<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 December 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 41-1672694
(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 January 31, 1999, the number of shares of the registrant's common
stock, par value $.01 per share, outstanding was 10,569,625 (excluding 3,293,988
treasury shares).
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Income Statements (Unaudited)
<TABLE>
<CAPTION>
(In thousands except QUARTERS ENDED NINE MONTHS ENDED
per share data) -------------------------- --------------------------
December 27 December 28 December 27 December 28
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 274,446 $ 269,217 $ 789,765 $ 787,811
Cost of sales 226,086 221,152 650,740 650,196
--------- --------- --------- ---------
Gross margin 48,360 48,065 139,025 137,615
Operating expenses:
Research and development 1,971 2,890 5,703 7,564
Selling 5,536 10,085 20,022 29,134
General and administrative 14,885 11,033 38,966 33,304
--------- --------- --------- ---------
Total operating expenses 22,392 24,008 64,691 70,002
--------- --------- --------- ---------
Income from operations 25,968 24,057 74,334 67,613
Miscellaneous income (expense) (61) 84 (19) 147
--------- --------- --------- ---------
Earnings before interest and income taxes 25,907 24,141 74,315 67,760
Interest expense (5,213) (6,943) (16,089) (21,880)
Interest income 505 829 1,172 2,725
--------- --------- --------- ---------
Income before income taxes and
extraordinary loss 21,199 18,027 59,398 48,605
Income tax provision 3,180 -- 8,910 --
--------- --------- --------- ---------
Income before extraordinary loss 18,019 18,027 50,488 48,605
Extraordinary loss on early extinguishment of
debt, net of income tax benefit (1,661) -- (16,288) --
--------- --------- --------- ---------
Net income $ 16,358 $ 18,027 $ 34,200 $ 48,605
========= ========= ========= =========
Basic earnings per common share:
Income before extraordinary loss $ 1.50 $ 1.37 $ 4.06 $ 3.72
Extraordinary loss (.14) -- (1.31) --
--------- --------- --------- ---------
Net income $ 1.36 $ 1.37 $ 2.75 $ 3.72
========= ========= ========= =========
Diluted earnings per common share:
Income before extraordinary loss $ 1.45 $ 1.33 $ 3.96 $ 3.62
Extraordinary loss (.13) -- (1.28) --
--------- --------- --------- ---------
Net income $ 1.32 $ 1.33 $ 2.68 $ 3.62
========= ========= ========= =========
Average number of common shares (thousands) 12,047 13,155 12,419 13,067
========= ========= ========= =========
Average number of common and
dilutive shares (thousands) 12,386 13,539 12,740 13,443
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
(In thousands except share data) December 27, 1998 March 31, 1998
----------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 37,778 $ 68,960
Receivables 240,470 209,915
Net inventory 39,476 49,072
Deferred income tax asset 38,280 38,280
Other current assets 5,550 6,803
--------- ---------
Total current assets 361,554 373,030
Net property, plant, and equipment 329,898 333,538
Goodwill 129,807 131,600
Prepaid and intangible pension assets 71,817 61,667
Other assets and deferred charges 10,588 8,474
--------- ---------
Total assets $ 903,664 $ 908,309
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt $ 45,750 $ 17,838
Accounts payable 84,469 80,071
Contract advances and allowances 53,922 64,318
Accrued compensation 26,023 32,275
Accrued income taxes 12,695 8,049
Accrued restructuring and facility consolidation 558 2,637
Other accrued liabilities 59,914 72,214
--------- ---------
Total current liabilities 283,331 277,402
Long-term debt 314,443 180,810
Post-retirement and post-employment benefits liability 131,287 136,889
Pension liability 9,596 10,120
Other long-term liabilities 36,239 37,334
--------- ---------
Total liabilities $ 774,896 $ 642,555
Contingencies
Redeemable common shares (813,000 shares, $.01 par
value, redeemable at a prescribed price totaling $44,979
at March 31, 1998. Redeemed quarterly, in equal lots of
271,000 shares each, during calendar 1998.) $ -- $ 44,979
Common stock - $.01 par value
Authorized - 20,000,000 shares
Issued and outstanding 10,541,865 shares at December
27, 1998 and 12,855,511 at March 31, 1998 124 121
Additional paid-in-capital 243,366 201,728
Retained earnings 106,744 72,544
Unearned compensation (2,089) (1,251)
Pension liability adjustment (4,743) (4,743)
Common stock in treasury, at cost (3,321,748 shares held at
December 27, 1998 and 1,008,102 at March 31, 1998) (214,634) (47,624)
--------- ---------
Total liabilities and stockholders' equity $ 903,664 $ 908,309
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In thousands) NINE MONTHS ENDED
------------------------------------
December 27, 1998 December 28, 1997
----------------- -----------------
<S> <C> <C>
Operating activities
Net income $ 34,200 $ 48,605
Adjustments to net income to arrive at cash
provided by operations:
Depreciation 28,913 31,259
Amortization of intangible assets and unearned
compensation 4,407 4,530
Extraordinary loss on early extinguishment
of debt 16,288 --
Loss on disposal of property 462 199
Changes in assets and liabilities:
Receivables (30,555) 9,685
Inventory 9,596 15,736
Accounts payable 4,398 (24,957)
Contract advances and allowances (10,396) (32,428)
Accrued compensation (6,252) (5,905)
Accrued income taxes 7,521 (2,124)
