<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

/X/      Quarterly report pursuant to Section 13 or 15(d) of the 
         Securities Exchange Act of 1934

         For the quarterly period ended December 27, 1998 or

/ /      Transition report pursuant to Section 13 or 15(d) of the 
         Securities Exchange Act of 1934

         For the transition period from            to

                         Commission file number 1-10582

                            ALLIANT TECHSYSTEMS INC.
             (Exact name of registrant as specified in its charter)

                      DELAWARE                             41-1672694
          (State or other jurisdiction of               (I.R.S. Employer
          incorporation or organization)              Identification No.)


            600 SECOND STREET N.E.
              HOPKINS, MINNESOTA                          55343-8384
     (Address of principal executive office)              (Zip Code)

                                 (612) 931-6000
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE

                     (Former name, former address and former
                    fiscal year if changed from last report)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes /X/ No / /

     As of January 31, 1999, the number of shares of the registrant's common
stock, par value $.01 per share, outstanding was 10,569,625 (excluding 3,293,988
treasury shares).
<PAGE>
 
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                   Consolidated Income Statements (Unaudited)

<TABLE>
<CAPTION>
(In thousands except                                   QUARTERS ENDED              NINE MONTHS ENDED
     per share data)                             --------------------------    --------------------------
                                                 December 27    December 28    December 27    December 28
                                                     1998           1997           1998           1997   
                                                 -----------    -----------    -----------    -----------
<S>                                              <C>            <C>            <C>            <C>        
Sales                                             $ 274,446      $ 269,217      $ 789,765      $ 787,811
Cost of sales                                       226,086        221,152        650,740        650,196
                                                  ---------      ---------      ---------      ---------
Gross margin                                         48,360         48,065        139,025        137,615
Operating expenses:
     Research and development                         1,971          2,890          5,703          7,564
     Selling                                          5,536         10,085         20,022         29,134
     General and administrative                      14,885         11,033         38,966         33,304
                                                  ---------      ---------      ---------      ---------
     Total operating expenses                        22,392         24,008         64,691         70,002
                                                  ---------      ---------      ---------      ---------
Income from operations                               25,968         24,057         74,334         67,613
     Miscellaneous income (expense)                     (61)            84            (19)           147
                                                  ---------      ---------      ---------      ---------
Earnings before interest and income taxes            25,907         24,141         74,315         67,760
     Interest expense                                (5,213)        (6,943)       (16,089)       (21,880)
     Interest income                                    505            829          1,172          2,725
                                                  ---------      ---------      ---------      ---------
Income before income taxes and
     extraordinary loss                              21,199         18,027         59,398         48,605
Income tax provision                                  3,180           --            8,910           --
                                                  ---------      ---------      ---------      ---------
Income before extraordinary loss                     18,019         18,027         50,488         48,605
Extraordinary loss on early extinguishment of
     debt, net of income tax benefit                 (1,661)          --          (16,288)          --
                                                  ---------      ---------      ---------      ---------
Net income                                        $  16,358      $  18,027      $  34,200      $  48,605
                                                  =========      =========      =========      =========


Basic earnings per common share:
     Income before extraordinary loss             $    1.50      $    1.37      $    4.06      $    3.72
     Extraordinary loss                                (.14)          --            (1.31)          --
                                                  ---------      ---------      ---------      ---------
     Net income                                   $    1.36      $    1.37      $    2.75      $    3.72
                                                  =========      =========      =========      =========
Diluted earnings per common share:
     Income before extraordinary loss             $    1.45      $    1.33      $    3.96      $    3.62
     Extraordinary loss                                (.13)          --            (1.28)          --
                                                  ---------      ---------      ---------      ---------
     Net income                                   $    1.32      $    1.33      $    2.68      $    3.62
                                                  =========      =========      =========      =========


Average number of common shares (thousands)          12,047         13,155         12,419         13,067
                                                  =========      =========      =========      =========
Average number of common and
 dilutive shares (thousands)                         12,386         13,539         12,740         13,443
                                                  =========      =========      =========      =========
</TABLE>



See Notes to Consolidated Financial Statements

                                       2
<PAGE>
 
                     Consolidated Balance Sheets (Unaudited)

<TABLE>
<CAPTION>

(In thousands except share data)                              December 27, 1998   March 31, 1998
                                                              -----------------   --------------
<S>                                                           <C>                 <C>      
Assets
Current assets:
     Cash and cash equivalents                                     $  37,778         $  68,960
     Receivables                                                     240,470           209,915
     Net inventory                                                    39,476            49,072
     Deferred income tax asset                                        38,280            38,280
     Other current assets                                              5,550             6,803
                                                                   ---------         ---------
           Total current assets                                      361,554           373,030
Net property, plant, and equipment                                   329,898           333,538
Goodwill                                                             129,807           131,600
Prepaid and intangible pension assets                                 71,817            61,667
Other assets and deferred charges                                     10,588             8,474
                                                                   ---------         ---------
           Total assets                                            $ 903,664         $ 908,309
                                                                   =========         =========
Liabilities and Stockholders' Equity
Current liabilities:
     Current portion of debt                                       $  45,750         $  17,838
     Accounts payable                                                 84,469            80,071
     Contract advances and allowances                                 53,922            64,318
     Accrued compensation                                             26,023            32,275
     Accrued income taxes                                             12,695             8,049
     Accrued restructuring and facility consolidation                    558             2,637
     Other accrued liabilities                                        59,914            72,214
                                                                   ---------         ---------
           Total current liabilities                                 283,331           277,402
Long-term debt                                                       314,443           180,810
Post-retirement and post-employment benefits liability               131,287           136,889
Pension liability                                                      9,596            10,120
Other long-term liabilities                                           36,239            37,334
                                                                   ---------         ---------
           Total liabilities                                       $ 774,896         $ 642,555
Contingencies
Redeemable common shares (813,000 shares, $.01 par
     value, redeemable at a prescribed price totaling $44,979
     at March 31, 1998. Redeemed quarterly, in equal lots of
     271,000 shares each, during calendar 1998.)                   $    --           $  44,979
Common stock - $.01 par value
     Authorized - 20,000,000 shares
     Issued and outstanding 10,541,865 shares at December
           27, 1998 and 12,855,511 at March 31, 1998                     124               121
Additional paid-in-capital                                           243,366           201,728
Retained earnings                                                    106,744            72,544
Unearned compensation                                                 (2,089)           (1,251)
Pension liability adjustment                                          (4,743)           (4,743)
Common stock in treasury, at cost (3,321,748 shares held at
     December 27, 1998 and 1,008,102 at March 31, 1998)             (214,634)          (47,624)
                                                                   ---------         ---------
           Total liabilities and stockholders' equity              $ 903,664         $ 908,309
                                                                   =========         =========
</TABLE>


See Notes to Consolidated Financial Statements

                                       3
<PAGE>
 
                Consolidated Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
(In thousands)                                                               NINE MONTHS ENDED
                                                                    ------------------------------------
                                                                    December 27, 1998  December 28, 1997
                                                                    -----------------  -----------------
<S>                                                                 <C>                <C>      
Operating activities
Net income                                                               $  34,200         $  48,605
Adjustments to net income to arrive at cash                                              
       provided by operations:                                                           
                Depreciation                                                28,913            31,259
                Amortization of intangible assets and unearned                           
                   compensation                                              4,407             4,530
                Extraordinary loss on early extinguishment                               
                   of debt                                                  16,288              --
                Loss on disposal of property                                   462               199
                Changes in assets and liabilities:                                       
                   Receivables                                             (30,555)            9,685
                   Inventory                                                 9,596            15,736
                   Accounts payable                                          4,398           (24,957)
                   Contract advances and allowances                        (10,396)          (32,428)
                   Accrued compensation                                     (6,252)           (5,905)
                   Accrued income taxes                                      7,521            (2,124)
                   Accrued restructuring and facility consolidation         (2,079)          (12,294)
                   Accrued environmental liability                            (524)           (1,419)
                   Pension and post-retirement benefits                     (6,126)           (5,837)
                   Other assets and liabilities                            (20,705)          (19,614)
                                                                         ---------         ---------
Cash provided by operations                                                 29,148             5,436
                                                                         ---------         ---------
Investing activities                                                                     
Capital expenditures                                                       (27,447)          (11,166)
Acquisition of business                                                     (1,100)           (6,194)
Proceeds from disposition of property, plant, and equipment                    275             1,197
                                                                         ---------         ---------
Cash used for investing activities                                         (28,272)          (16,163)
                                                                         ---------         ---------
Financing activities                                                                     
Payments made on bank debt                                                 (48,648)          (61,768)
Payments made to extinguish high yield debt                               (152,997)             --
Proceeds from issuance of long-term debt                                   350,193              --
Payments made for debt issue costs                                          (8,691)             --
Net purchase of treasury shares                                           (175,646)           (9,632)
Proceeds from exercised stock options                                        3,731             8,278
Other financing activities, net                                               --              (2,302)
                                                                         ---------         ---------
Cash used for financing activities                                         (32,058)          (65,424)
                                                                         ---------         ---------
Decrease in cash and cash equivalents                                      (31,182)          (76,151)
Cash and cash equivalents - beginning of period                             68,960           122,491
                                                                         ---------         ---------
Cash and cash equivalents - end of period                                $  37,778         $  46,340
                                                                         =========         =========
                                                                                       
</TABLE>

See Notes to Consolidated Financial Statements

                                       4
<PAGE>
 
             Notes to Consolidated Financial Statements (Unaudited)

1.   In connection with the Company's September, 1998 early extinguishment of
     its Senior Subordinated Notes and the refinancing of its bank borrowings in
     November, 1998, the Company incurred extraordinary charges for the early
     extinguishment of debt, totalling $16.3 million, for the nine-month period
     ending December 27, 1998. The extraordinary charge includes charges
     associated with the Company's September 16, 1998, completion of the tender
     offer and consent solicitation relating to its then outstanding $150
     million 11.75 percent Senior Subordinated Notes which were due March 1,
     2003 (the "Notes"). Under the tender offer (the "Offer"), the Company
     accepted all validly tendered Notes for payment under the Offer, and
     accordingly paid approximately $153 million to purchase the Notes from
     noteholders holding approximately $140 million principal amount of the
     Notes. In conjunction with the early extinguishment of the Notes, the
     Company also refinanced its bank borrowings under a new bank credit
     facility on November 23, 1998. See Note 2 below, for further discussion of
     the new bank credit facility. In connection with these early
     extinguishments of debt, the Company recorded a $19.2 million extraordinary
     charge ($16.3 million, after the tax benefit of $2.9 million), which is
     comprised of the $13.2 million cash premium paid to acquire the Notes, as
     well as the write-off of approximately $6.0 million representing the
     unamortized portion of the debt issuance costs associated with the original
     borrowings.

