<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 July 4, 1999 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-10582
ALLIANT TECHSYSTEMS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1672694
(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 July 31, 1999, the number of shares of the registrant's common
stock, par value $.01 per share, outstanding was 10,249,872 (excluding 3,613,741
treasury shares).
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Income Statements (Unaudited)
(In thousands except QUARTERS ENDED
--------- ---------
per share data) July 4 June 28
1999 1998
--------- ---------
Sales $ 272,721 $ 256,321
Cost of sales 224,661 211,089
--------- ---------
Gross margin 48,060 45,232
Operating expenses:
Research and development 1,887 1,595
Selling 5,481 8,752
General and administrative 12,433 10,918
--------- ---------
Total operating expenses 19,801 21,265
--------- ---------
Income from operations 28,259 23,967
Miscellaneous income (expense) 1 (37)
--------- ---------
Earnings before interest and income taxes 28,260 23,930
Interest expense (9,155) (5,685)
Interest income 107 344
--------- ---------
Income before income taxes 19,212 18,589
Income tax provision 4,611 2,788
--------- ---------
Net income $ 14,601 $ 15,801
========= =========
Basic earnings per common share $ 1.43 $ 1.24
========= =========
Diluted earnings per common share $ 1.39 $ 1.21
========= =========
Average number of common shares
(thousands) 10,226 12,713
========= =========
Average number of common and
dilutive shares (thousands) 10,487 13,027
========= =========
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
------------ --------------
(In thousands except share data) July 4, 1999 March 31, 1999
------------ --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 37,091 $ 21,078
Receivables 247,298 233,499
Net inventory 43,524 44,030
Deferred income tax asset 41,912 41,912
Other current assets 6,376 2,589
--------- ---------
Total current assets 376,201 343,108
Net property, plant, and equipment 331,582 335,751
Goodwill 126,096 127,799
Prepaid and intangible pension assets 76,080 77,552
Other assets and deferred charges 9,053 10,108
--------- ---------
Total assets $ 919,012 $ 894,318
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt $ 44,963 $ 36,500
Line of credit borrowings 47,000 --
Accounts payable 60,809 93,991
Contract advances and allowances 43,612 49,456
Accrued compensation 24,446 32,433
Accrued income taxes 17,139 13,075
Other accrued liabilities 52,100 61,033
--------- ---------
Total current liabilities 290,069 286,488
Long-term debt 319,031 305,993
Post-retirement and post-employment benefits liability 126,166 128,279
Other long-term liabilities 54,936 54,835
--------- ---------
Total liabilities $ 790,202 $ 775,595
Contingencies
Common stock - $.01 par value
Authorized - 20,000,000 shares
Issued and outstanding 10,240,034 shares at July
4, 1999 and 10,284,530 at March 31, 1999 $ 139 $ 139
Additional paid-in-capital 237,560 238,513
Retained earnings 137,958 123,357
Unearned compensation (2,909) (3,289)
Pension liability adjustment (2,940) (2,940)
Common stock in treasury, at cost (3,623,579 shares held at
July 4, 1999 and 3,579,083 at March 31, 1999) (240,998) (237,057)
--------- ---------
Total stockholders' equity $ 128,810 $ 118,723
--------- ---------
Total liabilities and stockholders' equity $ 919,012 $ 894,318
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In thousands) QUARTERS ENDED
------------ -------------
July 4, 1999 June 28, 1998
------------ -------------
<S> <C> <C>
Operating activities
Net income $ 14,601 $ 15,801
Adjustments to net income to arrive at cash
used for operations:
Depreciation 10,578 9,739
Amortization of intangible assets and unearned
compensation 2,653 1,540
Loss on disposal of property 270 84
Changes in assets and liabilities:
Receivables (13,799) 9,358
Inventory 506 3,155
Accounts payable (33,182) (19,768)
Contract advances and allowances (5,844) (8,732)
Accrued compensation (7,987) (5,136)
Accrued income taxes 4,064 1,695
Pension and post-retirement benefits (2,023) (2,355)
Other assets and liabilities (10,709) (18,445)
-------- --------
Cash used for operations (40,872) (13,064)
-------- --------
Investing activities
Capital expenditures (6,558) (4,550)
Proceeds from disposition of property, plant, and equipment 9 38
-------- --------
Cash used for investing activities (6,549) (4,512)
-------- --------
Financing activities
Net borrowings on line of credit 47,000 --
Payments made on bank debt (7,500) (4,459)
Proceeds from issuance of long-term debt 29,000 --
Net purchase of treasury shares (6,308) (13,883)
Proceeds from exercised stock options 1,242 767
-------- --------
Cash provided by (used for) financing activities 63,434 (17,575)
-------- --------
Increase (decrease) in cash and cash equivalents 16,013 (35,151)
Cash and cash equivalents - beginning of period 21,078 68,960
-------- --------
Cash and cash equivalents - end of period $ 37,091 $ 33,809
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Notes to Financial Statements (Unaudited)
1. During the three months ended July 4, 1999, the Company made principal
payments on its bank term debt of $7.5 million. At July 4, 1999, the
Company had borrowings of $47.0 million against its $250 million bank
revolving credit facility. Additionally, the Company had outstanding
letters of credit of $40.8 million, which further reduced amounts available
on the revolving facility to $162.2 million at July 4, 1999.
