UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended July 1, 2001 | |
or | |
o | 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 | (I.R.S. Employer Identification No.) |
of incorporation or organization) | |
600 Second Street N.E. | |
Hopkins, Minnesota | 55343-8384 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (952) 931-6000
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 ý No o
As of July 1, 2001, the number of shares of the registrant’s common stock, par value $.01 per share, outstanding was 14,149,762.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
QUARTER ENDED | |||||||
(In thousands except per share data) | July 1, 2001 | July 2, 2000 | |||||
Sales | $ | 395,216 | $ | 270,084 | |||
Cost of sales | 315,401 | 216,491 | |||||
Gross margin | 79,815 | 53,593 | |||||
Operating expenses: | |||||||
Research and development | 4,016 | 1,533 | |||||
Selling | 8,922 | 6,737 | |||||
General and administrative | 18,091 | 14,086 | |||||
Total operating expenses | 31,029 | 22,356 | |||||
Earnings from continuing operations before interest and income taxes | 48,786 | 31,237 | |||||
Interest expense | (19,674 | ) | (8,708 | ) | |||
Interest income | 316 | 214 | |||||
Earnings from continuing operations before income taxes | 29,428 | 22,743 | |||||
Income tax provision | 11,183 | 7,778 | |||||
Minority interest expense, net of income taxes | 255 | ||||||
Income from continuing operations | 17,990 | 14,965 | |||||
Loss on disposal of discontinued operations, net of income taxes | (4,650 | ) | |||||
Income before extraordinary loss | 13,340 | 14,965 | |||||
Extraordinary loss on early extinguishment of debt, net of income taxes | (10,200 | ) | |||||
Net income | $ | 3,140 | $ | 14,965 | |||
Basic earnings per common share: | |||||||
Income from continuing operations | $ | 1.27 | $ | 1.10 | |||
Discontinued operations | (0.33 | ) | |||||
Extraordinary loss | (0.72 | ) | |||||
Basic earnings per common share | $ | 0.22 | $ | 1.10 | |||
Diluted earnings per common share: | |||||||
Income from continuing operations | $ | 1.22 | $ | 1.08 | |||
Discontinued operations | (0.32 | ) | |||||
Extraordinary loss | (0.69 | ) | |||||
Diluted earnings per common share | $ | 0.21 | $ | 1.08 | |||
Average number of common shares | 14,128 | 13,572 | |||||
Average number of common and dilutive shares | 14,756 | 13,822 | |||||
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data) | July 1, 2001 | March 31, 2001 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 45,432 | $ | 27,163 | ||||
Receivables | 350,832 | 214,724 | ||||||
Net inventory | 74,708 | 54,136 | ||||||
Deferred income tax asset | 16,478 | 16,478 | ||||||
Other current assets | 23,721 | 20,322 | ||||||
Total current assets | 511,171 | 332,823 | ||||||
Net property, plant, and equipment | 607,698 | 303,188 | ||||||
Goodwill | 483,170 | 117,737 | ||||||
Prepaid and intangible pension assets | 300,498 | 106,048 | ||||||
Other assets and deferred charges | 60,562 | 19,708 | ||||||
Total assets | $ | 1,963,099 | $ | 879,504 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 14,205 | $ | 69,200 | ||||
Accounts payable | 69,635 | 71,758 | ||||||
Contract advances and allowances | 43,218 | 34,494 | ||||||
Accrued compensation | 59,706 | 38,487 | ||||||
Accrued income taxes | 26,118 | 11,873 | ||||||
Other accrued liabilities | 110,355 | 66,151 | ||||||
Total current liabilities | 323,237 | 291,963 | ||||||
Long-term debt | 966,086 | 207,909 | ||||||
Deferred income tax liability | 132,818 | 28,636 | ||||||
Post-retirement and post-employment benefits liability | 247,555 | 108,203 | ||||||
Other long-term liabilities | 92,142 | 44,461 | ||||||
Total liabilities | 1,761,838 | 681,172 | ||||||
Contingencies | ||||||||
Common stock - $.01 par value | ||||||||
Authorized - 20,000,000 shares | ||||||||
Issued and outstanding 14,149,762 shares at July 1, | ||||||||
2001 and 14,070,569 at March 31, 2001 | 185 | 185 | ||||||
Additional paid-in-capital | 230,660 | 231,598 | ||||||
Retained earnings | 268,320 | 265,180 | ||||||
Unearned compensation | (3,185 | ) | (3,854 | ) | ||||
Other comprehensive income | (10,632 | ) | (6,140 | ) | ||||
Common stock in treasury, at cost 4,347,009 shares held at July 1, 2001 and 4,426,202 at March 31, 2001 | (284,087 | ) | (288,637 | ) | ||||
Total stockholders' equity | 201,261 | 198,332 | ||||||
Total liabilities and stockholders' equity | $ | 1,963,099 | $ | 879,504 | ||||
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) | QUARTER ENDED | |||||||
July 1, 2001 | July 2, 2000 | |||||||
Operating activities | ||||||||
Net income | $ | 3,140 | $ | 14,965 | ||||
Adjustments to net income to arrive at cash provided by (used for) operating activities | ||||||||
Depreciation | 12,025 | 9,355 | ||||||
Amortization of intangible assets and unearned compensation | 4,343 | 1,844 | ||||||
Deferred income tax | 216 | |||||||
(Gain) loss on disposal of property | (65 | ) | 508 | |||||
Minority interest expense, net of income taxes | 255 | |||||||
Loss on disposal of discontinued operations, net of income taxes | 4,650 | |||||||
Extraordinary loss on early extinguishment of debt, net of income taxes | 10,200 | |||||||
Changes in assets and liabilities: | ||||||||
Receivables | 9,260 | (15,483 | ) | |||||
Inventory | (226 | ) | 3,721 | |||||
Accounts payable | (21,872 | ) | (12,349 | ) | ||||
Contract advances and allowances | 6,183 | (6,679 | ) | |||||
Accrued compensation | (7,063 | ) | (7,373 | ) | ||||
Accrued income taxes | 14,160 | 7,131 | ||||||
Accrued environmental | (1,293 | ) | (98 | ) | ||||
Pension and post-retirement benefits | 1,273 | (5,869 | ) | |||||
Other assets and liabilities | 5,767 | (10,182 | ) | |||||
Cash provided by (used for) operating activities | 40,953 | (20,509 | ) | |||||
Investing activities | ||||||||
Capital expenditures | (7,546 | ) | (5,481 | ) | ||||
Acquisition of business | (685,000 | ) | ||||||
Proceeds from sale of a portion of a subsidiary | 5,892 | |||||||
Proceeds from disposition of property, plant, and equipment | 244 | (10 | ) | |||||
Cash used for investing activities | (686,410 | ) | (5,491 | ) | ||||
Financing activities | ||||||||
Net borrowings on line of credit | 20,000 | |||||||
Payments made on bank debt | (345,018 | ) | (13,912 | ) | ||||
Payments made to extinguish debt | (276,800 | ) | ||||||
Proceeds from issuance of long-term debt | 1,325,000 | |||||||
Payments made for debt issue costs | (43,062 | ) | ||||||
Net purchase of treasury shares | 1,289 | (3,043 | ) | |||||
Proceeds from exercised stock options | 2,317 | 1,217 | ||||||
Cash provided by financing activities | 663,726 | 4,262 | ||||||
Increase (decrease) in cash and cash equivalents | 18,269 | (21,738 | ) | |||||
Cash and cash equivalents - beginning of period | 27,163 | 45,765 | ||||||
Cash and cash equivalents - end of period | $ | 45,432 | $ | 24,027 | ||||
See Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements (Unaudited)
Quarter Ended July 1, 2001
1. Acquisition
On April 20, 2001, the Company acquired Alcoa Inc.’s Thiokol Propulsion business (Thiokol) for $685 million in cash. The Company used the purchase method of accounting to account for the acquisition, and, accordingly, the results of Thiokol are included in the consolidated financial statements since the date of acquisition. The purchase price was allocated to the assets and liabilities of Thiokol based on fair value. This allocation was preliminary and is subject to further adjustment. The excess purchase price over estimated fair value of the net assets acquired was recorded as goodwill and will be amortized over 40 years.
