-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rrq7IRB99CKw1Bgyrt3PKPD0QqkOqRCMTt1F6BikifVbq+RrLj1azDBqzk2Y0Eos wqgpPoUGZmWW5WhNtyxCxA== 0001045969-98-000526.txt : 19980629 0001045969-98-000526.hdr.sgml : 19980629 ACCESSION NUMBER: 0001045969-98-000526 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980626 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANT TECHSYSTEMS INC CENTRAL INDEX KEY: 0000866121 STANDARD INDUSTRIAL CLASSIFICATION: ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES) [3480] IRS NUMBER: 411672694 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10582 FILM NUMBER: 98655173 BUSINESS ADDRESS: STREET 1: 600 2ND ST NE CITY: HOPKINS STATE: MN ZIP: 55343-8384 BUSINESS PHONE: 6129316000 MAIL ADDRESS: STREET 1: 600 2ND ST NE CITY: HOPKINS STATE: MN ZIP: 55343-8384 10-K 1 ANNUAL REPORT FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended MARCH 31, 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 Identification No.) incorporation or organization) 600 SECOND STREET N.E., HOPKINS, MINNESOTA 55343-8384 ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (612) 931-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - --------------------------------------- ---------------------------------- Common Stock, par value $.01 New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X] As of May 31, 1998, 12,609,063 shares of the registrant's voting common stock were outstanding (excluding 1,254,550 treasury shares). The aggregate market value of such stock held by non-affiliates of the registrant on such date was approximately $796.5 million. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual Report to stockholders for the fiscal year ended March 31, 1998 are incorporated by reference into Parts I, II and IV. Portions of the definitive Proxy Statement for the 1998 Annual Meeting of stockholders are incorporated by reference into Part III. PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Alliant Techsystems Inc. (the "Company" or the "Registrant") was incorporated as a Delaware corporation and a wholly owned subsidiary of Honeywell Inc. ("Honeywell") on May 2, 1990, in connection with Honeywell's plan to spin off to its stockholders the following business operations (the "Businesses") of Honeywell: Defense and Marine Systems Business; Test Instruments Division (subsequently renamed Metrum Information Storage); and Signal Analysis Center. On September 28, 1990, (i) Honeywell declared a distribution (the "Spin-off") payable to the holders of record of Honeywell common stock on October 9, 1990 (the "Record Date") of one share of the Company's common stock, par value $.01 per share (the "Common Stock"), together with the associated preferred stock purchase rights, for every four shares of Honeywell common stock outstanding on the Record Date, and (ii) Honeywell transferred to the Company substantially all of the assets and liabilities of the Businesses. As a result of the Spin-off, 100% of the Company's Common Stock was distributed to Honeywell's stockholders on a pro rata basis. In January 1991, the Company changed its fiscal year end from December 31 to March 31, effective with the fiscal year that began April 1, 1991 and ended March 31, 1992. In December 1992, the Company divested the Metrum Information Storage business. In October 1993, the Company acquired Accudyne Corporation ("Accudyne") and Kilgore Corporation ("Kilgore"), and in November 1993, the Company acquired Ferrulmatic, Inc. ("Ferrulmatic"). Each of these acquisitions was accounted for as a purchase, and the financial statements included in this report include the acquired companies' assets and liabilities and their results of operations since the date of their acquisition. Effective March 31, 1994, Accudyne, Kilgore and Ferrulmatic were merged into the Company. In March 1995, the Company acquired certain assets and operations of the Hercules Aerospace Company division ("HAC") of Hercules Incorporated ("Hercules"). The acquisition of HAC (the "HAC Acquisition") was accounted for as a purchase, and the financial statements included in this report include the acquired operations' assets and liabilities and their results of operations since the date of their acquisition. In March 1996, Company management, after evaluating its strategic plans for the future, elected to discontinue its role as an owner of foreign demilitarization businesses located in the former Soviet republics of Ukraine and Belarus. The Company subsequently completed its withdrawal from its Belarus joint venture, and has an agreement with the government of Ukraine under which the Company intends to transfer its ownership interest in its Ukraine joint venture to the government of Ukraine or its representative if and when the joint venture repays its debt to the Company. In February 1997 the Company divested its Marine Systems Group. The financial statements included in this report account for this divested business as a discontinued operation. 1 The Company's principal executive offices are located at 600 Second Street N.E., Hopkins, Minnesota 55343-8384 (telephone number: (612) 931-6000). (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company's business is conducted in a single industry segment. Incorporated herein by reference are the following portions of the Company's Annual Report to Stockholders (the "Annual Report") for the fiscal year ended March 31, 1998 ("fiscal year 1998"): PAGE NUMBER(S) PORTION OF ANNUAL REPORT IN ANNUAL REPORT Note 18 of Notes to Financial Statements..................... 43 (c) NARRATIVE DESCRIPTION OF BUSINESS GENERAL During fiscal year 1998, the Company conducted its business through four business groups: Conventional Munitions, Defense Systems, Space and Strategic Systems, and Emerging Business. Effective April 1, 1998, the Company reorganized its business into three business groups: Conventional Munitions, Defense Systems, and Space and Strategic Systems. The description of the Company's business that follows reflects the reorganized business structure currently in effect. CONVENTIONAL MUNITIONS Conventional Munitions supplies, designs and develops medium caliber ammunition, tank ammunition, munitions propellants, commercial gun powders, solid rocket propulsion systems, flares, warheads, and composite structures for the U.S. and allied governments as well as for commercial applications. It operates in four business units: Ammunition Systems, Ordnance, Tactical Propulsion and Kilgore Operations. AMMUNITION SYSTEMS. The Ammunition Systems business unit produces, designs, and develops medium caliber ammunition, tank ammunition, submunitions, and advanced warhead systems for missiles and other weapon systems. The Company is a leading supplier of medium caliber ammunition and fuzes. Production programs include 25mm Bushmaster rounds for the U.S. Army's Bradley Fighting Vehicle, the Marine Corps Light Armored Vehicle, the U.S. Navy's shipboard defense systems, and platforms of the U.S. allies; the PGU-32 25mm round for the AV-8B aircraft; PGU-38 25mm enhanced combat rounds for the U.S. Air Force's AC-130 gunship; Lightweight 30mm ammunition for the Apache helicopter; and GAU-8/A 30mm family of armor-piercing, high-explosive incendiary, and target practice rounds currently used by the U.S. Air Force's A-10 aircraft. Development efforts include improving the performance of medium caliber ammunition for the advanced threats of the future. The Company is also the sole source producer of the M758/M759 fuze for medium caliber ammunition. 2 In the tank ammunition area the Company produces and develops tactical and training tank rounds which are used for the M1A1/M1A2 Abrams tanks of the U.S. Army, Army Reserve, National Guard, Marine Corps, and U.S. allies. Such rounds include the M830A1 multi-purpose round and the M831A1 and M865 training rounds. The Company is the sole producer of the M830A1 multi-purpose round. The Company is one of two suppliers to the U.S. Government for the M831A1 and M865 training rounds. Opportunities being pursued include advanced kinetic-energy rounds, developed for future threats, and rounds that will meet specifications for international sales. In submunitions and advanced warhead systems, the Company currently has contracts for the production of warheads for the following missiles: Hellfire, Longbow and the Advanced Medium Range Air-to-Air Missile ("AMRAAM"), and a contract for the development of the Brimstone warhead. The Company has teamed with Raytheon in pursuit of a contract for the ordnance module for the Follow-on-to-TOW program. The business unit is also completing performance of certain ordnance reclamation services contracts transferred from the former Emerging Business Group. These contracts are with the Naval Underseas Warfare Center in Newport, Rhode Island, to dispose of lithium-filled boilers that power the MK50 torpedo, and with the U.S. Army at Rock Island, Illinois, for reclamation of six-inch and eight-inch gun projectiles and M117 bombs. Ammunition Systems operations are conducted at Hopkins, Elk River and New Brighton, Minnesota, Totowa, New Jersey, and Wilmington, Illinois. ORDNANCE. The Ordnance business unit has the capability to manufacture annually over 100 million pounds of solid extruded propellant for ammunition and rockets for the U.S. and foreign military services. The unit, through New River Energetics, Inc., a wholly owned subsidiary, also manufactures and commercially markets gun powders for both reloaders and manufacturers of sporting ammunition. Primary production programs include propellants for multiple training and war reserve 120mm tank rounds, for artillery propelling charges, and for 30mm ammunition and 25mm ammunition. The Company is also the sole source supplier of Mk90 propellant grains for use in the HYDRA 70 rocket and launch motors for the TOW II missile. In addition to the military programs, the Company produces a wide range of commercial gun powders and has activated stand-by military capacity for commercial chemical commodity sales. Development opportunities being pursued include improved smokeless gun powders, modular charges for advanced artillery systems, and high explosive energetic materials used in munitions. Ordnance operations are conducted primarily at Radford Army Ammunition Plant in Radford, Virginia, which is also the U. S. Army's Group Technology Center for propellant development and production. The Company has also been actively involved in relocating Company operations and several unrelated commercial businesses onto the Radford facility under the Army Retooling and Manufacturing Support Act (ARMS) initiative. The Ordnance business 3 unit also manages the Sunflower Army Ammunition Plant in DeSoto, Kansas, where it seeks commercial tenants for the property and provides general plant management services, including maintenance or demolition of inactive facilities, security and fire protection. TACTICAL PROPULSION. The Tactical Propulsion business unit supplies and develops solid propulsion systems for various U.S. Department of Defense ("DoD") tactical weapons. Principal products include solid rocket motors, gas generators and tactical missile warheads for the U.S. Army, Navy and Air Force. It also develops and supplies high-strength, low-weight structures made of metals and composites for use in products such as missile launch tubes and critical parts for ammunition and military aircraft. Current production programs include propulsion systems for AMRAAM, AGM-130, Sparrow, Sensor Fuzed Weapon ("SFW"), Hellfire II/Longbow, Maverick and TOW II. AMRAAM and SFW are the unit's largest production programs and have firm funding support through the end of the decade. AGM-130 is an air-to-ground stand-off attack missile used by the U.S. Air Force. Boeing North American is the sole prime contractor for AGM-130 and the Company is the sole source propulsion supplier. The SFW system is presently in Full Rate Production and has become one of the unit's largest programs. The Company is the sole source supplier on the SFW submunition propulsion deployment system. The unit has been the U.S. Army's primary supplier of flight motors for TOW II since the program's inception in 1981. Production programs in related areas include warheads for the Maverick and AMRAAM missile systems, metal cases for the U.S. Army's Tactical Missile System ("ATACMS") surface-to-surface missile, gas generators for the Trident II (D5) and Tomahawk Cruise missiles, composite launch tubes for the Army's Javelin anti-tank missile, and composite overwrapped pressure vessels for use on satellites. Major development programs include the propulsion systems for the Evolved Sea Sparrow Missile ("ESSM"), the AIM-9X Evolved Sidewinder, the AMRAAM Propulsion Enhancement Program ("PEP"), the Predator anti-tank system ("Predator"), and the advanced smart 120mm kinetic energy tank round ("TERM-KE"). The Company recently completed successful development tests on the ESSM and AMRAAM PEP programs. The Company is co-developing the propulsion system for the ESSM Program which is a NATO program involving 13 nations. Raytheon Systems Company is the prime contractor. The Company is the sole developer of a higher performance AMRAAM rocket motor, under contract from the U.S. Navy, with production planned to commence in U.S. Government fiscal year 1998. The prime contractor on Predator is Lockheed Martin Corporation, and the prime contractor on TERM-KE is Alliant Defense Electronics Systems, Inc., a subsidiary of the Company. The Company is the sole propulsion source on both Predator and TERM-KE. The Company is developing and producing composite structures for the F-22 fighter being developed by Lockheed Martin Corporation. Other new business opportunities being pursued include the Standard Missile Second Stage, the Beyond Visual Range Air-to-Air Missile, and Follow-on-to-TOW. The Tactical Propulsion business unit is located in Rocket Center, West Virginia. KILGORE OPERATIONS. The Kilgore Operations business unit produces and develops infrared countermeasure flares, 20mm ammunition, and a wide spectrum of pyrotechnic devices for the U.S. and foreign governments. It also makes pyrotechnics for various commercial activities. 4 Kilgore is the world's leading supplier of infrared countermeasure products. Production programs include the MJU-7A/B, M206, MJU-10/B, MJU-32/B and MJU-38/B U.S. countermeasures. In addition, Kilgore-designed flare products, such as the 55mm KC-004/A flares, are routinely provided for export. Kilgore is currently manufacturing an Israeli flare design under a Foreign Military Funding contract. Kilgore has manufactured over six (6) million infrared flares over the last decade. Kilgore was the original designer for the MJU-10/B and first sequenced version of the MJU-7 and 1x1 inch flares. Kilgore has patented a variety of advanced countermeasure designs. On-going development efforts include sole source supplier to Lockheed Martin for the infrared flares for the F-22 aircraft and performing development efforts for advanced flares for the U.S. Navy. Kilgore is also the only current producer of the MK 186 TORCH shipboard countermeasure. Kilgore has been one of the two suppliers for the U.S. Navy Phalanx MK149 20mm ammunition as well as an international supplier of 20mm ammunition. Current production programs include the M55 TP ammunition. New business opportunities include the M56 high explosive series. Over 100 different pyrotechnic products have been produced by Kilgore. The pyrotechnic product lines include impulse cartridges, marine location markers, explosive squibs, colored smoke and signaling devices, screening devices, and commercial day/night signals. Current programs include efforts for NATO and non-NATO countries for improved signaling and screening devices as well as standard pyrotechnic products. Kilgore also supports a variety of intra-company production programs such as primers and tracers for tank ammunition, flashtubes for the GAU-8/A, and critical components for the TERM-KE program. Kilgore operations are conducted in Toone, Tennessee. DEFENSE SYSTEMS Defense Systems develops and supplies smart munitions, fuzes, electronic systems, unmanned vehicles, and batteries through four business areas: Tactical Systems, Defense Electronics Systems, Unmanned Vehicle Systems and Power Sources Center. TACTICAL SYSTEMS. The Tactical Systems business area develops and produces electronics and fuzes, demolition munitions, weapons systems, guided weapons systems, and guided weapons. In the electronics and fuzing area, the Company develops and manufacturers stand-alone fuzes for mortar, artillery, and rocket munitions and bombs; electronic systems; and battlefield management systems. Sole source fuze production programs are the M734/M745 fuzes for mortar rounds; and the M732A2 proximity fuze for artillery. The Company is also developing the XM773 Multi-Option Fuze Artillery, which provides point detonation, delay, variable time, and proximity functions. Other development and production programs include the U.S. Air Force's Multiple Event Hard Target Fuze program and the FMU-139 Fuze program. During fiscal year 1998, the Company acquired part of Motorola's military fuze business, which develops and manufactures high-quality electronic fuzes for projectiles, air-delivered weapons and penetrating weapons. In electronics, the 5 Company has developed and is producing an automatic fire control system and integrated on-board electronics for the Paladin self-propelled Howitzer, which provides the Paladin with a "shoot and scoot" capability for increased survivability and effectiveness. In the battlefield monitoring systems, the Company has developed a Remote Sentry system that utilizes proprietary acoustic sensor technology in combination with other sensors, signal processing and hostile forces well behind enemy lines. In the demolition munitions area, the Company develops and produces munition systems, demolitions, and air delivered systems. In munition systems the Company is currently working on advanced systems for delivery from artillery, trucks, tracked vehicles and helicopters. Primary production programs are the Volcano system, a modular system delivered from ground and air platforms, and Shielder, a Vehicle-Launched Smart Anti-tank Munition System, for which the Company is systems prime to the U.K.'s Ministry of Defence. The Company is pursuing several other international opportunities in this area. The Company is also producing the Selectable Lightweight Attack Munition (SLAM), a hand-emplaced anti-materiel munition with multiple activation modes for the U.S. Special Forces and the U.S. Army. The Company has developed the Penetration Augmentation Munition (PAM) for applications such as concrete bridge abutments and the Badger Fighting Position Excavator ("Badger") for U.S. and international applications. The Badger allows the soldier to significantly reduce foxhole digging time while increasing safety and effectiveness. In air-delivered systems, the Company is the sole producer of the Gator air-delivered scatterable munition system and provides tactical munitions dispensers (TMDs) for the Combined Effects Munition, Gator and the Sensor Fuzed Weapon programs. In the weapon systems area, the Company is developing the Objective Individual Combat Weapon ("OICW") and is jointly pursuing the Cased Telescoped Weapon System ("CTWS") with foreign partners. OICW is a lightweight, shoulder-fired weapon to selectively replace the M16 rifle/M203 grenade launcher. The OICW is the lethality element of the Force XXI Land Warrior. The system consists of a combinatorial weapon, ballistic fire control system and thermal sight, and both a 20mm high explosive ("HE") bursting munition with a remote autonomous fuze and a 5.56mm kinetic energy round. The Company is responsible for systems integration and development of the HE ammunition and won the downselect phase of the contract in March 1998. CTWS is a non-developmental item consisting of a medium caliber gun, ammunition and an ammunition handling system. It is a candidate weapon system for the Future Scout and Cavalry System, the Advanced Amphibious Assault Vehicle and the U.K.'s Tracer vehicle programs. In the guided weapons area, the primary program is the Sense and Destroy Armor ("SADARM") munition. SADARM is being developed by the Company together with the prime contractor, Aerojet (a business segment of GenCorp., Inc.). SADARM has entered low rate initial production, and is presently the only tube artillery smart munition in production. The SADARM munition is used on 155mm Howitzers and combines millimeter wave and infrared sensor and signal processing technologies. In addition, SADARM is currently being evaluated for potential application to air and rocket delivery systems. The Company is also participating in a Northrop-Grumman competitive program to develop an improved seeker for the Brilliant Anti Tank ("BAT") munition Preplanned Product Improvement (BAT P3I) Program. The objective of the program is to demonstrate systems performance against cold/stationary tank and armored combat vehicle units and sparsely located Surface to Surface Transporter Erector Launcher vehicles. BAT is a hit-to-kill guided submunition intended for delivery on the battlefield by the 6 ATACMS missile. Downselect for the Engineering/Manufacturing Development (EMD) phase is scheduled during the fiscal year ending March 31, 1999 ("fiscal year 1999"). New business opportunities being pursued include Advanced Fuzing, Sensors and Seekers for Smart Munitions, Scatterable Anti-Tank Systems, Next Generation Alternatives to Land Mines and Advanced Gun Weapon Systems utilizing case telescoped ammunition. Tactical Systems operations are conducted at Hopkins and New Brighton, Minnesota, and Janesville, Wisconsin. DEFENSE ELECTRONICS SYSTEMS. The Defense Electronics business area is conducted through Alliant Defense Electronics Systems, Inc., a wholly-owned subsidiary of the Company. Principal products include millimeter wave and laser radar ("LADAR") seeker technology and products, smart weapon systems, missile warning systems, electronic warfare systems, test equipment, chaff and chaff dispensing systems, and advanced imaging and document management software. Principal customers are U.S. and foreign governments. Software capabilities are marketed to both commercial and government customers. Major programs include the XM-1007 smart tank cartridge, the AAR-47 Missile Warning System, the Common Munitions BIT/Reprogramming Equipment ("CMBRE"), Demonstration of Advanced Solid State Laser Radar (DASSL), and the Analog-to-Digital Adaptable Recorder Input-Output (ADARIO). The XM-1007 is currently in development for application to a Tank Extended Range Munition (TERM) requirement that includes beyond line of sight missions using scout vehicles for target location and target designation. The Company is the sole development prime contractor for the XM-1007. Production is anticipated to begin in 2006. The Company is bidding the XM-1007 design in a competitive procurement for an Army-sponsored advanced technology application program. The AAR-47 Missile Warning system is a passive electro-optic threat warning device used to protect low, slow flying helicopters and fixed wing aircraft against attack from ground-to-air-missiles. The Company completed a production contract for the system and is currently engaged in a Central Processor Unit ("CPU") upgrade (both hardware and software) for improved probabilities of detection, longer warning times, and lower false alarm rates. Production deliveries of the upgraded CPU will begin in fiscal year 1999. The Company will enter a competitive bid for an upgraded, higher performance sensor to include laser warning capability early in fiscal year 1999. The CMBRE is a portable field tester with a common interface to support the growing U.S. inventory of smart weapons. The Company completed development ahead of contract schedule and shipped the first production units in fiscal year 1998. Fiscal year 1999 production is on-going and is expected to continue for eight years. LADAR is the preferred seeker technology for future precision guided weapons surpassing Imaging InfraRed ("IIR") and Synthetic Aperture Radar ("SAR"). It combines the active ranging capability of SAR with the optical resolution of IIR at a cost less than either. The Company, teamed with prime contractor, Raytheon Systems, is nearing completion of phase two 7 of a four phase technology demonstration program for the U.S. Air Force. The team intends to pursue a competitive program for the Low Cost Autonomous Attack System (LOCAAS) during fiscal year 1999. The Company, through its Advanced Imaging Strategies, provides a family of software products known as DocMaestro(TM). These are state-of-the-art imaging and document management tools that provide easy access and navigation to and through electronic documents with automatic hyperlinks, and electronic documents on demand through the internet/intranet. New business opportunities being pursued include Sensors and Seekers for Smart Munitions and guided projectile systems. Defense Electronics Systems operations are conducted in Clearwater, Florida. UNMANNED VEHICLE SYSTEMS. The Unmanned Vehicle Systems business area is the developer and producer of the Outrider(TM) Tactical Unmanned Aerial Vehicle system. The Outrider system consists of four air vehicles, two ground control stations, one air vehicle trailer, one auxiliary trailer, and one remote video terminal. Outrider is designed to be readily deployed from land or ship deck. No external pilot is required--takeoff and landing are completely autonomous. Outrider provides real-time reconnaissance, surveillance, and target acquisition information for the armed forces using the system. The military utility assessment for Outrider is expected to be completed in the third quarter of 1998, and a decision regarding whether to proceed with low rate initial production is expected in the fall of 1998. Unmanned Vehicle Systems is also supporting the development of the Tactical Control System (TCS), which is a DoD program to provide joint warfighters with a surface command, control, communication and data dissemination systems for unmanned aerial vehicles. Unmanned Vehicle Systems operations are conducted in Hopkins, Minnesota and Hondo, Texas. POWER SOURCES CENTER. The Power Sources Center business area develops and manufactures specialized disposable and rechargeable batteries for use in the Company's own products, and for U.S. and foreign military and aerospace customers. Its principal disposable products are lithium reserve batteries, which are used in such applications as anti-tank mines and fuzes that require long-term storage capacity. The Company is developing a new miniature battery production line capable of producing six million batteries per year for artillery fuzes. The Company also produces specialty batteries, such as space-qualified battery modules for space probes such as Galileo and Huygens. Its principal rechargeable products are lithium-ion polymer batteries, which offer very high energy density and packaging flexibility for use where weight and space may be limited or where unique operational configurations are required. The Company is also developing a flexible manufacturing line for "wearable" lithium-ion polymer batteries for the U.S. Army. The Company has also been awarded a contract by the U.S. Navy to supply large rechargeable batteries for underwater vehicles. New business opportunities being pursued include high density flexible power sources. 8 Power Sources Center operations are conducted at Horsham, Pennsylvania. SPACE AND STRATEGIC SYSTEMS Space and Strategic Systems designs and produces solid rocket propulsion systems for space launch vehicles, strategic missile systems, provides reinforced composite structures and components for aircraft, spacecraft and space launch vehicles, and provides safety management services. The space propulsion business represents the largest portion of the group's sales base and includes a broad product portfolio encompassing all vehicle payload classes (small to heavy lift). The Company is presently producing solid propulsion systems for Titan IVB, Delta II, Delta III, Pegasus(R), and Taurus(R) launch vehicles. The Company produces the Titan SRMU space booster for Lockheed Martin Corporation. The SRMU serves as the strap-on propulsion system (two per vehicle) for the U.S. Air Force upgraded Titan IVB heavy-lift launch vehicle. The Company also has a follow-on contract for Titan launch operations support which extends into 2002. Delta II is a medium-lift expendable launch vehicle developed for both government and commercial applications. The Delta II launch vehicle family employs solid strap-on boosters in multiple configurations using three, four and nine motors, all of which are produced by the Company for The Boeing Company. During fiscal year 1998, Boeing awarded the Company additional production quantities for Delta II. During fiscal year 1998, the Company also completed development and is now producing, under contract to Boeing, a new, larger strap-on GEM booster for the new, enhanced medium-lift Delta III expendable launch vehicle. Each Delta III launch vehicle employs nine solid strap-on boosters, all of which are produced by the Company. The Pegasus(R) air launched vehicle is used to deploy small U.S. Government, foreign government and commercial payloads. Each Pegasus(R) vehicle contains three solid propulsion stages, all of which are produced by the Company for Orbital Sciences Corporation. The Pegasus(R) motors are also used as upper stages on Orbital Sciences' Taurus(R) ground launched vehicle. The Taurus(R) is also used to deploy small U.S. Government and commercial payloads. During fiscal year 1998, Orbital Sciences awarded the Company contracts for additional quantities of Pegasus(R) and Taurus(R) motors that will extend production into 1999. The strategic propulsion business, which now consists of one large production program and various operational service contracts, has been involved with substantially all of the land and sea based strategic propulsion systems since their inception. Currently, the principal strategic propulsion production program is Trident II (D5), a submarine-launched intercontinental ballistic missile composed of three solid propulsion stages. The Company, through a joint venture with the Thiokol Propulsion unit of Cordant Technologies Inc., developed and produced the first and second propulsion stages of the Trident II (D5) missile under a contract with Lockheed Martin Corporation. In 1997, the joint venture completed the qualification process to also produce the third stage of the missile. In addition to the Trident II production contract, the Company has contracts with Lockheed Martin to support both the U.S. Navy's existing fleet of Trident I (C4) missiles and the operational D5 units. The Company developed and produced the Peacekeeper third stage motor for the U.S. Air Force, and provides some continuing aging and surveillance services support to the missile system. The Company also continues to provide surveillance services to the U. S. Air Force for Minuteman third stage motors it previously produced. 9 The composite structures operation designs and fabricates a broad range of structures from carbon/carbon, graphite, aramid, and glass fiber reinforced composite materials. Applications include instrument benches and dimensionally stable assemblies for satellites, space based antennae, aircraft and engine components, space launch vehicle tanks and structures, and other specialty structures. Target markets include both government and commercial users. Key programs are concentrated primarily in the commercial and government satellite, launch vehicle and aircraft segments. The Company is under contract to Lockheed Martin to develop composite cryogenic liquid hydrogen fuel tanks for the NASA X-33 Phase II reusable launch vehicle. It is also working jointly with Lockheed Martin to build the fiber-placed liquid hydrogen tank for the full-scale operational VentureStar(TM) when production begins in 2000. In addition, the Company is presently under contract to develop the inlet bypass offtake screens and composite pivot shafts on the U.S. Air Forces' F-22 fighter aircraft. The Company is also under contract to produce a counterbalance mechanism for the C-17 transport aircraft and the production of composite door springs for the Boeing Company's 767 aircraft. Other programs and opportunities include additional aircraft and engine structures, other components and assemblies for spacecraft, military land vehicles, and various structures for reusable and expendable launch vehicles. The safety management services business assists customers in analyzing and safeguarding against potential manufacturing hazards and in meeting both internal and external safety requirements. Primary emphasis is placed on meeting OSHA and EPA regulatory compliance. Space and Strategic Systems operations are conducted in Magna and Clearfield, Utah. RAW MATERIALS Key raw materials used in the Company's operations include aluminum, steel, steel alloys, copper, depleted uranium, graphite fiber, hydroxy terminated polybutadiene, epoxy resins and adhesives, nitrocellulose, diethylether, x-ray film, plasticizers and nitrate esters, and ammonium perchlorate. The Company also purchases chemicals, electronic, electro-mechanical and mechanical components, subassemblies, and subsystems which are integrated with the Company's own manufactured parts for final assembly into finished products and systems. The Company closely monitors its sources of supply in order to assure an adequate supply of raw materials and other supplies needed in its manufacturing processes. U.S. Government contractors like the Company are frequently limited to procuring materials and components from sources of supply approved by the DoD. In addition, as defense budgets contract, suppliers of specialty chemicals and materials consider dropping low volume items from their product lines, which may require (and in the past has required) qualification of new suppliers for raw materials on key programs. The supply of ammonium perchlorate, a principal raw material used in the Company's operations, has been limited to two third-party sources which supply the entire domestic solid propellant industry. These two suppliers have recently entered into an agreement to combine their ammonium perchlorate businesses. Any disruption in the Company's supply of ammonium perchlorate could have a material adverse effect on the Company's results of operations or financial condition. 10 The Company also presently relies on one primary supplier for its graphite fiber, which is used in the production of composite materials. Although other sources of fiber exist, the addition of a new supplier would require the Company to qualify the new sources for use on the Company's programs. Any prolonged disruption in the supply of this material or any delay as a result of the qualification of a new source could have a material adverse effect on the Company's results of operations or financial condition. Current suppliers of some insulation materials used in rocket motors have announced plans to close manufacturing plants and discontinue product lines. As a result, the Company will need to find replacement materials or new sources of supply for these materials, which are polymers and neoprene used in EPDM rubber insulation, and aerospace rayon used in nozzles. Difficulty finding replacement materials or new sources of supply could have a material adverse effect on the Company's results of operations or financial condition. MANUFACTURING AND HANDLING OF EXPLOSIVE MATERIALS Certain of the Company's products, including those relating to propulsion systems, propellants, ammunition and artillery systems, involve the manufacture and/or handling of a variety of explosive materials. From time to time in the past, such manufacturing and/or handling has resulted in explosive incidents which have temporarily shut down or otherwise disrupted certain of the Company's manufacturing processes, thereby causing production delays. There can be no assurance that the Company will not experience such incidents in the future or that any such incidents will not result in production delays or otherwise have a material adverse effect on the Company's results of operations or financial condition. MAJOR CUSTOMERS - U.S. GOVERNMENT The Company's sales are predominantly derived from contracts with agencies of, and prime contractors to, the U.S. Government. The various U.S. Government customers, which include the U.S. Army, Navy and Air Force, exercise independent purchasing decisions, and sales to the U.S. Government generally are not regarded as constituting sales to one customer, but instead, each contracting entity is considered to be a separate customer. U.S. Government sales, including sales to U.S. Government prime contractors, for fiscal year 1998, fiscal year 1997 and fiscal year 1996, were $879.1, $884.7 million, and $887.5 million, respectively. During fiscal year 1998, approximately 82 percent of the Company's sales were derived from contracts with the U.S. Government or U.S. Government prime contractors. Approximately 50% of the Company's fiscal year 1998 net sales were derived from prime contractor activities and approximately 50% from subcontractor activities. Approximately 43% of such sales were derived from business with the U.S. Army, 20% from the U.S. Air Force, 11% from the U.S. Navy, and 26% from other government, commercial or international sources. The Company's top ten contracts accounted for approximately 61% of its fiscal year 1998 net sales. During fiscal year 1998, sales to each of Lockheed Martin Corporation and The Boeing Company and their respective affiliates accounted for more than 10% of the Company's sales. These sales related to multiple contracts and, in the case of Boeing, included commercial contracts. 11 This significant reliance upon contracts related to U.S. Government programs entails inherent risks, including risks particular to the defense industry, which are summarized below. REDUCTIONS OR CHANGES IN MILITARY EXPENDITURES. The overall U.S. defense budget declined in real terms from the mid-1980's through the early 1990's. Although U.S. defense budgets have recently stabilized, future levels of defense spending cannot be predicted with certainty and further declines in U.S. military expenditures could materially adversely affect the Company's results of operations and financial condition. The impact of possible further declines in the level of defense procurement on the Company's results of operations and financial condition will depend upon the timing and size of the changes and the Company's ability to mitigate their impact with new business, business consolidations or cost reductions. The loss or significant curtailment of a material program in which the Company participates could materially adversely affect the Company's future results of operations and financial condition. CONTRACT TERMINATION. All of the Company's U.S. Government contracts are, by their terms, subject to termination by the U.S. Government either for its convenience or in the event of a default by the contractor. Cost-plus contracts provide that, upon termination, the contractor is entitled to reimbursement of its allowable costs, and, if the termination is for convenience, payment of a total fee proportionate to the percentage of the work completed under the contract. Fixed-price contracts provide for payment upon termination for items delivered to and accepted by the U.S. Government, and, if the termination is for convenience, for payment of fair compensation for work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses, and a reasonable profit on the costs incurred or committed. If a contract termination is for default, however, (i) the contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. Government, (ii) the U.S. Government is not liable for the contractor's costs with respect to unaccepted items, and is entitled to repayment of advance payments and progress payments, if any, related to the terminated portions of the contract, and (iii) the contractor may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. Termination for convenience provisions provide only for the recovery by the Company of costs incurred or committed, settlement expenses and profit on work completed prior to termination. Termination for default provisions may render the contractor liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. LOSS OF APPROPRIATIONS. In addition to the right of the U.S. Government to terminate contracts for convenience or default, such contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance may take more than one year. Consequently, at the outset of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. In addition, most U.S. Government contracts are subject to modification in the event of changes in funding. Any failure by Congress to appropriate additional funds to any program in which the Company participates, or any contact modification as a result of funding changes could materially delay or terminate such program and, therefore, have a material adverse effect on the Company's results of operations or financial condition. 12 PROCUREMENT AND OTHER RELATED LAWS AND REGULATIONS. The Company is subject to extensive and complex U.S. Government procurement laws and regulations. These laws and regulations provide for ongoing U.S. Government audits and reviews of contract procurement, performance and administration. Failure to comply, even inadvertently, with these laws and regulations and with laws governing the export of munitions and other controlled products and commodities, and any significant violations of any other federal law, could subject the Company or one or more of its businesses to potential contract termination, civil and criminal penalties, and under certain circumstances, suspension and debarment from future U.S. Government contracts for a specified period of time. Any such actions could have a material adverse effect on the Company's results of operations or financial condition. Under U.S. Government regulations, the Company, as a government contractor, is subject to audit and review by the U.S. Government of performance of, and the accounting and general practices relating to, U. S. Government contracts. The costs and prices under such contracts may be subject to adjustment based upon the results of such audits. To date, such audits have not had a material effect on the Company's results of operations or financial condition; however, no assurance can be given that future audits will not have a material adverse effect on the Company's results of operations or financial condition. In addition, licenses are required from U.S. Government agencies for export from the United States of many of the Company's products. Accordingly, certain of the Company's products currently are not permitted to be exported. COMPETITIVE BIDDING. The Company obtains military contracts through either competitive bidding or sole-sourced procurement. Contracts from which the Company has derived and expects to derive a significant portion of its sales were or will be obtained through competitive bidding in which, in many instances, numerous bidders participated or will participate. There can be no assurance that the Company will continue to be successful in having its bids accepted or, if accepted, that awarded contracts will be profitable. In addition, inherent in either procurement process is the risk that if a bid is submitted and a contract is subsequently awarded, actual performance costs may exceed the projected costs upon which the submitted bid or contract price was based. To the extent that actual costs exceed the projected costs on which bids or contract prices were based, the Company's profitability could be materially adversely affected. TYPES OF CONTRACTS. The Company's U.S. Government business is performed under cost-plus contracts (cost-plus-fixed-fee, cost-plus-incentive-fee, or cost-plus-award fee) and under fixed-price contracts (firm fixed-price, fixed-price incentive, or fixed-price-level-of-effort), which accounted for the following portions of the Company's U.S. Government business in fiscal year 1998: 13 COST-PLUS CONTRACTS: Cost-plus-fixed-fee 20% Cost-plus-incentive-fee/cost-plus-award-fee 17% 37% FIXED-PRICE CONTRACTS: Firm fixed-price 55% Fixed-price incentive/fixed-price-level-of-effort 8% 63% ---- TOTAL .................................................. 