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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended December 31, 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 (State or other jurisdiction of incorporation or organization) | 41-1672694 (I.R.S. Employer Identification No.) | |
600 SECOND STREET N.E. HOPKINS, MINNESOTA (Address of principal executive office) | 55343-8384 (Zip Code) |
(952) 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, 2001, the number of shares of the Registrant's common stock, par value $.01 per share, outstanding was 14,026,514 (excluding 4,470,257 treasury shares).
ITEM 1. FINANCIAL STATEMENTS
Consolidated Income Statements (Unaudited)
| QUARTERS ENDED | NINE MONTHS ENDED | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31 2000 | January 2 2000 | December 31 2000 | January 2 2000 | ||||||||||
| (In thousands except per share data) | |||||||||||||
Sales | $ | 276,349 | $ | 244,407 | $ | 818,052 | $ | 769,917 | ||||||
Cost of sales | 215,612 | 190,146 | 648,153 | 607,348 | ||||||||||
Gross margin | 60,737 | 54,261 | 169,899 | 162,569 | ||||||||||
Operating activities: | ||||||||||||||
Research and development | 3,221 | 2,781 | 7,004 | 7,586 | ||||||||||
Selling | 5,611 | 6,063 | 18,409 | 17,677 | ||||||||||
General and administrative | 16,445 | 15,221 | 44,346 | 45,156 | ||||||||||
Other operating activities | — | — | — | 3,909 | ||||||||||
Total operating activities | 25,277 | 24,065 | 69,759 | 74,328 | ||||||||||
Earnings before interest and income taxes | 35,460 | 30,196 | 100,140 | 88,241 | ||||||||||
Interest expense | (8,625 | ) | (8,088 | ) | (26,570 | ) | (25,550 | ) | ||||||
Interest income | 184 | 172 | 636 | 419 | ||||||||||
Earnings from continuing operations before income taxes | 27,019 | 22,280 | 74,206 | 63,110 | ||||||||||
Income tax provision | 9,294 | 5,794 | 25,433 | 16,026 | ||||||||||
Income from continuing operations | 17,725 | 16,486 | 48,773 | 47,084 | ||||||||||
Gain on disposal of discontinued operations, net of income taxes | — | — | — | 9,450 | ||||||||||
Net income | $ | 17,725 | $ | 16,486 | $ | 48,773 | $ | 56,534 | ||||||
Basic earnings per common share: | ||||||||||||||
Income from continuing operations | $ | 1.29 | $ | 1.11 | $ | 3.56 | $ | 3.09 | ||||||
Discontinued operations | — | — | — | 0.62 | ||||||||||
Basic earnings per common share | $ | 1.29 | $ | 1.11 | $ | 3.56 | $ | 3.71 | ||||||
Diluted earnings per common share: | ||||||||||||||
Income from continuing operations | $ | 1.25 | $ | 1.10 | $ | 3.49 | $ | 3.03 | ||||||
Discontinued operations | — | — | — | 0.61 | ||||||||||
Diluted earnings per common share | $ | 1.25 | $ | 1.10 | $ | 3.49 | $ | 3.64 | ||||||
Average number of common shares (thousands) | 13,789 | 14,849 | 13,688 | 15,225 | ||||||||||
Average number of common and dilutive shares (thousands) | 14,146 | 15,038 | 13,987 | 15,527 | ||||||||||
2
Consolidated Balance Sheets (Unaudited)
| December 31, 2000 | March 31, 2000 | |||||||
---|---|---|---|---|---|---|---|---|---|
| (In thousands except share data) | ||||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 31,248 | $ | 45,765 | |||||
Receivables | 240,102 | 244,881 | |||||||
Net inventory | 55,861 | 53,629 | |||||||
Deferred income tax asset | 5,480 | 5,480 | |||||||
Other current assets | 4,695 | 1,295 | |||||||
Total current assets | 337,386 | 351,050 | |||||||
Net property, plant, and equipment | 311,628 | 335,628 | |||||||
Goodwill | 123,148 | 124,718 | |||||||
Prepaid and intangible pension assets | 91,623 | 80,877 | |||||||
Other assets and deferred charges | 15,915 | 13,711 | |||||||
Total assets | $ | 879,700 | $ | 905,984 | |||||
