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 |
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For the quarterly period ended September 30, 2001 | |
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or | |
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o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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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) |
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5050 Lincoln Drive |
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Edina, Minnesota 55436-1097 | 55436-1097 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (952) 351-3000
Former Address:
600 Second Street N.E.
Hopkins, Minnesota 55343-8384
(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 October 31, 2001, the number of shares of the registrant’s common stock, par value $.01 per share, outstanding was 21,628,128.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands except per share data) |
| QUARTERS ENDED |
| SIX MONTHS ENDED |
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| September 30 |
| October 1 |
| September 30 |
| October 1 |
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| 2001 |
| 2000 |
| 2001 |
| 2000 |
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Sales |
| $ | 427,567 |
| $ | 271,619 |
| $ | 822,783 |
| $ | 541,703 |
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Cost of sales |
| 340,251 |
| 216,050 |
| 655,652 |
| 432,541 |
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Gross margin |
| 87,316 |
| 55,569 |
| 167,131 |
| 109,162 |
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Operating expenses: |
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Research and development |
| 5,337 |
| 2,250 |
| 9,353 |
| 3,783 |
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Selling |
| 8,363 |
| 6,061 |
| 17,285 |
| 12,798 |
| ||||
General and administrative |
| 19,303 |
| 13,815 |
| 37,394 |
| 27,901 |
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Total operating expenses |
| 33,003 |
| 22,126 |
| 64,032 |
| 44,482 |
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Earnings before interest and income taxes |
| 54,313 |
| 33,443 |
| 103,099 |
| 64,680 |
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Interest expense |
| (22,707 | ) | (9,237 | ) | (42,381 | ) | (17,945 | ) | ||||
Interest income |
| 224 |
| 238 |
| 540 |
| 452 |
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Earnings from continuing operations before income taxes |
| 31,830 |
| 24,444 |
| 61,258 |
| 47,187 |
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Income tax provision |
| 12,095 |
| 8,360 |
| 23,278 |
| 16,138 |
| ||||
Minority interest expense, net of income taxes |
| 417 |
| - |
| 672 |
| - |
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Income from continuing operations |
| 19,318 |
| 16,084 |
| 37,308 |
| 31,049 |
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Loss on disposal of discontinued operations, net of income taxes |
| - |
| - |
| (4,650 | ) | - |
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Income before extraordinary loss |
| 19,318 |
| 16,084 |
| 32,658 |
| 31,049 |
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Extraordinary loss on early extinguishment of debt, net of income taxes |
| (409 | ) | - |
| (10,609 | ) | - |
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Net income |
| $ | 18,909 |
| $ | 16,084 |
| $ | 22,049 |
| $ | 31,049 |
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Basic earnings per common share: |
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Income from continuing operations |
| $ | 0.90 |
| $ | 0.78 |
| $ | 1.75 |
| $ | 1.52 |
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Discontinued operations |
| - |
| - |
| (0.22 | ) | - |
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Extraordinary loss |
| (.02 | ) | - |
| (0.50 | ) | - |
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Basic earnings per common share |
| $ | 0.88 |
| $ | 0.78 |
| $ | 1.03 |
| $ | 1.52 |
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Diluted earnings per common share: |
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Income from continuing operations |
| $ | 0.86 |
| $ | 0.77 |
| $ | 1.68 |
| $ | 1.49 |
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Discontinued operations |
| - |
| - |
| (0.21 | ) | - |
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Extraordinary loss |
| (.01 | ) | - |
| (0.48 | ) | - |
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Diluted earnings per common share |
| $ | 0.85 |
| $ | 0.77 |
| $ | 0.99 |
| $ | 1.49 |
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Average number of common shares |
| 21,388 |
| 20,572 |
| 21,317 |
| 20,487 |
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Average number of common and dilutive shares |
| 22,357 |
| 21,013 |
| 22,271 |
| 20,898 |
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CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data) |
| September 30, 2001 |
| March 31, 2001 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 48,253 |
| $ | 27,163 |
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Receivables |
| 340,843 |
| 214,724 |
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Net inventory |
| 80,128 |
| 54,136 |
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Deferred income tax asset |
| 16,478 |
| 16,478 |
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Other current assets |
| 27,014 |
| 20,322 |
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Total current assets |
| 512,716 |
| 332,823 |
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Net property, plant, and equipment |
| 423,435 |
| 303,188 |
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Goodwill |
| 687,439 |
| 117,737 |
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Prepaid and intangible pension assets |
| 296,605 |
| 106,048 |
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Other assets and deferred charges |
| 69,929 |
| 19,708 |
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Total assets |
| $ | 1,990,124 |
| $ | 879,504 |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Current portion of long-term debt |
| $ | 8,759 |
| $ | 69,200 |
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Accounts payable |
| 75,211 |
| 71,758 |
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Contract advances and allowances |
| 37,231 |
| 34,494 |
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Accrued compensation |
| 67,640 |
| 38,487 |
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Accrued income taxes |
| 36,315 |
| 11,873 |
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Other accrued liabilities |
| 106,505 |
| 66,151 |
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Total current liabilities |
| 331,661 |
| 291,963 |
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Long-term debt |
| 948,415 |
| 207,909 |
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Deferred income tax liability |
| 132,905 |
| 28,636 |
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Post-retirement and post-employment benefits liability |
| 244,187 |
| 108,203 |
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Other long-term liabilities |
| 124,798 |
| 44,461 |
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Total liabilities |
| 1,781,966 |
| 681,172 |
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Contingencies |
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Common stock - $.01 par value |
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Authorized - 60,000,000 shares |
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Issued and outstanding 21,534,892 shares at September 30, 2001 and 14,070,569 at March 31, 2001 |
| 256 |
| 185 |
| ||
Additional paid-in-capital |
| 225,357 |
| 231,598 |
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Retained earnings |
| 287,229 |
| 265,180 |
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Unearned compensation |
| (7,003 | ) | (3,854 | ) | ||
Other comprehensive income |
| (29,827 | ) | (6,140 | ) | ||
Common stock in treasury, at cost 4,096,842 shares held at September 30, 2001 and 4,426,202 at March 31, 2001 |
| (267,854 | ) | (288,637 | ) | ||
Total stockholders' equity |
| 208,158 |
| 198,332 |
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Total liabilities and stockholders' equity |
| $ | 1,990,124 |
| $ | 879,504 |
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) |
| SIX MONTHS ENDED |
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| September 30, 2001 |
| October 1, 2000 |
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Operating activities |
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Net income |
| $ | 22,049 |
| $ | 31,049 |
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Adjustments to net income to arrive at cash provided by (used for) operating activities: |
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Depreciation |
| 25,892 |
| 19,095 |
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Amortization of intangible assets and unearned compensation |
| 11,538 |
| 4,235 |
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Deferred income tax |
| 303 |
| - |
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(Gain) loss on disposal of property |
| (39 | ) | 650 |
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Minority interest expense, net of income taxes |
