Alliant Reports Increased Sales and Earnings
MINNEAPOLIS, Nov. 2 ATK (NYSE:ATK) completed the first half of fiscal year 2001 with solid gains in sales and earnings. Sales rose 3 percent, bolstered by a 7-percent gain in the second quarter. Higher sales, improved operating margins, and fewer shares outstanding helped boost first-half earnings per share from continuing operations 14 percent to $3.34, while earnings before interest and income taxes increased 11 percent to $64.7 million. EBITDA cash flow per share rose 20 percent to $9.48. The company expects that modest top-line growth and strong operating margins will enable it to meet its earnings commitments for fiscal year 2001. In acknowledgment of current performance and recognition of prospects for future growth, the company's board of directors approved a 3-for-2 common stock split.
ATK (Alliant Techsystems), a leading aerospace and defense company and the nation's largest supplier of military ammunition, said higher sales, improved operating margins, and fewer shares outstanding drove second-quarter earnings per share from continuing operations up 12 percent to $1.72 from $1.53 a year ago.
Sales in the second quarter, which ended Oct. 1, rose 7 percent to $272 million from $253 million last year, reflecting revenues from a new contract to produce small-caliber ammunition at the Lake City Army Ammunition Plant in Independence, Mo.
Second-quarter earnings before interest and income taxes (EBIT) increased 12 percent to $33.4 million from $29.8 million last year. The second-quarter EBIT margin rate rose to a record 12.3 percent from 11.8 percent a year ago, as the company benefited from continued strong program performance and lower operating expenses.
Total earnings per share in the second quarter were $1.72 versus $2.43 a year ago. Last year's results included a one-time gain of 90 cents per share from discontinued operations resulting from the resolution of an insurance settlement related to the company's former demilitarization operations in Ukraine.
"This was another strong quarter, marked by sales growth, operating margin expansion, and improved earnings," said Paul David Miller (PDM), chairman and chief executive officer. "We are particularly encouraged by sales for the quarter, which showed a solid increase. We remain confident that sales for the year will grow by approximately five percent, driven by our new contract awards, recovery of medium-caliber ammunition sales, and greater-than-anticipated volume from our Aerospace segment."
PDM said in acknowledgment of ATK's strong performance and in recognition of its prospects for future growth, the company's board of directors approved a 3-for-2 common stock split, which was announced in a separate news release issued today.
For the six months ended Oct. 1, earnings per share from continuing operations rose 14 percent to $3.34 from $2.92 in the same period a year ago. Sales for the first half rose 3 percent to $542 million from $526 million last year. Earnings before interest and income taxes were $64.7 million, up 11 percent from $58.0 million last year. Total earnings per share were $3.34 versus $3.82 last year, which included the one-time gain of 90 cents per share from discontinued operations.
Higher margins driven by lower operating expenses boosted first-half cash flow as indicated by earnings before interest, taxes, depreciation, and amortization (EBITDA) to $88.0 million from $82.5 million last year. EBITDA per share increased 20 percent to $9.48 from $7.88 a year ago.
Free cash flow (cash from operations less capital expenditures) used during the six-month period was $(25.9) million versus $(10.6) million a year ago. The variance reflects higher cash tax payments, which were $14 million greater than a year ago, and start-up investment in Lake City small-caliber ammunition production operations.
The company expects to meet its cash expectations in fiscal year 2001, as cash flow strengthens in the second half of the year. ATK typically uses cash during the first half of its fiscal year and generates cash during the second half of the year.
Operations Review
The Conventional Munitions segment posted second-quarter sales of $114 million, up 52 percent from $75 million a year ago, while sales for the six-month period rose 41 percent to $231 million from $164 million last year. The gains reflect revenues from small-caliber ammunition production operations, which were partially offset by lower sales of medium-caliber ammunition due to production delays in the first quarter. Production and deliveries resumed in the second quarter.
Aerospace segment sales in the second quarter rose to $130 million from $124 million a year ago. For the first half, the group reported sales of $256 million versus $261 million last year. In both periods, higher sales of composite structures for space launch vehicles offset lower revenues from solid propulsion programs.
Aerospace sales include revenues from ATK Missile Products Company, which was transferred to the Aerospace segment from the Defense Systems segment in the second quarter in a move aimed at more closely aligning propulsion and composite structures capabilities. Sales from ATK Missile Products Company totaled $28 million in the second quarter and $53 million in the first half, compared with $22 million and $41 million in the respective periods a year ago. Sales for Aerospace and Defense Systems have been reclassified to reflect the transfer.