2.   On November 23, 1998, the Company entered into a new $650 million bank
     credit facility (the facility). The facility, which refinanced the
     Company's previously existing bank credit facility, has a six-year term and
     consists of term-debt credit facilities totalling up to $400 million, and a
     revolving credit facility of $250 million. Interest charges under the new
     facility are primarily at the London Inter-Bank Offering Rate (LIBOR), plus
     2.25 percent (which totalled 7.3 percent at December 27, 1998), and will be
     subject to change in the future, as changes occur in market conditions and
     in the Company's financial performance. Borrowings under the facility are
     subject to financial leverage covenants, as well as other customary
     covenants (e.g., restrictions on additional indebtedness and liens, sales
     of assets, and restricted payments). Fees associated with the refinancing
     were approximately $9 million. These costs are classified in "Other Assets
     and Deferred Charges", and are being amortized to interest expense over
     the six-year term of the new facility.

     At December 27, 1998, the Company had borrowings of $20.0 million against
     its $250 million bank revolving credit facility. Additionally, the Company
     had outstanding letters of credit of $31.4 million, which further reduced
     amounts available on the revolving facility to $198.6 million at December
     27, 1998. Scheduled minimum loan repayments on the Company's outstanding
     long-term debt are as follows: fiscal 1999, $0; fiscal 2000, $36.5 million;
     fiscal 2001, $49.5 million; fiscal 2002, $61.0 million; fiscal 2003, $71.2
     million; fiscal 2004, $61.0 million, and thereafter, $61.0 million.

3.   The major categories of other current and long-term accrued liabilities are
     as follows (in thousands):

<TABLE>
<CAPTION>
                                                            Period Ending
                                                   ----------------------------------
                                                   December 27, 1998   March 31, 1998
     --------------------------------------------------------------------------------
<S>                                                      <C>            <C>   
       Employee benefits and insurance                   26,385            29,196
       Legal accruals                                    11,502            21,495
       Other accruals                                    22,027            21,523
     --------------------------------------------------------------------------------
       Other accrued liabilities-current                 59,914            72,214
     ================================================================================

       Environmental remediation liability               16,740            17,264
       Deferred tax liability                            19,499            19,499
       Other long-term                                     --                 571
     --------------------------------------------------------------------------------
       Other long-term liabilities                       36,239            37,334
     ================================================================================
</TABLE>

                                       5
<PAGE>
 
     The decrease in legal accruals since March 31, 1998 is reflective of
     payments made during the nine-month period ended December 27, 1998, for
     legal settlements agreed to (and reserved for) in previous periods,
     including the $4.5 million installment paid in April 1998 in connection
     with the Accudyne "qui-tam" settlement (reached in June 1995) and payments
     totaling $6.5 million in satisfaction of the liabilities associated with
     two other qui-tam issues previously settled. See Note 6 for further
     discussion of legal settlements.

4.   Alternative minimum taxes of $1.4 and $2.1 million were paid during the
     nine-month period ended December 27, 1998 and December 28, 1997,
     respectively. The effective income tax rate of 15 percent on continuing
     operations in the current nine-month period reflects recognition and
     utilization of $8.0 million of available federal and state loss
     carryforwards (net) for tax purposes.

5.   On December 15, 1998, the Company completed the repurchase of 1.7 million
     shares of its common stock at a price of $77 per share, or approximately
     $130 million in total. The repurchase occurred via the terms and conditions
     of a modified "Dutch auction" tender offer (Dutch auction), and was
     financed under the Company's new bank credit facility.

     In connection with the completion of the Dutch auction, the Company's Board
     of Directors authorized the Company to repurchase up to an additional 1.1
     million shares of its common stock. Any repurchases made under this
     repurchase plan would be subject to market conditions and the Company's
     compliance with its debt covenants. As of December 27, 1998, the Company's
     debt covenants permit the Company to expend up to $90 million specifically
     in connection with future share repurchases. Additionally, the Company may
     make "restricted payments" (as defined in the Company's debt covenants) of
     up to an additional $50 million, which among other items, would allow
     payments for further stock repurchases (over and above the aforementioned
     $90 million). While it is currently the Company's intention to make stock
     repurchases under this program, there can be no assurance that the Company
     will purchase all or any portion of the remaining shares, or as to the
     timing or terms thereof. As of December 27, 1998, minor repurchases have
     been made under the plan, aggregating less than $.2 million.

     On October 24, 1997, the Company entered into an agreement with Hercules
     Incorporated (Hercules) providing for the disposition of the 3.86 million
     shares of Alliant common stock then held by Hercules. The shares
     represented the stock issued by the Company in connection with the March
     15, 1995 acquisition of the Hercules Aerospace Company operations from
     Hercules (Aerospace acquisition). Under the agreement with Hercules (the
     "Hercules repurchase"), during the quarter ended December 28, 1997 the
     Company registered for public offering approximately 2.78 million shares
     (previously unregistered) held by Hercules. The offering was completed on
     November 21, 1997. No new shares were issued in the offering nor did the
     Company receive any proceeds from the offering. The remaining 1.1 million
     shares held by Hercules became subject to a put/call arrangement under
     which Hercules could require the Company to purchase the shares in four
     equal installments of 271,000 shares during each of the four calendar
     quarters of 1998. The Company could likewise require Hercules to sell the
     shares to the Company in four equal installments during each of the four
     calendar quarters of 1998. The price for shares purchased under the
     put/call arrangement was equal to the per-share net proceeds realized by
     Hercules in the secondary public offering, $55.32. In late fiscal 1998, the
     Company did repurchase the first installment of 271,000 shares, for
     approximately $15 million. In May, August, and November of 1998,
     respectively, the Company repurchased the remaining installments of 271,000
     shares, each for approximately $15 million.

     During early fiscal 1998, the Company completed a $50 million stock
     repurchase program started in fiscal 1996. In connection with that program,
     the Company made repurchases in the nine-months ended December 28, 1997 of
     approximately 140,000 shares, for approximately $6.0 million.

                                       6
<PAGE>
 
6.   Contingencies:

     As a U.S. Government contractor, the Company is subject to defective
     pricing and cost accounting standards non-compliance claims by the
     Government. Additionally, the Company has substantial Government contracts
     and subcontracts, the prices of which are subject to adjustment. The
     Company believes that resolution of such claims and price adjustments made
     or to be made by the Government for open fiscal years (1987 through 1998)
     will not materially exceed the amount provided in the accompanying balance
     sheets.

     The Company is a defendant in numerous lawsuits that arise out of, and are
     incidental to, the conduct of its business. Such matters arise out of the
     normal course of business and relate to product liability, intellectual
     property, government regulations, including environmental issues, and other
     issues. Certain of the lawsuits and claims seek damages in large amounts.
     In these proceedings, no director, officer, or affiliate is a party or a
     named defendant.

     Under the terms of the agreements relating to the Aerospace acquisition,
     all litigation and legal disputes arising in the ordinary course of the
     acquired operations will be assumed by the Company except for a few
     specific lawsuits and disputes including two specific qui-tam lawsuits.
     Under terms of the purchase agreement with Hercules, the Company's maximum
     combined settlement liability for both of these qui tam matters was
     approximately $4 million, which the Company had fully reserved. On May 15,
     1998, Hercules announced that it had agreed to a settlement in the first
     qui tam lawsuit which has since been approved by the court. Therefore, in
     July, 1998 the Company paid $4 million in full satisfaction of its
     liability related to these matters.

     In March, 1997 the Company received a partially unsealed complaint, in a
     qui tam action by four former employees (the "Relators") alleging labor
     mischarging to the Intermediate Nuclear Force (INF) contract, and other
     contracts. Damages are not specified in this civil suit. The Company and
     Hercules have agreed to share equally the external attorney's fees and
     investigative fees and related costs and expenses of this action until such
     time as a determination is made as to the applicability of the
     indemnification provisions of the Aerospace acquisition purchase agreement.
     In March 1998, the Company and Hercules settled with the Department of
     Justice on the portion of the complaint alleging labor mischarging to the
     INF contract and agreed to pay $2.25 million each, together with Relators'
     attorney's fees of $150 thousand each, which was paid in April 1998. The
     Department of Justice declined to intervene in the remaining portion of the
     complaint. On October 16, 1998 the Company and Hercules settled with the
     Relators all remaining issues in this action by agreeing to each pay $575
     thousand, subject to court approval. On January 21, 1999, the court
     approved the settlement and entered judgment dismissing the case, subject
     to the right of the Department of Justice to appeal such approval and
     dismissal.

     The Company has also been served with a complaint in a civil action
     alleging violation of the False Claims Act and the Truth in Negotiations
     Act. The complaint alleges defective pricing on a government contract.
     Based upon documents provided to the Company in connection with the action,
     the Company believes that the U.S. Government may seek damages and
     penalties of approximately $5 million.

