<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 27, 1998 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-10582
ALLIANT TECHSYSTEMS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-16726904
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 SECOND STREET N.E.
HOPKINS, MINNESOTA 55343-8384
(Address of principal executive office) (Zip Code)
(612) 931-6000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year if changed
from last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of October 31, 1998, the number of shares of the registrant's common
stock, par value $.01 per share, outstanding was 12,419,587 (excluding 1,444,026
treasury shares).
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Income Statements (Unaudited)
(In thousands except
per share data)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
---------------------------------------------------
September 27 September 28 September 27 September 28
1998 1997 1998 1997
---------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 258,998 $ 266,954 $ 515,319 $ 518,593
Cost of sales 213,564 221,125 424,654 429,044
--------- --------- --------- ---------
Gross margin 45,434 45,829 90,665 89,549
Operating expenses:
Research and development 2,137 2,636 3,732 4,674
Selling 5,734 8,801 14,486 19,049
General and administrative 13,162 12,127 24,080 22,271
--------- --------- --------- ---------
Total operating expenses 21,033 23,564 42,298 45,994
--------- --------- --------- ---------
Income from operations 24,401 22,265 48,367 43,555
Miscellaneous income (expense) 77 (36) 41 64
--------- --------- --------- ---------
Earnings before interest and income taxes 24,478 22,229 48,408 43,619
Interest expense (5,192) (7,380) (10,876) (14,937)
Interest income 323 1,071 667 1,896
--------- --------- --------- ---------
Income before income taxes and
extraordinary loss 19,609 15,920 38,199 30,578
Income tax provision 2,941 -- 5,730 --
--------- --------- --------- ---------
Income before extraordinary loss 16,668 15,920 32,469 30,578
Extraordinary loss on early extinguishment of
debt, net of $2,581 income tax benefit (14,627) -- (14,627) --
--------- --------- --------- ---------
Net income $ 2,041 $ 15,920 $ 17,842 $ 30,578
========= ========= ========= =========
Basic earnings per common share:
Income before extraordinary loss $ 1.33 $ 1.22 $ 2.58 $ 2.35
Extraordinary loss (1.17) -- (1.16) --
--------- --------- --------- ---------
Net income $ .16 $ 1.22 $ 1.42 $ 2.35
========= ========= ========= =========
Diluted earnings per common share:
Income before extraordinary loss $ 1.30 $ 1.18 $ 2.51 $ 2.28
Extraordinary loss (1.14) -- (1.13) --
--------- --------- --------- ---------
Net income $ .16 $ 1.18 $ 1.38 $ 2.28
========= ========= ========= =========
Average number of common shares (thousands) 12,502 13,040 12,607 13,023
========= ========= ========= =========
Average number of common and
dilutive shares (thousands) 12,813 13,496 12,918 13,407
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
-------------------------
(In thousands except share data) September 27, March 31,
1998 1998
-------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 23,398 $ 68,960
Receivables 207,863 209,915
Net inventory 46,752 49,072
Deferred income tax asset 38,280 38,280
Other current assets 6,042 6,803
--------- ---------
Total current assets 322,335 373,030
Net property, plant, and equipment 326,280 333,538
Goodwill 130,771 131,600
Prepaid and intangible pension assets 88,156 85,539
Other assets and deferred charges 3,641 8,473
--------- ---------
Total assets $ 871,183 $ 932,180
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 17,838 $ 17,838
Accounts payable 67,483 80,071
Contract advances and allowances 51,391 64,318
Accrued compensation 23,487 32,275
Accrued income taxes 9,886 8,049
Accrued restructuring and facility consolidation 342 2,637
Other accrued liabilities 53,122 72,214
--------- ---------
Total current liabilities 223,549 277,402
Long-term debt 190,976 180,810
Post-retirement and post-employment benefits liability 132,909 136,889
Pension liability 30,244 33,991
Other long-term liabilities 37,060 37,334
--------- ---------
Total liabilities 614,738 666,426
Contingencies
Redeemable common shares (271,000 and 813,000 shares, $.01 par value, redeemable
at prescribed prices totaling $14,993 and $44,979, at September 27, 1998
and March 31, 1998, respectively. Redeemable quarterly, in equal
lots of 271,000 shares each, during calendar 1998.) $ 14,993 $ 44,979
Common stock - $.01 par value
Authorized - 20,000,000 shares
Issued and outstanding 12,411,488 shares at September
27, 1998 and 12,855,511 at March 31, 1998 121 121
Additional paid-in-capital 230,589 201,728
Retained earnings 90,386 72,544
Unearned compensation (1,980) (1,251)
Pension liability adjustment (4,743) (4,743)
Common stock in treasury, at cost (1,452,125 shares held at
September 27, 1998 and 1,008,102 at March 31, 1998) (72,921) (47,624)
--------- ---------
Total liabilities and stockholders' equity $ 871,183 $ 932,180
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
September 27, September 28,
1998 1997
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,842 $ 30,578
Adjustments to net income to arrive at cash
used for operations:
Depreciation 19,424 20,839
Amortization of intangible assets and unearned
compensation 2,954 3,111
Extraordinary loss on early extinguishment
of debt 17,208 --
Loss on disposal of property 367 76
Changes in assets and liabilities:
Receivables 2,052 381
Inventory 2,320 8,892
Accounts payable (12,588) (17,747)
Contract advances and allowances (12,927) (18,164)
Accrued compensation (8,788) (5,026)
Accrued income taxes 1,837 (2,107)
Accrued restructuring and facility consolidation (2,295) (10,638)
Accrued environmental liability (274) (324)
Pension and post-retirement benefits (7,727) (6,563)
Other assets and liabilities (20,021) (14,904)
--------- ---------
Cash used for operations (616) (11,596)
--------- ---------
INVESTING ACTIVITIES
Capital Expenditures (13,688) (6,015)
Acquisition of business (1,100) (2,000)
Proceeds from disposition of property, plant, and equipment 260 158
--------- ---------
Cash used for investing activities (14,528) (7,857)
--------- ---------
FINANCING ACTIVITIES
Net borrowings on line of credit 159,000 --
Payments made on bank debt (8,834) (14,512)
Payments made to extinguish high yield debt (152,997) --
Net purchase of treasury shares (29,213) (5,054)
Proceeds from exercised stock options 1,626 4,508
Other financing activities, net -- (1,372)
--------- ---------
Cash used for financing activities (30,418) (16,430)
--------- ---------
Decrease in cash and cash equivalents (45,562) (35,883)
Cash and cash equivalents - beginning of period 68,960 122,491
--------- ---------
Cash and cash equivalents - end of period $ 23,398 $ 86,608
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
1. On September 16, 1998, the Company completed the tender offer and consent
solicitation relating to its outstanding $150 million 11 3/4 % Senior
Subordinated Notes due March 1, 2003 (the "Notes"). Under the tender offer
(the "Offer"), the Company accepted all validly tendered Notes for payment
under the Offer, and has accordingly paid approximately $153 million to
purchase the Notes from noteholders holding approximately $140 million
principal amount of the Notes. The purchase of the Notes was financed under
the Company's revolving credit facility, which expires in March of 2001.
The Company has recorded a $17.2 million extraordinary charge for the early
extinguishment of debt ($14.6 million, after tax benefit of $2.6 million)
which is comprised of the $13 million cash premium paid to acquire the
Notes, as well as the write-off of approximately $4 million representing
the unamortized portion of the debt issuance costs associated with the
original issuance of the Notes, which were issued in March 1995.
During the six months ended September 27, 1998, the Company made principal
payments on its Bank Term Loan of $8.8 million. Borrowings of $159.0
million were outstanding against its $275.0 million revolving line of
credit at September 27, 1998, primarily the result of the early
extinguishment of the Notes, as described above. Letters of credit totaling
$37.3 million further reduced the available line of credit to $78.7
million.
The remaining scheduled minimum loan payments on outstanding long-term debt
are as follows: fiscal 1999, $9.0 million; fiscal 2000, $17.8 million;
fiscal 2001, $172.0 million; fiscal 2002, $0,and fiscal 2003, $10 million.
2. The major categories of other current and long-term accrued liabilities are
as follows (in thousands):
Period Ending
-------------------------------------
September 27, 1998 March 31, 1998
-------------------- ---------------
Employee benefits and insurance 25,412 29,196
Legal accruals 8,583 21,495
Other accruals 19,127 21,523
------- -------
Other accrued liabilities-current 53,122 72,214
======= =======
Environmental remediation liability 16,990 17,264
Deferred tax liability 19,499 19,498
Other long-term 571 572
------- -------
Other long-term liabilities 37,060 37,334
======= =======
The decrease in legal accruals since March 31, 1998 is reflective of
payments made during the six-month period ended September 27, 1998, for
legal settlements agreed to (and reserved for) in previous periods,
including the $4.5 million installment paid in April 1998 in connection
with the Accudyne "qui tam" settlement (reached in June 1995) and payments
totaling $6.5 million in satisfaction of the liabilities associated with
two other qui tam issues previously settled. See Note 5 for further
discussion of legal settlements.
3. Alternative minimum taxes of $1.3 and $2.1 million were paid during the
six-month period ended September 27, 1998 and September 28, 1997,
respectively. The effective income tax rate of 15 percent on continuing
operations in the current six-month period reflects recognition and
utilization of $12.8 million of available federal and state loss
carryforwards (gross) for tax purposes.
<PAGE>
4. On October 24, 1997, the Company entered into an agreement with Hercules
Incorporated (Hercules) providing for the disposition of the 3.86 million
shares of Alliant common stock held by Hercules. The shares represent the
stock issued by the Company in connection with the March 15, 1995
acquisition of the Hercules Aerospace Company operations from Hercules
(Aerospace acquisition).