Accrued restructuring and facility consolidation (2,079) (12,294)
Accrued environmental liability (524) (1,419)
Pension and post-retirement benefits (6,126) (5,837)
Other assets and liabilities (20,705) (19,614)
--------- ---------
Cash provided by operations 29,148 5,436
--------- ---------
Investing activities
Capital expenditures (27,447) (11,166)
Acquisition of business (1,100) (6,194)
Proceeds from disposition of property, plant, and equipment 275 1,197
--------- ---------
Cash used for investing activities (28,272) (16,163)
--------- ---------
Financing activities
Payments made on bank debt (48,648) (61,768)
Payments made to extinguish high yield debt (152,997) --
Proceeds from issuance of long-term debt 350,193 --
Payments made for debt issue costs (8,691) --
Net purchase of treasury shares (175,646) (9,632)
Proceeds from exercised stock options 3,731 8,278
Other financing activities, net -- (2,302)
--------- ---------
Cash used for financing activities (32,058) (65,424)
--------- ---------
Decrease in cash and cash equivalents (31,182) (76,151)
Cash and cash equivalents - beginning of period 68,960 122,491
--------- ---------
Cash and cash equivalents - end of period $ 37,778 $ 46,340
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
1. In connection with the Company's September, 1998 early extinguishment of
its Senior Subordinated Notes and the refinancing of its bank borrowings in
November, 1998, the Company incurred extraordinary charges for the early
extinguishment of debt, totalling $16.3 million, for the nine-month period
ending December 27, 1998. The extraordinary charge includes charges
associated with the Company's September 16, 1998, completion of the tender
offer and consent solicitation relating to its then outstanding $150
million 11.75 percent Senior Subordinated Notes which were 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
accordingly paid approximately $153 million to purchase the Notes from
noteholders holding approximately $140 million principal amount of the
Notes. In conjunction with the early extinguishment of the Notes, the
Company also refinanced its bank borrowings under a new bank credit
facility on November 23, 1998. See Note 2 below, for further discussion of
the new bank credit facility. In connection with these early
extinguishments of debt, the Company recorded a $19.2 million extraordinary
charge ($16.3 million, after the tax benefit of $2.9 million), which is
comprised of the $13.2 million cash premium paid to acquire the Notes, as
well as the write-off of approximately $6.0 million representing the
unamortized portion of the debt issuance costs associated with the original
borrowings.
2. On November 23, 1998, the Company entered into a new $650 million bank
credit facility (the facility). The facility, which refinanced the
Company's previously existing bank credit facility, has a six-year term and
consists of term-debt credit facilities totalling up to $400 million, and a
revolving credit facility of $250 million. Interest charges under the new
facility are primarily at the London Inter-Bank Offering Rate (LIBOR), plus
2.25 percent (which totalled 7.3 percent at December 27, 1998), and will be
subject to change in the future, as changes occur in market conditions and
in the Company's financial performance. Borrowings under the facility are
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). Fees associated with the refinancing
were approximately $9 million. These costs are classified in "Other Assets
and Deferred Charges", and are being amortized to interest expense over
the six-year term of the new facility.
At December 27, 1998, the Company had borrowings of $20.0 million against
its $250 million bank revolving credit facility. Additionally, the Company
had outstanding letters of credit of $31.4 million, which further reduced
amounts available on the revolving facility to $198.6 million at December
27, 1998. Scheduled minimum loan repayments on the Company's outstanding
long-term debt are as follows: fiscal 1999, $0; fiscal 2000, $36.5 million;
fiscal 2001, $49.5 million; fiscal 2002, $61.0 million; fiscal 2003, $71.2
million; fiscal 2004, $61.0 million, and thereafter, $61.0 million.
3. The major categories of other current and long-term accrued liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
Period Ending
----------------------------------
December 27, 1998 March 31, 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Employee benefits and insurance 26,385 29,196
Legal accruals 11,502 21,495
Other accruals 22,027 21,523
--------------------------------------------------------------------------------
Other accrued liabilities-current 59,914 72,214
================================================================================
Environmental remediation liability 16,740 17,264
Deferred tax liability 19,499 19,499
Other long-term -- 571
--------------------------------------------------------------------------------
Other long-term liabilities 36,239 37,334
================================================================================
</TABLE>
5
<PAGE>
The decrease in legal accruals since March 31, 1998 is reflective of
payments made during the nine-month period ended December 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 6 for further
discussion of legal settlements.
