimated fair value of the assets acquired,
approximately $118,000, has been recorded as goodwill, and is being amortized
over 40 years.
22. Business Segment Information
The Company operates one business segment which is involved in the production of
various types of defense systems. The Aerospace Systems Group designs, develops,
and manufactures launch vehicle systems, solid propulsion systems, munitions
propellants, composite structures, and decoy flares. The Defense Systems Group
designs, develops, and manufactures ammunition, fuzes, shoulder-fired weapons,
smart weapons/munitions, antitank mines, warheads, air-delivered munition,
artillery fire control, battlefield monitoring systems, unmanned aerial
vehicles, and defense electronics systems. The Emerging Business Group consists
of three primary business units: Global Environmental Solutions, Power Sources
Center, and Advanced Technology Applications.
The Company's sales are predominantly derived from contracts with agencies of,
and prime contractors to, the U.S. Government. The various U.S. Government
customers exercise independent purchasing decisions, and sales to the U.S.
Government generally are not regarded as constituting sales to one customer, but
instead, each contracting entity is considered to be a separate customer. During
fiscal 1997, approximately 85 percent of the Company's sales were derived from
contracts with the U.S. Government or U.S. Government prime contractors. Export
sales to customers were $75,014, $71,929, and $51,975 in fiscal years 1997,
1996, and 1995, respectively.
The following summarizes the Company's sales to the U.S. Government and total
sales by business group.
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government
contract sales $ 927,068 $ 887,502 $441,166
- --------------------------------------------------------------------------------------
Sales by business group:
Aerospace Systems $ 593,269 $ 568,568 $ 20,269(1)
Defense Systems 497,715 454,694 472,931
Emerging Business 41,448 30,985 10,990
Intercompany sales
eliminations (43,035) (33,642) --
- --------------------------------------------------------------------------------------
Total $1,089,397 $1,020,605 $504,190
======================================================================================
</TABLE>
(1) Represents operations from March 15, 1995, through March 31, 1995, from the
Aerospace acquisition.
<PAGE>
40 Notes to the Consolidated Financial Statements
23. Quarterly Financial Data (Unaudited)
Quarterly financial data is summarized for the years ended March 31, 1997, and
1996 as follows:
<TABLE>
<CAPTION>
Fiscal Year 1997 Quarter Ended
---------------------------------------------------
June 30 Sep. 29 Dec. 29 Mar. 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 230,173 $ 247,648 $300,785 $310,791
Gross margin 36,159 42,323 50,700 35,078
Income from continuing operations 7,614 11,323 16,200 1,522
Per share .57 .85 1.20 .11
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 9,904 12,827 17,225 19,203
Per share .74 .96 1.28 1.43
====================================================================================================================================
Fiscal Year 1996 Quarter Ended
---------------------------------------------------
July 2 Oct. 1 Dec. 31 Mar. 31
- ------------------------------------------------------------------------------------------------------------------------------------
Sales $ 242,786 $ 232,721 $257,097 $288,001
Gross margin 41,049 42,845 43,660 58,753
Income from continuing operations 6,595 9,574 11,624 20,631
Per share .48 .72 .87 1.54
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 10,065 11,186 12,494 14,056
Per share .74 .84 .93 1.05
====================================================================================================================================
</TABLE>
The adoption of SOP 96-1, which relates to accounting for environmental
remediation liabilities, resulted in a charge to income from continuing
operations of $17,442 in the fourth quarter of fiscal 1997 (see Note 19).
The Company completed the sale of its Marine Systems Group to Hughes
Aircraft Company on February 28, 1997. As a result, the Company recorded a gain
on the sale of discontinued operations, net of income taxes, of $17,681 during
the fourth quarter of fiscal 1997 (see Note 18).
Income from the results of discontinued operations, net of income taxes,
was $2,290, $1,504, and $1,025 for the first, second, and third quarters of
fiscal 1997, respectively. Fourth-quarter fiscal 1997 net operating results of
the Marine Systems Group are reflected as a component of the gain on the sale of
the discontinued operations.