During the quarter ended July 4, 1999, the Company made additional
borrowings under its bank term debt facilities of $29.0 million. These
borrowings were made to finance, on a long-term basis, a portion of the
Company's stock repurchases which had been made primarily in late fiscal
1999. The remaining scheduled minimum loan payments on outstanding
long-term debt are as follows: fiscal 2000, $31.0 million; fiscal 2001,
$55.7 million; fiscal 2002 through 2004, $69.2 million, per year; fiscal
2005, $69.7 million.
2. The major categories of current and long-term accrued liabilities are as
follows (in thousands):
Period Ending
---------------------------------
July 4, 1999 March 31, 1999
----------------------------------------------------------------------
Employee benefits and insurance $21,827 $30,231
Legal accruals 9,641 10,045
Other accruals 20,632 20,757
----------------------------------------------------------------------
Other accrued liabilities-current $52,100 $61,033
======================================================================
Environmental remediation liability $18,055 $18,044
Deferred tax liability 25,870 25,870
Supplemental employee retirement plan 11,043 10,953
Other (32) (32)
----------------------------------------------------------------------
Other long-term liabilities $54,936 $54,835
======================================================================
The decrease in employee benefits and insurance since March 31, 1999 is
reflective of payments made during the quarter ended July 4, 1999, for
previously accrued employee payroll taxes.
3. Tax payments of $.5 million and $1.1 million were paid for alternative
minimum taxes for the periods ended July 4, 1999, and June 28, 1998,
respectively.
The Company's provision for income taxes included both federal and state
income taxes. Income tax expense was $4.6 million for the three-month
period ended July 4, 1999, compared to $2.8 million for the comparable
prior period, representing an effective tax rate of 24% and 15% for the
periods ended July 4, 1999 and June 28, 1998, respectively. Income tax
provisions for interim periods are based on estimated effective annual
income tax rates. The estimated effective tax rate for the current fiscal
year ending March 31, 2000, is reflective of the Company's best estimate of
the fiscal 2000 tax effects associated with its business strategies, as
well as the resolution of tax matters during the year.
4. On December 15, 1998, the Company completed the repurchase of 1.7 million
shares of its common stock at a price of $77 per share, or approximately
$130 million in total. The repurchase occurred via the terms and conditions
of a modified "Dutch auction" tender offer (Dutch auction) and was financed
under the Company's bank credit facilities.
In connection with the completion of the Dutch auction, the Company's Board
of Directors authorized the Company to repurchase up to an additional 1.1
million shares of its common stock. Any repurchases made under this plan
would be subject to market conditions and the Company's compliance with its
debt covenants. As of July 4, 1999, repurchases of 523 thousand shares have
been made under the program,
<PAGE>
aggregating approximately $41 million. There can be no assurance that the
Company will purchase all or any portion of the remaining shares, or as to
the timing or terms thereof.
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 then held by Hercules. The shares
represented the stock issued by the Company in connection with the March
15, 1995 acquisition of the Hercules Aerospace Company operations from
Hercules (the Aerospace acquisition). Under the agreement with Hercules
(the "Hercules repurchase"), 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 could 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 could likewise require Hercules to
sell the shares to the Company in four equal installments of 271,000 shares
during each of the four calendar quarters of 1998. The price for shares
purchased under the put/call arrangement was 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, August, and November
of 1998, respectively, the Company repurchased the remaining installments
of 271,000 shares, each for approximately $15 million.
5. Contingencies:
Environmental Matters - The Company is subject to various local and
national laws relating to protection of the environment and is in various
stages of investigation or remediation of potential, alleged, or
acknowledged contamination. At July 4, 1999, the accrued liability for
environmental remediation of $31.7 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 $10.3
million, representing the present value of those reimbursements at July 4,
1999. Such receivable primarily represents the expected reimbursement of
costs associated with the Aerospace acquisition, 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 approximately
4.5 percent.
The following is a summary of the Company's amounts recorded for
environmental remediation at July 4, 1999 (in thousands):
Accrued Environmental Costs --
Environmental Liability Reimbursement Receivable
------------------------------------------------- -------------------------
Amounts (Payable)/Receivable $(41,056) $14,049
Unamortized Discount 9,351 (3,706)
------------------------------------------------- -------------------------
Present Value Amounts
(Payable)/Receivable $(31,705) $10,343
================================================= =========================
<PAGE>
At July 4, 1999, the estimated discounted range of reasonably possible
costs of environmental remediation is between $31 and $46 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.
Legal Matters - As a U.S. Government contractor, the Company is subject to
defective pricing and cost accounting standards non-compliance claims by
the Government. Additionally, the Company has substantial Government
contracts and subcontracts, the prices of which are subject to adjustment.
The Company believes that resolution of such claims and price adjustments
made or to be made by the Government for open fiscal years (1994 through
1999) will not materially exceed the amount provided in the accompanying
balance sheets.
The Company is a defendant in a number of lawsuits that arise out of, and
are incidental to, the conduct of its business. Such matters arise out of
the normal course of business and relate to product liability, intellectual
property, government regulations, including environmental issues, and other
issues. Certain of the lawsuits and claims seek damages in very large
amounts. In these legal proceedings, no director, officer, or affiliate is
a party or a named defendant.