Under the agreement with Hercules, during the quarter ended December 28,
1997 the Company registered for public offering approximately 2.78 million
shares (previously unregistered) held by Hercules. The offering was
completed on November 21, 1997. No new shares were issued in the offering
nor did the Company receive any proceeds from the offering. The remaining
1.1 million shares held by Hercules became subject to a put/call
arrangement under which Hercules can require the Company to purchase the
shares in four equal installments of 271,000 shares during each of the four
calendar quarters of 1998. The Company can likewise require Hercules to
sell the shares to the Company in four equal installments during each of
the four calendar quarters of 1998. The price for shares purchased under
the put/call arrangement is equal to the per share net proceeds realized by
Hercules in the secondary public offering, $55.32. In late fiscal 1998, the
Company did repurchase the first installment of 271,000 shares, for
approximately $15 million. In May and August 1998, the Company repurchased
the second and third installments, respectively, of 271,000 shares, each
for approximately $15 million. The Company repurchased the remaining
271,000 shares covered by the put/call arrangement in early November 1998.
During the first six months of fiscal 1998, the Company completed a $50
million stock repurchase program started in fiscal 1996. In connection with
that program, the Company made repurchases in the six months ended
September 28, 1997 of approximately 140,000 shares, for approximately $6.0
million.
5. Contingencies:
As a U.S. Government contractor, the Company is subject to defective
pricing and cost accounting standards non-compliance claims by the
Government. Additionally, the Company has substantial Government contracts
and subcontracts, the prices of which are subject to adjustment. The
Company believes that resolution of such claims and price adjustments made
or to be made by the Government for open fiscal years (1987 through 1998)
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, intellectual
property, government regulations, including environmental issues, and other
issues. Certain of the lawsuits and claims seek damages in large amounts.
In these proceedings, no director, officer, or affiliate is a party or a
named defendant.
Under the terms of the agreements relating to the Aerospace acquisition,
acquired from Hercules, Inc. in March 1995, all litigation and legal
disputes arising in the ordinary course of the acquired operations will be
assumed by the Company except for a few specific lawsuits and disputes
including two specific qui-tam lawsuits. Under terms of the purchase
agreement with Hercules, the Company's maximum combined settlement
liability for both of these qui tam matters was approximately $4 million,
which the Company had fully reserved. On May 15, 1998, Hercules announced
that it had agreed to a settlement in the first qui tam lawsuit, which has
since been approved by the court. Therefore, in July 1998 the Company paid
$4 million in full satisfaction of its liability related to these matters.
<PAGE>
In March, 1997 the Company received a partially unsealed complaint, in a
qui tam action by four former employees (the "Relators") alleging labor
mischarging to the Intermediate Nuclear Force (INF) contract, and other
contracts. Damages are not specified in this civil suit. 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 Aerospace acquisition purchase agreement.
In March 1998, the Company and Hercules settled with the Department of
Justice on the portion of the complaint alleging labor mischarging to the
INF contract and agreed to pay $2.25 million each, together with Relators'
attorney's fees of $150 thousand each, which was paid in April 1998. The
Department of Justice declined to intervene in the remaining portion of the
complaint. On October 16, 1998 the Company and Hercules settled with the
Relators all remaining issues in this action by agreeing to each pay $575
thousand, subject to court approval.
The Company has also been served with a complaint in a civil action
alleging violation of the False Claims Act and the Truth in Negotiations
Act. The complaint alleges defective pricing on a government contract.
Based upon documents provided to the Company in connection with the action,
the Company believes that the U.S. Government may seek damages and
penalties of approximately $5 million.
The Company is a defendant in a patent infringement case brought by Cordant
Technologies (formerly Thiokol Corporation), which the Company believes is
without merit. The complaint does not quantify the amount of damages
sought. Through its analysis of an October 27, 1997, court filing, the
Company now believes that, based on an economist's expert testimony,
Cordant Technologies may seek lost profits, interest and costs of
approximately $240 million. Even if the Company is found liable, it
believes that damages should be based upon a reasonable royalty of less
than $5 million. The court has bifurcated the trial, with the liability
issue being tried first, and if liability is found, the damages issue being
tried second. The liability issue was tried in January 1998, after which
the court requested, and the parties submitted, post-trial briefs. A
decision on the liability issue is not expected until several months after
submission of the parties' post-trial briefs. In the judgment of
management, the case will not have a material adverse effect upon the
Company's future financial condition or results of operations. However,
there can be no assurance that the outcome of the case will not have a
material adverse effect on the Company.
During fiscal 1998, the Company substantially completed the requirements of
the M117 Bomb reclamation contract. The contract contained a priced option,
having approximate contract value less than $5 million, whereby the
customer could require the reclamation of additional quantities, given that
such option be exercised within the terms and conditions of the contract.
On August 4, 1997, the customer informed the Company that it was exercising
the option. The Company, based on advice from its counsel, maintains that
the option exercise was invalid and has therefore not performed on the
option. The Company is currently appealing the validity of the option to
the United States Court of Appeals, based on the Company's continued belief
that such exercise was invalid. In late December 1997, the Company was
informed by the customer that the Company was being terminated for default
on the contract. The Company expects the appeals process to conclude in
calendar 1999. Depending on the outcome of the appeal, which will drive the
outcome of the termination for default, management currently estimates that
the range of possible adverse impact to the Company's operating earnings is
from $0-$4 million.
During fiscal 1998, the Company identified potential technical and safety
issues on its Explosive "D" contracts that, depending on the outcome of the
continuing evaluation of these risks and the potentially mitigating
solutions, could add cost growth to the program. These potential technical
and safety issues have caused the Company to delay contract performance
until the issues are resolved to the satisfaction
<PAGE>
of the Company. As a result, the Government customer has provided the
Company notification that it has been terminated for default on the
contracts. The Company is currently working closely with the customer to
resolve these matters. Based on information known at this time,
management's estimated range of reasonably possible additional cost growth
that could occur as a result of the potential technical and safety issues
on the Explosive "D" program is currently $0-$7 million, on which ultimate
outcome is dependent on the extent to which the Company is able to mitigate
these potential risks and ultimately resolve the contractual performance
issues on a mutually agreeable basis.
The Company does not believe that the above contract terminations will have
a material adverse impact on the Company's results of operations, its
liquidity, or its financial position.
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. At
September 27, 1998, the accrued liability for environmental remediation of
$31.6 million represents management's best estimate of the present value 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 a receivable of $9.6 million, representing the present value
of those reimbursements at September 27, 1998. Such receivable primarily
represents the expected reimbursement of costs associated with the
Aerospace operations, acquired from Hercules in March 1995, whereby the
Company generally assumed responsibility for environmental compliance at
Aerospace 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 indemnification agreements, subject to the Company having
appropriately notified Hercules of issues identified prior to the
expiration of the stipulated notification periods (March 2000 or March
2005, depending on site ownership). The Company's accrual for environmental
remediation liabilities and the associated receivable for reimbursement
thereof, have been discounted to reflect the present value of the expected
future cash flows, using a discount rate, net of estimated inflation, of
4.5 percent. The following is a summary of the Company's amounts recorded
for environmental remediation at September 27, 1998 (in millions):
Accrued Environmental Environmental Costs -
Liability Reimbursement Receivable
---------------------------------------------
Amounts (Payable)/Receivable $(40.6) $12.5
Unamortized Discount 9.0 (2.9)
------ -----
Present Value Amounts
(Payable)/Receivable $(31.6) $9.6
====== =====
At September 27, 1998, the estimated discounted range of reasonably
possible costs of environmental remediation is between $31 and $56 million.
The Company does not anticipate that resolution of the environmental
contingencies in excess of amounts accrued, net of recoveries, will
materially affect future operating results.
In future periods, new laws or regulations, advances in technologies,
outcomes of negotiations/litigations with regulatory authorities and other
parties, additional information about the ultimate remedy selected at new
and existing sites, the Company's share of the cost of such remedies,
changes in the extent and type of site utilization, the number of parties
found liable at each site, and their ability to pay are all factors that
could significantly change the Company's estimates.
<PAGE>
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.
6. Interest paid during the six-month periods ended September 27, 1998 and
September 28, 1997 totaled $11.2 and $14.4 million, respectively.
During fiscal 1998, the Company entered into treasury rate-lock agreements
to hedge against increases in market interest rates on the anticipated
refinancing of its senior subordinated notes. These agreements provide for
rate locks between 6.04 and 6.25 percent on a notional amount of $100
million. During the second quarter of fiscal 1999, in connection with the
refinance of the senior subordinated notes, $75 million notional amount of
the treasury locks were converted into $150 million of 10-year interest
rate swaps, which begin November 2, 1998. The swaps include bank
cancellation options after 5 years and provide for an average fixed swap
rate of 6.0 percent.
In addition to the above, the Company has a $55 million outstanding
interest rate swap to hedge against increases in the one-month LIBOR
interest rate. Under the agreement, the Company pays a fixed rate of 5.54
percent, and receives interest at a rate of one-month LIBOR (approximately
5.4 percent at September 27, 1998). The swap agreement expires February 1,
1999, and has certain cancellation options.
7. In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", which requires companies to present basic earnings per share (EPS)
and diluted EPS, instead of the primary and fully diluted EPS that were
previously required. The Company adopted the provisions of SFAS 128 during
fiscal 1998, as required under the Statement. Accordingly, the financial
statements have been reported consistent with the requirements of SFAS 128.