     The Company is a defendant in a patent infringement case brought by Cordant
     Technologies (formerly Thiokol Corporation), which the Company believes is
     without merit. The complaint does not quantify the amount of damages
     sought. Through its analysis of an October 27, 1997, court filing, the
     Company now believes that, based on an economist's expert testimony,
     Cordant Technologies may seek lost profits, interest and costs of
     approximately $240 million. Even if the Company is found liable, it
     believes that damages should be based upon a reasonable royalty of less
     than $5 million. The court has bifurcated the trial, with the liability
     issue being tried first, and if liability is found, the damages issue being
     tried second. The liability issue was tried in January 1998, after which
     the court 

                                       7
<PAGE>
 
     requested, and the parties submitted, post-trial briefs. A decision on the
     liability issue is not expected until several months after submission of
     the parties' post-trial briefs. In the judgment of management, the case
     will not have a material adverse effect upon the Company's future financial
     condition or results of operations. However, there can be no assurance that
     the outcome of the case will not have a material adverse effect on the
     Company.

     During fiscal 1998, the Company substantially completed the requirements of
     the M117 Bomb reclamation contract. The contract contained a priced option,
     having approximate contract value less than $5 million, whereby the
     customer could require the reclamation of additional quantities, given that
     such option be exercised within the terms and conditions of the contract.
     On August 4, 1997, the customer informed the Company that it was exercising
     the option. The Company, based on advice from its counsel, maintains that
     the option exercise was invalid and has therefore not performed on the
     option. The Company is currently appealing the validity of the option to
     the United States Court of Appeals, based on the Company's continued belief
     that such exercise was invalid. In late December 1997, the Company was
     informed by the customer that the Company was being terminated for default
     on the contract option. The Company expects the appeals process to conclude
     in calendar 1999. Depending on the outcome of the appeal, which will drive
     the outcome of the termination for default, management currently estimates
     that the range of possible adverse impact to the Company's future operating
     earnings is from $0-$4 million, in total.

     During fiscal 1998, the Company identified potential technical and safety
     issues on its Explosive "D" contracts that, depending on the outcome of the
     continuing evaluation of these risks and the potentially mitigating
     solutions, could add cost growth to the program. These potential technical
     and safety issues have caused the Company to delay contract performance
     until the issues are resolved to the satisfaction of the Company. As a
     result, the Government customer has provided the Company notification that
     it has been terminated for default on the contracts. The Company is
     currently working closely with the customer to resolve these matters. Based
     on information known at this time, management's estimated range of
     reasonably possible additional cost growth that could occur as a result of
     the potential technical and safety issues on the Explosive "D" program is
     currently $0-$7 million, on which ultimate outcome is dependent on the
     extent to which the Company is able to mitigate these potential risks and
     ultimately resolve the contractual performance issues on a mutually
     agreeable basis.

     The Company does not believe that the above contract terminations will have
     a material adverse impact on the Company's results of operations, its
     liquidity, or its financial position.

     The Company is subject to various local and national laws relating to
     protection of the environment and is in various stages of investigation or
     remediation of potential, alleged, or acknowledged contamination. At
     December 27, 1998, the accrued liability for environmental remediation of
     $31.3 million represents management's best estimate of the present value of
     the probable and reasonably estimable costs related to the Company's known
     remediation obligations. It is expected that a significant portion of the
     Company's environmental costs will be reimbursed to the Company. As
     collection of those reimbursements is estimated to be probable, the Company
     has recorded a receivable of $9.6 million, representing the present value
     of those reimbursements at December 27, 1998. Such receivable primarily
     represents the expected reimbursement of costs associated with the
     Aerospace operations, acquired from Hercules in March, 1995, whereby the
     Company generally assumed responsibility for environmental compliance at
     Aerospace facilities. It is expected that much of the compliance and
     remediation costs associated with these facilities will be reimbursable
     under U.S. government contracts, and that those environmental remediation
     costs not covered through such contracts will be covered by Hercules under
     various indemnification agreements, subject to the Company having
     appropriately notified Hercules of issues identified, prior to the
     expiration of the stipulated notification periods (March 2000 or March
     2005, depending on site ownership). The Company's accrual for environmental
     remediation liabilities and the associated receivable for reimbursement
     thereof, have been discounted to reflect the present value of the expected
     future cash 

                                       8
<PAGE>
 
     flows, using a discount rate, net of estimated inflation, of 4.5 percent.
     The following is a summary of the Company's amounts recorded for
     environmental remediation at December 27, 1998 (in millions):

<TABLE>
<CAPTION>
                                                      Accrued Environmental    Environmental Costs - 
                                                            Liability         Reimbursement Receivable
      ------------------------------------------------------------------------------------------------
<S>                                                      <C>                   <C>    
      Amounts (Payable)/Receivable                       $ (40.4)                    $  12.4
      Unamortized Discount                                   9.1                        (2.8)
      ------------------------------------------------------------------------------------------------
      Present Value Amounts
               (Payable)/Receivable                      $ (31.3)                    $   9.6
      ================================================================================================
</TABLE>

     At December 27, 1998, the estimated discounted range of reasonably possible
     costs of environmental remediation is between $31 and $49 million. The
     Company does not anticipate that resolution of the environmental
     contingencies in excess of amounts accrued, net of recoveries, will
     materially affect future operating results.

     In future periods, new laws or regulations, advances in technologies,
     outcomes of negotiations/litigations with regulatory authorities and other
     parties, additional information about the ultimate remedy selected at new
     and existing sites, the Company's share of the cost of such remedies,
     changes in the extent and type of site utilization, the number of parties
     found liable at each site, and their ability to pay are all factors that
     could significantly change the Company`s estimates.

     It is reasonably possible that management's current estimates of
     liabilities for the above contingencies could change in the near term, as
     more definitive information becomes available.

7.   Interest paid during the nine-month periods ended December 27, 1998 and
     December 28, 1997 totalled $14.3 and $16.3 million, respectively.

     In late fiscal 1998, the Company entered into treasury rate-lock agreements
     to hedge against increases in market interest rates on the anticipated
     refinancing of its debt. In connection with completing the refinancing of
     its debt (see footnotes 1 and 2) during the third quarter of fiscal 1999,
     these treasury rate-locks have been converted into interest rate swaps
     having a total notional amount of $200 million. Of this total, swaps having
     a $100 million notional amount have 6 year terms and swap interest rates of
     between 6.32 and 6.55 percent (6.43% average). The remaining swap has a
     $100 million notional amount, a swap interest rate of 6.1 percent, and is
     effective for 10 years, with a bank cancellation option at 5 years.

8.   In February 1997, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
     Share", which requires companies to present basic earnings per share (EPS)
     and diluted EPS, instead of the primary and fully diluted EPS that were
     previously required. The Company adopted the provisions of SFAS 128 during
     fiscal 1998, as required under the Statement. Accordingly, the financial
     statements have been reported consistent with the requirements of SFAS 128.

     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 redeemable common
     stock (see Note 5) and stock options outstanding during each period
     presented, which, if exercised, would have a dilutive effect on EPS. The
     diluted EPS calculation results in the same EPS that the Company has
     historically reported as fully diluted.

                                       9
<PAGE>
 
     In computing EPS for the three and nine month periods ended December 27,
     1998 and December 28, 1997, net income as reported for each respective
     period, is divided by:

<TABLE>
<CAPTION>
                                                          Three-Months Ended                    Nine-Months Ended
                                               ----------------------------------   -------------------------------------
                                                 Dec. 27, 1998      Dec. 28, 1997     Dec. 27, 1998      Dec. 28, 1997
  -----------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>                <C>               <C>   
  Basic EPS:
  - Average Shares Outstanding                        12,047             13,155             12,419            13,067
  =======================================================================================================================

  Diluted EPS:

  - Average Shares Outstanding                        12,047             13,155             12,419            13,067
  - Dilutive effect of options and                       339                384                321               376
     redeemable common shares
  -----------------------------------------------------------------------------------------------------------------------

  Diluted EPS Shares Outstanding                      12,386             13,539             12,740            13,443
  =======================================================================================================================
</TABLE>

     For the three-month period ended December 28, 1997, 1,084,000 common
     shares, which were subject to the put/call agreement with Hercules (see
     Note 5) were not included in the calculation of diluted EPS, as inclusion
     of those redeemable shares would have been anti-dilutive. There were no
     anti-dilutive securities for the three or nine month periods ended December
     27, 1998, or for the nine-month period ended December 28, 1997.

9.   Goodwill represents the excess of the cost of purchased businesses over the
     fair value of their net assets at date of acquisition and is being
     amortized on a straight-line basis over periods of 25 to 40 years. The
     recoverability of the carrying value of goodwill is periodically evaluated
     by comparison of the carrying value of the underlying assets which gave
     rise to the goodwill (including the carrying value of the goodwill itself)
     with the estimated future undiscounted cash flows from the related
     operations. An impairment loss would be measured as the amount by which the
     carrying value of the asset exceeds the fair value of the asset based on
     discounted estimated future cash flows. To date, management has determined
     that no impairment exists.

10.  Certain reclassifications have been made to the fiscal 1998 financial
     statements, as previously reported, to conform to the current
     classification. These reclassifications did not affect the net income from
     operations, as previously reported.

11.  The figures set forth in this quarterly report are unaudited but, in the
     opinion of the Company, include all adjustments necessary for a fair
     presentation of the results of operations for the three and nine month
     periods ended December 27, 1998, and December 28, 1997. The Company's
     accounting policies are described in the notes to financial statements in
     its fiscal 1998 Annual Report on Form 10-K.

12.  In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
     Income," which requires businesses to disclose comprehensive income and its
     components in the Company's general-purpose financial statements. Effective
     April 1, 1998, the Company adopted SFAS No. 130. The Company's net income
     (as reported) is identical to its "comprehensive income", as defined by
     SFAS 130, for the three and nine month periods ended December 27, 1998, and
     December 28, 1997, respectively.

     In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of
     an Enterprise and Related Information," which requires additional
     disclosure only, and as such, is expected to have no financial impact to
     the Company. The statement is effective for the Company's fiscal year
     ending March 31, 1999.