4. Alternative minimum taxes of $1.4 and $2.1 million were paid during the
nine-month period ended December 27, 1998 and December 28, 1997,
respectively. The effective income tax rate of 15 percent on continuing
operations in the current nine-month period reflects recognition and
utilization of $8.0 million of available federal and state loss
carryforwards (net) for tax purposes.
5. 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 new bank credit facility.
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
repurchase plan would be subject to market conditions and the Company's
compliance with its debt covenants. As of December 27, 1998, the Company's
debt covenants permit the Company to expend up to $90 million specifically
in connection with future share repurchases. Additionally, the Company may
make "restricted payments" (as defined in the Company's debt covenants) of
up to an additional $50 million, which among other items, would allow
payments for further stock repurchases (over and above the aforementioned
$90 million). While it is currently the Company's intention to make stock
repurchases under this program, 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. As of December 27, 1998, minor repurchases have
been made under the plan, aggregating less than $.2 million.
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 (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 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.
During early 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 nine-months ended December 28, 1997 of
approximately 140,000 shares, for approximately $6.0 million.
6
<PAGE>
6. Contingencies:
As a U.S. Government contractor, the Company is subject to defective
pricing and cost accounting standards non-compliance claims by the
Government. Additionally, the Company has substantial Government contracts
and subcontracts, the prices of which are subject to adjustment. The
Company believes that resolution of such claims and price adjustments made
or to be made by the Government for open fiscal years (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,
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. 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.
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
7
<PAGE>
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 option. 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 future operating
earnings is from $0-$4 million, in total.
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
December 27, 1998, the accrued liability for environmental remediation of
$31.3 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 December 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
8
<PAGE>
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 December 27, 1998 (in millions):
<TABLE>
<CAPTION>
Accrued Environmental Environmental Costs -
Liability Reimbursement Receivable
------------------------------------------------------------------------------------------------
<S> <C> <C>
Amounts (Payable)/Receivable $ (40.4) $ 12.4
Unamortized Discount 9.1 (2.8)
------------------------------------------------------------------------------------------------
Present Value Amounts
(Payable)/Receivable $ (31.3) $ 9.6
================================================================================================
</TABLE>
At December 27, 1998, the estimated discounted range of reasonably possible
costs of environmental remediation is between $31 and $49 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.
7. Interest paid during the nine-month periods ended December 27, 1998 and
December 28, 1997 totalled $14.3 and $16.3 million, respectively.
In late fiscal 1998, the Company entered into treasury rate-lock agreements
to hedge against increases in market interest rates on the anticipated
refinancing of its debt. In connection with completing the refinancing of
its debt (see footnotes 1 and 2) during the third quarter of fiscal 1999,
these treasury rate-locks have been converted into interest rate swaps
having a total notional amount of $200 million. Of this total, swaps having
a $100 million notional amount have 6 year terms and swap interest rates of
between 6.32 and 6.55 percent (6.43% average). The remaining swap has a
$100 million notional amount, a swap interest rate of 6.1 percent, and is
effective for 10 years, with a bank cancellation option at 5 years.
8. 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 5) 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.
9
<PAGE>
In computing EPS for the three and nine month periods ended December 27,
1998 and December 28, 1997, net income as reported for each respective
period, is divided by:
<TABLE>
<CAPTION>
Three-Months Ended Nine-Months Ended
---------------------------------- -------------------------------------
Dec. 27, 1998 Dec. 28, 1997 Dec. 27, 1998 Dec. 28, 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic EPS:
- Average Shares Outstanding 12,047 13,155 12,419 13,067
=======================================================================================================================
Diluted EPS:
- Average Shares Outstanding 12,047 13,155 12,419 13,067
- Dilutive effect of options and 339 384 321 376
redeemable common shares
-----------------------------------------------------------------------------------------------------------------------
Diluted EPS Shares Outstanding 12,386 13,539 12,740 13,443
=======================================================================================================================
</TABLE>
For the three-month period ended December 28, 1997, 1,084,000 common
shares, which were subject to the put/call agreement with Hercules (see
Note 5) were not included in the calculation of diluted EPS, as inclusion
of those redeemable shares would have been anti-dilutive. There were no
anti-dilutive securities for the three or nine month periods ended December
27, 1998, or for the nine-month period ended December 28, 1997.
9. 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.
10. 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.
11. The figures set forth in this quarterly report are unaudited but, in the
opinion of the Company, include all adjustments necessary for a fair
presentation of the results of operations for the three and nine month
periods ended December 27, 1998, and December 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.