Basic EPS is computed based upon the weighted average number of common
shares outstanding for each period presented. Diluted EPS is computed based
on the weighted average number of common shares and common equivalent
shares. Common equivalent shares represent the effect of redeemable common
stock (see Note 4) and stock options outstanding during each period
presented, which, if exercised, would have a dilutive effect on EPS. The
diluted EPS calculation results in the same EPS that the Company has
historically reported as fully diluted.
In computing EPS for the three and six month periods ended September 27,
1998 and September 28, 1997, net income as reported for each respective
period, is divided by:
Three-Months Ended Six-Months Ended
------------------- -------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
------------------- -------------------
Basic EPS:
- - Average Shares Outstanding 12,502 13,040 12,607 13,023
====== ====== ====== ======
Diluted EPS:
- - Average Shares Outstanding 12,502 13,040 12,607 13,023
- - Dilutive effect of options and 311 456 311 384
redeemable common shares
------ ------ ------ ------
Diluted EPS Shares Outstanding 12,813 13,496 12,918 13,407
====== ====== ====== ======
<PAGE>
For the three and six month periods ended September 27, 1998, 271,000
common shares, which were subject to the put/call agreement with Hercules
(see Note 4) were not included in the calculation of diluted EPS, as
inclusion of those redeemable shares would have been anti-dilutive. There
were also 500 and 138,850 stock options, respectively, that were not
included in the computation of diluted EPS for the three and six month
periods ended September 27, 1998, due to the option price being greater
than the average market price of the common shares.
8. 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 of 25 to 40 years. The
recoverability of the carrying value of goodwill is periodically evaluated
by comparison of the carrying value of the underlying assets which gave
rise to the goodwill (including the carrying value of the goodwill itself)
with the estimated future undiscounted cash flows from the related
operations. An impairment loss would be measured as the amount by which the
carrying value of the asset exceeds the fair value of the asset based on
discounted estimated future cash flows. To date, management has determined
that no impairment exists.
9. Certain reclassifications have been made to the fiscal 1998 financial
statements, as previously reported, to conform to the current
classification. These reclassifications did not affect the net income from
operations, as previously reported.
10. The figures set forth in this quarterly report are unaudited but, in the
opinion of the Company, include all adjustments necessary for a fair
presentation of the results of operations for the three and six month
periods ended September 27, 1998, and September 28, 1997. The Company's
accounting policies are described in the notes to financial statements in
its fiscal 1998 Annual Report on Form 10-K.
11. In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income," which requires businesses to disclose comprehensive income and its
components in the Company's general-purpose financial statements. Effective
April 1, 1998, the Company adopted SFAS No. 130. The Company's net income
(as reported) is identical to its "comprehensive income", as defined by
SFAS 130, for the three and six month periods ended September 27, 1998, and
September 28, 1997, respectively.
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information," which requires additional
disclosure only, and as such, is expected to have no financial impact to
the Company. The statement is effective for the Company's fiscal year
ending March 31, 1999.
In March 1998, the AICPA issued Statement of Position (SOP) 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP provides guidance on when costs incurred for
internal use computer software are to be capitalized. The SOP is currently
not expected to have a material impact to the Company's results of
operations or its financial position. The SOP is effective for the
Company's fiscal year beginning April 1, 1999.
12. Subsequent Event:
On November 5, 1998, the Company's Board of Directors approved the
repurchase by the Company of up to 2.8 million shares of its common stock,
at prices not greater than $77, nor less than $67 (the "Offer"). The
buy back would occur via a modified "dutch auction" offer, wherein
stockholders may tender their shares, at prices specified by the tendering
stockholders, subject to the terms and conditions of the Offer. The Company
will select a purchase price that will enable it to purchase up to 2.8
million shares. It is currently expected that a filing with respect to the
Offer will be filed with the Securities and Exchange Commission on, or
about,
<PAGE>
November 6, 1998. The Offer is currently expected to expire on December 8,
1998. Financing for purchases pursuant to the Offer is to be from a new
bank credit facility that the Company expects to have completed prior to
the expiration of the Offer. The new credit facility, which will refinance
the Company's existing bank facility, will have a term of six years, and
will be subject to financial leverage covenants, as well as other customary
covenants (e.g., restrictions on additional indebtedness and liens, sales
of assets, and restricted payments). The Company currently has commitments
from banks totaling $650 million. The interest rate charged to the Company
will be approximately 7.85 percent initially. This interest rate will be
subject to change in the future, as changes occur in market conditions and
in the Company's financial performance. The new credit facility will
consist of a revolving credit facility in the amount of $250 million, and
term-loan facilities for the remainder.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Sales for the quarter ended September 27, 1998 totaled $259.0 million, a
decrease of $8.0 million, or 3.0 percent, from $267.0 million for the comparable
quarter in the prior year. Conventional Munitions Group sales were $117.8
million for the current year quarter, an increase of $3.7 million, or 3.2
percent, compared to $114.1 million in the comparable quarter of the prior year.
Space and Strategic Systems Group sales were $103.0 million for the current year
quarter, an increase of $7.1 million, or 7.4 percent, compared to $95.9 million
in the comparable quarter of the prior year. The increase is attributable to
higher propulsion sales, up $16 million compared to the comparable quarter of
the prior year, primarily on the Titan and Delta space propulsion programs.
These propulsion sales increases were partially offset by an $8 million decrease
in composite structures sales on the completed X-33 contract for the development
and sub-assembly of liquid hydrogen fuel tanks for the next-generation Space
Shuttle. Defense Systems Group sales were $39.6 million for the current year
quarter, a decrease of $14.5 million, or 26.8 percent, compared to $54.1 million
in the comparable quarter of the prior year. The decrease was primarily
attributable to the timing of deliveries on anti-tank munition programs.
Sales for the six-month period ended September 27, 1998 totaled $515.3 million,
a decrease of $3.3 million, or 1 percent, from $518.6 million for the comparable
period of the prior year. Conventional Munitions Group sales for the six-month
period ended September 27, 1998 were $239.5 million, an increase of $6.2 million
or 2.7 percent, compared to $233.3 million for the comparable period of the
prior year. Space and Strategic Systems Group sales for the six-month period
ended September 27, 1998 were $194.2 million, an increase of $20.2 million, or
11.6 percent, compared to $174.0 million for the comparable period of the prior
year. The increase is attributable to higher propulsion sales, up $39 million
compared to the comparable period of the prior year, primarily on the Titan and
Delta space propulsion programs. These propulsion sales increases were partially
offset by an $18 million decrease in composite structures sales due to the
completion of the X-33 development contract. Defense Systems Group sales for the
six-month period ended September 27, 1998 were $83.2 million, a decrease of
$23.5 million, or 22.0 percent compared to $106.7 million for the comparable
period of the prior year. The decrease is attributable to the timing of
deliveries on anti-tank munitions programs, various fuzing programs, and a
program completion.
Company sales for fiscal 1999 are expected to be approximately $1.1 billion.
Gross Margin
The Company's gross margin in the quarter ended September 27, 1998, was $45.4
million or 17.5 percent of sales, compared to $45.8 million, or 17.2 percent of
sales for the comparable quarter of the prior year. The slight increase in
margin was due to a combination of factors, including improved margins on space
propulsion contracts, due primarily to improved cost performance. Gross margin
for the six-month period ended September 27, 1998, totaled $90.7 million, or
17.6 percent of sales, compared to $89.5 million, or 17.3 percent of sales for
the comparable period of the prior year. Gross margin in the current year period
improved slightly, as a percent of sales,
<PAGE>
due to a combination of factors, the most significant being improved margins in
core programs, primarily in space propulsion systems and ammunition programs.
Fiscal 1999 gross margin, as a percent of sales, is expected to be in the 17.5 -
18.5 percent range.
Operating Expenses
The Company's operating expenses for the quarter ended September 27, 1998,
totaled $21.0 million, or 8.1 percent of sales, compared to $23.6 million, or
8.8 percent of sales for the comparable quarter of the prior year. The decrease
in current year expenses is due primarily to the absence of approximately $2.3
million of selling expenses incurred during the comparable quarter of the prior
year in the Company's pursuit of the Intercontinental Ballistic Missile (ICBM)
Prime Integration Program.
Operating expenses for the six-month period ended September 27, 1998 totaled
$42.3 million, or 8.2 percent of sales, compared to $46.0 million, or 8.9
percent of sales for the comparable period of the prior year. The decrease in
current year expenses is due primarily to the absence of approximately $5
million of selling expenses incurred on the ICBM pursuit in the comparable
period of the prior year, offset partially by higher legal expenses incurred in
the current year period.
Fiscal 1999 operating expenses, as a percent of sales, are expected to be in the
8.0 - 8.5 percent range.
Interest Expense
The Company's interest expense for the quarter ended September 27, 1998 was $5.2
million, a decrease of $2.2 million compared to $7.4 million for the comparable
quarter in the prior year. Interest expense for the six-month period ended
September 27, 1998 was $10.9 million, a decrease of $4.0 million compared to
interest expense of $14.9 million for the comparable period of the prior year.
The large decrease in the current year expense was driven by significantly
reduced average level of borrowings outstanding in the current year periods, as
compared to the comparable periods of the prior year. Total borrowings
outstanding at September 27, 1998, were $43.7 million less than total borrowings
outstanding at September 28, 1997, due to scheduled debt repayments, as well as
debt pre-payments made in late fiscal 1998.
