-----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, Ae75O4FDdU6dEcfWW8Xvrz910WzJb81d8vV7dYlkzkGth5X1ovxseDAYm3akScXu riC7Hj0RVBTVmQvPObv5Kg== 0001045969-00-000130.txt : 20000216 0001045969-00-000130.hdr.sgml : 20000216 ACCESSION NUMBER: 0001045969-00-000130 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000215 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-Q SEC ACT: SEC FILE NUMBER: 001-10582 FILM NUMBER: 545059 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-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended January 2, 2000 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-10582 ALLIANT TECHSYSTEMS INC. (Exact name of registrant as specified in its charter) DELAWARE 41-1672694 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 SECOND STREET N.E. HOPKINS, MINNESOTA 55343-8384 (Address of principal executive office) (Zip Code) (612) 931-6000 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year if changed from last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of January 31, 2000, the number of shares of the registrant's common stock, par value $.01 per share, outstanding was 9,402,307 (excluding 4,461,306 treasury shares). PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Income Statements (Unaudited)
(In thousands except QUARTERS ENDED NINE MONTHS ENDED -------------- --------------- ------------- --------------- per share data) January 2 December 27 January 2 December 27 2000 1998 2000 1998 -------------- --------------- ------------- --------------- Sales $ 244,407 $ 274,446 $ 769,917 $ 789,765 Cost of sales 191,254 226,086 616,623 650,740 -------------- --------------- ------------- --------------- Gross margin 53,153 48,360 153,294 139,025 Operating expenses: Research and development 2,781 1,971 7,586 5,703 Selling 5,552 5,536 16,121 20,022 General and administrative 14,595 14,885 41,335 38,966 -------------- --------------- ------------- --------------- Total operating expenses 22,928 22,392 65,042 64,691 -------------- --------------- ------------- --------------- Income from operations 30,225 25,968 88,252 74,334 Miscellaneous expense (29) (61) (11) (19) -------------- --------------- ------------- --------------- Income before interest and income taxes 30,196 25,907 88,241 74,315 Interest expense (8,088) (5,213) (25,550) (16,089) Interest income 172 505 419 1,172 -------------- --------------- ------------- --------------- Income from continuing operations before income taxes 22,280 21,199 63,110 59,398 Income tax provision 5,794 3,180 16,026 8,910 -------------- --------------- ------------- --------------- Income from continuing operations 16,486 18,019 47,084 50,488 Gain on disposal of discontinued operations, net of income taxes -- -- 9,450 -- -------------- --------------- ------------- --------------- Income before extraordinary loss 16,486 18,019 56,534 50,488 Extraordinary loss on early extinguishments of debt, net of income taxes -- (1,661) -- (16,288) -------------- --------------- ------------- --------------- Net income $ 16,486 $ 16,358 $ 56,534 $ 34,200 ============== =============== ============= =============== Basic earnings per common share: Income from continuing operations $ 1.67 $ 1.50 $ 4.64 $ 4.06 Discontinued operations -- -- .93 -- Extraordinary loss -- (.14) -- (1.31) -------------- --------------- ------------- --------------- Basic earnings per common share $ 1.67 $ 1.36 $ 5.57 2.75 ============== =============== ============= =============== Diluted earnings per common share: Income from continuing operations $ 1.65 $ 1.45 $ 4.55 $ 3.96 Discontinued operations -- -- .91 -- Extraordinary loss -- (.13) -- (1.28) -------------- --------------- ------------- --------------- Diluted earnings per common share $ 1.65 $ 1.32 $ 5.46 $ 2.68 ============== =============== ============= =============== Average number of common shares (thousands) 9,899 12,047 10,150 12,419 ============== =============== ============= =============== Average number of common and dilutive shares (thousands) 10,025 12,386 10,351 12,740 ============== =============== ============= ===============
See Notes to Consolidated Financial Statements Consolidated Balance Sheets (Unaudited)
-------------------- -------------------- (In thousands except share data) January 2, 2000 March 31, 1999 -------------------- -------------------- Assets Current assets: Cash and cash equivalents $ 13,065 $ 21,078 Receivables 228,228 233,499 Net inventory 49,556 44,030 Deferred income tax asset 41,912 41,912 Other current assets 3,776 2,589 -------------------- ------------------- Total current assets 336,537 343,108 Net property, plant, and equipment 330,585 335,751 Goodwill 125,168 127,799 Prepaid and intangible pension assets 79,172 77,552 Other assets and deferred charges 8,437 10,108 -------------------- ------------------- Total assets $ 879,899 $ 894,318 ==================== =================== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 53,513 $ 36,500 Line of credit borrowings 33,000 - Accounts payable 54,678 93,991 Contract advances and allowances 42,699 49,456 Accrued compensation 26,202 32,433 Accrued income taxes 22,829 13,075 Other accrued liabilities 46,141 61,033 -------------------- ------------------- Total current liabilities 279,062 286,488 Long-term debt 291,206 305,993 Post-retirement and post-employment benefits liability 119,383 128,279 Other long-term liabilities 54,389 54,835 -------------------- ------------------- Total liabilities $ 744,040 $ 775,595 Contingencies Common stock - $.01 par value Authorized - 20,000,000 shares Issued and outstanding 9,673,645 shares at January 2, 2000 and 10,284,530 at March 31, 1999 $ 139 $ 139 Additional paid-in-capital 236,848 238,513 Retained earnings 179,890 123,357 Unearned compensation (2,973) (3,289) Pension liability adjustment (2,940) (2,940) Common stock in treasury, at cost (4,190,268 shares held at January 2, 2000 and 3,579,083 at March 31, 1999) (275,105) (237,057) -------------------- ------------------- Total stockholders' equity $ 135,859 $ 118,723 -------------------- ------------------- Total liabilities and stockholders' equity $ 879,899 $ 894,318 ==================== ===================
See Notes to Consolidated Financial Statements Consolidated Statements of Cash Flows (Unaudited)
(In thousands) NINE MONTHS ENDED ------------------------ ------------------------ January 2, 2000 December 27, 1998 ------------------------ ------------------------ Operating activities Net income $ 56,534 $ 34,200 Adjustments to net income to arrive at cash provided by operations: Depreciation 30,093 28,913 Amortization of intangible assets and unearned Compensation 6,615 4,407 Extraordinary loss on early extinguishment of debt - 16,288 Loss on disposal of property 1,878 462 Changes in assets and liabilities: Receivables 5,271 (30,555) Inventory (5,525) 9,596 Accounts payable (39,312) 4,398 Contract advances and allowances (6,757) 10,396) Accrued compensation (6,231) (6,252) Accrued income taxes 9,754 7,521 Accrued restructuring and facility consolidation - (2,079) Accrued environmental liability (95) (524) Pension and post-retirement benefits (9,247) (6,126) Other assets and liabilities (17,383) (20,705) ----------- ----------- Cash provided by operations 25,595 29,148 ----------- ----------- Investing activities Capital expenditures (27,743) 27,172) Acquisition of business - (1,100) ---------- ----------- Cash used for investing activities (27,743) (28,272) ---------- ----------- Financing activities Net borrowings on line of credit 33,000 - Payments made on bank debt (26,775) (48,648) Payments made to extinguish high yield debt - (152,997) Proceeds from issuance of long-term debt 29,000 350,193 Payments made for debt issue costs - (8,691) Net purchase of treasury shares (42,618) (175,646) Proceeds from exercised stock options 1,528 3,731 ---------- ----------- Cash used for financing activities (5,865) (32,058) ---------- ----------- Decrease in cash and cash equivalents (8,013) (31,182) Cash and cash equivalents - beginning of period 21,078 68,960 ---------- ----------- Cash and cash equivalents - end of period $ 13,065 $ 37,778 ========== ===========
See Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements (Unaudited) 1. During the nine-months ended January 2, 2000, the Company made principal payments on its bank term debt of $26.8 million. At January 2, 2000, the Company had borrowings of $33.0 million against its $250 million bank revolving credit facility. Additionally, the Company had outstanding letters of credit of $43.3 million, which further reduced amounts available on the revolving facility to $173.7 million at January 2, 2000. The remaining scheduled minimum loan payments on outstanding long-term debt are as follows: fiscal 2000, $11.8 million; fiscal 2001, $55.7 million; fiscal 2002 through 2004, $69.2 million, per year; fiscal 2005, $69.7 million. The Company currently has interest rate swaps with a total notional amount of $200 million. Of this total, swaps with a total notional amount of $100 million have 6-year terms and swap interest rates between 6.32 and 6.55 percent (6.43 percent average). The remaining swap has a $100 million notional amount, a swap rate of 6.1 percent, and is effective for 10 years, with a bank cancellation option in January 2001. The fair market value of the Company's interest rate swaps is $2.3 million at January 2, 2000. 2. The major categories of current and long-term accrued liabilities are as follows (in thousands):
Period Ending ------------------------------------------------------------- January 2, 2000 March 31, 1999 ----------------------------------------------------------------------------------------------------------- Employee benefits and insurance $21,088 $30,231 Legal accruals 7,302 10,045 Other accruals 17,751 20,757 ----------------------------------------------------------------------------------------------------------- Other accrued liabilities-current $46,141 $61,033 ----------------------------------------------------------------------------------------------------------- Environmental remediation liability $17,949 $18,044 Deferred tax liability 25,838 25,838 Supplemental employee retirement plan 10,602 10,953 ----------------------------------------------------------------------------------------------------------- Other long-term liabilities $54,389 $54,835 ===========================================================================================================