Liabilities and Stockholders' Equity | |||||||||
Current liabilities: | |||||||||
Current portion of long-term debt | $ | 65,813 | $ | 55,650 | |||||
Line of credit borrowings | 60,000 | 49,000 | |||||||
Accounts payable | 57,645 | 77,982 | |||||||
Contract advances and allowances | 46,284 | 71,682 | |||||||
Accrued compensation | 31,308 | 32,969 | |||||||
Accrued income taxes | 13,611 | 7,430 | |||||||
Other accrued liabilities | 53,589 | 61,880 | |||||||
Total current liabilities | 328,250 | 356,593 | |||||||
Long-term debt | 225,209 | 277,109 | |||||||
Post-retirement and post-employment benefits liability | 111,117 | 118,137 | |||||||
Other long-term liabilities | 42,070 | 39,198 | |||||||
Total liabilities | 706,646 | 791,037 | |||||||
Contingencies | |||||||||
Common stock—$.01 par value | |||||||||
Authorized—20,000,000 shares | |||||||||
Issued and outstanding 13,970,362 shares at December 31, 2000 and 9,073,752 at March 31, 2000 | 208 | 139 | |||||||
Additional paid-in-capital | 230,062 | 236,416 | |||||||
Retained earnings | 245,964 | 197,259 | |||||||
Unearned compensation | (4,240 | ) | (2,520 | ) | |||||
Pension liability adjustment | (3,768 | ) | (3,768 | ) | |||||
Common stock in treasury, at cost (4,526,409 shares held at December 31, 2000 and 4,789,861 at March 31, 2000) | (295,172 | ) | (312,579 | ) | |||||
Total stockholders' equity | 173,054 | 114,947 | |||||||
Total liabilities and stockholders' equity | $ | 879,700 | $ | 905,984 | |||||
See Notes to Consolidated Financial Statements
3
Consolidated Statements of Cash Flows (Unaudited)
| NINE MONTHS ENDED | ||||||||
---|---|---|---|---|---|---|---|---|---|
| December 31, 2000 | January 2, 2000 | |||||||
| (In thousands) | ||||||||
Operating activities | |||||||||
Net income | $ | 48,773 | $ | 56,534 | |||||
Adjustments to net income to arrive at cash provided by operations: | |||||||||
Depreciation | 28,337 | 30,093 | |||||||
Amortization of intangible assets and unearned compensation | 6,377 | 6,615 | |||||||
Loss on disposal of property | 637 | 1,878 | |||||||
Changes in assets and liabilities: | |||||||||
Receivables | 4,779 | 5,271 | |||||||
Inventory | (2,232 | ) | (5,525 | ) | |||||
Accounts payable | (20,337 | ) | (39,312 | ) | |||||
Contract advances and allowances | (25,398 | ) | (6,757 | ) | |||||
Accrued compensation | (1,661 | ) | (6,231 | ) | |||||
Accrued income taxes | 6,181 | 9,754 | |||||||
Accrued environmental liability | (433 | ) | (95 | ) | |||||
Post-retirement benefits | (7,020 | ) | (9,247 | ) | |||||
Other assets and liabilities | (17,239 | ) | (18,583 | ) | |||||
Cash provided by operations | 20,764 | 24,395 | |||||||
Investing activities | |||||||||
Capital expenditures | (14,841 | ) | (26,494 | ) | |||||
Acquisition of business | (1,400 | ) | — | ||||||
Proceeds from disposition of property, plant, and equipment | 4,528 | (49 | ) | ||||||
Cash used for investing activities | (11,713 | ) | (26,543 | ) | |||||
Financing activities | |||||||||
Net borrowings on line of credit | 11,000 | 33,000 | |||||||
Payments made on bank debt | (41,737 | ) | (26,775 | ) | |||||
Proceeds from issuance of long-term debt | — | 29,000 | |||||||
Net purchase of treasury shares | (2,479 | ) | (42,618 | ) | |||||
Proceeds from exercised stock options | 9,648 | 1,528 | |||||||
Cash used for financing activities | (23,568 | ) | (5,865 | ) | |||||
Decrease in cash and cash equivalents | (14,517 | ) | (8,013 | ) | |||||
Cash and cash equivalents—beginning of period | 45,765 | 21,078 | |||||||
Cash and cash equivalents—end of period | $ | 31,248 | $ | 13,065 | |||||
See Notes to Consolidated Financial Statements
4
Notes to Consolidated Financial Statements (Unaudited)
- 1.