| 672 |
| - |
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Loss on disposal of discontinued operations, net of income taxes |
| 4,650 |
| - |
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Extraordinary loss on early extinguishment of debt, net of income taxes |
| 10,609 |
| - |
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Changes in assets and liabilities: |
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Receivables |
| 19,255 |
| (17,526 | ) | ||
Inventory |
| (6,689 | ) | 14,627 |
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Accounts payable |
| (16,295 | ) | (20,828 | ) | ||
Contract advances and allowances |
| 195 |
| (24,164 | ) | ||
Accrued compensation |
| 560 |
| (4,195 | ) | ||
Accrued income taxes |
| 24,356 |
| (2,608 | ) | ||
Accrued environmental |
| (1,060 | ) | (412 | ) | ||
Pension and post-retirement benefits |
| (19,125 | ) | (11,585 | ) | ||
Other assets and liabilities |
| 12,799 |
| (4,815 | ) | ||
Cash provided by (used for) operating activities |
| 89,670 |
| (16,477 | ) | ||
Investing activities |
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Capital expenditures |
| (15,809 | ) | (9,406 | ) | ||
Acquisition of businesses |
| (704,000 | ) | - |
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Proceeds from sale of a portion of a subsidiary |
| 5,455 |
| - |
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Proceeds from sale of property, plant, and equipment |
| 262 |
| (2 | ) | ||
Cash used for investing activities |
| (714,092 | ) | (9,408 | ) | ||
Financing activities |
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Net borrowings on line of credit |
| - |
| 32,000 |
| ||
Payments made on bank debt |
| (368,135 | ) | (28,125 | ) | ||
Payments made to extinguish debt |
| (276,800 | ) | - |
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Proceeds from issuance of long-term debt |
| 1,325,000 |
| - |
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Payments made for debt issue costs |
| (43,768 | ) | - |
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Net purchase of treasury shares |
| (852 | ) | (3,693 | ) | ||
Proceeds from employee stock compensation plans |
| 10,067 |
| 5,083 |
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Cash provided by financing activities |
| 645,512 |
| 5,265 |
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Increase (decrease) in cash and cash equivalents |
| 21,090 |
| (20,620 | ) | ||
Cash and cash equivalents - beginning of period |
| 27,163 |
| 45,765 |
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Cash and cash equivalents - end of period |
| $ | 48,253 |
| $ | 25,145 |
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Notes to Consolidated Financial Statements (Unaudited)
Quarter and Six Months Ended September 30, 2001
1. Acquisition
On April 20, 2001, Alliant Techsystems Inc. (the Company) acquired Alcoa Inc.’s (Alcoa) Thiokol Propulsion business (Thiokol) for $685 million in cash. During the quarter ended September 30, 2001, an additional payment of $15 million was made to Alcoa as a purchase price adjustment. A final purchase price adjustment payment of $8.3 million was made on November 5, 2001. 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 is 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):
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| Quarter Ended |
| Six Months Ended |
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| September 30, |
| October 1, |
| September 30, |
| October 1, |
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Sales |
| $ | 427,567 |
| $ | 421,310 |
| $ | 855,739 |
| $ | 818,171 |
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Income before extraordinary loss |
| 19,318 |
| 19,018 |
| 31,749 |
| 34,025 |
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Net income |
| 18,909 |
| 18,609 |
| 31,340 |
| 23,416 |
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Basic earnings per common share: |
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Income before extraordinary loss |
| $ | 0.90 |
| $ | 0.92 |
| $ | 1.49 |
| $ | 1.66 |
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Net income |
| 0.88 |
| 0.90 |
| 1.47 |
| 1.14 |
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Diluted earnings per common share: |
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Income before extraordinary loss |
| 0.86 |
| 0.91 |
| 1.43 |
| 1.63 |
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Net income |
| 0.85 |
| 0.89 |
| 1.41 |
| 1.12 |
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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 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. 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. 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 the Tranche A term loan and approximately $65 million of revolving credit loans issued in connection with the initial financing of the Thiokol acquisition. Through September 30, 2001, the Company has paid an additional $44.9 million on its Tranche A term loan, of which $40.0 million represented prepayments, and $2.5 million on its Tranche B term loan.
As a result of these financing activities, debt issue costs of $10.6 million, net of $6.5 million in taxes, were written-off and recorded as an extraordinary loss on early extinguishment of debt during the six months ended September 30, 2001.
The scheduled minimum loan payments on outstanding long-term debt, after taking into account the prepayments that have been made, are $4.9 million for the remainder of fiscal 2002, and $10.6, $11.3, $12.7, and $13.4 million in fiscal 2003 through 2006, respectively, and $884.3 million thereafter. The Company’s total debt (line of credit borrowings, current portion of debt and long-term debt) as a percentage of total capitalization was 82% on September 30, 2001, compared to 58% on March 31, 2001.
As of September 30, 2001, the Company had no borrowings against its $250.0 million bank revolving credit facility. The Company had outstanding letters of credit of $44.7 million, which reduced amounts available on the revolving facility to $205.3 million at September 30, 2001.
Net interest paid during the six months ended September 30, 2001 and October 1, 2000 totaled $19.8 million and $16.8 million, respectively.
3. Derivative Instruments and Hedging Activities
The Company currently has interest rate swaps with a total notional amount of $497.3 million. The following table summarizes the Company’s interest rate swaps as of September 30, 2001 (in thousands):
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| Notional Amount |
| Interest Rate |
| Maturity Date | |
Amortizing swap |
| $ | 133,272 |
| 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 $(24.5) million at September 30, 2001, a decrease of $18.9 million since July 1, 2001. This decrease in the fair value, net of taxes, was recorded as a decrease to other comprehensive income (OCI) during the quarter ended September 30, 2001. The interest rate swaps are recorded within other long-term liabilities on the balance sheet.
4. Other Liabilities
The major categories of current and long-term accrued liabilities are as follows (in thousands):
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| September 30, 2001 |
| March 31, 2001 |
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Employee benefits and insurance |
| $ | 24,633 |
| $ | 20,983 |
|
Legal |
| 13,071 |
| 5,872 |
| ||
Interest |
| 20,514 |
| 92 |
| ||
Warranty |
| 8,362 |
| 8,902 |
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Other |
| 39,925 |
| 30,302 |
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Other accrued liabilities-current |
| $ | 106,505 |
| $ | 66,151 |
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Environmental remediation – long-term |
| $ | 45,550 |
| $ | 24,778 |
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Supplemental employee retirement plan |
| 15,806 |
| 14,919 |
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Legal |
| 9,500 |
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Minority interest in subsidiary |
| 6,538 |
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Interest rate swaps |
| 24,488 |
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Other |
| 22,916 |
| 4,764 |
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Other long-term liabilities |
| $ | 124,798 |
| $ | 44,461 |
|
The increase in most of these accruals is due to the addition of Thiokol.
5. Income Taxes
Tax payments of $1.6 million and $18.6 million were made during the six months ended September 30, 2001 and October 1, 2000, respectively.
The Company’s provision for income taxes includes both federal and state income taxes. Income tax expense was $23.3 million for the six months ended September 30, 2001, compared to $16.1 million for the six months ended October 1, 2000, representing an effective tax rate of 38.0% and 34.2%, 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.
6. 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 September 30, 2001, the accrued liability for environmental remediation of $48.6 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 $18.0 million, representing the present value of those amounts. The receivable primarily represents the expected recoverability of costs associated with Thiokol operations acquired from Alcoa (Thiokol Facilities) and the Aerospace operations acquired from Hercules (Hercules Facilities) 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.