The decrease in employee benefits and insurance since March 31, 1999 is reflective of payments made during the nine-month period ended January 2, 2000, for previously accrued employee payroll taxes. 3. Tax payments of $6.1 and $1.4 million were paid for alternative minimum taxes during the nine-month periods ended January 2, 2000, and December 27, 1998, respectively. The Company's provision for income taxes includes both federal and state income taxes. Income tax expense on continuing operations was $5.8 and $16.0 million for the three and nine-month periods ended January 2, 2000, compared to $3.2 and $8.9 million for the comparable period of the prior year. Income tax provisions for interim periods are based on estimated effective annual income tax rates. The estimated effective tax rate for the current fiscal year ending March 31, 2000 is reflective of the Company's best estimate of the fiscal 2000 tax effects associated with its business strategies, as well as the resolution of tax matters during the year. 4. On December 15, 1998, the Company completed the repurchase of 1.7 million shares of its common stock at a price of $77 per share, or approximately $130 million in total. The repurchase occurred via the terms and conditions of a modified "Dutch auction" tender offer (Dutch auction) and was financed under the Company's bank credit facilities. In connection with the completion of the Dutch auction, the Company's Board of Directors authorized the Company to repurchase up to an additional 1.1 million shares of its common stock which was completed in the current quarter. The total cost of repurchases made under the program aggregated approximately $77.8 million. On October 26, 1999 the Company's Board of Directors authorized the Company to make additional share repurchases (over and above the 1.1 million shares previously authorized) of up to 1.0 million shares of its common stock. Any repurchases made under this authorization would be subject to market conditions and the Company's compliance with its debt covenants. As of January 2, 2000, the Company's debt covenants would allow the Company to make additional share repurchases of approximately $60 million of the Company's stock. There can be no assurance that the Company will purchase all or any portion of the shares, or as to the timing or terms thereof. 5. Contingencies: Environmental Matters - The Company is subject to various local and national laws relating to protection of the environment and is in various stages of investigation or remediation of potential, alleged, or acknowledged contamination. At January 2, 2000, the accrued liability for environmental remediation of $30.7 million represents management's best estimate of the present value of the probable and reasonably estimable costs related to the Company's known remediation obligations. It is expected that a significant portion of the Company's environmental costs will be reimbursed to the Company. As collection of those reimbursements is estimated to be probable, the Company has recorded a receivable of $9.6 million, representing the present value of those reimbursements at January 2, 2000. Such receivable primarily represents the expected reimbursement of costs associated with the Aerospace operations acquired from Hercules in the Aerospace acquisition, whereby the Company generally assumed responsibility for environmental compliance at Aerospace facilities. It is expected that much of the compliance and remediation costs associated with these facilities will be reimbursable under U.S. Government contracts, and that those environmental remediation costs not covered through such contracts will be covered by Hercules under various indemnification agreements, subject to the Company having appropriately notified Hercules of issues identified prior to the expiration of the stipulated notification periods (March 2000 or March 2005, depending on site ownership). The Company is in the process of finalizing its investigations for the March 2000 deadline. The Company will notify Hercules of any issues prior to this date. The Company's accrual for environmental remediation liabilities and the associated receivable for reimbursement thereof, have been discounted to reflect the present value of the expected future cash flows, using a discount rate, net of estimated inflation, of approximately 4.5 percent. The following is a summary of the Company's amounts recorded for environmental remediation at January 2, 2000 (in thousands):
Accrued Environmental Costs-- Environmental Liability Reimbursement Receivable ------------------------------------------------------------------------------------------------------ Amounts (Payable)/Receivable $(40,068) $13,259 Unamortized Discount 9,351 (3,706) ------------------------------------------------------------------------------------------------------ Present Value Amounts (Payable)/Receivable $(30,717) $ 9,553 ------------------------------------------------------------------------------------------------------
At January 2, 2000, the estimated discounted range of reasonably possible costs of environmental remediation is between $31 and $46 million. The Company does not anticipate that resolution of the environmental contingencies in excess of amounts accrued, net of recoveries, will materially affect future operating results. In future periods, new laws or regulations, advances in technologies, outcomes of negotiations/litigations with regulatory authorities and other parties, additional information about the ultimate remedy selected at new and existing sites, the Company's share of the cost of such remedies, changes in the extent and type of site utilization, the number of parties found liable at each site and their ability to pay are all factors that could significantly change the Company's estimates. It is reasonably possible that management's current estimates of liabilities for the above contingencies could change in the near term, as more definitive information becomes available. Legal Matters - As a U.S. Government contractor, the Company is subject to defective pricing and cost accounting standards non-compliance claims by the Government. Additionally, the Company has substantial Government contracts and subcontracts, the prices of which are subject to adjustment. The Company believes that resolution of such claims and price adjustments made or to be made by the Government for open fiscal years (1994 through 1999) will not materially exceed the amount provided in the accompanying balance sheets. The Company is a defendant in a number of lawsuits that arise out of, and are incidental to, the conduct of its business. Such matters arise out of the normal course of business and relate to product liability, intellectual property, government regulations, including environmental issues, and other issues. Certain of the lawsuits and claims seek damages in very large amounts. In these legal proceedings, no director, officer, or affiliate is a party or a named defendant. The Company has agreed to settle the civil action captioned United States v. Alliant Techsystems Inc., which was filed in the U.S. District Court for the District of Minnesota on March 10, 1997, alleging violations of the False Claims Act, the Truth in Negotiations Act, and common law and equitable theories of recovery, in connection with a contract for the AT4 shoulder-fired weapon. Under the terms of the settlement, the Company will pay $1.3 million, including interest, but will not admit to any liability for either fraud or violation of the False Claims Act. The patent infringement case brought against the Company by Cordant Technologies (formerly Thiokol Corporation), which was filed in the U.S. District Court for the District of Delaware on November 15, 1995, was dismissed by the U.S. Court of Appeals for the Federal Circuit on September 29, 1999. The dismissal followed an agreement by the parties to dismiss the action with prejudice and to resolve future rocket motor patent related disputes, if any, under a specified alternative dispute resolution mechanism. During fiscal 1998, the Company substantially completed the requirements of the M117 Bomb reclamation contract. The contract contained a priced option, having approximate contract value less than $5 million, whereby the customer could require the reclamation of additional quantities, given that such option be exercised within the terms and conditions of the contract. On August 4, 1997, the customer informed the Company that it was exercising the option. The Company, based on advice from its counsel, maintained that the option exercise was invalid and therefore did not perform on the option. The Company's appeal of the validity of the option to the United States Court of Appeals for the Federal Circuit, and subsequent request for a hearing en banc related to the option's validity, were both denied. In late December 1997, the Company was informed by the customer that the Company was being terminated for default on the contract option. Depending on the outcome of the termination for default litigation, which involves allegations unrelated to the validity of the option, management currently believes that the impact to the Company's future operating earnings will not be material. During fiscal 1998, the Company identified potential technical and safety issues on its Explosive "D" contracts that, depending on the outcome of the continuing evaluation of these risks and the potentially mitigating solutions, could add cost growth to the program. These potential technical and safety issues have caused the Company to delay contract performance until the issues are resolved to the satisfaction of the Company. As a result, the Government customer has provided the Company notification that it has been terminated for default on the contracts. The Company is currently working closely with the customer to resolve these matters. Based on information known at this time, management believes that the range of reasonably possible additional cost impact that could occur as a result of the potential technical and safety issues on the Explosive "D" program will not be material. However, the ultimate outcome is dependent on the extent to which the Company is able to mitigate these potential risks and ultimately resolve the contractual performance issues on a mutually agreeable basis. The Company does not believe that the above contract terminations will have a material adverse impact on the Company's future results of operations, its liquidity, or its financial position. While the results of litigation cannot be predicted with certainty, management believes, based upon the advice of counsel, that the actions seeking to recover damages against the Company either are without merit, are covered by insurance and reserves, do not support any grounds for cancellation of any contract, or are not likely to materially affect the financial condition or results of operations of the Company, although the resolution of any such matters during a specific period could have a material adverse effect on the quarterly or annual operating results for that period. 6. Interest paid during the nine-month periods ended January 2, 2000, and December 27, 1998, totaled $24.4 million and $14.3 million, respectively. Interest charges under the Company's revolving credit facility are primarily at the London Inter Bank Offering Rate (LIBOR), plus 1.75 percent (which totaled 7.9 percent at January 2, 2000), and will be subject to change in the future, as changes occur in market conditions and in the Company's financial performance and leverage ratios. 7. The Company conducts its business primarily in three operating segments: Conventional Munitions, Aerospace, and Defense Systems. These operating segments are defined based on product similarity and end-use functionality. The following summarizes the Company's results, by operating segment for the current periods:
Three-Months Ended Nine-Months Ended -------------------------------------------------------------------- Jan. 2, 2000 Dec. 27, 1998 Jan. 2, 2000 Dec. 27, 1998 --------------------------------------------------------------------------------------------------------------- Sales from External Customers - Conventional Munitions $89,175 $108,052 $287,245 $291,912 - Aerospace 108,291 97,712 329,202 343,938 - Defense Systems 46,941 68,682 153,470 153,915 - Corporate - - - - --------------------------------------------------------------------------------------------------------------- Total External Sales $244,407 $274,446 $769,917 $789,765 --------------------------------------------------------------------------------------------------------------- Intercompany Sales - Conventional Munitions $1,372 $2,864 $5,400 $5,325 - Aerospace 73 45 324 39 - Defense Systems - 71 - 108 - Corporate (1,445) (2,980) (5,724) (5,472) --------------------------------------------------------------------------------------------------------------- Total Intercompany Sales - - - - --------------------------------------------------------------------------------------------------------------- Total Sales $244,407 $274,446 $769,917 $789,765 --------------------------------------------------------------------------------------------------------------- Income before Income Taxes - Conventional Munitions $10,985 $3,722 $16,329 $10,265 - Aerospace 11,805 7,579 39,224 35,828 - Defense Systems (3,221) 4,688 (2,226) (2,114) - Corporate 2,711 5,210 9,783 15,419 --------------------------------------------------------------------------------------------------------------- Total Income before income taxes $22,280 $21,199 $63,110 $59,398 ---------------------------------------------------------------------------------------------------------------
8. Basic Earnings Per Share (EPS) is computed based upon the weighted average number of common shares outstanding for each period presented. Diluted EPS is computed based on the weighted average number of common shares and common equivalent shares. Common equivalent shares represent the effect of redeemable common stock and stock options outstanding during each period presented, which, if exercised, would have a dilutive effect on EPS. In computing EPS for the three and nine-month periods ended January 2, 2000 and December 27, 1998, net income as reported for each respective period, is divided by:
Three-Months Ended Nine-Months Ended ---------------------------------------------------------------------- Jan. 2, 2000 Dec. 27, 1998 Jan. 2, 2000 Dec. 27, 1998 --------------------------------------------------------------------------------------------------------------- Basic EPS: - Average Shares Outstanding 9,899 12,047 10,150 12,419 --------------------------------------------------------------------------------------------------------------- Diluted EPS: - Average Shares Outstanding 9,899 12,047 10,150 12,419 - Dilutive effect of options and 126 339 201 321 redeemable common shares --------------------------------------------------------------------------------------------------------------- Diluted EPS Shares Outstanding 10,025 12,386 10,351 12,740 ---------------------------------------------------------------------------------------------------------------
Due to the option price being greater than the average market price of the common shares, there were 556,500 and 349,600 stock options, respectively, that were not included in the computation of diluted EPS for the three and nine-month periods ended January 2, 2000. There were no anti-dilutive shares for the comparable periods of the prior year. 9. For the nine-months ended January 2, 2000, the Company recognized a $9.5 million gain on disposal of discontinued operations (net of $.1 million in taxes), due to resolution of an insurance settlement related to the Company's former demilitarization operations in Ukraine. This gain was recognized during the quarter ended October 3, 1999. 10. The figures set forth in this quarterly report are unaudited but, in the opinion of the Company, include all adjustments necessary for a fair presentation of the results of operations for the three and nine-month periods ended January 2, 2000, and December 27, 1998. The Company's accounting policies are described in the notes to financial statements in its fiscal 1999 Annual Report on Form 10-K. 11. In March 1998, the AICPA issued Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Effective April 1, 1999, the Company adopted this SOP. It did not have a material impact to the Company's results of operations or its financial position for the three or nine-month periods ended January 2, 2000. 12. Certain reclassifications have been made to the fiscal 1999 financial statements, as previously reported, to conform to current classification. These reclassifications did not affect the net income from operations as previously reported. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- Sales Sales for the quarter ended January 2, 2000 totaled $244.4 million, a decrease of $30.0 million, or 10.9 percent, from $274.4 million for the comparable quarter in the prior year. Aerospace segment sales were $108.4 million, an increase of $10.6 million, or 10.8 percent, from $97.8 million for the comparable quarter in the prior year. The increase is attributable to increased sales of composite structures for the Delta IV and Atlas V space launch vehicles. Conventional Munitions segment sales were $90.5 million, a decrease of $20.4 million, or 18.4 percent, from $110.9 million for the comparable quarter in the prior year. The decrease was primarily attributable to lower propellant sales, decreased medium caliber ammunition sales caused by relocation of production facilities, and reduced flare sales due to a temporary slowdown in production. Defense Systems segment sales were $46.9 million, a decrease of $21.9 million, or 31.8 percent, from $68.8 million for the comparable quarter in the prior year. The decrease was driven primarily by higher prior year volume on anti-tank munitions programs and the prior year completion of sales on the Outrider(TM) Tactical Unmanned Aerial Vehicle development program. Sales for the nine-month period ended January 2, 2000 totaled $769.9 million, a decrease of $19.9 million, or 2.5 percent, from $789.8 million for the comparable period of the prior year. Aerospace segment sales for the nine-month period ended January 2, 2000 were $329.6 million, an increase of $37.6 million or 12.9 percent, compared to $292.0 million for the comparable period of the prior year. The increase is attributable to higher Delta and Atlas composite sales and increased sales on the National Missile Defense and Delta propulsion programs. Conventional Munitions segment sales were $292.6 million, a decrease of $56.6 million, or 16.2 percent, from $349.2 million for the comparable quarter in the prior year. The decrease was primarily attributable to decreased propellant sales, reduced tank ammunition sales due to timing of contractual production requirements and replacement of a current production program in the prior year with the next-generation-round development program in the current year, and lower flare sales due to a temporary slowdown in production. Defense Systems segment sales were $153.5 million, compared to $154.1 million for the comparable period of the prior year. Company sales for fiscal 2000 are expected to be approximately $1.1 billion. Gross Margin The Company's gross margin for the quarter ended January 2, 2000, was $53.2 million, or 21.8 percent of sales, compared to $48.4 million, or 17.6 percent of sales for the comparable quarter of the prior year. The margin improvement was due partially to the Conventional Munitions segment increased margins on tank ammunition, reduced costs on ordnance reclamation projects, and the absence of a prior year inventory write-down and contract close-out costs. In addition, margins improved in the Aerospace segment due primarily to improved margins on composite structures during the current quarter. These increases were offset by decreased margins in the Defense Systems segment due to higher costs incurred as a result of technical issues on certain battery and fuzing programs. Gross margin for the nine-month period ended January 2, 2000 totaled $153.3 million, or 19.9 percent of sales, compared to $139.0 million, or 17.6 percent of sales for the comparable period of the prior year. The increase is primarily attributable to Conventional Munitions, due to improved margins on tank ammunition, and the absence of a prior inventory write-down and contract close-out costs. In addition, Defense Systems margins were positively impacted approximately $3 million due to the resolution of cost reimbursement matters on completed fuzing contracts. Finally, Aerospace's margins were higher due to improved composite structures margins. Fiscal 2000 gross margin, as a percent of sales, is expected to be approximately 19.0 percent. Operating Expenses The Company's operating expenses for the quarter ended January 2, 2000, totaled $22.9 million, or 9.4 percent of sales, compared to $22.4 million, or 8.2 percent of sales for the comparable quarter of the prior year. The increase in the current quarter was driven by higher research and development costs incurred during the quarter. Operating expenses for the nine-month period ended January 2, 2000 totalled $65.0 million, or 8.4 percent of sales, compared to $64.7 million, or 8.2 percent of sales for the comparable period of the prior year. The overall increase was driven by current year increased research and development costs and one-time legal and consulting expenditures made during the current year on certain internal company initiatives. These increases were offset by reduced selling costs due