                                       10
<PAGE>
 
     In March 1998, the AICPA issued Statement of Position (SOP) 98-1
     "Accounting for the Costs of Computer Software Developed or Obtained for
     Internal Use." The SOP provides guidance on when costs incurred for
     internal use computer software are to be capitalized. The SOP is currently
     not expected to have a material impact to the Company's results of
     operations or its financial position. The SOP is effective for the
     Company's fiscal year beginning April 1, 1999.

                                       11
<PAGE>
 
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

RESULTS OF OPERATIONS

Sales

Sales for the quarter ended December 27, 1998 totaled $274.4 million, an
increase of $5.2 million compared to $269.2 million for the comparable quarter
in the prior year. Conventional Munitions Group sales were $110.0 million for
the current year quarter, compared to $111.8 million in the comparable quarter
of the prior year. Space and Strategic Systems Group sales were $97.8 million
for the current year quarter, an increase of $4.9 million, or 5.3 percent,
compared to $92.9 million in the comparable quarter of the prior year. The
increase is attributable to higher propulsion sales, up $12.1 million compared
to the comparable quarter of the prior year, primarily on the Titan and Delta
space propulsion programs. These propulsion sales increases were partially
offset by an $8.1 million decrease in composite structures sales on the
substantial completion of the X-33 contract for the development and sub-assembly
of liquid hydrogen fuel tanks for the next-generation Space Shuttle. Defense
Systems Group sales were $69.4 million for the current year quarter, an increase
of $4.6 million, or 7.1 percent, compared to $64.8 million in the comparable
quarter of the prior year. The increase was primarily attributable to the timing
of deliveries on anti-tank munition programs.

Sales for the nine-month period ended December 27, 1998 totaled $789.8 million,
compared to $787.8 million for the comparable period of the prior year.
Conventional Munitions Group sales for the nine-month period ended December 27,
1998 were $349.6 million, an increase of $4.6 million, or 1.3 percent, compared
to $345.0 million for the comparable period of the prior year. Space and
Strategic Systems Group sales for the nine-month period ended December 27, 1998
were $292.0 million, an increase of $25.1 million, or 9.4 percent, compared to
$266.9 million for the comparable period of the prior year. The increase is
attributable to higher propulsion sales, up $52.1 million compared to the
comparable period of the prior year, primarily on the Titan and Delta space
propulsion programs. These propulsion sales increases were partially offset by a
$27.1 million decrease in composite structures sales due to the substantial
completion of the X-33 development contract. Defense Systems Group sales for the
nine-month period ended December 27, 1998 were $152.5 million, a decrease of
$19.0 million, or 11.1 percent, compared to $171.5 million for the comparable
period of the prior year. The decrease is primarily attributable to the
substantial completion of the Outrider (TM) Unmanned Aerial Vehicle development
program.

Company sales for fiscal 1999 are expected to be approximately $1.1 billion.

Gross Margin

The Company's gross margin in the quarter ended December 27, 1998, was $48.4
million or 17.6 percent of sales, compared to $48.1 million, or 17.9 percent of
sales for the comparable quarter of the prior year. The slight decrease in
margin for the current quarter was due to a combination of sales mix and timing.
Gross margin for the nine-month period ended December 27, 1998, totaled $139.0
million, or 17.6 percent of sales, compared to $137.6 million, or 17.5 percent
of sales for the comparable period of the prior year. Gross margin in the
current year nine-month period

                                       12
<PAGE>
 
improved slightly, as a percent of sales, due to higher award fees on space
propulsion systems programs.

Fiscal 1999 gross margin, as a percent of sales, is expected to be in the 17.5 -
18.0 percent range.

Operating Expenses

The Company's operating expenses for the quarter ended December 27, 1998,
totaled $22.4 million, or 8.2 percent of sales, compared to $24.0 million, or
8.9 percent of sales for the comparable quarter of the prior year. The decrease
in current year operating expenses is due primarily to decreases in selling and
research and development expenses incurred, compared to the comparable quarter
of the prior year, due to timing of expenses in the prior year on program
pursuits, including the Company's pursuit of the Intercontinental Ballistic
Missile (ICBM) Prime Integration Program. These cost decreases were partially
offset by increased legal expenses in the current year (see discussion of
ongoing legal matters in Contingencies, below).

Operating expenses for the nine-month period ended December 27, 1998 totaled
$64.7 million, or 8.2 percent of sales, compared to $70.0 million, or 8.9
percent of sales for the comparable period of the prior year. The decrease in
current year expenses is due to decreases in selling and research and
development expenses, primarily driven by the absence of approximately $6.9
million of selling expenses incurred on the ICBM pursuit in the comparable
period of the prior year, offset partially by higher legal expenses incurred in
the current year period.

Fiscal 1999 operating expenses, as a percent of sales, are expected to be
approximately 8.5 percent.

Interest Expense

The Company's interest expense for the quarter ended December 27, 1998 was $5.2
million, a decrease of $1.7 million compared to $6.9 million for the comparable
quarter in the prior year. Interest expense for the nine-month period ended
December 27, 1998 was $16.1 million, a decrease of $5.8 million compared to
interest expense of $21.9 million for the comparable period of the prior year.
The large decrease in the current year expense was driven by significantly
reduced average level of borrowings outstanding in the current year periods, as
well as lower interest rates, as compared to the comparable periods of the prior
year.

Interest Income

Interest income for the quarter ended December 27, 1998, was $.5 million,
compared to $.8 million for the comparable quarter of the prior year, a decrease
of $.3 million. Interest income for the nine-month period ended December 27,
1998 was $1.2 million, a decrease of $1.5 million, compared to $2.7 million for
the comparable period of the prior year. The decrease in interest income in the
current year periods is driven by the absence of interest income earned on
higher average cash balances in the comparable periods of the prior year. Cash
balances during the prior year periods included approximately $40.0 million in
proceeds from the Company's February, 1997 sale of its former Marine Systems
Group. These proceeds were used late in fiscal 1998 to pre-pay a portion of the
Company's outstanding long-term debt.

Income Taxes

                                       13
<PAGE>
 
The three and nine-month periods ended December 27, 1998, reflect an effective
income tax rate of 15 percent. The three and nine month periods ended December
28, 1997, reflect an effective income tax rate of 0 percent. These tax rates
differ from statutory tax rates due to the partial recognition of available
tax-loss carryforwards. Recognition of such carryforwards is expected to
continue to reduce future tax expense. It is currently expected that required
payments for taxes in fiscal 1999 will also be reduced due to the aforementioned
tax-loss carryforwards. However, the Company may be subject to the provisions of
the Alternative Minimum Tax (AMT), in which case tax payments could be required.
To the extent that AMT is required to be paid currently, the resulting deferred
tax asset can be carried forward indefinitely, and can be recovered via
reductions in tax payments on future taxable income.

Extraordinary Loss

In connection with the Company's September, 1998 early extinguishment of its
Senior Subordinated Notes and the refinancing of its bank borrowings in
November, 1998, the Company incurred extraordinary charges for the early
extinguishment of debt, totalling $16.3 million, for the nine-month period
ending December 27, 1998. The extraordinary charge includes charges associated
with the Company's September 16, 1998, completion of the tender offer and
consent solicitation relating to its then outstanding $150 million 11.75 percent
Senior Subordinated Notes which were due March 1, 2003 (the "Notes"). Under the
tender offer (the "Offer"), the Company accepted all validly tendered Notes for
payment under the Offer, and accordingly paid approximately $153 million to
purchase the Notes from noteholders holding approximately $140 million principal
amount of the Notes. In conjunction with the early extinguishment of the Notes,
the Company also refinanced its bank borrowings under a new bank credit facility
on November 23, 1998. See "Liquidity, Capital Resources and Financial Condition"
below, for further discussion of the new bank credit facility. In connection
with these early extinguishments of debt, the Company recorded a $19.2 million
extraordinary charge ($16.3 million, after the tax benefit of $2.9 million),
which is comprised of the $13.2 million cash premium paid to acquire the Notes,
as well as the write-off of approximately $6.0 million representing the
unamortized portion of the debt issuance costs associated with the original
borrowings.

Net Income

Net income reported for the quarter ended December 27, 1998, was $16.4 million,
a decrease of $1.7 million, compared to net income of $18.0 million for the
comparable quarter of the prior year. The decrease was driven by the $1.7
million extraordinary loss on the early extinguishment of debt, and by $3.2
million of higher tax expense in the quarter, offset partially by lower
operating expenses and interest expenses in the current year period. Net income
for the nine-month period ended December 27, 1998 was $34.2 million, a decrease
of $14.4 million, compared to net income of $48.6 million for the prior year
period. The decrease was driven by the $16.3 million extraordinary loss on the
early extinguishment of debt, and $8.9 million of higher tax expense in the
current year period, offset partially by reduced operating and interest expenses
in the current year.

LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION

Cash provided by operations totaled $29.1 million for the nine months ended
December 27, 1998, an increase in cash provided of $23.7 million, when compared
with cash provided by operations of 

                                       14
<PAGE>
 
$5.4 million in the comparable period of the prior year. The increased level of
cash provided by operations in the current year period resulted from a
combination of factors, the most significant of which included lower spending on
restructuring and facility consolidation activities, as these activities are now
substantially complete, and improved profitability (before the extraordinary
loss on early extinguishment of debt) for the nine-months ended December 27,
1998, as compared to the comparable period of the prior year. Cash usage for the
nine months ended December 27, 1998, also included approximately $13 million in
payments for legal settlements settled and accrued in prior years. See
"Contingencies" below.

Cash used by investing activities for the nine-month period ended December 27,
1998, was $28.3 million, a $12.1 million increase in cash used, compared to cash
used by investing activities of $16.2 million in the comparable period of the
prior year. This difference primarily represented increased capital expenditures
in the current year. The Company currently expects capital expenditures to be
approximately $40 million for fiscal 1999. This represents a significant
increase in capital spending relative to fiscal 1998. The increased planned
expenditures are primarily the result of facilitization costs required to
prepare for significant expected growth in the space propulsion business. This
business increase is primarily associated with orders received from Boeing in
fiscal 1999, totaling approximately $750 million ($1.7 billion if additional
options exercised), for the production related to solid rocket boosters and
composite structures for the Delta Space Launch Vehicle family. Planned
expenditures also include facilitization spending associated with moving the
Company's Joliet, Illinois operations to the Radford Army Ammunition Plant in
Virginia, and capital spending relating to an electronic fuze business acquired
in fiscal 1998.