Under the terms of the agreements relating to the Aerospace acquisition,
all litigation and legal disputes arising in the ordinary course of the
acquired operations were 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 were 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. On January 21, 1999, the court
approved the settlement and entered judgment dismissing the case, subject
to the right of the Department of Justice to appeal such approval and
dismissal. During early fiscal 2000, the Department of Justice, with minor
revisions, approved the settlement and dismissal.
The Company has also been served with a complaint in a civil action
captioned United States v. Alliant Techsystems Inc. and filed in the U.S.
District Court for the District of Minnesota, alleging violations of the
False Claims Act, the Truth in Negotiations Act, and common law and
equitable theories of recovery. The
<PAGE>
complaint was filed March 10, 1997, and relates to a contract for the AT4
shoulder-fired weapon. The complaint alleges that the contract in question
was defectively priced. 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. Under the
provisions of the False Claims Act, a civil penalty of between $5,000 and
$10,000 can be assessed for each claim, plus three times the amount of any
damages sustained by the U.S. Government. In addition to damages, a
judgment against the Company in such a suit or a finding of liability in a
separate criminal action could carry penalties of suspension or debarment
which would make some or all of the Company's operations ineligible to be
awarded any U.S. Government contracts for a period of up to three years.
The amount of damages, if any, involved in the above actions filed under
the False Claims Act cannot be determined at this time.
The Company was a defendant in a patent infringement case brought by
Cordant Technologies (formerly Thiokol Corporation), which the Company
believed was without merit. The plaintiff alleged that the rocket motor
insulation used by the Company in certain rocket motors infringed on a
patent owned by the plaintiff. The complaint sought trebling of any damages
that might have been awarded, based on an allegation of deliberate and
willful infringement. The complaint did not quantify the amount of damages
sought. Through its analysis of an October 27, 1997, court filing, the
Company believed that, based on an economist's expert testimony, Cordant
Technologies might seek lost profits, interest and costs of approximately
$240 million. Even if the Company was found liable, it believed that
damages should be based upon a reasonable royalty of less than $5 million.
On March 25, 1999, the Court held invalid the patent that is the subject of
the action. The plaintiff filed a notice of appeal on April 23, 1999, and
the Company filed a notice of cross appeal on April 30, 1999. On April 13,
1999, the plaintiff and the Company entered into a "standstill agreement"
under which the parties have agreed to file a joint motion to the U.S.
Court of Appeals for the Federal Circuit for a stay of all proceedings for
up to 150 days (now extended to 210 days), during which the parties have
agreed to negotiate in good faith to settle the litigation. 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, maintained that
the option exercise was invalid and therefore did not perform on the
option. The Company's appeal of the validity of the option to the U.S.
Court of Appeals for the Federal Circuit, and a subsequent request for a
hearing en banc related to the option's validity, were both denied. In late
December 1997, the Company was informed by the customer that the Company
was being terminated for default on the contract option. Depending on the
outcome of the termination for default litigation, which involves
allegations unrelated to the validity of the option, management currently
believes that the impact to the Company's future operating earnings will
not be material.
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 believes that the range of
reasonably possible additional cost impact that could occur as a result of
the potential technical and safety issues on the Explosive "D" program will
not be material. However, the 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.
<PAGE>
The Company does not believe that the above contract terminations will have
a material adverse impact on the Company's future results of operations,
its liquidity, or its financial position.
While the results of litigation cannot be predicted with certainty,
management believes, based upon the advice of counsel, that the actions
seeking to recover damages against the Company either are without merit,
are covered by insurance and reserves, do not support any grounds for
cancellation of any contract, or are not likely to materially affect the
financial condition or results of operations of the Company, although the
resolution of any such matters during a specific period could have a
material adverse effect on the quarterly or annual operating results for
that period.
6. Interest paid during the three-month periods ended July 4, 1999, and June
28, 1998, totalled $8.8 million and $2.4 million, respectively. Interest
charges under the Company's revolving credit facility are primarily at the
London Inter Bank Offering Rate (LIBOR), plus 1.75 percent (which totaled
7.0 percent at July 4, 1999), and will be subject to change in the future,
as changes occur in market conditions and in the Company's financial
performance and leverage ratios.
7. Consistent with the Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share", the Company presents basic earnings per share
(EPS) and diluted EPS, instead of the primary and fully diluted EPS that
were previously required. 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 and stock options outstanding during each
period presented, which, if exercised, would have a dilutive effect on EPS.
In computing EPS for the three month periods ended July 4, 1999 and June
28, 1998, net income as reported for each respective period, is divided by:
Quarters Ended
------------------------------
July 4, 1999 June 28, 1998
------------------------------------------------------------------
Basic EPS:
- Average Shares Outstanding 10,226 12,713
==================================================================
Diluted EPS:
- Average Shares Outstanding 10,226 12,713
- Dilutive effect of options and
redeemable common shares 261 314
------------------------------------------------------------------
Diluted EPS Shares Outstanding 10,487 13,027
==================================================================
There were 121,700 and 137,350 stock options that were not included in the
computation of diluted EPS for the quarters ended July 4, 1999, and June
28, 1998, respectively, due to the option price being greater than the
average market price of the common shares.