Income (loss) from discontinued operations, net of income taxes was $3,470,
$1,612, $870, and $(335) for the first, second, third, and fourth quarters of
fiscal 1996, respectively. The fourth-quarter results for fiscal 1996 were
additionally affected by an after-tax charge of $6,240 for the estimated loss on
disposal of discontinued operations.
Following is a summary of the Company's stock price for the past three years.
<TABLE>
<CAPTION>
Common Stock Price
----------------------
Quarter Ended High Low
- --------------------------------------------------------------------------------------
<S> <C> <C>
March 31, 1997 $54.75 $42.00
December 29, 1996 57.38 47.63
September 29, 1996 53.50 46.25
June 30, 1996 49.13 43.75
March 31, 1996 50.50 46.25
December 31, 1995 53.00 44.63
October 1, 1995 47.50 41.50
July 2, 1995 41.75 35.63
March 31, 1995 40.38 34.88
January 1, 1995 40.63 27.25
October 2, 1994 33.63 28.50
July 3, 1994 29.75 21.75
March 31, 1994 29.75 23.75
- --------------------------------------------------------------------------------------
</TABLE>
The Company does not currently pay dividends on its common stock.
<PAGE>
Board of Directors 41
Richard Schwartz
Chairman of the Board of Directors, President, and Chief Executive Officer,
Alliant Techsystems. More than 35 years' experience in the aerospace industry.
Joined Alliant Techsystems in 1995. Previously President of Hercules Aerospace
Company and Executive Vice President of Hercules Incorporated. Also served as
President, Rocketdyne Division, Rockwell International Corporation. Bachelor's
degree, Cooper Union University. MBA, Pepperdine University.
R. Keith Elliott
Chairman of the Board and Chief Executive Officer, Hercules, Incorporated, a
manufacturer of chemical specialty products.
Thomas L. Gossage
Retired Chairman of the Board and Chief Executive Officer, Hercules,
Incorporated.
Joel M. Greenblatt
Managing and General Partner, Gotham III, an investment partnership. Responsible
for portfolio management. Former Chairman of the Board of Directors, Alliant
Techsystems. Chairman, St. Lawrence Seaway Corporation. Bachelor's degree and
MBA, Wharton School of the University of Pennsylvania.
Jonathan G. Guss
Principal and President, Active Management Group, Inc., a turnaround management
services company. Principal and Chief Executive Officer, EK Management Corp.
Formerly a consultant with Booz, Allen & Hamilton, Inc. Bachelor's degree, Reed
College. MBA, Harvard Business School.
David E. Jeremiah
Admiral, U.S. Navy (Retired). Partner and President, Technology Strategies &
Alliances Corporation, a strategic advisory and investment banking firm. Held a
variety of command and staff positions during 39-year Navy career, including
Vice Chairman, Joint Chiefs of Staff. Bachelor's degree, University of Oregon.
Master's degree in financial management, George Washington University.
Gaynor N. Kelley
Retired Chairman and Chief Executive Officer, The Perkin-Elmer Corporation,
a manufacturer of analytical instrumentation and materials coating systems.
Joined The Perkin-Elmer Corporation in 1950. Held numerous management
positions before being elected Chairman and CEO in 1990. Elected to the Board of
Directors, Hercules, Incorporated in 1989. Bachelor's degree, Delchanty
Institute.
Joseph F. Mazzella
Partner, Lane Altman & Owens, a law firm in Boston, Massachusetts. Joined Lane
Altman & Owens as an associate in 1980. Previously served as an attorney with
the Securities and Exchange Commission in Washington, D.C. Bachelor's degree,
College of the City of New York. Juris Doctor, Rutgers University.
Daniel L. Nir
Managing and General Partner, Gotham III, an investment partnership. Responsible
for portfolio management. Director, St. Lawrence Seaway Corporation. Bachelor's
degrees, University of Pennsylvania College of Arts and Sciences, Wharton School
of the University of Pennsylvania.