Pro forma information on results of operations as if Thiokol had been acquired on April 1, 2000 is as follows (in thousands, except per share amounts):
Quarter Ended | |||||||
July 1, 2001 | July 2, 2000 | ||||||
Sales | $ | 428,172 | $ | 396,861 | |||
Income before extraordinary loss | 12,431 | 15,007 | |||||
Net income | 12,431 | 4,807 | |||||
Basic earnings per common share: | |||||||
Income before extraordinary loss | $ | 0.88 | $ | 1.11 | |||
Net income | 0.88 | 0.35 | |||||
Diluted earnings per common share: | |||||||
Income before extraordinary loss | 0.84 | 1.09 | |||||
Net income | 0.84 | 0.35 |
The pro forma information is not necessarily indicative of the results of operations as they would have been had the acquisition actually occurred on the assumed acquisition date.
2. Long-Term Debt
In connection with the Company’s acquisition of Thiokol, the Company entered into new senior credit facilities totaling $1,050 million. The senior credit facilities, which refinanced the Company’s previously existing bank facilities, consist of a six-year revolving credit facility of $250 million, a $300 million six-year Tranche A term loan, and a $500 million eight-year Tranche B term loan. The Company also borrowed $125 million under a senior subordinated credit facility. Interest charges under the $250 million revolving credit facility and the Tranche A term loan are at the London Inter-Bank Offering Rate (LIBOR), plus a margin based on the Company’s consolidated leverage ratio, currently 2.75%. Interest charges under the Tranche B term loan accrue at LIBOR plus 3.00%. A portion of the proceeds from the senior credit facilities were used to repay the $277 million of previously-existing debt, and the remainder was used to finance the purchase price for Thiokol.
As a result of these financing activities, debt issue costs of $10.2 million, net of $6.3 million in taxes, were written-off during the quarter ended July 1, 2001 and recorded as an extraordinary loss on early extinguishment of debt.
As of July 1, 2001, the Company had no borrowings against its $250.0 million bank revolving credit facility. The Company had outstanding letters of credit of $48.7 million, which reduced amounts available on the revolving facility to $201.3 million at July 1, 2001.
On July 25, 2001, the Company prepaid an additional $20 million on the Tranche A term loan. The scheduled minimum loan payments on outstanding long-term debt are now $9.3 million for the remainder of fiscal 2002, and $13.4, $14.5, $16.6, and $17.6 million in fiscal 2003 through 2006, respectively, and $888.9 million thereafter. Final scheduled debt payment will be made in fiscal 2008 on Tranche A and fiscal 2010 on Tranche B. The Company’s total debt (line of credit borrowings, current portion of debt and long-term debt) as a percentage of total capitalization was 83% on July 1, 2001, compared to 58% on March 31, 2001.
Net interest paid during the quarters ended July 1, 2001 and July 2, 2000 totaled $4.7 million and $8.2 million, respectively.
3. Derivative Instruments and Hedging Activities
As of April 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and recorded a transition adjustment that decreased other comprehensive income (OCI) by $8.2 million, which is reported as a cumulative effect of accounting change in comprehensive income. The transition adjustment relates to the Company’s hedging activities through March 31, 2001. The hedging activities which resulted in the $8.2 million adjustment to OCI are interest rate swaps with a fair value of $(8.1) million and certain commodity and foreign currency contracts with a fair value of $(0.1) million, all of which have been designated as cash flow hedges.
The Company currently has interest rate swaps with a total notional amount of $506.8 million. The following table summarizes the Company’s interest rate swaps as of July 1, 2001 (in thousands):
Notional Amount | Interest Rate | Maturity Date | |||||
Amortizing swap | $ | 142,800 | 6.59 | % | November 2004 | ||
Amortizing swap | 132,000 | 5.25 | December 2005 | ||||
Amortizing swap | 132,000 | 5.27 | December 2005 | ||||
Non-amortizing swap | 100,000 | 6.06 | November 2008 | ||||
The fair market value of the Company’s interest rate swaps is $(5.6) million at July 1, 2001, an increase of $2.5 million since March 31, 2001. This increase in the fair value was recorded as an increase to OCI during the quarter ended July 1, 2001. The interest rate swaps are recorded within other long-term liabilities on the balance sheet.
4. Share Repurchase Program
As of July 1, 2001, repurchases of approximately 1.8 million shares have been made under the Company’s currently authorized share repurchase programs, aggregating approximately $80.3 million. No repurchases were made during the quarter ended July 1, 2001. Any repurchases made under this program are subject to market conditions and the Company’s compliance with its debt covenants. The Company’s debt covenants allow the Company to make up to an additional $25 million in restricted payments, including stock repurchases.
5. Other Liabilities
The major categories of current and long-term accrued liabilities are as follows (in thousands):
Quarter Ended | ||||||
July 1, 2001 | March 31, 2001 | |||||
Employee benefits and insurance | $ | 30,184 | $ | 20,983 | ||
Legal | 13,544 | 5,872 | ||||
Interest | 14,049 | 92 | ||||
Warranty | 9,880 | 8,902 | ||||
Other | 42,698 | 30,302 | ||||
Other accrued liabilities-current | $ | 110,355 | $ | 66,151 | ||
Environmental remediation – long-term | $ | 35,979 | $ | 24,778 | ||
Supplemental employee retirement plan | 15,642 | 14,919 | ||||
Minority interest in subsidiary | 5,866 | |||||
Interest rate swaps | 5,560 | |||||
Other | 29,095 | 4,764 | ||||
Other long-term liabilities | $ | 92,142 | $ | 44,461 | ||
The increase in most of these accruals is due to the addition of Thiokol.
6. Income Taxes
Tax payments of $0.3 million and $0.6 million were made during the quarters ended July 1, 2001 and July 2, 2000, respectively. During the quarter ended July 1, 2001, the Company received an income tax refund of $12.5 million.
The Company’s provision for income taxes includes both federal and state income taxes. Income tax expense was $11.2 million for the quarter ended July 1, 2001, compared to $7.8 million for the quarter ended July 2, 2000, representing an effective tax rate of 38.0% and 34.2% for the quarters ended July 1, 2001 and July 2, 2000, respectively. Income tax provisions for interim periods are based on estimated effective annual income tax rates. The estimated effective tax rate for fiscal 2002 is reflective of the Company’s best estimate of the fiscal 2002 tax implications associated with its business strategies.