Those environmental remediation costs at Hercules Facilities not covered through U.S. Government 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.
Those environmental remediation costs at Thiokol Facilities not covered through U.S. Government contracts will be covered by approximately $14 million in reserve. Beyond this amount, the Company and Alcoa would each bear 50% of the next $20 million of liability, subject to our having provided Alcoa notification of issues identified prior to January 30, 2004. Alcoa's obligation under this environmental indemnity is capped at $10 million.
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 4.6%. The following is a summary of the amounts recorded for environmental remediation at September 30, 2001 (in thousands):
|
| Accrued |
| Environmental Costs — |
| ||
Amounts (payable)/receivable |
| $ | (62,192 | ) | $ | 20,503 |
|
Unamortized discount |
| 13,606 |
| (2,524 | ) | ||
Present value amounts (payable)/receivable |
| $ | (48,586 | ) | $ | 17,979 |
|
At September 30, 2001, the estimated discounted range of reasonably possible costs of environmental remediation is between $48 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 – From time to time, the Company is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the ordinary conduct of the Company’s business. The Company does not consider any of such proceedings, individually or in the aggregate, to be material to its business or likely to result in a material adverse effect on its results of operations or financial condition.
7. Comprehensive Income
Total comprehensive income for the quarters and the six months ended September 30, 2001 and October 1, 2000 consists of the following (in thousands):
|
| Quarter Ended |
| Six Months Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
Net income |
| $ | 18,909 |
| $ | 16,084 |
| $ | 22,049 |
| $ | 31,049 |
|
Cumulative effect of adoption of SFAS 133 |
|
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|
| (5,060 | ) |
|
| ||||
Change in fair value of derivatives |
| (11,739 | ) |
|
| (10,123 | ) |
|
| ||||
Change in fair value of available-for-sale securities |
| 51 |
|
|
| 497 |
|
|
| ||||
Total comprehensive income |
| $ | 7,221 |
| $ | 16,084 |
| $ | 7,363 |
| $ | 31,049 |
|
8. Earnings Per Share Data
Earnings Per Share (EPS) for all periods have been calculated to reflect a 3-for-2 stock split, which became effective September 7, 2001. Basic EPS is computed based upon the weighted average number of common shares outstanding for each period presented. Diluted EPS is computed based on the weighted average number of common shares and common equivalent shares. Common equivalent shares represent the effect of stock options outstanding during each period presented, which, if exercised, would have a dilutive effect on EPS. In computing EPS for the quarters and the six months ended September 30, 2001 and October 1, 2000, net income as reported for each respective period is divided by (in thousands):
|
| Quarter Ended |
| Six Months Ended |
| ||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
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|
Basic EPS: |
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|
|
|
|
|
|
|
|
Average shares outstanding |
| 21,388 |
| 20,572 |
| 21,317 |
| 20,487 |
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
Average shares outstanding |
| 21,388 |
| 20,572 |
| 21,317 |
| 20,487 |
|
Dilutive effect of options and redeemable common shares |
| 969 |
| 441 |
| 954 |
| 411 |
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS shares outstanding |
| 22,357 |
| 21,013 |
| 22,271 |
| 20,898 |
|
There were no stock options that were not included in the computation of diluted EPS for the quarter and the six months ended September 30, 2001. There were 664,347 stock options that were not included in the computation of diluted EPS for the quarter and six months ended October 1, 2000, due to the option price being greater than the average market price of the common shares.
9. 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 Company’s chief executive officer. 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.
The following summarizes the Company’s results by operating segment (in thousands):
|
| Quarter Ended |
| Six Months Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
Sales to external customers |
|
|
|
|
|
|
|
|
| ||||
- Aerospace |
| $ | 260,528 |
| $ | 120,014 |
| $ | 493,184 |
| $ | 238,575 |
|
- Defense |
| 167,039 |
| 151,605 |
| 329,599 |
| 303,128 |
| ||||
- Corporate |
|
|
|
|
|
|
|
|
| ||||
Total external sales |
| $ | 427,567 |
| $ | 271,619 |
| $ | 822,783 |
| $ | 541,703 |
|
Intercompany sales |
|
|
|
|
|
|
|
|
| ||||
- Aerospace |
| $ | 9,049 |
| $ | 9,605 |
| $ | 18,756 |
| $ | 16,959 |
|
- Defense |
| 219 |
| 475 |
| 754 |
| 1,171 |
| ||||
- Corporate |
| (9,268 | ) | (10,080 | ) | (19,510 | ) | (18,130 | ) | ||||
Total intercompany sales |
| - |
| - |
| - |
| - |
| ||||
Total sales |
| $ | 427,567 |
| $ | 271,619 |
| $ | 822,783 |
| $ | 541,703 |
|
Earnings before income taxes (EBT) | |||||||||||||
- Aerospace |
| $ | 11,673 |
| $ | 13,931 |
| $ | 21,005 |
| $ | 26,953 |
|
- Defense |
| 15,082 |
| 6,230 |
| 28,119 |
| 12,780 |
| ||||
- Corporate |
| 5,075 |
| 4,283 |
| 12,134 |
| 7,454 |
| ||||
Earnings before income taxes |
| $ | 31,830 |
| $ | 24,444 |
| $ | 61,258 |
| $ | 47,187 |
|
10. Joint Venture
Subsequent to September 30, 2001, the Company was informed by regulators of the need to dissolve its joint venture with General Dynamics Ordnance and Tactical Systems, Inc. (General Dynamics), to which the Company had contributed its contract to operate and manage the Radford Army Ammunition Plant and some related assets. General Dynamics had contributed $5.5 million of cash in return for a minority interest in the joint venture, which will be returned by the Company to General Dynamics during calendar 2001. Additional dissolution provisions are currently under negotiation.
11. Voluntary Retirement Incentive Plan Charge
During the quarter ended September 30, 2001, the Company recorded a non-cash charge of $6.6 million associated with special termination benefits provided under a voluntary retirement incentive plan offered to certain Aerospace employees. This charge is recorded within cost of sales on the income statement.
12. Subsequent Event
On November 6, 2001, the Company reached a definitive agreement to acquire the Sporting Equipment Group (SEG) of Blount International, Inc. for stock with a fair value of approximately $250 million, subject to adjustment, plus a nominal amount of cash. SEG had net assets of approximately $230 million as of September 30, 2001. Any goodwill resulting from the purchase price calculation will not be amortized, in accordance with the transition provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. 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 third quarter, subject to customary regulatory approvals.