- During the nine-months ended December 31, 2000, the Company made principal payments on its bank term debt of $41.7 million. At December 31, 2000, the Company had borrowings of $60 million against its $250 million bank revolving credit facility. Additionally, the Company had outstanding letters of credit of $51.3 million, which further reduced amounts available on the revolving facility to $138.7 million at December 31, 2000.
Scheduled minimum loan payments on outstanding long-term debt are $13.9 million for the remainder of fiscal 2001, and $69.2 million in each of fiscal years 2002 through 2004, and $68.9 million in fiscal 2005. Final debt payment will be made in fiscal year 2005. The Company's total debt (line of credit borrowings, current portion of debt and long-term debt) as a percentage of total capitalization was 67 percent on December 31, 2000, compared to 77 percent on March 31, 2000.
During the quarter ended December 31, 2000, the Company restructured its swap portfolio and as a result, the Company currently has interest rate swaps with a total notional amount of $260 million. During the quarter, the Company replaced its $100 million non-amortizing swap portfolio, which had rates of 6.32 and 6.55 percent (6.43 percent average), with a four-year $160 million amortizing swap at a rate of 6.59 percent. In conjunction with that, the Company received a payment of $610,000, which will be amortized as an adjustment to future interest expense over the remaining life of the swaps. The remaining swap has a $100 million notional amount, a swap rate of 6.06 percent, and is effective for ten years. The fair market value of the Company's interest rate swaps is $3.2 million at December 31, 2000.
As of December 31, 2000, net repurchases of approximately 1.8 million shares have been made under the Company's currently authorized share repurchase programs, aggregating approximately $80.3 million. Any repurchases made under this plan are subject to market conditions and the Company's compliance with its debt covenants. As of December 31, 2000, the Company's debt covenants permit the Company to make "restricted payments" (as defined in the Company's debt covenants) of approximately $50 million, which would allow for payment of future stock repurchases. While it is currently the Company's intention to make stock repurchases under this program, there can be no assurance that the Company will purchase all or any portion of the remaining shares, or as to the timing or terms thereof.
- 2.
- The major categories of current and long-term accrued liabilities are as follows (in thousands):
| Period Ending | |||||
---|---|---|---|---|---|---|
| December 31, 2000 | March 31, 2000 | ||||
Employee benefits and insurance | $ | 21,526 | $ | 28,804 | ||
Legal accruals | 6,172 | 5,897 | ||||
Other accruals | 25,891 | 27,179 | ||||
Other accrued liabilities-current | $ | 53,589 | $ | 61,880 | ||
Environmental remediation liability | $ | 15,649 | $ | 16,529 | ||
Deferred tax liability | 10,802 | 10,802 | ||||
Supplemental employee retirement plan and deferred compensation | 15,619 | 11,867 | ||||
Other long-term liabilities | $ | 42,070 | $ | 39,198 | ||
The decrease in employee benefits and insurance since March 31, 2000 is reflective of payments made during the nine-month period ended December 31, 2000, for previously accrued employee
5
payroll taxes. The increase in supplemental employee retirement plan and deferred compensation reflects increased elective deferrals made under the Company's deferred compensation plan.
- 3.
- Tax payments of $19.1 and $6.1 million were paid, primarily representing alternative minimum taxes during the nine-month periods ended December 31, 2000, and January 2, 2000, respectively. The current year increase is reflective of the Company having fully utilized its net operating loss carry forwards in fiscal 2000.