7. Contingencies
Environmental Remediation Liabilities - - The Company is subject to various local and national laws relating to protection of the environment. A number of the Company’s facilities are in various stages of investigation or remediation of potential, alleged, or acknowledged contamination. At July 1, 2001, the accrued liability for environmental remediation of $49.6 million represents the Company’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 portion of the Company’s environmental costs will be recovered by the Company. As recoverability of those amounts is estimated to be probable, the Company has recorded a receivable of $19.2 million, representing the present value of those amounts at July 1, 2001. The receivable primarily represents the expected recoverability of costs associated with the Aerospace operations acquired from Hercules in March 1995, whereby the Company generally assumed responsibility for environmental compliance at these facilities. It is expected that much of the compliance and remediation costs associated with these facilities will be recoverable 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 has performed environmental condition evaluations and notified Hercules of its findings prior to the expiration of the March 31, 2000 deadline and is planning to prepare a similar evaluation prior to the March 15, 2005 deadline. The accrual for environmental remediation liabilities, and the associated receivable for recovery 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%. The following is a summary of the amounts recorded for environmental remediation at July 1, 2001 (in thousands):
Accrued Environment Liability | Environmental Costs - Reimbursement Receivable | |||||
Amounts (Payable)/Receivable | $ | (63,307 | ) | $ | 21,658 | |
Unamortized Discount | 13,755 | (2,480 | ) | |||
Present Value Amounts (Payable)/Receivable | $ | (49,552 | ) | $ | 19,178 | |
At July 1, 2001, the estimated discounted range of reasonably possible costs of environmental remediation is between $49 and $88 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.
Litigation – The Company is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company’s business. The Company has substantial U.S. Government contracts and is subject to defective pricing claims and cost accounting standards non-compliance claims by the U.S. Government. The prices in the Company’s U.S. Government contracts and subcontracts are subject to price adjustment. The Company believes that resolution of these claims and legal proceedings will not materially affect the Company’s financial condition or results of operations.
8. Comprehensive Income
Comprehensive income for the quarters ended July 1, 2001 and July 2, 2000 consists of the following (in thousands):
Quarters Ended | ||||||
July 1, 2001 | July 2, 2000 | |||||
Net income | $ | 3,140 | $ | 14,965 | ||
Cumulative effect of adoption of SFAS 133 | (8,161 | ) | ||||
Change in fair value of derivatives | 2,607 | |||||
Change in fair value of available-for-sale securities | 719 | |||||
Total comprehensive income | $ | (1,695 | ) | $ | 14,965 | |
9. Earnings Per Share Data
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 quarters ended July 1, 2001 and July 2, 2000, net income as reported for each respective period is divided by:
Quarters Ended | ||||
July 1, 2001 | July 2, 2000 | |||
Basic EPS: | ||||
- Average shares outstanding | 14,128 | 13,572 | ||
Diluted EPS: | ||||
- Average shares outstanding | 14,128 | 13,572 | ||
- Dilutive effect of options and redeemable common shares | 628 | 250 | ||
Diluted EPS shares outstanding | 14,756 | 13,822 | ||
There were also 3,000 and 524,250 stock options that were not included in the computation of diluted EPS for the quarters ended July 1, 2001, and July 2, 2000, respectively, due to the option price being greater than the average market price of the common shares.
10. Discontinued Operations
During the quarter ended July 1, 2001, the Company recorded a $4.7 million loss on disposal of discontinued operations (net of $2.9 million in taxes), due to litigation related to the Company’s former marine systems operations.
11. Joint Venture
On June 11, 2001, the Company formed a joint venture with General Dynamics Ordnance and Tactical Systems, Inc. (General Dynamics), to which the Company contributed its contract to operate and manage the Radford Army and Ammunition Plant and some related assets. General Dynamics contributed cash in return for a minority ownership in the joint venture. The receipt of this cash has been recorded by the Company as cash provided by investing activities during the quarter ended July 1, 2001. The results of the joint venture are included in the Company’s consolidated financial statements, and General Dynamics’ portion of the joint venture’s income has been recorded as minority interest expense, net of income taxes, in the consolidated income statement.
12. Business Segment Information
On April 1, 2001, the Company realigned its business operations, combining the Conventional Munitions and Defense Systems groups, and now has two operating segments: Aerospace and Defense. These operating segments are defined based on the management reporting and reporting used by the CEO beginning in the first quarter of fiscal 2002. The Aerospace operating segment designs, develops, and manufactures solid rocket propulsion systems for space, strategic, and tactical applications and composite structures for military and commercial aircraft, space launch vehicles, satellites, spacecraft, and weapons systems. The Defense operating segment designs, develops, and manufactures small-, medium-, and large-caliber ammunition, munitions propellants, commercial gunpowder, anti-tank systems, tactical barrier systems, precision-guided munitions, electronic warfare systems, infantry weapon systems, electro-mechanical and electronic fuzes and proximity sensors, and lithium batteries for military and aerospace applications.
In addition to the two operating segments, certain administrative functions are primarily managed by the Company at the corporate headquarters level (Corporate). Some examples of such functions are human resources, pension and post-retirement benefits, legal, tax, and treasury. Significant assets and liabilities managed at Corporate include those associated with debt, pension and post-retirement benefits, environmental liabilities, and income taxes. As the Company’s results of operations are substantially all earned in the United States for federal tax purposes, substantially all of the Company’s deferred tax assets and liabilities reflect temporary basis differences between U.S. tax regulations and generally accepted accounting principles. A capital-employed charge (interest expense) is allocated to each operating segment based on net assets employed, using a 9.0% rate, which approximates the Company’s overall borrowing rate. Earnings from continuing operations before income taxes at Corporate is primarily reflective of the Company’s 9.0% charge to the Company’s operating segments for capital employed. Net capital employed at Corporate is historically a negative number (i.e., a net liability) due primarily to the fact that certain significant liabilities are accounted for at Corporate, including accrued post-retirement benefits, taxes, and environmental liabilities.
Long-lived assets held at the operating segment level primarily reflect property, plant, and equipment, goodwill, and capitalized debt issuance costs. Pension and post-retirement benefit expenses are allocated to each operating segment based on relative headcounts and types of benefits offered in each respective segment. Environmental expenses are allocated to each operating segment based on the origin of the underlying environmental cost. Transactions between operating segments are recorded at the segment level, consistent with the Company’s financial accounting policies. Intercompany balances and transactions are eliminated at the Company’s consolidated financial statements level. These eliminations are shown below in “Other”.
The following summarizes the company's results by operating segment (in thousands):
Quarter Ended July 1, 2001 | |||||||||||||
Aerospace | Defense | Other | Total | ||||||||||
Revenue | |||||||||||||
External customers | $ | 232,656 | $ | 162,560 | $ | 395,216 | |||||||
Intercompany | 9,707 | 535 | $ | (10,242 | ) | — | |||||||
Total | 242,363 | 163,095 | (10,242 | ) | 395,216 | ||||||||
Capital expenditures | 4,471 | 3,075 | 7,546 | ||||||||||
Depreciation | 9,878 | 2,147 | 12,025 | ||||||||||
Amortization | 3,056 | 594 | 693 | 4,343 | |||||||||
Interest | (24,694 | ) | (3,708 | ) | 9,044 | (19,358 | ) | ||||||
Earnings from continuing operations before income taxes | 9,332 | 13,037 | 7,059 | 29,428 | |||||||||
Long-lived assets | 988,775 | 96,554 | 36,247 | 1,121,576 | |||||||||
Total assets | 1,442,978 | 266,196 | 253,925 | 1,963,099 | |||||||||
Quarter Ended July 2, 2000 | |||||||||||||
Aerospace | Defense | Other | Total | ||||||||||
Revenue | |||||||||||||
External customers | $ | 118,561 | $ | 151,523 | $ | 270,084 | |||||||
Intercompany | 7,354 | 696 | $ | (8,050 | ) | — | |||||||
Total | 125,915 | 152,219 | (8,050 | ) | 270,084 | ||||||||
Capital expenditures | 2,484 | 2,997 | 5,481 | ||||||||||
Depreciation | 7,251 | 2,104 | 9,355 | ||||||||||
Amortization | 805 | 642 | 397 | 1,844 | |||||||||
Interest | (9,055 | ) | (3,444 | ) | 4,005 | (8,494 | ) | ||||||
Earnings from continuing operations before income taxes | 13,022 | 6,550 | 3,171 | 22,743 | |||||||||
Long-lived assets | 334,425 | 122,281 | 5,296 | 462,002 | |||||||||
Total assets | 451,993 | 287,324 | 140,187 | 879,504 | |||||||||
13. Fair Presentation
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 quarters ended July 1, 2001 and July 2, 2000. The Company’s accounting policies are described in the notes to consolidated financial statements in its fiscal 2001 Annual Report on Form 10-K.