13. Fair Presentation
The figures set forth in this quarterly report are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of the results of operations for the quarters and six-month periods ended September 30, 2001 and October 1, 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 September 30, 2001 and March 31, 2001 and for the quarters and six-month periods ended September 30, 2001 and October 1, 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 September 30, 2001
Amounts in thousands
|
| Parent Company |
| Guarantor Subsidiaries |
| Non-Guarantor Subsidiaries |
| Eliminations |
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sales |
|
|
| $ | 407,759 |
| $ | 30,144 |
| $ | (10,336 | ) | $ | 427,567 |
| ||
Cost of sales |
| $ | 1,400 |
| 325,141 |
| 23,847 |
| (10,137 | ) | 340,251 |
| |||||
Gross margin |
| (1,400 | ) | 82,618 |
| 6,297 |
| (199 | ) | 87,316 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Research and development |
|
|
| 5,070 |
| 267 |
|
|
| 5,337 |
| ||||||
Selling |
|
|
| 7,906 |
| 457 |
|
|
| 8,363 |
| ||||||
General and administrative |
| 2,834 |
| 14,634 |
| 1,769 |
| 66 |
| 19,303 |
| ||||||
Total operating expenses |
| 2,834 |
| 27,610 |
| 2,493 |
| 66 |
| 33,003 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings before interest and income taxes |
| (4,234 | ) | 55,008 |
| 3,804 |
| (265 | ) | 54,313 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
|
|
| (22,098 | ) | (609 | ) |
|
| (22,707 | ) | ||||||
Interest income |
| 109 |
| 115 |
| 3,264 |
| (3,264 | ) | 224 |
| ||||||
Earnings from continuing operations before income taxes |
| (4,125 | ) | 33,025 |
| 6,459 |
| (3,529 | ) | 31,830 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income tax provision |
| (1,567 | ) | 12,549 |
| 2,373 |
| (1,260 | ) | 12,095 |
| ||||||
Minority interest expense, net of income taxes |
|
|
|
|
| 417 |
|
|
| 417 |
| ||||||
(Loss) income before extraordinary loss |
| (2,558 | ) | 20,476 |
| 3,669 |
| (2,269 | ) | 19,318 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Extraordinary loss on early extinguishment of debt, net of income taxes |
|
|
| (398 | ) | (11 | ) |
|
| (409 | ) | ||||||
Net (loss) income |
| $ | (2,558 | ) | $ | 20,078 |
| $ | 3,658 |
| $ | (2,269 | ) | $ | 18,909 |
| |
Income Statement Consolidating Schedule
Quarter Ended October 1, 2000
Amounts in thousands
|
| Parent Company |
| Subsidiary Guarantors |
| Non-Guarantor Subsidiaries |
| Eliminations |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales |
|
|
| $ | 254,883 |
| $ | 27,378 |
| $ | (10,642 | ) | $ | 271,619 |
| |
Cost of sales |
| $ | (400 | ) | 208,728 |
| 19,371 |
| (11,649 | ) | 216,050 |
| ||||
Gross margin |
| 400 |
| 46,155 |
| 8,007 |
| 1,007 |
| 55,569 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Research and development |
|
|
| 2,020 |
| 230 |
|
|
| 2,250 |
| |||||
Selling |
| (649 | ) | 6,151 |
| 559 |
|
|
| 6,061 |
| |||||
General and administrative |
| 559 |
| 11,633 |
| 1,728 |
| (105 | ) | 13,815 |
| |||||
Total operating expenses |
| (90 | ) | 19,804 |
| 2,517 |
| (105 | ) | 22,126 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Earnings before interest and income taxes |
| 490 |
| 26,351 |
| 5,490 |
| 1,112 |
| 33,443 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
|
| (8,016 | ) | (1,221 | ) |
|
| (9,237 | ) | |||||
Interest income |
| 237 |
| 1 |
| 3,298 |
| (3,298 | ) | 238 |
| |||||
Earnings from continuing operations before income taxes |
| 727 |
| 18,336 |
| 7,567 |
| (2,186 | ) | 24,444 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income tax provision |
| 249 |
| 6,271 |
| 2,604 |
| (764 | ) | 8,360 |
| |||||
Net income (loss) |
| $ | 478 |
| $ | 12,065 |
| $ | 4,963 |
| $ | (1,422 | ) | $ | 16,084 |
|
Income Statement Consolidating Schedule
Six Months Ended September 30, 2001
Amounts in thousands
|
| Parent Company |
| Guarantor Subsidiaries |
| Non-Guarantor Subsidiaries |
| Eliminations |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales |
|
|
| $ | 782,369 |
| $ | 62,829 |
| $ | (22,415 | ) | $ | 822,783 |
| |
Cost of sales |
| $ | 2,700 |
| 626,594 |
| 48,792 |
| (22,434 | ) | 655,652 |
| ||||
Gross margin |
| (2,700 | ) | 155,775 |
| 14,037 |
| 19 |
| 167,131 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Research and development |
|
|
| 8,593 |
| 760 |
|
|
| 9,353 |
| |||||
Selling |
| (1,231 | ) | 17,591 |
| 925 |
|
|
| 17,285 |
| |||||
General and administrative |
| 4,765 |
| 29,053 |
| 3,644 |
| (68 | ) | 37,394 |
| |||||
Total operating expenses |
| 3,534 |
| 55,237 |
| 5,329 |
| (68 | ) | 64,032 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Earnings before interest and income taxes |
| (6,234 | ) | 100,538 |
| 8,708 |
| 87 |
| 103,099 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
|
| (41,127 | ) | (1,254 | ) |
|
| (42,381 | ) | |||||
Interest income |
| 322 |
| 218 |
| 6,580 |
| (6,580 | ) | 540 |
| |||||
Earnings from continuing operations before income taxes |
| (5,912 | ) | 59,629 |
| 14,034 |
| (6,493 | ) | 61,258 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income tax provision |
| (2,246 | ) | 22,659 |
| 5,210 |
| (2,345 | ) | 23,278 |
| |||||
Minority interest expense, net of income taxes |
|
|
|
|
| 672 |
|
|
| 672 |
| |||||
Income from continuing operations |
| (3,666 | ) | 36,970 |
| 8,152 |
| (4,148 | ) | 37,308 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loss on disposal of discontinued operations, net of income taxes |
| (4,650 | ) |
|
|
|
|
|
| (4,650 | ) | |||||
(Loss) income before extraordinary loss |
| (8,316 | ) | 36,970 |
| 8,152 |
| (4,148 | ) | 32,658 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Extraordinary loss on early extinguishment of debt, net of income taxes |
|
|
| (10,263 | ) | (346 | ) |
|
| (10,609 | ) | |||||
Net (loss) income |
| $ | (8,316 | ) | $ | 26,707 |
| $ | 7,806 |
| $ | (4,148 | ) | $ | 22,049 |
|
Income Statement Consolidating Schedule
Six Months Ended October 1, 2000
Amounts in thousands
|
| Parent Company |
| Subsidiary Guarantors |
| Non-Guarantor Subsidiaries |
| Eliminations |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales |
|
|
| $ | 490,977 |
| $ | 69,812 |
| $ | (19,086 | ) | $ | 541,703 |
| |
Cost of sales |
| $ | (1,000 | ) | 400,424 |
| 55,227 |
| (22,110 | ) | 432,541 |
| ||||
Gross margin |