Interest Income
Interest income for the quarter ended September 27, 1998, was $.3 million,
compared to $1.1 million for the comparable quarter of the prior year, a
decrease of $.7 million. Interest income for the six-month period ended
September 27, 1998 was $.7 million, a decrease of $1.2 million compared to $1.9
million for the comparable period of the prior year. The decrease in interest
income in the current year periods is driven by the absence of interest income
earned on higher average cash balances in the comparable periods of the prior
year. Cash balances during the prior year periods included approximately $40
million in proceeds from the Company's February, 1997 sale of its former Marine
Systems Group. These proceeds were used later in fiscal 1998 to pre-pay a
portion of the Company's outstanding long-term debt.
<PAGE>
Income Taxes
The three and six-month periods ended September 27, 1998, reflect an effective
income tax rate of 15 percent. The three and six month periods ended September
28, 1997, reflect an effective income tax rate of 0 percent. These tax rates
differ from statutory tax rates due to the partial recognition of available
tax-loss carryforwards. Recognition of such carryforwards is expected to
continue to reduce future tax expense. It is currently expected that required
payments for taxes in fiscal 1999 will also be reduced due to the aforementioned
tax-loss carryforwards. However, the Company may be subject to the provisions of
the Alternative Minimum Tax (AMT), in which case tax payments could be required.
To the extent that AMT is required to be paid currently, the resulting deferred
tax asset can be carried forward indefinitely, and can be recovered via
reductions in tax payments on future taxable income.
Extraordinary Loss
On September 16, 1998, the Company completed the tender offer and consent
solicitation relating to its outstanding $150 million 11 3/4 % Senior
Subordinated Notes due March 1, 2003 (the "Notes"). Under the tender offer (the
"Offer"), the Company accepted all validly tendered Notes for payment under the
Offer, and has accordingly paid approximately $153 million to purchase the Notes
from noteholders holding approximately $140 million principal amount of the
Notes. The purchase of the Notes was financed under the Company's revolving
credit facility, which expires in March of 2001. The Company has recorded a
$17.2 million extraordinary charge for the early extinguishment of debt ($14.6
million, after the tax benefit of $2.6 million) which is comprised of the $13
million cash premium paid to acquire the Notes, as well as the write-off of
approximately $4 million representing the unamortized portion of the debt
issuance costs associated with the original issuance of the Notes, which were
issued in March 1995.
Net Income
Net income reported for the quarter ended September 27, 1998, was $2.0 million,
a decrease of $13.9 million, compared to net income of $15.9 million for the
comparable quarter of the prior year. The decrease was driven by the $14.6
million extraordinary loss on the early extinguishment of debt, and by $2.9
million higher tax expense in the quarter, offset partially by lower operating
expenses and interest expenses in the current year period. Net income for the
six-month period ended September 27, 1998 was $17.8 million, a decrease of $12.8
million, compared to net income of $30.6 million for the prior year period. The
decrease was driven by the $14.6 million extraordinary loss on the early
extinguishment of debt, and $5.7 million higher tax expense in the current year
period, which was offset partially by reduced operating and interest expenses in
the current year.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Cash used by operations totaled $.6 million for the six months ended September
27, 1998, a reduction in cash usage of $11.0 million, when compared with cash
used by operations of $11.6 million in the comparable period of the prior year.
The reduced level of cash usage in the current year period resulted from a
combination of factors, the most significant of which included lower spending on
restructuring and facility consolidation activities, as these activities are now
substantially complete, and improved profitability (before the extraordinary
loss on early extinguishment of debt) for the six-months ended September 27,
1998, as compared to the
<PAGE>
comparable period of the prior year. Cash usage for the six months ended
September 27, 1998, also included approximately $13 million in payments for
legal settlements settled and accrued in prior years. See "Contingencies" below.
Cash used in investing activities for the period ended September 27, 1998, was
$14.5 million, a $6.7 million increase in cash used, compared to cash used by
investing activities of $7.9 million in the comparable period of the prior year.
This difference primarily represented increased capital expenditures in the
current year. The Company currently expects capital expenditures to be as much
as $40-45 million for fiscal 1999. This represents a significant increase in
capital spending relative to fiscal 1998. The increased planned expenditures are
primarily the result of facilitization costs required to prepare for significant
expected growth in the space propulsion business. This business increase is
primarily associated with orders received from Boeing in fiscal 1999, totaling
approximately $750 million ($1.7 billion if additional options exercised), for
the production related to solid rocket boosters for the Delta Space Launch
Vehicle family. Planned expenditures also include facilitization spending
associated with moving the Company's Joliet, Illinois operations to the Radford
Army Ammunition Plant in Virginia, and capital spending relating to the
electronic fuze business, acquired from Motorola in fiscal 1998.
At September 27, 1998, the Company had borrowings of $159.0 million outstanding
against its $275.0 million bank revolving credit facility, which primarily
represented $153 million spent in September 1998 to purchase the Senior
Subordinated Notes, as previously described. Additionally, the Company had
outstanding letters of credit of $37.3 million, which further reduced amounts
available on this facility to $78.7 million at September 27, 1998.
On October 24, 1997, the Company entered into an agreement with Hercules
Incorporated (Hercules) providing for the disposition of the 3.86 million shares
of Alliant common stock held by Hercules. The shares represent the stock issued
by the Company in connection with the March 15, 1995 acquisition of the Hercules
Aerospace Company operations from Hercules (Aerospace acquisition).
Under the agreement with Hercules, during the quarter ended December 28, 1997
the Company registered for public offering approximately 2.78 million shares
(previously unregistered) held by Hercules. The offering was completed on
November 21, 1997. No new shares were issued in the offering nor did the Company
receive any proceeds from the offering. The remaining 1.1 million shares held by
Hercules became subject to a put/call arrangement under which Hercules can
require the Company to purchase the shares in four equal installments of 271,000
shares during each of the four calendar quarters of 1998. The Company can
likewise require Hercules to sell the shares to the Company in four equal
installments during each of the four calendar quarters of 1998. The price for
shares purchased under the put/call arrangement is equal to the per share net
proceeds realized by Hercules in the secondary public offering, $55.32. In late
fiscal 1998, the Company did repurchase the first installment of 271,000 shares,
for approximately $15 million. In May and August 1998, the Company repurchased
the second and third installments, respectively, of 271,000 shares, each for
approximately $15 million. The Company repurchased the remaining 271,000 shares
covered by the put/call arrangement in early November 1998.
During the first six months of fiscal 1998, the Company completed a $50 million
stock repurchase program started in fiscal 1996. In connection with that
program, the Company made repurchases in the six months ended September 28, 1997
of approximately 140,000 shares, for approximately $6.0 million.
<PAGE>
The Company's total debt (current portion of long-term debt and long-term debt)
as a percentage of total capitalization increased to 45 percent on September 27,
1998, from 43 percent on March 31, 1998. This slight increase reflects slightly
higher total debt, up $10.2 million, which primarily reflects the $13.0 million
premium paid to purchase the Senior Subordinated Notes, as previously described.
In June 1995, the Company and claimants reached an agreement to settle the
Accudyne "qui tam" lawsuit. Terms of the agreement include payments to be made
by the Company over three years, totaling $12.0 million. The final payment of
$4.5 million was paid in June, 1998.
Based on the financial condition of the Company at September 27, 1998, the
Company believes that future operating cash flows, combined with existing cash
balances and the availability of funding under its line of credit, will be
adequate to fund the future growth of the Company, as well as to service its
long-term debt obligations.
Subsequent Event:
On November 5, 1998, the Company's Board of Directors approved the repurchase by
the Company of up to 2.8 million shares of its common stock, at prices not
greater than $77, nor less than $67 (the "Offer"). The buy back would occur via
a modified "dutch auction" offer, wherein stockholders may tender their shares,
at prices specified by the tendering stockholders, subject to the terms and
conditions of the Offer. The Company will select a purchase price that will
enable it to purchase up to 2.8 million shares. It is currently expected that a
filing with respect to the Offer will be filed with the Securities and Exchange
Commission on, or about, November 6, 1998. The Offer is currently expected to
expire on December 8, 1998. Financing for purchases pursuant to the Offer is to
be from a new bank credit facility that the Company expects to have completed
prior to the expiration of the Offer. The new credit facility, which will
refinance the Company's existing bank facility, will have a term of six years,
and will be subject to financial leverage covenants, as well as other customary
covenants (e.g., restrictions on additional indebtedness and liens, sales of
assets, and restricted payments). The Company currently has commitments from
banks totaling $650 million. The interest rate charged to the Company will be
approximately 7.85 percent initially. This interest rate will be subject to
change in the future, as changes occur in market conditions and in the Company's
financial performance. The new credit facility will consist of a revolving
credit facility in the amount of $250 million, and term-loan facilities for the
remainder.
CONTINGENCIES
As a U.S. Government contractor, the Company is subject to defective pricing and
cost accounting standards non-compliance claims by the Government. Additionally,
the Company has substantial Government contracts and subcontracts, the prices of
which are subject to adjustment. The Company believes that resolution of such
claims and price adjustments made or to be made by the Government for open
fiscal years (1987 through 1998) 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
<PAGE>
product liability, intellectual property, government regulations, including
environmental issues, and other issues. Certain of the lawsuits and claims seek
damages in large amounts. In these proceedings, no director, officer, or
affiliate is a party or a named defendant.
Under the terms of the agreements relating to the Aerospace acquisition,
acquired from Hercules, Inc. in March 1995, all litigation and legal disputes
arising in the ordinary course of the acquired operations will be assumed by the
Company except for a few specific lawsuits and disputes including two specific
qui-tam lawsuits. Under terms of the purchase agreement with Hercules, the
Company's maximum combined settlement liability for both of these qui tam
matters was approximately $4 million, which the Company had fully reserved. On
May 15, 1998, Hercules announced that it had agreed to a settlement in the first
qui tam lawsuit, which has since been approved by the court. Therefore, in July
1998, the Company paid $4 million in full satisfaction of its liability related
to these matters.