100% Cost-plus-fixed-fee contracts provide for reimbursement of costs, to the extent that such costs are allowable, and the payment of a fixed fee. Cost-plus-incentive-fee contracts and cost-plus-award-fee contracts provide for increases or decreases in the contract fee, within specified limits, based upon actual results as compared to contractual targets for such factors as cost, quality, schedule and performance. Under firm fixed-price contracts, the Company agrees to perform certain work for a fixed price and, accordingly, realizes all the benefit or detriment resulting from decreases or increases in the costs of performing the contract. Fixed-price incentive contracts are fixed-price contracts providing for adjustment of profit and establishment of final contract prices by a formula based on the relationship which final total costs bear to total target cost. The final contract price under a fixed-price incentive contract is a function of cost, which may be affected by schedule and performance. Fixed-price-level-of- effort contracts are generally structured with a fixed price per labor hour subject to the customers' labor hour needs up to a contract cap. All fixed-price contracts present the inherent risk of unreimbursed cost overruns which could have a material adverse effect on the Company's results of operations or financial condition. In addition, certain costs, including certain financing costs, portions of research and development costs, and certain marketing expenses related to the preparation of competitive bids and proposals and international sales, are not reimbursable under U.S. Government contracts. The U.S. Government also regulates the methods under which costs are allocated to U.S. Government contracts. OTHER. In addition, the Company, like all defense contractors, is subject to risks associated with uncertain cost factors related to scarce technological skills and components, the frequent need to bid on programs in advance of design completion (which may result in unforeseen technological difficulties and/or cost overruns), the substantial time and effort required for relatively unproductive design and development, design complexity, rapid obsolescence and the potential need for design improvement. COMPETITION The Company encounters intense competition for its contracts from numerous other companies. Some of these companies, particularly those competitors outside the Company's core business areas, have financial, technical, marketing, manufacturing, distribution and other resources substantially greater than those of the Company. The Company's ability to compete for these contracts depends to a large extent on the effectiveness and innovativeness of its research and development programs, its ability to offer better program performance than its competitors at a lower cost, and its readiness in facilities, equipment and personnel to undertake the programs for which it competes. In some instances, programs are sole sourced or work directed by the U.S. Government to a single supplier. In such cases, there may be other suppliers who have the 14 capability to compete for the programs involved, but they can only enter or reenter the market if the U.S. Government should choose to reopen the particular program to competition. The Company's principal sole source contracts are for the following programs: Trident (D5) missile (through the joint venture with the Thiokol Propulsion unit of Cordant Technologies Inc.), Titan IV SRMU space boosters, AGM-130 and SFW propulsion systems, M830A1 multi-purpose tank ammunition round, Volcano mine and M758 fuze for medium caliber ammunition, the M732A2 proximity fuze, and the M734/M735 mortar fuzes. The Company generally faces competition from a number of competitors in each business area. However, Primex Technologies, Inc. is the principal competitor in the Conventional Munitions Ammunition Systems business area for medium caliber ammunition and tank ammunition, and the sole domestic competitor for commercial gun powders produced by the Conventional Munitions Ordnance business unit. The Company shares the production of tank ammunition training rounds with Primex, and Primex is currently the sole source for the M829A2 Kinetic Energy round, while the Company is the sole source for the M830A1 multi-purpose round. The Company also shares the 25mm and 30mm medium-caliber ammunition market with Primex, its sole domestic competitor. The downsizing of the munitions industrial base has resulted in a reduction in the number of competitors, through consolidations and departures from the industry. This has reduced the number of competitors for some programs, but has strengthened the capabilities of some of the remaining competitors. In addition, it is possible that there will be increasing competition from the remaining competitors in business areas where they do not currently compete, particularly in those business areas dealing with electronics. NOVATION OF U.S. GOVERNMENT CONTRACTS As required by federal procurement regulations providing for the U.S. Government to recognize the Company as the successor in interest to Honeywell on contracts between Honeywell and the U.S. Government, Honeywell has entered into novation agreements with the Company and the U.S. Government which provide, among other things, for Honeywell to directly or indirectly guarantee or otherwise become liable for the performance of the Company's obligations under such contracts (the "Guaranteed Contracts") which were transferred to the Company in connection with the Spin-off. Such novation agreements provide that the Company assumes all obligations under the Guaranteed Contracts and that the U.S. Government recognizes the transfer of such Guaranteed Contracts and related assets. While these Guaranteed Contracts are scheduled to be performed over a period of time, it is not expected that they will be fully and finally discharged for a number of years. The Company has agreed to perform all of its obligations under each Guaranteed Contract and to indemnify Honeywell against any liability Honeywell may incur under the novation agreements by reason of any failure by the Company to perform such obligations. The Company has entered into similar novation agreements in connection with the divestiture of Metrum Information Storage ("MIS") and the former Marine Systems Group. In these cases, however, the Company, as the seller, has guaranteed performance of the buyer's obligations under the contracts transferred to the buyer, and the buyers of MIS and Marine Systems, respectively, rather than the Company, have the performance and indemnification obligations described in the last sentence of the preceding paragraph. 15 The Company and Hercules have agreed to use all reasonable efforts to enter into novation agreements with the U.S. Government, as required by federal procurement regulations applicable to contracts between or relating to HAC and the U.S. Government (the "Acquired Government Contracts") which were acquired by the Company in the HAC Acquisition. Such novation agreements are expected to provide, among other things, that the Company assumes all obligations under the Acquired Government Contracts and that the U.S. Government recognizes the transfer to the Company of the Acquired Government Contracts and related assets. The Acquired Government Contracts are scheduled to be performed over time; it is not expected that they will be fully and finally discharged for several years. Hercules has agreed to indemnify the Company against any liability which the Company may incur under such novation agreements by reason of any prior failure by Hercules to perform its obligations under the novated contracts. The Company has agreed to indemnify Hercules against any liability which Hercules may incur under such novation agreements by reason of any failure by the Company to perform its obligations under the novated contracts. RESEARCH AND DEVELOPMENT The expense incurred on Company-sponsored research and development activities related to new products or services and the improvement of existing products or services was $12.4, $16.2, and $14.1 million for fiscal year 1998, fiscal year 1997, and fiscal year 1996, respectively. The expense incurred during the same periods for research and development activities that were customer-sponsored (primarily funded by the U.S. government) was $241.6, $231.3, and $281.8, million, respectively. BACKLOG The aggregate amount of contracted backlog orders on April 1, 1998, and April 1, 1997, was $1,700.7, and $1,438.9 million, respectively. It is expected that approximately 78 percent of sales during the fiscal year ending March 31, 1999, will fill orders that were in backlog at April 1, 1998. The backlog represents the value of contracts for which goods and services are yet to be provided. The backlog consists of firm contracts and although they can be and sometimes are modified or terminated, the amount of modifications and terminations historically has been limited compared to total contract volume. In May 1998, the Company received orders from Boeing aggregating $750 million for the production of solid rocket boosters for Delta space launch vehicles. These orders are not expected to have a material impact on fiscal year 1999 sales. SEASONALITY The Company's business is not seasonal in nature. However, since the Company's sales on certain production contracts are not recorded until product is delivered to the customer, extra effort is expended to complete and deliver product prior to fiscal year end, which has typically resulted in higher sales in the fourth fiscal quarter. 16 EXPORT SALES Export sales from the United States to unaffiliated customers for the Company were $33.2, $58.0, and $58.5 million, for fiscal year 1998, fiscal year 1997, and fiscal year 1996, respectively. EMPLOYEES As of March 31, 1998, the Company employed approximately 6,550 active employees (including approximately 1,050 employees of government-owned company-operated facilities), of which approximately 2,150 were covered by collective bargaining agreements. Set forth below is a table indicating the number of such agreements, the number of employees covered and the expiration dates of the agreements: NUMBER OF EXPIRATION NUMBER OF EMPLOYEES LOCATION CONTRACTS DATE REPRESENTED - -------- --------- ---- ----------- Rocket Center, WV............... 2 8/14/00 213 9/14/00 9 Magna, UT....................... 1 2/15/99 239 Janesville, WI.................. 1 3/21/01 356 Minneapolis, MN area............ 1 9/30/99 294 Radford, VA..................... 2 10/06/98 1,001 DeSoto, KS...................... 1 11/18/98 34 Although relations between the Company and its unionized and non-unionized employees and their various representatives are generally considered satisfactory, there can be no assurance that new labor contracts can be concluded without work stoppages. PATENTS As of March 31, 1998, the Company owned approximately 265 U.S. patents, approximately 210 foreign patents, and had approximately 55 U.S. patent applications and 100 foreign patent applications pending. Although the conduct of the Company's business involves the manufacture of various products that are covered by patents, the Company's management does not believe that any one single existing patent or license or group of patents is material to the success of its business as a whole. Management believes that research, development and engineering skills also make an important contribution to the Company's business. The U.S. Government typically receives royalty-free licenses to inventions made under U.S. Government contracts, with the Company retaining all other rights, including all commercial rights, with respect to such inventions. In addition, the Company's proprietary information is protected through the requirement that employees execute confidentiality agreements as a condition of employment, and the Company's policy of protecting proprietary information from unauthorized disclosure. ENVIRONMENTAL MATTERS The Company's operations and ownership or use of real property are subject to a number of federal, state and local environmental laws and regulations. For example, under the federal 17 Clean Water Act (CWA), the Company's facilities may be required to obtain permits and to construct pollution control equipment to reduce the levels of pollutants being discharged into surface waters. Under the federal Clean Air Act (CAA), the Company's facilities may be required to obtain permits and install pollution control equipment to limit the emission of various kinds of air pollutants. The Company may also be required to comply with the provisions of the federal Resource Conservation and Recovery Act (RCRA) which regulates the generation, storage, handling, transportation, treatment and disposal of hazardous and solid wastes. In addition, the Company could be subject to the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), which imposes liability for the cleanup of releases of hazardous substances. Such liability may involve, for example, releases at off-site locations as well as at presently and formerly owned or leased facilities. Environmental laws and regulations change frequently, and it is difficult to predict what impact these environmental laws and regulations may have on the Company in the future. When the Company becomes aware of environmental concerns for which it is potentially liable, the Company works with the various governmental agencies in investigating the situation, proposing remedial and/or corrective action and performing the agreed-upon action without unreasonable delay. To date, these environmental laws and regulations have not had a material adverse effect on the Company's results of operations or financial condition. It is difficult to predict whether and to what extent these environmental laws and regulations may impact the Company's results of operations or financial condition in the future. Due to the nature of the Company's operations, the Company is involved from time to time in legal proceedings involving remediation of environmental contamination from past or present operations or use or ownership of real property, as well as compliance with environmental requirements applicable to ongoing operations. The Company may also be subject to fines and penalties, toxic tort suits or other third party lawsuits due to its or its predecessors' present or past use of hazardous substances or the alleged contamination of the environment through past or present operations. There can be no assurance that material costs or liabilities will not be incurred in connection with any such proceedings or claims. With respect to the disposal of material at environmental treatment, recycling, storage, disposal, or similar sites that occurred prior to the Spin-off, the Company has agreed to assume the liability and indemnify Honeywell for the Company's proportional share of the costs of remedial and/or corrective action allocated to Honeywell as a "potentially responsible party." The Company's proportional share is the percentage that the volume of such material generated by the Businesses bears to the total volume of such material generated by Honeywell at each such site. The Company does not believe that its ultimate contribution or liability relating to these matters, individually or in the aggregate, would be reasonably likely to have a material adverse effect on the business of the Company taken as a whole. As part of the HAC Acquisition, the Company has generally assumed responsibility for environmental compliance at the facilities utilized by the operations acquired in the HAC Acquisition (the "Aerospace Facilities"). There may also be significant environmental remediation costs associated with the Aerospace Facilities that will, with respect to some facilities, be funded in the first instance by the Company, subject to reimbursement or indemnification as described below. Management believes that much of the compliance and remediation costs associated with the Aerospace Facilities will be reimbursable under U.S. Government contracts, and that those environmental remediation costs not covered through such contracts will be covered by Hercules 18 under agreements entered into in connection with the HAC Acquisition (the "Environmental Agreements"). Under the Environmental Agreements, Hercules has agreed to indemnify the Company for environmental conditions relating to releases or hazardous waste activities occurring prior to the closing of the HAC Acquisition, fines relating to pre-closing environmental compliance, environmental claims arising out of breaches of Hercules' representations and warranties and certain compliance requirements at the Kenvil, New Jersey facility ("Kenvil Facility"). The indemnity obligation is subject to a total deductible of $1.0 million for all claims (including non-environmental claims) that the Company may assert under the HAC Acquisition purchase agreement (the "Purchase Agreement"). In addition, Hercules is not required to indemnify the Company for any individual claims below $50,000. Hercules is obligated to indemnify the Company for the lowest cost response of remediation required at the facility. The limitations of Hercules' indemnification obligations do not apply to amounts incurred by Hercules in connection with the performance of remedial actions relating to preacquisition conditions at the Clearwater, Florida facility ("Clearwater Facility") or in connection with its obligation to comply with certain environmental regulations at the Kenvil Facility. Pursuant to the Environmental Agreements, Hercules will be responsible for conducting any remedial activities and seeking reimbursement from the U.S. Government with respect to the Kenvil Facility and the Clearwater Facility. There can be no assurance that the U.S. Government or Hercules will reimburse the Company for any particular environmental costs or reimburse the Company in a timely manner. U.S. Government reimbursements for non-CERCLA cleanups are financed out of a particular agency's operating budget. The ability of a particular governmental agency to make timely reimbursements for cleanup costs will be subject to national budgetary constraints. Where the Company is required to first conduct the remediation and then seek reimbursement from the U.S. Government or Hercules, the Company's working capital may be materially affected until the Company receives such reimbursement. YEAR 2000 COMPLIANCE The Company utilizes a significant number of computer hardware and software programs and operating systems across its entire organization, including applications used in manufacturing, product development, financial business systems and various administrative functions. To the extent that this hardware and software contains source code that is unable to appropriately interpret the upcoming calendar year 2000, some level of modification, or even replacement, of such applications will be necessary. The Company's process for becoming "Year 2000" compliant includes activities to increase awareness of the issue across the Company, assess where the Company has issues, determine proposed resolutions, validate those proposed resolutions, and finally, implement the agreed-upon resolutions. The Company has substantially completed its assessment of applications within the Company that are not Year 2000 compliant and is in varying stages of determining appropriate resolutions to the issues identified. The Company currently expects to complete all relevant internal hardware and software modifications and testing by early 1999. In addition, the Company has initiated formal communications with all of its significant suppliers and customers to determine their Year 2000 compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be converted to Year 2000 19 compliant systems in a timely manner, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. Given information known at this time about the Company's systems having such issues, coupled with the Company's ongoing, normal course-of-business efforts to upgrade or replace business critical systems and software applications, as necessary, it is currently expected that Year 2000 costs, the majority of which are expected to be incurred in fiscal year 1999, will not have an impact exceeding a range of $5-10 million on the Company's liquidity or results of operations. These costs include incremental personnel costs, consulting costs, and costs for modification of existing hardware and software. The costs of the project and the timing in which the Company believes it will complete the necessary Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee 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, 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 (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 compliance work in a timely manner could have a material adverse effect on the Company's operations. 20 ADDITIONAL INFORMATION Incorporated herein by reference are the following portions of the Annual Report: PAGE NUMBER(S) PORTION OF ANNUAL REPORT IN ANNUAL REPORT Conventional Munitions.......................................... 7-9 Space and Strategic Systems..................................... 11-13 Defense Systems................................................. 15-17 Selected Financial Data......................................... 18 Discontinued Operations......................................... 21 Contingencies--Environmental Matters............................ 23-24 Year 2000....................................................... 25-26 Risk Factors.................................................... 26 Long-Term Contracts............................................. 31 Environmental Remediation and Compliance........................ 31 Note 6 of Notes to Financial Statements......................... 33 Note 14 of Notes to Financial Statements........................ 40-41 Note 15 of Notes to Financial Statements........................ 41-42 Note 16 of Notes to Financial Statements........................ 42 Summary Business Group Descriptions (Business Overview; Sales as a Percent of Total Company Revenues; Our Customers; Our Inside Back Competitive Strengths; Our Major Programs and Products).... Cover Foldout ITEM 2. PROPERTIES At March 31, 1998, the Company occupied manufacturing/assembly, warehouse, test, research and development and office properties having an aggregate floor space of approximately 12 million square feet, which either is owned or leased by the Company, or is occupied under facilities contracts with the U.S. Government. The following table provides summary information regarding these properties, and indicates whether they are used principally by Conventional Munitions ("CM"), Defense Systems ("DS"), and/or Space and Strategic Systems ("SSS"): 21 GOVERNMENT OWNED LEASED OWNED (2) TOTAL ------- ------- ------- ------- PRINCIPAL PROPERTIES(1) (THOUSANDS OF SQUARE FEET) ----------------------- Florida Clearwater (DS) ........ -- 112 -- 112 Illinois Wilmington (CM) ........ -- -- 440 440 Iowa Burlington (CM) ........ -- 40 -- 40 Kansas DeSoto (CM) ............ -- -- 730 730 Minnesota Elk River (CM) ......... 143 -- -- 143 Hopkins (CM/DS)(3) ..... 536 -- -- 536 New Brighton (CM/DS) ... -- -- 1,522 1,522 New Jersey Totowa (CM) ............ 93 20 -- 113 Pennsylvania Horsham (DS) ........... -- 53 -- 53 Tennessee Toone (CM) ............. 224 -- -- 224 Texas Hondo (DS) ............. -- 27 -- 27 Utah Clearfield (SSS) ....... -- 606 -- 606 Magna (SSS) ............ 1,810 -- 518 2,328 Tekoi (SSS) ............ -- 25 -- 25 Virginia Radford (CM) ........... -- -- 3,809 3,809 West Virginia Rocket Center (CM) ..... 96 -- 915 1,011 Wisconsin Janesville (DS) ........ 212 -- -- 212 ------- ------- ------- ------- Subtotal .. 3,114 883 7,934 11,931 OTHER PROPERTIES(4) ------- CM/DS/SSS ..................... -- 27 -- 27 ------- ------- ------- ------- Subtotal .. -- 27 -- 27 ------- ------- ------- ------- TOTAL .................. 3,114 910 7,934 11,958 ======= ======= ======= ======= (26%) (8%) (66%) (100%) - ------------------------------------ (1) Excludes properties in the following states aggregating 276,100 square feet of space that is owned or leased, but is no longer occupied by the Company: Colorado (265,000 owned square feet, 170,100 square feet of which is leased); and Virginia (11,100 leased square feet, which is subleased). (2) These properties are occupied rent-free under five-year facilities contracts that require the Company to pay for all utilities, services, and maintenance costs. 22 (3) This facility also serves as the Company's corporate headquarters. (4) Principally sales and other offices, each of which has less than 10,000 square feet of floor space. In addition to the properties listed above, the Company owns proving grounds totaling 3,045 acres, with several small storage and testing buildings, in Elk River, Minnesota, and 1,200 acres of undeveloped land in Hot Springs, South Dakota. The Company leases an aggregate of 1,400 acres of land in Socorro, New Mexico for use as a test range and load-assemble-and-pack facilty, and 27 acres of land in Hondo, Texas for use as an airstrip for flight testing. Since the Spin-off, the Company has implemented a significant program of consolidating its operations and facilities, due in part to an underutilization of facilities. The Company continues to explore opportunities for further facility consolidations. The Company considers its properties to be in generally good condition and adequate for the needs of its business. Incorporated herein by reference are the following portions of the Annual Report: PAGE NUMBER(S) PORTION OF ANNUAL REPORT IN ANNUAL REPORT Restructuring and Facility Closure Charges..................... 20 Property and Depreciation...................................... 31 Note 4 of Notes to Financial Statements........................ 32 Note 11 of Notes to Financial Statements....................... 37 Note 12 of Notes to Financial Statements....................... 37 Facilities and Offices......................................... 47 ITEM 3. LEGAL PROCEEDINGS At the time of its acquisition, HAC was involved in two lawsuits alleging violations of the False Claims Act (known as "QUI TAM" actions) brought by former employees who had been subject to a HAC reduction-in-force. The first QUI TAM action captioned UNITED STATES EX REL., KATHERINE A. COLUNGA, ET. AL. V. HERCULES INCORPORATED (the "Colunga Case") was filed in the U.S. District Court for the District of Utah, Central Division. The first complaint was filed under seal on October 24, 1989. The second amended complaint was filed on April 16, 1992. With respect to the first QUI TAM action, the alleged false claims appear to be principally based on an allegedly deficient quality control program. Hercules' management has advised the Company that it does not believe that alleged recordkeeping violations provide a valid basis for statutory penalties when viewing the integrity of the overall quality control process. The second QUI TAM action captioned UNITED STATES EX REL., BENNY D. HULLINGER, ET. AL. V. HERCULES INCORPORATED was filed under seal in the U.S. District Court for the District of Utah, Central Division. The original complaint was filed under seal on March 11, 1992, and removed from under seal on August 15, 1994. The first amended complaint was filed on November 9, 1994. The complaint alleges various causes of action, including labor and material mischarging and misuse of special tooling and government property. Damages are not specified. The U.S. Government investigated both QUI TAM cases and declined to take part in either lawsuit. 23 Pursuant to the terms of the Purchase Agreement, all liability associated with and all responsibility for continuing defense of litigation incurred in the ordinary course of business of HAC has been assumed by the Company, except for the QUI TAM lawsuits described above. In addition, pursuant to the terms of the Purchase Agreement, the Company has agreed to indemnify and reimburse Hercules for a portion of the claims arising out of, relating to, or incurred in connection with Hercules' QUI TAM lawsuits. Specifically, the Company has agreed to indemnify and reimburse Hercules for a portion of the claims (collectively, the "Litigation Claims") arising out of, relating to, or incurred in connection with the above HAC QUI TAM actions (collectively, the "Hercules Actions"). On May 15, 1998, Hercules announced an agreement to settle the Colunga Case, subject to Court approval. The Company's liability to Hercules for the Litigation Claims (other than with respect to Litigation Claims consisting of external attorney's and investigative fees and related costs and expenses (collectively, the "Legal Costs")) is limited to approximately $4 million. The Company also has agreed to reimburse Hercules for 40 percent of all Legal Costs incurred from and after the closing of the HAC Acquisition with respect to the Hercules Actions. The Company and Hercules have also entered into a Joint Defense Agreement with respect to the Hercules Actions. In March 1997 the Company received a partially unsealed complaint, filed on an unknown date, in a QUI TAM action by a former employee alleging violations of the False Claims Act. The action alleges labor mischarging to the Intermediate Nuclear Force ("INF") contract and other contracts at the Company's Bacchus Works facility in Magna, Utah. Damages are not specified. The Company and Hercules have agreed to share equally the external attorney's fees and investigative fees and related costs and expenses of this action until such time as a determination is made as to the applicability of the indemnification provisions of the Purchase Agreement. 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 relator's attorney's fees of $150,000 each, which amounts were paid in April 1998. As a result of this settlement, the Department of Justice will not intervene in the remaining portion of the complaint. The Company is a defendant in a patent infringement captioned THIOKOL CORPORATION (NOW KNOWN AS CORDANT TECHNOLOGIES INC.) VS. ALLIANT TECHSYSTEMS INC. AND HERCULES INCORPORATED, which was filed in the U.S. District Court for the District of Delaware on November 15, 1995, and which the Company believes is without merit. The plaintiff alleges that the rocket motor insulation used by the Company in certain rocket motors infringes a patent owned by the plaintiff. The complaint seeks trebling of any damages that may be awarded based upon an allegation of deliberate and willful infringement. The complaint does not quantify the amount of damages sought. Through an analysis of an October 27, 1997 court filing, the Company believes that, based upon an economist's expert testimony, the plaintiff 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 Company's motion for summary judgment in the case was denied by the court, which 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 for several months. In the judgment of the Company's 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. 24 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 is also a defendant in other suits and claims, some of which are covered by insurance, and in other investigations of varying natures. While the results of litigation and other proceedings cannot be predicted with certainty, in the opinion of management, the actions seeking to recover damages against the Company either are without merit, are covered by insurance and reserves, do not support any grounds for cancellation of any contract, or are not likely to materially affect the financial condition or results of operations of the Company, although the resolution of any of such matters during a specific period could have a material effect on the quarterly or annual operating results for that period. Incorporated herein by reference is the following portion of the Annual Report: PAGE NUMBER(S) PORTION OF ANNUAL REPORT IN ANNUAL REPORT Contingencies--Environmental Matters.......................... 23-24 Contingencies--Litigation..................................... 24-25 Environmental Remediation and Compliance...................... 31 Note 6 of Notes to Financial Statements....................... 33 Note 14 of Notes to Financial Statements...................... 40-41 Note 16 of Notes to Financial Statements...................... 42 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of fiscal year 1998. 25 SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their ages and positions (in each case as of June 1, 1998) are as follows:
NAME (AGE) POSITION (DATE BECAME EXECUTIVE OFFICER) Richard Schwartz (62)...... Chairman of the Board and Chief Executive Officer (January 9, 1995) Peter A. Bukowick (54)..... President and Chief Operating Officer (March 15, 1995) Robert E. Gustafson (49)... Vice President--Human Resources (July 22, 1996) Galen K. Johnson (44)...... Vice President and Treasurer (May 27, 1992) Richard N. Jowett (53)..... Vice President--Investor Relations and Public Affairs (May 11, 1998) William R. Martin (57)..... Vice President--Washington, D.C. Operations (January 8, 1996) Mark L. Mele (41).......... Vice President--Strategic Planning (May 11, 1998) Scott S. Meyers (44)....... Vice President and Chief Financial Officer (March 1, 1996) Paula J. Patineau (44)..... Vice President and Controller (January 29, 1997) Paul A. Ross (61).......... Group Vice President--Space and Strategic Systems (April 1, 1997) Don L. Sticinski (46)...... Group Vice President--Defense Systems (March 1, 1998) Nicholas G. Vlahakis (50).. Group Vice President--Conventional Munitions (December 1, 1997) Daryl L. Zimmer (55)....... Vice President and General Counsel (September 28, 1990) Charles H. Gauck (59)...... Secretary (September 28, 1990)
Each of the above individuals serves at the pleasure of the Company's Board of Directors, and is subject to reelection annually on the date of the Company's Annual Meeting of stockholders. No family relationship exists between any of the executive officers or between any of them and any director of the Company. Information regarding the five-year employment history (in each case with the Company unless otherwise indicated) of each of the executive officers is set forth below. Mr. Schwartz has been Chairman of the Board since January 1997 and Chief Executive Officer since January 1995. He also served as President from Janury 1995 until May 1998. Prior to joining the Company in January 1995, he was Executive Vice President of Hercules since January 1991 and the President of HAC since October 1989, in each case until January 1995. He also served as a director of Hercules from 1989 until January 1995. Mr. Bukowick has been President since May 1998, and Chief Operating Officer since September 1997. From April 1997 until May 1998 he served as Executive Vice President, and from March 1995 until April 1997, he was Group Vice President - Aerospace Systems. Prior to that, he was President PRO TEMPORE of HAC from January 1995 until March 1995, and Vice President, Technology of HAC from 1992 until December 1994. 26 Mr. Gustafson has held his present position since July 1996. From the Spin-off until July 1996 he served as Director of Compensation and Benefits. Mr. Johnson has been Vice President since April 1997 and Treasurer since May 1992. Mr. Jowett has held his present position since May 1998. Prior to that he was Director of Investor Relations since April 1993. Mr. Martin has held his present position since January 1996. From March 1995 until January 1996, he served as Vice President - Business Development of the Company's Aerospace Systems Group. From July 1991 until March 1995 he served as Vice President - Business Development and Washington Office Operations of HAC. Mr. Mele has held his present position since May 1998. Prior to that he was Director, Business Planning since March 1995. From February 1993 until March 1995, he served as Manager, New Product Development of HAC. Mr. Meyers has held his present position since March 1996. Prior to that, he was Executive Vice President and Chief Financial Officer of Magnavox Electronic Systems Company since January 1990. Ms. Patineau has held her present position since January 1997. From June 1996 until January 1997, she served as acting Controller. From April 1992 until July 1996, she served as Director of Financial Reporting/Accounting Services. Mr. Ross has held his present position since April 1997. From April 1995 until April 1997, he served as Vice President and General Manager, Space and Strategic Division, Aerospace systems Group. From August 1994 until March 1995, he was Vice President of Operations of HAC. Prior to joining HAC, he was employed by Rockwell International, most recently as Vice President of Production Operations, Rocketdyne Division, from June 1991 until August 1994. Mr. Sticinski has held his present position since March 1998. From April 1997 until March 1998, he served as Vice President - Operations of the Company's Space and Strategic Systems Group. From March 1995 until April 1997, he served as Vice President - Operations, Space and Strategic Division, of the Company's Aerospace Systems Group. Prior to that, he was Vice President - Titan Projects of HAC from April 1993 until March 1995. Mr. Vlahakis has held his present position since December 1997. From April 1997 until December 1997, he served as Vice President and General Manager - - Ordnance of the Company's Conventional Munitions Group. From March 1995 until April 1997, he served as Vice President and General Manager - Ordnance of the Company's Aerospace Systems Group. From 1993 until March 1995, he was Vice President and General Manager of HAC's tactical propulsion facility. From 1991 until 1993, he was Vice President of HAC's Expendable Launch Vehicle Group. Mr. Zimmer has held his present position since the Spin-off. Mr. Gauck has held his present position since the Spin-off. 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Company Common Stock is listed and traded on the New York Stock Exchange ("NYSE") under the symbol ATK. The following table sets forth the high and low sales prices of the Common Stock for each full quarterly period within the two most recent fiscal years, as reported on the NYSE Composite Tape: PERIOD HIGH LOW Fiscal year ended March 31, 1998: Quarter ended June 29, 1997..................... $52.8125 $40.50 Quarter ended September 28, 1997................ 69.00 51.4375 Quarter ended December 28, 1997................. 65.6875 53.75 Quarter ended March 31, 1998.................... 65.00 55.00 Fiscal year ended March 31, 1997: Quarter ended June 30, 1996..................... $49.125 $43.75 Quarter ended September 29, 1996................ 53.50 46.25 Quarter ended December 29, 1996................. 57.375 47.625 Quarter ended March 31, 1997.................... 54.75 42.00 The number of holders of record of Company Common Stock as of May 31, 1998, was 12,006. The Company has not, since the Spin-off, paid cash dividends. The Company's dividend policy will be reviewed by the Board of Directors of the Company at such future times as may be appropriate in light of relevant factors existing at such times, including the extent to which the payment of cash dividends may be limited by covenants contained in its bank Credit Agreement (the "Credit Agreement") and the Indenture pursuant to which its 11-3/4% Senior Subordinated Notes due 2003 (the "Notes") were issued (collectively, the "Debt Agreements"). The Credit Agreement, as amended and restated in November 1996, currently limits the aggregate sum of dividends plus certain other restricted payments incurred after March 31, 1995 to an amount equal to the sum of (i) $110 million, plus (ii) 50% of cumulative quarterly net income, as defined, after March 31, 1997. The Notes limit the Company's dividends and certain other restricted payments to an amount equal to 50% of cumulative quarterly net income, as defined, after March 31, 1995, provided that after such payments the Company's ratio of earnings (before interest, taxes, depreciation and amortization) to fixed charges equals or exceeds three to one. The Debt Agreements also prohibit dividend payments if loan defaults exist or certain financial covenant ratios are not maintained. 28 Incorporated herein by reference are the following portions of the Annual Report: PAGE NUMBER(S) PORTION OF ANNUAL REPORT IN ANNUAL REPORT Consolidated Income Statements-- Basic and diluted earnings (loss) per common and common equivalent share......................... 28 Earnings Per Share Data............................................. 32 Note 7 of Notes to Financial Statements............................. 33-34 ITEM 6. SELECTED FINANCIAL DATA Incorporated herein by reference is the following portion of the Annual Report: PAGE NUMBER(S) PORTION OF ANNUAL REPORT IN ANNUAL REPORT Selected Financial Data....................................... 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference is the following portion of the Annual Report: PAGE NUMBER(S) PORTION OF ANNUAL REPORT IN ANNUAL REPORT Management's Discussion and Analysis......................... 19-26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated herein by reference are the following portions of the Annual Report: PAGE NUMBER(S) PORTION OF ANNUAL REPORT IN ANNUAL REPORT Financial Highlights.......................................... 1 Report of Independent Auditors................................ 27 Report of Management.......................................... 27 Consolidated Income Statements................................ 28 Consolidated Balance Sheets................................... 29 Consolidated Statements of Cash Flows......................... 30 Notes to the Consolidated Financial Statements................ 31-44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 29 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the executive officers of the Company is set forth following Item 4 in Part I of this Report. The other information required by this Item will be included in the definitive proxy statement for the 1998 Annual Meeting of stockholders (the "Proxy Statement"), to be filed within 120 days after the Company's fiscal year ended March 31, 1998, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference. 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT ANNUAL REPORT PAGE FORM 10-K NUMBER(S) PAGE NUMBER 1. FINANCIAL STATEMENTS (incorporated by reference from the Annual Report): Financial Highlights............................ 1 Report of Independent Auditors.................. 27 Consolidated Income Statements.................. 28 Consolidated Balance Sheets..................... 29 Consolidated Statements of Cash Flows........... 30 Notes to the Consolidated Financial Statements.. 31-44 2. FINANCIAL STATEMENT SCHEDULES (included in this Report): Independent Auditors' Report...................................... 39 Schedules: II - Valuation Reserves.................................... 40 All schedules, other than indicated above, are omitted because of the absence of the conditions under which they are required or because the information required is shown in the financial statements or notes thereto. 3. EXHIBITS. (The following exhibits are filed with this Report unless the exhibit number is followed by an asterisk (*), in which case the exhibit is incorporated by reference from the document listed. The applicable Securities and Exchange Commission File Number is 1-10582 unless otherwise indicated. Exhibit numbers followed by a pound sign (#) identify exhibits that are either a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. Excluded from this list of exhibits, pursuant to Paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K, may be one or more instruments defining the rights of holders of long-term debt of the Registrant. The Registrant hereby agrees that it will, upon request of the Securities and Exchange Commission, furnish to the Commission a copy of any such instrument.) 31 EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 3(i).1* Restated Certificate of Incorporation, effective July 20, 1990 (Exhibit 3.1 to Amendment No. 1 to Form 10 Registration Statement filed with the Securities and Exchange Commission on July 20, 1990 (the "Form 10")). 3(i).2* Certificate of Correction, effective September 21, 1990 (Exhibit 3.1 to Registration Statement on Form S-4, File No. 33-91138, filed with the Securities and Exchange Commission on April 13, 1995 (the "Form S-4")). 3(i).3* Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant, effective September 28, 1990 (Exhibit 3.3 to the Form S-4). 3(ii)* By-Laws, as amended through May 27, 1992 (Exhibit 3.3 to Form 10-K for the fiscal year ended March 31, 1992 (the "FY92 Form 10-K")). 4.1* Form of Certificate for common stock, par value $.01 per share (Exhibit 4.1 to Amendment No. 1 to the Form 10). 4.2* Rights Agreement, dated as of September 24, 1990, between the Registrant and Manufacturers Hanover Trust Company (Exhibit 4.2 to Post-Effective Amendment No. 1 to the Form 10). 4.2.1* First Amendment to Rights Agreement, dated as of August 4, 1992, between the Registrant and Chemical Bank (successor to Manufacturers Hanover Trust Company) (Exhibit 4.2.1 to Form 10-K for the fiscal year ended March 31, 1993 (the "FY93 Form 10-K")). 4.2.2* Rescission Agreement, dated as of May 26, 1993, between the Registrant and Chemical Bank (Exhibit 4.2.2 to the FY93 Form 10-K). 4.2.3* Second Amendment to Rights Agreement, dated as of October 28, 1994, between the Registrant and Chemical Bank (Exhibit 4 to Form 8-K dated October 28, 1994 (the "October 1994 Form 8-K")). 4.3* Indenture, dated as of March 1, 1995, between the Registrant and First Bank National Association, as trustee (including a form of Initial Note) (Exhibit 4.1 to the Form S-4). 4.4* Form of Exchange Note (Exhibit 4.2 to the Form S-4). 4.5* Registration Rights Agreement, dated as of March 14, 1995, among the Registrant, the Lenders referred to therein, Morgan Guaranty Trust Company of New York, as Documentation Agent, and Chemical Bank, as Administrative Agent (Exhibit 4.3 to the Form S-4). 32 EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 4.6* Amended and Restated Credit Agreement dated as of March 15, 1995 and amended and restated as of November 14, 1996 (the "Amended and Restated Credit Agreement") among the Registrant, the Lenders referred to therein, Morgan Guaranty Trust Company of New York, as Documentation Agent, and The Chase Manhattan Bank, as Administrative Agent (including forms of Note, Assignment and Assumption Agreement, and Amended and Restated Subsidiary Guaranty Agreement (Exhibit 4 to Form 8-K dated November 14, 1996). 4.6.1* Amendment dated as of November 7, 1997 to the Amended and Restated Credit Agreement (Exhibit 4 to Form 8-K dated October 27, 1997). 4.6.2 Waiver and Amendment No. 2 dated January 29, 1998 to the Amended and Restated Credit Agreement. 4.7* Security Agreement, dated as of March 15, 1995, between the Registrant and J.P. Morgan Delaware, as Collateral Agent (without exhibits) (Exhibit 10.4 to the Form S-4). 4.8* Patent Security Agreement, dated as of March 15, 1995, between the Registrant and J.P. Morgan Delaware, as Collateral Agent (without exhibits) (Exhibit 10.5 to the Form S-4). 4.9* Pledge Agreement, dated as of March 15, 1995, between the Registrant and J.P. Morgan Delaware, as Collateral Agent (Exhibit 10.6 to the Form S-4). 4.10* Purchase Agreement, dated March 7, 1995, among the Registrant and the Initial Purchasers (Exhibit 10.37 to the Form S-4). 