| 1,000 |
| 90,553 |
| 14,585 |
| 3,024 |
| 109,162 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Research and development |
|
|
| 3,348 |
| 435 |
|
|
| 3,783 |
| |||||
Selling |
| (279 | ) | 11,774 |
| 1,303 |
|
|
| 12,798 |
| |||||
General and administrative |
| 2,187 |
| 22,189 |
| 3,716 |
| (191 | ) | 27,901 |
| |||||
Total operating expenses |
| 1,908 |
| 37,311 |
| 5,454 |
| (191 | ) | 44,482 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Earnings before interest and income taxes |
| (908 | ) | 53,242 |
| 9,131 |
| 3,215 |
| 64,680 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
|
| (15,069 | ) | (2,876 | ) |
|
| (17,945 | ) | |||||
Interest income |
| 449 |
| 3 |
| 6,605 |
| (6,605 | ) | 452 |
| |||||
Earnings from continuing operations before income taxes |
| (459 | ) | 38,176 |
| 12,860 |
| (3,390 | ) | 47,187 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income tax provision |
| (157 | ) | 13,056 |
| 4,424 |
| (1,185 | ) | 16,138 |
| |||||
Net income |
| $ | (302 | ) | $ | 25,120 |
| $ | 8,436 |
| $ | (2,205 | ) | $ | 31,049 |
|
Balance Sheet Consolidating Schedule
September 30, 2001
Amounts in thousands
|
| Parent Company |
| Guarantor Subsidiaries |
| Non-Guarantor Subsidiaries |
| Eliminations |
| Total |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 43,436 |
| $ | 2,380 |
| $ | 2,437 |
|
|
| $ | 48,253 |
| |
Receivables |
|
|
| 299,088 |
| 41,930 |
| $ | (175 | ) | 340,843 |
| ||||
Net inventory |
|
|
| 74,749 |
| 5,204 |
| 175 |
| 80,128 |
| |||||
Deferred income tax asset (liability) |
| 1,874 |
| (14,634 | ) | 29,238 |
|
|
| 16,478 |
| |||||
Other current assets |
| 21,580 |
| 2,168 |
| 3,266 |
|
|
| 27,014 |
| |||||
Total current assets |
| 66,890 |
| 363,751 |
| 82,075 |
|
|
| 512,716 |
| |||||
Net property, plant, and equipment |
| 8,683 |
| 407,522 |
| 7,230 |
|
|
| 423,435 |
| |||||
Goodwill |
|
|
| 671,619 |
| 15,820 |
|
|
| 687,439 |
| |||||
Prepaid and intangible pension assets |
| 117,802 |
| 178,803 |
|
|
|
|
| 296,605 |
| |||||
Other assets and deferred charges |
| 16,775 |
| 50,115 |
| 118,858 |
|
| (115,819 | ) | 69,929 |
| ||||
Total assets |
| $ | 210,150 |
| $ | 1,671,810 |
| $ | 223,983 |
| $ | (115,819 | ) | $ | 1,990,124 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Current portion of long-term debt |
|
|
| $ | 8,524 |
| $ | 235 |
|
|
| $ | 8,759 |
| ||
Accounts payable |
| $ | 4,148 |
| 65,356 |
| 5,707 |
|
|
| 75,211 |
| ||||
Contract advances and allowances |
|
|
| 32,046 |
| 5,185 |
|
|
| 37,231 |
| |||||
Accrued compensation |
| 6,331 |
| 58,675 |
| 2,634 |
|
|
| 67,640 |
| |||||
Accrued income taxes |
| (4,403 | ) | 34,388 |
| 6,330 |
|
|
| 36,315 |
| |||||
Other accrued liabilities |
| 48,058 |
| 53,452 |
| 4,995 |
|
|
| 106,505 |
| |||||
Total current liabilities |
| 54,134 |
| 252,441 |
| 25,086 |
|
|
| 331,661 |
| |||||
Long-term debt |
|
|
| 922,987 |
| 25,428 |
|
|
| 948,415 |
| |||||
Deferred income tax liability |
| (17,219 | ) | 134,476 |
| 15,648 |
|
|
| 132,905 |
| |||||
Post-retirement and post-employment benefits liability |
| 173,634 |
|
|
| 70,553 |
|
|
| 244,187 |
| |||||
Other long-term liabilities |
| 75,916 |
| 32,064 |
| 16,818 |
|
|
| 124,798 |
| |||||
Total liabilities |
| 286,465 |
| 1,341,968 |
| 153,533 |
|
|
| 1,781,966 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Contingencies |
|
|
|
|
|
|
|
|
|
|
| |||||
Common stock |
| 236 |
|
|
| 208 |
| $ | (188 | ) | 256 |
| ||||
Additional paid-in-capital |
| 225,357 |
|
|
| 54,592 |
| (54,592 | ) | 225,357 |
| |||||
Retained earnings |
| 172,874 |
| 107,119 |
| 17,306 |
| (10,070 | ) | 287,229 |
| |||||
Corporate investment |
| (170,098 | ) | 222,723 |
| (1,656 | ) | (50,969 | ) | - |
| |||||
Unearned compensation |
| (7,003 | ) |
|
|
|
|
|
| (7,003 | ) | |||||
Other comprehensive income |
| (29,827 | ) |
|
|
|
|
|
| (29,827 | ) | |||||
Common stock in treasury, at cost |
| (267,854 | ) |
|
|
|
|
|
| (267,854 | ) | |||||
Total stockholders' equity |
| (76,315 | ) | 329,842 |
| 70,450 |
| (115,819 | ) | 208,158 |
| |||||
Total liabilities and stockholders' equity |
| $ | 210,150 |
| $ | 1,671,810 |
| $ | 223,983 |
| $ | (115,819 | ) | $ | 1,990,124 |
|
Balance Sheet Consolidating Schedule
March 31, 2001
Amounts 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
Six Months Ended September 30, 2001
Amounts in thousands
|
| Parent Company |
| Guarantor Subsidiaries |
| Non-Guarantor Subsidiaries |
| Eliminations |
| Total |
| |||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Net (loss) income |
| $ | (8,316 | ) | $ | 26,707 |
| $ | 7,806 |
| $ | (4,148 | ) | $ | 22,049 |
|
Adjustments to net income to arrive at cash (used for) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Depreciation |
| 1,324 |
| 23,471 |
| 1,097 |
|
|
| 25,892 |
| |||||
Amortization of intangible assets and unearned compensation |
| 4,050 |
| 7,252 |
| 236 |
|
|
| 11,538 |
| |||||
Deferred income tax |
| 151 |
| (1,290 | ) | 1,442 |
|
|
| 303 |
| |||||
Loss (gain) on disposal of property |
| 5 |
| (44 | ) |
|
|
|
| (39 | ) | |||||
Minority interest expense, net of income taxes |
|
|
|
|
| 672 |
|
|
| 672 |
| |||||
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 |
|
|
| 10,263 |
| 346 |
|
|
| 10,609 |
| |||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Receivables |
| (50 | ) | 22,543 |
| (3,179 | ) | (59 | ) | 19,255 |
| |||||
Inventory |
|
|
| (2,742 | ) | (4,006 | ) | 59 |
| (6,689 | ) | |||||
Accounts payable |
| (4,089 | ) | (12,405 | ) | 199 |
|
|
| (16,295 | ) | |||||
Contract advances and allowances |
|
|
| (1,403 | ) | 1,598 |
|
|
| 195 |
| |||||
Accrued compensation |
| (1,192 | ) | (565 | ) | 2,317 |
|
|
| 560 |
| |||||
Accrued income taxes |
| (3,830 | ) | 25,767 |
| 2,419 |
|
|
| 24,356 |
| |||||
Accrued environmental |
| (557 | ) |
|
| (503 | ) |
|
| (1,060 | ) | |||||
Pension and post-retirement benefits |
| (16,521 | ) |
|
| (2,604 | ) |
|
| (19,125 | ) | |||||
Other assets and liabilities |
| (1,024 | ) | 13,882 |
| (59 | ) |
|
| 12,799 |
| |||||
Cash (used for) provided by operating activities |
| (25,399 | ) | 111,436 |
| 7,781 |
| (4,148 | ) | 89,670 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investing Activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures |
| (1,260 | ) | (14,071 | ) | (478 | ) |
|
| (15,809 | ) | |||||