14. Reclassifications
Certain reclassifications have been made to the fiscal 2001 consolidated financial statements, as previously reported, to conform to current classification. These reclassifications did not change the net income from operations as previously reported.
15. Supplemental Guarantor Financial Information
The Company’s $400 million senior subordinated notes are guaranteed by certain domestic subsidiaries of the Company. Each of the guarantors will jointly and severally irrevocably and unconditionally guarantee, on an unsecured senior subordinated basis, payment on these notes.
The following presents condensed consolidating financial statements as of July 1, 2001 and March 31, 2001 and for the quarters ended July 1, 2001 and July 2, 2000, of Alliant Techsystems Inc. – the parent company, the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis), and elimination entries necessary to combine such entities on a consolidated basis. Separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented because management has determined that such information would not be material to holders of the notes.
Income Statement Consolidating Schedule
Quarter Ended July 1, 2001
In thousands
Parent Company | Guarantor Subsidiaries | Non- Guarantor Subsidiaries | Eliminations | Total | ||||||||||||
Sales | $ | 374,610 | $ | 32,685 | $ | (12,079 | ) | $ | 395,216 | |||||||
Cost of sales | $ | 1,300 | 301,453 | 24,945 | (12,297 | ) | 315,401 | |||||||||
Gross margin | (1,300 | ) | 73,157 | 7,740 | 218 | 79,815 | ||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 3,523 | 493 | 4,016 | |||||||||||||
Selling | (1,231 | ) | 9,685 | 468 | 8,922 | |||||||||||
General and administrative | 1,931 | 14,419 | 1,875 | (134 | ) | 18,091 | ||||||||||
Total operating expenses | 700 | 27,627 | 2,836 | (134 | ) | 31,029 | ||||||||||
Earnings from continuing operations before interest and income taxes | (2,000 | ) | 45,530 | 4,904 | 352 | 48,786 | ||||||||||
Interest expense | (19,029 | ) | (645 | ) | (19,674 | ) | ||||||||||
Interest income | 213 | 103 | 3,316 | (3,316 | ) | 316 | ||||||||||
Earnings from continuing operations before income taxes | (1,787 | ) | 26,604 | 7,575 | (2,964 | ) | 29,428 | |||||||||
Income tax provision | (679 | ) | 10,110 | 2,837 | (1,085 | ) | 11,183 | |||||||||
Minority interest expense, net of income taxes | 255 | 255 | ||||||||||||||
Income from continuing operations | (1,108 | ) | 16,494 | 4,483 | (1,879 | ) | 17,990 | |||||||||
Loss on disposal of discontinued operations, net of income taxes | (4,650 | ) | (4,650 | ) | ||||||||||||
Income before extraordinary loss | (5,758 | ) | 16,494 | 4,483 | (1,879 | ) | 13,340 | |||||||||
Extraordinary loss on early extinguishment of debt, net of income taxes | (9,865 | ) | (335 | ) | (10,200 | ) | ||||||||||
Net income | $ | (5,758 | ) | $ | 6,629 | $ | 4,148 | $ | (1,879 | ) | $ | 3,140 | ||||
Income Statement Consolidating Schedule
Quarter Ended July 2, 2000
In thousands
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total | |||||||||||||
Sales | $ | 236,094 | $ | 42,434 | $ | (8,444 | ) | $ | 270,084 | ||||||||
Cost of sales | $ | (600 | ) | 191,696 | 35,856 | (10,461 | ) | 216,491 | |||||||||
Gross margin | 600 | 44,398 | 6,578 | 2,017 | 53,593 | ||||||||||||
Operating expenses: | |||||||||||||||||
Research and development | 1,328 | 205 | 1,533 | ||||||||||||||
Selling | 370 | 5,623 | 744 | 6,737 | |||||||||||||
General and administrative | 1,628 | 10,556 | 1,988 | (86 | ) | 14,086 | |||||||||||
Total operating expenses | 1,998 | 17,507 | 2,937 | (86 | ) | 22,356 | |||||||||||
Earnings from continuing operations before interest and income taxes | (1,398 | ) | 26,891 | 3,641 | 2,103 | 31,237 | |||||||||||
Interest expense | (7,053 | ) | (1,655 | ) | (8,708 | ) | |||||||||||
Interest income | 212 | 2 | 3,307 | (3,307 | ) | 214 | |||||||||||
Earnings from continuing operations before income taxes | (1,186 | ) | 19,840 | 5,293 | (1,204 | ) | 22,743 | ||||||||||
Income tax provision | (406 | ) | 6,785 | 1,820 | (421 | ) | 7,778 | ||||||||||
Net income | $ | (780 | ) | $ | 13,055 | $ | 3,473 | $ | (783 | ) | $ | 14,965 | |||||
Balance Sheet Consolidating Schedule
July 1, 2001
In thousands
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 39,074 | $ | 2,920 | $ | 3,438 | $ | 45,432 | ||||||||||
Receivables | (760 | ) | 314,703 | 36,889 | 350,832 | |||||||||||||
Net inventory | 71,236 | 3,472 | 74,708 | |||||||||||||||
Deferred income tax asset (liability) | 891 | (12,471 | ) | 28,058 | 16,478 | |||||||||||||
Other current assets | 19,446 | (238 | ) | 4,513 | 23,721 | |||||||||||||
Total current assets | 58,651 | 376,150 | 76,370 | - | 511,171 | |||||||||||||
Net property, plant, and equipment | 7,434 | 593,335 | 6,929 | 607,698 | ||||||||||||||
Goodwill | 467,232 | 15,938 | 483,170 | |||||||||||||||
Prepaid and intangible pension assets | 300,498 | 300,498 | ||||||||||||||||
Other assets and deferred charges | 9,605 | 47,769 | 119,007 | $ | (115,819 | ) | 60,562 | |||||||||||
Total assets | $ | 376,188 | $ | 1,484,486 | $ | 218,244 | $ | (115,819 | ) | $ | 1,963,099 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Current portion of long-term debt | $ | 13,739 | $ | 466 | $ | 14,205 | ||||||||||||
Accounts payable | $ | 4,874 | 60,791 | 3,970 | 69,635 | |||||||||||||
Contract advances and allowances | 37,192 | 6,026 | 43,218 | |||||||||||||||
Accrued compensation | 4,787 | 52,272 | 2,647 | 59,706 | ||||||||||||||
Accrued income taxes | (1,490 | ) | 20,852 | 6,756 | 26,118 | |||||||||||||
Other accrued liabilities | 51,715 | 50,508 | 8,132 | 110,355 | ||||||||||||||
Total current liabilities | 59,886 | 235,354 | 27,997 | - | 323,237 | |||||||||||||
Long-term debt | 934,400 | 31,686 | 966,086 | |||||||||||||||
Deferred income tax liability | (8,065 | ) | 112,901 | 27,982 | 132,818 | |||||||||||||
Post-retirement and post-employment | ||||||||||||||||||
benefits liability | 175,700 | 71,855 | 247,555 | |||||||||||||||
Other long-term liabilities | 43,639 | 25,494 | 23,009 | 92,142 | ||||||||||||||
Total liabilities | 271,160 | 1,308,149 | 182,529 | - | 1,761,838 | |||||||||||||
Contingencies | ||||||||||||||||||
Common stock | 177 | 208 | $ | (200 | ) | 185 | ||||||||||||
Additional paid-in-capital | 230,660 | 54,592 | (54,592 | ) | 230,660 | |||||||||||||
Retained earnings | 215,190 | 46,161 | 15,332 | (8,363 | ) | 268,320 | ||||||||||||
Corporate investment | (42,747 | ) | 129,828 | (34,417 | ) | (52,664 | ) | - | ||||||||||
Unearned compensation | (3,185 | ) | (3,185 | ) | ||||||||||||||