12. 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 nine month periods ended December 27, 1998, and
December 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.
10
<PAGE>
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.
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Sales
Sales for the quarter ended December 27, 1998 totaled $274.4 million, an
increase of $5.2 million compared to $269.2 million for the comparable quarter
in the prior year. Conventional Munitions Group sales were $110.0 million for
the current year quarter, compared to $111.8 million in the comparable quarter
of the prior year. Space and Strategic Systems Group sales were $97.8 million
for the current year quarter, an increase of $4.9 million, or 5.3 percent,
compared to $92.9 million in the comparable quarter of the prior year. The
increase is attributable to higher propulsion sales, up $12.1 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 $8.1 million decrease in composite structures sales on the
substantial completion of the 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 $69.4 million for the current year quarter, an increase
of $4.6 million, or 7.1 percent, compared to $64.8 million in the comparable
quarter of the prior year. The increase was primarily attributable to the timing
of deliveries on anti-tank munition programs.
Sales for the nine-month period ended December 27, 1998 totaled $789.8 million,
compared to $787.8 million for the comparable period of the prior year.
Conventional Munitions Group sales for the nine-month period ended December 27,
1998 were $349.6 million, an increase of $4.6 million, or 1.3 percent, compared
to $345.0 million for the comparable period of the prior year. Space and
Strategic Systems Group sales for the nine-month period ended December 27, 1998
were $292.0 million, an increase of $25.1 million, or 9.4 percent, compared to
$266.9 million for the comparable period of the prior year. The increase is
attributable to higher propulsion sales, up $52.1 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 a
$27.1 million decrease in composite structures sales due to the substantial
completion of the X-33 development contract. Defense Systems Group sales for the
nine-month period ended December 27, 1998 were $152.5 million, a decrease of
$19.0 million, or 11.1 percent, compared to $171.5 million for the comparable
period of the prior year. The decrease is primarily attributable to the
substantial completion of the Outrider (TM) Unmanned Aerial Vehicle development
program.
Company sales for fiscal 1999 are expected to be approximately $1.1 billion.
Gross Margin
The Company's gross margin in the quarter ended December 27, 1998, was $48.4
million or 17.6 percent of sales, compared to $48.1 million, or 17.9 percent of
sales for the comparable quarter of the prior year. The slight decrease in
margin for the current quarter was due to a combination of sales mix and timing.
Gross margin for the nine-month period ended December 27, 1998, totaled $139.0
million, or 17.6 percent of sales, compared to $137.6 million, or 17.5 percent
of sales for the comparable period of the prior year. Gross margin in the
current year nine-month period
12
<PAGE>
improved slightly, as a percent of sales, due to higher award fees on space
propulsion systems programs.
Fiscal 1999 gross margin, as a percent of sales, is expected to be in the 17.5 -
18.0 percent range.
Operating Expenses
The Company's operating expenses for the quarter ended December 27, 1998,
totaled $22.4 million, or 8.2 percent of sales, compared to $24.0 million, or
8.9 percent of sales for the comparable quarter of the prior year. The decrease
in current year operating expenses is due primarily to decreases in selling and
research and development expenses incurred, compared to the comparable quarter
of the prior year, due to timing of expenses in the prior year on program
pursuits, including the Company's pursuit of the Intercontinental Ballistic
Missile (ICBM) Prime Integration Program. These cost decreases were partially
offset by increased legal expenses in the current year (see discussion of
ongoing legal matters in Contingencies, below).
Operating expenses for the nine-month period ended December 27, 1998 totaled
$64.7 million, or 8.2 percent of sales, compared to $70.0 million, or 8.9
percent of sales for the comparable period of the prior year. The decrease in
current year expenses is due to decreases in selling and research and
development expenses, primarily driven by the absence of approximately $6.9
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
approximately 8.5 percent.
Interest Expense
The Company's interest expense for the quarter ended December 27, 1998 was $5.2
million, a decrease of $1.7 million compared to $6.9 million for the comparable
quarter in the prior year. Interest expense for the nine-month period ended
December 27, 1998 was $16.1 million, a decrease of $5.8 million compared to
interest expense of $21.9 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
well as lower interest rates, as compared to the comparable periods of the prior
year.
Interest Income
Interest income for the quarter ended December 27, 1998, was $.5 million,
compared to $.8 million for the comparable quarter of the prior year, a decrease
of $.3 million. Interest income for the nine-month period ended December 27,
1998 was $1.2 million, a decrease of $1.5 million, compared to $2.7 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 $40.0 million in
proceeds from the Company's February, 1997 sale of its former Marine Systems
Group. These proceeds were used late in fiscal 1998 to pre-pay a portion of the
Company's outstanding long-term debt.