8. 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-month periods ended
July 4, 1999, and June 28, 1998. The Company's accounting policies are
described in the notes to financial statements in its fiscal 1999 Annual
Report on Form 10-K.
9. 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." Effective April 1, 1999, the Company
<PAGE>
adopted this SOP. It did not have a material impact to the Company's
results of operations or its financial position for the quarter ended July
4, 1999.
10. Certain reclassifications have been made to the fiscal 1999 financial
statements, as previously reported, to conform to current classification.
These reclassifications did not affect the net income from operations as
previously reported.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Sales
In the quarter ended July 4, 1999, the Company's sales were $272.7 million, an
increase of $16.4 million, or 6.4 percent, from $256.3 million for the
comparable quarter in the prior year.
Aerospace segment sales were $118.4 million, an increase of $27.2 million, or
29.8 percent from $91.2 million for the comparable quarter in the prior year.
The increase is attributable to higher space propulsion sales, up $23 million
compared to the comparable quarter of the prior year, primarily driven by
increased sales on the Titan and Delta Propulsion programs. Conventional
Munitions segment sales were $106.5 million, a decrease of $14.8 million, or
12.2 percent, from $121.3 million for the comparable quarter in the prior year.
The decrease was primarily attributable to lower tank ammunition sales. Defense
Systems segment sales were $50.2 million, an increase of $5.1 million, or 11.3
percent, from $45.1 million for the comparable quarter in the prior year. The
increase was driven primarily by an increase in volume on anti-tank munitions
programs.
Company sales for fiscal 2000 are expected to be approximately $1.1 billion.
Gross Margin
The Company's gross margin in the quarter ended July 4, 1999, was $48.1 million
or 17.6 percent of sales, compared to $45.2 million, or 17.6 percent of sales
for the comparable quarter of the prior year. While the Company's overall gross
margin rate in the current year period was consistent with that of the prior
year period, the current year period included slightly lower gross margin rate
in Aerospace, due to timing of contract revenues as new programs ramp up. This
slight decrease was offset by slight margin rate improvements on certain Defense
Systems segment fuzing and munitions programs, due to improved cost performance.
Conventional Munitions segment margin rate was consistent with the prior year
period as margin improvements on medium caliber ammunition programs were offset
by charges of approximately $5 million due to cost growth on ordnance
reclamation contracts.
Fiscal 2000 gross margin, as a percent of sales, is expected to be in the 18.5 -
19.0 percent range.
Operating Expenses
The Company's operating expenses for the quarter ended July 4, 1999, totaled
$19.8 million, or 7.3 percent of sales, compared to $21.3 million, or 8.3
percent of sales for the comparable quarter of the prior year. The overall
decrease was driven by reduced selling costs due to the timing of program
pursuits in the prior year period, which included significant costs in the
Defense Systems segment and in the Conventional Munitions segment which spent
approximately $1.3 million in pursuit of the E3 tank ammunition program. These
decreases were partially offset by one-time legal and consulting expenditures
made during the current year quarter on certain internal company initiatives.
Fiscal 2000 operating expenses, stated as a percent of sales, are expected to be
approximately 8.5 percent.
Interest Expense
The Company's net interest expense for the quarter ended July 4, 1999, was $9.0
million, an increase of $3.7 million compared to $5.3 million for the comparable
quarter in the prior year. The increase was
<PAGE>
driven by higher average outstanding debt during the quarter, which was
primarily driven by share repurchases in fiscal 1999. See discussion of the
Company's share repurchases below.
Income before Income Taxes
The Company's income before income taxes (earnings before taxes, or "EBT") for
the quarter ended July 4, 1999 was $19.2 million, compared to $18.6 million for
the comparable quarter of the prior year.
Aerospace segment EBT for the quarter ended July 4, 1999, was $19.6 million, an
increase of $4.6 million, compared to $15.0 million for the comparable quarter
of the prior year. The increase was driven by increased volumes on propulsion
programs. Conventional Munitions segment EBT for the quarter ended July 4, 1999,
was $1.2 million, compared to $2.2 million for the comparable quarter of the
prior year. The decrease is primarily reflective of improved medium caliber
ammunition program results, offset by cost growth on ordnance reclamation
contracts. Defense Systems segment EBT for the quarter ended July 4, 1999 was
$(3.2) million, compared to $(3.9) million for the comparable quarter of the
prior year. The loss in the current year quarter reflects improved program
performance on munitions programs, offset by a non-recurring $4 million charge
to re-value certain long-term assets (primarily fixed assets) to the estimated
net realizable value, as the segment's management has elected to pursue disposal
by sale of certain assets no longer deemed critical to the business.
Income Taxes
Income tax expense was $4.6 million for the three-month period ended July 4,
1999, compared to $2.8 million for the comparable prior period, representing an
effective tax rate of 24% and 15% for the periods ended July 4, 1999 and June
28, 1998, respectively. Income tax provisions for interim periods are based on
estimated effective annual income tax rates. The estimated effective tax rate
for the current fiscal year ending March 31, 2000, is reflective of the
Company's best estimate of the fiscal 2000 tax effects associated with its
business strategies, as well as the resolution of tax matters during the year.