<PAGE>
42 Corporate Officers
Corporate officers who serve as directors are listed under the Board of
Directors.
Peter A. Bukowick
Executive Vice President. Joined Alliant in 1995 as Group Vice President,
Aerospace Systems. Nearly 30 years' experience in technical, research and
development, and business management. Joined Hercules, Incorporated in 1968.
Held various management positions, including Vice President, Technology,
Hercules Aerospace Company. Bachelor's degree, Lafayette College. Ph.D., organic
chemistry, University of Virginia.
Hugo Fruehauf
Group Vice President, Defense Systems. Joined Alliant in 1995. More than 35
years' experience in space launch systems and field operations, and the design
and development of satellite systems and precision frequency products. Formerly
President of DATUM-EFRATOM Time and Frequency Products, Inc. Also worked for
Rockwell International, Martin Marietta, and General Dynamics. Electronic
engineering degree, DeVry Institute of Technology.
Charles H. Gauck
Secretary and Associate General Counsel. Extensive corporate legal and corporate
secretary experience. Joined Honeywell in 1990. Previously served as Secretary
of The Pillsbury Company. Also held legal positions and secretary post with a
national retailer. Bachelor's degree and Juris Doctor, University of Minnesota.
Robert E. Gustafson
Vice President, Human Resources. More than 20 years' experience in human
resources management. Joined Honeywell in 1980. Held various human
resources management positions with military and commercial divisions. Corporate
staff assignments included Director of Executive Compensation
and Director of Compensation and Benefits. Also held posts with Litton
Industries, The Pillsbury Company, and Hormel. Bachelor's degree, St. Cloud
State University.
Roger P. Heinisch
Vice President, Engineering. Nearly 30 years' experience in advanced technology
and engineering. Joined Honeywell in 1968. Served in research and engineering
posts at Honeywell, including Corporate Vice President of Advanced Technology.
Bachelor's degree and master's degree in nuclear engineering, Marquette
University. Ph.D., engineering science, Purdue University.
Arlen D. Jameson
Vice President, ICBM Prime Integration Program. Joined Alliant in 1997. Served
with U.S. Air Force for 34 years before retiring with the rank of Lieutenant
General in 1996. Major assignments included Deputy Commander in Chief,
United States Strategic Command, Commander, Twentieth Air Force, and Chief
of Staff, Strategic Air Command. Bachelor's degree, University of Puget Sound.
MBA, Ohio State University.
Galen K. Johnson
Vice President and Treasurer. Extensive experience in corporate finance and
public accounting. Joined finance staff of Honeywell's Avionics Division in
1980. Held a variety of treasury, accounting, and tax positions. Chartered
Financial Analyst and Certified Public Accountant. Bachelor's degree, St. Cloud
State University. MBA, University of St. Thomas.
William R. Martin
Vice President, Washington, D.C. Operations. More than 30 years' experience in
design, manufacturing, and business planning in the aerospace and defense
industry. Previously Vice President of Business Development for Aerospace
Systems. Joined Hercules Aerospace Company in 1979 and held various management
positions, including Vice President, Business Development and Washington
Operations.
Scott S. Meyers
Vice President and Chief Financial Officer. Joined Alliant in 1996. Formerly
Executive Vice President and Chief Financial Officer for Magnavox Electronic
Systems Company. Extensive experience in financial and administrative
management. Background also includes 14 years' experience in public accounting
as a partner with KPMG Peat Marwick. Certified Public Accountant. Bachelor's
degree, Elmhurst College.
Paula J. Patineau
Vice President and Controller. Background includes 20 years of experience in
accounting and finance management, including process and systems improvement,
acquisition integration, labor negotiations, and cost management. Joined
Honeywell in 1977. Also held accounting position with Sperry Univac Corporation.
Bachelor's degree, College of St. Catherine.
Kristi Rollag Wangstad
Vice President, Public Affairs. Background includes a variety of public
relations and corporate communications management positions. Joined Honeywell in
1990. Previously Vice President of Corporate Communications for First Bank
System. Bachelor's degree, Luther College. Master's degree in public relations,
Boston University.