Income Taxes
13
<PAGE>
The three and nine-month periods ended December 27, 1998, reflect an effective
income tax rate of 15 percent. The three and nine month periods ended December
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
In connection with the Company's September, 1998 early extinguishment of its
Senior Subordinated Notes and the refinancing of its bank borrowings in
November, 1998, the Company incurred extraordinary charges for the early
extinguishment of debt, totalling $16.3 million, for the nine-month period
ending December 27, 1998. The extraordinary charge includes charges associated
with the Company's September 16, 1998, completion of the tender offer and
consent solicitation relating to its then outstanding $150 million 11.75 percent
Senior Subordinated Notes which were 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 accordingly paid approximately $153 million to
purchase the Notes from noteholders holding approximately $140 million principal
amount of the Notes. In conjunction with the early extinguishment of the Notes,
the Company also refinanced its bank borrowings under a new bank credit facility
on November 23, 1998. See "Liquidity, Capital Resources and Financial Condition"
below, for further discussion of the new bank credit facility. In connection
with these early extinguishments of debt, the Company recorded a $19.2 million
extraordinary charge ($16.3 million, after the tax benefit of $2.9 million),
which is comprised of the $13.2 million cash premium paid to acquire the Notes,
as well as the write-off of approximately $6.0 million representing the
unamortized portion of the debt issuance costs associated with the original
borrowings.
Net Income
Net income reported for the quarter ended December 27, 1998, was $16.4 million,
a decrease of $1.7 million, compared to net income of $18.0 million for the
comparable quarter of the prior year. The decrease was driven by the $1.7
million extraordinary loss on the early extinguishment of debt, and by $3.2
million of higher tax expense in the quarter, offset partially by lower
operating expenses and interest expenses in the current year period. Net income
for the nine-month period ended December 27, 1998 was $34.2 million, a decrease
of $14.4 million, compared to net income of $48.6 million for the prior year
period. The decrease was driven by the $16.3 million extraordinary loss on the
early extinguishment of debt, and $8.9 million of higher tax expense in the
current year period, offset partially by reduced operating and interest expenses
in the current year.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Cash provided by operations totaled $29.1 million for the nine months ended
December 27, 1998, an increase in cash provided of $23.7 million, when compared
with cash provided by operations of
14
<PAGE>
$5.4 million in the comparable period of the prior year. The increased level of
cash provided by operations 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 nine-months ended December 27,
1998, as compared to the comparable period of the prior year. Cash usage for the
nine months ended December 27, 1998, also included approximately $13 million in
payments for legal settlements settled and accrued in prior years. See
"Contingencies" below.
Cash used by investing activities for the nine-month period ended December 27,
1998, was $28.3 million, a $12.1 million increase in cash used, compared to cash
used by investing activities of $16.2 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
approximately $40 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 and
composite structures 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 an electronic fuze business acquired
in fiscal 1998.
On November 23, 1998, the Company entered into a new $650 million bank credit
facility (the facility). The facility, which refinanced the Company's previously
existing bank credit facility, has a six-year term and consists of term-debt
credit facilities totalling up to $400 million, and a revolving credit facility
of $250 million. Interest charges under the new facility are primarily at the
London Inter-Bank Offering Rate (LIBOR), plus 2.25 percent (which totalled 7.3
percent at December 27, 1998), and will be subject to change in the future, as
changes occur in market conditions and in the Company's financial performance.
Borrowings under the facility are 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). Fees associated with the
refinancing were approximately $9 million. These costs are classified in "Other
Assets and Deferred Charges", and are being amortized to interest expense over
the six-year term of the facility.
At December 27, 1998, the Company had borrowings of $20.0 million against its
$250 million bank revolving credit facility. Additionally, the Company had
outstanding letters of credit of $31.4 million, which further reduced amounts
available on the revolving facility to $198.6 million at December 27, 1998.
Scheduled minimum loan repayments on the Company's outstanding long-term debt
are as follows: fiscal 1999, $0; fiscal 2000, $36.5 million; fiscal 2001, $49.5
million; fiscal 2002, $61.0 million; fiscal 2003, $71.2 million; fiscal 2004,
$61.0 million, and thereafter, $61.0 million.
The Company's total debt (current portion of debt and long-term debt) as a
percentage of total capitalization increased to 74 percent on December 27, 1998,
from 43 percent on March 31, 1998. This increase reflects higher total debt, up
$161.5 million, which primarily reflects the borrowings required to fund the
Company's purchases of its common stock in fiscal 1999.
15
<PAGE>
During the nine months ended December 27, 1998, the Company repurchased a total
of 2.3 million shares, at a cost of $175.6 million. These repurchases were
primarily made under terms of the Company's "Dutch auction" and the completion
of the Hercules repurchase, as described below.