Net Income
Net income reported for the quarter ended July 4, 1999, was $14.6 million, a
decrease of $1.2 million, or 7.6 percent, when compared with net income of $15.8
million for the comparable quarter of the prior year. The overall decrease is
the result of increased gross margin due to revenue increases and decreased
operating expenses, which were offset by increased interest and income tax
expenses.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
- -----------------------------------------------------
Cash used by operations totaled $40.9 million for the quarter ended July 4,
1999, an increase in usage of $27.8 million, when compared with cash used by
operations of $13.1 million in the comparable quarter of the prior year. The
increased level of cash usage during the quarter was primarily driven by an
increase in cash payments made for payables as well as a decrease in cash
provided from receivable collections, which was driven in large part by the
timing of cash collections on the Titan and Delta IV space propulsion programs.
In addition, technical problems on ammunition systems programs delayed the
receipt of cash.
Cash used by investing activities for the quarter ended July 4, 1999, was $6.5
million, a $2.0 million increase in cash used, compared to cash used by
investing activities of $4.5 million in the comparable quarter of the prior
year. This increase primarily represented increased capital expenditures in the
current year in the Aerospace segment to support composites structure business
growth associated with the Delta family of rockets. Fiscal 2000 capital
expenditures are currently expected to approximate fiscal 1999 expenditures.
<PAGE>
As of July 4, 1999, the Company had borrowings of $47.0 million against its $250
million bank revolving credit facility. Additionally, the Company has
outstanding letters of credit of $40.8 million, which further reduced amounts
available on the revolving credit facility to $162.2 million at July 4, 1999.
During the quarter ended July 4, 1999, the Company made additional borrowings
under its bank term debt facilities of $29.0 million. These borrowings were made
to finance, on a long-term basis, a portion of the Company's stock repurchases
which had been made primarily in late fiscal 1999. Scheduled minimum loan
payments on the Company's outstanding long-term debt is as follows: fiscal 2000,
$31.0 million; fiscal 2001, $55.7 million; fiscal 2002 through 2004, $69.2
million, per year; fiscal 2005, $69.7 million. The Company's total debt (line of
credit borrowings, current portion of long-term debt, and long-term debt) as a
percentage of total capitalization, was 76 percent on July 4, 1999 and 74
percent on March 31, 1999.
On December 15, 1998, the Company completed the repurchase of 1.7 million shares
of its common stock at a price of $77 per share, or approximately $130 million
in total. The repurchase occurred via the terms and conditions of a modified
"Dutch auction" tender offer (Dutch auction) and was financed under the
Company's bank credit facilities.
In connection with the completion of the Dutch auction, the Company's Board of
Directors authorized the Company to repurchase up to an additional 1.1 million
shares of its common stock. As of July 4, 1999, repurchases of approximately 523
thousand shares have been made under the program, aggregating approximately $41
million. Any repurchases made under this plan would be subject to market
conditions and the Company's compliance with its debt convenants. However, there
can be no assurance that the Company will purchase all or any portion of the
remaining authorized shares, or as to the timing or terms thereof.
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 then held by Hercules. The shares represented the stock
issued by the Company in connection with the March 15, 1995 acquisition of the
Hercules Aerospace Company operations from Hercules (the Aerospace acquisition).
Under the agreement with Hercules (the "Hercules repurchase"), 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 could 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 could likewise require Hercules to sell
the shares to the Company in four equal installments of 271,000 shares during
each of the four calendar quarters of 1998. The price for shares purchased under
the put/call arrangement was 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, August, and November of 1998, respectively,
the Company repurchased the remaining installments of 271,000 shares, each for
approximately $15 million.
Based on the financial condition of the Company at July 4, 1999, the Company
believes that future operating cash flows, combined with the availability of
funding, if needed, under its bank revolving credit facilities, will be adequate
to fund future growth of the Company as well as to service its long-term
obligations.
Contingencies
Environmental Matters - The Company is subject to various local and national
laws relating to protection of the environment and is in various stages of
investigation or remediation of potential, alleged, or acknowledged
contamination. At July 4, 1999, the accrued liability for environmental
remediation of $31.7
<PAGE>
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 $10.3 million, representing the present value of those
reimbursements at July 4, 1999. Such receivable primarily represents the
expected reimbursement of costs associated with the Aerospace acquisition,
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 approximately 4.5 percent. The following is a summary
of the Company's amounts recorded for environmental remediation at July 4, 1999
(in thousands):
Accrued Environmental Costs --
Environmental Liability Reimbursement Receivable
------------------------------------------------ --------------------------
Amounts(Payable)/Receivable $(41,056) $14,049
Unamortized Discount 9,351 (3,706)
------------------------------------------------ --------------------------
Present Value Amounts
(Payable)/Receivable $(31,705) $10,343
================================================ ==========================
At July 4, 1999, the estimated discounted range of reasonably possible costs of
environmental remediation is between $31 and $46 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.