to the timing of program pursuits in the prior year period, which included significant costs in the Defense Systems segment as well as in the Conventional Munitions segment, which spent approximately $2.2 million in pursuit of the M829E3 tank ammunition program, the development program for the next generation tactical tank ammunition round, awarded to the Company in fiscal 1999. Fiscal 2000 operating expenses, stated as a percent of sales, are expected to be approximately 8.0 - 8.5 percent. Interest Expense The Company's net interest expense for the quarter ended January 2, 2000, was $7.9 million, an increase of $3.2 million, compared to $4.7 million for the comparable quarter in the prior year. Net interest expense for the nine-month period ended January 2, 2000 was $25.1 million, an increase of $10.2 million, compared to $14.9 million for the comparable period of the prior year. The increase in the current year expense was driven by higher average outstanding borrowings in the current periods, which was primarily driven by repurchases of the Company's stock in late fiscal 1999 and fiscal 2000. See discussion of the Company's share repurchases below. Income before Income Taxes The Company's income before income taxes (earnings before taxes, or "EBT") for the quarter ended January 2, 2000 was $22.3 million, compared to $21.2 million for the comparable quarter of the prior year. Aerospace segment EBT for the quarter ended January 2, 2000, was $11.8 million, an increase of $4.2 million, compared to $7.6 million for the comparable quarter of the prior year. The current quarter increase was driven by increased composite structures margins, and the resolution of cost reimbursement matters on now completed contracts. Conventional Munitions segment EBT for the quarter ended January 2, 2000, was $11.0 million, compared to $3.7 million for the comparable quarter of the prior year. The increase is primarily reflective of higher margins on tank ammunition, reduced costs on ordnance reclamation projects, and the absence of one-time inventory write-downs and contract close- out costs incurred in the prior year, partially offset by current-year reduced margins at the Company's flare production facility due to production slowdown. Defense Systems segment EBT for the quarter ended January 2, 2000 was $(3.2) million, a decrease of $7.9 million, compared to $4.7 million for the comparable quarter of the prior year. The decrease in the current year quarter reflects lower sales and cost growth due to technical issues on certain battery and fuzing programs. In addition, the prior year was affected positively by resolution of cost reimbursement matters on completed contracts. EBT for the nine-month period ended January 2, 2000 totaled $63.1 million, an increase of $3.7 million, compared to $59.4 million for the comparable period of the prior year. Aerospace segment EBT for the nine-month period ended January 2, 2000, was $39.2 million, compared to $35.8 million for the comparable period of the prior year, driven primarily by higher margins on composite structures. Conventional Munitions segment EBT for the nine-month period ended January 2, 2000 was $16.3 million, an increase of $6.0 million, compared to $10.3 million for the comparable period of the prior year. The increase is primarily due to higher margins on tank ammunition programs, and the absence of a prior year inventory write-down and contract close-out costs. Defense Systems EBT for the nine-month period ended January 2, 2000 was $(2.2) million, compared to $(2.1) million for the comparable period of the prior year. The current year is affected positively by approximately $3 million arising out of the resolution of cost reimbursement matters on now complete fuzing contracts, offset by a non-recurring expense of approximately $4.0 million to re-value certain long-term assets (primarily fixed assets) to the estimated net realizable value, as the segment's management has elected to pursue disposal by sale of certain assets no longer deemed critical to the business. Income Taxes Income tax expense was $5.8 and $16.0 million for the three and nine-month periods ended January 2, 2000, compared to $3.2 and $8.9 million for the comparable periods of the prior year. Income tax provisions for interim periods are based on estimated effective annual income tax rates. The estimated effective tax rate for the current fiscal year ending March 31, 2000, is reflective of the Company's best estimate of the fiscal 2000 tax effects associated with its business strategies, as well as the resolution of tax matters during the year. Discontinued Operations For the nine-months ended January 2, 2000, the Company recognized a $9.5 million gain on disposal of discontinued operations (net of $.1 million in taxes) due to the resolution of an insurance settlement related to the Company's former demilitarization operations in Ukraine. This gain was recognized during the quarter ended October 3, 1999. Net Income Net income reported for the quarter ended January 2, 2000, was $16.5 million, compared with net income of $16.4 million for the comparable quarter of the prior year. The slight increase in the current year is due to increased gross margins in the Aerospace and Conventional Munitions segments, offset by current year increases in interest and income tax expenses. Net income for the nine-month period ended January 2, 2000 was $56.5 million, an increase of $22.3 million, compared to net income of $34.2 million for the comparable period of the prior year. The increase was primarily driven by the absence of an extraordinary loss incurred in the prior year due to the early extinguishment of debt, current year increased gross margins in the Aerospace and Conventional Munitions segments, and an insurance settlement on discontinued operations, partially offset by current year increased interest and income tax expense. LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION - ----------------------------------------------------- Cash provided by operations totaled $25.6 million for the nine-months ended January 2, 2000, a decrease in cash of $3.5 million, when compared with cash provided by operations of $29.1 million in the comparable period of the prior year. The decreased level of cash provided from operations during the current year period was driven by an increase during the current year in cash used for payments on accounts payable. This decrease was offset by increased net income in the current period due primarily to the resolution of an insurance settlement related to the Company's former demilitarization operations in Ukraine, and the absence of prior year costs of approximately $10 million in payments for legal settlements, including payments for previously settled qui-tam lawsuits. Cash used by investing activities for the nine-months ended January 2, 2000, was $27.7 million, compared to cash used by investing activities of $28.3 million in the comparable period of the prior year. Fiscal 2000 capital expenditures are currently expected to approximate fiscal 1999 expenditures. Cash used for financing activities for the nine-months ended January 2, 2000, was $5.9 million, a $26.2 million decrease in cash used compared to cash used by financing activities of $32.1 million in the comparable period of the prior year. This decreased usage of cash is due primarily to prior year borrowings associated with the Company's Dutch Auction (see below) stock repurchase and early extinguishments of the Company's high yield debt, offset by issuance of a new bank credit facility. As of January 2, 2000, the Company had borrowings of $33.0 million against its $250 million bank revolving credit facility. Additionally, the Company had outstanding letters of credit of $43.3 million, which further reduced amounts available on the revolving credit facility to $173.7 million at January 2, 2000. During the nine-months ended January 2, 2000, the Company made additional borrowings under its bank term debt facilities of $29.0 million. These borrowings were made to finance, on a long-term basis, a portion of the Company's stock repurchases which had been made primarily in late fiscal 1999. Remaining scheduled minimum loan payments on the Company's outstanding long-term debt are as follows: fiscal 2000, $11.8 million; fiscal 2001, $55.7 million; fiscal 2002 through 2004, $69.2 million, per year; fiscal 2005, $69.7 million. The Company's total debt (line of credit borrowings, current portion of long-term debt, and long-term debt) as a percentage of total capitalization, was 74 percent on January 2, 2000 and 74 percent on March 31, 1999. On December 15, 1998, the Company completed the repurchase of 1.7 million shares of its common stock at a price of $77 per share, or approximately $130 million in total. The repurchase occurred via the terms and conditions of a modified "Dutch auction" tender offer (Dutch auction) and was financed under the Company's bank credit facilities. In connection with the completion of the Dutch auction, the Company's Board of Directors authorized the Company to repurchase up to an additional 1.1 million shares of its common stock which was completed in the current quarter. The total cost of repurchases made under the program aggregated approximately $77.8 million. On October 26, 1999, the Company's Board of Directors authorized the Company to make additional share repurchases (over and above the 1.1 million shares previously authorized) of up to 1.0 million shares of its common stock. Any repurchases made under this authorization would be subject to market conditions and the Company's compliance with its debt covenants. As of January 2, 2000, the Company's debt covenants would allow the Company to make additional repurchases of approximately $60 million of the Company's stock. There can be no assurance that the Company will purchase all or any portion of the shares, or as to the timing or terms thereof. Based on the financial condition of the Company at January 2, 2000, the Company believes that future operating cash flows, combined with the availability of funding, if needed, under its bank revolving credit facilities, will be adequate to fund future growth of the Company as well as service its long-term obligations. Contingencies Environmental Matters - The Company is subject to various local and national laws relating to protection of the environment and is in various stages of investigation or remediation of potential, alleged, or acknowledged contamination. At January 2, 2000, the accrued liability for environmental remediation of $30.7 million represents management's best estimate of the present value of the probable and reasonably estimable costs related to the Company's known remediation