Acquisition of businesses |
|
|
| (704,000 | ) |
|
|
|
| (704,000 | ) | |||||
Proceeds from sale of a portion of a subsidiary |
|
|
| (437 | ) | 5,892 |
|
|
| 5,455 |
| |||||
Proceeds from sale of property, plant, and equipment |
|
|
| 262 |
|
|
|
|
| 262 |
| |||||
Cash (used for) provided by investing activities |
| (1,260 | ) | (718,246 | ) | 5,414 |
|
|
| (714,092 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financing Activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Corporate cash advances, net |
| 36,190 |
| (6,105 | ) | (34,233 | ) | 4,148 |
| - |
| |||||
Payments made on bank debt |
|
|
| (356,199 | ) | (11,936 | ) |
|
| (368,135 | ) | |||||
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 |
|
|
| (42,337 | ) | (1,431 | ) |
|
| (43,768 | ) | |||||
Dividends from subsidiary (to parent) |
| 110 |
|
|
| (110 | ) |
|
| - |
| |||||
Net purchase of treasury shares |
| (852 | ) |
|
|
|
|
|
| (852 | ) | |||||
Proceeds from employee stock compensation plans |
| 10,067 |
|
|
|
|
|
|
| 10,067 |
| |||||
Cash provided by (used for) financing activities |
| 45,515 |
| 609,180 |
| (13,331 | ) | 4,148 |
| 645,512 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Increase (decrease) in cash and cash equivalents |
| 18,856 |
| 2,370 |
| (136 | ) | - |
| 21,090 |
| |||||
Cash and cash equivalents - beginning of period |
| 24,580 |
| 10 |
| 2,573 |
|
|
| 27,163 |
| |||||
Cash and cash equivalents - end of period |
| $ | 43,436 |
| $ | 2,380 |
| $ | 2,437 |
| $ | - |
| $ | 48,253 |
|
Statement of Cash Flows Consolidating Schedule
Six Months Ended October 1, 2000
Amounts in thousands
|
| Parent Company |
| Subsidiary Guarantors |
| Non-Guarantor Subsidiaries |
| Eliminations |
| Total |
| |||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Net (loss) income |
| $ | (302 | ) | $ | 25,120 |
| $ | 8,436 |
| $ | (2,205 | ) | $ | 31,049 |
|
Adjustments to net income to arrive at cash (used for) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Depreciation |
| 577 |
| 18,316 |
| 202 |
|
|
| 19,095 |
| |||||
Amortization of intangible assets and unearned compensation |
| 2,227 |
| 1,772 |
| 236 |
|
|
| 4,235 |
| |||||
Deferred income tax |
| (423 | ) | (153 | ) | 576 |
|
|
| - |
| |||||
Loss on disposal of property |
| 17 |
| 633 |
|
|
|
|
| 650 |
| |||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Receivables |
| 3,632 |
| (12,681 | ) | (8,392 | ) | (85 | ) | (17,526 | ) | |||||
Inventory |
|
|
| 14,542 |
|
|
| 85 |
| 14,627 |
| |||||
Accounts payable |
| (5,163 | ) | (13,783 | ) | (1,882 | ) |
|
| (20,828 | ) | |||||
Contract advances and allowances |
| (5,000 | ) | (19,473 | ) | 309 |
|
|
| (24,164 | ) | |||||
Accrued compensation |
| (3,896 | ) | (2,303 | ) | 2,004 |
|
|
| (4,195 | ) | |||||
Accrued income taxes |
| (16 | ) | (3,576 | ) | 984 |
|
|
| (2,608 | ) | |||||
Accrued environmental |
| (123 | ) |
|
| (289 | ) |
|
| (412 | ) | |||||
Pension and post-retirement benefits |
| (5,141 | ) |
|
| 511 |
|
|
| (4,630 | ) | |||||
Other assets and liabilities |
| (18,984 | ) | 341 |
| 6,873 |
|
|
| (11,770 | ) | |||||
Cash (used for) provided by operating activities |
| (32,595 | ) | 8,755 |
| 9,568 |
| (2,205 | ) | (16,477 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investing Activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures |
| (350 | ) | (7,388 | ) | (1,670 | ) |
|
| (9,408 | ) | |||||
Cash used for investing activities |
| (350 | ) | (7,388 | ) | (1,670 | ) |
|
| (9,408 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financing Activities |
|
|
|
|
|
|
|
|
|
|
| |||||
Corporate cash advances, net |
| (10,326 | ) | 11,564 |
| (3,443 | ) | 2,205 |
| - |
| |||||
Net borrowings on line of credit |
| 20,000 |
| 10,414 |
| 1,586 |
|
|
| 32,000 |
| |||||
Payments made on bank debt |
|
|
| (23,604 | ) | (4,521 | ) |
|
| (28,125 | ) | |||||
Contributions (to subsidiary) from parent |
| (165 | ) |
|
| 165 |
|
|
| - |
| |||||
Net purchase of treasury shares |
| (2,593 | ) |
|
|
|
|
|
| (2,593 | ) | |||||
Proceeds from employee stock compensation plans |
| 3,983 |
|
|
|
|
|
|
| 3,983 |
| |||||
Cash provided by (used for) financing activities |
| 10,899 |
| (1,626 | ) | (6,213 | ) | 2,205 |
| 5,265 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Decrease) increase in cash and cash equivalents |
| (22,046 | ) | (259 | ) | 1,685 |
| - |
| (20,620 | ) | |||||
Cash and cash equivalents - beginning of period |
| 43,018 |
| 30 |
| 2,717 |
|
|
| 45,765 |
| |||||
Cash and cash equivalents - end of period |
| $ | 20,972 |
| $ | (229 | ) | $ | 4,402 |
| $ | - |
| $ | 25,145 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales
Sales for the six months ended September 30, 2001 totaled $822.8 million, an increase of $281.1 million, or 51.9%, from $541.7 million for the comparable period in the prior year. Aerospace segment sales were $511.9 million, an increase of $256.4 million, or 100.4%, compared to $255.5 million for the comparable period of the prior year. This increase is primarily due to the addition of the Thiokol Propulsion Operations (Thiokol), which the Company purchased from Alcoa Inc. on April 20, 2001, for $708.3 million in cash. The Thiokol operations generated $286.2 million in sales from the date of acquisition through September 30, 2001. Partially offsetting the addition of revenues from Thiokol were decreases on the Titan program of $26.7 million due to the wind-down of production and on the Pegasus program of $4.9 million due to a delay in the new contract. Defense segment sales for the six months ended September 30, 2001 totaled $330.4 million, an increase of $26.1 million, or 8.6%, compared to $304.3 million for the comparable period of the prior year. The increase was partially due to an increase in medium-caliber ammunition of $22.8 million, which was caused by a significant new international co-production program, new 20MM business, and an increase in sales award on the PGU38 program. The increase was also due to increases in fuze and barrier systems programs of $22.1 million due to new contract awards. These increases were partially offset by the absence of $14.9 million of sales from the Kilgore flares operation, which was sold in February 2001, along with a decrease of $6.7 million on the MK90 propellant program due to timing of production.