Legal Matters - As a U.S. Government contractor, the Company is subject to
defective pricing and cost accounting standards non-compliance claims by the
Government. Additionally, the Company has substantial Government contracts and
subcontracts, the prices of which are subject to adjustment. The Company
believes that resolution of such claims and price adjustments made or to be made
by the Government for open fiscal years (1994 through 1999) will not materially
exceed the amount provided in the accompanying balance sheets.
The Company is a defendant in a number of lawsuits that arise out of, and are
incidental to, the conduct of its business. Such matters arise out of the normal
course of business and relate to product liability, intellectual property,
government regulations, including environmental issues, and other issues.
Certain of the lawsuits and claims seek damages in very large amounts. In these
legal proceedings, no director, officer, or affiliate is a party or a named
defendant.
<PAGE>
Under the terms of the agreements relating to the Aerospace acquisition, all
litigation and legal disputes arising in the ordinary course of the acquired
operations were 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 were
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. On January 21, 1999, the court approved the
settlement and entered judgment dismissing the case, subject to the right of the
Department of Justice to appeal such approval and dismissal. During early fiscal
2000, the Department of Justice, with minor revisions, approved the settlement
and dismissal.
The Company has also been served with a complaint in a civil action captioned
United States v. Alliant Techsystems Inc. and filed in the U.S. District Court
for the District of Minnesota, alleging violations of the False Claims Act, the
Truth in Negotiations Act, and common law and equitable theories of recovery.
The complaint was filed March 10, 1997, and relates to a contract for the AT4
shoulder-fired weapon. The complaint alleges that the contract in question was
defectively priced. 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. Under the provisions of the False
Claims Act, a civil penalty of between $5,000 and $10,000 can be assessed for
each claim, plus three times the amount of any damages sustained by the U.S.
Government. In addition to damages, a judgment against the Company in such a
suit or a finding of liability in a separate criminal action could carry
penalties of suspension or debarment which would make some or all of the
Company's operations ineligible to be awarded any U.S. Government contracts for
a period of up to three years. The amount of damages, if any, involved in the
above actions filed under the False Claims Act cannot be determined at this
time.
The Company was a defendant in a patent infringement case brought by Cordant
Technologies (formerly Thiokol Corporation), which the Company believed was
without merit. The plaintiff alleged that the rocket motor insulation used by
the Company in certain rocket motors infringed on a patent owned by the
plaintiff. The complaint sought trebling of any damages that might have been
awarded, based on an allegation of deliberate and willful infringement. The
complaint did not quantify the amount of damages sought. Through its analysis of
an October 27, 1997, court filing, the Company believed that, based on an
economist's expert testimony, Cordant Technologies might seek lost profits,
interest and costs of approximately $240 million. Even if the Company was found
liable, it believed that damages should be based upon a reasonable royalty of
less than $5 million. On March 25, 1999, the Court held invalid the patent that
is the subject of the action. The plaintiff filed a notice of appeal on April
23, 1999, and the Company filed a notice of cross appeal on April 30, 1999. On
April 13, 1999, the plaintiff and the Company entered into a "standstill
agreement" under which the parties have agreed to file a joint motion to the
U.S. Court of Appeals for the Federal Circuit for a stay of all proceedings for
up to 150 days (now extended to 210 days), during which the parties have agreed
to negotiate in good faith to settle the litigation. In the judgment of
management, the case will not have a material adverse effect upon the
<PAGE>
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, maintained that the option exercise
was invalid and therefore did not perform on the option. The Company's appeal of
the validity of the option to the U.S. Court of Appeals for the Federal Circuit,
and a subsequent request for a hearing en banc related to the option's validity,
were both denied. In late December 1997, the Company was informed by the
customer that the Company was being terminated for default on the contract
option. Depending on the outcome of the termination for default litigation,
which involves allegations unrelated to the validity of the option, management
currently believes that the impact to the Company's future operating earnings
will not be material.
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 believes that
the estimated range of reasonably possible additional cost impact that could
occur as a result of the potential technical and safety issues on the Explosive
"D" program will not be material. However, the 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 future results of operations, its
liquidity, or its financial position.
While the results of litigation cannot be predicted with certainty, management
believes, based upon the advice of counsel, that the actions seeking to recover
damages against the Company either are without merit, are covered by insurance
and reserves, do not support any grounds for cancellation of any contract, or
are not likely to materially affect the financial condition or results of
operations of the Company, although the resolution of any such matters during a
specific period could have a material adverse effect on the quarterly or annual
operating results for that period.
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 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.
<PAGE>
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, Substantially
verify and validate all systems................ September 30, 1999 Completed
5 Implement modified or replaced platforms, Substantially
applications, databases and utilities.......... September 30, 1999 Completed
</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. Extensive work was done
to ensure supplier issues were highlighted and prioritized. Suppliers were
requested to provide a Year 2000 Issue status on their products, operating
systems, suppliers and facilities and visits were made to numerous key
suppliers. Contact is occurring on a periodic basis to secure additional
information from suppliers on specific Year 2000 Issues and to ensure that no
issues arise as the year progresses. Phase 4 activity encompasses supplier
visits and phone interviews, final testing, and preparation for complete system
implementation. Phase 4 and 5 activities for business critical items are
substantially complete, except for specific items where validating actions have
been rescheduled into mid-1999 to accommodate business requirements. Critical
actions and completion dates have been identified to ensure that no business
critical system will pass its respective time-horizon-to-failure date.