10.1* Distribution Agreement, dated as of September 24, 1990, between Honeywell Inc. and the Registrant (Exhibit 10.1 to Amendment No. 2 to the Form 10). 10.2* Environmental Matters Agreement, dated as of September 24, 1990, between Honeywell Inc. and the Registrant (Exhibit 10.3 to Post-Effective Amendment No. 1 to the Form 10). 10.3* Intellectual Property Agreement, dated as of September 24, 1990, between Honeywell Inc. and the Registrant (Exhibit 10.4 to Amendment No. 2 to the Form 10). 10.3.1* Amendment No. 1 to Intellectual Property Agreement, dated as of September 24, 1990 (Exhibit 10.4.1 to the FY92 Form 10-K). 10.3.2* Amendment No. 2 to Intellectual Property Agreement, dated as of September 24, 1990 (Exhibit 10.4.2 to the FY92 Form 10-K). 33 EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 10.3.3* Amendment No. 3 to Intellectual Property Agreement, dated July 30, 1992 (Exhibit 10.4.3 to Form 10-Q for the quarter ended October 3, 1993). 10.4* Tax Sharing Agreement, dated as of September 28, 1990, between Honeywell Inc. and the Registrant (Exhibit 10.5 to Amendment No. 2 to the Form 10). 10.5* Government Subpoena Agreement between Honeywell Inc. and the Registrant (Exhibit 10.11 to Amendment No. 2 to the Form 10). 10.6*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.3 to Form 10-Q for the quarter ended October 2, 1994 (the "FY95 Second Quarter Form 10-Q")). 10.6.1*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.1 to Form 10-Q for the quarter ended July 4, 1994). 10.6.2*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.35 to Form 10-K for the fiscal year ended March 31, 1996 (the "FY96 Form 10-K")). 10.6.3*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.3 to Form 10-Q for the quarter ended June 29, 1997 (the "FY98 First Quarter Form 10-Q")). 10.7*# Alliant Techsystems Inc. LSAR Option Loan Program (Exhibit 10.1 to Form 10-Q for the quarter ended December 28, 1997 (the "FY98 Third Quarter Form 10-Q")). 10.7.1*# Form of Promissory Note and Stock Pledge Agreement (Exhibit 10.2 to the FY98 Third Quarter Form 10-Q). 10.8*# Form of Indemnification Agreement between the Registrant and its directors and officers (Exhibit 10.6 to Amendment No. 1 to the Form 10). 10.9# Executive Split Dollar Life Insurance Plan. 10.9.1# Executive Life Insurance Agreement. 10.9.2# Split Dollar Life Insurance Agreement. 10.10*# Form of Retention Agreement between the Registrant and certain of its officers (Exhibit 10.18 to Amendment No. 1 to the Form 10). 10.11*# Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Appendix D to Proxy Statement, dated February 11, 1995). 10.12*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.12 to Form 10-K for the fiscal year ended December 31, 1990 (the "1990 Form 10-K")). 10.13*# Form of Employment Restrictions Agreement (Exhibit 10.13 to the 1990 Form 10-K). 34 EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 10.14*# Hercules Supplementary Employee Retirement Plan (SERP) (assumed by the Registrant as to certain of its employees) (Exhibit 10.38 to the Form S-4). 10.15*# Management Compensation Plan (Exhibit 10.14 to Amendment No. 1 to the Form 10). 10.16*# Flexible Perquisite Account description. (Exhibit 10.1 to FY95 Second Quarter Form 10-Q). 10.17*# Restricted Stock Plan for Non-Employee Directors (Exhibit 10.13 to Amendment No. 1 to Form 10). 10.17.1*# Non-Employee Restricted Stock Plan (Appendix B to Proxy Statement dated July 3, 1996). 10.17.2*# Form of Restricted Stock Agreement (Exhibit 10.2 to Form 10-Q for the quarter ended September 29, 1996). 10.18*# Deferred Fee Plan for Non-Employee Directors (as amended and restated November 24, 1992) (Exhibit 10.18 to the FY93 Form 10-K). 10.19*# Non-employee director per diem arrangement (Exhibit 10.20 to the FY92 Form 10-K). 10.20*# Income Security Plan (Exhibit 10.23 to Form 10-K for the fiscal year ended March 31, 1997 (the "FY97 Form 10-K")). 10.20.1# Trust Under Income Security Plan, dated May 4, 1998 (effective March 2, 1998), by and between the Registrant and U.S. Bank National Association. 10.21*# Form of Employment Letter Agreement, dated October 27, 1994, between the Registrant and Richard Schwartz (Exhibit 10.1 to Form 10-Q for the quarter ended January 1, 1995 (the "FY95 Third Quarter Form 10-Q")). 10.21.1*# Indemnification Agreement, dated as of October 28, 1994, between the Registrant and Richard Schwartz (Exhibit 10.2 to the FY95 Third Quarter Form 10-Q). 10.22*# Compensation Arrangement between the Registrant and Scott S. Meyers (Exhibit 10.32 to the FY96 Form 10-K). 10.23*# Arrangements with Executive (Exhibit 10 to Form 10-Q for the quarter ended December 29, 1996). 10.23.1*# Arrangement with Executive (Exhibit 10 to Form 8-K dated February 28, 1997). 10.24*# Compensation Arrangement with Arlen D. Jameson (Exhibit 10.35 to the FY97 Form 10-K). 35 EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 10.24.1*# Performance Share Agreement between the Registrant and Arlen D. Jameson (Exhibit 10.35.1 to the FY97 Form 10-K). 10.25*# Honeywell Supplementary Retirement Plan (SRP) (assumed by the Registrant as to certain of its employees) (Exhibit 10.22 to the FY92 Form 10-K). 10.26*# Honeywell Supplementary Executive Retirement Plan for Compensation in Excess of $200,000 (assumed by the Registrant as to certain of its employees (Exhibit 10.23 to FY92 Form 10-K). 10.27*# Honeywell Supplementary Executive Retirement Plan for CECP Participants (assumed by the Registrant as to certain of its employees formerly employed by Honeywell) (Exhibit 10.24 to the FY92 Form 10-K). 10.28* Purchase and Sale Agreement, dated as of October 28, 1994, between the Registrant and Hercules Incorporated (the "Purchase Agreement"), including certain exhibits and certain schedules and a list of schedules and exhibits omitted (Exhibit 2 to the October 1994 Form 8-K). 10.29* Master Amendment to Purchase Agreement, dated as of March 15, 1995, between the Registrant and Hercules Incorporated, including exhibits (Exhibit 2.2 to Form 8-K dated March 15, 1995). 10.29.1* Amendment No. 1 to Stockholder's Agreement, dated March 15, 1995, between the Registrant and Hercules Incorporated (Exhibit 10.1 to the FY98 First Quarter 10-Q). 10.30* Agreement and Confirmation Effective as of June 19, 1997 (Exhibit 10.2 to the FY98 First Quarter Form 10-Q). 10.31* Agreement dated October 24, 1997 between the Registrant and Hercules Incorporated (Exhibit 10.43 to Amendment No. 1 to Registration Statement on Form S-3, File No. 333-38775, filed with the Securities and Exchange Commission on October 31, 1997). 10.32* Asset Purchase Agreement dated as of December 22, 1996 by and between the Registrant and Hughes Aircraft Company (excluding schedules and exhibits) (Exhibit 2.1 to Form 8-K dated February 28, 1997). 10.32.1* Amendment to Asset Purchase Agreement dated February 28, 1997 by and between the Registrant and Hughes Aircraft Company (excluding schedules and exhibits) (Exhibit 2.2 to Form 8-K dated February 28, 1997). 13 Annual Report (only those portions specifically incorporated herein by reference shall be deemed filed with the Securities and Exchange Commission). 36 EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 24 Powers of Attorney. 27 Financial Data Schedule. (b) REPORTS ON FORM 8-K During the quarter ended March 31, 1998, the Company filed no reports on Form 8-K. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLIANT TECHSYSTEMS INC. Date: June 25, 1998 By /s/ Charles H. Gauck ---------------------- Charles H. Gauck Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE /s/ Richard Schwartz Director, Chairman of the Board and Chief Executive - ------------------------- Officer (Principal Executive Officer) Richard Schwartz /s/ Peter A. Bukowick Director, President and Chief Operating Officer - ------------------------- Peter A. Bukowick /s/ Scott S. Meyers Vice President and Chief Financial Officer (Principal - ------------------------- Financial Officer) Scott S. Meyers /s/ Paula J. Patineau Vice President and Controller (Principal Accounting - ------------------------- Officer) Paula J. Patineau * Director - ------------------------- Gilbert F. Decker * Director - ------------------------- Thomas L. Gossage * Director - ------------------------- Joel M. Greenblatt * Director - ------------------------- Jonathan G. Guss * Director - ------------------------- David E. Jeremiah * Director - ------------------------- Gaynor N. Kelley * Director - ------------------------- Joseph F. Mazzella * Director - ------------------------- Daniel L. Nir * Director - ------------------------- Michael T. Smith Date: June 25, 1998 *By /s/ Charles H. Gauck ------------------------------- Charles H. Gauck Attorney-in-Fact 38 INDEPENDENT AUDITORS' REPORT Alliant Techsystems Inc.: We have audited the consolidated financial statements of Alliant Techsystems Inc. and subsidiaries as of March 31, 1998 and 1997, and for each of the years ended March 31, 1998, March 31, 1997, and March 31, 1996 and have issued our report thereon dated May 11, 1998; such financial statements and report are included in your 1998 Annual Report to Stockholders (Exhibit 13) and are incorporated herein by reference. Our audit also included the financial statement schedule of Alliant Techsystems Inc., listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Minneapolis, Minnesota May 11, 1998 39 SCHEDULE II ALLIANT TECHSYSTEMS INC. VALUATION RESERVES FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS)
BALANCE BALANCE BEGINNING PURCHASED ADDITIONS CHARGED DEDUCTIONS FROM AT CLOSE OF PERIOD COMPANY TO INCOME RESERVES OF PERIOD --------- ------- --------- -------- --------- Reserves deducted from assets to which they apply--reserve for estimated loss on disposal of discontinued operations: NET ASSETS OF DISCONTINUED OPERATIONS - ------------------------------------- Year ended March 31, 1998 ... $11,126 -- -- $11,126 (1) -- ======= ======= =========== =========== ======= Year ended March 31, 1997 ... $13,700 -- -- $2,574 (1) $11,126 ======= ======= =========== =========== ======= Year ended March 31, 1996 ... -- -- $ 13,700 -- $13,700 ======= ======= =========== =========== ======= Reserves deducted from assets to which they apply--allowance for amortization of intangibles: GOODWILL -------- Year ended March 31, 1998 ... $ 7,255 -- $3,514 (2) -- $10,769 ======= ======= =========== =========== ======= Year ended March 31, 1997 ... $ 3,940 -- $3,315 (2) -- $ 7,255 ======= ======= =========== =========== ======= Year ended March 31, 1996 ... $ 621 -- $3,319 (2) -- $ 3,940 ======= ======= =========== =========== ======= DEBT ISSUANCE COSTS ------------------- Year ended March 31, 1998 ... $ 7,100 -- $1,469 (3) -- $ 8,569 ======= ======= =========== =========== ======= Year ended March 31, 1997 ... $ 2,433 -- $4,667 (3) -- $ 7,100 ======= ======= =========== =========== ======= Year ended March 31, 1996 ... -- -- $2,433 (3) -- $ 2,433 ======= ======= =========== =========== =======
Notes: (1) Represents write-off of the associated assets. (2) Represents amounts included in cost of sales. (3) Represents amounts included in interest expense. 40 ALLIANT TECHSYSTEMS INC. FORM 10-K EXHIBIT INDEX The following exhibits are filed electronically with this report unless the exhibit number is followed by an asterisk (*), in which case the exhibit is incorporated by reference from the document listed. The applicable Securities and Exchange Commission File Number is 1-10582 unless otherwise indicated. EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 3(i).1* Restated Certificate of Incorporation, effective July 20, 1990 (Exhibit 3.1 to Amendment No. 1 to Form 10 Registration Statement filed with the Securities and Exchange Commission on July 20, 1990 (the "Form 10")). 3(i).2* Certificate of Correction, effective September 21, 1990 (Exhibit 3.1 to Registration Statement on Form S-4, File No. 33-91138, filed with the Securities and Exchange Commission on April 13, 1995 (the "Form S-4")). 3(i).3* Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant, effective September 28, 1990 (Exhibit 3.3 to the Form S-4). 3(ii)* By-Laws, as amended through May 27, 1992 (Exhibit 3.3 to Form 10-K for the fiscal year ended March 31, 1992 (the "FY92 Form 10-K")). 4.1* Form of Certificate for common stock, par value $.01 per share (Exhibit 4.1 to Amendment No. 1 to the Form 10). 4.2* Rights Agreement, dated as of September 24, 1990, between the Registrant and Manufacturers Hanover Trust Company (Exhibit 4.2 to Post-Effective Amendment No. 1 to the Form 10). 4.2.1* First Amendment to Rights Agreement, dated as of August 4, 1992, between the Registrant and Chemical Bank (successor to Manufacturers Hanover Trust Company) (Exhibit 4.2.1 to Form 10-K for the fiscal year ended March 31, 1993 (the "FY93 Form 10-K")). 4.2.2* Rescission Agreement, dated as of May 26, 1993, between the Registrant and Chemical Bank (Exhibit 4.2.2 to the FY93 Form 10-K). EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 4.2.3* Second Amendment to Rights Agreement, dated as of October 28, 1994, between the Registrant and Chemical Bank (Exhibit 4 to Form 8-K dated October 28, 1994 (the "October 1994 Form 8-K")). 4.3* Indenture, dated as of March 1, 1995, between the Registrant and First Bank National Association, as trustee (including a form of Initial Note) (Exhibit 4.1 to the Form S-4). 4.4* Form of Exchange Note (Exhibit 4.2 to the Form S-4). 4.5* Registration Rights Agreement, dated as of March 14, 1995, among the Registrant, the Lenders referred to therein, Morgan Guaranty Trust Company of New York, as Documentation Agent, and Chemical Bank, as Administrative Agent (Exhibit 4.3 to the Form S-4). 4.6* Amended and Restated Credit Agreement dated as of March 15, 1995 and amended and restated as of November 14, 1996 (the "Amended and Restated Credit Agreement") among the Registrant, the Lenders referred to therein, Morgan Guaranty Trust Company of New York, as Documentation Agent, and The Chase Manhattan Bank, as Administrative Agent (including forms of Note, Assignment and Assumption Agreement, and Amended and Restated Subsidiary Guaranty Agreement (Exhibit 4 to Form 8-K dated November 14, 1996). 4.6.1* Amendment dated as of November 7, 1997 to the Amended and Restated Credit Agreement (Exhibit 4 to Form 8-K dated October 27, 1997). 4.6.2 Waiver and Amendment No. 2 dated January 29, 1998 to the Amended and Restated Credit Agreement. 4.7* Security Agreement, dated as of March 15, 1995, between the Registrant and J.P. Morgan Delaware, as Collateral Agent (without exhibits) (Exhibit 10.4 to the Form S-4). 4.8* Patent Security Agreement, dated as of March 15, 1995, between the Registrant and J.P. Morgan Delaware, as Collateral Agent (without exhibits) (Exhibit 10.5 to the Form S-4). 4.9* Pledge Agreement, dated as of March 15, 1995, between the Registrant and J.P. Morgan Delaware, as Collateral Agent (Exhibit 10.6 to the Form S-4). 4.10* Purchase Agreement, dated March 7, 1995, among the Registrant and the Initial Purchasers (Exhibit 10.37 to the Form S-4). 10.1* Distribution Agreement, dated as of September 24, 1990, between Honeywell Inc. and the Registrant (Exhibit 10.1 to Amendment No. 2 to the Form 10). EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 10.2* Environmental Matters Agreement, dated as of September 24, 1990, between Honeywell Inc. and the Registrant (Exhibit 10.3 to Post-Effective Amendment No. 1 to the Form 10). 10.3* Intellectual Property Agreement, dated as of September 24, 1990, between Honeywell Inc. and the Registrant (Exhibit 10.4 to Amendment No. 2 to the Form 10). 10.3.1* Amendment No. 1 to Intellectual Property Agreement, dated as of September 24, 1990 (Exhibit 10.4.1 to the FY92 Form 10-K). 10.3.2* Amendment No. 2 to Intellectual Property Agreement, dated as of September 24, 1990 (Exhibit 10.4.2 to the FY92 Form 10-K). 10.3.3* Amendment No. 3 to Intellectual Property Agreement, dated July 30, 1992 (Exhibit 10.4.3 to Form 10-Q for the quarter ended October 3, 1993). 10.4* Tax Sharing Agreement, dated as of September 28, 1990, between Honeywell Inc. and the Registrant (Exhibit 10.5 to Amendment No. 2 to the Form 10). 10.5* Government Subpoena Agreement between Honeywell Inc. and the Registrant (Exhibit 10.11 to Amendment No. 2 to the Form 10). 10.6*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.3 to Form 10-Q for the quarter ended October 2, 1994 (the "FY95 Second Quarter Form 10-Q")). 10.6.1*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.1 to Form 10-Q for the quarter ended July 4, 1994). 10.6.2*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.35 to Form 10-K for the fiscal year ended March 31, 1996 (the "FY96 Form 10-K")). 10.6.3*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.3 to Form 10-Q for the quarter ended June 29, 1997 (the "FY98 First Quarter Form 10-Q")). 10.7*# Alliant Techsystems Inc. LSAR Option Loan Program (Exhibit 10.1 to Form 10-Q for the quarter ended December 28, 1997 (the "FY98 Third Quarter Form 10-Q")). 10.7.1*# Form of Promissory Note and Stock Pledge Agreement (Exhibit 10.2 to the FY98 Third Quarter Form 10-Q). 10.8*# Form of Indemnification Agreement between the Registrant and its directors and officers (Exhibit 10.6 to Amendment No. 1 to the Form 10). 10.9# Executive Split Dollar Life Insurance Plan. EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 10.9.1# Executive Life Insurance Agreement. 10.9.2# Split Dollar Life Insurance Agreement. 10.10*# Form of Retention Agreement between the Registrant and certain of its officers (Exhibit 10.18 to Amendment No. 1 to the Form 10). 10.11*# Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Appendix D to Proxy Statement, dated February 11, 1995). 10.12*# Form of Non-Qualified Stock Option Agreement (Exhibit 10.12 to Form 10-K for the fiscal year ended December 31, 1990 (the "1990 Form 10-K")). 10.13*# Form of Employment Restrictions Agreement (Exhibit 10.13 to the 1990 Form 10-K). 10.14*# Hercules Supplementary Employee Retirement Plan (SERP) (assumed by the Registrant as to certain of its employees (Exhibit 10.38 to the Form S-4). 10.15*# Management Compensation Plan (Exhibit 10.14 to Amendment No. 1 to the Form 10). 10.16*# Flexible Perquisite Account description. (Exhibit 10.1 to the FY95 Second Quarter Form 10-Q). 10.17*# Restricted Stock Plan for Non-Employee Directors (Exhibit 10.13 to Amendment No. 1 to Form 10). 10.17.1*# Non-Employee Restricted Stock Plan (Appendix B to Proxy Statement dated July 3, 1996). 10.17.2*# Form of Restricted Stock Agreement (Exhibit 10.2 to Form 10-Q for the quarter ended September 29, 1996). 10.18*# Deferred Fee Plan for Non-Employee Directors (as amended and restated November 24, 1992) (Exhibit 10.18 to the FY93 Form 10-K). 10.19*# Non-employee director per diem arrangement (Exhibit 10.20 to the FY92 Form 10-K). 10.20*# Income Security Plan (Exhibit 10.23 to Form 10-K for the fiscal year ended March 31, 1997 (the "FY97 Form 10-K")). 10.20.1# Trust Under Income Security Plan, dated May 4, 1998 (effective March 2, 1998), by and between the Registrant and U.S. Bank National Association. EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 10.21*# Form of Employment Letter Agreement, dated October 27, 1994, between the Registrant and Richard Schwartz (Exhibit 10.1 to Form 10-Q for the quarter ended January 1, 1995 (the "FY95 Third Quarter Form 10-Q")). 10.21.1*# Indemnification Agreement, dated as of October 28, 1994, between the Registrant and Richard Schwartz (Exhibit 10.2 to the FY95 Third Quarter Form 10-Q). 10.22*# Compensation Arrangement between the Registrant and Scott S. Meyers (Exhibit 10.32 to the FY96 Form 10-K). 10.23*# Arrangements with Executive (Exhibit 10 to Form 10-Q for the quarter ended December 29, 1996). 10.23.1*# Arrangement with Executive (Exhibit 10 to Form 8-K dated February 28, 1997). 10.24*# Compensation Arrangement with Arlen D. Jameson (Exhibit 10.35 to the FY97 Form 10-K). 10.24.1*# Performance Share Agreement between the Registrant and Arlen D. Jameson (Exhibit 10.35.1 to the FY97 Form 10-K). 10.25*# Honeywell Supplementary Retirement Plan (SRP) (assumed by the Registrant as to certain of its employees) (Exhibit 10.22 to the FY92 Form 10-K). 10.26*# Honeywell Supplementary Executive Retirement Plan for Compensation in Excess of $200,000 (assumed by the Registrant as to certain of its employees (Exhibit 10.23 to the FY92 Form 10-K). 10.27*# Honeywell Supplementary Executive Retirement Plan for CECP Participants (assumed by the Registrant as to certain of its employees formerly employed by Honeywell) (Exhibit 10.24 to the FY92 Form 10-K). 10.28* Purchase and Sale Agreement, dated as of October 28, 1994, between the Registrant and Hercules Incorporated (the "Purchase Agreement"), including certain exhibits and certain schedules and a list of schedules and exhibits omitted (Exhibit 2 to the October 1994 Form 8-K). 10.29* Master Amendment to Purchase Agreement, dated as of March 15, 1995, between the Registrant and Hercules Incorporated, including exhibits (Exhibit 2.2 to Form 8-K dated March 15, 1995). 10.29.1* Amendment No. 1 to Stockholder's Agreement, dated March 15, 1995, between the Registrant and Hercules Incorporated (Exhibit 10.1 to the FY98 First Quarter 10-Q). EXHIBIT DESCRIPTION OF EXHIBIT (AND DOCUMENT FROM NUMBER WHICH INCORPORATED BY REFERENCE, IF APPLICABLE) 10.30* Agreement and Confirmation Effective as of June 19, 1997 (Exhibit 10.2 to the FY98 First Quarter Form 10-Q). 10.31* Agreement dated October 24, 1997 between the Registrant and Hercules Incorporated (Exhibit 10.43 to Amendment No. 1 to Registration Statement on Form S-3, File No. 333-38775, filed with the Securities and Exchange Commission on October 31, 1997). 10.32* Asset Purchase Agreement dated as of December 22, 1996 by and between the Registrant and Hughes Aircraft Company (excluding schedules and exhibits) (Exhibit 2.1 to Form 8-K dated February 28, 1997). 10.32.1* Amendment to Asset Purchase Agreement dated February 28, 1997 by and between the Registrant and Hughes Aircraft Company (excluding schedules and exhibits) (Exhibit 2.2 to Form 8-K dated February 28, 1997). 13 Annual Report (only those portions specifically incorporated herein by reference shall be deemed filed with the Securities and Exchange Commission). 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 24 Powers of Attorney. 27 Financial Data Schedule. EX-4.6.2 2 WAIVER & AMENDMENT NO.2 RESTATED CREDIT AGREEMENT Exhibit 4.6.2 WAIVER AND AMENDMENT NO. 2 January 29, 1998 Morgan Guaranty Trust Company of New York, as Documentation Agent under the Credit Agreement referred to below 60 Wall Street New York, NY 10260 Ladies and Gentlemen: The undersigned refers to the Amended and Restated Credit Agreement dated as of March 15, 1995 and amended and restated as of November 14, 1996 (as amended and restated, and as further amended to the date hereof, the "Credit Agreement") among Alliant Techsystems Inc. (the "Borrower"), the lenders parties thereto (the "lenders"), Morgan Guaranty Trust Company of New York, as Documentation Agent"), and The Chase Manhattan Bank, as Administrative Agent. Capitalized terms used but not defined herein are used as defined in the Credit Agreement. 1. The Borrower is intending to consummate an Asset Sale substantially on the terms described in Exhibit A attached hereto (such sale, to the extent consummated substantially on such terms, the "Subject Asset Sale"), and on or about the date referred to therein, which Asset Sale does not comply with the requirement set forth in clause (z) of Section 5.09(b) that not less than 80% of the consideration therefor consists solely of notes or similar debt obligations (the "Consideration Requirement"). In addition, the Borrower has requested that Section 5.10 of the Credit Agreement be modified to include as a permitted Investment the promissory note received in the Subject Asset Sale (the "Subject Asset Sale Note") or any other Asset Sale consummated in compliance with Section 5.09, as well as certain similar Investments. 2. The undersigned waives compliance with the Consideration Requirement with respect to the Subject Asset Sale, PROVIDED that the Borrower shall repay the Term Loans in an amount equal to 50% of the Net Cash Proceeds of the Subject Asset Sale (determined for this purpose to include the full principal amount of the Subject Asset Sale Note as "cash proceeds" at the time received by the Borrower" not later than March 23, 1998 and otherwise in accordance with the provisions of Section 2.08 of the Credit Agreement. The Borrower has advised the undersigned that the Borrower expects that 50% of such Net Cash Proceeds determined as described above will be approximately $1,500,000. To the extent that the payment referred to in the second preceding sentence is made, such payment shall constitute satisfaction of the Borrower's obligation to make payments in respect of the Subject Asset Sale pursuant to Section 2.08 of the Credit Agreement, and the undersigned waives any requirement that the Borrower be required to make any subsequent payment pursuant to Section 2.08 of the Credit Agreement with respect to Net Cash Proceeds of the Subject Asset Sale Note. 3. The undersigned agrees that Section 5.10 of the Credit Agreement is amended by adding the following two new clauses thereto after clause (a) thereof (and deleting the word "and" from the end of such clause (a)): (b) Investments acquired in the form of consideration received from an Asset Sale consummated in accordance with Section 5.09(b); (c) Investments acquired as part of the settlement of litigation or claims or in satisfaction of claims made pursuant to a reorganization, bankruptcy or liquidation of a Person, or as a good faith settlement of Debt owed by a Person to the Borrower or any of its Subsidiaries; and The word "and" is also deleted from the end of clause (a) of Section 5.10 of the Credit Agreement, and existing clause (b) thereof is redesignated as clause (d) to conform to the foregoing amendments. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Waiver and Amendment becomes effective, refer to the Credit Agreement as amended hereby. 4. This Waiver and Amendment shall be effective upon receipt by the Documentation Agent of this Waiver and Amendment and other "Waiver and Amendments" to substantially the same effect, executed in counterparts, from the Required Lenders (after including the undesigned) and the Borrower. This Waiver and Amendment shall be governed by and construed in accordance with the laws of the State of New York. Morgan Guaranty Trust Company of New York By /s/ Diana H. Imhof -------------------------------- Title: VP Bank of America By /s/ Theresa A. Fontaine -------------------------------- Title: Vice President The Bank of New York By /s/ Richard A. Raffetto -------------------------------- Title: Vice President The Bank of Nova Scotia By /s/ F.C.H. Ashby -------------------------------- Title: Senior Manager Loan Operations The Chase Manhattan Bank By /s/ James B. Treger -------------------------------- Title: Vice President Citicorp USA, Inc. By /s/ W. L. Larsen -------------------------------- Title: Attorney-In-Fact Comerica By /s/ Phillip A. Coosaia -------------------------------- Title: Vice President Commerzbank Aktiengesellschaft, Chicago Branch By /s/ J. T. Shortly -------------------------------- Title: Sr.V.P. By /s/ Paul Carlan -------------------------------- Title: A.V.P. Credit Lyonnais Chicago Branch By /s/ Mary Ann Klemm -------------------------------- Title: Vice President First Bank National Association By /s/ Elliot Jaffee -------------------------------- Title: Vice President The First National Bank of Chicago By /s/ Kris Szremski -------------------------------- Title: Vice President Mellon Bank, N.A. By /s/ A. K. Marsh -------------------------------- Title: First Vice President Funds Managed by Merrill Lynch Asset Management By /s/ Gil Marchand -------------------------------- Title: Vice President The Mitsubishi Trust & Banking Corporation, Chicago Branch By /s/ Nobuo Tominaga -------------------------------- Title: Chief Manager National City Bank By /s/ Andrew J. Walshaw -------------------------------- Title: Assistant Vice President NationsBank, N.A. By /s/ Valerie C. Mills -------------------------------- Title: Sr. Vice President The Sumitomo Bank Ltd. By /s/ John H. Kemper -------------------------------- Title: Senior Vice President Van Kampen American Capital Prime Rate Income Trust By /s/ Jeffrey W. Maillet -------------------------------- Title: Sr. Vice Pres. & Director Alliant Techsystems Inc. By /s/ Galen K. Johnson --------------------------------- Title: VP/Treasurer Exhibit A Intentionally omitted. EX-10.9 3 EXECUTIVE SPLIT DOLLAR LIFE INSURANCE Exhibit 10.9 ALLIANT TECHSYSTEMS INC. EXECUTIVE SPLIT DOLLAR LIFE INSURANCE PLAN The information in this summary is not intended to be advice for specific investment, tax, accounting, or legal matters. This summary brochure is offered for your convenience only, and if it differs from the policy or contracts, the policy or contracts prevail. Please consult your personal tax and/or legal advisor before applying any of this information to your particular circumstances. INTRODUCTION Alliant Techsystems Inc. ("the Company") has implemented an Executive Split Dollar Life Insurance Plan for certain key executives. You have been selected as one of the employees eligible to participant in this plan. This plan replaces any other executive life insurance arrangements previously in effect. The Company will still provide you with a basic level of coverage through the Company's group life insurance plan. This coverage will be the greater of the following two amounts: 1) $50,000, or 2) the amount which when added to the coverage provided under this Executive Life Insurance Plan would equal one and one-half times your benefits base. Furthermore, your participation in this plan will not affect any supplemental life insurance coverage that you may have elected through the Company's group life insurance plan. You may continue that coverage under the same terms and conditions that currently apply to all salaried employees. The Company is pleased to include this benefit in your Executive Compensation portfolio. The official policy is available in the Executive Compensation department for your review. This summary is offered for your convenience only, and if it differs from the policy or contracts, the policy or contracts prevail. While the Company has agreed to offer you this benefit, doing so does not imply or create a contract of employment. Your benefit may be continued, changed or eliminated in the future at the Company's sole discretion. Although the Company intends this plan to continue into the future, the Company reserves the right to amend, terminate, or change the plan at any time. PLAN OVERVIEW Under this plan, a life insurance policy is purchased for you by the Company which provides a substantial death benefit to your beneficiary(s) should you die during employment with the Company. In addition, the ownership and cash surrender value of the policy may be transferred to you at retirement, subject to your continued employment until retirement and the terms described herein. This is a split dollar life insurance plan, which simply means that the costs and benefits are shared between you and the Company. While actively employed, the Company, as owner of the policy, pays the premiums required for your coverage. You designate a beneficiary(s) for the death benefit; with such beneficiary(s) eligible to receive the stated death benefit should you die while employed before reaching retirement. You may change your beneficiary(s) at any time. Because of the complexities of estate planning, you should seek professional tax and legal advice before naming or changing your beneficiary(s). Your share of the cost during your employment is the tax on the imputed income resulting from the Company's payment of the annual premiums. This imputed income is known as the PS58 cost, and is discussed in a following section of this summary. The Company will provide you with an annual statement showing the amount of imputed income and tax withholding. At retirement, assuming you have at least 5 years of service and retire under terms mutually agreeable to you and the Company, the life insurance policy and the policy's cash surrender value will be transferred to you. The Company may also provide you with an additional payment to cover the income tax resulting from this gift. After retirement, you will own the policy and have the option to continue the coverage, withdraw the policy's cash value to supplement income, or some combination of the above. If you leave employment with less than five years of service or prior to retirement, or under circumstances not mutually agreeable to you and the Company, the Company may, at its sole discretion, transfer ownership of the policy to you. However, the Company will retain all cash value and will not make any additional premium payments. EMPLOYEE BENEFIT BENEFIT AMOUNT For specific information regarding the life insurance purchased on your life, please refer to your personalized benefit insert accompanying this summary. The Company's payments cover your insurance costs, while also providing an accumulating cash value for paid up life insurance after you retire. According to the plan, the Company will make premium payments while you are employed until you reach age 60.1 This plan is designed so that the coverage amount remains in effect until age 70, then drops to 2/3 of the covered amount from age 70 to approximately age 95, at which time coverage ends. However, the actual coverage amount and age at which coverage ends may be altered by you following retirement. Any cost for increased coverage after retirement is your obligation. TRANSFER OF POLICY UPON TERMINATION OF EMPLOYMENT Should you retire after age 55 with at least 5 years of service, and under mutually agreeable circumstances, the life insurance policy will be delivered to you with the full cash surrender value accrued at that time. Depending on your age and years of service at the time of retirement, further premium payments may be required from you if you wish to keep the policy inforce as - -------- 1 For those employees over age 55 at the time of initial participation, this age may be past 60. Please refer to your customized benefit insert for more information regarding your specific benefit. designed after your retirement. In particular, should you retire before age 601, further premium payments will be necessary to sustain the policy as originally designed. If your employment should be terminated by you or the Company for any reason, even after reaching age 55 with 5 or more years of credited service, there is no requirement for the Company to deliver the policy or the cash surrender value to you. However the Company may, at its sole discretion, direct the policy and/or the accumulated cash surrender value to you. In addition, should you leave employment with less than five years of service, or at any time under circumstances not mutually agreeable to you and the Company, the Company may, at its sole discretion, transfer ownership of the policy to you. However, the Company will retain all cash value and make no further payments. RETIREMENT OPTIONS RETIREMENT OPTIONS Upon your retirement, after completing 5 years of service and assuming mutually agreeable terms, ownership of the life insurance policy and its cash surrender value will be transferred to you. If you retire after age 60, based on current interest rate assumptions, it is expected, but not guaranteed, that sufficient funds will then have accumulated in the policy to provide continued insurance, with no further annual premiums required. However, a retirement prior to the completion of all planned premium payments will result in a reduced cash surrender value and subsequent benefit duration. In addition, the amount and duration of the post-retirement coverage will depend on your age, the actual amount of cash value in the policy, and other economic and interest rate factors that may change over time. Please refer to your personalized benefit insert to determine the number of planned payments to be made for your policy, and the age at which your premium payments are projected to be complete. Your options at retirement include the following: 1) Maintain insurance coverage as originally designed. This includes keeping the full face value to age 70 and then dropping it to 2/3 of original value at age 70. Based on interest rate assumptions at policy issue, your policy is projected, but not guaranteed, to remain inforce until age 95; 2) Access the policy's cash surrender value through withdrawals and/or loans to supplement retirement income. Please note that this option may reduce the face amount of the policy and/or shorten the coverage period; 3) Keep the coverage at full value past age 70 by paying additional premiums; 4) Increase coverage beyond the original face value by providing proof of insurability and paying additional premiums; - -------- 1 For those employees over age 55 at the time of initial participation, this age may be past 60. Please refer to your customized benefit insert for more information regarding your specific benefit. 5) A combination of the above. IMPORTANT INFORMATION MEDICAL EXAM In order for the Company to purchase an insurance policy on your life, you must first fulfill any and all underwriting requirements as needed by the insurance carrier. These requirements may include (but are not limited to) a medical examination, a health screening, and a review of medical records. All results of any such exams or medical reviews will be kept strictly confidential. PS58 TAX ISSUES Although the Company is paying the premiums for the insurance on your behalf, you will be taxed on the policy's "economic benefit". This benefit is the value of the insurance coverage provided by the Company, also known as the PS58 cost. The tax on this PS58 cost is your responsibility. When your policy is issued, your projected annual PS58 costs will be communicated to you. For active employees, the Company will update your W-2 records and ratably withhold the appropriate amount from your salary paychecks to pay the taxes due on the PS58 cost. For employees who are no longer active, but still have imputable income, a form 1099-R may be issued. This form will require filing with your annual tax return. GROSS-UP PAYMENT TO COVER TAXES OWED AT RETIREMENT At retirement after at least five years of service, assuming terms mutually agreeable to you and the Company, your policy and accumulated cash surrender value will be transferred to you. This cash value gift is taxable. To assist you with this tax burden, the Company may provide you with a one time gross-up payment to cover the taxes resulting from this gift. ADMINISTRATION Questions on this plan may be addressed to the Alliant Techsystems Executive Compensation department at (612) 931-5753, or may be directed to: Nevin Executive Benefits 100 Washington Square, Suite 1200 Minneapolis, MN 55401 (612) 343-2526 EX-10.9.1 4 EXECUTIVE LIFE INSURANCE AGREEMENT Exhibit 10.9.1 EXECUTIVE LIFE INSURANCE AGREEMENT 1. INTRODUCTION It is the consensus of the Board of Directors of Alliant Techsystems Inc. that you have provided valuable services to the Corporation in the past. Your experience, your knowledge of the affairs of the Corporation, and your demonstrated skills have made you a valued employee. For these reasons, the Board of Directors desires to provide you with the following benefit, should you remain an employee as specified in this Agreement. 2. DEFINITIONS A. Corporation Corporation refers to Alliant Techsystems Inc. B. Agreement Agreement refers to this Executive Life Insurance Agreement between the Corporation and you. C. You/Your You/your refers to [NAME]. 3. ELIGIBILITY FOR THE BENEFIT If you terminate employment with the Corporation for any reason prior to reaching age 55 and completing at least five (5) years of Credited Service as defined in the Alliant Techsystems Inc. Aerospace Pension Plan, you are not entitled to a benefit pursuant to this Agreement. If you are age 55 or older, have completed five (5) years of Credited Service as defined in the Alliant Techsystems Inc. Aerospace Pension Plan, and terminate employment with the Corporation prior to retirement, you are not entitled to receive a benefit pursuant to this Agreement. The Corporation may, however, at its sole discretion, decide to provide you with a benefit pursuant to this Agreement. If you are age 55 or older, have completed five (5) years of Credited Service as defined in the Alliant Techsystems Inc. [Aerospace] Pension Plan, and retire from employment with the Corporation under terms mutually agreeable to you and the Corporation, you are entitled to receive a benefit pursuant to this Agreement at retirement. Eligibility for the benefits provided under this Agreement shall be determined as of the first date your service for the Corporation is terminated. 4. BENEFIT The benefit is equal to the cash surrender value of the life insurance policy, disregarding any loans or encumbrances placed on the Policy by the Corporation, purchased by the Corporation on your life pursuant to the Split Dollar Life Insurance Agreement between you and the Corporation. Ownership of the life insurance policy may be transferred to you instead of a cash payment. You may then choose to continue the life insurance policy, take a retirement income from the policy's cash surrender value, a combination of both, or surrender the policy. 5. TERMINATION OF AGREEMENT A. Without Notice This Agreement shall terminate, without notice, upon the occurrence of any of the following events: (1) Total cessation of the business of the Corporation; (2) The bankruptcy, receivership, or dissolution of the Corporation; (3) Performance of the terms of this Agreement following your separation from service; (4) Your death at a time when the terms of the Split Dollar Life Insurance Agreement between you and the Corporation is in effect; or (5) Your separation from service under circumstances that do not entitle you to a benefit under this Agreement. B. With Notice In addition, either party may terminate this Agreement unilaterally and without cause, by written notice to the other party of such intent to terminate the Agreement. Such termination shall be effective as of the date specified in such notice. 6. AMENDMENT OR TERMINATION AFTER A CHANGE OF CONTROL Notwithstanding anything herein to the contrary, the Corporation reserves the right to amend the provisions of the Agreement and to terminate the Agreement at any time prior to the date of a Change of Control. During the three (3) years following the date of a Change of Control, the provisions of this Agreement may not be amended if the amendment would adversely affect your rights, expectancies, or benefits under this Agreement (as in effect immediately prior to the Change of Control) unless the amendment is consented to in writing by you. The Agreement may be terminated at any time during this three (3) year period if and only if such termination is consented to in writing by you. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the benefits and/or assets of the Corporation to assume expressly all of the liabilities and obligations of the Agreement. For the purpose of this Agreement, a "Change of Control" shall mean any of the following events: (a) the acquisition by any person or group of beneficial ownership of 20% or more of either the then outstanding stock or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, except that (I) no such person or group shall be deemed to own beneficially (1) any securities acquired directly from the Corporation pursuant to a written agreement with the Corporation, or (2) any securities held by the Corporation or a subsidiary (as defined below) or any employee benefit plan (or any related trust) of the Corporation or a subsidiary (as defined below), and (II) no Change of Control shall be deemed to have occurred solely by reason of any such acquisition by a corporation with respect to which, after such acquisition, more than 60% of both the then outstanding common shares of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors are then beneficially owned, directly or indirectly, by the persons who were the beneficial owners of the stock and voting securities of the Corporation immediately before such acquisition, of the then outstanding stock and the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, as the case may be; (b) individuals who, as the date hereof, constitute the board of directors of the Corporation (the "Incumbent Directors") cease for any reason to constitute at least a majority of the board of directors of the Corporation; provided that any individual who becomes a director after the date hereof whose election, or nomination for election by the Corporation's stockholders was approved by a vote or written consent of at least two-thirds of the directors then comprising the Incumbent Directors shall be considered as though such individual were an Incumbent Director, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 under the Securities Exchange Act of 1934, as amended ("1934 Act"); or (c) approval by the stockholders of the Corporation of (I) a merger, reorganization or consolidation with respect to which the individuals and entities who were the respective beneficial owners of the stock and voting securities of the Corporation immediately before such merger, reorganization or consolidation do not, after such merger, reorganization or consolidation, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding common shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Corporation resulting from such merger, reorganization or consolidation, (II) a liquidation or dissolution of the Corporation or (III) the sale or other disposition of all or substantially all of the assets of the Corporation. For purposes of this definition, "person" means such term as used in Securities Exchange Commission ("SEC") Rule 13d-5(b) under the 1934 Act; "beneficial owner" means such term as defined in SEC Rule 13d-3 under the 1934 Act; "group" means such term as defined in Section 13(d) of the 1934 Act; "subsidiary" means a corporation as defined in Section 425(f) of the Internal Revenue Code of 1986, as amended ("Code") with the Corporation being treated as the employer corporation for purposes of this definition of subsidiary; and "stock" means the common stock of the Corporation, par value $.01, or any other common stock that the Corporation may issue from time to time. 7. FUNDING The Corporation's obligation under this Agreement shall not be funded. Its obligation shall be a general, unsecured obligation of the Corporation. If the Corporation should at any time decide to obtain Corporate-owned insurance or annuities on your life, you agree to submit to medical exams, to sign documents, and to furnish any information or documents which the insurance company may require. Nothing in this section shall be construed as giving you or any other claimant any interest in any such insurance or annuity. 