Other comprehensive income | (10,980 | ) | 348 | (10,632 | ) | |||||||||||||
Common stock in treasury, at cost | (284,087 | ) | (284,087 | ) | ||||||||||||||
Total stockholders' equity | 105,028 | 176,337 | 35,715 | (115,819 | ) | 201,261 | ||||||||||||
Total liabilities and stockholders' equity | $ | 376,188 | $ | 1,484,486 | $ | 218,244 | $ | (115,819 | ) | $ | 1,963,099 | |||||||
Balance Sheet Consolidating Schedule
March 31, 2001
In thousands
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 24,580 | $ | 10 | $ | 2,573 | $ | 27,163 | ||||||||||
Receivables | 176,257 | 38,701 | $ | (234 | ) | 214,724 | ||||||||||||
Net inventory | 52,704 | 1,198 | 234 | 54,136 | ||||||||||||||
Deferred income tax asset (liability) | 559 | (12,650 | ) | 28,569 | 16,478 | |||||||||||||
Other current assets | 16,943 | 2,579 | 800 | 20,322 | ||||||||||||||
Total current assets | 42,082 | 218,900 | 71,841 | - | 332,823 | |||||||||||||
Net property, plant, and equipment | 8,557 | 286,778 | 7,853 | 303,188 | ||||||||||||||
Goodwill | 101,681 | 16,056 | 117,737 | |||||||||||||||
Prepaid and intangible pension assets | 106,048 | 106,048 | ||||||||||||||||
Other assets and deferred charges | 11,992 | 4,534 | 119,001 | (115,819 | ) | 19,708 | ||||||||||||
Total assets | $ | 168,679 | $ | 611,893 | $ | 214,751 | $ | (115,819 | ) | $ | 879,504 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Current portion of long-term debt | $ | 56,228 | $ | 12,972 | $ | 69,200 | ||||||||||||
Accounts payable | $ | 8,323 | 58,013 | 5,422 | 71,758 | |||||||||||||
Contract advances and allowances | 30,907 | 3,587 | 34,494 | |||||||||||||||
Accrued compensation | 7,523 | 30,647 | 317 | 38,487 | ||||||||||||||
Accrued income taxes | (377 | ) | 8,535 | 3,715 | 11,873 | |||||||||||||
Other accrued liabilities | 38,905 | 22,312 | 4,934 | 66,151 | ||||||||||||||
Total current liabilities | 54,374 | 206,642 | 30,947 | - | 291,963 | |||||||||||||
Long-term debt | 168,935 | 38,974 | 207,909 | |||||||||||||||
Deferred income tax liability | 28,636 | 28,636 | ||||||||||||||||
Post-retirement and post-employment benefits liability | 35,046 | 73,157 | 108,203 | |||||||||||||||
Other long-term liabilities | 27,141 | 17,320 | 44,461 | |||||||||||||||
Total liabilities | 145,197 | 375,577 | 160,398 | - | 681,172 | |||||||||||||
Contingencies | ||||||||||||||||||
Common stock | 177 | 208 | (200 | ) | 185 | |||||||||||||
Additional paid-in-capital | 231,598 | 54,592 | (54,592 | ) | 231,598 | |||||||||||||
Retained earnings | 124,827 | 110,262 | 35,436 | (5,345 | ) | 265,180 | ||||||||||||
Corporate investment | (34,489 | ) | 126,054 | (35,883 | ) | (55,682 | ) | - | ||||||||||
Unearned compensation | (3,854 | ) | (3,854 | ) | ||||||||||||||
Other comprehensive income | (6,140 | ) | (6,140 | ) | ||||||||||||||
Common stock in treasury, at cost | (288,637 | ) | (288,637 | ) | ||||||||||||||
Total stockholders' equity | 23,482 | 236,316 | 54,353 | (115,819 | ) | 198,332 | ||||||||||||
Total liabilities and stockholders' equity | $ | 168,679 | $ | 611,893 | $ | 214,751 | $ | (115,819 | ) | $ | 879,504 | |||||||
Statement of Cash Flows Consolidating Schedule
Quarter Ended July 1, 2001
In thousands
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total | |||||||||||||
Operating activities | |||||||||||||||||
Net income | $ | (5,758 | ) | $ | 6,629 | $ | 4,148 | $ | (1,879 | ) | $ | 3,140 | |||||
Adjustments to net income to arrive at cash provided by operating activities: | |||||||||||||||||
Depreciation | 491 | 10,614 | 920 | 12,025 | |||||||||||||
Amortization of intangible assets and unearned compensation | 1,370 | 2,855 | 118 | 4,343 | |||||||||||||
Deferred income tax | 19 | (257 | ) | 454 | 216 | ||||||||||||
Loss (gain) on disposal of property | 4 | (69 | ) | (65 | ) | ||||||||||||
Minority interest expense, net of income taxes | 255 | 255 | |||||||||||||||
Loss on disposal of discontinued operations, net of income taxes | 4,650 | 4,650 | |||||||||||||||
Extraordinary loss on early extinguishment of debt, net of income taxes | 9,865 | 335 | 10,200 | ||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||
Receivables | 760 | 6,922 | 1,812 | (234 | ) | 9,260 | |||||||||||
Inventory | 1,814 | (2,274 | ) | 234 | (226 | ) | |||||||||||
Accounts payable | (3,609 | ) | (16,971 | ) | (1,292 | ) | (21,872 | ) | |||||||||
Contract advances and allowances | 3,744 | 2,439 | 6,183 | ||||||||||||||
Accrued compensation | (2,736 | ) | (6,657 | ) | 2,330 | (7,063 | ) | ||||||||||
Accrued income taxes | (1,076 | ) | 12,232 | 3,004 | 14,160 | ||||||||||||
Accrued environmental | (1,115 | ) | (178 | ) | (1,293 | ) | |||||||||||
Pension and post-retirement benefits | 2,575 | (1,302 | ) | 1,273 | |||||||||||||
Other assets and liabilities | (11,369 | ) | 15,820 | 1,316 | 5,767 | ||||||||||||
Cash (used for) provided by operating activities | (15,794 | ) | 46,541 | 12,085 | (1,879 | ) | 40,953 | ||||||||||
Investing activities | |||||||||||||||||
Capital expenditures | (511 | ) | (7,035 | ) | (7,546 | ) | |||||||||||
Acquisition of business | (685,000 | ) | (685,000 | ) | |||||||||||||
Proceeds from sale of a portion of a subsidiary | 5,892 | 5,892 | |||||||||||||||
Proceeds from the disposition of property, plant, and equipment | 244 | 244 | |||||||||||||||
Cash (used for) provided by investing activities | (511 | ) | (691,791 | ) | 5,892 | - | (686,410 | ) | |||||||||
Financing activities | |||||||||||||||||
Corporate cash advances, net | 27,138 | 9,691 | (38,708 | ) | 1,879 | - | |||||||||||
Payments made on bank debt | (333,702 | ) | (11,316 | ) | (345,018 | ) | |||||||||||
Payments made to extinguish debt | (267,721 | ) | (9,079 | ) | (276,800 | ) | |||||||||||
Proceeds from issuance of long-term debt | 1,281,542 | 43,458 | 1,325,000 | ||||||||||||||
Payments made for debt issue costs | (41,650 | ) | (1,412 | ) | (43,062 | ) | |||||||||||
Dividends from subsidiary (to parent) | 55 | (55 | ) | - | |||||||||||||
Net purchase of treasury shares | 1,289 | 1,289 | |||||||||||||||
Proceeds from exercised stock options | 2,317 | 2,317 | |||||||||||||||
Cash provided by (used for) financing activities | 30,799 | 648,160 | (17,112 | ) | 1,879 | 663,726 | |||||||||||
Increase in cash and cash equivalents | 14,494 | 2,910 | 865 | - | 18,269 | ||||||||||||
Cash and cash equivalents - beginning of period | 24,580 | 10 | 2,573 | 27,163 | |||||||||||||
Cash and cash equivalents - end of period | $ | 39,074 | $ | 2,920 | $ | 3,438 | $ | - | $ | 45,432 | |||||||
Statement of Cash Flows Consolidating Schedule
Quarter Ended July 2, 2000
In thousands