The Company's provision for income taxes includes both federal and state income taxes. Income tax expense on continuing operations was $9.3 and $25.4 million for the three and nine-month periods ended December 31, 2000, compared to $5.8 and $16.0 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, 2001 is reflective of the Company's best estimate of the fiscal 2001 tax effects associated with its business strategies.
- 4.
- 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 December 31, 2000, the accrued liability for environmental remediation of $30.8 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 $11.5 million, representing the present value of those reimbursements at December 31, 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 performed environmental condition evaluations and notified Hercules of its findings prior to the expiration of the March 31, 2000 deadline. 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 December 31, 2000 (in thousands):
| Accrued Environmental Liability | Environmental Costs— Reimbursement Receivable | |||||
---|---|---|---|---|---|---|---|
Amounts (Payable)/Receivable | $ | (38,301 | ) | $ | 14,381 | ||
Unamortized Discount | 7,454 | (2,930 | ) | ||||
Present Value Amounts (Payable)/Receivable | $ | (30,847 | ) | $ | 11,451 | ||
At December 31, 2000, the estimated discounted range of reasonably possible costs of environmental remediation is between $30 and $44 million. The Company does not anticipate that
6
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 (1995 through 2000) 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.
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.
- 5.
- Net interest paid during the nine-month periods ended December 31, 2000, and January 2, 2000, totaled $25.0 million and $24.4 million, respectively. Interest charges under the Company's revolving credit facility are primarily at the London Inter Bank Offering Rate (LIBOR), plus 1.75 percent (which totaled 8.8 percent at December 31, 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.
- 6.
- The Company conducts its business primarily in three operating segments: Conventional Munitions, Aerospace, and Defense Systems. These operating segments are defined based on
7
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 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31, 2000 | Jan. 2, 2000 | Dec. 31, 2000 | Jan. 2, 2000 | |||||||||
Sales from External Customers | |||||||||||||
– Conventional Munitions | $ | 120,783 | $ | 70,880 | $ | 350,937 | $ | 234,859 | |||||
– Aerospace | 110,970 | 126,586 | 349,545 | 381,588 | |||||||||
– Defense Systems | 44,596 | 46,941 | 117,570 | 153,470 | |||||||||
– Corporate | — | — | — | — | |||||||||
Total External Sales | $ | 276,349 | $ | 244,407 | $ | 818,052 | $ | 769,917 | |||||
Intercompany Sales | |||||||||||||
– Conventional Munitions | $ | 543 | $ | 179 | $ | 1,717 | $ | 397 | |||||
– Aerospace | 9,324 | 4,354 | 26,283 | 9,999 | |||||||||
– Defense Systems | 51 | — | 154 | — | |||||||||
– Corporate | (9,918 | ) | (4,533 | ) | (28,154 | ) | (10,396 | ) | |||||
Total Intercompany Sales | — | — | — | — | |||||||||
Total Sales | $ | 276,349 | $ | 244,407 | $ | 818,052 | $ | 769,917 | |||||
Income before Income Taxes (EBT) | |||||||||||||
– Conventional Munitions | $ | 9,859 | $ | 8,617 | $ | 29,038 | $ | 11,769 | |||||
– Aerospace | 8,637 | 14,277 | 35,590 | 43,784 | |||||||||
– Defense Systems | 3,855 | (3,221 | ) | (2,545 | ) | (2,226 | ) | ||||||
– Corporate | 4,668 | 2,607 | 12,123 | 9,783 | |||||||||
Total Income before Income Taxes | $ | 27,019 | $ | 22,280 | $ | 74,206 | $ | 63,110 | |||||
- 7.
- Earnings per share for all periods has been calculated to reflect a 3 for 2 stock split which became effective November 10, 2000. 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 December 31, 2000 and January 2, 2000, net income as reported for each respective period, is divided by:
| Three-Months Ended | Nine-Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
| Dec. 31, 2000 | Jan. 2, 2000 | Dec. 31, 2000 | Jan. 2, 2000 | ||||
Basic EPS: | ||||||||
– Average Shares Outstanding | 13,789 | 14,849 | 13,688 | 15,225 | ||||
Diluted EPS: | ||||||||
– Average Shares Outstanding | 13,789 | 14,849 | 13,688 | 15,225 | ||||
– Dilutive effect of options and redeemable common shares | 357 | 189 | 299 | 302 | ||||
Diluted EPS Shares Outstanding | 14,146 | 15,038 | 13,987 | 15,527 | ||||
Due to the option price being greater than the average market price of the common shares, there were 400,399 stock options that were not included in the computation of diluted EPS for the nine-month period ended December 31, 2000, and 834,750 and 524,400 stock options, respectively,
8
that were not included in the computation of diluted EPS for the three and nine-month comparable periods of the prior year.