Sales for the quarter ended September 30, 2001 totaled $427.6 million, an increase of $156.0 million, or 57.4%, from $271.6 million for the comparable quarter in the prior year. Aerospace segment sales were $269.6 million, an increase of $140.0 million, or 108.0%, compared to $129.6 million for the comparable quarter of the prior year. The Thiokol operations generated $164.9 million in sales during the quarter ended September 30, 2001. Partially offsetting the addition of revenues from Thiokol were decreases on the Titan program of $13.2 million due to the wind-down of production, on Strategic programs, which were down $6.6 million as production was accelerated in the prior year to recover schedule, and on the Pegasus program, which was down $2.2 million due to lower production caused by a slip in award. Defense segment sales for the quarter ended September 30, 2001 totaled $167.3 million, an increase of $15.2 million, or 10.0%, compared to $152.1 million for the comparable quarter of the prior year. The increase is primarily due to increases in fuze programs of $11.9 million due to new contract awards, and an increase in small-caliber ammunition at Lake City of $5.2 million.
Company sales for fiscal 2002 are expected to be between $1.645 billion and $1.665 billion.
Gross Margin
The Company’s gross margin for the six months ended September 30, 2001 was $167.1 million, or 20.3% of sales, an increase of $57.9 million compared to $109.2 million, or 20.2% of sales, for the comparable period of the prior year. The gross margin in the Aerospace segment increased primarily due to the acquisition of Thiokol, which added $54.3 million in gross margin, offset by a decrease in the Titan program due to lower sales, award fee, and flight incentives. The gross margin in the Defense segment also increased, which was due to significant improvements on fuze programs due to the absence of prior year write-offs associated with technical issues and an increase on medium-caliber ammunition due to increased volume and new awards.
The Company’s gross margin for the quarter ended September 30, 2001 was $87.3 million, or 20.4% of sales, an increase of $31.7 million compared to $55.6 million, or 20.5% 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 $30.6 million in gross margin, partially offset by a decrease on Strategic programs due to lower sales. The gross margin in the Defense segment increased primarily due to improved performance on fuze programs due to the absence of prior year technical issues.
Operating Expenses
The Company’s operating expenses for the six months ended September 30, 2001, totaled $64.0 million, or 7.8% of sales, an increase of $19.5 million compared to $44.5 million, or 8.2% of sales, for the comparable period of the prior year. The Company’s operating expenses for the quarter ended September 30, 2001, totaled $33.0 million, or 7.7% of sales, an increase of $10.9 million compared to $22.1 million, or 8.1% of sales, for the comparable quarter of the prior year. The increases in the amount of operating expenses are due to the addition of Thiokol. The decreases in operating expenses as a percent of sales are partially due to synergies obtained through the integration of Thiokol into the Company’s operations.
Operating expenses for fiscal 2002 are expected to be between 7.8% and 8.0% of sales.
Interest Expense
The Company’s net interest expense for the six months ended September 30, 2001 was $41.8 million, an increase of $24.3 million compared to $17.5 million for the comparable period of the prior year. The Company’s net interest expense for the quarter ended September 30, 2001 was $22.5 million, an increase of $13.5 million compared to $9.0 million for the comparable quarter of the prior year. The increases were due to the increase in outstanding debt, which was incurred to finance the acquisition of Thiokol.
Earnings from Continuing Operations before Income Taxes
The Company’s earnings from continuing operations before income taxes (earnings before taxes, or EBT) for the six months ended September 30, 2001 was $61.3 million, an increase of $14.1 million compared to $47.2 million for the comparable period of the prior year, the result of increased gross margin partially offset by higher operating and interest expenses. Aerospace segment EBT for the six months ended September 30, 2001 was $21.0 million, a decrease of $6.0 million compared to $27.0 million in the comparable period 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 six months ended September 30, 2001 was $28.1 million, an increase of $15.3 million compared to $12.8 million in the comparable period of the prior year. The increase was primarily the result of increased gross margin on various fuze programs.
The Company’s earnings from continuing operations before income taxes (earnings before taxes, or EBT) for the quarter ended September 30, 2001 was $31.8 million, an increase of $7.4 million compared to $24.4 million for the comparable quarter of the prior year, the result of increased gross margin partially offset by higher operating and interest expenses. Aerospace segment EBT for the quarter ended September 30, 2001 was $11.7 million, a decrease of $2.2 million compared to $13.9 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 September 30, 2001 was $15.1 million, an increase of $8.5 million compared to $6.6 million in the comparable quarter of the prior year. The increase was primarily the result of increased gross margin on various fuze programs and medium-caliber ammunition programs.
Income Taxes
Income tax expense for the six months ended September 30, 2001 was $23.3 million, an increase of $7.2 million compared to $16.1 million for the comparable period of the prior year. Income tax expense for the quarter ended September 30, 2001 was $12.1 million, an increase of $3.7 million compared to $8.4 million for the comparable quarter of the prior year. These amounts represent effective tax rates of 38.0% and 34.2% for each of the periods in fiscal 2002 and 2001, 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 the Company’s business strategies.
Income from Continuing Operations
Income from continuing operations for the six months ended September 30, 2001 was $37.3 million, or 4.5% of sales, an increase of $6.3 million compared to $31.0 million, or 5.7% of sales, for the comparable period of the prior year. Income from continuing operations for the quarter ended September 30, 2001 was $19.3 million, or 4.5% of sales, an increase of $3.2 million compared to $16.1 million, or 5.9% of sales, for the comparable quarter of the prior year. The increases were due to increased gross margin, partially offset by higher operating, interest, and income tax expenses.
Net Income
Net income reported for the six months ended September 30, 2001 was $22.0 million, a decrease of $9.0 million compared to $31.0 million for the comparable period of the prior year. The overall decrease was driven by two events during the period (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. Net income reported for the quarter ended September 30, 2001 was $18.9 million, an increase of $2.8 million compared to $16.1 million for the comparable quarter of the prior year. The overall increase was driven by higher gross margin, partially offset by increased operating expenses, interest expense, income tax expense, and an extraordinary loss to write off debt issuance costs due to the early extinguishment of debt.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Cash provided by operating activities totaled $89.7 million for the six months ended September 30, 2001, representing an increase in operating cash flow of $106.2 million, compared to $16.5 million used for operating activities in the comparable period of the prior year. The improved level of cash provided during the period was primarily driven by increased income from continuing operations, decreased working capital, and tax strategies employed by the Company.
Cash used for investing activities for the six months ended September 30, 2001 was $714.1 million, an increase in usage of $704.7 million compared to $9.4 million used in the comparable period of the prior year. This increase in usage is primarily due to the $700 million of cash used to purchase Thiokol, along with an increase in capital expenditures due to fixed asset purchases made by Thiokol. Capital expenditures in fiscal 2002 are expected to be approximately $39 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 six months ended September 30, 2001 totaled $645.5 million, an increase of $640.2 million compared to the $5.3 million generated in the comparable period of the prior year. The increase is a result of proceeds from debt issuances relating to the Company’s acquisition of Thiokol.