Defense Systems segment sales were $39 million versus $56 million in the second quarter, and $73 million versus $107 million in the first half. The declines reflect lower sales from an anti-tank munition program that is completing production, a delayed contract award for development of the Objective Individual Combat Weapon (OICW), and production delays in fuze programs. Sales are expected to strengthen in the second half, as the company records additional revenues from the OICW program, anti-tank munitions programs, a new tactical barrier system contract, and volume from the resumption of fuze program production.
Second-quarter orders rose to $250 million from $242 million last year. Funded backlog at the end of the quarter was $2.2 billion or 24 months of sales. Total backlog, which includes multi-year contracts awarded but not yet funded, was $3.8 billion or 41 months of sales.
Recent business highlights include:
-- A $95 million contract from the U.S. Army to continue development of
the Objective Individual Combat Weapon.
-- Production of the one hundred millionth round of small-caliber
ammunition at the Lake City Army Ammunition Plant since ATK began
operations there in April.
-- Successful launches of a Lockheed Martin Titan IV B rocket and a Boeing
Delta III rocket powered by ATK solid rocket boosters, bringing to 10
the number of space and strategic missions and tests supported by ATK
during the first half of fiscal year 2001.
-- A $2 million contract to develop a prototype tactical barrier system,
putting ATK on all three concurrent tracks of a U.S. Department of
Defense program aimed at developing and fielding next-generation
barrier systems to replace anti-personnel landmines.
-- A $13.5 million contract to produce lead-free 5.56mm training
ammunition as part of a U.S. Army initiative to move to "green
ammunition" in the 21st century.
-- A $3.6 million contract to begin development of a new 120mm tank
ammunition training round. The contract includes an additional
development phase plus production options that could increase the total
value to $35 million over the next six years.
"These contracts illustrate very clearly how diversified our business base is," said PDM. "Our products span the entire product maturity cycle, from long-running core ammunition and propulsion production programs to development programs for next-generation infantry weapons, tactical and training tank ammunition, tactical barrier systems, and small-caliber rounds."
PDM said ATK is well positioned to meet the company's earnings per share expectations for fiscal year 2001.
"Looking to the longer term, we see positive trends helping shape the most favorable external business environment seen in the past 10 years," said PDM. "Our munitions, smart weapons, and composites capabilities, for example, line up squarely with the U.S. Army's direction for the future combat force, which will be lighter, more lethal, and more rapidly deployed. Expectations for greater attention to national security requirements also bode well for our industry."
On the international front, PDM said ATK is forging strategic relationships with industry partners that position the company to benefit from long-term changes in U.S. military doctrine.
"Our recently signed agreement with Germany's Rheinmetall DeTec AG, under which we will jointly develop next-generation large-caliber ammunition for use by future armored vehicles and current main battle tanks, will enable us to play a key role in the U.S. Army's transformation to the combat force of the future," said PDM. "Under another recent agreement with Greece's Hellenic Arms Industry, we will transfer the technology to produce 120mm tactical and training tank ammunition in support of a major upcoming armor procurement by the government of Greece involving the purchase of 246 main battle tanks."
With ATK's favorable strategic position, strong performance momentum, excellent business execution, and diversified program base, the company is confident it will continue to deliver on its commitment to increase shareholder value.
ATK is a $1.1 billion aerospace and defense company with leading market positions in munitions, smart weapons and precision capabilities, propulsion, and composite structures. The company, which is headquartered in Hopkins, Minn., employs approximately 6,400 people and has three business segments: Conventional Munitions, Aerospace, and Defense Systems. ATK news and information can be found on the Internet at http://www.atk.com
The forecasts, projections, expectations, and opportunities for anticipated sales, cash flow, operating margins, and earnings included in this news release are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from anticipated results, including changes in governmental spending and budgetary policies, economic conditions, the company's competitive environment, the timing of awards and contracts, the outcome of contingencies, including litigation and environmental remediation, program performance, and sales projections, in addition to other factors identified in ATK's filings with the Securities and Exchange Commission.