8. ASSIGNMENT Assignment of any or all of the rights or benefits provided under this Agreement, or of any or all of the rights or benefits provided under the Split Dollar Life Insurance Agreement between you and the Corporation has significant tax consequences. Therefore, unless otherwise agreed to in writing by the Corporation, you shall not have the right to assign any right or benefit provided by this Agreement, and any attempt to do so shall be void. 9. CLAIMS PROCEDURE A. Filing of a claim for benefits. A claim for the benefits provided under the policy and this Agreement may be made by contacting the administrative assistant for Alliant Techsystems Inc. at the following location: Nevin Executive Benefits 100 Washington Square Suite 1200 Minneapolis, MN 55401 (612) 343-2526 Nevin Executive Benefits shall contact Northwestern Mutual Life Insurance Company (Insurer) and take all reasonable and necessary actions to assist you or your beneficiary in filing a claim. B. Claim denial. With respect to a claim for benefits under said policy, the Insurer shall be the entity which reviews and makes decisions on claim denials according to the terms of the policy. C. Notification to claimant of decisions. Within ninety (90) days after the filing of a claim, the Insurer shall notify the claimant in writing (meeting the requirements of Section 9D hereafter), whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing the specific circumstances requiring a specified amount of additional time (but not more than one hundred eighty (180) days from the date the claim was filed) to reach a decision on the claim. D. Content of notice. The Insurer shall provide, to any claimant who is denied a claim for benefits, written notice setting forth, in a manner calculated to be understood by the claimant, the following: 1) The specific reason or reasons for the denial; 2) Specific reference to pertinent policy provision or provisions of this Agreement on which the denial is based; 3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and 4) An explanation of the Agreement's claim review procedure, as set forth in Sections 9E and 9F following. E. Review procedure. The purpose of the review procedure set forth in this Section 9E and Section 9F, following, is to provide a method by which a claimant under the policy may have a reasonable opportunity to appeal a denial of claim for a full and fair review. To accomplish that purpose, the claimant or his/her duly authorized representative: 1) May request a review upon written application to the Insurer; 2) May review pertinent policy and Agreement documentation; and 3) May submit issues and comments in writing. A claimant or duly authorized representative shall request a review by filing a written application for review at any time within sixty (60) days after receipt by the claimant of written notice of the denial of the claim. F. Decision on review. A decision on review of a denial of claim shall be made in the following manner: 1) The decision on review shall be made by the Insurer, which may, in its discretion, hold a hearing on the denied claim. The Insurer shall make its decision promptly, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review. 2) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and include specific references to the pertinent policy or provisions of the Agreement on which the decision is based. 10. EMPLOYMENT RIGHTS This Agreement shall not be construed to be a contract of employment. No provision of this Agreement shall restrict the right of the Corporation to terminate your employment. 11. FRINGE BENEFIT ONLY The benefit provided by this Agreement is a fringe benefit only. You have no option to take cash from the Corporation in lieu of this benefit. This benefit is not being provided in lieu of a raise or bonus, or as part of a salary reduction program. This benefit shall not be treated as compensation for purposes of any retirement plan of the Corporation. 12. NO EFFECT ON OTHER COMPENSATION PLANS The benefit provided hereunder shall be in addition to your annual salary and shall not affect your right to participate in any current or future Corporation retirement plan, or in any supplemental compensation arrangement which constitutes a part of the Corporation's regular compensation structure. 13. AMENDMENT The provisions of this Agreement may only be amended on written agreement between you and the Corporation. 14. CONSTRUCTION This Agreement shall be interpreted under the laws of the State of Minnesota. ALLIANT TECHSYSTEMS INC. The _____ day of _________, 19____. ______________________________ Vice President Human Resources The _____ day of _________, 19____. ______________________________ [NAME] EX-10.9.2 5 SPLIT DOLLAR LIFE INSURANCE AGREEMENT Exhibit 10.9.2 SPLIT DOLLAR LIFE INSURANCE AGREEMENT THIS AGREEMENT, made and entered into this ___ day of ________, 1998, by and between Alliant Techsystems Inc., a Delaware corporation, with principal offices and place of business in the State of Minnesota (hereinafter referred to as the "Corporation"), and [NAME], an individual residing in the State of Minnesota (hereinafter referred to as the "Employee"), WITNESSETH THAT: WHEREAS, the Employee is a valued employee of the Corporation; and WHEREAS, the Corporation, wishes to assist the Employee with his (or her) personal life insurance program; and WHEREAS, the Employee wishes to provide life insurance protection for his (or her) family in the event of his (or her) death, under a policy of life insurance insuring his (or her) life (hereinafter referred to as the "Policy"), which is described in Exhibit A attached hereto and by this reference made a part hereof, and which is issued by Northwestern Mutual Life Insurance Company (hereinafter referred to as the "Insurer"); and WHEREAS, the Corporation is willing to pay a portion of the premiums due on the Policy as an additional employment benefit for the Employee, on the terms and conditions hereinafter set forth; and WHEREAS, the Corporation is the owner of the Policy and, as such, possesses all incidents of ownership in and to the Policy; and WHEREAS, the Corporation wishes to retain such ownership rights, in order to secure the repayment of the amounts which it will pay toward the cash surrender value on the Policy; NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. POLICY OWNERSHIP The Corporation shall purchase the Policy from the Insurer in the total face amount of [$000,000]. The parties hereto agree that they will take all necessary action to cause the Insurer to issue the Policy, and shall take any further action which may be necessary to cause the Policy to conform to the provisions of this Agreement. The parties hereto agree that the Policy shall be subject to the terms and conditions of this Agreement, of the Executive Life Insurance Agreement between the parties, and of the endorsement to the Policy filed with the Insurer. The Corporation shall be the sole and absolute owner of the Policy, and may exercise all ownership rights granted to the owner thereof by the terms of the Policy, except as may otherwise be provided herein. 2. BENEFICIARY DESIGNATION A. Corporation Contemporaneously with the execution of this Agreement, the Corporation has executed a corporate beneficiary designation for the Policy, under the form used by the Insurer for such designations, in order to secure the Corporation's recovery of the amount described in Section 3 hereunder. The parties hereto agree to take all action necessary to cause such Corporate beneficiary designation to conform to the provisions of this Agreement. B. Employee The Employee may select the beneficiary(ies) to receive the portion of policy proceeds to which the Employee is entitled hereunder, by specifying the same in a written notice to the Corporation on the form provided by the Corporation (Exhibit C). Upon receipt of such notice, the Corporation shall execute and deliver to the Insurer the forms necessary to designate the requested person(s) as the beneficiary(ies), to receive the death proceeds of the Policy in excess of the amount to which the Corporation is entitled hereunder. The parties hereto agree to take all action necessary to cause such Employee beneficiary designation to conform to the provision of this Agreement. The Corporation shall not terminate, alter or amend such Employee beneficiary designation without the express written consent of the Employee. 3. PAYMENT OF POLICY PROCEEDS A. Corporation As long as this Agreement remains in effect, the Corporation shall have the unqualified right to receive a portion of such Policy equal to the Policy's cash surrender value as of the date of the Employee's death, reduced by any indebtedness against the Policy existing at the death of the Employee (including any interest due on such indebtedness). B. Employee's Beneficiary As long as this Agreement remains in effect, the death benefit provided under the Policy, if any, shall be paid directly to the Employee's beneficiary or beneficiaries designated by the Corporation at the direction of the Employee, in the manner and in the amount or amounts provided in the beneficiary designation provision of the Policy. C. Limitations In no event shall the amount payable to the Corporation hereunder exceed the Policy proceeds payable at the death of the Employee. No amount shall be paid from such death benefit to the Employee's beneficiary or beneficiaries designated by the Corporation at the direction of the Employee, until the full amount due the Corporation hereunder has been paid. The parties hereto agree that the beneficiary designation provision of the Policy shall conform to the provisions hereof. It is understood that, while the Employee is employed by the Corporation, the Corporation will make premium payments until the Employee attains age 60. No further payments will be made by the Corporation after that time. The amount of benefit available subsequent to the Employee reaching age 60 will be determined by the actual investment experience in the Policy, however based on current investment projections and mortality tables, sufficient funds should have accumulated to provide full face value of the death benefit up to age 70, and 2/3rds of this amount until age 95, at which point the policy would cease to exit. 4. SETTLEMENT OPTION The Corporation and the Employee's beneficiary may select a settlement option as provided in the Policy at the time of distribution. 5. CHOICE OF DIVIDEND OPTION(S) To the extent the Insurer declares dividends on the Policy, the Corporation shall have the right to choose the option or combination of options it desires from among those offered by the Insurer. The Corporation shall notify the Insurer of its choice. 6. PREMIUM PAYMENT On or before the due date of each Policy premium, or within the grace period provided therein, the Corporation shall pay the full amount to the Insurer. 7. NOTICE TO EMPLOYEE OF TAXABLE COST The Insurer shall furnish Nevin Executive Benefits and Nevin Executive Benefits shall furnish the Corporation an annual report which shall include a statement of the amount of income reportable by the Employee for Federal and State income tax purposes, as a result of the Corporation's payment of the Policy premium. The Insurer has represented to the Corporation that it shall use the Insurer's published rates for individual, initial issue, one-year term policies for determining the taxable amounts to be included in income by the Employee and to be deducted by the Corporation. The Insurer has further represented that such rates are in full compliance with all Internal Revenue Service regulations and/or rulings regarding its intended use by the Employee and the Corporation under this Agreement. The Corporation shall use this information to determine proper withholdings and tax treatment. 8. PROCEDURE AT EMPLOYEE'S DEATH Upon the death of the Employee, while the Policy and this Agreement are in force, the Corporation shall promptly take all reasonable action requested by the Employee's beneficiary(ies), to obtain their portion of the death benefit provided under the Policy. 9. LOANS The Corporation may pledge or assign the Policy, subject to the terms and conditions of this Agreement, for the sole purpose of securing a loan from the Insurer or from a third party. The amount of such loan, including accumulated interest thereon, shall not exceed the lesser of (I) the amount of the premiums on the Policy paid by the Corporation hereunder, or (II) the cash surrender value of the Policy (as determined by the Insurer) as of the date to which premiums have been paid. Interest charges on such loan shall be paid by the Corporation. If the Corporation so encumbers the Policy, other than by a policy loan from the Insurer, then, upon the death of the Employee or upon the election of the Employee hereunder to purchase the Policy from the Corporation, the Corporation shall promptly take all action necessary to secure the release or discharge of such encumbrance. 10. TERMINATION OF AGREEMENT A. Without Notice This Agreement shall terminate, without notice, upon the occurrence of any of the following events: 1) the total cessation of the business of the Corporation; 2) the bankruptcy, receivership or dissolution of the Corporation; 3) performance of the Agreement's terms following the death of the Employee; or 4) the Employee's separation from service of the Corporation. B. With Notice In addition, either party may terminate this Agreement unilaterally and without cause, by written notice to the other party of such intent to terminate the Agreement. Such termination shall be effective as of the date specified in such notice. C. Coincident with the Termination of the Executive Life Insurance Agreement At the termination of this Agreement, the Executive Life Insurance Agreement between the parties shall also terminate unless otherwise agreed to by the Corporation. 11. AMENDMENT OR TERMINATION AFTER A CHANGE OF CONTROL Notwithstanding anything herein to the contrary, the Corporation reserves the right to amend the provisions of the Agreement and to terminate the Agreement at any time prior to the date of a Change of Control. During the three (3) years following the date of a Change of Control, the provisions of this Agreement may not be amended if the amendment would adversely affect the rights, expectancies, or benefits of the Employee, or his or her assignee, or his or her beneficiary under this Agreement (as in effect immediately prior to the Change of Control) unless the amendment is consented to in writing by the Employee or his or her assignee. The Agreement may be terminated at any time during this three (3) year period if and only if such termination is consented to in writing by the Employee or his or her assignee. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the benefits and/or assets of the Corporation to assume expressly all of the liabilities and obligations of the Agreement. For the purpose of this Agreement, a "Change of Control" shall mean any of the following events: (a) the acquisition by any person or group of beneficial ownership of 20% or more of either the then outstanding stock or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, except that (I) no such person or group shall be deemed to own beneficially (1) any securities acquired directly from the Corporation pursuant to a written agreement with the Corporation, or (2) any securities held by the Corporation or a subsidiary (as defined below) or any employee benefit plan (or any related trust) of the Corporation or a subsidiary (as defined below), and (II) no Change of Control shall be deemed to have occurred solely by reason of any such acquisition by a corporation with respect to which, after such acquisition, more than 60% of both the then outstanding common shares of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors are then beneficially owned, directly or indirectly, by the persons who were the beneficial owners of the stock and voting securities of the Corporation immediately before such acquisition, of the then outstanding stock and the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, as the case may be; (b) individuals who, as the date hereof, constitute the board of directors of the Corporation (the "Incumbent Directors") cease for any reason to constitute at least a majority of the board of directors of the Corporation; provided that any individual who becomes a director after the date hereof whose election, or nomination for election by the Corporation's stockholders was approved by a vote or written consent of at least two-thirds of the directors then comprising the Incumbent Directors shall be considered as though such individual were an Incumbent Director, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 under the Securities Exchange Act of 1934, as amended ("1934 Act"); or (c) approval by the stockholders of the Corporation of (I) a merger, reorganization or consolidation with respect to which the individuals and entities who were the respective beneficial owners of the stock and voting securities of the Corporation immediately before such merger, reorganization or consolidation do not, after such merger, reorganization or consolidation, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding common shares and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Corporation resulting from such merger, reorganization or consolidation, (II) a liquidation or dissolution of the Corporation or (III) the sale or other disposition of all or substantially all of the assets of the Corporation. For purposes of this definition, "person" means such term as used in Securities Exchange Commission ("SEC") Rule 13d-5(b) under the 1934 Act; "beneficial owner" means such term as defined in SEC Rule 13d-3 under the 1934 Act; "group" means such term as defined in Section 13(d) of the 1934 Act; "subsidiary" means a corporation as defined in Section 425(f) of the Internal Revenue Code of 1986, as amended ("Code") with the Corporation being treated as the employer corporation for purposes of this definition of subsidiary; and "stock" means the common stock of the Corporation, par value $.01, or any other common stock that the Corporation may issue from time to time. 12. DISPOSITION OF POLICY UPON TERMINATION OF AGREEMENT For thirty (30) days after the date of the termination of this Agreement, the Employee shall have the assignable option to purchase the Policy from the Corporation. The purchase price for the Policy shall be an amount equal to the cash surrender value, including dividend accumulations and the cash value of dividend additions existing in the Policy at the end of the period of which premiums have been paid. If the Policy shall then be encumbered by assignment, policy loan, or otherwise, the Corporation shall either remove such encumbrance, or reduce the sale price to the Employee by the total amount of indebtedness outstanding against the Policy. Upon receipt of such amount, the Corporation shall transfer all of its rights, title and interest in and to the Policy to the Employee or his or her assignee, by the execution and delivery of an appropriate instrument of transfer. If the Employee or his or her assignee fails to exercise such option within such thirty (30) day period, then the Corporation may enforce its right to be repaid for the cash surrender value which it paid hereunder by surrendering or canceling the Policy for its cash surrender value, or it may change the beneficiary designation provisions of the Policy, naming itself or any other person or entity as revocable beneficiary thereof, or exercise any other ownership rights in and to the Policy, without regard to the provisions thereof. Thereafter, neither the Employee, his or her assignee nor their heirs, assigns or beneficiaries shall have any further interest in and to the Policy, either under the terms thereof or under this Agreement. 13. EMPLOYEE'S RIGHT TO ASSIGN INTEREST Assignment of any or all of the rights or benefits provided under this Agreement or of any or all of the rights or benefits provided under the Executive Life Insurance Agreement between the parties has significant tax consequences. Therefore, unless otherwise agreed to in writing by the Corporation, the Employee shall not assign any right or benefit provided under this Agreement and any attempt to do so shall be void. Upon written consent of the Corporation, an assignment shall be exercisable by the execution and delivery to the Corporation of a written assignment, in substantially the form attached hereto as Exhibit B, which shall be attached to the Agreement and by this reference is made a part hereof. Upon receipt of such written assignment, executed by the Employee, and duly accepted by the assignee thereof, the Corporation shall consent thereto in writing, and shall thereafter treat the Employee's assignee as the sole owner of all the Employee's right, title and interest in and to this Agreement, the Policy and the Executive Life Insurance Agreement between the parties. Thereafter, the Employee shall have no right, title or interest in and to this Agreement, the Policy, or the Executive Life Insurance Agreement between the parties, all such rights being vested in and exercisable only by such assignee. 14. CLAIMS PROCEDURE A. Filing of a claim for benefits. The beneficiary of the Policy shall make a claim for the benefits provided under the Policy and this Agreement by contacting the administrative assistant for Alliant Techsystems Inc. at the following location: Nevin Executive Benefits 100 Washington Square Suite 1200 Minneapolis, MN 55401 (612) 343-2526 Nevin Executive Benefits shall contact the Insurer and take all reasonable and necessary actions to assist the beneficiary of the Policy under this Agreement in filing a claim. B. Claim denial. With respect to a claim for benefits under said Policy, the Insurer shall be the entity which reviews and makes decisions on claim denials according to the terms of the Policy. C. Notification to claimant of decisions. Within ninety (90) days after the filing of a claim, the Insurer shall notify the claimant in writing (meeting the requirements of Section 16D hereafter), whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing the specific circumstances requiring a specified amount of additional time (but not more than one hundred eighty (180) days from the date the claim was filed) to reach a decision on the claim. D. Content of notice. The Insurer shall provide, to any claimant who is denied a claim for benefits, written notice setting forth, in a manner calculated to be understood by the claimant, the following: 1) The specific reason or reasons for the denial; 2) Specific reference to pertinent Policy provision or provisions of this agreement on which the denial is based; 3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and 4) An explanation of the Agreement's claim review procedure, as set forth in Sections 16E and 16F following. E. REVIEW PROCEDURE. The purpose of the review procedure set forth in this Section 16E and Section 16F, following, is to provide a method by which a claimant under the Policy may have a reasonable opportunity to appeal a denial of claim for a full and fair review. To accomplish that purpose, the claimant or his/her duly authorized representative: 1) May request a review upon written application to the Insurer; 2) May review pertinent Policy and Agreement documentation as provided in Section 22; and 3) May submit issues and comments in writing. A claimant or duly authorized representative shall request a review by filing a written application for review at any time within sixty (60) days after receipt by the claimant of written notice of the denial of the claim. F. DECISION ON REVIEW. A decision on review of a denial of claim shall be made in the following manner: 1) The decision on review shall be made by the Insurer, which may, in its discretion, hold a hearing on the denied claim. The Insurer shall make its decision promptly, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review. 2) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and include specific references to the pertinent Policy or provisions of the agreement on which the decision is based. 15. AMENDMENT This Agreement may not be amended, altered or modified, except by a written instrument signed by the parties hereto, or their respective successors or assigns, and may not be otherwise terminated except as provided herein. 16. CONTINUATION The Agreement shall be binding upon and inure to the benefit of the Corporation and its successors and assigns, and the Employee, his or her successors, assigns, heirs, executors, administrators and beneficiaries. 17. NOTICE Any notice, consent or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States mail, postage prepaid, addressed to such party's last known address as shown on the records of the Corporation. The date of such mailing shall be deemed the date of notice, consent or demand. 18. GOVERNING LAWS This agreement, and the rights of the parties hereunder, shall be governed by and construed in accordance with the laws of the State of Minnesota. 19. NO CONTRACT OF EMPLOYMENT Neither the terms of this Agreement nor the benefits provided hereunder nor the continuance thereof shall be a contract of employment for any employee, and the Corporation shall not be obligated to continue this Agreement. The terms of this Agreement shall not give any employee the right to be retained in the employment of the Corporation. 20. HEADINGS Headings at the beginning of sections are for convenience of reference, shall not be considered part of this Agreement, and shall not influence its construction. The provisions of this Agreement shall be construed as a whole in such manner as to carry out the provisions thereof and shall not be construed separately without relation to the context. Notwithstanding anything to the contrary, if any provision of this Agreement shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Agreement. 21. INSURER This Insurer is located and may be contacted at the following address: Northwestern Mutual Life Insurance Company 720 East Wisconsin Avenue Milwaukee, WI 53202 (414) 271-1444 22. POLICY REVIEW A copy of the Policy and this Agreement may be reviewed by the Employee, his or her beneficiary(ies) or his or her assignees during normal working hours at the following address: Alliant Techsystems Inc. 600 Second Street Northeast Hopkins, MN 55343 A copy of the Policy and this Agreement may be obtained by the Employee, his or her beneficiary(ies) or his or her assignee at a reasonable cost to such person. 23. FRINGE BENEFIT ONLY The benefit provided by this Agreement is a fringe benefit only. The Employee has no option to take cash from the Corporation in lieu of this benefit. This benefit is not being provided in lieu of a raise or bonus, or as part of a salary reduction program. This benefit shall not be treated as compensation for purposes of any retirement plan of the Corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in duplicate, as of the day and year first above written. ALLIANT TECHSYSTEMS INC. By ------------------------------ Vice President Human Resources ------------------------------ [NAME] EXHIBIT A THE FOLLOWING LIFE INSURANCE POLICY IS SUBJECT TO THE ATTACHED SPLIT DOLLAR LIFE INSURANCE AGREEMENT: Insurer ____________________________________________________ Insured ____________________________________________________ Policy Number ____________________________________________________ Face Amount ____________________________________________________ Dividend Option ____________________________________________________ Date of Issue ____________________________________________________ EXHIBIT B IRREVOCABLE ASSIGNMENT OF SPLIT DOLLAR LIFE INSURANCE AGREEMENT AND EXECUTIVE LIFE INSURANCE AGREEMENTS THIS ASSIGNMENT, dated this ________ day of _____________, 19____, WITNESS THAT: WHEREAS, the undersigned (the "Assignor") is the Employee party to that certain Split Dollar Life Insurance Agreement and Executive Life Insurance Agreement (the "Agreements"), dated as of __________________, by and between the undersigned and Alliant Techsystems, Inc. (the "Corporation"), which Agreements confer upon the undersigned certain rights and benefits with regard to one or more policies of insurance insuring the Assignor's life; and WHEREAS, pursuant to the provisions of said Agreements, the Assignor retained the right, exercisable after written consent of the Corporation by the execution and delivery to the Corporation of a written form of assignment, to absolutely and irrevocably assign all of the Assignor's right, title, and interest in and to said Agreements; and the policies of insurance insuring the Assignor's life; to an assignee; WHEREAS, the Assignor desires to exercise said right; and WHEREAS, the Corporation, by signing this instrument consents to such assignment; NOW, THEREFORE, the Assignor, without consideration, and intending to make a gift, hereby absolutely and irrevocably assigns, gives, grants, and transfer to __________________________, (the "Assignee") all of the Assignor's right, title and interest in and to the Agreements, and said policies of insurance intending that, from and after this date, the Agreements be solely between the Corporation and the Assignee and that hereafter, the Assignor shall neither have nor retain any right, title, or interest therein. ------------------------------ Assignor ACCEPTANCE OF ASSIGNMENT The undersigned Assignee hereby accepts the above assignment of all right, title, and interest of the Assignor therein in and to the Agreements and the policies of insurance on the life of the Assignor, by and between such Assignor and the Corporation, and the undersigned hereby agrees to be bound by all of the terms and conditions of said Agreements, and policies of life insurance on the life of the Assignor, as if the original employee party thereto. ------------------------------ Assignee Dated: _________________ CONSENT TO ASSIGNMENT The undersigned Corporation hereby consents to the foregoing assignment of all of the right, title, and interest of the Assignor in and to the Agreement the policies of insurance on the life of the Assignor, by and between the Assignor and the Corporation, to the Assignee designated therein. The undersigned Corporation hereby agrees that, from and after the date hereof, the undersigned Corporation shall look solely to such Assignee for the performance of all obligations under said Agreements, and policies of insurance on the life of the Assignor where were heretofore the responsibility of the Assignor to be exercised only by said Assignee, and shall hereafter treat said Assignee in all respects as if the original employee party thereto. ------------------------------ By ------------------------------ Secretary, Board of Directors Dated: _____________ EX-10.20.1 6 TRUST UNDER INCOME SECURITY PLAN Exhibit 10.20.1 TRUST UNDER ALLIANT TECHSYSTEMS INC. INCOME SECURITY PLAN THIS AGREEMENT, made this fourth day of May, 1998, by and between ALLIANT TECHSYSTEMS INC., a Delaware corporation ("Company") and U.S. BANK NATIONAL ASSOCIATION ("Trustee"). WITNESSETH: WHEREAS, Company has adopted the Alliant Techsystems Inc. Income Security Plan ("Plan"); and WHEREAS, Company has incurred or expects to incur liability under the terms of such Plan with respect to the individuals participating in such Plan ("Plan participants" or "participants"); and WHEREAS, Company wishes to establish a trust (hereinafter called "Trust") and to contribute to the Trust assets that shall be held therein, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan; and WHEREAS, it is the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan. NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment of Trust (a) Company shall from time to time make deposits in cash or cash equivalents with Trustee in trust, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. The Trust shall be established and maintained as a revocable "grantor trust" within the meaning of Section 671 and following of the Internal Revenue Code of 1986, as amended. (b) The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Plan participants and beneficiaries. (c) Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or cash equivalents in trust with Trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. Section 2. Payments to Plan Participants and Their Beneficiaries and Tax Determinations (a) Company shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that (i) provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, (ii) the form in which such amount is to be paid (as provided for or available under the Plan), and (iii) the time of commencement for payment of such amounts. Company may revise any such Payment Schedule to reflect adjustments to payments required or permitted under the terms of the Plan. Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule or revised Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Company. In addition, to the extent that Company contributions to the Trust result in the imposition of federal, state or local taxes to be paid by a participant, Trustee shall determine such tax amounts for each participant and inform Company of such determination. It is Company's intention, pursuant to the terms of the Plan, that no amount shall be vested with respect to a participant until there has been a Change of Control as defined herein, and the participant has sustained a Qualifying Termination, as defined in the Plan. (b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. Section 3. Trustee Investment Authority (a) Trustee shall have the power and authority provided under Chapter 501B of the Minnesota Statutes, as amended, or its successor provisions, to invest and reinvest, without distinction between principal and income, the assets of the Trust. In no event, however, may Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by Company, other than a DE MINIMIS amount held in common investment vehicles (including mutual funds for which Trustee or any affiliate of Trustee serves as investment advisor, custodian or other service provider) in which Trustee invests. All rights associated with assets of the Trust shall be exercised by Trustee or the other person designated by Trustee, and shall in no event be exercisable by or rest with Plan participants. (b) Assets of the Trust may be invested and reinvested by Trustee in any real or personal property as an ordinary prudent investor of intelligence and integrity would purchase in an exercise of reasonable care, judgment and diligence, including, but merely by way of illustration: (1) bonds, mortgages, notes, debentures, equipment trust certificates, interest in investment trusts, shares of stock, whether common or preferred, shares of regulated investment companies (i.e., mutual funds, including mutual funds for which Trustee or any affiliate of Trustee serves as investment advisor, custodian or other service provider as disclosed in the current mutual fund prospectus to be provided to Company), leasehold interest, real estate, money market securities, such insurance company group annuity or other insurance contracts as Company may specify, and any other property which it may deem suitable; (2) commingling funds of the Trust with those of other funds with respect to which Trustee is acting in a fiduciary capacity and to retaining any such investment coming into its possession as Trustee: (3) commingling funds of the Trust with any common trust funds maintained by Trustee or any affiliate thereof; (4) depositing any portion of the trust fund in bank accounts, certificates of deposit, time deposit open accounts and other similar investments which bear a reasonable rate of interest, in the banking department of any bank or trust company, including the banking department of Trustee or of any affiliate thereof; (5) retaining in cash or other investments which are unproductive of income so much of the Trust fund as it may deem advisable (e.g., Trust assets pending investment or disbursement) which may include retention of trust assets in noninterest-bearing accounts in the banking department of Trustee or any affiliate thereof; (6) retaining the entire or a substantial part of the principal in any shares or other interest in assets used to initially fund the Trust or to sell all or any part of the interest. Trustee is authorized to retain this interest without liability for failure to sell the interest even though the retention may result in lack of diversification or the interest is not the character or quality of investment permitted by law for Trustee. Section 4 Disposition of Income During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 5 Accounting by Trustee Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Within 60 days following the close of each calendar year and within 45 days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 6. Responsibility of Trustee (a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Company. In the event of a dispute between Company and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) If Trustee undertakes or defends any litigation arising in connection with the Trust, Company agrees to indemnity Trustee against Trustee's costs, expenses and liabilities (including, without limitation, attorney's fees and expenses) relating thereto and to be primarily liable for such payments. If Company does not pay such costs, expenses and liabilities in a reasonably timely manner, Trustee may obtain payment form the Trust. (c) Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder. (d) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (e) Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. Section 7. Compensation and Expenses of Trustee Company shall pay all administrative expenses and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. Section 8. Resignation and Removal of Trustee (a) Trustee may resign at any time by written notice to Company, which shall be effective 30 days after receipt of such notice unless Company and Trustee agree otherwise. (b) Trustee may be removed by Company on 30-days notice or upon shorter notice accepted by Trustee. (c) If Trustee resigns or is removed following a Change of Control, as defined herein, Company shall apply to a court of competent jurisdiction for the appointment of a successor Trustee or for instructions. (d) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to a successor Trustee. The transfer shall be completed within 45 days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. (e) If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 9 hereof, by the effective date of resignation or removal under paragraph (a) or (b) of this section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 9. Appointment of Successor (a) If Trustee resigns or is removed in accordance with Section 8(a) or (b) hereof, Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer. (b) If Trustee resigns or is removed pursuant to the provisions of Section 8(c) hereof and if, pursuant to court direction, the Trustee is granted discretion to select a successor Trustee, Trustee may appoint any third party such as a bank trust department or other party that may be granted corporate trustee powers under state or Federal law. The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. The new Trustee shall have all the rights and powers of the former Trustee, including ownership rights in Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer. Section 10. Amendment or Termination (a) This Trust Agreement may be amended by a written instrument executed by Trustee and Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan. (b) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust, any assets remaining in the Trust shall be returned to the Company. (c) Upon written approval of at least 80% of the participants (or beneficiaries in the case of participants who have died) entitled or potentially entitled to benefits pursuant to the terms of the Plan, Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to Company. (d) Notwithstanding any other provision of the Plan or the Trust, the Company shall be entitled to withdraw from the Trust and have returned to it any amount in excess of 120% of the amount that is the maximum liability for the payment of benefits under the Plan (as determined annually), provided that the amount remaining in the Trust shall never be reduced to an amount less than 25% of the amount of the Company contribution for the first year of the Trust, and 50% of the contribution in any subsequent year. Section 11. Miscellaneous (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. (d) For purposes of this Trust, a "Change of Control" shall mean (1) the acquisition by any "person" or group of persons (a "Person"), as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended and the regulations thereunder (the "Exchange Act") (other than the Company or a Subsidiary or any Company employee benefit plan (including its trustee)) of "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing, directly or indirectly, more than fifty percent (50%) of the total number of shares of the Company's then outstanding Voting Securities; (2) consummation of a reorganization, merger or consolidation of the Company, or the sale or other disposition of all or substantially all of the Company's assets (a "Business Combination"), in each case, unless, following such Business Combination, the individuals and entities who were the beneficial owners of the total number of shares of the Company's outstanding Voting Securities immediately prior to both (x) such Business Combination, and (y) any Change Event occurring within twelve (12) months prior to such Business Combination, beneficially own, directly or indirectly, more than fifty percent (50%) of the total number of shares of the outstanding Voting Securities of the resulting corporation, or the acquiring corporation, as the case may be, immediately following such Business Combination (including, without limitation, the outstanding Voting Securities of any corporation, which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the total number of shares of the Company's outstanding Voting Securities; or (3) any other circumstances (whether or not following a "Change Event") which the Board determines to be a Change of Control for purposes of this Trust after giving due consideration to the nature of the circumstances then represented and the purposes of this Trust. Any determination made under this Subsection (d)(3) shall be irrevocable except by vote of a majority of the members of the Board who voted in favor of making such determination. For purposes of this Subsection (d), a "Change of Control" shall not result from any transaction precipitated by the Company's Insolvency, appointment of a conservator, or determination by a regulatory agency that the Company is insolvent. (e) "Change Event" shall mean: (1) the acquisition after the effective date of this Trust, by any Person (other than the Company or a Subsidiary, or any Company employee benefit plan (including its trustee)) of "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company directly or indirectly representing fifteen percent (15%) or more of the total number of shares of the Company's then outstanding Voting Securities (excluding the sale or issuance of such securities directly by the Company, or where the acquisition of such securities is made by such Person from five (5) or fewer shareholders in a transaction or transactions approved in advance by the Board); (2) the public announcement by any Person of an intention to acquire the Company through a tender offer, exchange offer, or other unsolicited proposal; or (3) the individual who, as of the effective date of this Trust Agreement, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that if the nomination for election of any new director was approved by a vote of a majority of the Incumbent Board, such new director shall, for the purposes of this definition, be considered a member of the Incumbent Board. (f) "Voting Securities" shall mean any share of the capital stock or other securities of the Company that are generally entitled to vote in elections for directors. Section 12. Effective Date The effective date of this Trust Agreement shall be March 2, 1998. IN WITNESS WHEREOF, the parties have executed this Agreement as of this 4th day of May 1998. COMPANY: TRUSTEE: ALLIANT TECHSYSTEMS INC. U. S. BANK NATIONAL ASSOCIATION By: /S/ Richard Schwartz By: /S/ M. R. Braun -------------------------------- --------------------------- Its: Chairman of the Board Its: Vice President President, and CEO EX-13 7 ANNUAL REPORT [LOGO OF ALLIANT TECHSYSTEMS APPEARS HERE] BUILDING VALUE . Best value for our customers . Opportunities for our employees . Superior returns for our owners 1998 Annual Report Our building block approach to growing earnings per share at an average annual rate of 15 percent combines revenue growth, margin improvement, and strategic cash deployment.