On November 23, 1998, the Company entered into a new $650 million bank credit
facility (the facility). The facility, which refinanced the Company's previously
existing bank credit facility, has a six-year term and consists of term-debt
credit facilities totalling up to $400 million, and a revolving credit facility
of $250 million. Interest charges under the new facility are primarily at the
London Inter-Bank Offering Rate (LIBOR), plus 2.25 percent (which totalled 7.3
percent at December 27, 1998), and will be subject to change in the future, as
changes occur in market conditions and in the Company's financial performance.
Borrowings under the facility are subject to financial leverage covenants, as
well as other customary covenants (e.g., restrictions on additional indebtedness
and liens, sales of assets, and restricted payments). Fees associated with the
refinancing were approximately $9 million. These costs are classified in "Other
Assets and Deferred Charges", and are being amortized to interest expense over
the six-year term of the facility.

At December 27, 1998, the Company had borrowings of $20.0 million against its
$250 million bank revolving credit facility. Additionally, the Company had
outstanding letters of credit of $31.4 million, which further reduced amounts
available on the revolving facility to $198.6 million at December 27, 1998.
Scheduled minimum loan repayments on the Company's outstanding long-term debt
are as follows: fiscal 1999, $0; fiscal 2000, $36.5 million; fiscal 2001, $49.5
million; fiscal 2002, $61.0 million; fiscal 2003, $71.2 million; fiscal 2004,
$61.0 million, and thereafter, $61.0 million.

The Company's total debt (current portion of debt and long-term debt) as a
percentage of total capitalization increased to 74 percent on December 27, 1998,
from 43 percent on March 31, 1998. This increase reflects higher total debt, up
$161.5 million, which primarily reflects the borrowings required to fund the
Company's purchases of its common stock in fiscal 1999. 

                                       15
<PAGE>
 
During the nine months ended December 27, 1998, the Company repurchased a total
of 2.3 million shares, at a cost of $175.6 million. These repurchases were
primarily made under terms of the Company's "Dutch auction" and the completion
of the Hercules repurchase, as described below.

On December 15, 1998, the Company completed the repurchase of 1.7 million shares
of its common stock at a price of $77 per share, or approximately $130 million
in total. The repurchase occurred via the terms and conditions of a modified
"Dutch auction" tender offer (Dutch auction), and was financed under the
Company's new bank credit facility.

In connection with the completion of the Dutch auction, the Company's Board of
Directors authorized the Company to repurchase up to an additional 1.1 million
shares of its common stock. Any repurchases made under this plan would be
subject to market conditions and the Company's compliance with its debt
covenants. As of December 27, 1998, the Company's debt covenants permit the
Company to expend up to $90 million specifically in connection with future share
repurchases. Additionally, the Company may make "restricted payments" (as
defined in the Company's debt covenants) of up to an additional $50 million,
which among other items, would allow payments for further stock repurchases
(over and above the aforementioned $90 million). While it is currently the
Company's intention to make stock repurchases under this program, there can be
no assurance that the Company will purchase all or any portion of the remaining
shares, or as to the timing or terms thereof. As of December 27, 1998, minor
repurchases have been made under the program, aggregating less than $.2 million.

On October 24, 1997, the Company entered into an agreement with Hercules
Incorporated (Hercules) providing for the disposition of the 3.86 million shares
of Alliant common stock then held by Hercules. The shares represented the stock
issued by the Company in connection with the March 15, 1995 acquisition of the
Hercules Aerospace Company operations from Hercules (Aerospace acquisition).
Under the agreement with Hercules (the "Hercules repurchase"), during the
quarter ended December 28, 1997 the Company registered for public offering
approximately 2.78 million shares (previously unregistered) held by Hercules.
The offering was completed on November 21, 1997. No new shares were issued in
the offering nor did the Company receive any proceeds from the offering. The
remaining 1.1 million shares held by Hercules became subject to a put/call
arrangement under which Hercules could require the Company to purchase the
shares in four equal installments of 271,000 shares during each of the four
calendar quarters of 1998. The Company could likewise require Hercules to sell
the shares to the Company in four equal installments during each of the four
calendar quarters of 1998. The price for shares purchased under the put/call
arrangement was equal to the per-share net proceeds realized by Hercules in the
secondary public offering, $55.32. In late fiscal 1998, the Company did
repurchase the first installment of 271,000 shares, for approximately $15
million. In May, August, and November of 1998, respectively, the Company
repurchased the remaining installments of 271,000 shares, each for approximately
$15 million.

During early fiscal 1998, the Company completed a $50 million stock repurchase
program started in fiscal 1996. In connection with that program, the Company
made repurchases in the nine-months ended December 28, 1997 of approximately
140,000 shares, for approximately $6.0 million.

Based on the financial condition of the Company at December 27, 1998, the
Company believes that future operating cash flows, combined with existing cash
balances and the availability of 

                                       16
<PAGE>
 
funding under its bank revolving credit facility, will be adequate to fund the
future growth of the Company, as well as to service its long-term debt
obligations.

CONTINGENCIES

As a U.S. Government contractor, the Company is subject to defective pricing and
cost accounting standards non-compliance claims by the Government. Additionally,
the Company has substantial Government contracts and subcontracts, the prices of
which are subject to adjustment. The Company believes that resolution of such
claims and price adjustments made or to be made by the Government for open
fiscal years (1987 through 1998) will not materially exceed the amount provided
in the accompanying balance sheets.

The Company is a defendant in numerous lawsuits that arise out of, and are
incidental to, the conduct of its business. Such matters arise out of the normal
course of business and relate to product liability, intellectual property,
government regulations, including environmental issues, and other issues.
Certain of the lawsuits and claims seek damages in large amounts. In these
proceedings, no director, officer, or affiliate is a party or a named defendant.

In June 1995, the Company and claimants reached an agreement to settle the
Accudyne "qui tam" lawsuit. Terms of the agreement include payments to be made
by the Company over three years, totaling $12.0 million. The final payment of
$4.5 million was paid in June, 1998.

Under the terms of the agreements relating to the Aerospace acquisition, all
litigation and legal disputes arising in the ordinary course of the acquired
operations will be assumed by the Company except for a few specific lawsuits and
disputes including two specific qui-tam lawsuits. Under terms of the purchase
agreement with Hercules, the Company's maximum combined settlement liability for
both of these qui tam matters was approximately $4 million, which the Company
had fully reserved. On May 15, 1998, Hercules announced that it had agreed to a
settlement in the first qui tam lawsuit which has since been approved by the
court. Therefore, in July, 1998 the Company paid $4 million in full satisfaction
of its liability related to these matters.

In March, 1997 the Company received a partially unsealed complaint, in a qui tam
action by four former employees (the "Relators") alleging labor mischarging to
the Intermediate Nuclear Force (INF) contract, and other contracts. Damages are
not specified in this civil suit. The Company and Hercules have agreed to share
equally the external attorney's fees and investigative fees and related costs
and expenses of this action until such time as a determination is made as to the
applicability of the indemnification provisions of the Aerospace acquisition
purchase agreement. In March 1998, the Company and Hercules settled with the
Department of Justice on the portion of the complaint alleging labor mischarging
to the INF contract and agreed to pay $2.25 million each, together with
Relators' attorney's fees of $150 thousand each, which was paid in April 1998.
The Department of Justice declined to intervene in the remaining portion of the
complaint. On October 16, 1998 the Company and Hercules settled with the
Relators all remaining issues in this action by agreeing to each pay $575
thousand, subject to court approval. On January 21, 1999, the court approved the
settlement and entered judgment dismissing the case, subject to the right of the
Department of Justice to appeal such approval and dismissal.

The Company has also been served with a complaint in a civil action alleging
violation of the False Claims Act and the Truth in Negotiations Act. The
complaint alleges defective pricing on a government contract. Based upon
documents provided to the Company in connection with the 

                                       17
<PAGE>
 
action, the Company believes that the U.S. Government may seek damages and
penalties of approximately $5 million.

The Company is a defendant in a patent infringement case brought by Cordant
Technologies (formerly Thiokol Corporation), which the Company believes is
without merit. The complaint does not quantify the amount of damages sought.
Through its analysis of an October 27, 1997, court filing, the Company now
believes that, based on an economist's expert testimony, Cordant Technologies
may seek lost profits, interest and costs of approximately $240 million. Even if
the Company is found liable, it believes that damages should be based upon a
reasonable royalty of less than $5 million. The court has bifurcated the trial,
with the liability issue being tried first, and if liability is found, the
damages issue being tried second. The liability issue was tried in January 1998,
after which the court requested, and the parties submitted, post-trial briefs. A
decision on the liability issue is not expected until several months after
submission of the parties' post-trial briefs. In the judgment of management, the
case will not have a material adverse effect upon the Company's future financial
condition or results of operations. However, there can be no assurance that the
outcome of the case will not have a material adverse effect on the Company.

During fiscal 1998, the Company substantially completed the requirements of the
M117 Bomb reclamation contract. The contract contained a priced option, having
approximate contract value less than $5 million, whereby the customer could
require the reclamation of additional quantities, given that such option be
exercised within the terms and conditions of the contract. On August 4, 1997,
the customer informed the Company that it was exercising the option. The
Company, based on advice from its counsel, maintains that the option exercise
was invalid and has therefore not performed on the option. The Company is
currently appealing the validity of the option to the United States Court of
Appeals, based on the Company's continued belief that such exercise was invalid.
In late December 1997, the Company was informed by the customer that the Company
was being terminated for default on the contract option. The Company expects the
appeals process to conclude in calendar 1999. Depending on the outcome of the
appeal, which will drive the outcome of the termination for default, management
currently estimates that the range of possible adverse impact to the Company's
future operating earnings is from $0-$4 million, in total.