Webcast Information: ATK will Webcast its investor conference call on second-quarter results at 10:00 a.m. Eastern Standard Time today. The live audio webcast will be available on the investor relations page of ATK's web site at http://www.atk.com . Information about downloading free RealPlayer software, which is required to access the webcast, is available on the website. For those who cannot participate in the live webcast, a telephone recording of the conference call will be available one hour after its completion. The telephone number is 719-457-0820, and the confirmation code is 667742. The recording will be available for one week.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands except QUARTERS ENDED SIX MONTHS ENDED
per share data) October 1 October 3 October 1 October 3
2000 1999 2000 1999
Sales $271,619 $252,789 $541,703 $525,510
Cost of sales 216,050 198,832 432,541 417,202
Gross margin 55,569 53,957 109,162 108,308
Operating activities:
Research and development 2,250 2,918 3,783 4,805
Selling 6,061 6,155 12,798 11,614
General and
administrative 13,815 14,840 27,901 29,935
Other operating activities -- 259 -- 3,909
Total operating
activities 22,126 24,172 44,482 50,263
Earnings before interest
and income taxes 33,443 29,785 64,680 58,045
Interest expense (9,237) (8,307) (17,945) (17,462)
Interest income 238 140 452 247
Earnings before income
taxes 24,444 21,618 47,187 40,830
Income tax provision 8,360 5,621 16,138 10,232
Income from continuing
operations 16,084 15,997 31,049 30,598
Gain on disposal of
discontinued
operations, net of
income taxes -- 9,450 -- 9,450
Net income $16,084 $25,447 $31,049 $40,048
Basic earnings per
common share:
Income from continuing
operations $1.76 $1.56 $3.41 $2.99
Discontinued operations -- .92 -- .92
Basic earnings per
common share $1.76 $2.48 $3.41 $3.91
Diluted earnings per
common share:
Income from continuing
operations $1.72 $1.53 $3.34 $2.92
Discontinued operations -- .90 -- .90
Diluted earnings per
common share $1.72 $2.43 $3.34 $3.82
Average number of common
shares (thousands) (a) 9,143 10,240 9,105 10,233
Average number of common
and dilutive shares
(thousands) (a) 9,339 10,457 9,288 10,471
(a) The shares and per share amounts above do not reflect a 3 for 2 stock
split approved by the Board of Directors which will become effective
November 10, 2000.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data) October 1, 2000 March 31, 2000
Assets
Current assets:
Cash and cash equivalents $25,145 $45,765
Receivables 262,407 244,881
Net inventory 39,002 53,629
Deferred income tax asset 5,480 5,480
Other current assets 5,609 1,295
Total current assets 337,643 351,050
Net property, plant, and equipment 322,226 335,628
Goodwill 122,749 124,718
Prepaid and intangible pension assets 87,909 80,877
Other assets and deferred charges 16,318 13,711
Total assets $886,845 $ 905,984
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $62,425 $55,650
Line of credit borrowings 81,000 49,000
Accounts payable 57,154 77,982
Contract advances and allowances 47,518 71,682
Accrued compensation 28,774 32,969
Accrued income taxes 4,822 7,430
Other accrued liabilities 59,887 61,880
Total current liabilities 341,580 356,593
Long-term debt 242,209 277,109
Post-retirement and post-employment
benefits liability 113,507 118,137
Other long-term liabilities 40,690 39,198
Total liabilities 737,986 791,037
Contingencies
Common stock -- $.01 par value Authorized
-- 20,000,000 shares Issued and outstanding
9,194,497 shares at October 1, 2000 and
9,073,752 at March 31, 2000 139 139
Additional paid-in-capital 233,423 236,416
Retained earnings 228,309 197,259
Unearned compensation (4,813) (2,520)
Pension liability adjustment (3,768) (3,768)
Common stock in treasury, at cost
4,669,116 shares held at October 1, 2000 and
4,789,861 at March 31, 2000 (304,431) (312,579)
Total stockholders' equity 148,859 114,947
Total liabilities and stockholders'
equity $886,845 $905,984
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) SIX MONTHS ENDED
October 1, 2000 October 3, 1999
Operating activities
Net income $31,049 $40,048
Adjustments to net income to arrive at
cash provided/(used) by/(for) operations
Depreciation 19,095 19,917
Amortization of intangible assets and
unearned compensation 4,235 4,587
Loss on disposal of property 650 499
Changes in assets and liabilities:
Receivables (17,526) 8,282
Inventory 14,627 (6,478)
Accounts payable (20,828) (32,636)
Contract advances and allowances (24,164) (14,341)
Accrued compensation (4,195) (7,592)
Accrued income taxes (2,608) 5,471
Accrued environmental liability (412) (42)
Post-retirement benefits (4,630) (4,273)
Other assets and liabilities (11,770) (8,021)
Cash provided by (used for) operations (16,477) 5,421
Investing activities
Capital expenditures (9,408) (16,078)
Cash used for investing activities (9,408) (16,078)
Financing activities
Net borrowings on line of credit 32,000 17,000
Payments made on bank debt (28,125) (15,000)
Proceeds from issuance of long-term debt -- 29,000
Net purchase of treasury shares (2,593) (13,868)
Proceeds from exercised stock options 3,983 1,318
Cash provided by financing activities 5,265 18,450
Increase (decrease) in cash and cash
equivalents (20,620) 7,793
Cash and cash equivalents -- beginning
of period 45,765 21,078
Cash and cash equivalents -- end of period $25,145 $28,871
SOURCE ATK
CONTACT: Media, Rod Bitz, 612-931-5413, rod_bitz@atk.com , or Investors, Steve Wold, 612-931-6747, steve_wold@atk.com , both of ATK