- 8.
- 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.
- 9.
- The figures set forth in this quarterly report are unaudited but, in the opinion of the Company, include all adjustments necessary for a fair presentation of the results of operations for the three and nine-month periods ended December 31, 2000, and January 2, 2000. The Company's accounting policies are described in the notes to financial statements in its fiscal 2000 Annual Report on Form 10-K.
- 10.
- Certain reclassifications have been made to the fiscal 2000 financial statements, as previously reported, to conform to current classification. These reclassifications did not affect the income or shareholders' equity as previously reported.
- 11.
- Subsequent Events:
On January 23, 2001, the Company announced the sale of Alliant Kilgore Flares Company LLC for $23 million in cash and stock to Chemring Group PLC, London, England. Alliant Kilgore Flares Company LLC is part of the Conventional Munitions segment. The sale is expected to be completed by the end of March 2001. Sales from Alliant Kilgore Flares Company LLC are expected to be approximately $27 million in the current fiscal year.
On January 31, 2001, the Company announced that they had reached a definitive agreement to acquire Alcoa Corporation's Thiokol Propulsion business. The Company will pay $685 million in cash and will account for the transaction using the purchase method of accounting. The transaction, which has been approved by the boards of both companies, is expected to close by the end of the Company's fiscal 2002 first quarter, subject to customary regulatory approvals.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Sales for the quarter ended December 31, 2000 totaled $276.3 million, an increase of $31.9 million, or 13.1 percent, from $244.4 million for the comparable quarter in the prior year. Conventional Munitions segment sales were $121.3 million, an increase of $50.2 million, or 70.6 percent, from $71.1 million for the comparable quarter in the prior year. The increase was primarily attributable to $31 million in small caliber ammunition sales as the Company started production at its Lake City Army and Ammunition Plant in early fiscal 2001. In addition, the current quarter is higher due to increased propellant sales, and increased medium caliber ammunition sales as the prior year was impacted by the relocation of medium caliber operations. Partially offsetting these increases were lower sales on tank ammunition as a next generation development round program is in the start-up phase. Aerospace segment sales were $120.3 million, a decrease of $10.6 million, or 8.1 percent, from $130.9 million for the comparable quarter in the prior year. The decrease is primarily attributable to decreased sales on the Titan solid propulsion program as it is in the wind-down phase and reduced Delta IV composite structures due to timing of production requirements. Defense Systems segment sales were $44.6 million, compared to $46.9 million for the comparable quarter in the prior year.
Sales for the nine-month period ended December 31, 2000 totaled $818.1 million, an increase of $48.2 million, or 6.3 percent, from $769.9 million for the comparable period of the prior year. Conventional Munitions segment sales were $352.7 million, an increase of $117.4 million, or 49.9 percent, from $235.3 million for the comparable quarter in the prior year. The current year increase is primarily due to $116 million in small caliber ammunition sales at its Lake City Army and Ammunition Plant. In addition, the current year is impacted by increased propellant sales of approximately $25 million. These increases are partially offset by reduced tank ammunition sales as a next generation development round program is in the start-up phase. Aerospace segment sales for the nine-month period ended December 31, 2000 were $375.8 million, a decrease of $15.8 million or 4.0 percent, compared to $391.6 million for the comparable period of the prior year. The decrease is due primarily to reduced solid propulsion sales, down $48 million compared to the same period of the prior year, resulting from the Titan program being in the wind down phase and the timing of production requirements on the Delta propulsion programs. Partially offsetting these decreases were increased composite structures sales on Delta IV and Atlas V space launch vehicles and increased missile propulsion sales. Defense Systems segment sales were $117.7 million, a decrease of $35.8 million, or 23.3 percent, compared to $153.5 million for the comparable period of the prior year. The current year decrease is due primarily to the winding-down of anti-tank munitions programs.