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 new bank credit facility.
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 December 27, 1998, the Company's debt covenants permit the
Company to expend up to $90 million specifically in connection with future share
repurchases. Additionally, the Company may make "restricted payments" (as
defined in the Company's debt covenants) of up to an additional $50 million,
which among other items, would allow payments for further stock repurchases
(over and above the aforementioned $90 million). While it is currently the
Company's intention to make stock repurchases under this program, 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. As of December 27, 1998, minor
repurchases have been made under the program, aggregating less than $.2 million.
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 (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 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.
During early 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 nine-months ended December 28, 1997 of approximately
140,000 shares, for approximately $6.0 million.
Based on the financial condition of the Company at December 27, 1998, the
Company believes that future operating cash flows, combined with existing cash
balances and the availability of
16
<PAGE>
funding under its bank revolving credit facility, will be adequate to fund the
future growth of the Company, as well as to service its long-term debt
obligations.
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.
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.
Under the terms of the agreements relating to the Aerospace acquisition, all
litigation and legal disputes arising in the ordinary course of the acquired
operations will be assumed by the Company except for a few specific lawsuits and
disputes including 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. 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.
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
17
<PAGE>
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 option. 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
future operating earnings is from $0-$4 million, in total.
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.
18
<PAGE>
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 December 27, 1998, the
accrued liability for environmental remediation of $31.3 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 December 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 December 27, 1998 (in millions):
<TABLE>
<CAPTION>
Accrued Environmental Environmental Costs -
Liability Reimbursement Receivable
---------------------------------------------------------------------------------------
<S> <C> <C>
Amounts (Payable)/Receivable $(40.4) $12.4
Unamortized Discount 9.1 (2.8)
---------------------------------------------------------------------------------------
Present Value Amounts
(Payable)/Receivable $(31.3) $9.6
=======================================================================================
</TABLE>
At December 27, 1998, the estimated discounted range of reasonably possible
costs of environmental remediation is between $31 and $49 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.
19
<PAGE>
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.
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.
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
----- -------- -------------- ------
<C> <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............................................................. Early 1999 Substantially
Completed
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
20
<PAGE>
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. Phase 4 activity encompasses
supplier visits and phone interviews, final testing, and preparation for
complete system implementation. Questionnaires continue to be utilized to secure
additional information from suppliers on specific Year 2000 Issues. Phase 4
activities are substantially complete, except for specific items where
validating actions have been rescheduled into mid-1999 to accommodate business
requirements. Phase 5 activities are also underway. 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 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 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 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
cost is expected to be incurred during fiscal year 1999, and approximately $8
million has been expended through December 27, 1998. Approximately 37% 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 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
21
<PAGE>
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.
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 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.
22
<PAGE>
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 the realization of net deferred tax benefits, 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.
23
<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. 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.
Incorporated herein by reference is note 6 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 November 5, 1998: Deletion: Richard Schwartz,
Director and Chairman of the Board. Addition: Paul David Miller, Director,
Chairman of the Board and Chief Executive Officer. New titles: Peter A.
Bukowick, Director, President and Chief Operating Officer; Charles H. Gauck,
Vice President and Secretary; and Paul A. Ross, Senior Group Vice President -
Space and Strategic Systems.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description of Exhibit
----------- ----------------------
4.1 Form of Amended and Restated Credit Agreement, dated as of
November 23, 1998 between the registrant and The Chase
Manhattan Bank
4.2 Form of Credit Agreement, dated as of November 23, 1998,
between the registrant and The Chase Manhattan Bank
10.1 Compensation arrangement between the registrant and Paul
David Miller
10.2 Form of Restricted Stock Agreement
27 Financial Data Schedule
99 Alliant Techsystems Inc. Directors and Executive Officers
(b) Reports on Form 8-K.
During the quarterly period ended December 27, 1998, the registrant
filed the following report on Form 8-K:
Date of Report Items Reported
-------------- --------------
November 24, 1998 Item 5. Other Events
Item 7(c). Exhibits
25
<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: February 5, 1999 By: /s/ Charles H. Gauck
Name: Charles H. Gauck
Title: Secretary
(On behalf of the registrant)
Date: February 5, 1999 By: /s/ Scott S. Meyers
Name: Scott S. Meyers
Title: Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
26
<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
------ ---------------------- ----------------
<C> <S> <C>
4.1 Form of Amended and Restated Credit Agreement, dated as of November 23,
1998, between the registrant and The Chase Manhattan Bank.............. Incorporated by reference from
Exhibit 9.(b)(2) to registrant's
Schedule 13E-4 dated November 30, 1998
4.2 Form of Credit Agreement, dated as of November 23, 1998, between the
registrant and The Chase Manhattan Bank................................ Incorporated by reference from
Exhibit 9.(b)(3) to registrant's
Schedule 13E-4 dated November 30, 1998
10.1 Compensation arrangement between the registrant and Paul David Miller.. Filed herewith electronically
10.2 Form of Restricted Stock Agreement..................................... Filed herewith electronically
27 Financial Data Schedule................................................ Filed herewith electronically
99 Alliant Techsystems Inc. Directors and Executive Officers.............. Filed herewith electronically
</TABLE>
<PAGE>
Exhibit 10.1
ALLIANT TECHSYSTEMS INC.