In March, 1997 the Company received a partially unsealed complaint, in a qui tam
action by four former employees (the "Relators") alleging labor mischarging to
the Intermediate Nuclear Force (INF) contract, and other contracts. Damages are
not specified in this civil suit. 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 Aerospace acquisition
purchase agreement. In March 1998, the Company and Hercules settled with the
Department of Justice on the portion of the complaint alleging labor mischarging
to the INF contract and agreed to pay $2.25 million each, together with
Relators' attorney's fees of $150 thousand each, which was paid in April 1998.
The Department of Justice declined to intervene in the remaining portion of the
complaint. On October 16, 1998 the Company and Hercules settled with the
Relators all remaining issues in this action by agreeing to each pay $575
thousand, subject to court approval.
The Company has also been served with a complaint in a civil action alleging
violation of the False Claims Act and the Truth in Negotiations Act. The
complaint alleges defective pricing on a government contract. Based upon
documents provided to the Company in connection with the action, the Company
believes that the U.S. Government may seek damages and penalties of
approximately $5 million.
The Company is a defendant in a patent infringement case brought by Cordant
Technologies (formerly Thiokol Corporation), which the Company believes is
without merit. The complaint does not quantify the amount of damages sought.
Through its analysis of an October 27, 1997, court filing, the Company now
believes that, based on an economist's expert testimony, Cordant Technologies
may seek lost profits, interest and costs of approximately $240 million. Even if
the Company is found liable, it believes that damages should be based upon a
reasonable royalty of less than $5 million. The court has bifurcated the trial,
with the liability issue being tried first, and if liability is found, the
damages issue being tried second. The liability issue was tried in January 1998,
after which the court requested, and the parties submitted, post-trial briefs. A
decision on the liability issue is not expected until several months after
submission of the parties' post-trial briefs. In the judgment of management, the
case will not have a material adverse effect upon the Company's future financial
condition or results of operations. However, there can be no assurance that the
outcome of the case will not have a material adverse effect on the Company.
During fiscal 1998, the Company substantially completed the requirements of the
M117 Bomb reclamation contract. The contract contained a priced option, having
approximate contract value
<PAGE>
less than $5 million, whereby the customer could require the reclamation of
additional quantities, given that such option be exercised within the terms and
conditions of the contract. On August 4, 1997, the customer informed the Company
that it was exercising the option. The Company, based on advice from its
counsel, maintains that the option exercise was invalid and has therefore not
performed on the option. The Company is currently appealing the validity of the
option to the United States Court of Appeals, based on the Company's continued
belief that such exercise was invalid. In late December 1997, the Company was
informed by the customer that the Company was being terminated for default on
the contract. The Company expects the appeals process to conclude in calendar
1999. Depending on the outcome of the appeal, which will drive the outcome of
the termination for default, management currently estimates that the range of
possible adverse impact to the Company's operating earnings is from $0-$4
million.
During fiscal 1998, the Company identified potential technical and safety issues
on its Explosive "D" contracts that, depending on the outcome of the continuing
evaluation of these risks and the potentially mitigating solutions, could add
cost growth to the program. These potential technical and safety issues have
caused the Company to delay contract performance until the issues are resolved
to the satisfaction of the Company. As a result, the Government customer has
provided the Company notification that it has been terminated for default on the
contracts. The Company is currently working closely with the customer to resolve
these matters. Based on information known at this time, management's estimated
range of reasonably possible additional cost growth that could occur as a result
of the potential technical and safety issues on the Explosive "D" program is
currently $0-$7 million, on which ultimate outcome is dependent on the extent to
which the Company is able to mitigate these potential risks and ultimately
resolve the contractual performance issues on a mutually agreeable basis.
The Company does not believe that the above contract terminations will have a
material adverse impact on the Company's results of operations, its liquidity,
or its financial position.
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. At September 27, 1998, the
accrued liability for environmental remediation of $31.6 million represents
management's best estimate of the present value 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 a receivable of $9.6 million, representing
the present value of those reimbursements at September 27, 1998. Such receivable
primarily represents the expected reimbursement of costs associated with the
Aerospace operations, acquired from Hercules in March, 1995, whereby the Company
generally assumed responsibility for environmental compliance at Aerospace
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 indemnification
agreements, subject to the Company having appropriately notified Hercules of
issues identified, prior to the expiration of the stipulated notification
periods (March 2000 or March 2005, depending on site ownership). The Company's
accrual for environmental remediation liabilities and the associated receivable
for reimbursement thereof, have been discounted to reflect the present value of
the expected future cash flows, using a discount rate, net of estimated
inflation, of 4.5 percent. The following is a summary of the Company's amounts
recorded for environmental remediation at September 27, 1998 (in millions):
<PAGE>
Environmental Costs -
Accrued Environmental Reimbursement
Liability Receivable
--------------------------------------------
Amounts (Payable)/Receivable $(40.6) $12.5
Unamortized Discount 9.0 (2.9)
------ -----
Present Value Amounts
(Payable)/Receivable $(31.6) $ 9.6
====== =====
At September 27, 1998, the estimated discounted range of reasonably possible
costs of environmental remediation is between $31 and $56 million. The Company
does not anticipate that resolution of the environmental contingencies in excess
of amounts accrued, net of recoveries, will materially affect future operating
results.
In future periods, new laws or regulations, advances in technologies, outcomes
of negotiations/litigations with regulatory authorities and other parties,
additional information about the ultimate remedy selected at new and existing
sites, the Company's share of the cost of such remedies, changes in the extent
and type of site utilization, the number of parties found liable at each site,
and their ability to pay are all factors that 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.
The Company does not generate a significant amount of revenues or costs, nor
does it maintain significant assets or liabilities in European Union (EU)
countries or in European currencies. Therefore, the Company does not expect that
the EU's conversion to the Euro will have a material impact to the Company's
financial position or its results of operations.
On September 29, 1998, the Company was informed by the Securities and Exchange
Commission (SEC) that it had completed a review of the Company's March 31, 1998,
10K filing. As a result of that review, the SEC has requested that the Company
reclassify, from discontinued operations to a non-recurring charge in continuing
operations, $4.7 million of move and requalification costs in the Company's
fiscal year 1997, which ended on March 31, 1997.
These nonrecurring costs were incurred due to the closure of a production
facility as a direct result of the sale of its Marine System's Group (MSG) in
the Company's fiscal year 1997. The Company and its independent public
accountants, Deloitte & Touche, continue to believe that its accounting
treatment of the cost was proper and consistent with the accounting guidance of
APB #30, "Reporting the Results of Operations" and that no reclassification
should be required.
The SEC request, however, has not yet been resolved. If the Company were
required to reclassify the fiscal year 1997 financial statements, the Company
estimates that the net effect of reclassifying these non-recurring costs would
be an approximate 2% decrease, or $.09 per share, in reported diluted earnings
per share, from $4.41 to $4.32. Earnings per share from continuing operations
would decrease from $2.73 to approximately $2.38 while earnings per share from
discontinued operations would increase from $1.68 to $1.94.
The Company does not believe this issue would impact earnings in any historical
year other than fiscal year 1997, nor in any future year.
YEAR 2000
Background
The Company utilizes a significant amount of information technology ("IT"), such
as computer hardware and software, and operating systems ("IT systems"), and
non-IT systems, such as applications used in manufacturing, product development,
financial business systems and various administrative functions ("non-IT
systems"). To the extent that these IT systems and non-IT systems contain source
code that is unable to distinguish the upcoming calendar year 2000 from
<PAGE>
the calendar year 1900 (the "Year 2000 Issue"), some level of modification or
replacement of such systems will be necessary. The Company has established a
Year 2000 Project Management Plan ("Year 2000 Plan") to identify and address
systems requiring such modification or replacement. The Year 2000 Plan also
involves assessing the extent to which the Company's suppliers and customers are
addressing the Year 2000 Issue. Company management has identified certain
business systems, suppliers, and customers as critical to its ongoing business
needs ("business critical"). Failure of these business critical systems,
suppliers, or customers to become Year 2000 compliant in a timely manner could
have a material adverse impact to the Company.
State of Readiness
The Year 2000 Plan, which encompasses both IT and non-IT systems, involves the
following five-phase approach to the Year 2000 Issue, with the indicated
timetable for completion of business critical items:
<TABLE>
<CAPTION>
Timetable
Phase Activity for Completion Status
- ----- -------- -------------- ------
<S> <C> <C>
1 Ensure Company-wide awareness of the Year 2000 Issue........ September 30, 1997 Completed
2 Assess the impact of the Year 2000 Issue on the Company,
and conduct inventories, analyze systems, prioritize
modification or replacement, and develop contingency plans.. January 31, 1998 Completed
3 Begin modification, replacement or elimination of selected
platforms, applications, databases and utilities, and
modify interfaces, as appropriate............................ August 31, 1998 Completed
4 Complete work begun in Phase 3, and test, verify and validate
all systems.................................................. December 31, 1998 In-process
5 Implement modified or replaced platforms, applications,
databases and utilities...................................... March 31, 1999 In-process
</TABLE>
The Company is not aware of any problems reasonably likely to occur as a result
of third party failures to address the Year 2000 Issue. Phase 3 activity
involved a significant effort to identify supplier Year 2000 Issues, whereby all
suppliers were prioritized and rated, and suppliers were requested to provide a
Year 2000 Issue status on their products, operating systems, suppliers and
facilities. During Phase 4 activity, selected supplier visits and phone
interviews are being conducted. Questionnaires have been, and continue to be
utilized to secure additional information on specific Year 2000 Issues. Business
critical suppliers will be contacted approximately quarterly, and visits will
continue to ensure their continued progress in addressing their Year 2000
Issues.