As of September 30, 2001, the Company had no borrowings against its $250.0 million bank revolving credit facility. The Company had outstanding letters of credit of $44.7 million, which reduced amounts available on the revolving facility to $205.3 million at September 30, 2001.
In addition to the $195.7 million of the Tranche A term loan repaid with proceeds from the issuance of the senior subordinated notes in May 2001, the Company has paid $44.9 million on its Tranche A term loan of which $40.0 million represented prepayments, and $2.5 million on its Tranche B term loan through September 30, 2001. The Company prepaid an additional $20.0 million on its Tranche A term loan on October 25, 2001. The scheduled minimum loan payments on outstanding long-term debt, after taking into account the prepayments that have been made, are $4.9 million for the remainder of fiscal 2002, and $10.6, $11.3, $12.7, and $13.4 million in fiscal 2003 through 2006, respectively, and $884.3 million thereafter. The Company’s total debt (line of credit borrowings, current portion of debt and long-term debt) as a percentage of total capitalization was 82% on September 30, 2001, compared to 58% on March 31, 2001.
The Company currently has interest rate swaps with a total notional amount of $497.3 million. The following table summarizes the Company’s interest rate swaps as of September 30, 2001 (in thousands):
|
| Notional Amount |
| Interest Rate |
| Maturity Date |
|
Amortizing swap |
| $133,272 |
| 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 September 30, 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 September 30, 2001, the accrued liability for environmental remediation of $48.6 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 $18.0 million, representing the present value of those amounts. The receivable primarily represents the expected recoverability of costs associated with Thiokol operations acquired from Alcoa (Thiokol Facilities) and the Aerospace operations acquired from Hercules (Hercules Facilities) 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.
Those environmental remediation costs at Hercules Facilities not covered through U.S. Government 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.
Those environmental remediation costs at Thiokol Facilities not covered through U.S. Government contracts will be covered by approximately $14 million in reserve. Beyond this amount, the Company and Alcoa would each bear 50% of the next $20 million of liability, subject to our having provided Alcoa notification of issues identified prior to January 30, 2004. Alcoa's obligation under this environmental indemnity is capped at $10 million.
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 4.6%. The following is a summary of the amounts recorded for environmental remediation at September 30, 2001 (in thousands):
|
| Accrued |
| Environmental Costs — |
| ||
Amounts (payable)/receivable |
| $ | (62,192 | ) | $ | 20,503 |
|
Unamortized discount |
| 13,606 |
| (2,524 | ) | ||
Present value amounts (payable)/receivable |
| $ | (48,586 | ) | $ | 17,979 |
|
At September 30, 2001, the estimated discounted range of reasonably possible costs of environmental remediation is between $48 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 – From time to time, the Company is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the ordinary conduct of the Company’s business. The Company does not consider any of such proceedings, individually or in the aggregate, to be material to its business or likely to result in a material adverse effect on its results of operations or financial condition.
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 also 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 six months ended September 30, 2001, goodwill amortization totaled $7.5 million. Management is still evaluating the impact that the adoption of SFAS 142 will have on the Company’s financial statements.
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 2002 sales, operating expenses, effective income tax rate, and capital expenditures. Also included are statements relating to 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
From time to time, the Company is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the ordinary conduct of the Company's business. The Company does not consider any of such proceedings, individually or in the aggregate, to be material to its business or likely to result in a material adverse effect on its results of operations or financial condition.
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
(a) |
| On August 7, 2001, the registrant held its annual meeting of stockholders. |
|
|
|
(b) |
| At the above annual meeting, the following persons were elected directors to serve until the next annual meeting of stockholders: Frances D. Cook; Gilbert F. Decker; Thomas L. Gossage; Jonathan G. Guss; David E. Jeremiah; Joseph F. Mazzella; Scott S. Meyers; Paul David Miller; Robert W. RisCassi and Michael T. Smith. |
|
|
|
(c) |
| At the above annual meeting, the stockholders voted upon the following proposals: (1) election of directors; (2) approval of an amendment to the Company’s Restated Certificate of Incorporation to increase the authorized shares; (3) approval of an amendment to Alliant Techsystems Inc. Amended and Restated 1990 Equity Incentive Plan; (4) approval of an amendment to Alliant Techsystems Inc. Non-Employee Director Restricted Stock Plan; (5) ratification of the selection of Deloitte & Touche as independent accountants for the fiscal year ending March 31, 2002; and (6) a stockholder proposal. The votes cast on each of the above proposals were as follows: |
|
|
|
|
| Proposal Number 1: Election of Directors |
|
| Votes Cast | ||
|
| For |
| Withheld |
Frances D. Cook |
| 12,443,590 |
| 81,073 |
Gilbert F. Decker |
| 12,445,887 |
| 78,776 |
Thomas L. Gossage |
| 12,360,083 |
| 164,580 |
Jonathan G. Guss |
| 12,435,716 |
| 88,947 |
David E. Jeremiah |
| 12,440,919 |
| 83,744 |
Joseph F. Mazzella |
| 12,433,790 |
| 90,873 |
Scott S. Meyers |
| 12,442,374 |
| 82,289 |
Paul David Miller |
| 12,439,038 |
| 85,625 |
Robert W. RisCassi |
| 12,442,357 |
| 82,306 |
Michael T. Smith |
| 12,449,752 |
| 74,911 |
Broker non-votes: None |
|
|
|
|
Proposal Number 2: Approval of an amendment to the Company’s Restated Certificate of Incorporation to increase the authorized shares
| Votes Cast |
| ||
For |
| Against |
| Abstain |
9,175,446 |
| 3,315,792 |
| 33,425 |
Proposal Number 3: Approval of an amendment to Alliant Techsystems Inc. Amended and Restated 1990 Equity Incentive Plan
| Votes Cast |
| ||
For |
| Against |
| Abstain |
9,378,390 |
| 3,052,949 |
| 93,324 |
Proposal Number 4: Approval of an amendment to Alliant Techsystems Inc. Non-Employee Director Restricted Stock Plan
| Votes Cast |
| ||
For |
| Against |
| Abstain |
10,647,034 |
| 1,774,078 |
| 103,551 |
Proposal Number 5: Ratification of the selection of Deloitte & Touche as independent accountants for the fiscal year ending March 31, 2002
| Votes Cast |
| ||
For |
| Against |
| Abstain |
12,436,943 |
| 68,360 |
| 19,360 |
Proposal Number 6: Stockholder proposal
| Votes Cast |
| ||
For |
| Against |
| Abstain |
1,517,257 |
| 9,194,416 |
| 400,773 |
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. |
| Description |
|
|
|
10 |
| Separation Agreement between the Registrant and Richard N. Jowett effective August 1, 2001. |
(b) |
| Reports on Form 8-K. |
During the quarter ended September 30, 2001, the Company filed a report on Form 8-K dated October 26, 2001 announcing that it had signed a non-binding letter of intent with Blount, International to acquire its ammunition business.
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. |
|
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Date: November 9, 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) |