Parent Company | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Total | |||||||||||||
Operating activities | |||||||||||||||||
Net income | $ | (780 | ) | $ | 13,055 | $ | 3,473 | $ | (783 | ) | $ | 14,965 | |||||
Adjustments to net income to arrive at cash provided by operating activities: | |||||||||||||||||
Depreciation | 314 | 8,974 | 67 | 9,355 | |||||||||||||
Amortization of intangible assets and unearned compensation | 820 | 906 | 118 | 1,844 | |||||||||||||
Deferred income tax | (417 | ) | 417 | - | |||||||||||||
Loss on disposal of property | 12 | 496 | 508 | ||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||
Receivables | 2,608 | (8,391 | ) | (9,399 | ) | (301 | ) | (15,483 | ) | ||||||||
Inventory | 3,910 | (189 | ) | 3,721 | |||||||||||||
Accounts payable | (3,724 | ) | (8,243 | ) | (382 | ) | (12,349 | ) | |||||||||
Contract advances and allowances | (4,000 | ) | (2,963 | ) | 284 | (6,679 | ) | ||||||||||
Accrued compensation | (4,483 | ) | (2,717 | ) | (173 | ) | (7,373 | ) | |||||||||
Accrued income taxes | (363 | ) | 5,818 | 1,676 | 7,131 | ||||||||||||
Accrued environmental liability | 2 | (100 | ) | (98 | ) | ||||||||||||
Pension and post-retirement benefits | (6,782 | ) | 913 | (5,869 | ) | ||||||||||||
Other assets and liabilities | (10,367 | ) | (398 | ) | 583 | (10,182 | ) | ||||||||||
Cash (used for) provided by operating activities | (27,160 | ) | 10,447 | (2,523 | ) | (1,273 | ) | (20,509 | ) | ||||||||
Investing activities | |||||||||||||||||
Capital expenditures | (221 | ) | (3,590 | ) | (1,670 | ) | (5,481 | ) | |||||||||
Proceeds from the disposition of property, plant, and equipment | (10 | ) | (10 | ) | |||||||||||||
Cash used for investing activities | (231 | ) | (3,590 | ) | (1,670 | ) | - | (5,491 | ) | ||||||||
Financing activities | |||||||||||||||||
Corporate cash advances, net | (13,463 | ) | 4,490 | 7,700 | 1,273 | - | |||||||||||
Net borrowings on line of credit | 20,000 | 20,000 | |||||||||||||||
Payments made on bank debt | (11,269 | ) | (2,643 | ) | (13,912 | ) | |||||||||||
Dividends from (to) subsidiary (parent) | (220 | ) | 220 | - | |||||||||||||
Net purchase of treasury shares | (3,043 | ) | (3,043 | ) | |||||||||||||
Proceeds from exercised stock options | 1,217 | 1,217 | |||||||||||||||
Cash provided by (used for) financing activities | 4,491 | (6,779 | ) | 5,277 | 1,273 | 4,262 | |||||||||||
(Decrease) increase in cash and cash equivalents | (22,900 | ) | 78 | 1,084 | - | (21,738 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 43,018 | 30 | 2,717 | 45,765 | |||||||||||||
Cash and cash equivalents at end of period | $ | 20,118 | $ | 108 | $ | 3,801 | $ | - | $ | 24,027 | |||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Sales for the quarter ended July 1, 2001 totaled $395.2 million, an increase of $125.1 million, or 46.3%, from $270.1 million for the comparable quarter in the prior year. Aerospace segment sales were $242.4 million, an increase of $116.5 million, or 92.5%, compared to $125.9 million for the comparable quarter of the prior year. This increase is primarily due to the Company’s acquisition of the Thiokol Propulsion Operations (Thiokol) from Alcoa Inc. On April 20, 2001, the Company purchased Thiokol for $685 million in cash. The Thiokol operations generated $121.3 million in sales during the quarter ended July 1, 2001. The majority of Thiokol’s sales are generated by two programs: the reusable solid rocket motor for NASA’s space shuttle, and propulsion systems for the Minuteman missile program. The increase in Aerospace sales is also due to accelerated efforts on the Longbow/Brimstone program, which generated an additional $2.4 million of sales over the comparable quarter in the prior year. These increases were partially offset by a decrease of $13.5 million from the Titan IV B program, which is nearing completion.
Defense segment sales were $163.1 million, an increase of $10.9 million, or 7.2%, compared to $152.2 million for the comparable quarter of the prior year. The increase is due to an increase of $21.3 million in medium-caliber ammunition, which was driven by an international co-production program and the 25mm multi-year program being in full production in fiscal 2002. The increase was also due to $7.6 million in additional sales of fuzes, and $5.2 million on the Objective Individual Combat Weapon, for which the Company was awarded the contract in July 2000. The increases were offset by a decrease of $9.8 million due to the February 2001 sale of our Kilgore flares operations, a decrease of $7.8 million on our MK90 propellant program due to lower production as expected, and a decrease of $5.6 million on our Shielder anti-tank barrier system program as that contract is winding down.
Company sales for fiscal 2002 are expected to be between $1.625 billion and $1.650 billion.
Gross Margin
The Company’s gross margin for the quarter ended July 1, 2001 was $79.8 million, or 20.2% of sales, an increase of $26.2 million compared to $53.6 million, or 19.8% of sales, for the comparable quarter of the prior year. The gross margin in the Aerospace segment increased primarily due to the acquisition of Thiokol, which added $23.7 million in gross margin. The gross margin in the Defense segment also increased, due to better performance on fuze programs, which had an increase in gross margin of $4.4 million, along with an increase of $3.4 million on medium-caliber ammunition, partially offset by a decrease of $1.2 million due to the absence of Kilgore.
Operating Expenses
The Company’s operating expenses for the quarter ended July 1, 2001, totaled $31.0 million, or 7.9% of sales, an increase of $8.6 million compared to $22.4 million, or 8.3% of sales, for the comparable quarter of the prior year. The increase in the amount of operating expenses is due to the addition of Thiokol. The decrease in operating expenses as a percent of sales is partially due to synergies obtained through the integration of Thiokol into our operations. Operating expenses as a percent of sales are similar to the prior year within both segments.
Operating expenses for fiscal 2002, as a percent of sales, are expected to be in the 7.8% to 8.2% range.
Interest Expense
The Company’s net interest expense for the quarter ended July 1, 2001 was $19.4 million, an increase of $10.9 million compared to $8.5 million for the comparable quarter of the prior year. The increase was due to the increase in outstanding debt, which was incurred to finance the acquisition of Thiokol. See further discussion of the debt issuances and interest rate swaps below.