The Company has utilized the services of several independent industry
consultants to assist it in assessing the reliability of its risk and cost
estimates. The Company's schedule for completing all internal Year 2000 actions,
other than manual actions required on January 1, 2000, are scheduled for
completion by September 30, 1999.
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 Company's ongoing, normal course-of-business
efforts to upgrade or replace business critical systems and software
applications as necessary, will be approximately $13 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 costs, consulting, and hardware and software modifications
are being expensed as incurred. The costs of newly purchased hardware and
software are being capitalized in accordance with normal policy. The majority of
estimated project costs were incurred during fiscal year 1999 and early fiscal
2000, as approximately $11 million had been expended through July 4, 1999.
Approximately 40% of the total amount ultimately expended is expected to be for
systems modification, and the balance for systems replacement. 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
<PAGE>
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 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.
Contingency Plans - Alliant has been informed that the U.S. Government has
resolved the Year 2000 Issues affecting its payment system as of March 1999,
which allows 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. Contingency plans have 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 has
developed plans addressing the operation of its facilities during and
immediately after the beginning of calendar 2000, to prepare for the possibility
of infrastructure failure (i.e., power system failure). All contingency plans
will be reviewed during the second quarter of the fiscal year.
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 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
<PAGE>
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 2000 sales, gross margin, operating
expenses, and capital expenditures. Also included are statements relating to the
repurchase of Company common stock, the funding of future growth, 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, the
M117 and Explosive "D" contract terminations 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
In March 1997 the Company received a partially unsealed complaint,
filed on an unknown date, in a lawsuit alleging violations of the False Claims
Act (known as a qui tam action) by four former employees ("Relators"). 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 Company's
Bacchus Works facility in Magna, Utah, which was acquired as part of its
acquisition of Hercules Aerospace Company from Hercules. Damages are not
specified. The Company and Hercules have agreed to share equally the external
attorney's fees and investigative fees and related costs and expenses of this
action until such time as a determination is made as to the applicability of the
indemnification provisions of the Hercules Aerospace Company 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
$150,000 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 Company 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. On January 21, 1999, the court approved the settlement and
entered judgment dismissing the case, subject to the right of the Department of
Justice to appeal such approval and dismissal. On March 22, 1999, the Department
of Justice filed notice of an intent to appeal. On July 1, 1999, the Company,
Hercules and the Relators entered into an amended settlement agreement
acceptable to the Department of Justice, which withdrew its notice of intent to
appeal on July 6, 1999. A joint motion for entry of an order approving the
amended settlement agreement was submitted to the Court for approval on August
2, 1999. Court action on the motion is expected in the near future.
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, maintained that the
option exercise was invalid and therefore did not perform on the option. The
Company's appeal of the validity of the option to the U.S. Court of Appeals for
the Federal Circuit, and a subsequent request for a hearing en banc related to
the option's validity, were both denied. In late December 1997, the Company was
informed by the customer that the Company was being terminated for default on
the contract option. Depending on the outcome of the termination for default
litigation, which involves allegations unrelated to the validity of the option,
management currently believes that the impact to the Company's future operating
earnings will not be material.
Incorporated herein by reference is note 5 of Notes to Financial
Statements included in Item 1 of Part I of this report.
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 June 1, 1999: the addition of Geoffrey B.
Courtright, Vice President - Information Technology and Chief Information
Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description
----------- -----------
10 Form of Performance Share Agreement
27 Financial Data Schedule
99 Alliant Techsystems Inc. Directors and Executive
Officers
<PAGE>
(b) Reports on Form 8-K.
During the quarterly period ended July 4, 1999, the registrant
filed the following reports on Form 8-K:
Date of Report Items Reported
-------------- --------------
May 10, 1999 Item 5. Other Events
Item 7(c). Exhibits
<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: August 12, 1999 By: /s/ Charles H. Gauck
-----------------------------
Name: Charles H. Gauck
Title: Vice President and Secretary
(On behalf of the registrant)
Date: August 12, 1999 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
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
10 Form of Performance Share Agreement ....Filed herewith electronically
27 Financial Data Schedule ................Filed herewith electronically
99 Alliant Techsystems Inc. Directors
and Executive Officers ..............Filed herewith electronically
<PAGE>
Exhibit 10
[ALLIANT TECHSYSTEMS LOGO]
PERFORMANCE SHARE AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NUMBER OF MEASURING PERIOD SOCIAL SECURITY
GRANTED TO GRANT DATE PERFORMANCE SHARES NUMBER
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
((First)) ((Last))
((Street1)) 05 10 99 ((M__ofShares)) 50% - 2 Years ((SSN))
((City)),((State)) ((Zip)) 50% - 3 Years
</TABLE>
1. The Grant. Alliant Techsystems Inc., a Delaware corporation (the "Company")
hereby grants to the individual named above (the "Employee"), as of the
above Grant Date, the above Number of Performance Shares (the "Shares"), on
the terms and conditions set forth in this Performance Share Agreement
(this "Agreement") and in the Alliant Techsystems Inc. 1990 Equity
Incentive Plan (the "Plan").