Paul A. Ross
Group Vice President, Space and Strategic Systems. Previously Vice President and
General Manager, Space and Strategic Propulsion Division, Aerospace Systems
Group. More than 30 years' experience in program management, engineering,
quality assurance, finance, and operations with Rockwell International, Thiokol
Corporation, and Hercules Aerospace Company. Bachelor's degree, University of
Redlands.
Donald E. Willis
Group Vice President, Emerging Business. Vice President, Strategic Planning.
Background in strategic planning, program and R&D management. Joined Honeywell
in 1979. Held posts in Defense Systems, Aerospace and Defense, Armament Systems,
Military Avionics, Systems and Research Center. Bachelor's degree, Miami
University. Master's degree in computer information science, Georgia Institute
of Technology.
Daryl L. Zimmer
Vice President and General Counsel. Background includes legal and management
positions in government and defense contracting. Experienced in programs dealing
with business ethics and conduct. Joined Honeywell in 1967. Served as program
director for defense industry ethics at Honeywell. Bachelor's degree, St. John's
University. Juris Doctor, William Mitchell College of Law.
<PAGE>
Corporate Information 43
Corporate Headquarters
600 Second Street N.E., Hopkins, Minnesota 55343
Telephone: 612-931-6000
E-mail address: [email protected]
Internet address: www.ATK.com
Annual Meeting of Shareholders
The Annual Meeting of Shareholders will be held at 2:00 p.m. on
August 5, 1997, at the Holiday Inn West, 9970 Wayzata Boulevard,
St. Louis Park, Minnesota.
Stock Exchange Listing
The common stock of Alliant Techsystems is listed on the New York Stock Exchange
under the symbol ATK. It is listed in newspaper stock tables under AlliantTech.
Nearly 6 million shares were traded in fiscal year 1997. The stock price ranged
from a low of $42 to a high of $57-3/8.
Transfer Agent and Registrar
Shareholder inquiries concerning the transfer of shares, lost certificates, or
address changes should be directed to Transfer Agent/Registrar, ChaseMellon
Shareholder Services, 450 West 33rd Street, New York, New York 10001. Telephone:
800-851-9677 (toll free). Internet address: www.cmssonline.com.
Investor Relations
Inquiries from shareholders, securities analysts, and others in the professional
investment community should be directed to Richard N. Jowett, Director of
Investor Relations, Alliant Techsystems, 600 Second Street N.E., MN11-2015,
Hopkins, Minnesota 55343. Telephone: 612-931-6080. E-mail:
[email protected].
Media Relations
Inquiries from the media should be directed to Rod Bitz, Director of Corporate
Communications, Alliant Techsystems, 600 Second Street N.E., MN11-2043, Hopkins,
Minnesota 55343. Telephone: 612-931-5413. E-mail: [email protected]. Alliant news
releases are posted on the company's Internet site at www.ATK.com.
Form 10-K Annual Report
Shareholders who wish to obtain a copy of the Form 10-K Annual Report filed with
the Securities and Exchange Commission for Alliant Techsystems' fiscal year
ended March 31, 1997, may do so by writing to the Director of Investor
Relations.
Community Investment Report
In keeping with our commitment to be a positive force in the communities where
we operate, Alliant Techsystems invests both financial and human resources in
our communities. For a complete report on the company's giving and volunteerism
programs in fiscal year 1997, write to Wayne E. Gilbert, Director of State and
Community Affairs, Alliant Techsystems, 600 Second Street N.E., MN11-2043,
Hopkins, Minnesota 55343. Telephone: 612-931-5422. E-mail:
[email protected].