Income from Continuing Operations before Income Taxes
The Company’s income from continuing operations before income taxes (earnings before taxes, or EBT) was $29.4 million, an increase of $6.7 million compared to $22.7 million for the comparable quarter of the prior year, the result of increased gross margin partially offset by higher interest expense. Aerospace segment EBT for the quarter ended July 1, 2001 was $9.3 million, a decrease of $3.7 million compared to $13.0 million in the comparable quarter of the prior year. The decrease was driven by additional interest expense on debt incurred in connection with the acquisition of Thiokol, partially offset by increased gross margin. The additional interest expense recorded within the Aerospace segment was partially offset by increased interest income recorded by corporate on intercompany items. Defense segment EBT for the quarter ended July 1, 2001 was $13.0 million, an increase of $6.4 million compared to $6.6 million in the comparable quarter of the prior year. The increase was primarily the result of improved margin on fuze programs and on medium-caliber ammunition programs.
Income Taxes
Income tax expense was $11.2 million, an increase of $3.4 million compared to $7.8 million for the comparable quarter of the prior year, representing an effective tax rate of 38.0% and 34.2% for the quarters ended July 1, 2001 and July 2, 2000, respectively. Income tax provisions for interim periods are based on estimated effective annual income tax rates. The estimated effective tax rate for fiscal 2002 is reflective of our best estimate of the fiscal 2002 tax implications associated with our business strategies.
Income from Continuing Operations
Income from continuing operations was $18.0 million, or 4.6% of sales, an increase of $3.0 million compared to $15.0 million, or 5.5% of sales, for the comparable quarter of the prior year, the result of increased gross margin partially offset by higher interest and income tax expense.
Net Income
Net income reported for the quarter ended July 1, 2001 was $3.1 million, a decrease of $11.9 million compared to $15.0 million for the comparable quarter of the prior year. The overall decrease was driven by two events during the quarter (a discontinued operations loss due to litigation related to the Company’s former marine systems operations and an extraordinary loss to write off debt issuance costs due to the early extinguishment of debt), along with increased operating expenses, interest expense, and income tax expense, which were partially offset by increased gross margin.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Cash provided by operations totaled $41.0 million for the quarter ended July 1, 2001, representing an improvement in operating cash flow of $61.5 million, compared to $20.5 million used for operations in the comparable quarter of the prior year. The improved level of cash provided during the quarter was primarily driven by an increase in earnings from continuing operations, improved working capital, and an income tax refund of $12.5 million.
Cash used for investing activities for the quarter ended July 1, 2001 was $686.4 million, an increase of $680.9 million compared to $5.5 million used in the comparable quarter of the prior year. This increase in usage is primarily due to the $685 million of cash used to purchase Thiokol. Capital expenditures in fiscal 2002 are expected to be approximately $37 million, compared to fiscal 2001 expenditures of $24.8 million. The expected increase is primarily due to capital expenditures to be made by Thiokol.
Cash provided by financing activities for the quarter ended July 1, 2001 totaled $663.7 million, an increase of $659.4 million compared to the $4.3 million generated in the comparable quarter of the prior year. The increase is a result of proceeds from debt issuances relating to the Company’s acquisition of Thiokol. In connection with this acquisition, the Company entered into new senior credit facilities totaling $1,050 million. The senior credit facilities, which refinanced the Company’s previously existing bank facilities, consist of a six-year revolving credit facility of $250 million and $800 million of term loans. The Company also borrowed $125 million under a senior subordinated credit facility. A portion of the proceeds from the senior credit facilities were used to repay the $277 million of previously-existing debt and the remainder was used to finance the purchase price for Thiokol.
On May 14, 2001, the Company issued $400 million total principal amount of senior subordinated notes, that mature on May 15, 2011, in a private placement. The net proceeds from these notes were used to repay in full the $125 million senior subordinated credit facility and to repay approximately $195.7 million of term loans and approximately $65 million of revolving credit loans issued in connection with the initial financing of the Thiokol acquisition. In June 2001, the Company prepaid $20 million on the term loans.
As of July 1, 2001, the Company had no borrowings against its $250.0 million bank revolving credit facility. The Company had outstanding letters of credit of $48.7 million, which reduced amounts available on the revolving credit facility to $201.3 million at July 1, 2001. On July 25, 2001, the Company prepaid an additional $20 million on the term loans. The scheduled minimum loan payments on outstanding long-term debt are now $9.3 million for the remainder of fiscal 2002, and $13.4, $14.5, $16.6, and $17.6 million in fiscal 2003 through 2006, respectively, and $888.9 million thereafter. Final scheduled term loan debt payment will be made in fiscal 2010. The Company’s total debt (line of credit borrowings, current portion of debt and long-term debt) as a percentage of total capitalization was 83% on July 1, 2001, compared to 58% on March 31, 2001.
The Company currently has interest rate swaps with a total notional amount of $506.8 million. The following table summarizes the Company’s interest rate swaps as of July 1, 2001 (in thousands):
Notional Amount | Interest Rate | Maturity Date | |||||
Amortizing swap | $ | 142,800 | 6.59 | % | November 2004 | ||
Amortizing swap | 132,000 | 5.25 | December 2005 | ||||
Amortizing swap | 132,000 | 5.27 | December 2005 | ||||
Non-amortizing swap | 100,000 | 6.06 | November 2008 | ||||
Based on the financial condition of the Company at July 1, 2001, the Company believes that future operating cash flows, combined with the availability of funding, if needed, under bank revolving credit facilities, will be adequate to fund the Company's future growth as well as service long-term obligations.
CONTINGENCIES
Environmental Remediation Liabilities - - The Company is subject to various local and national laws relating to protection of the environment. A number of the Company’s facilities are in various stages of investigation or remediation of potential, alleged, or acknowledged contamination. At July 1, 2001, the accrued liability for environmental remediation of $49.6 million represents the Company’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 portion of the Company’s environmental costs will be recovered by the Company. As recoverability of those amounts is estimated to be probable, the Company has recorded a receivable of $19.2 million, representing the present value of those amounts at July 1, 2001. The receivable primarily represents the expected recoverability of costs associated with the Aerospace operations acquired from Hercules in March 1995, whereby the Company generally assumed responsibility for environmental compliance at these facilities. It is expected that much of the compliance and remediation costs associated with these facilities will be recoverable 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 has performed environmental condition evaluations and notified Hercules of its findings prior to the expiration of the March 31, 2000 deadline and is planning to prepare a similar evaluation prior to the March 15, 2005 deadline. The accrual for environmental remediation liabilities, and the associated receivable for recovery 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%. The following is a summary of the amounts recorded for environmental remediation at July 1, 2001 (in thousands):
Accrued Environmental Liability | Environmental Costs - Reimbursement Receivable | |||||
Amounts (Payable)/Receivable | $ | (63,307 | ) | $ | 21,658 | |
Unamortized Discount | 13,755 | (2,480 | ) | |||
Present Value Amounts (Payable)/Receivable | $ | (49,552 | ) | $ | 19,178 | |
At July 1, 2001, the estimated discounted range of reasonably possible costs of environmental remediation is between $49 and $88 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.
Litigation – The Company is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company’s business. The Company has substantial U.S. Government contracts and is subject to defective pricing claims and cost accounting standards non-compliance claims by the U.S. Government. The prices in the Company’s U.S. Government contracts and subcontracts are subject to price adjustment. The Company believes that resolution of these claims and legal proceedings will not materially affect the Company’s financial condition or results of operations.