COMPENSATION ARRANGEMENT WITH PAUL DAVID MILLER
o Base salary
o $600,000/year ($50,000/month)
o Salary may adjust from time to time, but not annually
o Annual incentive
o $400,000/year at target; up to 200% of target for achieving
outstanding results
o Above target incentive, after tax, will be paid in stock until you
meet an ownership target of 4x base (starts FY00)
o Ownership target = 4 x $600,000/$75 = 32,000 shares at today's stock
price
o FY99 MIP incentive will be prorated and paid at "on-plan", in advance
at time of hire
o We will "true-up" this incentive at the end of FY99
o $400,000 x 3/12 = $100,000 (less taxes)
o Long term business performance incentive
A. Performance shares payable 3/31/00 for FY00 EPS
o Threshold: 1,000 shares for EPS = 85% of plan as of 4/1/99
o Target: 2,000 shares for EPS = plan as of 4/1/99
o Outstanding: 4,000 shares for EPS = 125% of plan as of
4/1/99
B. Performance shares payable 3/31/01 for average FY00 and FY01 EPS
o Threshold: 1,000 shares for average EPS = 85% of plan as of
4/1/99
o Target: 2,000 shares for average EPS = plan as of 4/1/99
o Outstanding: 4,000 shares for average EPS = 125% of plan as
of 4/1/99
C. Future annual performance share grants
o Stock options
o 150,000 non-qualified stock options
o Priced as of the grant date
o Vesting 1/3 per year over 3 years
o No additional stock option grants for 3 years
o Flexible perquisites
o Up to $15,000 per year in quarterly reimbursements of
qualifying expenses
o No tax gross-up
o Gross expenses are reimbursed at net amount
o For qualifying items such as
o First class upgrade
o Airline "club" membership
o Spouse travel
o Car purchase/lease
o Staff entertainment
o Home security
o Home computer
o Financial counseling
o $15,000 first year; $10,000 subsequent years
o Direct payment to vendor(s)
o Plus tax gross-up
<PAGE>
o Life Insurance
o Company provided "basic" life insurance at 1.5 (base + incentive)
o $1,500,000 death benefit
o Or any lesser amount, at your election
o Income Security Plan
o Provides 3 years of income protection subsequent to a change of
control
o Full relocation, including Home Purchase Option Program to cover your move
to Minnesota.
o Full relocation, including Home Purchase Option Program to cover your move
from Minnesota at the end of your service to Alliant, including loss on
sale up to 5% of the purchase price of the Minnesota home.
o All Alliant Techsystems Inc. employee benefits
o Cash balance defined benefit plan - vests in 5 years
o 401k with 50% match on first 4% contribution - immediately vests
o Supplemental insurances at group rates
o Long term disability insurance at group rates
o HealthPartners Minneapolis health care plan at group rates
o Vacation: Starting balance = 10 days; Accruing at 15 days per year;
subject to plan limits
<PAGE>
Exhibit 10.2
RESTRICTED STOCK AGREEMENT ALLIANT
TECHSYSTEMS
LOGO
- --------------------------------------------------------------------------------
NUMBER OF SHARES OF PURCHASE PRICE SOCIAL SECURITY
GRANTED TO GRANT DATE COMMON STOCK PER SHARE NUMBER
- --------------------------------------------------------------------------------
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 Shares of Common Stock of the Company
(the "Shares), for the above Purchase Price Per Share, on the terms and
conditions set forth in this Restricted Stock Agreement (this "Agreement")
and in the Alliant Techsystems Inc. 1990 Equity Incentive Plan (the
"Plan").
2. Restricted Period. The Shares are subject to the restrictions of this
Agreement and the Plan for a period (the "Restricted Period") commencing on
the Grant Date and ending as to one-third of the Shares on each of the
first, second, and third annversaries of the Grant Date, or, if earlier,
upon the Employee's death, Disability (as defined in the Plan), or
involuntary Termination of Employment (as defined in the Plan), as provided
in Paragraph 4 below.
3. Restrictions. The Shares shall be subject to the following restrictions
during the Restricted Period:
(a) The Shares shall be subject to forfeiture to the Company as provided
in this Agreement and Plan.