obligations. It is expected that a significant portion of the Company's environmental costs will be reimbursed to the Company. As collection of those reimbursements is estimated to be probable, the Company has recorded a receivable of $9.6 million, representing the present value of those reimbursements at January 2, 2000. Such receivable primarily represents the expected reimbursement of costs associated with the Aerospace operations acquired from Hercules in the Aerospace acquisition, whereby the Company generally assumed responsibility for environmental compliance at Aerospace facilities. It is expected that much of the compliance and remediation costs associated with these facilities will be reimbursable under U.S. Government contracts, and that those environmental remediation costs not covered through such contracts will be covered by Hercules under various indemnification agreements, subject to the Company having appropriately notified Hercules of issues identified prior to the expiration of the stipulated notification periods (March 2000 or March 2005, depending on site ownership). The Company is in the process of finalizing its investigations for the March 2000 deadline. The Company will notify Hercules of any issues prior to this date. The Company's accrual for environmental remediation liabilities and the associated receivable for reimbursement thereof, have been discounted to reflect the present value of the expected future cash flows, using a discount rate, net of estimated inflation, of approximately 4.5 percent. The following is a summary of the Company's amounts recorded for environmental remediation at January 2, 2000 (in thousands):
Accrued Environmental Costs-- Environmental Liability Reimbursement Receivable - --------------------------------------------------------------------------------------------------------------------- Amounts (Payable)/Receivable $(40,068) $13,259 Unamortized Discount 9,351 (3,706) - --------------------------------------------------------------------------------------------------------------------- Present Value Amounts (Payable)/Receivable $(30,717) $9,553 - ---------------------------------------------------------------------------------------------------------------------
At January 2, 2000, the estimated discounted range of reasonably possible costs of environmental remediation is between $31 and $46 million. The Company does not anticipate that resolution of the environmental contingencies in excess of amounts accrued, net of recoveries, will materially affect future operating results. In future periods, new laws or regulations, advances in technologies, outcomes of negotiations/litigations with regulatory authorities and other parties, additional information about the ultimate remedy selected at new and existing sites, the Company's share of the cost of such remedies, changes in the extent and type of site utilization, the number of parties found liable at each site and their ability to pay are all factors that could significantly change the Company's estimates. It is reasonably possible that management's current estimates of liabilities for the above contingencies could change in the near term, as more definitive information becomes available. Legal Matters - As a U.S. Government contractor, the Company is subject to defective pricing and cost accounting standards non-compliance claims by the Government. Additionally, the Company has substantial Government contracts and subcontracts, the prices of which are subject to adjustment. The Company believes that resolution of such claims and price adjustments made or to be made by the Government for open fiscal years (1994 through 1999) will not materially exceed the amount provided in the accompanying balance sheets. The Company is a defendant in a number of lawsuits that arise out of, and are incidental to, the conduct of its business. Such matters arise out of the normal course of business and relate to product liability, intellectual property, government regulations, including environmental issues, and other issues. Certain of the lawsuits and claims seek damages in very large amounts. In these legal proceedings, no director, officer, or affiliate is a party or a named defendant. The Company has agreed to settle the civil action captioned United States v. Alliant Techsystems Inc., which was filed in the U.S. District Court for the District of Minnesota on March 10, 1997, alleging violations of the False Claims Act, the Truth in Negotiations Act, and common law and equitable theories of recovery, in connection with a contract for the AT4 shoulder-fired weapon. Under the terms of the settlement, the Company will pay $1.3 million, including interest, but will not admit to any liability for either fraud or violation of the False Claims Act. The patent infringement case brought against the Company by Cordant Technologies (formerly Thiokol Corporation), which was filed in the U.S. District Court for the District of Delaware on November 15, 1995, was dismissed by the U.S. Court of Appeals for the Federal Circuit on September 29, 1999. The dismissal followed an agreement by the parties to dismiss the action with prejudice and to resolve future rocket motor patent related disputes, if any, under a specified alternative dispute resolution mechanism. During fiscal 1998, the Company substantially completed the requirements of the M117 Bomb reclamation contract. The contract contained a priced option, having approximate contract value less than $5 million, whereby the customer could require the reclamation of additional quantities, given that such option be exercised within the terms and conditions of the contract. On August 4, 1997, the customer informed the Company that it was exercising the option. The Company, based on advice from its counsel, maintained that the option exercise was invalid and therefore did not perform on the option. The Company's appeal of the validity of the option to the United States Court of Appeals for the Federal Circuit, and subsequent request for a hearing en banc related to the option's validity, were both denied. In late December 1997, the Company was informed by the customer that the Company was being terminated for default on the contract option. Depending on the outcome of the termination for default litigation, which involves allegations unrelated to the validity of the option, management currently believes that the impact to the Company's future operating earnings will not be material. During fiscal 1998, the Company identified potential technical and safety issues on its Explosive "D" contracts that, depending on the outcome of the continuing evaluation of these risks and the potentially mitigating solutions, could add cost growth to the program. These potential technical and safety issues have caused the Company to delay contract performance until the issues are resolved to the satisfaction of the Company. As a result, the Government customer has provided the Company notification that it has been terminated for default on the contracts. The Company is currently working closely with the customer to resolve these matters. Based on information known at this time, management believes that the range of reasonably possible additional cost impact that could occur as a result of the potential technical and safety issues on the Explosive "D" program will not be material. However, the ultimate outcome is dependent on the extent to which the Company is able to mitigate these potential risks and ultimately resolve the contractual performance issues on a mutually agreeable basis. The Company does not believe that the above contract terminations will have a material adverse impact on the Company's future results of operations, its liquidity, or its financial position. While the results of litigation cannot be predicted with certainty, management believes, based upon the advice of counsel, that the actions seeking to recover damages against the Company either are without merit, are covered by insurance and reserves, do not support any grounds for cancellation of any contract, or are not likely to materially affect the financial condition or results of operations of the Company, although the resolution of any such matters during a specific period could have a material adverse effect on the quarterly or annual operating results for that period. YEAR 2000 --------- Background - The Company utilizes a significant amount of information technology ("IT"), such as computer hardware and software, and operating systems ("IT systems"), and non-IT systems, such as applications used in manufacturing, product development, financial business systems and various administrative functions ("non-IT systems"). To the extent that these IT systems and non-IT systems contain source code that were unable to distinguish the calendar year 2000 from the calendar year 1900 (the "Year 2000 Issue"), some level of modification or replacement of such systems was necessary. The Company established a Year 2000 Project Management Plan ("Year 2000 Plan") to identify and address systems requiring such modification or replacement. The Year 2000 Plan also involved assessing the extent to which the Company's suppliers and customers were addressing the Year 2000 Issue. Company management identified certain business systems, suppliers, and customers as critical to its ongoing business needs ("business critical"). Failure of these business critical systems, suppliers, or customers to become Year 2000 compliant in a timely manner could have had a material adverse impact to the Company. State of Readiness - The Year 2000 Plan, which encompassed both IT and non-IT systems, involved the following five-phase approach to the Year 2000 Issue, with the indicated timetable for completion of business critical items:
Timetable Phase Activity for Completion Status ----- -------- -------------- ------ 1 Ensure Company-wide awareness of the Year 2000 Issue.......... September 30, 1997 Completed 2 Assess the impact of the Year 2000 Issue on the Company, and conduct inventories, analyze systems, prioritize modification or replacement, and develop contingency plans................. January 31, 1998 Completed 3 Begin modification, replacement or elimination of selected platforms, applications, databases and utilities, and modify interfaces, as appropriate.................................... August 31, 1998 Completed 4 Complete work begun in Phase 3, and test, verify and validate all systems................................................... September 30, 1999 Completed 5 Implement modified or replaced platforms, applications, databases and utilities....................................... September 30, 1999 Completed