The Company has utilized the services of two independent industry consultants to
assist it in assessing the reliability of its risk and cost estimates.
Costs
The Company currently estimates that costs associated with modifying or
replacing systems affected by the Year 2000 Issue, including the amounts
expended in connection with the
<PAGE>
Company's ongoing, normal course-of-business efforts to upgrade or replace
business critical systems and software applications as necessary, will be
approximately $10 million, compared to the Company's normal, annual IT operating
budget of approximately $30 million. These costs are being funded through cash
flows from operations. Costs associated with incremental personnel, consulting,
and hardware and software modification are being expensed as incurred. The costs
of newly purchased hardware and software are being capitalized in accordance
with normal policy. The majority of costs are expected to be incurred during
fiscal year 1999, and approximately $6 million has been expended through
September 27, 1998. Approximately 35% of the total amount ultimately expended is
expected to be for systems modification, and the balance for systems
replacement. These expected impacts have been incorporated into the Company's
operating plans for fiscal year 1999. There are no IT projects which the Company
has had to delay due to the Year 2000 Issues that would have a material impact
on the Company's results of operations or financial position. The Company
continues to review its contractual obligations relative to the Year 2000 Issue,
and currently believes that there are no such obligations that would have
material impact to the Company's results of operations or its financial
position.
Risks
The failure to resolve a material Year 2000 Issue could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial position. Due to the general
uncertainty inherent in the Year 2000 Issue, resulting in part from the
uncertainty of the Year 2000 Issue readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of failures resulting from the Year 2000 Issue will have a material
impact on the Company's results of operations, liquidity or financial position.
The Year 2000 Plan is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 Issue and, in particular, about the Year 2000
Issue compliance and readiness of its business critical systems, suppliers, and
customers.
The most significant risk to the Company is the potential impact of
circumstances beyond its control, such as the failure of its business critical
suppliers and/or customers (particularly the U.S. Government) to resolve their
Year 2000 Issues, with a resulting inability of such suppliers to supply
critical goods and services to the Company, or of such customers to pay for
their purchases from the Company. A related significant risk to the Company is
that an inability of its business critical suppliers to resolve their Year 2000
Issues could result in the Company not being able to meet its contractual
obligations. Another significant risk to the Company could be the significant
loss of critical personnel on its Year 2000 Plan team.
The Company currently believes that there is minimal risk that its Year 2000
Plan will be not be successfully implemented in a timely manner. In the event
that the Company is ultimately unable to implement its Year 2000 Plan in a
timely manner, the Company believes that its contingency plans, described below,
adequately accommodate its business critical systems in a way that would not
result in a material adverse impact to the Company's results of operations, its
liquidity, or its financial position. However, there can be no assurance that
the Company and/or relevant third parties will successfully resolve all of their
Year 2000 Issues or that the Company's contingency plans will be entirely
successful in mitigating those issues. Any such failure could have a material
adverse effect on the Company's operations, liquidity, or its financial
position.
<PAGE>
Contingency Plans
It is the Company's understanding that the U.S. Government anticipates resolving
the Year 2000 Issues affecting its payment system by March 1999, which will
allow about 9 months for testing of the payment system. The Company is working
with the Government payment office on a contingency plan that will accommodate a
manual billing and payment process in the event the Year 2000 Issues affecting
the Government payment system are not successfully resolved in a timely manner.
A contingency plan has been established for all business critical Company
systems identified as Year 2000 Issues as of August 31, 1998; and contingency
plans have also been developed for certain critical suppliers, including
identification of back-up supply sources, and consideration of the need to
purchase additional critical supplies. Additionally, the Company will develop
plans addressing the operation of its facilities during and immediately after
the beginning of calendar 2000, to prepare for the possibility of major
infrastructure failure (i.e., power system failure). All contingency plans will
be subjected to further review following completion of Phase 4 of the Year 2000
Plan.
Cautionary Statement
The costs of the Year 2000 Plan and the timing in which the Company believes it
will implement the Year 2000 Plan are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no assurance that these estimates will be achieved, and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
success of the Company in identifying all systems and programs having Year 2000
Issues, the nature and amount of programming required to upgrade or replace the
affected programs, the availability and cost of personnel trained in this area,
and the extent to which the Company might be adversely impacted by the failure
of third parties (i.e., suppliers, customers, etc.) to remediate their own Year
2000 Issues. Failure by the Company and/or its suppliers and customers (in
particular, the U.S. Government, on which the Company is materially dependent)
to complete Year 2000 Issue compliance work in a timely manner could have a
material adverse effect on the Company's operations, its liquidity, and/or its
financial position.
INFLATION
In the opinion of management, inflation has not had a significant impact upon
the results of the Company's operations. The selling prices under contracts, the
majority of which are long term, generally include estimated cost to be incurred
in future periods. These cost projections can generally be negotiated into new
buys under fixed-price government contracts, while actual cost increases are
recoverable on cost-type contracts.
RISK FACTORS
Certain of the statements made and information contained in this report,
excluding historical information, are "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include those relating to fiscal 1999 sales, gross margin, operating
expenses, tax payments and capital expenditures. Also included are statements
relating to possible cost growth on the Explosive "D" contract, the realization
of net deferred tax benefits, the repurchase of Company common stock pursuant to
the Offer,
<PAGE>
the funding of future growth, the completion of negotiations with respect to new
bank credit facilities, and long-term debt repayment, environmental remediation
costs and reimbursement prospects, the financial and operating impact of the
resolution of environmental and litigation contingencies in general, resolution
of the Cordant Technologies matter and M117 contract termination for default in
particular, and the ultimate cost and impact of the Company's Year 2000 Issue
compliance effort. Such forward-looking statements involve risks and
uncertainties that could cause actual results or outcomes to differ materially.
Some of these risks and uncertainties are set forth in connection with the
applicable statements. Additional risks and uncertainties include, but are not
limited to, changes in government 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, program performance, continued access to
technical and capital resources, supply and availability of raw materials and
components, timely compliance with the technical requirements of the Year 2000
Issue, including timely compliance by the Company's vendors and customers, and
merger and acquisition activity within the industry. All forecasts and
projections in this report are "forward-looking statements", and are based on
management's current expectations of the Company's near-term results, based on
current information available pertaining to the Company, including the
aforementioned risk factors. Actual results could differ materially.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
The registrant has previously reported that, in March 1997 the registrant
received a partially unsealed complaint, filed on an unknown date, in a qui tam
action by four former employees ("Relators") alleging violations of the False
Claims Act. The action has since been identified as United States of America ex
rel. P. Robert Pratt and P. Robert Pratt, individually vs. Alliant Techsystems
Inc. and Hercules Incorporated, which was filed in the United States District
Court, Central District of California. The action alleges labor mischarging to
the Intermediate Nuclear Force ("INF") contract and other contracts at the
registrant's Bacchus Works facility in Magna, Utah, which was acquired as part
of its acquisition of Hercules Aerospace Company ("HAC") from Hercules
Incorporated ("Hercules"). Damages are not specified. The registrant 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 HAC Purchase Agreement. In March 1998, the registrant and
Hercules settled with the Department of Justice on the portion of the complaint
alleging labor mischarging to the INF contract and agreed to pay $2.25 million
each, together with Relators' attorney's fees of $150,000 each, which amounts
were paid in April 1998. The Department of Justice has declined to intervene in
the remaining portion of the complaint. On October 16, 1998, the registrant and
Hercules settled with the Relators and agreed to pay $500,000 each, together
with Relators' attorney's fees of $75,000 each, subject to Court approval.
Incorporated herein by reference is note 5 of Notes to Financial Statements
included in Item 1 of Part I of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On August 4, 1998, the registrant held its annual meeting of
stockholders.
(b) At the above annual meeting, the following persons were elected
directors to serve until the next annual meeting of stockholders:
Peter A. Bukowick; Gilbert F. Decker, Thomas L. Gossage; Joel M.
Greenblatt; Jonathan G. Guss; David E. Jeremiah; Gaynor N. Kelley;
Joseph F. Mazzella; Daniel L. Nir; Richard Schwartz; and Michael T.
Smith.
(c) At the above annual meeting, the stockholders voted upon the following
proposals: (1) election of directors; (2) ratification of the
selection of Deloitte & Touche as independent accountants for the
fiscal year ending March 31, 1999; (3) approval of the Amended and
Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan; and (4)
a stockholder proposal. The votes cast on each of the above proposals
were as follows:
<PAGE>
Proposal Number 1:
For Withheld
--- --------
Peter A. Bukowick....... 10,116,211 939,594
Gilbert F. Decker....... 10,126,459 929,326
Thomas L. Gossage....... 10,160,019 895,766
Joel M. Greenblatt...... 10,147,145 908,640
Jonathan G. Guss........ 10,162,442 893,343
David E. Jeremiah....... 10,127,043 928,742
Gaynor N. Kelley........ 10,173,995 881,790
Joseph F. Mazzella...... 10,000,200 1,055,585
Daniel L. Nir........... 10,150,494 905,291
Richard Schwartz........ 10,099,941 955,844
Michael T. Smith........ 10,126,076 929,709
Broker non-votes: None
Proposal Number 2:
For..................... 11,014,428
Against................. 29,107
Abstain................. 12,250
Broker non-votes........ None
Proposal Number 3:
For..................... 6,373,470
Against................. 3,830,690
Abstain................. 38,552
Broker non-votes........ 813,073
Proposal Number 4:
For..................... 382,229
Against................. 9,218,384
Abstain................. 642,119
Broker non-votes........ 813,053
ITEM 5. OTHER INFORMATION
Attached to this report as Exhibit 99 is a list of the registrant's
directors and executive officers, as of the date of this report, which reflects
the following changes since August 6, 1998: new titles: Richard Schwartz,
Director and Chairman of the Board; Peter A. Bukowick, Director, President,
Chief Executive Officer and Chief Operating Officer; and Richard N. Jowett, Vice
President - Investor Relations and Public Affairs and Assistant Treasurer; and
new executive officer: John L. Lotzer, Vice President - Tax and Investments.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
No. Description of Exhibit
------- ----------------------
4 Amendment No. 3 to Amended and Restated Credit Agreement, dated as
of August 17, 1998
4.1 First Supplemental Indenture, dated as of August 28, 1998, to
Indenture, dated March 1, 1995, between the registrant and
U.S. Bank National Association (formerly known as First Bank
National Association)
10 Amended and Restated Alliant Techsystems Inc. 1990 Equity
Incentive Plan
27 Financial Data Schedule
99 Alliant Techsystems Inc. Directors and Executive Officers
(b) Reports on Form 8-K.