Company sales for fiscal 2001 are expected to be approximately $1.1 billion.
Gross Margin
The Company's gross margin in the quarter ended December 31, 2000 was $60.7 million or 22.0 percent of sales, compared to $54.3 million or 22.2 percent of sales for the comparable quarter of the prior year. The current year quarter includes higher margins at the Conventional Munitions segment. This improvement is due primarily to increased sales on higher margin propellant programs and increased small and medium caliber ammunition margins, partially offset by reduced tank ammunition margins. The Defense Systems segment also had higher margins due primarily to the absence of prior year losses incurred as a result of technical issues on certain battery and fuzing programs. Offsetting these increases were lower margins in the Aerospace segment due primarily to lower current quarter sales on the Titan program and timing of production requirements on the Delta propulsion programs.
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Gross margins for the nine-month period ended December 31, 2000 was $169.9 million, or 20.8 percent of sales compared to $162.6 million, or 21.1 percent of sales for the comparable period of the prior year. The current year includes improved margins on propellant, composite structures and small caliber ammunition, offset by cost growth on fuzing programs as they transitioned to production, lower flare program margins and lower margins due to reduced sales on Aerospace propulsion programs.
Fiscal 2001 gross margin, as a percent of sales, is expected to be approximately 20.5 percent.
Operating Expenses
The Company's operating expenses for the quarter ended December 31, 2000, totaled $25.3 million, or 9.1 percent of sales, compared to $24.1 million, or 9.8 percent of sales for the comparable quarter of the prior year. Operating expenses for the nine-month period ended December 31, 2000 totaled $69.8 million, or 8.5 percent of sales, compared to $74.3 million, or 9.7 percent of sales for the comparable period of the prior year. The overall decrease is due primarily to the absence of a prior year, one-time $3.9 million charge associated with non-recurring costs to re-value certain assets to their net realizable value.
Fiscal 2001 operating expenses (research and development, selling, and general and administration), stated as a percent of sales, are expected to be in the 8.5 to 9.0 percent range.
Interest Expense
The Company's net interest expense for the quarter ended December 31, 2000, was $8.4 million, compared to $7.9 million for the comparable quarter in the prior year. Net interest expense for the nine-month period ended December 31, 2000 was $25.9 million, compared to $25.1 million for the comparable period of the prior year. The increase in the current year expense was driven by higher average outstanding borrowings and higher interest rates in the current periods.
Income from Continuing Operations before Income Taxes
The Company's income before income taxes (earnings before taxes, or "EBT") for the quarter ended December 31, 2000 was $27.0 million, compared to $22.3 million for the comparable quarter of the prior year. Conventional Munitions segment EBT for the quarter ended December 31, 2000, was $9.9 million, compared to $8.6 million for the comparable quarter of the prior year. The increase is primarily reflective of higher sales and margins on small and medium caliber ammunition and increased propellant margins, partially offset by lower margins on tank ammunition. Aerospace segment EBT for the quarter ended December 31, 2000, was $8.6 million, a decrease of $5.7 million, compared to $14.3 million for the comparable quarter of the prior year. The current quarter decrease was driven by reduced sales on the Titan program and timing of production requirements on the Delta program. Defense Systems segment EBT for the quarter ended December 31, 2000 was $3.9 million, an increase of $7.1 million, compared to $(3.2) million for the comparable quarter of the prior year. The increase in the current year quarter primarily reflects the absence of prior year cost growth due to technical issues on certain battery and fuzing programs.