Independent Auditors
Deloitte & Touche LLP
400 One Financial Plaza
120 South Sixth Street
Minneapolis, Minnesota 55402
Facilities and Offices
Conventional Munitions Emerging Business
Wilmington, Illinois Annapolis, Maryland
DeSoto, Kansas Hopkins, Minnesota
Elk River, Minnesota Wanamassa, New Jersey
Hopkins, Minnesota Horsham, Pennsylvania
New Brighton, Minnesota San Antonio, Texas
Totowa, New Jersey Magna, Utah
Socorro, New Mexico Arlington, Virginia
Toone, Tennessee
Radford, Virginia ICBM Prime Integration Program
Rocket Center, West Virginia Magna, Utah
Space and Strategic Systems Marketing and Sales
Vandenberg Air Force Base, California Huntsville, Alabama
Cape Canaveral, Florida Tucson, Arizona
Clearfield, Utah Los Angeles, California
Magna, Utah Ridgecrest, California
Tekoi, Utah Shalimar, Florida
Fort Benning, Georgia
Defense Systems Bettendorf, Iowa
Fort Knox, Kentucky
Clearwater, Florida Annapolis, Maryland
Hopkins, Minnesota Sterling Heights, Michigan
New Brighton, Minnesota Peterborough, New Hampshire
Hondo, Texas Mt. Arlington, New Jersey
Janesville, Wisconsin Fort Sill, Oklahoma
Arlington, Virginia
[RECYCLE LOGO] This annual report was printed on recycled paper containing 10%
post-consumer fiber. Design and typesetting: The Nancekivell
Group, Minneapolis. Photography: Niedorf Photography. Printing:
Diversified Graphics, Inc.
<PAGE>
[LOGO]
600 Second Street N.E.
Hopkins, Minnesota USA 55343
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
ALLIANT TECHSYSTEMS INC.
Jurisdiction
Name of Subsidiary of Incorporation
---- -- ---------- ----------------
Alliant Defense Electronics Systems, Inc. Delaware
New River Energetics, Inc. Delaware
The Registrant has other subsidiaries which, if considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary as of March 31,
1997.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
Alliant Techsystems Inc.:
We hereby consent to the incorporation by reference in Registration Statements
No. 33-36981, No. 33-48851, No. 33-86158, No. 33-91138 and No. 33-91196 of our
reports dated May 14, 1997, appearing in and incorporated by reference in this
Annual Report on Form 10-K of Alliant Techsystems Inc. for the year ended March
31, 1997.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
June 23, 1997
<PAGE>
Exhibit 24
Powers of Attorney
ALLIANT TECHSYSTEMS INC.
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers,
Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the
undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to the Company's Form 10-K Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year
ended March 31, 1997, or other applicable form, including any and all exhibits,
schedules, supplements, amendments and supporting documents thereto, to be filed
by the Company with the Securities and Exchange Commission, Washington, D.C., as
required in connection with the Company's registration under the Securities
Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform any and all acts necessary
or incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as
of this 11th day of May, 1997.
---- ---
/s/ R. K. Elliott
-----------------
<PAGE>
ALLIANT TECHSYSTEMS INC.
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers,
Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the
undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to the Company's Form 10-K Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year
ended March 31, 1997, or other applicable form, including any and all exhibits,
schedules, supplements, amendments and supporting documents thereto, to be filed
by the Company with the Securities and Exchange Commission, Washington, D.C., as
required in connection with the Company's registration under the Securities
Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform any and all acts necessary
or incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as
of this 8 day of May, 1997.
- ---
/s/T. L. Gossage
----------------
<PAGE>
ALLIANT TECHSYSTEMS INC.
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers,
Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the
undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to the Company's Form 10-K Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year
ended March 31, 1997, or other applicable form, including any and all exhibits,
schedules, supplements, amendments and supporting documents thereto, to be filed
by the Company with the Securities and Exchange Commission, Washington, D.C., as
required in connection with the Company's registration under the Securities
Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform any and all acts necessary
or incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as
of this 22 day of May, 1997.
-- ---
/s/Joel Greenblatt
------------------
<PAGE>
ALLIANT TECHSYSTEMS INC.