- ----------------------------------------------------------------------------------------------------------------------- Our Building Blocks Our Strategies - ----------------------------------------------------------------------------------------------------------------------- Cash Flow Reinvestment Reinvest cash in strategic mergers and acquisitions, share repurchases, and internal investments to increase shareholder value. - ----------------------------------------------------------------------------------------------------------------------- Debt Repayment Reduce interest expense and improve financial and strategic flexibility. - ----------------------------------------------------------------------------------------------------------------------- Margin Improvement Increase margins to over 10 percent through overhead reductions, facilities consolidation, process control, and strong operations teams. - ----------------------------------------------------------------------------------------------------------------------- Composite Structures Capitalize on world-class fiber placement production capabilities to take advantage of strong demand for lightweight, high-performance materials for aircraft, satellites, space launch vehicles, and weapons systems. - ----------------------------------------------------------------------------------------------------------------------- Upside Program Opportunities Capture key upside program opportunities that will add significantly to revenues in the future. - ----------------------------------------------------------------------------------------------------------------------- Core Business Leverage safe operations, repeatable products, customer relationships, world-class facilities, and talented employees to strengthen and broaden our core business base. - -----------------------------------------------------------------------------------------------------------------------
---------------------------- Financial Highlights ----------------------------
Amounts in thousands except per share data (Years Ended March 31) 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Sales $1,075,506 $1,089,397 Change in accounting estimate - Environmental liabilities/1/ - 17,442 Income from continuing operations 67,958 36,659 Income from discontinued operations, net of income tax/2/ - 4,819 Gain on disposal of discontinued operations, net of income tax/2/ 225 17,681 Net income 68,183 59,159 - --------------------------------------------------------------------------------------------------------------------------- Basic earnings per common share: Continuing operations excluding environmental charge 5.21 4.12 Environmental charge/1/ - (1.30) Continuing operations 5.21 2.82 Discontinued operations .02 1.73 Basic earnings per common share 5.23 4.55 - --------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share: Continuing operations excluding environmental charge 5.08 4.03 Environmental charge/1/ - (1.30) Continuing operations 5.08 2.73 Discontinued operations .02 1.68 Diluted earnings per common share 5.10 4.41 - --------------------------------------------------------------------------------------------------------------------------- Depreciation and amortization 47,517 52,721 Cash provided by operations 62,969 92,110 Capital expenditures 20,406 28,522 - --------------------------------------------------------------------------------------------------------------------------- Total assets 932,180 1,000,588 Total debt to total capitalization 43% 55% - --------------------------------------------------------------------------------------------------------------------------- Common shares outstanding 12,855,511 13,081,538 Number of employees 6,550 6,800 - ---------------------------------------------------------------------------------------------------------------------------
/1/Reflects the impact of the adoption in fiscal 1997 of the Statement of Position 96-1 "Environmental Remediation Liabilities." See Note 16 to the financial statements. /2/Reflects the results of discontinued operations and the related gain (loss) on disposition of those operations. See Note 15 to the financial statements. - -------------------------------------------------------------------------------- Alliant Techsystems 1 [PHOTO APPEARS HERE] Peter A. Bukowick Scott S. Meyers Richard Schwartz President and Vice President and Chairman and Chief Operating Officer Chief Financial Officer Chief Executive Officer - -------------------------------------------------------------------------------- To Our Shareholders - -------------------------------------------------------------------------------- Three years ago, your new board of directors and management team made a commitment to improve the performance of your company. Our immediate goal was to increase operating margins to the 8-10 percent range. We have reached our goal in each of the last three years. This has been accomplished by an Alliant/customer team committed to high-quality products that deliver consistent performance at an affordable price. The Alliant Way demands sound designs that produce the most repeatable products in the industry. There can be no compromise. Soldiers' lives depend on our munitions. Communications satellites count on our space boosters. And national strategic deterrence relies on our rocket motors. This passion for process control provides a direct benefit to our shareholders. High product yields and improved program performance add up to increased margins and new contract awards. At the start of fiscal year 1998, we raised our performance bar for the next five years by setting a goal to grow earnings per share at an average annual rate of 15 percent. We established a building block approach to earnings growth that combines revenue growth, margin improvement, and strategic cash deployment to achieve our goal. Fiscal year 1998 was also a year of fine tuning our strategies. In the future, we will seek to minimize direct competition with the three major Department of Defense prime contractors, and will instead, expand our role with them in those areas where we have core competencies. ---------------------------- Fiscal Year 1998 Performance ---------------------------- I am pleased to report outstanding success in our first year of performance against these challenging goals. Our performance could only have been accomplished with Alliant people that I believe make up the best team in the aerospace and defense industry. They are committed to delivering excellent technical performance, proactive program management, the most repeatable products in the industry, and superior financial results. Earnings per share from continuing operations in fiscal year 1998 rose 26 percent to $5.08 from $4.03 a year ago, which excludes a one-time charge to adopt revised environmental accounting rules. Net earnings - -------------------------------------------------------------------------------- 2 Alliant Techsystems - -------------------------------------------------------------------------------- were up 16 percent to $5.10 per share from $4.41 per share, which included income from discontinued operations of $1.68. Our growth in earnings per share was accomplished by improving operating margins, reducing interest through debt repayment, and by repurchasing our common stock. We positioned Alliant for the future with a backlog of $1.7 billion at the end of fiscal year 1998. Early in fiscal year 1999, we were awarded additional contracts from Boeing valued at approximately $750 million for propulsion on the Delta family of vehicles. Additional production options could ultimately add another $1 billion to the total value of the award. As a result, our firm backlog as of the mailing of this report is approximately $2.4 billion or 26 months of sales -- the highest in the company's history. We enter fiscal year 1999 with enthusiasm and confidence. Expanding Backlog Months of sales [BAR GRAPH APPEARS HERE] New contracts to produce solid rocket boosters for the Boeing family of Delta space launch vehicles have brought our back- log to record levels. *First quarter estimate 1993 14 1994 17 1997 17 1998 19 First Quarter 1999 Est. 26 Positive reaction to our performance and our plans for the future were reflected in our stock price during fiscal year 1998, which rose from $42 1/8 at the beginning of the year to $62 3/4 at year end. ------------------------------ Six Building Blocks for Growth ------------------------------ Vital to our success is a company-wide focus on our six building blocks for 15-percent earnings per share growth. Superior performance within each block is key to achieving our goal -- and to building best value for our customers, opportunities for our employees, and superior returns for our owners. Core Business Base We will measure our progress toward our 15-percent earnings growth goal from the $4.03 per share we earned in fiscal year 1997. The core business base that provided those earnings is expected to remain stable over the next five years. The overall Department of Defense budget has stabilized and we are now seeing projected increases in the defense procurement budget. We also see solid budget support for our core products of munitions, fuzes, and rocket motors -- all of which are fundamental to the defense of our nation. The recently awarded contracts for production of Delta solid rocket boosters strengthened our core business base significantly. They also illustrate our strategy of leveraging state-of-the-art facilities, rigorous process control, excellent customer relationships, and strong program management teams to win new business. Upside Program Opportunities In March 1998, we were selected to develop the Objective Individual Combat Weapon (OICW), a next-generation rifle that will provide 21st century soldiers with an unprecedented capability and revolutionize warfare much as the introduction of the machine gun did early in this century. During the upcoming months, we will be building OICW systems and ammunition for evaluation by the joint military services in preparation for the program's engineering and manufacturing development phase, which is set to begin in calendar year 2000. We also made excellent technical progress on the Outrider(TM) Tactical Unmanned Aerial Vehicle program, successfully demonstrating a number of key tactical operations, including fully automatic takeoff, flight, and landing. The system is currently undergoing evaluation by the U.S. Army to determine its effectiveness in tactical situations. When fielded, the Outrider will deliver real-time battlefield reconnaissance, surveillance, and target acquisition information without risking the lives of air crew members. - -------------------------------------------------------------------------------- Alliant Techsystems 3 - -------------------------------------------------------------------------------- Composite Structures Composite structures has been our fastest growing business, with sales rising at a rate of more than 40 percent annually over the past five years. Our growth will be fueled by strong demand for high-performance, lightweight materials for aircraft, satellites, space launch vehicles, and weapons systems - market segments in which we are well positioned. During fiscal year 1998, we completed development and sub-assembly of the composite fuel tanks for Lockheed Martin's X-33 Advanced Technology Demonstrator, a sub-scale prototype of the VentureStar(TM) Reusable Launch Vehicle. Other highlights included contracts to produce components for America's next-generation tactical aircraft, the Joint Strike Fighter and the F-22 Raptor. [GRAPH APPEARS HERE] Composite Structures Sales Year ($ Millions) ---- ------------ 1994 18 1995 27 1996 36 1997 50 1998 75 Sales from our composite structures business have grown at an annual rate of more than 40 percent over the past five years. Margin Improvement Our EBIT (earnings before interest and taxes) margin rate for fiscal year 1998 was 8.6 percent, up from 8.1 percent a year ago. Our goal is to raise our margin rate to over 10 percent during the next several years by reducing overhead and by improving operating efficiencies. Overhead reductions will occur through a more efficient corporate structure and by reducing the number of operating locations. Operating efficiencies will be achieved through added concentration on process control and reduction of cycle times. Facility consolidation activities begun during the past year included the move of our medium caliber ammunition integration operations from the Joliet Army Ammunition Plant in Illinois to the Radford Army Ammunition Plant in Virginia, which will consolidate our load, assemble, and pack operations and propellant production into one facility. We also began the consolidation of medium caliber production operations at the Twin Cities Army Ammunition Plant in Minnesota into a smaller number of buildings. [GRAPH APPEARS HERE] Margin Improvement Operating Profit* Year (as a percentage of Sales) 1996 9.7% 1997 8.1% 1998 8.6% We have achieved our goal to increase operating margins to the 8-10 percent range in each of the last three years. *Exclusive of non-recurring charges Debt Repayment Lower interest expense through debt repayment is an important factor in our profit formula. We have made tremendous strides in this area over the past three years, with our debt-to-total-capitalization ratio declining to 43 percent at the end of fiscal year 1998 - down from 55 percent at the end of the previous year and 72 percent two years ago. During fiscal year 1998, we repaid more than $67 million of our debt, which was the principal factor in a $9.9 million reduction in net interest expense compared to the previous year. These improvements in our balance sheet provide financial flexibility for the company and resulted in an upgrade to our debt rating during the year by Standard & Poor's Corporation. [GRAPH APPEARS HERE] Debt Repayment Debt to Book Date Capitalization 1996 72% 1997 55% 1998 43% Our debt has declined steadily over the past three years, reducing interest expense and giving us greater strategic flexibility. - -------------------------------------------------------------------------------- 4 Alliant Techsystems - -------------------------------------------------------------------------------- Cash Flow Reinvestment - -------------------------------------------------------------------------------- The strategic use of our cash for acquisitions, stock repurchases, or internal investments is fundamental to earnings growth. During the past year, we completed the acquisition of part of Motorola's military fuze business, strengthening our core competency in electronic fuzes and increasing our share of this important market. We also have reduced ownership of our stock by Hercules, Inc. from 3.86 million shares - a 30-percent holding - to 542,000 shares through a combination of a secondary offering and stock repurchases. The stock was acquired by Hercules in connection with the 1995 acquisition of Hercules Aerospace Company by Alliant. We expect to purchase the remaining shares in calendar year 1998. In addition, we bought back approximately 165,000 shares on the open market under an authorization by the Board of Directors to repurchase up to one million shares of the company's stock. The Right People in the Right Places Having the right people in the right places is fundamental to our ability to achieve our earnings growth objective. Over the past year, we have focused on strengthening our operations management team, promoting Peter Bukowick to President and Chief Operating Officer and appointing Nick Vlahakis and Don Sticinski to head our Conventional Munitions and Defense Systems groups. Each is an outstanding executive with a long track record of successfully managing programs, processes, and profitability - and delivering customer satisfaction and superior financial results. Our performance accountability system is in place across the entire company. Under this system, employees develop annual goals that support overall corporate goals. Performance evaluation and compensation are directly tied to the accomplishment of these goals. Our Board of Directors has been strengthened by the election of three new directors: Peter Bukowick; Gilbert F. Decker, former Assistant Secretary of the Army, Research, Development, and Acquisition; and Michael T. Smith, Chairman of the Board and Chief Executive Officer of Hughes Electronics Corporation. Your company will benefit significantly from their guidance and counsel. Confidence in the Future I am proud of our accomplishments during the past three years. We have significantly improved your company's profitability, built an outstanding management team, and increased the value of your investment. I recognize that your ownership of Alliant Techsystems reflects not only an appreciation of what we have accomplished - but more importantly, an expectation and confidence that we will do even better in the future. We have set a goal to grow earnings per share at an average of 15 percent per year. I am confident we can achieve our goal by increasing earnings at a strong pre-tax rate to offset the return to a full income tax rate over the next several years. We see added opportunities for revenue growth as we go forward and positive trends in each of our businesses to improve margins and generate strong cash flows. I would like to close by thanking our customers for their confidence in our products, our shareholders for their continued support, our board of directors for their guidance, and - most of all - our company team for their dedication to excellence and commitment to process control. Their talent and dedication are the reasons why I look to the future with such confidence. Sincerely, /s/ Richard Schwartz Richard Schwartz Chairman and Chief Executive Officer June 19, 1998 - -------------------------------------------------------------------------------- Alliant Techsystems 5 [PHOTO APPEARS HERE] Nick Vlahakis Group Vice President "Our employees demand that our products perform consistently because we know the lives of our soldiers and the security of our nation are at stake." - -------------------------------------------------------------------------------- Conventional Munitions - -------------------------------------------------------------------------------- Each of the 3,100 employees who work in the Conventional Munitions Group is focused on one objective: providing the men and women in our armed forces high-quality, repeatable products at an affordable price that ensure the safety and success of their mission. Whether it's ammunition, tactical missile motors and warheads, infrared flares, or composite structures, we demand that our products perform consistently because we know the lives of our soldiers and the security of our nation are at stake. Two important management disciplines are key to achieving this objective: strong employee/customer partnerships and rigorous process control. STRONG PARTNERSHIPS We are fortunate to count among our employees people with critical technical skills that are in many cases a national asset. The best way to leverage these skills is to work closely on integrated product teams with our customers in industry and government and with the military users of our systems. Integrated product teams represent what's best about defense acquisition reform because they create an attitude among the team members that says we're in this together, it's our program, and if we work together, we can make it a win-win for everyone. RIGOROUS PROCESS CONTROL To continue to succeed in our business, we must instill a passion among all our employees that our products work the same way each time they are used. There can be no substitute. It is fundamental to everything for which we strive: mission success and safety, customer satisfaction, and superior returns for our shareholders. The only way to ensure the reliability and repeatability of our products is strict adherence to rigorous process control standards. Process control is the principal management tool that drives our business. We employ it to ensure that our product designs meet program requirements and can be manufactured without variation. STRATEGIES FOR SUCCESS Our strategies for serving our customers and our shareholders are clearly defined. We are focused on partnerships, process control, margin improvement, safety, leveraging our core business, and capturing new opportunities. The talent and dedication of our employees give me great confidence that we can carry out these strategies for success. /s/ Nick Vlahakis Nick Vlahakis - -------------------------------------------------------------------------------- 6 Alliant Techsystems [PHOTO APPEARS HERE] Medium Caliber Ammunition Our medium caliber ammunition team continues to maintain its market leadership position thanks to the efforts of team members like Rich Walin and Barbara Miller (seated L-R) and Jim Stubbs, Barbara Anderson, and Martha Callander (standing L-R). During fiscal year 1998, we were awarded contracts with a combined value of $64 million to produce tactical and training rounds for use in infantry fighting vehicles, tactical aircraft, and shipboard defense systems. Our success in this market is due to talented employees and rigorous process control and safety standards, which assure the delivery of competitively priced, high-quality ammunition with consistent and repeatable performance for U.S. combat troops. [PHOTO APPEARS HERE] Tactical Missile Rocket Motors, Warheads, and Structures Operator Ronnie Beal performs automated electron beam welding of rocket motor cases for the Advanced Medium Range Air-to-Air Missile (AMRAAM) at the Allegany Ballistics Laboratory (ABL) in Rocket Center, West Virginia, headquarters for our tactical business unit. Our highly disciplined approach to manufacturing processes and safety has made us one of the world's leading suppliers of solid propulsion systems, warheads, and structures for tactical missile systems. In addition to AMRAAM, pictured below on an F-18 fighter aircraft, we supply the AIM-9X, Evolved Sea Sparrow, Maverick, Tomahawk, and TOW II missile programs to prime contractor Raytheon Missile Systems Company. The quality of our products is reflected in our selection by Raytheon as its supplier of the year in each of the past three years. We are a supplier to Lockheed Martin on the Predator and ATACMS missile programs, Boeing on the AGM-130 missile program, the Lockheed Martin/Boeing joint venture company on the Hellfire program, and the Lockheed Martin/Raytheon joint venture company on the Javelin program. ABL, a U.S. Navy-owned/Alliant-operated facility, is nearing completion of a major renovation program that has made it the world's most modern small rocket motor production facility and a center for state-of- the-art production of composite structures for weapons systems. [PHOTO OF KAREN WEAKLEY APPEARS HERE] Karen Weakley Program Manager, AMRAAM Missile [PHOTO OF F-18 AIRCRAFT WITH AMRAAM MISSILE APPEARS HERE] - -------------------------------------------------------------------------------- Alliant Techsystems ------------------------------------------ Training and Tactical Tank Ammunition ------------------------------------------ We use the combined capability of Alliant to produce repeatable training and tactical tank ammunition. Design and program management is located at Conventional Munitions headquarters in Hopkins, Minnesota. Primers are manufactured at Kilgore Operations in Toone, Tennessee, and metal parts are fabricated at Ferrulmatic Operations in Totowa, New Jersey. Propellant is produced at the Radford Army Ammunition Plant in Radford, Virginia. Pictured is analytical chemist Shelley Porter using state-of-the-art video equipment to track the consistency of MK-14 propellant grains produced at Radford. The use of these capabilities together with rigorous process control enable us to produce high-quality, low-cost products. With more than two million training and tactical rounds delivered since 1985, our tank ammunition has gained a reputation for reliability and consistent performance. Our tactical ammunition performed so effectively in Operation Desert Storm that U.S. tank crews called the round "the silver bullet." Orders in fiscal year 1998 included a $91 million contract for training rounds, bringing the total value of a four-year procurement to $333 million. [PHOTO APPEARS HERE] [PHOTO APPEARS HERE] ------------------------------------------ Infrared Decoy Flares ------------------------------------------ Kilgore Operations is the country's largest producer of infrared decoy flares used to protect aircraft such as these U.S. Marine Corps Harrier jets from heat- seeking missiles. Kilgore-produced flares also are dispensed from the F-4, F-5, F-15, and F-16 tactical fighters, the AH-64 Apache attack helicopter, and cargo and troop aircraft such as the C-130 Hercules. A major supplier of military pyrotechnics since World War II, Kilgore operates the largest infrared decoy flare production facility in the U.S. in Toone, Tennessee. Orders for infrared decoy flares totaled $36 million in fiscal year 1998. - -------------------------------------------------------------------------------- Alliant Techsystems 9 [PHOTO OF PAUL A. ROSS APPEARS HERE] Paul A. Ross Group Vice President "Our growth reflects three factors that put us head and shoulders above our competition: process control, world-class facilities, and a workforce that is second to none." - -------------------------------------------------------------------------------- Space and Strategic Systems - -------------------------------------------------------------------------------- Space and Strategic Systems experienced significant growth over the past year -- the result of three factors that put us head and shoulders above our competition: disciplined process control, world-class facilities, and a workforce that is second to none. These strengths allow us to deliver products to our customers that are highly repeatable, new program development that is the quickest in the industry, and unequaled quality at an extremely competitive price. MARKET LEADERSHIP IN SOLID PROPULSION We have become the largest supplier of solid propulsion for the commercial space launch industry - a market leadership position that is reflected in our growing backlog. With recent contracts from Boeing for additional solid boosters for the Delta family of launch vehicles, our backlog now is the highest in our history. In October 1997, we had the opportunity to be involved in the historic mission to Saturn, when our Solid Rocket Motor Upgrade (SRMU) boosters provided the first stage lift for the Lockheed Martin Titan IV B rocket that carried the Cassini/Huygens spacecraft into outer space. All in all, 176 of our motors were used in 37 flights of various space launch vehicles and strategic missiles over the past year. Every one of these motors performed flawlessly for a 100-percent mission success rate. TREMENDOUS GROWTH IN COMPOSITE STRUCTURES Our composite structures business experienced tremendous growth in fiscal year 1998 as we pioneered new applications for our lightweight, high-strength structures. Space structures include the liquid hydrogen fuel tanks for Lockheed Martin's X-33 Advanced Technology Demonstrator, a sub-scale prototype for what eventually will become the VentureStar(TM) Reusable Launch Vehicle. During the past year, we completed development and sub-assembly of the tanks. We also are producing components for two next-generation combat aircraft, the Joint Strike Fighter and the F-22 Raptor. OUR PEOPLE MAKE IT HAPPEN Our successes would not be possible without the contributions and support of our 1,800 talented and dedicated employees. Their relentless pursuit of process control and quality in all they do and their strong focus on serving our customers ensure that we will continue to deliver premier performance and ultimately greater value for our shareholders. /s/ Paul A. Ross Paul A. Ross - -------------------------------------------------------------------------------- 10 Alliant Techsystems [PHOTO APPEARS HERE] ---------------------------------------------------- Boosters for the Delta Family of Launch Vehicles ---------------------------------------------------- Members of our Delta booster team are pictured with solid rocket motors for the new Boeing Delta III space launch vehicle at our facility in Magna, Utah. Front row, L-R: Jeff Vosburgh, Lisa Gold, Jill Bohney, Bob Seirup. Middle row, L-R: Rob Richeson, Dale Giles, Steve Breivik. Back row, L-R: Travis Campbell, Delta team leader and Vice President, Commercial Launch Vehicles, Andy Jackson, Tony Kelley. Not pictured: Cindy Hikada and Marlo Stradley. Our relationship with Boeing began 12 years ago when we were selected to develop an improved booster for the Delta II. The quality and repeatability of our motors is a major reason why the Delta II is today the world's most reliable expendable launch vehicle -- and why we have been selected by Boeing to continue production of boosters for the Delta family of vehicles under long-term contracts valued at approximately $750 million. [PHOTO OF X-33 VEHICLE APPEARS HERE] [PHOTO OF MARK MESSICK APPEARS HERE] Mark Messick Program Manager, X-33 Liquid Hydrogen Tanks In fiscal year 1998, we completed the development and sub-assembly of the liquid hydrogen fuel tanks for Lockheed Martin's X-33 Advanced Technology Demonstrator. The fiber-placed composite components for the two 28-foot-long, 4,000 pound tanks, which are visible at the rear of the engineering drawing above, were fabricated at our composite structures production facilities in Clearfield and Magna, Utah. The tanks will be delivered to Lockheed Martin for final tank assembly, which is expected to be completed in the summer of 1998. We also will produce the composite fuel tanks for the Lockheed Martin VentureStar(TM) Reusable Launch Vehicle, the full-scale version of the X-33 and America's next- generation space shuttle. Graphite epoxy composite material was selected for the fuel tanks to reduce the weight of the vehicle. In addition to spacecraft, we are producing composite components for commercial and military airplanes, including next-generation combat aircraft. With sales rising at an average annual rate of 40 percent over the past five years, composite structures has been our fastest growing business. ---------------------------------------------------- Composite Structures for Space Applications ---------------------------------------------------- [PHOTO OF X-33 VEHICLE APPEARS HERE] [PHOTO OF TRIDENT MISSILE APPEARS HERE] ----------------------------------------------- Solid Propulsion for Strategic Deterrence ----------------------------------------------- Under a joint venture with Cordant Technologies (formerly Thiokol), we produce boosters for the Trident II (D-5) Fleet Ballistic Missile. In fiscal year 1998, we completed qualification of boosters under the U.S. Navy's Propulsion Consolidation Program and received an $83 million contract from Lockheed Martin to produce 18 Trident propulsion systems. The contract is a follow-on to a $155 million award received in 1995, when the joint venture was selected to be the single supplier for all three stages of the Trident II. We have been a member of the Navy's strategic missile team for 25 years. ----------------------------------------- Titan IV B Solid Rocket Motor Upgrade ----------------------------------------- In October 1997, a U.S. Air Force Titan IV B rocket powered by two Alliant Solid Rocket Motor Upgrade (SRMU) boosters successfully launched the Cassini/Huygens mission to Saturn. The mission was the second for our SRMU boosters. The SRMU, the largest of several boosters developed by Space and Strategic Systems, was funded by Lockheed Martin Astronautics, the prime contractor on the Titan IV B program. To provide the needed Titan IV B performance and reliability, we designed a total booster with electronics, thrust vector control, and composite case technology to achieve all requirements. State-of-the-art lightweight composite case technology coupled with effective use of high-performance propellants and an emphasis on process control, quality, and safety have made the SRMU the highest performance and safest large booster system ever developed. [PHOTO OF TITAN IVB ROCKET APPEARS HERE] - -------------------------------------------------------------------------------- Alliant Techsystems [PHOTO OF DON L STICINSKI APPEARS HERE] Don L. Sticinski Group Vice President "The right people in the right positions is the single most important factor in our ability to provide best value to our customers and superior returns to our shareholders." - -------------------------------------------------------------------------------- Defense Systems - -------------------------------------------------------------------------------- As a result of key development programs won over the past several years, Defense Systems is helping shape the battlefield of the 21st century. Our challenge is to ensure the highest standards of reliability and quality as we transition these programs from development to production. CAPABILITIES FOR TOMORROW'S BATTLEFIELD The unprecedented capabilities of our Objective Individual Combat Weapon and Outrider(TM) Tactical Unmanned Aerial Vehicle will increase the lethality and survivability of 21st century combat troops and revolutionize the way wars are fought. Our Sense and Destroy Armor (SADARM) smart submunition will provide similar capabilities to our artillery forces. The unique properties of our lithium ion polymer batteries have the potential to serve the power needs of 21st century soldiers as well as the satellites from which they will obtain positioning and target information. Our electronic warfare systems are vital to air combat. The acquisition of Motorola's military fuze business makes us a leading manufacturer of electro-mechanical and electronic fuzes necessary for all weapon systems. All these programs have one thing in common: their success is due to effective integrated product team partnerships between our employees, government program managers, suppliers, and military users. FOCUSED ON SUCCESS The adage "success breeds success" is particularly appropriate as we move development programs into production. The transition is dependent upon a series of successes at each step along the way, from initial design to manufacturing startup to product delivery. A proactive approach to statistical process control is the key to ensuring these successes. ACCOUNTABILITY FOR RESULTS Having the right people in the right positions is the single most important factor in our ability to provide best value to our customers and superior returns to our shareholders. Fundamental to this is giving the individual and the team accountability for results. My commitment is to give those individuals and teams the necessary authority to ensure they can deliver on their accountabilities. Each of our 1,100 employees is focused on making our goals a reality. With their help, I am confident that Defense Systems will continue to be an important partner to the U.S. military. /s/ Don L. Sticinski Don L. Sticinski - -------------------------------------------------------------------------------- 14 Alliant Techsystems [PHOTO APPEARS HERE] Objective Individual Combat Weapon Seated at left is Mike Moore, program manager, Objective Individual Combat Weapon (OICW) with members of his engineering team. Standing (L-R) are Dave Erdmann and Steve Savitt. Seated (L-R) are John Overland and Pete Gilles. Not pictured are two key members of the OICW management team: Dave Broden, technical director, and Tom Bierman, business development manager. In March 1998, our team was selected to continue development of the OICW, the U.S. military's next- generation individual weapon, which will provide American soldiers and Marines with an unprecedented capability that will increase their lethality and survivability on the 21st century battlefield. We worked closely with government technical experts and military users on integrated product teams to define weapon system requirements during the prototype development stage, which culminated in competitive firing demonstrations in January 1998. During fiscal year 1999, we will be building and delivering OICW weapon systems and ammunition for testing and evaluation by the joint services. [PHOTO APPEARS HERE] ------------------------------------------------- Outrider(TM) Tactical Unmanned Aerial Vehicle ------------------------------------------------- Soldiers from the 15th Military Intelligence Battalion at Ft. Hood, Texas, prepare the Outrider(TM) Tactical Unmanned Aerial Vehicle (TUAV) for ground and flight maneuvers as part of the program's military utility assessment phase, which involves a number of tactical scenarios such as observation of opposing forces, location and identification of targets, and battle damage assessment. The Outrider TUAV program has made significant technical progress over the past year, demonstrating nearly all key tactical operations, including automatic takeoff and landing, mission planning and downloading, and payload data transmission. Critical to the success of the program has been the integrated product teams made up of representatives from the Department of Defense, Alliant, supplier companies, and the military that have been empowered to make quick decisions to resolve technical and program issues in a timely manner. When fielded by the U.S. military, the Outrider TUAV will provide combat commanders with a dedicated unmanned aerial vehicle system that delivers real-time reconnaissance, surveillance, and target acquisition information without risking the lives of pilots or other air crew members. Defense Systems was selected in May 1996 to develop the Outrider TUAV under an Advanced Concept Technology Demonstration program. Don Cattell [PHOTO OF DON CATTELL APPEARS HERE] Vice President, Unmanned Vehicle Systems [PHOTO OF OUTRIDER AIR VEHICLE APPEARS HERE] ------------------------------ High-Performance Batteries ------------------------------ From right to left are Dr. Pat Narendra, managing director, Power Sources Center (PSC), production coordinator Lisa Robinson, and production engineer Nick Motolese at our automated, high-volume battery production facility in Horsham, Pennsylvania. PSC is a major supplier of lithium reserve batteries for munitions and is developing advanced rechargeable lithium ion polymer batteries. PSC is positioned to benefit from the growing demand for high-performance rechargeable batteries for both military applications such as communications equipment and undersea vehicles, and for use on commercial satellites. [PHOTO APPEARS HERE] [PHOTO APPEARS HERE] ------------------------------- Electronic Military Fuzes ------------------------------- Fuze production specialist Sharon Ryner inspects electronic artillery fuzes at a statistical process control station at our manufacturing facility in Janesville, Wisconsin. Since 1951, we have produced more than 260 million fuzes and fielded over 60 different fuze and munition types for the U.S. armed services. Today, our fuzes are used in artillery, mortar, rocket, cannon, air-delivered, and special operations systems. In fiscal year 1998, we strengthened our position in this important market with the acquisition of part of Motorola's military fuze business, which develops and manufactures high-quality electronic fuzes for projectiles, air-delivered weapons, penetrating weapons, and safe and arm devices. We are consolidating the Motorola operations into our Janesville operations, bringing together two manufacturing organizations with superior quality, strict process control standards, and premier technical capabilities to create a fuze manufacturing center of excellence. The consolidation, which will be completed during fiscal year 1999, will lead to economies of scale and ultimately better value for our customers and greater returns for our shareholders - -------------------------------------------------------------------------------- 17
--------------------------- Selected Financial Data --------------------------- - --------------------------------------------------------------------------------------------------------------------------- Amounts in thousands except per share data (Years Ended March 31) 1998 1997 1996 1995/1/ 1994 - --------------------------------------------------------------------------------------------------------------------------- Results of Operations Sales $1,075,506 $1,089,397 $1,020,605 $504,190 $544,236 Cost of sales 881,237 907,695 834,298 438,558 458,602 Change in accounting estimate - Environmental liabilities/2/ - 17,442 - - - Research and development 12,447 16,207 14,126 11,763 12,132 Selling 37,757 35,778 33,143 24,820 23,672 General and administrative 52,011 41,881 40,186 19,066 23,893 Restructuring charges - - - 35,600 - Change of control charges - - - 23,039 - Litigation settlement charges - - - 15,000 - - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from operations 92,054 70,394 98,852 (63,656) 25,937 Interest expense, net (24,531) (34,386) (37,427) (7,076) (2,800) Other income (expense), net 435 651 657 (2,332) (3,081) - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 67,958 36,659 62,082 (73,064) 20,056 Income tax provision - - 13,658 - - - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 67,958 36,659 48,424 (73,064) 20,056 Income from discontinued operations, net of income taxes - 4,819 5,617 456 12,418 Gain (loss) on disposal of discontinued operations, net of income taxes 225 17,681 (6,240) - - - --------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of accounting change 68,183 59,159 47,801 (72,608) 32,474 Cumulative effect of accounting change, net of income taxes - - - (1,500) - - --------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 68,183 $ 59,159 $ 47,801 $(74,108) $ 32,474 - --------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per common share: Continuing operations $ 5.21 $ 2.82 $ 3.72 $ (7.27) $ 2.06 Discontinued operations .02 1.73 (.05) .05 1.27 Cumulative effect of accounting change - - - (.15) - - --------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per common share $ 5.23 $ 4.55 $ 3.67 $ (7.37) $ 3.33 - --------------------------------------------------------------------------------------------------------------------------- Diluted earnings (loss) per common share: Continuing operations $ 5.08 $ 2.73 $ 3.61 $ (7.27) $ 1.98 Discontinued operations .02 1.68 (.05) .05 1.23 Cumulative effect of accounting change - - - (.15) - - --------------------------------------------------------------------------------------------------------------------------- Diluted earnings (loss) per common share $ 5.10 $ 4.41 $ 3.56 $ (7.37) $ 3.21 - --------------------------------------------------------------------------------------------------------------------------- Financial Position Net current assets (liabilities) $ 95,628 $ 108,191 $ 42,978 $ 70,007 $(16,489) Property, plant, and equipment, net 333,181 358,103 382,513 484,985 85,094 Total assets 932,180 1,000,588 1,035,142 1,022,235 419,437 Long-term debt 180,810 237,071 350,000 395,000 - Total equity and redeemable common shares/3/ 265,754 218,792 157,477 140,370 91,980 Other Data Depreciation and amortization $ 47,517 $ 52,721 $ 58,623 $ 16,283 $15,323 Capital expenditures 20,406 28,522 25,593 12,635 13,499 Gross margin as a percentage of sales 18.1% 15.1%/2/ 18.3% 13.0% 15.7% ===========================================================================================================================