The Company is not aware of any material problems that occurred as a result of third party failures to address the Year 2000 Issue. Extensive work was done to ensure supplier issues were highlighted and prioritized. Suppliers were requested to provide a Year 2000 Issue status on their products, operating systems, suppliers and facilities and visits were made to numerous key suppliers. Phase 4 activity encompassed supplier visits and phone interviews, final testing, and preparation for complete system implementation. Critical actions and completion dates were identified to ensure that no business critical system would pass its respective time-horizon-to-failure date. The Company utilized the services of several independent industry consultants to assist it in assessing the reliability of its risk and cost estimates. The Company's schedule for completing all internal Year 2000 actions has been completed. Costs - The Company estimates that costs associated with modifying or replacing systems affected by the Year 2000 Issue, including the amounts expended in connection with the Company's ongoing, normal course-of-business efforts to upgrade or replace business critical systems and software applications as necessary, were approximately $12 million (over three fiscal years), compared to the Company's normal, annual IT operating budget of approximately $30 million. These costs were funded through cash flows from operations. Costs associated with incremental personnel costs, consulting, and hardware and software modifications were expensed as incurred. The costs of newly purchased hardware and software were capitalized in accordance with normal policy. The majority of estimated project costs were incurred during fiscal year 1999 and early fiscal 2000, as approximately $12 million had been expended through January 2, 2000. Approximately 40% of the total amount ultimately expended was for systems modification, and the balance for systems replacement. There are no IT projects which the Company has had to delay due to the Year 2000 Issues that would have a material impact on the Company's results of operations or financial position. The Company continues to review its contractual obligations relative to the Year 2000 Issue, and currently believes that there are no such obligations that would have material impact to the Company's results of operations or its financial position. Risks - Although management is not aware of any such issues, the failure to resolve a material Year 2000 Issue could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial position. The Year 2000 Plan significantly reduced the Company's level of uncertainty about the Year 2000 Issue and, in particular, about the Year 2000 Issue compliance and readiness of its business critical systems, suppliers, and customers. The most significant risk to the Company is the potential impact of circumstances beyond its control, such as the failure of its business critical suppliers and/or customers (particularly the U.S. Government) to resolve their Year 2000 Issues, with a resulting inability of such suppliers to supply critical goods and services to the Company, or of such customers to pay for their purchases from the Company. A related significant risk to the Company is that an inability of its business critical suppliers to resolve their Year 2000 Issues could result in the Company not being able to meet its contractual obligations. The Company currently believes that its Year 2000 Plan was successfully implemented in a timely manner. In the event that the Company would have been unable to implement its Year 2000 Plan in a timely manner, the Company believes that its contingency plans, described below, adequately accommodated its business critical systems in a way that would have prevented a material adverse impact to the Company's results of operations, its liquidity, or its financial position. However, there can be no assurance that the Company and/or relevant third parties successfully resolved all of their Year 2000 Issues or that the Company's contingency plans have been entirely successful in mitigating those issues. Any such failure could have a material adverse effect on the Company's operations, liquidity, or its financial position. Contingency Plans - Contingency plans were established for all business critical Company systems identified as Year 2000 Issues, and contingency plans were also developed for certain critical suppliers, including identification of back-up supply sources. Cautionary Statement - The costs of the Year 2000 Plan and the timing in which the Company implemented the Year 2000 Plan were based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there was no assurance that the estimates could have been achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the success of the Company in identifying systems and programs having Year 2000 Issues, the nature and amount of programming required to upgrade or replace the affected programs, the availability and cost of personnel trained in this area, and the extent to which the Company might be adversely impacted by the failure of third parties (i.e., suppliers, customers, etc.) to remediate their own Year 2000 issues. Failure by the Company and/or its suppliers and customers (in particular, the U.S. Government, on which the Company is materially dependent) to complete Year 2000 Issue compliance work in a timely manner could have a material adverse effect on the Company's operations, its liquidity, and/or its financial position. INFLATION --------- In the opinion of management, inflation has not had a significant impact upon the results of the Company's operations. The selling prices under contracts, the majority of which are long term, generally include estimated cost to be incurred in future periods. These cost projections can generally be negotiated into new buys under fixed-price government contracts, while actual cost increases are recoverable on cost-type contracts. RISK FACTORS ------------ Certain of the statements made and information contained in this report, excluding historical information, are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include those relating to fiscal 2000 sales, gross margin, operating expenses, and capital expenditures. Also included are statements relating to the repurchase of Company common stock, the funding of future growth, long-term debt repayment, environmental remediation costs and reimbursement prospects, the financial and operating impact of the resolution of environmental and litigation contingencies in general, the M117 and Explosive "D" contract terminations for default in particular, and the ultimate cost and impact of the Company's Year 2000 Issue compliance effort. Such forward-looking statements involve risks and uncertainties that could cause actual results or outcomes to differ materially. Some of these risks and uncertainties are set forth in connection with the applicable statements. Additional risks and uncertainties include, but are not limited to, changes in government spending and budgetary policies, governmental laws and other rules and regulations surrounding various matters such as environmental remediation, contract pricing, changing economic and political conditions in the United States and in other countries, international trading restrictions, outcome of union negotiations, customer product acceptance, the Company's success in program pursuits, program performance, continued access to technical and capital resources, supply and availability of raw materials and components, timely compliance with the technical requirements of the Year 2000 Issue, including timely compliance by the Company's vendors and customers, and merger and acquisition activity within the industry. All forecasts and projections in this report are "forward-looking statements," and are based on management's current expectations of the Company's near-term results, based on current information available pertaining to the Company, including the aforementioned risk factors. Actual results could differ materially. PART II -- OTHER INFORMATION ITEM 2. LEGAL PROCEEDINGS The appeals in the patent infringement action 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 decided in the Company's favor on March 25, 1999) were dismissed by the U.S. Court of Appeals for the Federal Circuit on September 29, 1999. The dismissal followed an agreement by the parties to dismiss the appeals with prejudice and to resolve future rocket motor patent related disputes, if any, under a specified alternative dispute resolution mechanism. The Company has agreed to settle the civil action captioned United States v. Alliant Techsystems Inc., which was filed in the U.S. District Court for the District of Minnesota on March 10, 1997, alleging violations of the False Claims Act, the Truth in Negotiations Act, and common law and equitable theories of recovery, in connection with a contract for the AT4 shoulder-fired weapon. Under the terms of the settlement, the Company will pay $1.3 million, including interest, but will not admit to any liability for either fraud or violation of the False Claims Act. Incorporated herein by reference is note 5 of Notes to Consolidated Financial Statements included in Item 1 of Part I of this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Attached to this report as Exhibit 99 is a list of the registrant's directors and executive officers, as of the date of this report, which reflects the following changes since October 31, 1999: new officer titles: Daryl L. Zimmer, Vice President, General Counsel and Secretary and Paula J. Patineau, Vice President and Senior Financial Officer; delete officers John L. Lotzer and Charles H. Gauck who left the Company; add a new director: Frances D. Cook; and delete a director: Daniel L. Nir. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit No. Description of Exhibit ----------- ---------------------- 10.1 Employment Agreement between the registrant and Paul David Miller 27 Financial Data Schedule 99 Alliant Techsystems Inc. Directors and Executive Officers (b) Reports on Form 8-K. During the quarterly period ended January 2, 2000, the registrant filed no reports on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIANT TECHSYSTEMS INC. Date: February 15, 2000 By: /s/ Daryl L. Zimmer Name: Daryl L. Zimmer Title: Vice President, General Counsel and Secretary (On behalf of the registrant) Date: February 15, 2000 By: /s/ Scott S. Meyers Name: Scott S. Meyers Title: Vice President and Chief Financial Officer (Principal Financial Officer) ALLIANT TECHSYSTEMS INC. FORM 10-Q EXHIBIT INDEX The following exhibits are filed herewith electronically or incorporated herein by reference. The applicable Securities and Exchange Commission File Number is 1-10582.