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers,
Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the
undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to the Company's Form 10-K Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year
ended March 31, 1997, or other applicable form, including any and all exhibits,
schedules, supplements, amendments and supporting documents thereto, to be filed
by the Company with the Securities and Exchange Commission, Washington, D.C., as
required in connection with the Company's registration under the Securities
Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform any and all acts necessary
or incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as
of this 14th day of May, 1997.
---- ---
/s/ Jonathan Guss
-----------------
<PAGE>
ALLIANT TECHSYSTEMS INC.
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers,
Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the
undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to the Company's Form 10-K Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year
ended March 31, 1997, or other applicable form, including any and all exhibits,
schedules, supplements, amendments and supporting documents thereto, to be filed
by the Company with the Securities and Exchange Commission, Washington, D.C., as
required in connection with the Company's registration under the Securities
Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform any and all acts necessary
or incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as
of this 8th day of May, 1997.
--- ---
/s/David E. Jeremiah
--------------------
<PAGE>
ALLIANT TECHSYSTEMS INC.
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers,
Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the
undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to the Company's Form 10-K Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year
ended March 31, 1997, or other applicable form, including any and all exhibits,
schedules, supplements, amendments and supporting documents thereto, to be filed
by the Company with the Securities and Exchange Commission, Washington, D.C., as
required in connection with the Company's registration under the Securities
Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform any and all acts necessary
or incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as
of this 14th day of May, 1997.
---- ---
/s/Gaynor N. Kelley
-------------------
<PAGE>
ALLIANT TECHSYSTEMS INC.
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers,
Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the
undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to the Company's Form 10-K Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year
ended March 31, 1997, or other applicable form, including any and all exhibits,
schedules, supplements, amendments and supporting documents thereto, to be filed
by the Company with the Securities and Exchange Commission, Washington, D.C., as
required in connection with the Company's registration under the Securities
Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform any and all acts necessary
or incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as
of this 28th day of May, 1997.
---- ---
/s/Joseph F. Mazzella
---------------------
<PAGE>
ALLIANT TECHSYSTEMS INC.
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"),
does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers,
Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the
undersigned's true and lawful attorneys-in-fact, with full power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to the Company's Form 10-K Annual Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year
ended March 31, 1997, or other applicable form, including any and all exhibits,
schedules, supplements, amendments and supporting documents thereto, to be filed
by the Company with the Securities and Exchange Commission, Washington, D.C., as
required in connection with the Company's registration under the Securities
Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each
of them, full power and authority to do and perform any and all acts necessary
or incidental to the performance and execution of the powers herein expressly
granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as
of this 27th day of May, 1997.
---- ---
/s/Daniel L. Nir
----------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Form 10-K filing for the year ending 3/31/97 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-START> APR-01-1996 APR-01-1995
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 122,491 45,532
<SECURITIES> 378 348
<RECEIVABLES> 191,675 178,475
<ALLOWANCES> 107 60
<INVENTORY> 68,125 87,602
<CURRENT-ASSETS> 425,242 356,169
<PP&E> 523,175 510,477
<DEPRECIATION> 162,615 127,964
<TOTAL-ASSETS> 1,009,704 1,035,142
<CURRENT-LIABILITIES> 331,197 313,191
<BONDS> 237,071 350,000
131 130
0 0
<COMMON> 0 0
<OTHER-SE> 218,661 157,347
<TOTAL-LIABILITY-AND-EQUITY> 1,009,704 1,035,142
<SALES> 1,089,397 1,020,605
<TOTAL-REVENUES> 1,089,397 1,020,605
<CGS> 925,137 834,298
<TOTAL-COSTS> 925,137 834,298
<OTHER-EXPENSES> 16,207 14,126
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 35,102 39,279
<INCOME-PRETAX> 36,659 62,082
<INCOME-TAX> 0 13,658
<INCOME-CONTINUING> 36,659 48,424
<DISCONTINUED> 22,500 (623)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 59,159 47,801
<EPS-PRIMARY> 4.41 3.56
<EPS-DILUTED> 4.41 3.55
</TABLE>