During fiscal 1998, the Company identified potential technical and safety issues
on its Explosive "D" contracts that, depending on the outcome of the continuing
evaluation of these risks and the potentially mitigating solutions, could add
cost growth to the program. These potential technical and safety issues have
caused the Company to delay contract performance until the issues are resolved
to the satisfaction of the Company. As a result, the Government customer has
provided the Company notification that it has been terminated for default on the
contracts. The Company is currently working closely with the customer to resolve
these matters. Based on information known at this time, management's estimated
range of reasonably possible additional cost growth that could occur as a result
of the potential technical and safety issues on the Explosive "D" program is
currently $0-$7 million, on which ultimate outcome is dependent on the extent to
which the Company is able to mitigate these potential risks and ultimately
resolve the contractual performance issues on a mutually agreeable basis.

The Company does not believe that the above contract terminations will have a
material adverse impact on the Company's results of operations, its liquidity,
or its financial position.

                                       18
<PAGE>
 
The Company is subject to various local and national laws relating to protection
of the environment and is in various stages of investigation or remediation of
potential, alleged, or acknowledged contamination. At December 27, 1998, the
accrued liability for environmental remediation of $31.3 million represents
management's best estimate of the present value of the probable and reasonably
estimable costs related to the Company's known remediation obligations. It is
expected that a significant portion of the Company's environmental costs will be
reimbursed to the Company. As collection of those reimbursements is estimated to
be probable, the Company has recorded a receivable of $9.6 million, representing
the present value of those reimbursements at December 27, 1998. Such receivable
primarily represents the expected reimbursement of costs associated with the
Aerospace operations, acquired from Hercules in March, 1995, whereby the Company
generally assumed responsibility for environmental compliance at Aerospace
facilities. It is expected that much of the compliance and remediation costs
associated with these facilities will be reimbursable under U.S. government
contracts, and that those environmental remediation costs not covered through
such contracts will be covered by Hercules under various indemnification
agreements, subject to the Company having appropriately notified Hercules of
issues identified, prior to the expiration of the stipulated notification
periods (March 2000 or March 2005, depending on site ownership). The Company's
accrual for environmental remediation liabilities and the associated receivable
for reimbursement thereof, have been discounted to reflect the present value of
the expected future cash flows, using a discount rate, net of estimated
inflation, of 4.5 percent. The following is a summary of the Company's amounts
recorded for environmental remediation at December 27, 1998 (in millions):

<TABLE>
<CAPTION>
                                     Accrued Environmental         Environmental Costs -
                                           Liability              Reimbursement Receivable
     ---------------------------------------------------------------------------------------
<S>                                  <C>                          <C>  
     Amounts (Payable)/Receivable          $(40.4)                         $12.4
     Unamortized Discount                     9.1                           (2.8)
     ---------------------------------------------------------------------------------------
     Present Value Amounts
              (Payable)/Receivable         $(31.3)                          $9.6
     =======================================================================================
</TABLE>

At December 27, 1998, the estimated discounted range of reasonably possible
costs of environmental remediation is between $31 and $49 million. The Company
does not anticipate that resolution of the environmental contingencies in excess
of amounts accrued, net of recoveries, will materially affect future operating
results.

In future periods, new laws or regulations, advances in technologies, outcomes
of negotiations/litigations with regulatory authorities and other parties,
additional information about the ultimate remedy selected at new and existing
sites, the Company's share of the cost of such remedies, changes in the extent
and type of site utilization, the number of parties found liable at each site,
and their ability to pay are all factors that could significantly change the
Company`s estimates.

It is reasonably possible that management's current estimates of liabilities for
the above contingencies could change in the near term, as more definitive
information becomes available.

The Company does not generate a significant amount of revenues or costs, nor
does it maintain significant assets or liabilities in European Union (EU)
countries or in European currencies. 

                                       19
<PAGE>
 
Therefore, the Company does not expect that the EU's conversion to the Euro will
have a material impact to the Company's financial position or its results of
operations.

YEAR 2000

Background

The Company utilizes a significant amount of information technology ("IT"), such
as computer hardware and software, and operating systems ("IT systems"), and
non-IT systems, such as applications used in manufacturing, product development,
financial business systems and various administrative functions ("non-IT
systems"). To the extent that these IT systems and non-IT systems contain source
code that is unable to distinguish the upcoming calendar year 2000 from the
calendar year 1900 (the "Year 2000 Issue"), some level of modification or
replacement of such systems will be necessary. The Company has established a
Year 2000 Project Management Plan ("Year 2000 Plan") to identify and address
systems requiring such modification or replacement. The Year 2000 Plan also
involves assessing the extent to which the Company's suppliers and customers are
addressing the Year 2000 Issue. Company management has identified certain
business systems, suppliers, and customers as critical to its ongoing business
needs ("business critical"). Failure of these business critical systems,
suppliers, or customers to become Year 2000 compliant in a timely manner could
have a material adverse impact to the Company.

State of Readiness

The Year 2000 Plan, which encompasses both IT and non-IT systems, involves the
following five-phase approach to the Year 2000 Issue, with the indicated
timetable for completion of business critical items:

<TABLE>
<CAPTION>
                                                                                     Timetable
   Phase                                  Activity                                 for Completion            Status
   -----                                  --------                                 --------------            ------
<C>       <S>                                                                     <C>                       <C>
     1    Ensure Company-wide awareness of the Year 2000
          Issue...............................................................    September 30, 1997        Completed

     2    Assess the impact of the Year 2000 Issue on the Company, and conduct
          inventories, analyze systems, prioritize modification or replacement,
          and develop contingency plans.......................................    January 31, 1998          Completed

     3    Begin modification, replacement or elimination of selected platforms,
          applications, databases and utilities, and modify interfaces, as
          appropriate ........................................................    August 31, 1998           Completed          

     4    Complete work begun in Phase 3, and test, verify and validate all
          systems.............................................................    Early 1999                Substantially      
                                                                                                            Completed          
     5    Implement modified or replaced platforms, applications, databases 
          and utilities.......................................................    March 31, 1999            In-process         

</TABLE>

The Company is not aware of any problems reasonably likely to occur as a result
of third party failures to address the Year 2000 Issue. Phase 3 activity
involved a significant effort to identify 

                                       20
<PAGE>
 
supplier Year 2000 Issues, whereby all suppliers were prioritized and rated, and
suppliers were requested to provide a Year 2000 Issue status on their products,
operating systems, suppliers and facilities. Phase 4 activity encompasses
supplier visits and phone interviews, final testing, and preparation for
complete system implementation. Questionnaires continue to be utilized to secure
additional information from suppliers on specific Year 2000 Issues. Phase 4
activities are substantially complete, except for specific items where
validating actions have been rescheduled into mid-1999 to accommodate business
requirements. Phase 5 activities are also underway. Critical actions and
completion dates have been identified to ensure that no business critical system
will pass its respective time-horizon-to-failure date.

The Company has utilized the services of two independent industry consultants to
assist it in assessing the reliability of its risk and cost estimates.

Costs

The Company currently estimates that costs associated with modifying or
replacing systems affected by the Year 2000 Issue, including the amounts
expended in connection with the Company's ongoing, normal course-of-business
efforts to upgrade or replace business critical systems and software
applications as necessary, will be approximately $13 million, compared to the
Company's normal, annual IT operating budget of approximately $30 million. These
costs are being funded through cash flows from operations. Costs associated with
incremental personnel costs, consulting, and hardware and software modification
are being expensed as incurred. The costs of newly purchased hardware and
software are being capitalized in accordance with normal policy. The majority of
cost is expected to be incurred during fiscal year 1999, and approximately $8
million has been expended through December 27, 1998. Approximately 37% of the
total amount ultimately expended is expected to be for systems modification, and
the balance for systems replacement. There are no IT projects which the Company
has had to delay due to the Year 2000 Issues that would have a material impact
on the Company's results of operations or financial position. The Company
continues to review its contractual obligations relative to the Year 2000 Issue,
and currently believes that there are no such obligations that would have
material impact to the Company's results of operations or its financial
position.

Risks

The failure to resolve a material Year 2000 Issue could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial position. Due to the general
uncertainty inherent in the Year 2000 Issue, resulting in part from the
uncertainty of the Year 2000 Issue readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of failures resulting from the Year 2000 Issue will have a material
impact on the Company's results of operations, liquidity or financial position.
The Year 2000 Plan is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 Issue and, in particular, about the Year 2000
Issue compliance and readiness of its business critical systems, suppliers, and
customers.

The most significant risk to the Company is the potential impact of
circumstances beyond its control, such as the failure of its business critical
suppliers and/or customers (particularly the U.S. Government) to resolve their
Year 2000 Issues, with a resulting inability of such suppliers to supply
critical goods and services to the Company, or of such customers to pay for
their 

                                       21
<PAGE>
 
purchases from the Company. A related significant risk to the Company is that an
inability of its business critical suppliers to resolve their Year 2000 Issues
could result in the Company not being able to meet its contractual obligations.
Another significant risk to the Company could be the significant loss of
critical personnel on its Year 2000 Plan team.

The Company currently believes that there is minimal risk that its Year 2000
Plan will be not be successfully implemented in a timely manner. In the event
that the Company is ultimately unable to implement its Year 2000 Plan in a
timely manner, the Company believes that its contingency plans, described below,
adequately accommodate its business critical systems in a way that would not
result in a material adverse impact to the Company's results of operations, its
liquidity, or its financial position. However, there can be no assurance that
the Company and/or relevant third parties will successfully resolve all of their
Year 2000 Issues or that the Company's contingency plans will be entirely
successful in mitigating those issues. Any such failure could have a material
adverse effect on the Company's operations, liquidity, or its financial
position.