Exhibit - ------- Number Description of Exhibit Method of Filing - ------ ---------------------- ---------------- 10.1 Employment Agreement between the registrant and Paul Filed herewith electronically David Miller 27 Financial Data Schedule ................................. Filed herewith electronically 99 Alliant Techsystems Inc. Directors and Executive Officers Filed herewith electronically
EX-10.1 2 EMPLOYMENT AGREEMENT Exhibit 10.1 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of January 1, 1999, is entered into by and between Alliant Techsystems Inc., a Delaware corporation (the "Company"), and Paul David Miller (the "Executive"). RECITALS: WHEREAS, the Company desires to employ the Executive, and the Executive desires to enter into the employment of the Company, upon the terms and conditions and in the capacities set forth herein; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive hereby agree as follows: 1. Employment and Term of Employment. Subject to the terms and conditions of this Agreement, the Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve the Company, as Chairman of the Board and Chief Executive Officer of the Company for a term (the "Term of Employment") beginning on January 1, 1999 (the "Effective Date") and ending on March 31, 2002 ("Expiration Date"). Notwithstanding the foregoing, if either party gives a valid Notice of Termination pursuant to Section 6 hereof, the Term of Employment shall not extend beyond the Expiration Date specified in such Notice of Termination. 2. Scope of Employment. (a) During the Term of Employment, the Executive shall have and may exercise all the powers, duties and functions as are normal and customary for the Chairman of the Board and Chief Executive Officer and that are consistent with the responsibilities set forth with respect to such positions in the Company's bylaws. The Executive shall also perform such other duties not inconsistent with such positions as are assigned to him, from time to time, by the Board of Directors of the Company (the "Board"). During the Term of Employment, the Executive shall devote substantially all of his business time, attention, skill and efforts to the faithful performance of his duties hereunder. (b) During the Term of Employment, the Executive agrees to serve, if elected, as an officer or director of any subsidiary or affiliate of the Company. 3. Compensation. During the Term of Employment, in consideration of the Executive's services hereunder, including, without limitation, service as an officer or director of the Company or of any subsidiary or affiliate thereof, and in consideration of the Executive's agreements set forth in any confidentiality or non-competition agreement between the Executive and the Company: (a) The Executive shall receive a salary at the rate of $600,000 per year (payable at such regular intervals as other employees of the Company are compensated in accordance with the Company's employment practices, but not less than monthly), which amount shall be subject to review by the Board from time to time and may be adjusted at its discretion, provided that such salary may not be reduced at any time. In addition, the Company shall reimburse the Executive for his reasonable and documented expenses incurred in connection with the business of the Company in accordance with the Company's normal procedures. (b) The Executive shall receive a grant of 13,000 shares of restricted Common Stock of the Company ("Common Stock"). The shares shall vest and unrestricted stock certificates shall be delivered to the Executive with respect to one-third of such shares on January 1st of each of the three years after the Effective Date during the Term of Employment, less shares withheld for income tax purposes. The Company shall promptly deliver certificates for all such vested and unrestricted shares to the Executive. The Executive's rights shall terminate immediately with respect to all remaining unvested shares if the Executive's employment terminates. (c) The Executive shall receive options to purchase 150,000 shares of Common Stock under the Company's 1990 Equity Incentive Plan, as amended to date, which options shall have a grant date of January 1, 1999, and shall be subject to the terms of the Plan's standard non-qualified stock option agreement between the Company and the Executive relating thereto. The exercise price of the options shall be the average of the closing bid and asked prices of the Company's Common Stock on December 31, 1998. The options shall vest and become exercisable with respect to 50,000 shares of Common Stock on January 1st of each of the three years after the Effective Date during the Term of Employment. (d) The Executive shall be entitled to participate in certain long- term performance incentive programs and to receive Performance Shares (as defined herein) in connection therewith. Performance Shares are shares of Common Stock that become payable at a certain future date if certain performance goals are achieved. Each Performance Share grant will define the number of Performance Shares to be granted for performance that corresponds to "threshold," "target" and "outstanding" performance. Performance less than "threshold" results in no shares earned and paid; the actual number of shares earned and delivered for performance between "threshold" and "outstanding" is based on linear interpolation; the maximum shares available for payment is the number of shares corresponding to "outstanding" performance. Initial grants to the Executive shall be as follows: Grant #1 Measurement: FY00 EPS FY00 EPS Shares earned/paid -------- ------------------ Threshold 5.18 1,000 shares Target 6.10 2,000 shares Outstanding 6.99 4,000 shares Grant #2 Measurement: FY00 + FY01 Average EPS FY00/01 EPS Shares earned/paid ----------- ------------------ Threshold 5.57 1,000 shares Target 6.55 2,000 shares Outstanding 7.26 4,000 shares The Executive will be entitled to participate in any future long-term performance incentives offered to other executive officers. (e) All shares delivered to the Executive pursuant to this paragraph 3 or otherwise pursuant to this Agreement shall be subject to such conditions on transfer as may be required under the Securities Act of 1933, as amended (the "Act") and may bear a legend to such effect. (f) The Company shall pay the Executive an annual incentive bonus ("Incentive Bonus") in each fiscal year of the Company during which the Executive is (1) employed by the Company for at least three months during such fiscal year, and (2) the Company's performance during that fiscal year equals or exceeds the performance goals set by the Board for such fiscal year. The Incentive Bonus will be paid at the same time such bonuses are paid to other executive officers of the Company. The Incentive Bonus for each applicable fiscal year shall consist of $400,000 in cash if the Company achieves the performance goals set by the Board for such fiscal year and, $800,000 if and to the extent the Company achieves a level of performance defined by the Board as "outstanding" (or a prorated amount if the Executive is employed for less than 12 months during the fiscal year). Beginning with fiscal year 2000, any Incentive Bonus payable in excess of $400,000 shall be payable in newly issued shares of Common Stock until such time as the Executive owns a number of shares of Common Stock equal to the Ownership Target. For purposes hereof, "Ownership Target" on a given day shall mean that number of shares of the Company's Common Stock equal to four times the quotient of $600,000 divided by the closing price of the Company's Common Stock on the immediately preceding trading day. Notwithstanding the foregoing, for the fiscal year ending March of 1999, the Company shall pay an Incentive Bonus of $100,000 payable on the date hereof, such amount to be equitably adjusted by the Board in its discretion to the extent the Company exceeds its performance targets for the fiscal year ending March, 1999. 4. Additional Compensation and Benefits. (a) As additional compensation for the Executive's services under this Agreement between the Executive and the Company, during the Term of Employment, the Company agrees to provide the Executive with the non-cash benefits provided by the Company to its other officers and key employees as they may exist from time to time (other than stock options). Such benefits shall include such leave or vacation time (not less than five weeks), medical and dental insurance, the Company's basic term life insurance and other health care benefits, and retirement and disability benefits as may hereafter be provided by the Company in accordance with its policies. The Company's normal basic term life insurance policy provides a death benefit of $1,500,000 (or any lesser amount, at the Executive's election) payable to a beneficiary or beneficiaries selected by the Executive. (b) The Executive will be provided with retirement benefits, under the Aerospace Retirement Plan, based on combined Alliant Techsystems Inc. and Litton Industries, Inc. service and earnings. To the extent that any retirement benefits cannot be paid from the tax-qualified Company retirement plan, such benefits will be paid by the Company non-qualified supplemental employees retirement plan (SERP). Any non-qualified retirement benefit will be distributed based on a 10-year certain distribution alternative, unless the Executive elects a different distribution option at least one year prior to commencement of retirement. (c) The Executive, in his reasonable discretion, is authorized to participate in the Company's flexible Perquisite Program, which includes reasonable expenditures such as first class airfare upgrades, airline club memberships, staff entertainment, spousal travel, the purchase or lease of an automobile, a home security system and a home computer. Under the Program, the Company will reimburse the Executive quarterly for reasonable expenses incurred by the Executive in furtherance of the Company's business, provided that (i) the Company shall not reimburse the Executive for expenses to the extent of any income tax benefit realized by the Executive with respect thereto, (ii) amounts payable under this subsection (c) shall not exceed a total of $15,000 per annum (or other amount as may be determined by the Personnel and Compensation Committee) and (iii) such expenses are incurred in accordance with policies of the Company as they may exist from time to time, and submission to the Company of adequate documentation in accordance with federal income tax regulations and administrative pronouncements. (d) The Company will pay up to $15,000 during calendar year 1999 and $10,000 during any calendar year thereafter during the term of Employment (such amount to be pro rated in the case of a partial calendar year) for financial counseling services for the Executive. The Company will also pay to the Executive an amount (if any) which is necessary to put the Executive in the same position with respect to his total federal, state and local income liability as he would have been in had the payments under this paragraph (d) not been made. 5. Relocation Expenses. In connection with and subject to the continuation of the Executive's employment by the Company during the periods in which such expenses are incurred by the Executive: (a) The Company shall pay 100% of the Executive's reasonable costs in moving the Executive, his family and possessions from the Executive's home in Keswick, Virginia to a home in the Minneapolis, Minnesota metropolitan area. The Company shall also pay the reasonable temporary living expenses of the Executive and his family in Minnesota while searching for a new home. All payments pursuant to this paragraph (a) shall be increased to the extent necessary so that the