NEW ACCOUNTING RULES
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. SFAS 141 establishes new standards for accounting and reporting requirements for business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. The Company expects to adopt this statement on April 1, 2002, the first quarter of the Company’s fiscal 2003. Management does not believe that SFAS 141 will have a material impact on the Company’s consolidated financial statements.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company also expects to adopt this statement on April 1, 2002. During the quarter ended July 1, 2001, goodwill amortization totaled $3.0 million. Management is still evaluating the impact that the adoption of SFAS 142 will have on the Company's financial statements.
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 2002 sales, operating expenses, 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 recoverability prospects, the adoption of new accounting rules, and in general, the financial and 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, government 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, commercial space launch manifest, 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, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. To mitigate the risks from interest rate exposure, the Company has entered into various hedging transactions, mainly interest rate swaps, through derivative financial instruments that have been authorized pursuant to corporate policies. The Company uses derivatives to hedge certain interest rate, commodity price, and foreign currency risks. The Company does not use derivative financial instruments for trading or other speculative purposes, and the Company is not a party to leveraged financial instruments. Additional information regarding the Company’s financial instruments is contained in Note 3 to the consolidated financial statements. The Company’s objective in managing exposure to changes in interest rates is to limit the impact of such changes on earnings and cash flow and to lower the Company’s overall borrowing rate.
The Company measures market risk related to the Company’s holdings of financial instruments based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair values, cash flows, and earnings based on a hypothetical 10% change (increase and decrease) in interest rates. The Company used current market rates on the Company’s debt and derivative portfolio to perform the sensitivity analysis. Certain items such as lease contracts, insurance contracts, and obligations for pension and other post-retirement benefits were not included in the analysis.
The Company’s primary interest rate exposures relate to the Company’s variable rate debt and interest rate swaps. The potential loss in fair values is based on an assumed immediate change in the net present values of the Company’s interest rate-sensitive exposures resulting from a 10% change in interest rates. The potential loss in cash flows and earnings is based on the change in the net interest income / expense over a one-year period due to the change in rates. Based on the Company’s analysis, a 10% change in interest rates does not have a material impact on the Company’s fair values, cash flows, or earnings.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company's business. The Company has substantial U.S. Government contracts and is subject to defective pricing claims and cost accounting standards non-compliance claims by the U.S. Government. The prices in the Company's U.S. Government contracts and subcontracts are subject to price adjustment. The Company believes that resolution of these claims and legal proceedings will not materially affect the Company's financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
On August 8, 2001, the Company announced a 3-for-2 stock split, which is payable September 7, 2001 to the Company's shareholders of record on August 17, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. | Description |
3.1 | Restated Certificate of Incorporation of Alliant Techsystems Inc. (the “Registrant”), effective July 20, 1990, including Certificate of Correction, effective September 21, 1990 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 (“Form S-4”), File No. 333-67316). |
3.2 | Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant, effective September 28, 1990 (incorporated by reference to Exhibit 3.2 to Form S-4, File No. 333-67316). |
3.3 | Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, effective August 8, 2001 (incorporated by reference to Exhibit 3.3 to Form S-4, File No. 333-67316). |
4.1 | Indenture, dated as of May 14, 2001, between the Registrant and BNY Midwest Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to Form S-4, File No. 333-67316). |
4.2 | Form of Initial Notes (included in Exhibit 4.1). |
4.3 | Form of Exchange Notes (included in Exhibit 4.1). |
4.4 | Registration Rights Agreement, dated as of May 14, 2001, among the Registrant, specified subsidiary guarantors, J.P. Morgan Securities, Credit Lyonnais (USA) Inc., TD Securities (USA) Inc., BNY Capital Markets, Inc., First Union Securities, Inc. and U.S. Bancorp Libra (incorporated by reference to Exhibit 4.4 to Form S-4, File No. 333-67316). |
10.1 | Amended and Restated Credit Agreement, dated as of April 20, 2001 among the Registrant, the Borrowing Subsidiaries named therein, the Lenders named therein, the Issuing Banks named therein, Credit Lyonnais New York Branch, as Syndicate Agent, Bank of New York, First Union National Bank, the Toronto-Dominion Bank, and US Bank, as Documentation Agents, and The Chase Manhattan Bank, as Administrative Agent (the “Credit Agreement”), including Effectiveness Agreement among the Registrant, the Borrowing Subsidiaries named therein, the Lenders named therein, and The Chase Manhattan Bank, as Administrative Agent (incorporated by reference to Exhibit 10.32 to Form S-4, File No. 333-67316). |
10.2 | Amendment No. 1, dated as of May 11, 2001, to the Credit Agreement (incorporated by reference to Exhibit 10.33 to Form S-4, File No. 333-67316). |
(b) Reports on Form 8-K.
During the quarter ended July 1, 2001, the Company filed a report on Form 8-K dated May 2, 2001 reporting under Items 2 and 5 information about the Company’s acquisition of the Thiokol propulsion business. The Company filed a report on Form 8-K/A on June 28, 2001 for the purpose of amending the earlier Form 8-K and providing the financial statements and pro forma financial information required by Item 7 of Form 8-K with respect to the Company’s acquisition of the Thiokol propulsion business.
During the quarter, the Company also filed (i) a report on Form 8-K dated May 9, 2001 reporting under Item 5 the announcement of financial results for fiscal year 2001 and (ii) a report on Form 8-K dated June 5, 2001 reporting under Item 9 information relating to the business of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALLIANT TECHSYSTEMS INC. | |||
Date: August 14, 2001 | By: | /s/ Eric S. Rangen | |
Name: | Eric S. Rangen | ||
Title: | Vice President and Chief Financial Officer | ||
(On behalf of the registrant and as principal financial and accounting officer) |
ALLIANT TECHSYSTEMS INC.
FORM 10-Q
EXHIBIT INDEX
Exhibit No. | Description |
3.1 | Restated Certificate of Incorporation of Alliant Techsystems Inc. (the “Registrant”), effective July 20, 1990, including Certificate of Correction, effective September 21, 1990 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 (“Form S-4”), File No. 333-67316). |
3.2 | Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant, effective September 28, 1990 (incorporated by reference to Exhibit 3.2 to Form S-4, File No. 333-67316). |
3.3 | Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, effective August 8, 2001 (incorporated by reference to Exhibit 3.3 to Form S-4, File No.333-67316.). |
4.1 | Indenture, dated as of May 14, 2001, between the Registrant and BNY Midwest Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to Form S-4, File No.333-67316). |
4.2 | Form of Initial Notes (included in Exhibit 4.1). |
4.3 | Form of Exchange Notes (included in Exhibit 4.1). |
4.4 | Registration Rights Agreement, dated as of May 14, 2001, among the Registrant, specified subsidiary guarantors, J.P. Morgan Securities, Credit Lyonnais (USA) Inc., TD Securities (USA) Inc., BNY Capital Markets, Inc., First Union Securities, Inc. and U.S. Bancorp Libra (incorporated by reference to Exhibit 4.4 to Form S-4, File No.333-67316). |
10.1 | Amended and Restated Credit Agreement, dated as of April 20, 2001 among the Registrant, the Borrowing Subsidiaries named therein, the Lenders named therein, the Issuing Banks named therein, Credit Lyonnais New York Branch, as Syndicate Agent, Bank of New York, First Union National Bank, the Toronto-Dominion Bank, and US Bank, as Documentation Agents, and The Chase Manhattan Bank, as Administrative Agent (the “Credit Agreement”), including Effectiveness Agreement among the Registrant, the Borrowing Subsidiaries named therein, the Lenders named therein, and The Chase Manhattan Bank, as Administrative Agent (incorporated by reference to Exhibit 10.32 to Form S-4, File No.333-67316). |
10.2 | Amendment No. 1, dated as of May 11, 2001, to the Credit Agreement (incorporated by reference to Exhibit 10.33 to Form S-4, File No.333-67316). |