During the quarterly period ended September 27, 1998, the registrant
filed no reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANT TECHSYSTEMS INC.
Date: November 5, 1998 By: /s/ Charles H. Gauck
--------------------------
Name: Charles H. Gauck
Title: Secretary
(On behalf of the registrant)
Date: November 5, 1998 By: /s/ Scott S. Meyers
--------------------------
Name: Scott S. Meyers
Title: Vice President, Treasurer and Chief
Financial Officer (Principal Financial
Officer)
<PAGE>
ALLIANT TECHSYSTEMS INC.
FORM 10-Q
EXHIBIT INDEX
The following exhibits are filed herewith electronically or incorporated herein
by reference. The applicable Securities and Exchange Commission File Number is
1-10582.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
<S> <C> <C>
4 Amendment No. 3 to Amended and Restated Credit
Agreement, dated as of August 17, 1998. . . . . Filed herewith electronically
4.1 First Supplemental Indenture, dated as of
August 28, 1998, to Indenture, dated
March 1, 1995, between the registrant and
U.S. Bank National Association (formerly known
as First Bank National Association). . . . . . Filed herewith electronically
10 Amended and Restated Alliant Techsystems Inc.
1990 Equity Incentive Plan . . . . . . . . . . Incorporated by reference to
Exhibit B to registrant's
proxy statement
dated July 2, 1998
27 Financial Data Schedule . . . . . . . . . . . Filed herewith electronically
99 Alliant Techsystems Inc. Directors and
Executive Officers . . . . . . . . . . . . . . Filed herewith electronically
</TABLE>
<PAGE>
Exhibit 4
AMENDMENT NO. 3 TO
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of August 17, 1998 to the Amended and Restated Credit
Agreement dated as of March 15, 1995 as amended and restated as of November 14,
1996, and as further amended by Amendment No. 1, dated as of November 7, 1997,
and Waiver and Amendment No. 2 dated January 29, 1998 (the "Credit Agreement")
among ALLIANT TECHSYSTEMS INC. (the "Borrower"), the LENDERS party thereto (the
"Lenders"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Documentation Agent
(the "Documentation Agent") and THE CHASE MANHATTAN BANK as Administrative Agent
(the "Administrative Agent").
W I T N E S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement to permit
the Borrower to make certain additional Restricted Payments and to revise
certain other provisions thereof;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically defined
herein, each term used herein which is defined in the Credit Agreement has the
meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
SECTION 2. Amendment of Specified One-Time Amounts. The definition of
"Specified One-Time Amounts" in Section 1.01 of the Credit Agreement is amended
to read in full as follows:
"SPECIFIED ONE-TIME AMOUNTS" means, at any date or for any period, (i)
the sum of (A) $50,000,000 aggregate amount of Restricted Payments made or
declared after the Original Closing Date and on or prior to November 1,
1997 and (B) up to $60,000,000 aggregate amount of Restricted Payments made
or declared after November 1, 1997 pursuant to clause (ii)(C) of Section
5.15, in each case in this clause (i) solely pursuant to and in accordance
with this Agreement, (ii) the amount of restructuring charges by the
Borrower and its Consolidated Subsidiaries taken in the fiscal quarter
ending March 31, 1995 (but in no event greater than $38,000,000 in the
aggregate) with respect to employee severance costs, certain employee
benefit related liabilities and facilities consolidation, and (iii) the
aggregate amount of charges (not to exceed $20,000,000) attributable to
early extinguishment of up to $150,000,000 aggregate stated principal
amount of Subordinated Notes (including, without limitation, premium over
par value plus unamortized debt issuance costs).
<PAGE>
SECTION 3. Amendment of Restricted Payments Covenant. Section 5.15 of the
Credit Agreement is amended to read in full as follows:
SECTION 5.15. Restricted Payments. Neither the Borrower nor any
Subsidiary will declare or make any Restricted Payment other than:
(i) any Restricted Payments required to be made by the Borrower
pursuant to the terms of employee benefit plans and stock options, in
each case as in effect on the Original Closing Date and as modified
thereafter, provided that the aggregate amount of Restricted Payments
permitted by this clause (i) shall not exceed $10,000,000; and
(ii) any Restricted Payments made or declared after the Effective
Date to the extent that immediately after giving effect thereto (x) no
Default shall have occurred and be continuing and (y) the aggregate
amounts of all such Restricted Payments made or declared pursuant to
this clause (ii) does not exceed (A) $10,841,000 (which is the unused
amount as of the Effective Date of the basket provided under Section
5.15(iii) of the Agreement as in effect immediately prior to the
Effective Date) plus (B) up to $150,000,000 aggregate amount of
Restricted Payments made or declared after November 1, 1997 of the
type referred to in clause (iii) of the definition of Restricted
Payment plus (C) up to $60,000,000 of Restricted Payments made or
declared after November 1, 1997 of the type referred to in clause (ii)
of the definition of Restricted Payment plus (D) the excess of 50% of
positive Consolidated Net Income for each fiscal quarter commencing
after March 31, 1997 and ending at the end of the most recent fiscal
quarter ended on or prior to the relevant date of determination hereof
over 100% of Consolidated Net Income for each such fiscal quarter for
which Consolidated Net Income is negative plus (E) 100% of the
aggregate net cash proceeds received by the Borrower from any Person
(other than a Subsidiary) as a capital contribution to the Borrower or
from the issue or sale (other than to a Subsidiary), after the
Effective Date of capital stock of the Borrower.
SECTION 4. Representations of Borrower. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set forth
in Article 4 of the Credit Agreement will be true on and as of the Amendment
Effective Date and (ii) no Default will have occurred and be continuing on such
date.
SECTION 5. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York.
SECTION 6. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
SECTION 7. Effectiveness. This Amendment shall become effective on the date
(the "Amendment Effective Date") when the Documentation Agent shall have
received from each of the Borrower and the Required Lenders a counterpart hereof
signed by such party or facsimile or other written confirmation (in form
satisfactory to the Documentation Agent) that such party has signed a
counterpart hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
ALLIANT TECHSYSTEMS INC.
By /s/ Scott S. Meyers
Title: Vice President & CFO
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ Robert Bottamedi
Title: Vice President
THE CHASE MANHATTAN BANK
By /s/ James B. Treger
Title: Vice President
NATIONSBANK, N.A.
By /s/ Valerie C. Mills
Title: Sr. Vice President
CREDIT LYONNAIS CHICAGO
BRANCH
By /s/ Mary Ann Klemm
Title: Vice President
BANK OF AMERICA NT & SA
By /s/ Theresa A. Fontaine
Title: Vice President
<PAGE>
THE BANK OF NEW YORK
By /s/ Richard A. Raffetto
Title: Vice President
CITICORP USA, INC.
By /s/ W. L. Larson
Title: Attorney-in-Fact
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLANDS
BRANCHES
By /s/ S. O'Connor
Title: Director
By /s/ Sheryl L. Paynter
Title: Associate
U.S. BANK NATIONAL ASSOCIATION
By /s/ Greg Wilson
Title: Commercial Banking Officer
MELLON BANK, N.A.
By /s/ Martin J. Randal
Title: Asst. Vice President
BANK OF MONTREAL
By /s/ Leon H. Sinclair
Title: Director
THE BANK OF NOVA SCOTIA
By /s/ F. C. H. Ashby
Title: Senior Manager Loan Operations
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Kris Szremski
Title: Vice President
THE MITSUBISHI TRUST AND
BANKING CORPORATION,
CHICAGO BRANCH
By /s/ Nobuo Tominaga
Title: Chief Manager
COMERICA BANK
By /s/ Timothy O'Rourke
Title: Vice President
COMMERZBANK
AKTIENGESELLSCHAFT,
CHICAGO BRANCH
By ______________________
Title:
By ______________________
Title:
NATIONAL CITY BANK
By /s/ Robert C. Rowe
Title: VP
THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By ______________________
Title:
<PAGE>
THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By /s/ John H. Kemper
Title: Senior Vice President
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By ______________________
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
Title: Senior Vice President & Director
<PAGE>
Exhibit 4.1
FIRST SUPPLEMENTAL INDENTURE
Dated as of August 28, 1998
TO
INDENTURE,
Dated as of March 1, 1995
among
ALLIANT TECHSYSTEMS INC.,
Issuer,
and
U.S. BANK NATIONAL ASSOCIATION
(formerly known as First Bank National Association),
Trustee
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of August 28, 1998 by and among
ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), and U.S. BANK
NATIONAL ASSOCIATION (formerly known as First Bank National Association), a
national banking association, as Trustee (the "Trustee"), to that certain
Indenture, dated as of March 1, 1995, by and between the Company and the Trustee
(the "Indenture"). All terms used herein and not otherwise defined herein shall
have the same respective meanings as in the Indenture.