Contingency Plans

It is the Company's understanding that the U.S. Government anticipates resolving
the Year 2000 Issues affecting its payment system by March 1999, which will
allow about 9 months for testing of the payment system. The Company is working
with the Government payment office on a contingency plan that will accommodate a
manual billing and payment process in the event the Year 2000 Issues affecting
the Government payment system are not successfully resolved in a timely manner.
A contingency plan has been established for all business critical Company
systems identified as Year 2000 Issues as of August 31, 1998, and contingency
plans have also been developed for certain critical suppliers, including
identification of back-up supply sources, and consideration of the need to
purchase additional critical supplies. Additionally, the Company will develop
plans addressing the operation of its facilities during and immediately after
the beginning of calendar 2000, to prepare for the possibility of major
infrastructure failure (i.e., power system failure). All contingency plans will
be subjected to further review following completion of Phase 4 of the Year 2000
Plan.

Cautionary Statement

The costs of the Year 2000 Plan and the timing in which the Company believes it
will implement the Year 2000 Plan are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no assurance that these estimates will be achieved, and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
success of the Company in identifying systems and programs having Year 2000
Issues, the nature and amount of programming required to upgrade or replace the
affected programs, the availability and cost of personnel trained in this area,
and the extent to which the Company might be adversely impacted by the failure
of third parties (i.e., suppliers, customers, etc.) to remediate their own Year
2000 issues. Failure by the Company and/or its suppliers and customers (in
particular, the U.S. Government, on which the Company is materially dependent)
to complete Year 2000 Issue compliance work in a timely manner could have a
material adverse effect on the Company's operations, its liquidity, and/or its
financial position.

                                       22
<PAGE>
 
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 1999 sales, gross margin, operating
expenses, tax payments and capital expenditures. Also included are statements
relating to the realization of net deferred tax benefits, the repurchase of
Company common stock, the funding of future growth, long-term debt repayment,
environmental remediation costs and reimbursement prospects, the financial and
operating impact of the resolution of environmental and litigation contingencies
in general, resolution of the Cordant Technologies matter, the M117 and
Explosive "D" contract terminations for default in particular, and the ultimate
cost and impact of the Company's Year 2000 Issue compliance effort. Such
forward-looking statements involve risks and uncertainties that could cause
actual results or outcomes to differ materially. Some of these risks and
uncertainties are set forth in connection with the applicable statements.
Additional risks and uncertainties include, but are not limited to, changes in
government spending and budgetary policies, governmental laws and other rules
and regulations surrounding various matters such as environmental remediation,
contract pricing, changing economic and political conditions in the United
States and in other countries, international trading restrictions, outcome of
union negotiations, customer product acceptance, the Company's success in
program pursuits, program performance, continued access to technical and capital
resources, supply and availability of raw materials and components, timely
compliance with the technical requirements of the Year 2000 Issue, including
timely compliance by the Company's vendors and customers, and merger and
acquisition activity within the industry. All forecasts and projections in this
report are "forward-looking statements", and are based on management's current
expectations of the Company's near-term results, based on current information
available pertaining to the Company, including the aforementioned risk factors.
Actual results could differ materially.

                                       23
<PAGE>
 
                          PART II -- OTHER INFORMATION

ITEM 2. LEGAL PROCEEDINGS

         The registrant has previously reported that, in March 1997 the
registrant received a partially unsealed complaint, filed on an unknown date, in
a qui tam action by four former employees ("Relators") alleging violations of
the False Claims Act. The action has since been identified as United States of
America ex rel. P. Robert Pratt and P. Robert Pratt, individually vs. Alliant
Techsystems Inc. and Hercules Incorporated, which was filed in the United States
District Court, Central District of California. The action alleges labor
mischarging to the Intermediate Nuclear Force ("INF") contract and other
contracts at the registrant's Bacchus Works facility in Magna, Utah, which was
acquired as part of its acquisition of Hercules Aerospace Company ("HAC") from
Hercules Incorporated ("Hercules"). Damages are not specified. The registrant
and Hercules have agreed to share equally the external attorney's fees and
investigative fees and related costs and expenses of this action until such time
as a determination is made as to the applicability of the indemnification
provisions of the HAC Purchase Agreement. In March 1998, the registrant and
Hercules settled with the Department of Justice on the portion of the complaint
alleging labor mischarging to the INF contract and agreed to pay $2.25 million
each, together with Relators' attorney's fees of $150,000 each, which amounts
were paid in April 1998. The Department of Justice has declined to intervene in
the remaining portion of the complaint. On October 16, 1998, the registrant and
Hercules settled with the Relators and agreed to pay $500,000 each, together
with Relators' attorney's fees of $75,000 each, subject to Court approval. On
January 21, 1999, the court approved the settlement and entered judgment
dismissing the case, subject to the right of the Department of Justice to appeal
such approval and dismissal.

     Incorporated herein by reference is note 6 of Notes to Financial Statements
included in Item 1 of Part I of this report.

ITEM 5. OTHER INFORMATION

     Attached to this report as Exhibit 99 is a list of the registrant's
directors and executive officers, as of the date of this report, which reflects
the following changes since November 5, 1998: Deletion: Richard Schwartz,
Director and Chairman of the Board. Addition: Paul David Miller, Director,
Chairman of the Board and Chief Executive Officer. New titles: Peter A.
Bukowick, Director, President and Chief Operating Officer; Charles H. Gauck,
Vice President and Secretary; and Paul A. Ross, Senior Group Vice President -
Space and Strategic Systems.

                                       24
<PAGE>
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits.

            Exhibit No.                 Description of Exhibit
            -----------                 ----------------------

               4.1  Form of Amended and Restated Credit Agreement, dated as of
                    November 23, 1998 between the registrant and The Chase
                    Manhattan Bank

               4.2  Form of Credit Agreement, dated as of November 23, 1998,
                    between the registrant and The Chase Manhattan Bank

               10.1 Compensation arrangement between the registrant and Paul
                    David Miller

               10.2 Form of Restricted Stock Agreement

               27   Financial Data Schedule

               99   Alliant Techsystems Inc. Directors and Executive Officers


     (b)  Reports on Form 8-K.

          During the quarterly period ended December 27, 1998, the registrant
          filed the following report on Form 8-K:

          Date of Report                           Items Reported
          --------------                           --------------

          November 24, 1998                  Item 5. Other Events
                                             Item 7(c). Exhibits

                                       25
<PAGE>
 
                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                         ALLIANT TECHSYSTEMS INC.

Date: February 5, 1999                        By:  /s/ Charles H. Gauck
                                            Name:  Charles H. Gauck
                                           Title:  Secretary
                                                   (On behalf of the registrant)

Date: February 5, 1999                        By:  /s/ Scott S. Meyers
                                            Name:  Scott S. Meyers
                                           Title:  Vice President, Treasurer and
                                                   Chief Financial Officer
                                                   (Principal Financial Officer)

                                       26
<PAGE>
 
                            ALLIANT TECHSYSTEMS INC.

                                    FORM 10-Q

                                  EXHIBIT INDEX

The following exhibits are filed herewith electronically or incorporated herein
by reference. The applicable Securities and Exchange Commission File Number is
1-10582.

<TABLE>
<CAPTION>

   Exhibit
   Number                              Description of Exhibit                                   Method of Filing
   ------                              ----------------------                                   ----------------
<C>          <S>                                                                            <C>
     4.1     Form of Amended and Restated Credit Agreement, dated as of November 23, 
             1998, between the registrant and The Chase Manhattan Bank..............        Incorporated by reference from  
                                                                                            Exhibit 9.(b)(2) to registrant's
                                                                                            Schedule 13E-4 dated November 30, 1998
                                                                                            
     4.2     Form of Credit Agreement, dated as of November 23, 1998, between the
             registrant and The Chase Manhattan Bank................................        Incorporated by reference from          
                                                                                            Exhibit 9.(b)(3) to registrant's        
                                                                                            Schedule 13E-4 dated November 30, 1998  


     10.1    Compensation arrangement between the registrant and Paul David Miller..         Filed herewith electronically          


     10.2    Form of Restricted Stock Agreement.....................................         Filed herewith electronically          


     27      Financial Data Schedule................................................         Filed herewith electronically          


     99      Alliant Techsystems Inc. Directors and Executive Officers..............         Filed herewith electronically          


</TABLE>
[{"type": "10-Q", "sequence": "1", "description": "FORM 10-Q", "secsgml_size_bytes": 97346}]
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SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

/X/      Quarterly report pursuant to Section 13 or 15(d) of the 
         Securities Exchange Act of 1934

         For the quarterly period ended December 27, 1998 or

/ /      Transition report pursuant to Section 13 or 15(d) of the 
         Securities Exchange Act of 1934

         For the transition period from            to

                         Commission file number 1-10582

                            ALLIANT TECHSYSTEMS INC.
             (Exact name of registrant as specified in its charter)

                      DELAWARE                             41-1672694
          (State or other jurisdiction of               (I.R.S. Employer
          incorporation or organization)              Identification No.)