(b) The Shares may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of; and neither the right to
receive the Shares nor any interest under the Plan may be assigned by
the Employee, and any attempted assignment shall be void.
(c) Any certificates representing the Shares shall be held by the
Secretary of the Company and shall, at the option of the Company, bear
an appropriate restrictive legend and be subject to appropriate "stop
transfer" orders. The Employee shall deliver to the Company stock
powers endorsed in blank to the Company.
(d) Any securities or property (other than cash) that may be issued with
respect to the Shares as a result of any stock dividend, stock split,
business combination or other event, shall be subject to the
restrictions and other terms and conditions referred to in Paragraph 1
above.
(e) The Employee shall not be entitled to receive any Shares prior to the
completion of any registration or qualification of the Shares under
any federal or state law or governmental rule or regulation that the
Company, in its sole discretion, determines to be necessary or
advisable.
4. Forfeiture. As of the Employee's voluntary Termination of Employment, the
Employee shall forfeit and return to the Company all Shares for which the
Restricted Period has not ended prior to or as of such Termination of
Employment. In the event of the Employee's involuntary Termination of
Employment by the Company (other than for cause), the restrictions on any
Shares for which the Restricted Period has not ended prior to or as of such
involuntary Termination of Employment shall nevertheless lapse and such
Shares shall become nonforfeitable, and free and clear of the restrictions
of the Plan, in each case effective upon the date of such involuntary
Termination of Employment.
5. Rights. Upon issuance of the Shares, the Employee shall, subject to the
restrictions of this Agreement and the Plan, have all of the rights of a
stockholder with respect to the Shares, including the right to vote the
Shares and receive any cash dividends and any other cash distributions
thereon.
6. Income Taxes. The Employee is liable for any federal, state and local
income taxes applicable upon receipt of the Shares upon the expiration of
the Restricted Period. 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 an amount necessary to pay,
any income withholding taxes required by the Company to be collected upon
the expiration of the Restricted Period.
7. Acknowledgment. Shares will not be issued in the name of the Employee until
the Employee dates and signs the form of Acknowledgment below and returns
to the Company a signed copy of this Agreement and the stock power required
by Paragraph 3 above, and pays to the Company the aggregate purchase price
of the Shares. 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
- ------------------------------------- -------------------------------------
DATE
- -------------------------------------
SOCIAL SECURITY NUMBER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q FILING
FOR NINE MONTHS ENDED 12/27/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> DEC-27-1998 DEC-28-1997
<CASH> 37,778 68,960
<SECURITIES> 388 388
<RECEIVABLES> 240,470 209,915
<ALLOWANCES> 127 177
<INVENTORY> 39,476 49,072
<CURRENT-ASSETS> 361,554 373,030
<PP&E> 536,360 521,550
<DEPRECIATION> 206,462 188,012
<TOTAL-ASSETS> 903,664 908,309
<CURRENT-LIABILITIES> 283,331 277,402
<BONDS> 314,443 180,810
0 44,979
0 0
<COMMON> 124 121
<OTHER-SE> 128,644 220,654
<TOTAL-LIABILITY-AND-EQUITY> 903,664 908,309
<SALES> 789,765 787,811
<TOTAL-REVENUES> 789,765 787,811
<CGS> 650,740 650,196
<TOTAL-COSTS> 650,740 650,196
<OTHER-EXPENSES> 5,703 7,564
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 16,089 21,880
<INCOME-PRETAX> 59,398 48,605
<INCOME-TAX> 8,910 0
<INCOME-CONTINUING> 50,488 48,605
<DISCONTINUED> 0 0
<EXTRAORDINARY> (16,288) 0
<CHANGES> 0 0
<NET-INCOME> 34,200 48,605
<EPS-PRIMARY> 2.75 3.72
<EPS-DILUTED> 2.68 3.62
</TABLE>
<PAGE>
Exhibit 99
ALLIANT TECHSYSTEMS INC.
DIRECTORS AND EXECUTIVE OFFICERS
February 5, 1999
<TABLE>
<CAPTION>
Name (Age) Position
---------- --------
<S> <C>
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 (61) Director
Thomas L. Gossage (64) Director
Joel M. Greenblatt (41) Director
Jonathan G. Guss (39) Director
David E. Jeremiah (64) Director
Gaynor N. Kelley (67) Director
Joseph F. Mazzella (46) Director
Daniel L. Nir (38) Director
Michael T. Smith (55) Director
Charles H. Gauck (60) Vice President and Secretary
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 (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 (61) Senior Group Vice President - Space and Strategic Systems
Don L. Sticinski (47) Group Vice President - Defense Systems
Nicholas G. Vlahakis (50) Group Vice President - Conventional Munitions
Daryl L. Zimmer (55) Vice President and General Counsel
</TABLE>