EBT for the nine-month period ended December 31, 2000 totaled $74.2 million, an increase of $11.1 million, compared to $63.1 million for the comparable period of the prior year. Conventional Munitions EBT for the nine-month period ended December 31, 2000 was $29.0 million, an increase of $17.2 million, compared to $11.8 million for the comparable period of the prior year. The current year increase is due primarily to increased sales and margins on propellant and small caliber ammunition, offset by current year cost growth of approximately $4 million on various flare contracts. In addition, the prior year was adversely affected by approximately $5 million of costs associated with ordnance reclamation contracts. Aerospace EBT for the nine-month period was $35.6 million, a decrease of
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$8.2 million, compared to $43.8 million for the comparable period of the prior year. The current period decrease is due primarily to reduced propulsion margins caused by lower sales, partially offset by increased composite structure margins as the Delta IV program was in its start-up phase in fiscal 2000. Defense Systems EBT for the nine-month period ended December 31, 2000 was $(2.5) million, compared to $(2.2) million for the comparable period of the prior year. The current period includes cost growth of approximately $10.0 million on various fuzing programs as they transitioned to production. The prior year period was impacted by a non-recurring expense of $4.0 million to re-value assets to their net realizable value, and increased costs due to technical difficulties on certain battery and fuzing programs.
Income Taxes
Income tax expense was $9.3 and $25.4 million for the three and nine-month periods ended December 31, 2000, compared to $5.8 and $16.0 million for the comparable periods of the prior year. Current year increase is reflective of the Company having fully utilized its net operating loss carryforwards in fiscal 2000. 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, 2001, is reflective of the Company's best estimate of the fiscal 2001 tax effects associated with its business strategies.
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 December 31, 2000, was $17.7 million, compared with net income of $16.5 million for the comparable quarter of the prior year. The current year increase was primarily due to higher gross margins, partially offset by increased taxes. Net income for the nine-month period ended December 31, 2000 was $48.8 million, compared to net income of $56.5 million for the comparable period of the prior year. The current period decrease was primarily driven by the absence of a $9.5 million prior year insurance settlement on discontinued operations and higher current year taxes, partially offset by higher margins and lower operating expenses.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Cash provided by operations totaled $20.8 million for the nine-months ended December 31, 2000, a decrease in cash of $3.6 million, compared to cash provided by operations of $24.4 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 higher current year cash payments for taxes and the absence of the prior year $9.5 million insurance settlement. Cash payments for taxes for the nine-months ended December 31, 2000 were $19.1 million, compared to $6.1 million for the comparable period of the prior year.
Cash used by investing activities for the nine-months ended December 31, 2000, was $11.7 million, compared to cash used by investing activities of $26.5 million in the comparable period of the prior year. This improvement primarily represents the absence of prior year expenditures made to support the Aerospace segments composite structures business growth associated with the Delta family of rockets and move and facilitization costs. Capital expenditures in fiscal 2001 are expected to be down
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approximately $15 to $20 million, compared to fiscal 2000 expenditures, due primarily to the absence of move and facilitization costs incurred in fiscal 2000.
As of December 31, 2000, the Company had borrowings of $60.0 million against its $250 million bank revolving credit facility. Additionally, the Company had outstanding letters of credit of $51.3 million, which further reduced amounts available on the revolving credit facility to $138.7 million at December 31, 2000. Remaining scheduled minimum loan payments on the Company's outstanding long-term debt are as follows: $13.9 million for the remainder of fiscal 2001, $69.2 million in each of fiscal 2002 through 2004, and $68.9 million in fiscal 2005. Final debt payment will be made in fiscal 2005. 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 67 percent on December 31, 2000 compared to 77 percent on March 31, 2000.
Based on the financial condition of the Company at December 31, 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 December 31, 2000, the accrued liability for environmental remediation of $30.8 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 $11.5 million, representing the present value of those reimbursements at December 31, 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 performed environmental condition evaluations and notified Hercules of its findings prior to the expiration of the March 31, 2000 deadline. 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 December 31, 2000 (in thousands):
| Accrued Environmental Liability | Environmental Costs— Reimbursement Receivable | |||||
---|---|---|---|---|---|---|---|
Amounts (Payable)/Receivable | $ | (38,301 | ) | $ | 14,381 | ||
Unamortized Discount | 7,454 | (2,930 | ) | ||||
Present Value Amounts (Payable)/Receivable | $ | (30,847 | ) | $ | 11,451 | ||
At December 31, 2000, the estimated discounted range of reasonably possible costs of environmental remediation is between $30 and $44 million. The Company does not anticipate that
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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 (1995 through 2000) 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.