R E C I T A L S :
A. The Company has issued and outstanding, pursuant to the Indenture, $150
million aggregate principal amount of 11 3/4% Senior Subordinated Notes due
March 1, 2003 (the "Securities");
B. The Company desires and has requested the Trustee to join with the
Company in the execution and delivery of this First Supplemental Indenture for
the purpose of amending the Indenture in order to eliminate certain covenants
and Events of Defaults;
C. Section 9.2 of the Indenture provides that a supplemental indenture may
be entered into by the Company and the Trustee to change certain provisions of
the Indenture or modify certain rights of the Holders of Securities with the
consent of Holders of not less than a majority in aggregate principal amount of
the then outstanding Securities and the authorization by a resolution of the
Board of Directors of the Company;
D. Pursuant to a solicitation by the Company, consents to the amendments to
the Indenture pursuant to this First Supplemental Indenture of Holders of at
least a majority in aggregate principal amount of the then outstanding
Securities have been received and a resolution of the Board of Directors of the
Company has authorized the Company to enter into this First Supplemental
Indenture with the Trustee; and
E. All things necessary to make this First Supplemental Indenture a valid
and binding agreement of the Company and the Trustee and a valid and binding
amendment to the Indenture have been done.
NOW, THEREFORE, the Company and the Trustee hereby agree as follows:
1. Amendment. The Indenture is hereby amended as follows:
1.1. Section 4.3 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
1.2. Section 4.4 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
1.3. Section 4.5 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
<PAGE>
1.4. Section 4.6 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
1.5. Section 4.7 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
1.6. Section 4.8 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
1.7. Section 4.9 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
1.8. Section 4.10 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
1.9. Section 4.11 of Article 4 of the Indenture is amended by deleting
such section in its entirety.
1.10. Section 4.12 of Article 4 of the Indenture is amended by
deleting such section in its entirety.
1.11. Section 4.13 of Article 4 of the Indenture is amended by
deleting such section in its entirety.
1.12. Section 4.14 of Article 4 of the Indenture is amended by
deleting such section in its entirety.
1.13. Section 4.15 of Article 4 of the Indenture is amended by
deleting such section in its entirety.
1.14. Section 4.16 of Article 4 of the Indenture is amended by
deleting such section in its entirety.
1.15. Section 4.17 of Article 4 of the Indenture is amended by
deleting such Section in its entirety.
1.16. Section 5.1 of Article 5 of the Indenture is amended by deleting
such section in its entirety.
1.17. Section 5.2 of Article 5 of the Indenture is amended by deleting
such section in its entirety.
1.18. Section 6.1(d) of Article 6 of the Indenture is amended by
deleting such section in its entirety.
<PAGE>
1.19. Section 6.1(e) of Article 6 of the Indenture is amended by
deleting such section in its entirety.
1.20. Section 6.1(f) of Article 6 of the Indenture is amended by
deleting such section in its entirety.
1.21. Section 6.1(g) of Article 6 of the Indenture is amended by
deleting such section in its entirety.
1.22. Section 1.1 of Article 1 of the Indenture is amended by deleting
therefrom all definitions when references to such definitions would be
eliminated as a result of the amendments to the Indenture contemplated by
Sections 1.1 through 1.21 hereof.
1.23. The Indenture is also amended to delete all cross-references to
any of the covenants, Events of Default or definitions deleted by the
amendments to the Indenture contemplated by Sections 1.1 through 1.21
hereof.
2. Effectiveness. This First Supplemental Indenture shall be effective on
the date hereof; provided, however, that the amendments to the Indenture
contemplated by Section 1 above (the "Amendments") shall not become operative
unless and until the Company's offer to purchase any and all of the outstanding
Securities upon the terms and conditions set forth in the Offer To Purchase and
Consent Solicitation dated August 18, 1998 and the related Consent and Letter of
Transmittal, as either of them may be amended from time to time, has been
consummated. Upon the Amendments becoming operative, the Indenture shall be
deemed to be modified and amended in accordance herewith and the respective
rights, limitations of rights, obligations, duties and immunities under the
Indenture of the Trustee, the Company and the holders of the Securities shall
thereafter be determined, exercised and enforced under the Indenture subject in
all respects to such modifications and amendments, and all the terms and
conditions of this First Supplemental Indenture shall be deemed to be part of
the terms and conditions of the Indenture for any and all purposes.
3. Miscellaneous.
3.1. This First Supplemental Indenture is an indenture supplemental to and
in implementation of the Indenture, and the Indenture and this First
Supplemental Indenture shall henceforth be read and construed together.
3.2. The Indenture as supplemented by this First Supplemental Indenture is
in all respects confirmed and preserved.
3.3. If any provision of this First Supplemental Indenture limits,
qualifies or conflicts with any provision of the TIA, that is required under the
TIA to be part of and govern any provision of this First Supplemental Indenture,
the provision of the TIA shall control. If any provision of this First
Supplemental Indenture modifies or excludes any provision of the TIA that may be
so modified or excluded, the provisions of the TIA shall be deemed to apply to
the Indenture as so modified or to be excluded by this First Supplemental
Indenture, as the case may be.
<PAGE>
3.4. In case any provision of this First Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
3.5. The Section headings herein are for convenience only and shall not
affect the construction hereof.
3.6. Nothing in this First Supplemental Indenture, the Indenture, or the
Securities, express or implied, shall give to any Person, other than the parties
hereto and thereto and their successors hereunder and thereunder, and the
Holders of the Securities, any benefit of any legal or equitable right, remedy
or claim under the Indenture, this First Supplemental Indenture or the
Securities.
3.7. All covenants and agreements in this First Supplemental Indenture by
the Company shall bind its successors and assigns, whether so expressed or not.
3.8. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE OR ENTERED INTO AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS.
3.9. This First Supplemental Indenture may be executed in counterparts,
each of which shall be an original, and all of which taken together shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.
ALLIANT TECHSYSTEMS INC. as Issuer
By: /s/ Scott S. Meyers
----------------------------------
Name: Scott S. Meyers
Title: Vice President, Treasurer and
Chief Financial Officer
U.S. BANK NATIONAL ASSOCIATION,
(formerly known as First Bank National
Association)
as Trustee
By: /s/ Richard H. Prokosch
----------------------------------
Name: Richard H. Prokosch
Title: Asst Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q FILING
FOR SIX MONTHS ENDED 9/27/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> SEP-27-1998 SEP-28-1997
<CASH> 23,398 86,608
<SECURITIES> 388 378
<RECEIVABLES> 207,863 190,294
<ALLOWANCES> 127 130
<INVENTORY> 46,752 59,233
<CURRENT-ASSETS> 322,335 381,194
<PP&E> 526,054 524,111
<DEPRECIATION> 199,774 182,394
<TOTAL-ASSETS> 871,183 939,495
<CURRENT-LIABILITIES> 223,549 257,824
<BONDS> 190,976 221,108
14,993 0
0 0
<COMMON> 121 131
<OTHER-SE> 241,331 249,254
<TOTAL-LIABILITY-AND-EQUITY> 871,183 939,495
<SALES> 515,319 518,593
<TOTAL-REVENUES> 515,319 518,593
<CGS> 424,654 429,044
<TOTAL-COSTS> 424,654 429,044
<OTHER-EXPENSES> 3,732 4,674
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,876 14,937
<INCOME-PRETAX> 38,199 30,578
<INCOME-TAX> 5,730 0
<INCOME-CONTINUING> 32,469 30,578
<DISCONTINUED> 0 0
<EXTRAORDINARY> (14,627) 0
<CHANGES> 0 0
<NET-INCOME> 17,842 30,578
<EPS-PRIMARY> 1.42 2.35
<EPS-DILUTED> 1.38 2.28
</TABLE>
<PAGE>
Exhibit 99
ALLIANT TECHSYSTEMS INC.
DIRECTORS AND EXECUTIVE OFFICERS
November 5, 1998
<TABLE>
<CAPTION>
Name (Age) Position
---------- --------
<S> <C>
Richard Schwartz (62) Director and Chairman of the Board
Peter A. Bukowick (54) Director, President, Chief Executive Officer and Chief Operating Officer
Gilbert F. Decker (61) Director
Thomas L. Gossage (64) Director
Joel M. Greenblatt (40) Director
Jonathan G. Guss (39) Director
David E. Jeremiah (64) Director
Gaynor N. Kelley (67) Director
Joseph F. Mazzella (45) Director
Daniel L. Nir (37) Director
Michael T. Smith (55) Director
Robert E. Gustafson (50) Vice President - Human Resources
Richard N. Jowett (53) Vice President - Investor Relations and Public Affairs and Assistant Treasurer
John L. Lotzer (42) Vice President - Tax and Investments
William R. Martin (57) Vice President - Washington, D.C. Operations
Mark L. Mele (41) Vice President - Strategic Planning
Scott S. Meyers (45) Vice President, Treasurer and Chief Financial Officer
Paula J. Patineau (44) Vice President and Controller
Paul A. Ross (61) Group Vice President - Space and Strategic Systems
Don L. Sticinski (47) Group Vice President - Defense Systems
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name (Age) Position
---------- --------
<S> <C>
Nicholas G. Vlahakis (50) Group Vice President - Conventional Munitions
Daryl L. Zimmer (55) Vice President and General Counsel
Charles H. Gauck (60) Secretary
</TABLE>