/1/ Hercules Aerospace Company was acquired from Hercules Incorporated on March 15, 1995. For the fiscal year ended March 31, 1995, results of operations include Hercules Aerospace Company (Aerospace) only from March 15, 1995, through March 31, 1995. /2/ Includes the impact of the fiscal 1997 adoption of Statement of Position 96- 1 "Environmental Remediation Liabilities," which resulted in a $17.4 million charge to earnings, or $1.30 per share on a diluted basis. See Note 16 to the financial statements. /3/ Redeemable common shares represent 813,000 shares, redeemable at prescribed prices totaling $44,979. Shares are redeemable in three equal lots of 271,000 shares each during each of the last three calendar quarters of 1998. See Note 13. - -------------------------------------------------------------------------------- 18 Alliant Techsystems ------------------------------------------ Management's Discussion and Analysis - -------------------------------------------------------------------------------- The following discussion should be read in conjunction with the financial statements and notes, thereto, beginning on page 28. Results of Operations Sales - Sales from continuing operations in fiscal 1998 were $1,075.5 million, a decrease of $13.9 million or 1.3 percent from sales of $1,089.4 million in fiscal 1997. Conventional Munitions Group sales in fiscal 1998 were $460.3 million, a decrease of $22.7 million or 4.7 percent, from sales of $483.0 million in fiscal 1997. The decrease was primarily the result of lower tank ammunition sales in fiscal 1998. Space and Strategic Systems Group sales in fiscal 1998 were $370.0 million, an increase of $30.5 million or 9.0 percent, from sales of $339.5 million in fiscal 1997. The increase was driven primarily by increased space propulsion and composite structures sales in fiscal 1998, up $44 million and $19 million respectively, compared to fiscal 1997 sales. These increases were offset partially by the absence in the current year of $21 million in fiscal 1997 sales generated on the Evolved Expendable Launch Vehicle program (EELV), on which the Company completed its role in the prior year. Defense Systems Group sales in fiscal 1998 were $227.5 million, a decrease of $15.9 million or 6.5 percent, from sales of $243.4 in fiscal 1997. The net decrease in fiscal 1998 sales was the result of decreased revenues on programs at or nearing completion, offset partially by increased revenues on the Outrider(TM) unmanned aerial vehicle contract, where sales in fiscal 1998 increased $28 million over fiscal 1997. Emerging Business Group sales in fiscal 1998 were $27.2 million, a decrease of $14.2 million from sales of $41.4 million in fiscal 1997. In late fiscal 1998, management began to implement a plan that it believes will enhance the Company's focus on core business. As a result, effective April 1, 1998, certain of the Emerging Business Group business pursuits were consolidated into other Company business groups. Certain other non-core operations were phased out. This reorganization is not expected to have a material impact on the Company's financial results. Sales from continuing operations of $1,089.4 million in fiscal 1997 represented an increase of $68.8 million, or 6.7 percent, over sales of $1,020.6 million in fiscal 1996. The increase was primarily driven by increased tank ammunition sales, due to the resolution of technical issues in fiscal 1997 which had delayed fiscal 1996 shipments. Company sales for fiscal 1999 are expected to be approximately $1.1 billion. Gross Margin -- The Company's gross margin as a percentage of sales was 18.1 percent, 15.1 percent, and 18.3 percent in fiscal 1998, 1997, and 1996, respectively. Gross margin in fiscal 1998 was $194.3 million, an increase of $30.0 million, compared to $164.3 million for fiscal 1997. The increased margin in fiscal 1998 was driven in large part by the fiscal 1997 one-time $17.4 million charge for the Company's adoption of AICPA Statement of Position No. 96-1 (SOP 96-1), "Environmental Remediation Liabilities." Additional margin improvement was attributable to cost underruns on space propulsion and composite structures programs. Fiscal 1998 gross margin was adversely impacted by cost growth in the company's Emerging Business Group, driven primarily by the Explosive "D" fixed price contract for ordnance reclamation. Production delays on the Explosive "D" contract have resulted in additional costs to the Company, a portion of which the Company believes will ultimately be reimbursed by the customer. Potential technical and safety issues have been identified 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 would similarly result in cost growth on another fixed price Explosive "D" contract (for 6 and 8-inch gun projectiles) for which contract performance efforts are yet to begin. As a result of the above and other cost growth during fiscal 1998, the Company wrote off $6 million, which represents the Company's best estimate of unrecoverable contract costs. Based on information known at this time, management's estimated range of possible additional cost growth as a result of the potential technical and safety issues on Explosive "D" is currently $0-$8 million, on which ultimate outcome is dependent on the extent to which the Company is able to mitigate these potential risks, and obtain additional contract funding from the customer for work performed. Additionally, the customer has the ability to exercise a fixed price option for additional reclaimed quantities of the 6 and 8-inch projectiles. The Company believes that it is unlikely that these options will be exercised. The Company is currently working closely with the customer to resolve these matters on a mutually agreeable basis. Gross margin in fiscal 1997 was $164.3 million, a decrease of $22.0 million, compared to $186.3 million for fiscal 1996. The decreased margin in fiscal 1997 was primarily attributable to the $17.4 million charge associated with the Company's adoption of SOP 96-1. Additionally, the decrease was also attributable to cost growth on certain tactical propulsion, fuzing, ammunition, and ordnance reclamation contracts, offset by $12 million of non-recurring income due to negotiated settlements on two propulsion contracts that the U.S. Government customer had terminated in prior years. Fiscal 1999 gross margin is expected to be in the 17.5 to 18.5 percent range. - -------------------------------------------------------------------------------- Alliant Techsystems 19 - -------------------------------------------------------------------------------- Research and Development -- The Company's research and development expenditures were $12.4 million or 1.2 percent of sales in fiscal 1998, compared with $16.2 million or 1.5 percent of sales in fiscal 1997 and $14.1 million or 1.4 percent of sales in fiscal 1996. The decrease in research and development expenditures in fiscal 1998 compared to fiscal 1997 was driven primarily by the absence in fiscal 1998 of costs incurred in the prior year of $3.0 million on the EELV program. Fiscal 1997 expenditures, 1.5 percent of sales, represented a slight increase compared to fiscal 1996 expenditures, 1.4 percent of sales, due primarily to EELV expenditures in fiscal 1997. The Company also spent $241.6 million on U.S. Government-customer funded research and development contracts in fiscal 1998, an increase of $10.3 million when compared to expenditures of $231.3 million in fiscal 1997 and $281.8 million in fiscal 1996. The decrease in fiscal 1997 compared to fiscal 1996 primarily represents the completion of a rocket motor development program. Selling -- The Company's selling expenses totaled $37.8 million or 3.5 percent of sales in fiscal 1998, compared with $35.8 million or 3.3 percent of sales in fiscal 1997. Fiscal 1998 selling costs include approximately $7 million of expenditures, compared to $3.4 million in fiscal 1997, on the Company's pursuit of the U.S. Government's Inter-Continental Ballistic Missile (ICBM) prime integration program which was ultimately awarded to a competitor in fiscal 1998. Fiscal 1997 selling costs, 3.3 percent as a percentage of sales, increased slightly compared to fiscal 1996 levels of 3.2 percent. The fiscal 1997 increase is attributed to early spending on ICBM in fiscal 1997. General and Administrative -- General and administrative costs for fiscal 1998 totaled $52.0 million or 4.8 percent of sales, compared with $41.9 million or 3.8 percent of sales in fiscal 1997, and $40.2 million or 3.9 percent of sales in fiscal 1996. Fiscal 1998 general and administrative costs, as a percent of sales, increased from fiscal 1997 levels. This increase primarily reflected increased legal costs compared to the prior year, and the absence in fiscal 1998 of a $2 million restructure reserve reversal in fiscal 1997, due to cost underruns identified relative to the originally reserved amounts. Operating expenses for fiscal 1999, stated as a percentage of sales, are expected to be approximately one percent lower than fiscal 1998 expenses, which were 9.5 percent of sales. This expected decrease is primarily due to the absence of fiscal 1998 spending on ICBM. Restructuring and Facility Closure Charges -- The Company initiated a restructuring program in fiscal 1995 which resulted in a fiscal 1995 fourth- quarter pre-tax charge of $35.6 million of which approximately $12 million was a non-cash charge associated with accruals for certain pension-related liabilities in accordance with Statement of Financial Accounting Standards (SFAS) No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." In mid-fiscal 1996, various executive management changes were made within the Defense Systems Group. As a result of these changes, new management re-evaluated business strategies for the Group, including its restructure plans and as a result, the anticipated timing of certain severance and facility closure costs pushed into fiscal 1997. Cash expenditures under this completed restructuring program, primarily for employee-related costs, totaled approximately $3 million, $8 million, and $11 million in fiscal 1998, 1997, and 1996, respectively. In the fourth quarter of fiscal 1997, the Company reversed approximately $2 million of this reserve against general and administrative costs, due to cost underruns relative to the originally reserved amounts. See also Discontinued Operations discussion, below, regarding Marine Systems Group facility closure costs incurred in fiscal 1998. Interest Expense -- Interest expense was $27.6 million in fiscal 1998, a decrease of $7.5 million, when compared to $35.1 million in fiscal 1997. Fiscal 1997 interest expense decreased $4.2 million from $39.3 million in fiscal 1996. The decrease in fiscal 1998 interest expense, as compared to fiscal 1997, reflects reduced average borrowings outstanding, due to regularly scheduled paydowns, as well as long-term debt prepayments of $88.6 million in March 1997, and $40 million in December 1997, with portions of the sale proceeds generated by the February 1997 sale of the Marine Systems Group. The decrease in interest expense in fiscal 1997 as compared to fiscal 1996 reflects decreased borrowings due to regularly scheduled paydowns. During fiscal 1998, the Company entered into treasury rate-lock agreements to hedge against increases in market interest rates on the anticipated refinancing of its senior subordinated notes, which are callable on March 1, 1999. These agreements provide rate locks between 6.04 and 6.25 percent on the most recently issued U.S. 10-year treasury note through March 1, 1999, on a notional amount totaling $100 million. The Company's actual refinancing rate will depend on its credit rating and respective borrowing margin over the treasury rate at that time. In January 1998, the Company entered into a swap agreement relating to $50 million face amount (approximately $48.7 million of accreted value) of its 11.75 percent senior subordinated notes. The agreement locks in the price at which the Company can pre-pay $50 million of its senior subordinated notes, which the Company currently anticipates doing in March 1999. The agreement provides for the Company to receive 11.75 percent interest on a notional amount of $50 million and to pay interest at one month London Interbank Offering Rate (LIBOR), plus 1 percent (approximately 6.7 percent at March 31, 1998), on a notional amount of $55 million. Additionally, the agreement provides that during the term of the swap, which expires in February 1999, any increases (decreases) in the market value of the notes will be received (paid), respectively, by the Company. The Company has provided a cash deposit of $2.4 million to the financial intermediary to collateralize the swap agreement. The - -------------------------------------------------------------------------------- 20 Alliant Techsystems - -------------------------------------------------------------------------------- Company simultaneously entered into an additional swap agreement to hedge against increases in the one-month LIBOR interest rate relating to the above swap. Under the agreement, the Company pays a fixed rate of 5.54 percent, and receives interest at a rate of one-month LIBOR (approximately 5.7 percent at March 31, 1998) on a notional amount of $55 million. Both swap agreements expire February 1, 1999, and have certain cancellation options. Income Taxes -- Taxes on income from continuing operations in fiscal years 1998 and 1997 reflect a zero percent tax rate, compared to a 22 percent tax rate in fiscal 1996. These rates vary from statutory tax rates principally due to partial utilization of available tax loss carryforwards. The fiscal 1997 income tax provision includes a $12.1 million tax expense on income from discontinued operations. The fiscal 1996 income tax provision includes a tax benefit of $4.7 million for discontinued operations. Discontinued Operations Marine Systems Group -- On December 22, 1996, the Company entered into an agreement to sell its Marine Systems Group, including substantially all of the assets of that business, to Hughes Aircraft Co. (Hughes) for $141.0 million in cash. The sale was completed on February 28, 1997, resulting in a pretax gain to the Company of approximately $27.2 million ($17.7 million, after tax), which the Company recognized in the fourth quarter of fiscal 1997. In connection with the sale, the Company began actions during fiscal 1998 to close certain facilities (not sold to Hughes) that had previously been utilized for Marine Systems Group contracts as well as for Defense Systems Group activities. The sale of the Marine business and the resultant loss of production volume within these facilities made continued use of these facilities inefficient and cost prohibitive. Accordingly, as a direct result of the sale, the Company booked reserves of approximately $21 million in March 1997 (by a charge to the gain on disposal of discontinued operations) primarily for the estimated costs of facility closure, severance costs, and anticipated litigation costs associated with these activities. The Company has spent approximately $11 million to date on these facility closure and severance costs. As these facility closure activities are now substantially complete, the Company reversed $10.1 million of these liabilities during the fourth quarter of fiscal 1998, resulting in an additional gain on the disposal of the Marine business. Demilitarization Operations -- During fiscal 1994, the Company entered into two joint ventures in Belarus and Ukraine, for the purpose of establishing demilitarization operations in those countries. In March 1996, Company management, after evaluating its strategic plans for the future, elected to discontinue its ownership of its foreign demilitarization businesses (Demilitarization operations). Accordingly, the Company began actions to transfer ownership of the joint ventures to the host country governments, or their agents, and in the fourth quarter of fiscal 1996, the Company estimated and recorded a $6.2 million loss on disposal of discontinued operations (net of tax benefit of $4.2 million). During fiscal 1997, the Company stopped production efforts, and completed its withdrawal from the Belarus operation. In the fourth quarter of fiscal 1997, the Company reached agreement with the Ukrainian government to transfer the Company's interests in the operation to the Ukrainian Government after payment of a $19.8 million non-interest bearing long-term note receivable. In March 1998, as a result of the Company's continued consideration and evaluation of the status of the underlying operations, as well as newly imposed export restrictions in the Ukraine and the apparently increasing political instability in the region, Company management wrote off approximately $9.9 million, representing the remaining recorded value of the Company's investment in that operation. The Company maintains a letter of credit to support approximately $2.5 million of bank borrowings of the Demilitarization operations. Net Income -- The Company recorded net income of $68.2 million in fiscal 1998, an increase of $9.0 million, or 15.3 percent, over net income of $59.2 million in fiscal 1997. The fiscal 1998 increase in net income was driven by reduced interest expense due to debt paydowns, and improvements in operating margins, driven by cost underruns on space propulsion and composite structures programs, as well as the absence of the fiscal 1997 $17.4 million charge for the Company's adoption of SOP 96-1. Fiscal 1997 net income also included $22.5 million of income from discontinued operations, which is reflective of the Company's sale of the Marine Systems Group on February 28, 1997. The Company's fiscal 1997 net income of $59.2 million represented an increase of $11.4 million, or 23.8 percent, over fiscal 1996 net income of $47.8 million. Fiscal 1997 net income benefited from the Company's ability to more fully utilize previous tax loss carryforwards to reduce tax expense on continuing operations in fiscal 1997 to zero percent, compared to 22 percent in fiscal 1996. Fiscal 1996 included a $.6 million loss from discontinued operations. - -------------------------------------------------------------------------------- Alliant Techsystems 21 - -------------------------------------------------------------------------------- Liquidity, Capital Resources, and Financial Condition Cash provided by operations during fiscal 1998 totaled $63.0 million, compared with $92.1 million for fiscal 1997. Cash provided by operations for fiscal 1998 reflects increased net income offset by increased use of cash for working capital purposes during fiscal 1998, primarily due to the receipt of $24 million more in customer advances in fiscal 1997. Fiscal 1998 cash flow from operations was also decreased by an increased use of cash for accounts payable. These decreases in cash flow were partially offset by the fiscal 1998 decrease in cash used in the Company's discontinued operations. During fiscal 1998, approximately $13 million was expended under the Company's restructure and facility consolidation activities, primarily for move and employee related costs associated with the February 1997 sale of the Marine Systems Group. Cash provided by operations during fiscal 1997 totaled $92.1 million, compared with cash provided by operations of $89.1 million for fiscal 1996. Cash provided by operations for fiscal 1997 reflects increased net income and improved working capital management, partially offset by the decrease in net operating cash flow from the Company's discontinued operations. Approximately $8 million was expended during fiscal 1997 under the Company's Defense Systems Group restructure plan, primarily for employee-related costs. Additional restructure expenditures of approximately $12 million were made in fiscal 1997, in connection with the Company's closure plan for certain facilities acquired in the March 15, 1995, acquisition of the Hercules Aerospace Company (Aerospace operations) from Hercules, Incorporated (Hercules). As a result of the Accudyne "qui tam" litigation settlement recorded as of the fourth quarter of fiscal 1995, the Company spent approximately $4.0, $3.0, and $3.5 million in fiscal 1998, 1997, and 1996, respectively. The final payment, $4.5 million, plus interest, will be paid during fiscal 1999. As a result of operating losses incurred in prior years, primarily resulting from restructuring charges, as well as one-time charges incurred in fiscal 1995, the Company has tax loss carryforwards of approximately $37.6 million, which are available to reduce future tax payments. Realization of the net deferred tax asset (net of recorded valuation allowance) is dependent upon profitable operations and future reversals of existing taxable temporary differences. Although realization is not assured, the Company believes that it is more likely than not that such net recorded benefits will be realized through the reduction of future taxable income. It is currently expected that required payments for taxes in fiscal 1999 will continue to 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 through reductions in tax payments on future taxable income. During fiscal 1998, the Company paid net AMT of approximately $1 million. In December 1997, the Company completed its acquisition of certain assets from a division of Motorola, Inc., including patent and technology rights related to military fuze production, for approximately $8.5 million. Up to $9.0 million in additional consideration may be required to be paid to the seller in the future, based on the magnitude of certain future program wins. Results from the proposed acquisition did not have a material impact on the Company's fiscal year 1998 results. On February 28, 1997, the Company completed the sale of its Marine Systems Group to Hughes for $141.0 million in cash. In accordance with the terms of its debt agreements, the Company used $88.6 million of the sale proceeds to pre-pay a portion of its long-term debt in March, 1997. In fiscal 1995, the Company acquired the Aerospace operations from Hercules for $306.0 million in cash and 3.86 million shares of Company common stock, valued at $112.0 million. During fiscal 1996, the Company received a net amount of $29.1 million from Hercules as an adjustment to the purchase price. The adjustment was primarily the result of receivable collections just prior to the closing of the acquisition, which reduced assets and lowered the final purchase price. On October 24, 1997, the Company entered into an agreement with Hercules providing for the disposition of the 3.86 million shares of Company common stock held by Hercules. The shares represent the stock issued by the Company in connection with the March 15, 1995, acquisition of the Hercules Aerospace Company operations from Hercules. Under the agreement with Hercules, during the quarter ended December 28, 1997, the Company registered for public offering approximately 2.78 million of the 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 then held by Hercules became subject to a put/call arrangement under which Hercules can require the Company to purchase the shares in four equal installments of 271,000 shares during each of the four calendar quarters of 1998. The Company can likewise require Hercules to sell the shares to the Company in four equal installments during each of the four calendar quarters of 1998. The price for shares purchased under the put/call arrangement is equal to the per share net proceeds realized by Hercules in the secondary public offering, $55.32. During February 1998, the Company did repurchase the first installment of 271,000 shares, for approximately $15 million, which is reflected accordingly in these financial statements. In May 1998, the company repurchased the second installment of 271,000 shares, for approximately $15 million. The Company's present intention is to purchase the remaining shares covered by the put/call arrangement, although no definitive decision has been made to do so. - -------------------------------------------------------------------------------- 22 Alliant Techsystems - -------------------------------------------------------------------------------- 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 fiscal 1998 of approximately 140,000 shares, for approximately $6.0 million. Since 1996, repurchases of 1.3 million shares were made under this buyback program, at an average cost per share of $39.12. On October 22, 1997, the Company's Board of Directors authorized the Company to repurchase up to an additional 1.0 million shares of its common stock. It is currently expected that any purchases made under this buy-back plan would be subject to market conditions and the Company's compliance with its debt covenants. Effective November 10, 1997, the Company entered into an agreement to amend its Credit Agreement that provides the Company expanded flexibility with respect to certain restricted payments, including payments for stock repurchases. As of March 31, 1998, the Company's revised debt covenants permit it to expend up to an additional $66.5 million in total, in connection with all share repurchases. In connection with this new repurchase program, the Company has repurchased 165,300 shares through March 31, 1998, at a cumulative cost of $10.0 million, or an average cost per share of $60.34. While it is currently the Company's intention to continue stock repurchases under the program, there can be no assurance that the Company will repurchase all or any portion of the remaining shares or as to the timing or terms thereof. Net outlays for capital expenditures during fiscal 1998 were $20.4 million, or 1.9 percent of sales, compared with fiscal 1997 outlays of $28.5 million, or 2.6 percent of sales, and fiscal 1996 outlays of $25.6 million, or 2.5 percent of sales. Management expects total capital expenditures for fiscal 1999 to increase significantly, due in large part to capital investments the Company will make to facilitate expected growth in the Company's space propulsion business. This increase is primarily associated with orders the Company received from Boeing in May 1998, aggregating $750 million for the production of solid rocket boosters for Delta space launch vehicles. While these orders are not expected to have a material impact on fiscal 1999 sales, outlays for capital expenditures are expected to increase significantly, as the Company prepares its facilities for this contract. Principal payments made on the Company's long-term debt during fiscal 1998 totaled $67.4 million, which include prepayments made of approximately $41.5 million. As of March 31, 1998, no borrowings were outstanding against the Company's $275.0 million revolving line of credit. Letters of credit totaling $39.9 million at that date reduced the borrowings available under this credit line to $235.1 million. The Company's total debt (current portion of long-term debt, notes payable and long-term debt) as a percentage of total capitalization decreased to 43 percent at March 31, 1998, compared with 55 percent at March 31, 1997, which primarily reflects continued profitable operations and strong cash flow from operations, as well as proceeds from the sale of the Marine Systems Group, which were used largely for debt repayment. The Company satisfied all of its needs for cash in fiscal 1998, primarily used for operating capital, capital expenditures, scheduled debt repayments, and share repurchases, entirely from cash balances on hand, including current year operating cash flows. Based on the financial condition of the Company at March 31, 1998, management believes the internal cash flows of the Company, combined with the availability of funding, if needed, under its line of credit, will be adequate to fund the future growth of the Company as well as to service its long-term debt obligations. 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. In March 1997, the Company adopted the provisions of SOP 96-1, which required a change in, and provided clarification to, the manner in which companies measure and recognize costs associated with environmental remediation liabilities. Under the provisions of the SOP, all future anticipated ongoing monitoring and maintenance costs associated with known remediation sites are required to be accrued. Such costs were previously expensed as incurred. The Company's adoption of the provisions of the SOP resulted in a non-cash charge of $17.4 million in the fourth quarter of fiscal 1997. The charge was classified in cost of sales expenses in the Company's consolidated income statement for the quarter ending March 31, 1997. At March 31, 1998, the accrued liability for environmental remediation of $31.9 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 March 31, 1998. Such receivable primarily represents the expected reimbursement of costs associated with the Aerospace operations, acquired from Hercules in March, 1995 (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. At March 31, 1998, the Company's accrual for environmental remediation liabilities and the associated receivable for reimbursement thereof, have been discounted to reflect - -------------------------------------------------------------------------------- Alliant Techsystems 23 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 March 31, 1998: - -------------------------------------------------------------------------------- Accrued Environmental Costs - Environmental Liability Reimbursement Receivable - -------------------------------------------------------------------------------- Amounts (Payable)/Receivable $(40,929) $12,482 Unamortized Discount 9,043 (2,860) - -------------------------------------------------------------------------------- Present Value Amounts (Payable)/Receivable $(31,886) $ 9,622 - -------------------------------------------------------------------------------- At March 31, 1998, the aggregate undiscounted amounts payable for environmental remediation costs, net of expected reimbursements, are estimated to be $3.4, $5.9, $1.5, $1.4, and $1.6 million for the fiscal years ending March 31, 1999, 2000, 2001, 2002, and 2003, respectively; estimated amounts payable thereafter total $14.5 million. Amounts payable/receivable in periods beyond fiscal 1999 have been classified as non-current on the Company's March 31, 1998, balance sheet. At March 31, 1998, the estimated discounted range of reasonably possible costs of environmental remediation is between $31.9 and $56.2 million. The Company does not anticipate that resolution of the environmental contingencies in excess of amounts accrued, net of recoveries, will materially affect future operating results. There were no material insurance recoveries related to environmental remediations during fiscal 1998, 1997, or 1996. 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. Contingencies - Litigation As a U.S. Government contractor, the Company is subjected 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 legal proceedings, no director, officer, or affiliate is a party or a named defendant. The Company is involved in three "qui tam" lawsuits brought by former employees of the Aerospace operations acquired from Hercules in March 1995. The first involves allegations relating to submission of false claims and records, delivery of defective products, and a deficient quality control program. The second involves allegations of mischarging of work performed under government contracts, misuse of government equipment, other acts of financial mismanagement and wrongful termination claims. The Government did not join in either of these lawsuits. Under the terms of the agreements relating to the Aerospace acquisition, all litigation and legal disputes arising in the ordinary course of the acquired operations will be assumed by the Company except for a few specific lawsuits and disputes including the two qui tam lawsuits referred to above. On May 15, 1998, Hercules announced that it had agreed to a settlement in the first qui tam lawsuit, subject to approval by the court. Under terms of the purchase agreement with Hercules, the Company's maximum combined settlement liability for both of these qui tam matters is approximately $4 million, for which the Company has fully reserved. The Company also agreed to reimburse Hercules for 40 percent of all legal costs incurred after March 15, 1995, relating to these two actions. In the third qui tam lawsuit, the Company received a partially unsealed complaint in March, 1997 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 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 relator's attorney's fees of $150 thousand each, which was paid in April 1998. As a result of this settlement, the Department of Justice will not intervene in the remaining portion of the complaint. The Company has accrued for such settlement costs in these financial statements. 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. - -------------------------------------------------------------------------------- 24 Alliant Techsystems 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 has substantially completed the requirements of the M117 Bomb reclamation contract. The contract contained a priced option, having approximate contract value less than $5 million, whereby the customer could require the reclamation of additional quantities, given that such option be exercised within the terms and conditions of the contract. On August 4, 1997, the customer informed the Company that it was exercising the option. The Company, based on advice from its counsel, maintains that the option exercise was invalid and has therefore not performed on the option. The Company is currently appealing the validity of the option to the United States Court of Appeals, based on the Company's continued belief that such exercise was invalid. In late December 1997, the Company was informed by the customer that the Company was being terminated for default on the contract. The Company expects the appeals process to conclude in calendar 1998. Depending on the outcome of the appeal, which will drive the outcome of the termination for default, management currently estimates that the range of possible adverse impact to the Company's operating earnings is from $0-$4 million. 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 The Company utilizes a significant amount of computer hardware and software programs and operating systems across the entire organization, including applications used in manufacturing, product development, financial business systems, and various administrative functions. To the extent that this hardware and software contains source code that is unable to appropriately interpret the upcoming calendar year 2000, some level of modification, or even replacements of such applications will be necessary. The Company's process for becoming "Year 2000" compliant includes activities to increase awareness of the issue across the Company, assess where the Company has issues, determine proposed resolutions, validate those proposed resolutions, and finally, implement the agreed-upon resolutions. The Company has substantially completed its assessment of applications within the Company that are not Year 2000 compliant and is in varying stages of determining appropriate resolutions to the issues identified. The Company currently expects to complete all relevant internal hardware and software modification and testing by early calendar 1999. In addition, the Company has initiated formal communications with all of its significant suppliers and customers to determine their Year 2000 compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be converted to Year 2000 compliant systems in a timely manner, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. Given information known at this time about the Company's systems having such issues, coupled with the Company's ongoing, normal course-of-business efforts to upgrade or replace business critical systems and software applications as necessary, it is currently expected that Year 2000 costs, the majority of which are expected to be incurred in fiscal 1999, will not have an impact exceeding a range of $5-$10 million on the Company's liquidity or its results of operations. These costs include incremental personnel costs, consulting costs, and costs for the modification of existing hardware and software. These costs will be funded through cash flows from operations and are expensed as incurred. Purchased hardware and software will be capitalized in accordance with normal policy. The costs of the project and the timing in which the Company believes it will complete the necessary Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans, and other factors. However, there can be no guarantee 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 - -------------------------------------------------------------------------------- Alliant Techsystems 25 - -------------------------------------------------------------------------------- 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 third party (suppliers, customers, etc.) failure 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 compliance work in a timely manner could have a material adverse effect on the Company's operations. New Accounting Rules 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 for the period ended March 31, 1998, and all periods prior, have been reported consistent with the requirements of SFAS 128. In January 1998, the FASB issued SFAS No. 132 "Employers Disclosures About Pensions and Other Post-retirement Benefits." The Statement requires certain changes in disclosure requirements for pension and post-retirement benefits. The Company adopted SFAS 132 in March 1998. In October 1996, the AICPA issued SOP 96-1, which required change in, and provided clarification to, the manner in which companies measure and recognize costs associated with environmental remediation liabilities. Under the provisions of the SOP, the most significant change in accounting for the Company was that all future anticipated ongoing monitoring and maintenance costs associated with known remediation sites is required to be accrued. Such costs were previously expensed as incurred. The Company elected to adopt the provisions of the new rule early, as is permitted under the SOP, which resulted in a non-cash charge of $17.4 million in the fourth quarter of fiscal 1997. The charge is classified in cost of sales expenses in the Company's consolidated income statement for the period ending March 31, 1997. In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income," which requires businesses to disclose comprehensive income and its components in the Company's general-purpose financial statements. Additionally, the FASB also issued SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information." Both Statements require additional disclosure only, and as such, are expected to have no financial impacts to the Company. The Statements are effective for the Company's fiscal year ended March 31, 1999. In March, 1998, the AICPA issued 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. Inflation In the opinion of management, inflation has not had a significant impact upon the results of the Company's operations. The selling prices under contracts, the majority of which are long-term, generally include estimated costs to be incurred in future periods. These cost projections can generally be negotiated into new buys under fixed-price government contracts, while actual cost increases are recoverable in 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, facility closure costs, senior subordinated debt prepayment, tax payments and capital expenditures. Also included are statements relating to cost growth and reimbursement prospects for the Explosive "D" contract and the likelihood that the contract's option will be exercised; the realization of net deferred tax benefits; the repurchase of Company common stock generally, and from Hercules in particular; the funding of future growth and long-term debt repayment; environmental remediation costs and reimbursement prospects; the financial and operating impact of the resolution of environmental and litigation contingencies in general, resolution of the Cordant Technologies matter and M117 contract termination for default in particular; the ultimate cost and impact of the Company's Year 2000 compliance effort; and the financial and operating impact of FASB Statements and AICPA SOPs. 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 governmental spending and budgetary policies, governmental laws and other rules and regulations surrounding various matters such as environmental remediation, contract pricing, changing economic and political conditions in the United States and in other countries, international trading restrictions, outcome of union negotiations, customer product acceptance, the Company's success in program pursuits, 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. - -------------------------------------------------------------------------------- 26 Alliant Techsystems ------------------------------ Report of Independent Auditors ------------------------------ To the Stockholders of Alliant Techsystems: We have audited the accompanying consolidated balance sheets of Alliant Techsystems Inc. and subsidiaries as of March 31, 1998, and 1997, and the related consolidated statements of income and of cash flows for each of the years ended March 31, 1998, 1997, and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of Alliant Techsystems Inc. and subsidiaries at March 31, 1998, and 1997, and the consolidated results of its operations and its cash flows for each of the years ended March 31, 1998, 1997, and 1996, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Minneapolis, Minnesota May 11, 1998 -------------------- Report of Management -------------------- The management of Alliant Techsystems Inc. is responsible for the integrity, objectivity, and consistency of the financial information presented in this report. The financial statements have been prepared in accordance with generally accepted accounting principles, and necessarily include some amounts based on management's judgments and best estimates. To meet its responsibilities, management relies on a comprehensive system of internal controls designed to provide reasonable assurance that assets are safeguarded and that transactions are appropriately recorded and reported. The system is supported by the employment of qualified personnel and by an effective internal audit function. Our independent auditors provide an objective, independent review of management's discharge of its responsibilities as they relate to the financial statements. Their report is presented separately. The Audit Committee of the Board of Directors, consisting solely of outside directors, recommends the independent auditors for appointment by the Board subject to ratification by shareholders. The Committee also meets periodically with the independent auditors, internal auditors, and representatives of management to discuss audit results, the adequacy of internal controls, and the quality of our financial accounting and reporting. The independent auditors and the internal auditors have access to the Committee without the presence of management. /s/ Richard Schwartz Richard Schwartz Chairman and Chief Executive Officer /s/ Scott S. Meyers Scott S. Meyers Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- Alliant Techsystems 27 ------------------------------ Consolidated Income Statements ------------------------------
Amounts in thousands except per share data (Years Ended March 31) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- Sales $1,075,506 $1,089,397 $1,020,605 Cost of sales 881,237 907,695 834,298 Change in accounting estimate - environmental liabilities - 17,442 - - --------------------------------------------------------------------------------------------------------------------------- Gross margin 194,269 164,260 186,307 Operating expenses: Research and development 12,447 16,207 14,126 Selling 37,757 35,778 33,143 General and administrative 52,011 41,881 40,186 - --------------------------------------------------------------------------------------------------------------------------- Total operating expenses 102,215 93,866 87,455 - --------------------------------------------------------------------------------------------------------------------------- Income from operations 92,054 70,394 98,852 - --------------------------------------------------------------------------------------------------------------------------- Other income (expense): Interest expense (27,621) (35,102) (39,279) Interest income 3,090 716 1,852 Other, net 435 651 657 - --------------------------------------------------------------------------------------------------------------------------- Total other expense (24,096) (33,735) (36,770) - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 67,958 36,659 62,082 Income tax provision - - 13,658 - --------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 67,958 36,659 48,424 Discontinued operations: Income from discontinued operations, net of income taxes - 4,819 5,617 Gain (loss) on disposal of discontinued operations, net of income taxes 225 17,681 (6,240) - --------------------------------------------------------------------------------------------------------------------------- Net income $ 68,183 $ 59,159 $ 47,801 - --------------------------------------------------------------------------------------------------------------------------- Basic earnings per common share: Continuing operations $ 5.21 $ 2.82 $ 3.72 Discontinued operations .02 1.73 (.05) - --------------------------------------------------------------------------------------------------------------------------- Net income $ 5.23 $ 4.55 $ 3.67 - --------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share: Continuing operations $ 5.08 $ 2.73 $ 3.61 Discontinued operations .02 1.68 (.05) - --------------------------------------------------------------------------------------------------------------------------- Net income $ 5.10 $ 4.41 $ 3.56 - ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. - -------------------------------------------------------------------------------- 28 Alliant Techsystems --------------------------- Consolidated Balance Sheets ---------------------------