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.
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 2001 sales, gross margin, operating expenses, tax rates, and capital expenditures. Also included are statements relating to the realization of net deferred tax benefits, the repurchase of Company common stock, the funding of future growth, long-term debt repayment, environmental remediation costs and reimbursement prospects, and in the financial and general, operating impact of the resolution of environmental and litigation contingencies. 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
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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, and supply and availability of raw materials and components. 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.
NEW ACCOUNTING RULES
Effective April 1, 2001, the Company will adopt the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). Currently, the Company is in the process of evaluating the financial impacts of this accounting change.
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ITEM 2. LEGAL PROCEEDINGS
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 (1995 through 2000) 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.
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.
Incorporated herein by reference is note 4 of Notes to Financial Statements included in Item 1 of Part I of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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 November 15, 2000: new officers Karen Bills, Vice President—Information Technology and Chief Information Officer, and Eric S. Rangen, Vice President and Chief Financial Officer. New officer titles: Paul David Miller, Chairman of the Board and Chief Executive Officer, and Scott S. Meyers, President.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. | Description of Exhibit | |
---|---|---|
10.1 | Post-Effective Amendment No. 1 to Form S-8 relating to the Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Amendment and Restatement as of January 26, 1999); registering an additional 500,000 shares of Common Stock | |
10.2 | Post-Effective Amendment No. 1 to Form S-8 relating to the Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Amendment and Restatement as of January 26, 1999); registering an additional 350,000 shares of Common Stock | |
10.3 | Post-Effective Amendment No. 2 to Form S-8 relating to the Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Amendment and Restatement as of January 26, 1999); registering an additional 810,340 shares of Common Stock | |
10.4 | Post-Effective Amendment No. 1 to Form S-8 relating to the Alliant Techsystems Inc. 1997 Employee Stock Purchase Plan; registering an additional 180,000 shares of Common Stock | |
99 | Alliant Techsystems Inc. Directors and Executive Officers |
(b) Reports on Form 8-K.
During the quarterly period ended December 31, 2000, the Registrant filed no reports on Form 8-K.
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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 13, 2001 | By: | /s/ DARYL L. ZIMMER Name: Daryl L. Zimmer Title: Vice President, General Counsel and Secretary (On behalf of the Registrant) | |
Date: February 13, 2001 | By: | /s/ ERIC S. RANGEN Name: Eric S. Rangen Title: Vice President and Chief Financial Officer (Principal Financial Officer) |
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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 | Post-Effective Amendment No. 1 to Form S-8 relating to the Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Amendment and Restatement as of January 26, 1999); registering an additional 500,000 shares of Common Stock | Incorporated by reference to Registrant's Form S-8 dated January 22, 2001 | ||
10.2 | Post-Effective Amendment No. 1 to Form S-8 relating to the Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Amendment and Restatement as of January 26, 1999); registering an additional 350,000 shares of Common Stock | Incorporated by reference to Registrant's Form S-8 dated January 22, 2001 | ||
10.3 | Post-Effective Amendment No. 2 to Form S-8 relating to the Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Amendment and Restatement as of January 26, 1999); registering an additional 810,340 shares of Common Stock | Incorporated by reference to Registrant's Form S-8 dated January 22, 2001 | ||
10.4 | Post-Effective Amendment No. 1 to Form S-8 relating to the Alliant Techsystems Inc. 1997 Employee Stock Purchase Plan; registering an additional 180,000 shares of Common Stock | Incorporated by reference to Registrant's Form S-8 dated January 22, 2001 | ||
99 | Alliant Techsystems Inc. Directors and Executive Officers | Filed herewith electronically |
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PART I—FINANCIAL INFORMATION
Consolidated Income Statements (Unaudited)
Consolidated Balance Sheets (Unaudited)
Consolidated Statements of Cash Flows (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
PART II—OTHER INFORMATION
SIGNATURES
ALLIANT TECHSYSTEMS INC. FORM 10-Q EXHIBIT INDEX