amount received by the Executive net of all applicable federal, state and local income taxes is equal to the cost or expense being reimbursed. (b) The Company shall reimburse the Executive for real estate commissions and other reasonable closing costs and reasonable attorney's fees customarily borne by sellers in connection with the sale of the Executive's home in Keswick, Virginia. (c) Pursuant to the Company's Home Purchase Option Program, the Company agrees either (i) to purchase the Executive's existing home in Keswick, Virginia at his original purchase price or (ii) to pay the Executive the difference between the sale price of such home and the Executive's original purchase price as set forth in the Program. (d) The Company shall pay the closing costs and reasonable attorney's fees incurred by the Executive in connection with purchase of the Executive's home in the Minneapolis, Minnesota area. (e) The Company shall pay 100% of the Executive's reasonable costs in moving the Executive, his family and possessions from the Executive's home in Minneapolis, Minnesota area at the conclusion of the Term of Employment to a home selected by the Executive anywhere in the continental United States. All payments pursuant to this paragraph (e) shall be increased to the extent necessary so that the amount received by the Executive net of all applicable federal, state and local taxes is equal to the cost or expense being reimbursed. (f) The Company shall reimburse the Executive for real estate commissions and other reasonable closing costs and reasonable attorney's fees customarily borne by sellers in connection with the sale of the Executive's home in the Minneapolis, Minnesota area at the conclusion of the Term of Employment, and pay the Executive the difference between the sale price of such home and the Executive's original purchase price (if higher). (g) Alternatively to (f) above, at the option of the Executive, the Company will purchase the Executive's existing home in the Minneapolis, Minnesota area. Under this paragraph (g), the purchase price of the Executive's home shall be the greater of an amount determined according to the Company's Home purchase Option Program, or the Executive's original purchase price. 6. Termination. (a) General. The Executive's employment hereunder shall ------- automatically terminate on the earlier of his death or the Expiration Date. The Executive may, at any time prior to the Expiration Date, terminate his employment hereunder for any reason by delivering a Notice of Termination (defined below) to the Board. The Company may, at any time prior to the Expiration Date, terminate the Executive's employment hereunder for any reason by delivering a Notice of Termination to the Executive, provided that in no -------- event shall the Company be entitled to terminate the Executive's employment prior to the Expiration Date unless the Board shall duly adopt by the affirmative vote of a least a majority of the entire membership of the Board, a resolution authorizing such termination and stating whether such termination is for Cause (defined below). As used in this Agreement, "Notice of Termination" means a notice in writing purporting to terminate the Executive's employment in accordance with this Section 6, which notice shall (i) specify the effective date of such termination (not prior to the date of such notice) and (ii) in the case of a termination by the Company for Cause or Disability or a termination by the Executive for Good Reason or Disability, set forth in reasonable detail the reason for such termination and the facts and circumstances claimed to provide a basis for such termination. (b) Automatic Termination on Expiration Date or Death. In the event ------------------------------------------------- the Executive's employment hereunder shall automatically terminate on the Expiration Date or as a result of the Executive's death, the Executive shall only be entitled to receive, to the extent applicable, (i) all unpaid compensation accrued as of the termination date pursuant to Section 3 hereof, (ii) all unused vacation time accrued by the Executive as of the termination date, (iii) all amounts owing to the Executive under Sections 4(b) and (c) hereof and (iv) those benefits under Section 4 which are required under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or other laws. The amounts described in clauses (i), (ii) and (iii) of the foregoing sentence shall be paid to the Executive in a lump sum payment promptly after the Expiration Date. (c) Termination by Company for Cause. If the Company terminates the -------------------------------- Executive's employment for Cause, the Executive shall only be entitled to receive the compensation and other payments described in paragraph (b) above, such compensation and other payments to be paid as if the Executive's employment had automatically terminated without the giving of any Notice of Termination. As used in this Agreement "Cause" shall mean (i) any material failure of the Executive to perform his duties specified in Section 2 of this Agreement (other any such failure resulting from the Executive's incapacity due to Disability) after written notice of such failure has been given to the Executive by the Board and such failure shall have continued for 30 days after receipt of such notice, (ii) gross negligence or willful or intentional wrongdoing or misconduct, (iii) a material breach by the Executive of any confidentiality or non-competition agreement between the Executive and the Company, or (iv) conviction of the Executive of a felony offense or a crime involving moral turpitude. (d) Termination for Disability. To provide for the event the -------------------------- Executive's employment is terminated by either the Company or the Executive on account of Disability (defined below), the Company shall provide the Executive such disability benefits as may hereafter be provided by the Company in accordance with its policies, as they may exist from time to time. As used herein, "Disability" means any physical or mental condition of the Executive that (i) prevents the Executive from being able to perform the services required under this Agreement, (ii) has continued for at least 180 consecutive days during any 12-month period and (iii) is reasonably expected to continue. (e) Termination Upon Change of Control. If the Executive's employment ---------------------------------- terminates either by the Company or by the Executive subsequent to a Change of Control, as defined in the Company's Income Security Plan, the Company shall pay the Executive the compensation and other payments, including vesting of restricted shares and stock options, described in the Plan. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreements with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the date of termination of the Executive's employment under this Agreement shall be payable in accordance with such plan or program. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Minnesota. Venue and jurisdiction of any act or omission relating to this Agreement shall lie in Hennepin County, Minnesota. 9. Notice. Any notice, payment, demand or communication required or permitted to be given by this Agreement shall be deemed to have been sufficiently given or served for all purposes if delivered personally or if sent by registered or certified mail, return receipt requested, postage prepaid, addressed to such party at its address set forth below such party's signature to this Agreement or to such other address as has been furnished in writing by such party for whom the communication is intended. Any such notice be deemed to be given on the date so delivered. 10. Severability. In the event any provisions hereof shall be modified or held ineffective by any court, such adjudication shall not invalidate or render ineffective the balance of the provisions hereof. 11. Entire Agreement. This Agreement constitutes the sole agreement between the parties with respect to the employment of the Executive by the Company and supersedes any and all other agreements, oral or written, between the parties. 12. Amendment and Waiver. This Agreement may not be modified or amended except by a writing signed by the parties hereto. Any waiver or breach of any of the terms of this Agreement shall not operate as a waiver of any other breach of such terms or conditions, or any other terms or conditions, nor shall any failure to enforce any provisions hereof operate as a waiver of such provision or any other provision hereof. 13. Assignment. This Agreement is a personal employment contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned or pledged. The Company may assign its rights under this Agreement to (i) any entity into or with which the Company is merged or consolidated or to which the Company transfers all or substantially all of its assets or (ii) any entity, which at the time of such assignment, controls, is under common control with, or is controlled by the Company, provided that the Company will require -------- any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably acceptable to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if not such succession had taken place. 14. Successors. This Agreement shall be binding upon and inure to the benefit of the Executive and his heirs, executors, administrators and legal representatives. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above and intend that this Employment Agreement have the effect of a sealed instrument. Date: 2 February 2000 Paul David Miller /s/ Paul David Miller --------------------- ALLIANT TECHSYSTEMS INC. Date: February 2, 2000 /s/ Daryl L. Zimmer ------------------- Name: Daryl L. Zimmer Title: Vice President, General Counsel and Secretary EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q FILING FOR NINE MONTHS ENDED 1/2/00 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS MAR-31-2000 MAR-31-1999 APR-01-1999 APR-01-1999 JAN-02-2000 DEC-27-1998 13,065 21,078 408 408 228,228 233,499 1,056 1,056 49,556 44,030 336,537 343,108 565,249 547,114 (234,664) (211,363) 879,899 894,318 279,062 286,488 291,206 305,993 0 0 0 0 139 139 135,720 118,584 879,899 894,318 769,917 789,765 769,917 789,765 616,623 650,740 616,623 650,740 7,586 5,703 0 0 25,550 16,089 63,110 59,398 16,026 8,910 47,084 50,488 9,450 0 0 (16,288) 0 0 56,534 34,200 5.57 2.75 5.46 2.68
EX-99 4 DIRECTORS AND EXECUTIVE OFFICERS Exhibit 99 ALLIANT TECHSYSTEMS INC. DIRECTORS AND EXECUTIVE OFFICERS February 15, 2000 Name (Age) Position ---------- -------- Paul David Miller (58) Director, Chairman of the Board and Chief Executive Officer Peter A. Bukowick (56) Director, President and Chief Operating Officer Frances J. Cook (54) Director Gilbert F. Decker (62) Director Thomas L. Gossage (65) Director Joel M. Greenblatt (42) Director Jonathan G. Guss (40) Director David E. Jeremiah (66) Director Gaynor N. Kelley (68) Director Joseph F. Mazzella (47) Director Michael T. Smith (56) Director Geoffrey B. Courtright (51) Vice President - Information Technology and Chief Information Officer Robert E. Gustafson (51) Vice President - Human Resources Richard N. Jowett (55) Vice President and Treasurer William R. Martin (58) Vice President - Washington, D.C. Operations Mark L. Mele (43) Vice President - Investor Relations and Strategic Planning Scott S. Meyers (46) Vice President and Chief Financial Officer Paula J. Patineau (46) Vice President and Senior Financial Officer Name (Age) Position ---------- -------- Paul A. Ross (62) Senior Group Vice President - Aerospace Don L. Sticinski (48) Group Vice President - Defense Systems Nicholas G. Vlahakis (51) Group Vice President - Conventional Munitions Daryl L. Zimmer (56) Vice President, General Counsel and Secretary -----END PRIVACY-ENHANCED MESSAGE-----