- --------------------------------------------------------------------------------------------------------------------------- Amounts in thousands except share data (Years Ended March 31) 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 68,960 $ 122,491 Receivables 209,915 190,675 Net inventory 49,072 68,125 Deferred income tax asset 38,280 40,259 Other current assets 6,803 5,707 - --------------------------------------------------------------------------------------------------------------------------- Total current assets 373,030 427,257 - --------------------------------------------------------------------------------------------------------------------------- Net property, plant, and equipment 333,181 358,103 Goodwill 131,600 123,618 Prepaid and intangible pension assets 85,539 80,569 Deferred charges and other 8,830 11,041 - --------------------------------------------------------------------------------------------------------------------------- Total assets $932,180 $1,000,588 - --------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 17,838 $ 29,024 Notes payable - 2,302 Accounts payable 80,071 85,451 Contract advances and allowances 64,318 64,500 Accrued compensation 32,275 28,392 Accrued income taxes 8,049 9,156 Accrued restructuring and facility consolidation 2,637 15,856 Other accrued liabilities 72,214 84,385 - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 277,402 319,066 - --------------------------------------------------------------------------------------------------------------------------- Long-term debt 180,810 237,071 Post-retirement and post-employment benefits liability 136,889 143,373 Pension liability 33,991 37,079 Other long-term liabilities 37,334 45,207 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities $666,426 $ 781,796 - --------------------------------------------------------------------------------------------------------------------------- Contingencies (see Notes 14 and 16) Redeemable common shares (813,000 shares, par value $8, redeemable at prescribed prices totaling $44,979. Shares are redeemable in three equal lots of 271,000 shares each during each of the last three calendar quarters of 1998.) $ 44,979 $ - Stockholders' equity: Common stock - $.01 par value Authorized - 20,000,000 shares Issued and outstanding 12,855,511 and 13,081,538 shares at March 31, 1998 and 1997, respectively 121 131 Additional paid-in-capital 201,728 248,612 Retained earnings 72,544 4,361 Unearned compensation (1,251) (1,324) Pension liability adjustment (4,743) (2,304) Common stock in treasury, at cost (1,008,102 and 782,075 shares held at March 31, 1998 and 1997, respectively) (47,624) (30,684) - --------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $932,180 $1,000,588 - ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. - -------------------------------------------------------------------------------- Alliant Techsystems 29 ------------------------------------- Consolidated Statements of Cash Flows -------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands (Years Ended March 31) 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Operating Activities Net income $ 68,183 $ 59,159 $ 47,801 Adjustments to net income to arrive at cash provided by operations: Depreciation 41,416 45,114 49,855 Amortization of intangible assets and unearned compensation 6,101 7,607 8,768 (Gain) loss on disposition of discontinued operations, net of taxes (225) (17,681) 6,240 Loss (gain) on disposition of property 330 (72) (135) Changes in assets and liabilities: Receivables (19,240) (13,201) (409) Inventories 19,053 19,349 11,947 Accounts payable (5,380) 7,726 29,564 Contract advances and allowances (182) 23,863 (21,409) Accrued compensation 3,883 (280) 3,382 Accrued income taxes (1,107) (154) (115) Accrued restructuring and facility consolidation (13,219) (22,946) (35,471) Accrued environmental liability (1,905) 13,180 (178) Pension and post-retirement benefits (11,397) (7,293) (4,205) Other assets and liabilities (23,342) (17,621) (24,962) Operating activities of discontinued operations - (4,640) 18,408 - --------------------------------------------------------------------------------------------------------------------------- Cash provided by operations 62,969 92,110 89,081 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities Capital expenditures (20,406) (28,522) (25,593) Acquisition of business (8,466) - - Business acquisition purchase price finalization - - 29,115 Accrued transaction fees paid - - (6,000) Proceeds from sale of discontinued operations - 141,000 - Proceeds from the disposition of property 2,021 2,835 929 Investing activities of discontinued operations - (2,483) (2,306) Other investing activities, net - - 414 - --------------------------------------------------------------------------------------------------------------------------- Cash (used for) provided by investing activities (26,851) 112,830 (3,441) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities Payments made on long-term debt and notes payable (67,447) (128,905) (30,000) Net purchase of treasury shares (28,952) (2,616) (36,859) Proceeds from exercised stock options 9,052 3,995 1,773 Other financing activities, net (2,302) (455) (686) - --------------------------------------------------------------------------------------------------------------------------- Cash used for financing activities (89,649) (127,981) (65,772) - --------------------------------------------------------------------------------------------------------------------------- (Decrease) increase in cash and cash equivalents (53,531) 76,959 19,868 Cash and cash equivalents at beginning of period 122,491 45,532 25,664 - --------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 68,960 $ 122,491 $45,532 - ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 30 Alliant Techsystems ---------------------------------------------- Notes to the Consolidated Financial Statements - -------------------------------------------------------------------------------- (Amounts in thousands except share and per share data and unless otherwise indicated) 1 Basis of Presentation and Significant Accounting Policies Basis of Presentation - The consolidated financial statements of the Company include all wholly owned subsidiaries. Intercompany balances and transactions between entities included in these financial statements have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates. Long-Term Contracts - Sales under long-term contracts are accounted for under the percentage of completion method and include cost reimbursement and fixed-price contracts. Sales under cost reimbursement contracts are recognized as costs are incurred. Sales under fixed-price contracts are either recognized as the actual cost of work performed relates to the estimate at completion (cost-to-cost) or based on results achieved, which usually coincides with customer acceptance (units-of-delivery). Profits expected to be realized on contracts are based on the Company's estimates of total contract sales value and costs at completion. Estimated amounts for contract changes and claims are included in contract sales only when realization is estimated to be probable. Assumptions used for recording sales and earnings are adjusted in the period of change to reflect revisions in contract value and estimated costs. In the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated loss is charged to income. Research and development, selling, and general and administrative costs are expensed in the year incurred. Environmental Remediation and Compliance - Costs associated with environmental compliance and preventing future contamination that are estimable and probable are accrued and expensed, or capitalized as appropriate. Expected remediation and monitoring costs relating to the remediation of an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are accrued and expensed in the period that such costs become estimable. Liabilities are recognized for remedial activities when they are probable and the remediation cost can be reasonably estimated. The cost of each environmental liability is estimated by engineering, financial, and legal specialists within the Company based on current law and existing technologies. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties (PRPs) will be able to fulfill their commitments at the sites where the Company may be jointly and severally liable. The Company's estimates for environmental obligations are dependent on, and affected by, changes in environmental laws and regulations, the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, methods of remediation available, the technology that will be required, the outcome of discussions with regulatory agencies and other PRPs at multi-party sites, the number and financial viability of other PRPs, future technological developments, and the timing of expenditures; accordingly, such estimates could change materially as the Company periodically evaluates and revises such estimates based on expenditures against established reserves and the availability of additional information. Cash Equivalents - Cash equivalents are all highly liquid temporary cash investments purchased with original maturities of three months or less. The fair market value of such investments at March 31, 1998 approximates cost. Inventories - Inventoried costs relating to long-term contracts and programs are stated at actual production costs, including factory overhead, initial tooling, and other related nonrecurring costs incurred to date, reduced by amounts identified with sales recognized on units delivered or progress completed. Inventoried costs relating to long-term contracts and programs are reduced by charging any amounts in excess of estimated realizable value to cost of sales. Progress payments received from customers relating to the uncompleted portions of contracts are offset first against unbilled receivable balances, then against applicable inventories. Any remaining progress payment balances are classified as contract advances. Property and Depreciation - Property, plant, and equipment is stated at cost and depreciated over estimated useful lives. Machinery and test equipment is depreciated using the double declining balance method, converting to straight-line depreciation for the last third of the asset's life. All other depreciable property is depreciated using the straight-line method. Goodwill - Goodwill represents the excess of the cost of purchased businesses over the fair value of their net assets at date of acquisition and is being amortized on a straight-line basis over periods of 25 to 40 years. The recoverability of the carrying value of goodwill is periodically evaluated by comparison with the estimated future undiscounted cash flows from related operations. - -------------------------------------------------------------------------------- Alliant Techsystems 31 - -------------------------------------------------------------------------------- Income Taxes - Deferred income taxes result from temporary differences between the basis of assets and liabilities recognized for differences between the financial statement and tax basis thereon, and for the expected future tax benefits to be derived from tax losses and tax credit carryforwards. A valuation allowance is recorded to reflect the likelihood of realization of deferred tax assets. Financial Instruments and Hedging - The Company uses interest rate swap and forward rate lock agreements to manage interest costs and the risk associated with changing interest rates. As interest rates change, the differential paid or received is recognized in interest expense of the period. Earnings Per Share Data - In February 1997, the Financial Accounting Standards Board (FASB) issued 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 for the year ended March 31, 1998, and all periods prior, 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 13) and stock options outstanding during each period presented, which, if exercised, would have a dilutive effect on earnings per share for fiscal 1998, 1997, and 1996. The diluted EPS calculation results in the same EPS that the Company has historically reported as fully diluted. In computing EPS from continuing operations for the years ended March 31, 1998, 1997, and 1996, income from continuing operations, as reported for each respective period, is divided by (in thousands): - -------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - -------------------------------------------------------------------------------- Basic EPS: Average shares outstanding 13,048 13,015 13,034 - -------------------------------------------------------------------------------- Diluted EPS: Average shares outstanding 13,048 13,015 13,034 Dilutive effect of options and redeemable common shares 323 387 397 - -------------------------------------------------------------------------------- Diluted EPS shares outstanding 13,371 13,402 13,431 - -------------------------------------------------------------------------------- For the year ended March 31, 1998, the 813,000 common shares redeemable under the put/call agreement with Hercules (see Note 13) were not included in the calculation of diluted EPS, as inclusion of those redeemable shares would have been anti-dilutive. There were no other significant issuable securities (i.e., options to purchase common shares) outstanding during the above periods indicated, not included in the computation of diluted EPS, due to the option price being greater than the average market price of the common shares. Reclassifications - Certain reclassifications have been made to the fiscal 1997 and 1996 financial statements to conform to the fiscal 1998 classification. 2 Receivables Receivables, including amounts due under long-term contracts (contract receivables), are summarized as follows: - -------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - -------------------------------------------------------------------------------- Contract receivables Billed receivables $ 80,408 $ 74,062 Unbilled receivables 127,231 113,802 Other receivables 2,276 2,811 - -------------------------------------------------------------------------------- $209,915 $190,675 - -------------------------------------------------------------------------------- Receivable balances are shown net of reductions of $207,200 and $301,385 as of March 31, 1998 and 1997, respectively, for customer progress payments received on completed portions of contracts. Unbilled receivables represent the balance of recoverable costs and accrued profit comprised principally of revenue recognized on contracts for which billings have not been presented to the customer because the amounts were earned but not contractually billable as of the balance sheet date. These amounts also include expected additional billable general overhead costs and fees on flexibly priced contracts awaiting final rate negotiations, and are generally billable and collectible within one year. 3 Inventories Inventory balances are shown net of reductions of $13,254 and $18,933 as of March 31, 1998 and 1997, respectively, for customer progress payments received on uncompleted portions of contracts. 4 Property, Plant, and Equipment The major categories of property consist of the following: - -------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - -------------------------------------------------------------------------------- Land $ 22,901 $ 23,624 Buildings and improvements 163,821 164,225 Machinery and equipment 327,453 322,168 Property not yet in service 6,173 10,701 - -------------------------------------------------------------------------------- 520,348 520,718 - -------------------------------------------------------------------------------- Less accumulated depreciation (187,167) (162,615) - -------------------------------------------------------------------------------- $333,181 $358,103 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 32 Alliant Techsystems - -------------------------------------------------------------------------------- 5 Goodwill and Deferred Charges Goodwill and deferred charges consist of the following: - -------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - -------------------------------------------------------------------------------- Goodwill, net of accumulated amortization: 1998 - $10,769, 1997 - $7,255 $ 131,600 $ 123,618 ================================================================================ Debt issuance costs, net of accumulated amortization: 1998 - $8,569, 1997 - $7,100 $ 6,280 $ 7,721 Other 2,550 3,320 - -------------------------------------------------------------------------------- $ 8,830 $ 11,041 - -------------------------------------------------------------------------------- The increase in goodwill in fiscal 1998 reflects goodwill associated with the December 1997 $8.5 million acquisition of the assets of the Motorola fuze business. 6 Other Accrued Liabilities The major categories of other current and long-term accrued liabilities are as follows: - -------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - -------------------------------------------------------------------------------- Employee benefits and insurance $29,313 $34,927 Legal accruals 21,495 26,138 Other accruals 21,406 23,320 - -------------------------------------------------------------------------------- Other accrued liabilities - current $72,214 $84,385 ================================================================================ Litigation settlement - long-term $ - $ 4,500 Environmental remediation liability 17,264 19,169 Deferred tax liability 19,498 21,477 Other long-term 572 61 - -------------------------------------------------------------------------------- Other long-term liabilities $37,334 $45,207 ================================================================================ 7 Long-Term Debt The components of the Company's long-term debt are as follows: - -------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - -------------------------------------------------------------------------------- Bank Term Loan with quarterly principal and interest payments through March 2001 $ 48,648 $116,095 11.75% Senior Subordinated Notes with semi-annual interest payments, maturing 2003 150,000 150,000 - -------------------------------------------------------------------------------- Total long-term debt 198,648 266,095 Less current portion (17,838) (29,024) ================================================================================ Long-term portion $180,810 $237,071 ================================================================================ In fiscal 1995, the Company entered into a six-year bank credit facility which is comprised of a $275,000 term loan and a $275,000 revolving working capital (revolver) and letter of credit facility. Outstanding letters of credit totaling $39,889 reduced the available line of credit to $235,111 at March 31, 1998. The Company is required to pay a commitment fee (0.275 percent at March 31, 1998) on the $275,000 revolver. The revolver fees are subject to adjustment based on the Company's long-term debt rating. The interest rate charged for borrowings under the bank credit facility is at the option of the Company, either a floating rate based on a defined prime rate or a fixed rate related to the London Interbank Offering Rate (LIBOR) plus a margin based on the Company's debt rating. As of March 31, 1998, the unhedged interest rate on outstanding borrowings under this facility was approximately 6.6 percent. Borrowings are secured by substantially all of the assets of the Company. Amounts outstanding under this agreement at March 31, 1998, based on current rates for similar instruments with the same maturities, approximate fair market value. There were no outstanding borrowings against the revolving line of credit at March 31, 1998. In addition to the bank credit facility, the Company has $150,000 of 11.75 percent senior subordinated notes outstanding. The senior subordinated notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 1, 1999, at certain defined redemption prices. The estimated fair value of the Company's senior subordinated notes, based on bank quotes, is approximately $163.9 million at March 31, 1998. The Company's bank credit facility and senior subordinated notes limit the payment of dividends and contain certain covenants with respect to the Company's consolidated net worth, leverage, and debt and interest coverage. Additionally, the Company's debt agreements impose certain restrictions on the incurrence of additional indebtedness, sale of assets, mergers and consolidations, payments for stock repurchases, transactions with affiliates, creation of liens, and certain other matters. Effective November 10, 1997, the Company entered into an agreement to amend its Credit Agreement that provides the Company expanded flexibility with respect to certain restricted payments, including payments for stock repurchases. In connection with the sale of its Marine Systems Group in February 1997 (see Note 15), the Company prepaid $88.6 million of its long-term debt, in accordance with the terms of the bank credit facility. During fiscal 1998, the Company made additional long-term debt prepayments of $41.5 million. At March 31, 1998, the Company was in compliance with all covenants and restrictions specified in its debt agreements. At March 31, 1998, the aggregate maturities due over the next five fiscal years under the bank term loan and the senior subordinated notes are $17,838 in 1999, $17,838 in 2000, $12,972 in 2001, $0 in 2002, and $150,000 in 2003. No amounts are due thereafter. - -------------------------------------------------------------------------------- Alliant Techsystems 33 - -------------------------------------------------------------------------------- The company's weighted average interest rate on short-term borrowings during fiscal 1998 and 1997 was 7.4 percent and 7.2 percent, respectively. During fiscal 1998, the Company entered into treasury rate-lock agreements to hedge against increases in market interest rates on the anticipated refinancing of its senior subordinated notes, which are callable on March 1, 1999. These agreements provide rate locks between 6.04 and 6.25 percent on the most recently issued U.S. 10-year treasury note through March 1, 1999, on a notional amount totaling $100 million. The Company's actual refinancing rate will depend on its credit rating and respective borrowing margin over the treasury rate at that time. The fair market value of the treasury rate-lock agreements at March 31, 1998, is $(3.1) million. In January, 1998, the Company entered into a swap agreement relating to $50 million face amount (approximately $48.7 million of accreted value) of its 11.75 percent senior subordinated notes. The agreement locks in the price at which the Company can pre-pay $50 million of its senior subordinated notes, which the Company currently anticipates doing in March 1999. The agreement provides for the Company to receive 11.75 percent interest on a notional amount of $50 million and to pay interest at one month LIBOR plus 1 percent (approximately 6.7 percent at March 31, 1998) on a notional amount of $55 million. Additionally, the agreement provides that during the term of the swap, which expires in February 1999, any increases (decreases) in the market value of the notes will be received (paid), respectively, by the Company. The Company has provided a cash deposit of $2.4 million to the financial intermediary to collateralize the swap agreement. The fair market value of the swap agreement at March 31, 1998, is $1.3 million. The Company simultaneously entered into an additional swap agreement to hedge against increases in the one-month LIBOR interest rate relating to the above swap. Under the agreement, the Company pays a fixed rate of 5.54 percent, and receives interest at a rate of one-month LIBOR (approximately 5.7 percent at March 31, 1998) on a notional amount of $55 million. The fair market value of the additional swap agreement at March 31, 1998, is $.1 million. Both swap agreements expire February 1, 1999, and have certain cancellation options. Counter parties to the interest rate swap and rate lock agreements are major financial institutions who also participate in the Company's bank credit facilities. Credit loss from counterparty non-performance is not anticipated. The estimated fair market value amounts have been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. 8 Employee Benefit Plans The Company's noncontributory defined benefit pension plans cover substantially all employees. Plans provide either pension benefits of stated amounts for each year of credited service, or pension benefits based on employee yearly pay levels and years of credited service. The Company funds the plans in accordance with federal requirements calculated using appropriate actuarial methods. Plan assets for the Company are held in a trust and are invested in a diversified portfolio of equity securities and fixed income investments. The sale of the Marine Systems Group resulted in a curtailment as defined by SFAS No. 88, "Employer's Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." The net impact of the curtailment was a credit to the fiscal 1997 gain on disposal of discontinued operations of $304 thousand. The following illustrates the change in the Company's projected pension benefit obligation for fiscal years 1998 and 1997:
- ------------------------------------------------------------------------------------ Years Ended March 31 1998 1997 - ------------------------------------------------------------------------------------ Projected benefit obligation at beginning of year $ 838,107 $ 837,202 Service cost of benefits earned during the period 15,008 16,636 Interest cost of projected benefit obligation 60,354 61,563 Plan amendments 2,593 4,214 Sale of Marine Systems Group/1/ -- (30,475) Actuarial loss 39,779 33,439 Benefits paid (75,719) (84,472) - ------------------------------------------------------------------------------------ Projected benefit obligation at end of year $ 880,122 $ 838,107 ====================================================================================
/1/Refer to footnote 15 Changes in the Company's pension plan assets are summarized as follows for fiscal years 1998 and 1997:
- ------------------------------------------------------------------------------------ Years Ended March 31 1998 1997 - ------------------------------------------------------------------------------------ Fair value of plan assets at beginning of year $ 915,574 $ 901,305 Actual return on plan assets 163,528 107,965 Company contributions 12,604 14,776 Benefits paid (75,089) (84,472) Sale of Marine Systems Group/1/ -- (24,000) - ------------------------------------------------------------------------------------ Fair value of plan assets at end of year $ 1,016,617 $ 915,574 ====================================================================================
/1/Refer to footnote 15 - -------------------------------------------------------------------------------- 34 Alliant Techsystems - -------------------------------------------------------------------------------- The components of prepaid pension cost and the amounts recognized in the Company's balance sheet for its pension plans are as follows for fiscal years 1998 and 1997:
- ----------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - ----------------------------------------------------------------------------------------- Funded status $ 136,495 $ 77,467 Accrued contribution 2,990 2,861 Unrecognized net actuarial gain (94,452) (43,239) Unrecognized prior service cost 13,267 12,125 Unrecognized net asset (2,009) (2,624) - ----------------------------------------------------------------------------------------- Prepaid pension cost $ 56,291 $ 46,590 ========================================================================================= Prepaid benefit cost $ 80,427 $ 75,627 Accrued benefit liability (33,991) (37,079) Intangible asset 5,112 5,738 Accumulated other comprehensive income 4,743 2,304 - ----------------------------------------------------------------------------------------- Total prepaid pension cost recognized in balance sheet $ 56,291 $ 46,590 =========================================================================================
The change in the additional minimum pension liability recognized (see Note 13) was as follows for fiscal years 1998 and 1997:
- ----------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - ----------------------------------------------------------------------------------------- Change in: Intangible assets $ (626) $(1,202) Accrued pension benefit costs (1,813) 87 - ----------------------------------------------------------------------------------------- Total change in additional minimum pension liability $(2,439) $(1,115) =========================================================================================
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefits in excess of plan assets were $72,188, $70,512, and $42,907, respectively as of March 31, 1998, and $318,356, $302,285, and $272,111, respectively, as of March 31, 1997. The components of the Company's net periodic pension costs are as follows for fiscal years 1998, 1997, and 1996:
- ----------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ----------------------------------------------------------------------------------------- Service cost of benefits earned during the period $ 15,008 $ 16,636 $ 15,662 Interest costs of projected benefit obligation 60,354 61,563 60,871 Expected return on plan assets (73,098) (68,834) (63,857) Amortization of unrecognized net loss (gain) 132 121 (585) Amortization of unrecognized prior service cost 1,452 1,753 1,693 Amortization of unrecognized net asset (615) (596) (546) - ----------------------------------------------------------------------------------------- Net periodic pension cost $ 3,233 $ 10,643 $ 13,238 =========================================================================================
The weighted-average assumptions used in the accounting for defined benefit plans were:
- ----------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ----------------------------------------------------------------------------------------- Discount rate used in determining present values 7.25% 7.50% 7.50% - ----------------------------------------------------------------------------------------- Annual increase in future compensation levels: Union 3.25% 3.25% 3.25% Salaried 4.25% 4.25% 4.25% - ----------------------------------------------------------------------------------------- Expected long-term rate of return on plan assets 8.75% 8.75% 8.75% =========================================================================================
The Company also sponsors a number of defined contribution plans. Participation in one of these plans is available to substantially all employees. The two principal defined contribution plans are Company-sponsored 401(k) plans to which employees may contribute up to 18 percent of their pay. The Company contributes in Company common stock or cash, amounts equal to 50 percent of employee contributions up to 4 or 6 percent of the employee's pay. The amount expensed for the Company match provision of the plans was $5,538, $5,881, and $5,780 in fiscal 1998, 1997, and 1996, respectively. The Company employs approximately 2,150 employees (33 percent of its total employees) covered by collective bargaining agreements, 1,274 of whom are covered under agreements expected to be renegotiated during fiscal 1999, due to current agreement expirations. 9 Post-Retirement Benefits Generally, employees retiring from the Company after attaining age 55 who have had at least five years of service are entitled to post-retirement health care benefits and life insurance coverage until the retiree reaches age 65 or later, depending on plan provisions. The portion of the premium cost borne by the Company for such benefits is dependent on the employee's years of service. Further contributions from retirees are also required based on plan deductibles and co-payment provisions. The following illustrates the change in the Company's accumulated nonpension post-retirement benefit obligation for fiscal years 1998 and 1997:
- ----------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - ----------------------------------------------------------------------------------------- Accumulated benefit obligation at beginning of year $ 142,675 $ 149,808 Service cost of benefits earned during the period 1,203 899 Interest cost on accumulated obligation 9,649 7,341 Plan amendments (5,885) -- Actuarial loss 13,524 656 Net benefits paid (15,947) (16,029) - ----------------------------------------------------------------------------------------- Accumulated benefit obligation at end of year $ 145,219 $ 142,675 =========================================================================================
- -------------------------------------------------------------------------------- Alliant Techsystems 35 - -------------------------------------------------------------------------------- Changes in the Company's post-retirement plan assets are summarized as follows for fiscal year 1998 and 1997:
- ------------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - ------------------------------------------------------------------------------------------- Fair value of plan assets at beginning of year $ 4,797 $ 1,394 Actual return on plan assets (260) 181 Retiree contributions 4,279 4,500 Company contributions 16,875 19,251 Gross benefits paid (17,073) (20,529) - ------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $ 8,618 $ 4,797 ===========================================================================================
The Company's nonpension post-retirement benefit obligations are generally not prefunded. The following table illustrates the status of retiree benefit obligations as of March 31, 1998 and 1997.
- ------------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - ------------------------------------------------------------------------------------------- Funded status $(136,601) $(137,878) Accrued contribution 1,504 -- Unrecognized net actuarial loss (gain) 7,966 (2,980) Unrecognized prior service cost (5,747) (180) - ------------------------------------------------------------------------------------------- Post-retirement benefit liability recognized in balance sheet $(132,878) $(141,038) ===========================================================================================
The components of the Company's net periodic post-retirement benefit costs are as follows for fiscal years 1998, 1997, and 1996:
- ------------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ------------------------------------------------------------------------------------------- Service cost of benefits earned during the period $ 1,204 $ 899 $ 842 Interest costs of accumulated post-retirement benefit obligation 9,649 7,506 7,603 Expected return on plan assets (315) (165) -- Amortization of unrecognized net loss -- 399 -- Amortization of unrecognized prior service cost (318) (21) (25) Curtailment gain -- -- (1,120) - ------------------------------------------------------------------------------------------- Net post-retirement periodic benefit cost $ 10,220 $ 8,618 $ 7,300 ===========================================================================================
The curtailment gain recognized in fiscal 1996 was the result of a reduction in employment associated with restructuring programs. The weighted-average assumptions used in the accounting for nonpension post-retirement benefits were as follows:
- ------------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ------------------------------------------------------------------------------------------- Discount rate used in determining present values 7.25% 7.50% 7.50% - ------------------------------------------------------------------------------------------- Expected long-term rate of return on plan assets 6.00% 6.00% 6.00% - ------------------------------------------------------------------------------------------- Medical trend rate 5.00% 5.00% 5.00% ===========================================================================================
For measurement purposes, a weighted average annual rate of increase of approximately 5 percent in the per capital cost of covered health care benefits was assumed for fiscal year 1999. The rate was assumed to remain at that level thereafter. The following illustrates the effect of a one-percentage point increase or decrease in the assumed health care cost trend rate, as of March 31, 1998:
- ------------------------------------------------------------------------------------------- One Percentage One Percentage Point Increase Point Decrease - ------------------------------------------------------------------------------------------- Effect on service and interest cost components $ 882 $ (815) Effect on accumulated post-retirement benefit obligation $ 8,019 $ (7,596) ===========================================================================================
10 Income Taxes The components of the Company's income tax provision consist of:
- ------------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ------------------------------------------------------------------------------------------- Current: Federal $ - $ - $ - State - - - Deferred - 12,115 16,801 - ------------------------------------------------------------------------------------------- Income tax provision $ - $12,115 $16,801 ===========================================================================================
The items responsible for the differences between the federal statutory rate and the Company's effective rate are shown as follows:
- ------------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ------------------------------------------------------------------------------------------- Income taxes computed at statutory federal rate $23,864 $24,946 $26,729 State income taxes-net of federal impact 3,409 3,564 2,838 Permanent non-deductible costs 1,361 1,462 4,450 Unrecorded tax benefits (28,634) (17,857) (17,216) - ------------------------------------------------------------------------------------------- Income tax provision $ - $12,115 $16,801 ===========================================================================================
- -------------------------------------------------------------------------------- 36 Alliant Techsystems Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards. Significant items comprising the net deferred tax asset shown on the statement of financial position are: - ------------------------------------------------------------------------------- Years Ended March 31 1998 1997 - ------------------------------------------------------------------------------- Deferred sales $ (29,243) $ (33,843) Accelerated depreciation (60,417) (55,817) - ------------------------------------------------------------------------------- Deferred income tax liabilities (89,660) (89,660) - ------------------------------------------------------------------------------- Reserves for employee benefits 50,594 49,967 Restructuring and environmental reserves 9,960 21,108 Research tax credits 25,228 22,400 Net operating loss carryforwards 37,634 50,891 Other reserves 16,943 37,994 - ------------------------------------------------------------------------------- Deferred income tax assets 140,359 182,360 Valuation allowance (31,917) (73,918) - ------------------------------------------------------------------------------- Net deferred income tax asset $ 18,782 $ 18,782 - ------------------------------------------------------------------------------- Current deferred income tax asset 38,280 40,259 Noncurrent deferred income tax liability (19,498) (21,477) - ------------------------------------------------------------------------------- Net deferred income tax asset $ 18,782 $ 18,782 =============================================================================== During fiscal 1998, the deferred tax asset valuation allowance decreased by $42,001. This decrease is primarily the result of the Company's analysis of the likelihood of realizing the future tax benefit of tax loss carryforwards and additional temporary differences. Realization of the net deferred tax asset (net of recorded valuation allowance) is dependent upon profitable operations and future reversals of existing taxable temporary differences. Although realization is not assured, the Company believes it is more likely than not that the net recorded benefits will be realized through the reduction of future taxable income. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future taxable income is lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable temporary differences. Federal and state operating loss carryforwards for tax purposes, available to offset future taxable income, are $94,085 at March 31, 1998. These carryforwards begin to expire in 2008. Research tax credits available to offset future tax payments are $25,228, and begin to expire in 2006. 11 Leases The Company leases land, buildings, and equipment under various operating leases which generally have renewal options of one to five years. Rental expense for the years ended March 31, 1998, 1997, and 1996 was $10,538, $11,830, and $11,580, respectively. Minimum rental commitments payable under noncancellable lease commitments outstanding at March 31, 1998 are $9,120, $6,852, $5,365, $3,201, and $2,393, respectively, for the fiscal years ending March 31, 1999, 2000, 2001, 2002, and 2003. 12 Restructuring Charges The Company initiated a restructuring program in fiscal 1995 which resulted in a fiscal 1995 fourth-quarter pre-tax charge of $35.6 million of which approximately $12 million was a non-cash charge associated with accruals for certain pension-related liabilities in accordance with Statement of Financial Accounting Standards (SFAS) No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." In mid-fiscal 1996, various executive management changes were made within the Defense Systems Group. As a result of these changes, new management re-evaluated business strategies for the Group, including its restructure plans and as a result, the anticipated timing of certain severance and facility closure costs pushed into fiscal 1997. Cash expenditures under this completed restructuring program, primarily for employee-related costs, totaled approximately $3 million, $8 million, and $11 million in fiscal 1998, 1997, and 1996, respectively. In the fourth quarter of fiscal 1997, the Company reversed approximately $2 million of this reserve against general and administrative costs, due to cost underruns relative to the originally reserved amounts. See Note 15 for discussion of Marine Systems Group facility closure costs incurred in fiscal 1998. Additional restructure expenditures of approximately $12 million were made in fiscal 1997, in connection with the Company's closure plan for certain facilities acquired in the March 15, 1995, acquisition of the Aerospace operations. - -------------------------------------------------------------------------------- Alliant Techsystems 37 - -------------------------------------------------------------------------------- 13 Stockholders' Equity and Redeemable Common Shares Changes in stockholders' equity and redeemable common shares are summarized below: - --------------------------------------------------------------------------------
Redeemable Common Stock Additional Retained Pension Unearned Cost (Amounts in thousands Common $.01 Par Paid-In Earnings Liability Compen- Treasury except share data) Shares Shares Amount Capital (Deficit) Adjustment sation Shares Total - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 1995 $ -- 13,849,452 $ 139 $250,188 $(102,599)$ (2,566) $(4,792) $ -- $140,370 Net income 47,801 47,801 Treasury shares received (983,333) (10) 43 (37,080) (37,047) Pension liability adjustment 1,377 1,377 Exercise of stock options 80,223 1 (759) 2,701 1,943 Restricted stock grants 19,200 385 (836) 451 Amortization of restricted stock 3,033 3,033 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 1996 -- 12,965,542 130 249,814 (54,798) (1,189) (2,552) (33,928) 157,477 Net income 59,159 59,159 Treasury shares received (158,387) (2) (7,195) (7,197) Pension liability adjustment (1,115) (1,115) Exercise of stock options 157,023 2 (1,985) 5,978 3,995 Restricted stock grants 27,000 247 (1,246) 999 Amortization of restricted stock 1,894 1,894 Other net issuances 90,360 1 536 580 3,462 4,579 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 1997 -- 13,081,538 131 248,612 4,361 (2,304) (1,324) (30,684) 218,792 Net income 68,183 68,183 Treasury shares received (589,363) (6) (195) (31,687) (31,888) Pension liability adjustment (2,439) (2,439) Exercise of stock options 281,455 3 (2,316) 11,368 9,055 Restricted stock grants 25,675 294 (1,332) 1,038 Amortization of restricted stock 1,118 1,118 Redeemable common shares 44,979 (8) (44,971) Other net issuances 56,206 1 304 287 2,341 2,933 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 1998 $ 44,979 12,855,511 $121 $201,728 $72,544 $(4,743) $(1,251) $(47,624) $265,754 - ------------------------------------------------------------------------------------------------------------------------------------
The Company has authorized 5,000,000 shares of preferred stock, par value $1.00, none of which has been issued. The Company has authorized up to 2,620,679 shares to be granted under the 1990 Equity Incentive Plan of which 156,302 were available at March 31, 1998, for future grants. Stock options are granted periodically, at the fair market value of the Company's common stock on the date of grant, and are generally exercisable from one to three years from the date of grant. Restricted stock issued to non-employee directors and certain key employees totaled 25,675, 27,000, and 19,200 for the fiscal years ended March 31, 1998, 1997, and 1996, respectively. Restricted shares vest over periods of one to four years from the date of award. As of March 31, 1998, net restricted shares of up to 15,700 shares were reserved for certain key officers which will vest upon achievement of certain financial performance goals through fiscal 2000. In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." As permitted by SFAS 123, the Company has elected to continue following the guidance of APB 25 for measurement and recognition of stock-based transactions with employees. Accordingly, compensation cost has not been recognized for the awards made to employees in the form of stock options. If compensation cost for the Company's stock-based compensation plan had been determined based on the fair value at the grant dates for awards under the plan (consistent with the method provided in SFAS 123), the Company's net income and earnings per share would have been reduced to the proforma amounts indicated below: - -------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - -------------------------------------------------------------- Net income As reported $68,183 $59,159 $47,801 Proforma $65,434 $57,032 $47,057 Basic EPS As reported $ 5.23 $ 4.55 $ 3.67 Proforma $ 5.01 $ 4.38 $ 3.61 Diluted EPS As reported $ 5.10 $ 4.41 $ 3.56 Proforma $ 4.89 $ 4.26 $ 3.50 ================================================================================ - -------------------------------------------------------------------------------- 38 Alliant Techsystems - -------------------------------------------------------------------------------- A summary of the company's stock option activity is as follows:
- ------------------------------------------------------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Weighted Average Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - ------------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 896,333 $33.49 991,210 $30.23 852,433 $27.36 Granted 150,850 44.61 150,650 46.28 232,340 39.08 Exercised (281,455) 32.16 (157,023) 25.43 (80,223) 24.21 Canceled (33,946) 44.70 (88,504) 32.77 (13,340) 37.38 - ------------------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 731,782 $35.74 896,333 $33.49 991,210 $30.23 Options exercisable at year end 440,964 30.34 532,815 29.64 482,210 25.80 - ------------------------------------------------------------------------------------------------------------------------------- Weighted average fair value of options granted during the year $20.18 $21.88 $18.29 - -------------------------------------------------------------------------------------------------------------------------------