2. Measuring Period. The Shares shall be payable, in the form provided in
Paragraph 4 below, and to the extent provided in Paragraph 3 below, as soon
as practical after the end of the above Measuring Period.
3. Performance Goals. Up to 100% of the Shares shall be payable, depending
upon if, the Business Unit achieves the Performance Goals set forth in the
accompanying Performance Accountability Chart.
4. Form of Payment. Any shares payable pursuant to Paragraph 3 above shall be
paid in shares of Common Stock of the Company ("Stock"), except to the
extent that the Personnel and Compensation Committee of the Company's Board
of Directors, in its discretion, determines that cash be paid in lieu of
some or all of such shares of Stock.
5. Forfeiture. As of the Employee's death or Termination of Employment (as
defined in the Plan), the Employee shall forfeit all Shares for which the
Measuring Period has not ended prior to or as of such Termination of
Employment. If the Employee's death or Termination of Employment occurs at
or after the end of the Measuring Period, the Shares shall be payable to
the extent herein provided, as if such death or Termination of Employment
had not occurred.
6. Rights. Nothing herein shall be deemed to grant the Employee any rights as
a holder of Stock unless and until certificates for shares of Stock are
actually issued in the name of the Employee as provided herein.
7. Income Taxes. The Employee is liable for any federal, state and local
income taxes applicable upon payment of the Shares. Upon demand by the
Company, the Employee shall promptly pay to the Company in cash, and/or the
Company may withhold from the Employee's compensation or from the shares of
Stock or any cash payable in lieu of some or all of such shares of Stock,
an amount necessary to pay, any income withholding taxes required by the
Company to be collected upon such payment.
8. Acknowledgment. This grant will not be effective until the Employee dates
and signs the form of Acknowledgment below and returns to the Company a
signed copy of this Agreement. By signing the Acknowledgment, the Employee
agrees to the terms and conditions referred to in Paragraph 1 above and
acknowledges receipt of a copy of the Prospectus related to the Plan.
ACKNOWLEDGMENT: ALLIANT TECHSYSTEMS INC.
- ----------------------------------------
EMPLOYEE'S SIGNATURE
- ---------------------------------------- Paul David Miller
DATE Director, Chairman of the Board
and Chief Executive Officer
- ----------------------------------------
SOCIAL SECURITY NUMBER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q FILING
FOR THREE MONTHS ENDED 7/4/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUL-04-1999 JUN-28-1998
<CASH> 37,091 21,078
<SECURITIES> 408 408
<RECEIVABLES> 247,298 233,499
<ALLOWANCES> 1,056 1,056
<INVENTORY> 43,524 44,030
<CURRENT-ASSETS> 376,201 343,108
<PP&E> 557,155 547,114
<DEPRECIATION> (225,573) (211,363)
<TOTAL-ASSETS> 919,012 894,318
<CURRENT-LIABILITIES> 290,069 286,488
<BONDS> 319,031 305,993
0 0
0 0
<COMMON> 139 139
<OTHER-SE> 128,671 118,584
<TOTAL-LIABILITY-AND-EQUITY> 919,012 894,318
<SALES> 272,721 256,321
<TOTAL-REVENUES> 272,721 256,321
<CGS> 224,661 211,089
<TOTAL-COSTS> 224,661 211,089
<OTHER-EXPENSES> 1,887 1,595
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,155 5,685
<INCOME-PRETAX> 19,212 18,589
<INCOME-TAX> 4,611 2,788
<INCOME-CONTINUING> 14,601 15,801
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,601 15,801
<EPS-BASIC> 1.43 1.24
<EPS-DILUTED> 1.39 1.21
</TABLE>
<PAGE>
Exhibit 99
ALLIANT TECHSYSTEMS INC. DIRECTORS AND EXECUTIVE OFFICERS
August 12, 1999
Name (Age) Position
---------- --------
Paul David Miller (57) Director, Chairman of the Board and Chief Executive
Officer
Peter A. Bukowick (55) Director, President and Chief Operating Officer
Gilbert F. Decker (62) Director
Thomas L. Gossage (65) Director
Joel M. Greenblatt (41) Director
Jonathan G. Guss (40) Director
David E. Jeremiah (65) Director
Gaynor N. Kelley (68) Director
Joseph F. Mazzella (46) Director
Daniel L. Nir (38) Director
Michael T. Smith (55) Director
Geoffrey B. Courtright (51) Vice President - Information Technology and Chief
Information Officer
Charles H. Gauck (60) Vice President and Secretary
Robert E. Gustafson (50) Vice President - Human Resources
Richard N. Jowett (54) Vice President - Investor Relations and Public
Affairs and Asst. Treas.
John L. Lotzer (43) Vice President - Tax and Investments
William R. Martin (58) Vice President - Washington, D.C. Operations
Mark L. Mele (42) Vice President - Strategic Planning
Scott S. Meyers (45) Vice President, Treasurer and Chief Financial
Officer
Paula J. Patineau (45) Vice President and Controller
Paul A. Ross (62) Senior Group Vice President - Aerospace
Don L. Sticinski (47) Group Vice President - Defense Systems
Nicholas G. Vlahakis (51) Group Vice President - Conventional Munitions
Daryl L. Zimmer (56) Vice President and General Counsel