The weighted average fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and represents the difference between fair market value on the date of grant and the estimated market value on the expected exercise date. The following weighted average assumptions were used for grants in fiscal 1998, 1997, and 1996 respectively: - -------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - -------------------------------------------------------------------------------- Risk-free rate 6.1% 6.5% 6.1% Expected volatility 30.4 31.5 31.5 Expected option life 7 years 7 years 7 years ================================================================================ A summary of stock options outstanding at March 31, 1998 is as follows: - -------------------------------------------------------------------------------- Options Outstanding Options Exercisable - -------------------------------------------------------------------------------- Weighted Weighted Range of Remaining Average Average Exercise Contractual Exercise Exercise Prices Shares Life Price Shares Price - -------------------------------------------------------------------------------- $10-$24 102,043 4.8 yrs $18.44 102,043 $18.44 $25-$30 215,000 12.0 yrs 30.00 215,000 30.00 $31-$40 131,534 6.8 yrs 37.47 79,680 37.49 $41-$52 279,205 8.5 yrs 45.54 44,241 46.55 $53-$63 4,000 10.0 yrs 61.17 -- -- ================================================================================ 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 Company common stock held by Hercules. The shares represent the stock issued by the Company in connection with the March 15, 1995, acquisition of the Hercules Aerospace Company operations (Aerospace operations) from Hercules. Under the agreement with Hercules, during the quarter ended December 28, 1997, the Company registered for public offering approximately 2.78 million of the 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 then held by Hercules became subject to a put/call arrangement under which Hercules can require the Company to purchase the shares in four equal installments of 271,000 shares during each of the four calendar quarters of 1998. The Company can likewise require Hercules to sell the shares to the Company in four equal installments during each of the four calendar quarters of 1998. The prices for shares purchased under the put/call arrangement is equal to the per share net proceeds realized by Hercules in the secondary public offering, $55.32. During February 1998, the Company did repurchase the first installment of 271,000 shares, for approximately $15 million, which is reflected accordingly in these financial statements. In May, 1998, the Company repurchased the second installment of 271,000 shares, for approximately $15 million. The Company's present intention is to purchase the remaining shares covered by the put/call arrangement although no definitive decision has been made to do so. 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 fiscal 1998 of approximately 140,000 shares, for approximately $6.0 million. Since 1996, repurchases of 1.3 million shares were made under this buyback program, at an average cost per share of $39.12. On October 22, 1997, the Company's Board of Directors authorized the Company to repurchase up to an additional 1.0 million shares of its common stock. It is currently expected that any purchases made under this buy-back plan would be subject to market conditions and the Company's compliance with its debt covenants. Effective November 10, 1997, the Company entered into an agreement to amend - -------------------------------------------------------------------------------- Alliant Techsystems 39 - -------------------------------------------------------------------------------- its Credit Agreement that provides the Company expanded flexibility with respect to certain restricted payments, including payments for stock repurchases. As of March 31, 1998, the Company's revised debt covenants permit it to expend up to an additional $66.5 million in total, in connection with all share repurchases. In connection with this new repurchase program, the Company has repurchased 165,300 shares through March 31, 1998, at a cumulative cost of $10.0 million, or an average cost per share of $60.34. While it is currently the Company's intention to continue stock repurchases under the program, there can be no assurance that the Company will repurchase all or any portion of the remaining shares or as to the timing or terms thereof. In accordance with SFAS No. 87, "Employer's Accounting for Pensions," the Company has recognized the minimum liability for underfunded pension plans equal to the excess of the accumulated benefit obligation over plan assets. A corresponding amount is recognized as an intangible asset to the extent of any unrecognized prior service cost, with the remaining balance recorded as reduction to equity. As of March 31, 1998, the minimum pension liability in excess of the unrecognized prior service cost was $4,743. 14 Contingencies As a U.S. Government contractor, the Company is subjected to defective pricing and cost accounting standards non-compliance claims by the U.S. 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 very large amounts. In these legal proceedings, no director, officer, or affiliate is a party or a named defendant. The Company is involved in three "qui tam" lawsuits brought by former employees of the Aerospace operations acquired from Hercules (Aerospace acquisition) in March 1995. The first involves allegations relating to submission of false claims and records, delivery of defective products, and a deficient quality control program. The second involves allegations of mischarging of work performed under government contracts, misuse of government equipment, other acts of financial mismanagement and wrongful termination claims. The Government did not join in either of these lawsuits. Under the terms of the agreements relating to the Aerospace acquisition, all litigation and legal disputes arising in the ordinary course of the acquired operations will be assumed by the Company except for a few specific lawsuits and disputes including the two qui tam lawsuits referred to above. On May 15, 1998 Hercules announced that it had agreed to a settlement in the first qui tam lawsuit, subject to approval by the court. Under terms of the purchase agreement with Hercules, the Company's maximum combined settlement liability for both qui tam matters is approximately $4 million, for which the Company has fully reserved. The Company also agreed to reimburse Hercules for 40 percent of all legal costs incurred after March 15, 1995, relating to these two actions. In the third qui tam lawsuit, the Company received a partially unsealed complaint in March, 1997 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 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 realtor's attorney's fees of $150 thousand, which was paid in April 1998. As a result of this settlement, the Department of Justice will not intervene in the remaining portion of the complaint. The Company has accrued for such settlement costs in these financial statements. 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. - -------------------------------------------------------------------------------- 40 Alliant Techsystems - -------------------------------------------------------------------------------- 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 has 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 advise from its counsel, maintains that the option exercise was invalid and has therefore not performed on the option. The Company is currently appealing the validity of the option to the United States Court of Appeals, based on the Company's continued belief that such exercise was invalid. In late December 1997, the Company was informed by the customer that the Company was being terminated for default on the contract. The Company expects the appeals process to conclude in calendar 1998. Depending on the outcome of the appeal, which will drive the outcome of the termination for default, management currently estimates that the range of possible adverse impact to the Company's operating earnings is from $0-$4 million. 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. 15 Discontinued Operations Marine Systems Group - On December 22, 1996, the Company entered into an agreement to sell its Marine Systems Group, including substantially all of the assets of that business, to Hughes Aircraft Co. (Hughes) for $141.0 million in cash. The sale was completed on February 28, 1997, resulting in a pretax gain to the Company of approximately $27.2 million ($17.7 million, after tax), which the Company recognized in the fourth quarter of fiscal 1997. In connection with the sale, the Company began actions during fiscal 1998 to close certain facilities (not sold to Hughes) that had previously been utilized for Marine Systems Group contracts as well as for Defense Systems Group activities. The sale of the Marine business and the resultant loss of production volume within these facilities made continued use of these facilities inefficient and cost prohibitive. Accordingly, as a direct result of the sale, the Company booked reserves of approximately $21 million in March 1997 (by a charge to the gain on disposal of discontinued operations) primarily for the estimated costs of facility closure, severance costs, and anticipated litigation costs associated with these activities. The Company has spent approximately $11 million to date on these facility closure and severance costs. As these facility closure activities are now substantially complete, the Company reversed $10.1 million of these liabilities during the fourth quarter of fiscal 1998, resulting in an additional gain on the disposal of the Marine business. Demilitarization Operations - During fiscal 1994, the Company entered into two joint ventures in Belarus and Ukraine, for the purpose of establishing demilitarization operations in those countries. In March 1996, Company management, after evaluating its strategic plans for the future, elected to discontinue its ownership of its foreign demilitarization businesses (Demilitarization operations). Accordingly, the Company began actions to transfer ownership of the joint ventures to the host country governments, or their agents, and in the fourth quarter of fiscal 1996, the Company estimated and recorded a $6.2 million loss on disposal of discontinued operations (net of tax benefit of $4.2 million). During fiscal 1997, the Company stopped production efforts, and completed its withdrawal from the Belarus operation. In the fourth quarter of fiscal 1997, the Company reached agreement with the Ukrainian government to transfer the Company's interests in the operation to the Ukrainian Government after payment of a $19.8 million non-interest bearing long-term note receivable. In March 1998, as a result of the Company's continued consideration and evaluation of the status of the underlying operations, as well as newly imposed export restrictions in the Ukraine and the apparently increasing political instability in the region, - -------------------------------------------------------------------------------- Alliant Techsystems 41 - -------------------------------------------------------------------------------- Company management wrote off approximately $9.9 million, representing the remaining recorded value of the Company's investment in that operation. The Company maintains a letter of credit to support approximately $2.5 million of bank borrowings of the Demilitarization operations. The consolidated income statements of the Company reflect the operating results and the gain (loss) on disposal of discontinued operations separately from continuing operations. The components of the gain (loss) from discontinued operations are summarized as follows: - ------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ------------------------------------------------------------------------------- Sales $ -- $ 107,746 $ 186,677 Income from discontinued operations -- 7,415 5,071 Gain (loss) on disposal of assets 225 27,200 (10,400) Income tax (expense) benefit -- (12,115) 4,706 - ------------------------------------------------------------------------------- Gain (loss) from discontinued operations $ 225 $ 22,500 $ (623) - ------------------------------------------------------------------------------- 16 Environmental Remediation Liabilities The Company is subject to various local and national laws relating to protection of the environment and is in various stages of investigation or remediation of potential, alleged, or acknowledged contamination. In March 1997, the Company adopted the provisions of SOP 96-1 "Environmental Remediation Liabilities," which required a change in, and provided clarification to, the manner in which companies measure and recognize costs associated with environmental remediation liabilities. Under the provisions of the SOP, all future anticipated ongoing monitoring and maintenance costs associated with known remediation sites are required to be accrued. Such costs were previously expensed as incurred. The Company's adoption of the provisions of the SOP resulted in a non-cash charge of $17.4 million in the fourth quarter of fiscal 1997. The charge was classified in cost of sales expenses in the Company's consolidated income statement for the fourth quarter ending March 31, 1997. At March 31, 1998, the accrued liability for environmental remediation of $31.9 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 March 31, 1998. Such receivable primarily represents the expected reimbursement of costs associated with the Aerospace operations, acquired from Hercules in March 1995 (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. At March 31, 1998, 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 March 31, 1998: - -------------------------------------------------------------------------------- Accrued Environmental Costs - Environmental Liability Reimbursement Receivable - -------------------------------------------------------------------------------- Amounts (Payable)/Receivable $(40,929) $ 12,482 Unamortized Discount 9,043 (2,860) Present Value of Amounts (Payable)/Receivable $(31,886) $ 9,622 - -------------------------------------------------------------------------------- At March 31, 1998, the aggregate undiscounted amounts payable for environmental remediation costs, net of expected reimbursements, are estimated to be $3.4, $5.9, $1.5, $1.4, and $1.6 million for the fiscal years ending March 31, 1999, 2000, 2001, 2002, and 2003, respectively; estimated amounts payable thereafter total $14.5 million. Amounts payable/receivable in periods beyond fiscal 1999 have been classified as non-current on the Company's March 31, 1998 balance sheet. At March 31, 1998, the estimated discounted range of reasonably possible environmental remediation costs is between $31.9 and $56.2 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. - -------------------------------------------------------------------------------- 42 Alliant Techsystems - -------------------------------------------------------------------------------- 17 Supplemental Cash Flow Information Net income taxes paid in the fiscal years ended March 31, 1998, 1997, and 1996, totaled $1,107, $107, and $56, respectively. Amounts paid for interest were $27,400, $39,015, and $40,736 for fiscal 1998, 1997, and 1996, respectively. Amounts received for interest in those same periods were $3,090, $716, and $1,852, respectively. The significant decrease in interest paid during fiscal 1998 compared to fiscal 1997, reflects a reduction in long-term debt due to the $88.6 million loan prepayment made in March 1997 with proceeds received from the sale of the Marine Systems Group. The increase in interest received in fiscal 1998 compared to fiscal 1997 reflects increased average cash balances also due to the proceeds received from the sale of the Marine Systems Group. In fiscal 1995, the Company acquired the Aerospace operations from Hercules for $306.0 million in cash and 3.86 million shares of stock, valued at $112.0 million. During fiscal 1996, the Company received a net amount of $29.1 million from Hercules as an adjustment to the purchase price. The adjustment was primarily the result of receivables collected just prior to the closing of the acquisition, which reduced assets and lowered the final purchase price. 18 Business Segment Information The Company operates one business segment which is involved in the production of various types of defense systems. The Conventional Munitions Group designs, develops, and manufactures medium-caliber and tank ammunition, munitions propellants, solid rocket propulsion systems, warheads, composite structures for weapons systems, infrared decoy flares, and commercial gun powder. The Space and Strategic Systems Group designs, develops, and manufactures solid rocket propulsion systems for space launch vehicles, strategic missile systems, and provides reinforced composite structures and components for military and commercial aircraft and spacecraft. The Space and Strategic Systems Group also provides operations and technical support for space launches. The Defense Systems Group designs, develops, and manufactures smart munitions, fuzes, electronic systems, and unmanned aerial vehicles. The Emerging Business Group consisted of three primary business units during fiscal year 1998: Global Environmental Solutions, Power Sources Center, and Advanced Technology Applications. Effective April 1, 1998, certain of the Emerging Business Group business pursuits were consolidated into other Company business groups. Certain other non-core operations were phased out. The Company's sales are predominantly derived from contracts with agencies of, and prime contractors to, the U.S. Government. The various U.S. Government customers exercise independent purchasing decisions, and sales to the U.S. Government generally are not regarded as constituting sales to one customer, but instead, each contracting entity is considered to be a separate customer. During fiscal 1998, approximately 82 percent of the Company's sales were derived from contracts with the U.S. Government or U.S. Government prime contractors. The Company's sales to U.S. Government prime contractors include sales to two contractors, Lockheed Martin and Boeing, which comprise greater than 10 percent of the Company's total revenues. During fiscal 1998, sales to Lockheed Martin and Boeing, respectively, represented approximately 20 percent and 11 percent of the Company's total revenues. Export sales to customers were $33.2 million, $58.0 million, and $58.5 million in fiscal years 1998, 1997, and 1996, respectively. The decrease in export sales in fiscal year 1998 compared to fiscal 1997 primarily reflects reduced sales of medium caliber ammunition. The following summarizes the Company's sales to the U.S. Government and total sales by business group. - ------------------------------------------------------------------------------- Years Ended March 31 1998 1997 1996 - ------------------------------------------------------------------------------- U.S. Government contract sales $ 879,056 $ 884,707 $ 887,502 - ------------------------------------------------------------------------------- Sales by business group: Conventional Munitions $ 460,321 $ 483,044 $ 438,227 Space and Strategic Systems 369,996 339,510 316,629 Defense Systems 227,452 243,410 250,959 Emerging Business 27,206 41,448 30,985 Intercompany sales eliminations (9,469) (18,015) (16,195) Total $1,075,506 $1,089,397 1,020,605 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Alliant Techsystems 43 - -------------------------------------------------------------------------------- 19 Quarterly Financial Data (Unaudited) Quarterly financial data is summarized for the years ended March 31, 1998 and 1997 as follows:
- -------------------------------------------------------------------------------------------------------------------- Fiscal Year 1998 Quarter Ended June 29 Sep. 28 Dec. 28 Mar. 31 - -------------------------------------------------------------------------------------------------------------------- Sales $251,639 $266,954 $269,217 $287,696 Gross margin 43,720 45,829 48,065 56,655 Income from continuing operations 14,657 15,920 18,027 19,354 Basic earnings per share from continuing operations 1.13 1.22 1.37 1.49 Diluted earnings per share from continuing operations 1.10 1.18 1.33 1.45 - -------------------------------------------------------------------------------------------------------------------- Net income 14,657 15,920 18,027 19,579 Basic earnings per share 1.13 1.22 1.37 1.51 Diluted earnings per share 1.10 1.18 1.33 1.47 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Fiscal Year 1997 Quarter Ended June 30 Sep. 29 Dec. 29 Mar. 31 - -------------------------------------------------------------------------------------------------------------------- Sales $230,173 $247,648 $300,785 $310,791 Gross margin 36,159 42,323 50,700 35,078 Income from continuing operations 7,614 11,323 16,200 1,522 Basic earnings per share from continuing operations .58 .87 1.24 .12 Diluted earnings per share from continuing operations .57 .85 1.20 .11 - -------------------------------------------------------------------------------------------------------------------- Net income 9,904 12,827 17,225 19,203 Basic earnings per share .76 .99 1.32 1.47 Diluted earnings per share .74 .96 1.28 1.43 - ---------------------------------------------------------------------------------------------------------------------------
The adoption of SOP 96-1, which relates to accounting for environmental remediation liabilities, resulted in a charge to income from continuing operations of $17,442 in the fourth quarter of fiscal 1997 (see Note 16). The Company completed the sale of its Marine Systems Group to Hughes on February 28, 1997. As a result, the Company recorded a gain on the sale of discontinued operations, net of income taxes, of $17,681 during the fourth quarter of fiscal 1997 (see Note 15). Income from the results of discontinued operations, net of income taxes, was $2,290, $1,504, and $1,025 for the first, second, and third quarters of fiscal 1997, respectively. Fourth quarter fiscal 1997 net operating results of the Marine Systems Group are reflected as a component of the gain on the sale of the discontinued operations. Following is a summary of the Company's stock price for the past three years. - ------------------------------------------------------------------------------- Common Stock Price - ------------------------------------------------------------------------------- Quarter Ended High Low - ------------------------------------------------------------------------------- March 31, 1998 $65.00 $55.00 December 28, 1997 65.69 53.75 September 28, 1997 69.00 51.44 June 29, 1997 52.81 40.50 March 31, 1997 54.75 42.00 December 29, 1996 57.38 47.63 September 29, 1996 53.50 46.25 June 30, 1996 49.13 43.75 March 31, 1996 50.50 46.25 December 31, 1995 53.00 44.63 October 1, 1995 47.50 41.50 July 2, 1995 41.75 35.63 March 31, 1995 40.38 34.88 - ------------------------------------------------------------------------------- The Company does not currently pay dividends on its common stock. - ------------------------------------------------------------------------------- 44 Alliant Techsystems ---------------------- Board of Directors - -------------------------------------------------------------------------------- Richard Schwartz Chairman of the Board of Directors and Chief Executive Officer, Alliant Techsystems. More than 35 years' experience in the aerospace industry. Joined Alliant Techsystems in 1995. Previously President of Hercules Aerospace Company and Executive Vice President of Hercules Incorporated. Also served as President, Rocketdyne Division, Rockwell International Corporation. Bachelor's degree, Cooper Union University. MBA, Pepperdine University. Peter A. Bukowick President and Chief Operating Officer, Alliant Techsystems. Joined Alliant in 1995 as Group Vice President, Aerospace Systems. Background includes 30 years' experience in technical, research and development, and business management. Joined Hercules Incorporated in 1968. Held various management positions, including Vice President, Technology, Hercules Aerospace Company. Bachelor's degree, Lafayette College. Ph.D., organic chemistry, University of Virginia. Gilbert F. Decker Consultant to high technology electronics and aerospace industries. Served as Assistant Secretary of the Army, Research, Development, and Acquisition from 1994 to 1997. Also held Chief Executive Officer positions with Xeruca Holding, Incorporated, and Penn Central Federal Systems Company. Bachelor's degree, The Johns Hopkins University. Master's degree in industrial engineering, Stanford University. Thomas L. Gossage Retired Chairman of the Board and Chief Executive Officer, Hercules, Incorporated. Joined Hercules in 1988 as President, Hercules Specialty Chemicals Co. Named Chairman and Chief Executive Officer of Hercules Incorporated in 1991. Served with Monsanto Co. for 26 years prior to joining Hercules. Bachelor's degree and master's degree in chemical engineering, Georgia Institute of Technology. Joel M. Greenblatt Managing and General Partner, Gotham III, an investment partnership. Responsible for portfolio management. Former Chairman of the Board of Directors, Alliant Techsystems. Chairman, St. Lawrence Seaway Corporation. Bachelor's degree and MBA, Wharton School of the University of Pennsylvania. Jonathan G. Guss Director and Chief Executive Officer, Bogen Communications International, Inc., a producer of sound processing equipment and telecommunications peripherals. Also Principal and Chief Executive Officer, EK Management Corp. Previously Principal and President, Active Management Group, and a consultant with Booz, Allen & Hamilton, Inc. Bachelor's degree, Reed College. MBA, Harvard Business School. David E. Jeremiah Admiral, U.S. Navy (Retired). Partner and President, Technology Strategies & Alliances Corporation, a strategic advisory and investment banking firm. Held a variety of command and staff positions during 39-year military career, including Vice Chairman, Joint Chiefs of Staff. Also has chaired and served on intelligence and defense advisory panels, including National Defense Panel and Defense Policy Board. Bachelor's degree, University of Oregon. Master's degree in financial management, George Washington University. Gaynor N. Kelley Retired Chairman and Chief Executive Officer, The Perkin-Elmer Corporation, a manufacturer of analytical instrumentation and materials coating systems. Joined The Perkin-Elmer Corporation in 1950. Held numerous management positions before being elected Chairman and CEO in 1990. Elected to the Board of Directors, Hercules, Incorporated in 1989. Bachelor's degree, Delchanty Institute. Joseph F. Mazzella Partner, Lane Altman & Owens, a law firm in Boston, Massachusetts. Joined Lane Altman & Owens as an associate in 1980. Previously served as an attorney with the Securities and Exchange Commission in Washington, D.C. Bachelor's degree, College of the City of New York. Juris Doctor, Rutgers University. Daniel L. Nir Managing Partner, Sargeant Capital Ventures, L.L.C, an investment partnership. Responsible for portfolio management. Formerly Managing and General Partner, Gotham III. Director, St. Lawrence Seaway Corporation. Bachelor's degrees, University of Pennsylvania College of Arts and Sciences, Wharton School of the University of Pennsylvania. Michael T. Smith Chairman of the Board and Chief Executive Officer, Hughes Electronics Corporation, a satellite and wireless communications company. Joined Hughes Electronics in 1985 after the company was formed following the acquisition of Hughes Aircraft Company by General Motors. Also served in a variety of financial management positions with General Motors. Bachelor's degree, Providence College. MBA, Babson College. - -------------------------------------------------------------------------------- Alliant Techsystems 45 ---------------------- Corporate Officers - -------------------------------------------------------------------------------- Corporate officers who serve as directors are listed under the Board of Directors. Charles H. Gauck Secretary and Associate General Counsel. Extensive corporate legal and corporate secretary experience. Joined Honeywell in 1990. Previously served as Secretary of The Pillsbury Company. Also held legal positions and secretary post with a national retailer. Bachelor's degree and Juris Doctor, University of Minnesota. Robert E. Gustafson Vice President, Human Resources. More than 20 years' experience in human resources management. Joined Honeywell in 1980. Held various human resources management positions with military and commercial divisions. Corporate staff assignments included Director of Executive Compensation and Director of Compensation and Benefits. Also held posts with Litton Industries, The Pillsbury Company, and Hormel. Bachelor's degree, St. Cloud State University. Galen K. Johnson Vice President and Treasurer. Joined Alliant in 1990 as Director of Treasury Operations. Prior experience includes ten years in treasury, accounting, and tax positions with Honeywell, and five years in public accounting with Arthur Andersen. Chartered Financial Analyst and Certified Public Accountant. Bachelor's degree, St. Cloud State University. MBA, University of St. Thomas. Richard N. Jowett Vice President, Investor Relations and Public Affairs. More than 25 years' experience in finance and strategic planning. Joined Honeywell in 1971 and held management positions with several business divisions. Also served as Director of Cash Management for Honeywell. Named Director of Investor Relations for Alliant in 1990. Bachelor's degree, Georgia Institute of Technology. MBA, Georgia State University. William R. Martin Vice President, Washington, D.C. Operations. More than 30 years' experience in design, manufacturing, and business planning in the aerospace and defense industry. Previously Vice President of Business Development for Aerospace Systems Group. Joined Hercules Aerospace Company in 1979 and held various management positions, including Vice President, Business Development and Washington Operations. Mark L. Mele Vice President, Strategic Planning. Extensive background in finance, marketing, business development, and strategic planning. Joined Hercules Incorporated in 1979 and held posts with Aerospace Systems Group and Hercules Aerospace Company before being named Director, Business Development, for Alliant in 1995. Bachelor's degree, Tulane University. MBA, Georgia Institute of Technology. Scott S. Meyers Vice President and Chief Financial Officer. Joined Alliant in 1996. Formerly Executive Vice President and Chief Financial Officer for Magnavox Electronic Systems Company. Extensive experience in financial and administrative management. Background also includes 14 years' experience in public accounting as a partner with KPMG Peat Marwick. Certified Public Accountant. Bachelor's degree, Elmhurst College. Paula J. Patineau Vice President and Controller. Background includes more than 20 years of experience in accounting and finance management, including process and systems improvement, acquisition integration, labor negotiations, and cost management. Joined Honeywell in 1977. Also held accounting position with Sperry Univac Corporation. Bachelor's degree, College of St. Catherine. Paul A. Ross Group Vice President, Space and Strategic Systems. Previously Vice President and General Manager, Space and Strategic Propulsion Division, Aerospace Systems Group. More than 30 years' experience in program management, engineering, quality assurance, finance, and operations with Rockwell International, Cordant Technologies (formerly Thiokol Corporation), and Hercules Aerospace Company. Bachelor's degree, University of Redlands. Don L. Sticinski Group Vice President, Defense Systems. Formerly Vice President, Operations, Space and Strategic Systems Group. Joined Hercules Aerospace Company in 1980. Held key program and operations management positions on all major space and strategic propulsion programs. Bachelor's degree, U.S. Naval Academy. Master's degree in systems engineering, University of Southern California. MBA, University of Colorado. Nick Vlahakis Group Vice President, Conventional Munitions. Previously Vice President and General Manager, Ordnance Division, Conventional Munitions Group. Background includes engineering and management positions in composite structures and space and tactical propulsion programs. Joined Hercules Aerospace Company in 1982. Bachelor's degree, Northwestern University. Master's degree in mechanical engineering, Carnegie-Mellon University. MBA, University of Utah. William G. Wilson Vice President, Technology. Thirty years' experience in engineering, research and development, program management, and business development. Joined Hercules Aerospace Company in 1968. Held key management positions in tactical propulsion, space propulsion, and composite structures businesses. Bachelor's degree and master's degree in mechanical engineering, Clemson University. Ph.D., mechanical engineering, Virginia Polytechnic Institute. Daryl L. Zimmer Vice President and General Counsel. Background includes legal and management positions in government and defense contracting. Experienced in programs dealing with business ethics and conduct. Joined Honeywell in 1967. Served as program director for defense industry ethics at Honeywell. Bachelor's degree, St. John's University. Juris Doctor, William Mitchell College of Law. - -------------------------------------------------------------------------------- 46 Alliant Techsystems ------------------------- Corporate Information - -------------------------------------------------------------------------------- Corporate Headquarters 600 Second Street N.E., Hopkins, Minnesota 55343. Telephone: 612-931-6000. E-mail: alliant_corporate@atk.com Internet address: www.atk.com Annual Meeting of Shareholders The Annual Meeting of Shareholders will be held at 2:00 p.m. on August 4, 1998, at Alliant Techsystems Corporate Headquarters, 600 Second Street N.E., Hopkins, Minnesota. Stock Exchange Listing The common stock of Alliant Techsystems is listed on the New York Stock Exchange under the symbol ATK. It is listed in newspaper stock tables under AlliantTech. More than 10 million shares were traded in fiscal year 1998. The stock price ranged from a low of $40 1/2 to a high of $69. Transfer Agent and Registrar Shareholder inquiries concerning the transfer of shares, lost certificates, or address changes should be directed to Transfer Agent/Registrar, Chemical Mellon Shareholder Services, 450 West 33rd Street, New York, New York 10001. Telephone: 800-851-9677 (toll free). Internet address: www.chasemellon.com Investor Relations Inquiries from shareholders, securities analysts, and others in the professional investment community should be directed to Richard N. Jowett, Vice President, Investor Relations and Public Affairs, Alliant Techsystems, 600 Second Street N.E., MN11-2015, Hopkins, Minnesota 55343. Telephone: 612-931-6080. E-mail: richard_jowett@atk.com. Media Relations Inquiries from the media should be directed to Rod Bitz, Director of Corporate Communications, Alliant Techsystems, 600 Second Street N.E., MN11-2015, Hopkins, Minnesota 55343. Telephone: 612-931-5413. E-mail: rod_bitz@atk.com. Alliant news releases are posted on the Company's Internet site at www.atk.com. Form 10-K Annual Report Shareholders who wish to obtain a copy of the Form 10-K Annual Report filed with the Securities and Exchange Commission for Alliant Techsystems' fiscal year ended March 31, 1998, may do so by writing to the Vice President of Investor Relations and Public Affairs. Community Investment In keeping with our commitment to be a positive force in the communities where we operate, Alliant Techsystems invests both financial and human resources in our communities. For information on the company's giving and volunteerism programs in fiscal year 1998, write to Wayne E. Gilbert, Director of State and Community Affairs, Alliant Techsystems, 600 Second Street N.E., MN11-2015, Hopkins, Minnesota 55343. Telephone: 612-931-5422. E-mail: wayne_gilbert@atk.com. Independent Auditors Deloitte & Touche LLP 400 One Financial Plaza 120 South Sixth Street Minneapolis, Minnesota 55402 Facilities and Offices Conventional Munitions Group Wilmington, Illinois DeSoto, Kansas Elk River, Minnesota Hopkins, Minnesota New Brighton, Minnesota Totowa, New Jersey Socorro, New Mexico Toone, Tennessee Radford, Virginia Rocket Center, West Virginia Space and Strategic Systems Group Vandenberg Air Force Base, California Cape Canaveral, Florida Clearfield, Utah Magna, Utah Tekoi, Utah Defense Systems Group Clearwater, Florida Hopkins, Minnesota New Brighton, Minnesota Horsham, Pennsylvania Hondo, Texas Janesville, Wisconsin Marketing and Sales Huntsville, Alabama Tucson, Arizona Los Angeles, California Ridgecrest, California Colorado Springs, Colorado Shalimar, Florida Fort Benning, Georgia Bettendorf, Iowa Fort Knox, Kentucky Sterling Heights, Michigan Mt. Arlington, New Jersey Dayton, Ohio Fort Sill, Oklahoma Arlington, Virginia - -------------------------------------------------------------------------------- Alliant Techsystems 47 - -------------------------------------------------------------------------------- Conventional Munitions Group Sales as a Percent of Total Company Revenues - -------------------------------------------------------------------------------- Business Overview Designer, developer, and manufacturer [PIE CHART APPEARS HERE] of medium-caliber and large-caliber ammunition, munitions propellants, 43% tactical missile propulsion systems, warheads, metal parts, composite Fiscal year 1998 sales: structures for weapons systems, $465 million infrared decoy flares, and commercial gun powder. Operations in Illinois, Kansas, Minnesota, New Jersey, New Mexico, Tennessee, Virginia, and West Virginia. Approximately 3,100 employees. - -------------------------------------------------------------------------------- Space and Strategic Systems Group Sales as a Percent of Total Company Revenues - -------------------------------------------------------------------------------- Business Overview Designer, developer, and manufacturer [PIE CHART APPEARS HERE] of solid rocket propulsion systems for space and strategic applications 34% and composite structures for military and commercial aircraft and spacecraft. Provider of operations and technical Fiscal year 1998 sales: support services for space launches. $370 million Operations in California, Florida, and Utah. Approximately 1,800 employees. - -------------------------------------------------------------------------------- Defense Systems Group Sales as a Percent of Total Company Revenues - -------------------------------------------------------------------------------- Business Overview Designer, developer, and manufacturer [PIE CHART APPEARS HERE] of unmanned aerial vehicles, antitank and demolition systems, precision-guided 23% munitions, electro-mechanical and electronic fuzes, shoulder-fired weapons Fiscal year 1998 sales: systems, and batteries for military and $242 million aerospace applications. Operations in Florida, Minnesota, Pennsylvania, Texas, and Wisconsin. Approximately 1,100 employees. - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Our Customers Our Competitive Strengths Our Major Programs and Products [PIE CHART APPEARS HERE] [_] Design and production of conventional [_] 120mm training and tactical tank ammunition ammunition, ordnance, composite [_] Medium-caliber training and tactical ammunition [_] U.S. Army -- 69% structures, and metal parts [_] Rocket motors, warheads, and metal parts for AGM- [_] Commercial -- 11% [_] Producer of high-quality ammunition, 130, AIM-9X, AMRAAM, Hellfire, Hydra-70, [_] U.S. Air Force -- 11% rocket motors, flares, and pyrotechnics Maverick, TOW II, and other tactical missiles [_] U.S. Navy -- 5% [_] Safe manufacture of high-energy [_] Propellants for tank and medium caliber [_] International -- 4% propellants ammunition [_] Rigorous process control standards [_] Gun powders for sporting [_] Repeatable products reloaders and ammunition manufacturers [_] Talented and dedicated workforce of [_] Composite structures for tactical aircraft and 3,100 employees weapons systems [_] Infrared decoy flares for aircraft protection - ------------------------------------------------------------------------------------------------------------------------------------ Our Customers Our Competitive Strengths Our Major Programs and Products - ------------------------------------------------------------------------------------------------------------------------------------ [PIE CHART APPEARS HERE] [_] Automated, low-cost production of large [_] SRMU strap-on space boosters and launch rocket motors with repeatable performance support services for Lockheed Martin Titan IV B [_] U.S. Air Force -- 37% [_] Rigorous quality and process control systems rocket [_] Commercial -- 27% to ensure safe, consistent manufacturing [_] GEM strap-on space boosters for the Boeing Delta [_] U.S. Navy -- 18% [_] Full-service composite structures capability, family of launch vehicles [_] NASD -- 15% including automated fiber-placed and filament- [_] Solid propulsion systems for Pegasus(R) and [_] Other DoD -- 3% wound structures and Taurus(R) space launch vehicles [_] Repeatable products [_] Solid propulsions system for Trident II (D5) [_] Talented and dedicated workforce of 1,800 Fleet Ballistic Missile employees [_] Cryogenic hydrogen tanks for Lockheed Martin X-33 Advanced Technology Demonstrator and Venture Star(TM) Reusable Launch Vehicle [_] Composite structures for F-22, Joint Strike Fighter, Boeing 767, and C-17 aircraft [_] Satellite system composite piece parts, instrument benches, and dimensionally stable assemblies - ------------------------------------------------------------------------------------------------------------------------------------ Our Customers Our Competitive Strengths Our Major Programs and Products - ------------------------------------------------------------------------------------------------------------------------------------ [PIE CHART APPEARS HERE] [_] Electro-mechanical and electronic fuze design [_] Objective Individual Combat Weapon (OICW) and manufacture [_] Outrider(TM) Tactical Unmanned Aerial Vehicle [_] U.S. Army -- 63% [_] Munitions design and systems integration (TUAV) [_] U.S. Navy -- 11% [_] Design and integration of sensors and control [_] Sense and Destroy Armor (SADARM) munition [_] Commercial -- 8% electronics for smart weapons [_] Electro-mechanical and electronic fuzes [_] U.S. Marine Corps -- 8% [_] Battery development and manufacture [_] Tank Extended Range Munition -- Kinetic Energy [_] U.S. Air Force -- 7% [_] Rigorous process control standards (TERM-KE) [_] International -- 2% [_] Repeatable products [_] VOLCANO and Shielder munition systems [_] Other DoD -- 1% [_] Talented and dedicated workforce of 1,100 [_] Lithium and polymer batteries for aerospace and employees defense applications - ------------------------------------------------------------------------------------------------------------------------------------
[LOGO OF ALLIANT TECH SYSTEMS APPEARS HERE] 600 Second Street N.E. Hopkins, Minnesota USA 55343 EX-21 8 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF ALLIANT TECHSYSTEMS INC. Jurisdiction Name of Subsidiary of Incorporation ------------------ ---------------- Alliant Defense Electronics Systems, Inc. Delaware New River Energetics, Inc. Delaware The Registrant has other subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of March 31, 1998. EX-23 9 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS Alliant Techsystems Inc.: We hereby consent to the incorporation by reference in Registration Statements No. 33-36981, No. 33-48851, No. 33-91138, No. 33-91196, No. 333-33305, and 333-38775 of our reports dated May 11, 1998, appearing in and incorporated by reference in this Annual Report on Form 10-K of Alliant Techsystems Inc. for the year ended March 31, 1998. DELOITTE & TOUCHE LLP Minneapolis, Minnesota June 25, 1998 EX-24 10 POWERS OF ATTORNEY Exhibit 24 ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ Gilbert F. Decker --------------------- 10KPOWER ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ T. L. Gossage ----------------- 10KPOWER ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ Joel M. Greenblatt ---------------------- 10KPOWER ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ Jonathan Guss ----------------- 10KPOWER ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ David E. Jeremiah --------------------- 10KPOWER ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ Gaynor N. Kelley -------------------- 10KPOWER ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ Joseph F. Mazzella ---------------------- 10KPOWER ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ Daniel L. Nir ----------------- 10KPOWER ALLIANT TECHSYSTEMS INC. POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of ALLIANT TECHSYSTEMS INC., a Delaware corporation (the "Company"), does hereby make, constitute and appoint Richard Schwartz, Scott S. Meyers, Daryl L. Zimmer and Charles H. Gauck, and each or any one of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of the Company to the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for the fiscal year ended March 31, 1998, or other applicable form, including any and all exhibits, schedules, supplements, amendments and supporting documents thereto, to be filed by the Company with the Securities and Exchange Commission, Washington, D.C., as required in connection with the Company's registration under the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand as of the 11th day of May, 1998. /s/ Michael T. Smith -------------------- 10KPOWER EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K FILING FOR YEAR ENDED 3/31/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR MAR-31-1998 MAR-31-1997 APR-01-1997 APR-01-1996 MAR-31-1998 MAR-31-1997 68,960 122,491 0 0 209,915 190,675 177 107 49,072 68,125 373,030 427,257 520,348 520,718 187,167 162,615 932,180 1,000,588 277,402 319,066 180,810 237,071 44,979 0 0 0 121 131 220,654 218,661 932,180 1,000,588 1,075,506 1,089,397 1,075,506 1,089,397 881,237 925,137 881,237 925,137 12,447 16,207 0 0 27,621 35,102 67,958 36,659 0 0 67,958 36,659 225 22,500 0 0 0 0 68,183 59,159 5.23 4.55 5.10 4.41
-----END PRIVACY-ENHANCED MESSAGE-----