            600 SECOND STREET N.E.
              HOPKINS, MINNESOTA                          55343-8384
     (Address of principal executive office)              (Zip Code)

                                 (612) 931-6000
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE

                     (Former name, former address and former
                    fiscal year if changed from last report)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes /X/ No / /

     As of January 31, 1999, the number of shares of the registrant's common
stock, par value $.01 per share, outstanding was 10,569,625 (excluding 3,293,988
treasury shares).
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                   Consolidated Income Statements (Unaudited)
(In thousands except                                   QUARTERS ENDED              NINE MONTHS ENDED
     per share data)                             --------------------------    --------------------------
                                                 December 27    December 28    December 27    December 28
                                                     1998           1997           1998           1997   
                                                 -----------    -----------    -----------    -----------
Sales                                             $ 274,446      $ 269,217      $ 789,765      $ 787,811
Cost of sales                                       226,086        221,152        650,740        650,196
                                                  ---------      ---------      ---------      ---------
Gross margin                                         48,360         48,065        139,025        137,615
Operating expenses:
     Research and development                         1,971          2,890          5,703          7,564
     Selling                                          5,536         10,085         20,022         29,134
     General and administrative                      14,885         11,033         38,966         33,304
                                                  ---------      ---------      ---------      ---------
     Total operating expenses                        22,392         24,008         64,691         70,002
                                                  ---------      ---------      ---------      ---------
Income from operations                               25,968         24,057         74,334         67,613
     Miscellaneous income (expense)                     (61)            84            (19)           147
                                                  ---------      ---------      ---------      ---------
Earnings before interest and income taxes            25,907         24,141         74,315         67,760
     Interest expense                                (5,213)        (6,943)       (16,089)       (21,880)
     Interest income                                    505            829          1,172          2,725
                                                  ---------      ---------      ---------      ---------
Income before income taxes and
     extraordinary loss                              21,199         18,027         59,398         48,605
Income tax provision                                  3,180           --            8,910           --
                                                  ---------      ---------      ---------      ---------
Income before extraordinary loss                     18,019         18,027         50,488         48,605
Extraordinary loss on early extinguishment of
     debt, net of income tax benefit                 (1,661)          --          (16,288)          --
                                                  ---------      ---------      ---------      ---------
Net income                                        $  16,358      $  18,027      $  34,200      $  48,605
                                                  =========      =========      =========      =========

Basic earnings per common share:
     Income before extraordinary loss             $    1.50      $    1.37      $    4.06      $    3.72
     Extraordinary loss                                (.14)          --            (1.31)          --
                                                  ---------      ---------      ---------      ---------
     Net income                                   $    1.36      $    1.37      $    2.75      $    3.72
                                                  =========      =========      =========      =========
Diluted earnings per common share:
     Income before extraordinary loss             $    1.45      $    1.33      $    3.96      $    3.62
     Extraordinary loss                                (.13)          --            (1.28)          --
                                                  ---------      ---------      ---------      ---------
     Net income                                   $    1.32      $    1.33      $    2.68      $    3.62
                                                  =========      =========      =========      =========

Average number of common shares (thousands)          12,047         13,155         12,419         13,067
                                                  =========      =========      =========      =========
Average number of common and
 dilutive shares (thousands)                         12,386         13,539         12,740         13,443
                                                  =========      =========      =========      =========
See Notes to Consolidated Financial Statements

                                       2
Consolidated Balance Sheets (Unaudited)
(In thousands except share data)                              December 27, 1998   March 31, 1998
                                                              -----------------   --------------
Assets
Current assets:
     Cash and cash equivalents                                     $  37,778         $  68,960
     Receivables                                                     240,470           209,915
     Net inventory                                                    39,476            49,072
     Deferred income tax asset                                        38,280            38,280
     Other current assets                                              5,550             6,803
                                                                   ---------         ---------
           Total current assets                                      361,554           373,030
Net property, plant, and equipment                                   329,898           333,538
Goodwill                                                             129,807           131,600
Prepaid and intangible pension assets                                 71,817            61,667
Other assets and deferred charges                                     10,588             8,474
                                                                   ---------         ---------
           Total assets                                            $ 903,664         $ 908,309
                                                                   =========         =========
Liabilities and Stockholders' Equity
Current liabilities:
     Current portion of debt                                       $  45,750         $  17,838
     Accounts payable                                                 84,469            80,071
     Contract advances and allowances                                 53,922            64,318
     Accrued compensation                                             26,023            32,275
     Accrued income taxes                                             12,695             8,049
     Accrued restructuring and facility consolidation                    558             2,637
     Other accrued liabilities                                        59,914            72,214
                                                                   ---------         ---------
           Total current liabilities                                 283,331           277,402
Long-term debt                                                       314,443           180,810
Post-retirement and post-employment benefits liability               131,287           136,889
Pension liability                                                      9,596            10,120
Other long-term liabilities                                           36,239            37,334
                                                                   ---------         ---------
           Total liabilities                                       $ 774,896         $ 642,555
Contingencies
Redeemable common shares (813,000 shares, $.01 par
     value, redeemable at a prescribed price totaling $44,979
     at March 31, 1998. Redeemed quarterly, in equal lots of
     271,000 shares each, during calendar 1998.)                   $    --           $  44,979
Common stock - $.01 par value
     Authorized - 20,000,000 shares
     Issued and outstanding 10,541,865 shares at December
           27, 1998 and 12,855,511 at March 31, 1998                     124               121
Additional paid-in-capital                                           243,366           201,728
Retained earnings                                                    106,744            72,544
Unearned compensation                                                 (2,089)           (1,251)
Pension liability adjustment                                          (4,743)           (4,743)
Common stock in treasury, at cost (3,321,748 shares held at
     December 27, 1998 and 1,008,102 at March 31, 1998)             (214,634)          (47,624)
                                                                   ---------         ---------
           Total liabilities and stockholders' equity              $ 903,664         $ 908,309
                                                                   =========         =========
See Notes to Consolidated Financial Statements

                                       3
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)                                                               NINE MONTHS ENDED
                                                                    ------------------------------------
                                                                    December 27, 1998  December 28, 1997
                                                                    -----------------  -----------------
Operating activities
Net income                                                               $  34,200         $  48,605
Adjustments to net income to arrive at cash                                              
       provided by operations:                                                           
                Depreciation                                                28,913            31,259
                Amortization of intangible assets and unearned                           
                   compensation                                              4,407             4,530
                Extraordinary loss on early extinguishment                               
                   of debt                                                  16,288              --
                Loss on disposal of property                                   462               199
                Changes in assets and liabilities:                                       
                   Receivables                                             (30,555)            9,685
                   Inventory                                                 9,596            15,736
                   Accounts payable                                          4,398           (24,957)
                   Contract advances and allowances                        (10,396)          (32,428)
                   Accrued compensation                                     (6,252)           (5,905)
                   Accrued income taxes                                      7,521            (2,124)
                   Accrued restructuring and facility consolidation         (2,079)          (12,294)
                   Accrued environmental liability                            (524)           (1,419)
                   Pension and post-retirement benefits                     (6,126)           (5,837)
                   Other assets and liabilities                            (20,705)          (19,614)
                                                                         ---------         ---------
Cash provided by operations                                                 29,148             5,436
                                                                         ---------         ---------
Investing activities                                                                     
Capital expenditures                                                       (27,447)          (11,166)
Acquisition of business                                                     (1,100)           (6,194)
Proceeds from disposition of property, plant, and equipment                    275             1,197
                                                                         ---------         ---------
Cash used for investing activities                                         (28,272)          (16,163)
                                                                         ---------         ---------
Financing activities                                                                     
Payments made on bank debt                                                 (48,648)          (61,768)
Payments made to extinguish high yield debt                               (152,997)             --
Proceeds from issuance of long-term debt                                   350,193              --
Payments made for debt issue costs                                          (8,691)             --
Net purchase of treasury shares                                           (175,646)           (9,632)
Proceeds from exercised stock options                                        3,731             8,278
Other financing activities, net                                               --              (2,302)
                                                                         ---------         ---------
Cash used for financing activities                                         (32,058)          (65,424)
                                                                         ---------         ---------
Decrease in cash and cash equivalents                                      (31,182)          (76,151)
Cash and cash equivalents - beginning of period                             68,960           122,491
                                                                         ---------         ---------
Cash and cash equivalents - end of period                                $  37,778         $  46,340
                                                                         =========         =========
See Notes to Consolidated Financial Statements

                                       4
Notes to Consolidated Financial Statements (Unaudited)

1.   In connection with the Company's September, 1998 early extinguishment of
     its Senior Subordinated Notes and the refinancing of its bank borrowings in
     November, 1998, the Company incurred extraordinary charges for the early
     extinguishment of debt, totalling $16.3 million, for the nine-month period
     ending December 27, 1998. The extraordinary charge includes charges
     associated with the Company's September 16, 1998, completion of the tender
     offer and consent solicitation relating to its then outstanding $150
     million 11.75 percent Senior Subordinated Notes which were due March 1,
     2003 (the "Notes"). Under the tender offer (the "Offer"), the Company
     accepted all validly tendered Notes for payment under the Offer, and
     accordingly paid approximately $153 million to purchase the Notes from
     noteholders holding approximately $140 million principal amount of the
     Notes. In conjunction with the early extinguishment of the Notes, the
     Company also refinanced its bank borrowings under a new bank credit
     facility on November 23, 1998. See Note 2 below, for further discussion of
     the new bank credit facility. In connection with these early
     extinguishments of debt, the Company recorded a $19.2 million extraordinary
     charge ($16.3 million, after the tax benefit of $2.9 million), which is
     comprised of the $13.2 million cash premium paid to acquire the Notes, as
     well as the write-off of approximately $6.0 million representing the
     unamortized portion of the debt issuance costs associated with the original
     borrowings.

2.   On November 23, 1998, the Company entered into a new $650 million bank
     credit facility (the facility). The facility, which refinanced the
     Company's previously existing bank credit facility, has a six-year term and
     consists of term-debt credit facilities totalling up to $400 million, and a
     revolving credit facility of $250 million. Interest charges under the new
     facility are primarily at the London Inter-Bank Offering Rate (LIBOR), plus
     2.25 percent (which totalled 7.3 percent at December 27, 1998), and will be
     subject to change in the future, as changes occur in market conditions and
     in the Company's financial performance. Borrowings under the facility are
     subject to financial leverage covenants, as well as other customary
     covenants (e.g., restrictions on additional indebtedness and liens, sales
     of assets, and restricted payments). Fees associated with the refinancing
     were approximately $9 million. These costs are classified in "Other Assets
     and Deferred Charges", and are being amortized to interest expense over
     the six-year term of the new facility.

     At December 27, 1998, the Company had borrowings of $20.0 million against
     its $250 million bank revolving credit facility. Additionally, the Company
     had outstanding letters of credit of $31.4 million, which further reduced
     amounts available on the revolving facility to $198.6 million at December
     27, 1998. Scheduled minimum loan repayments on the Company's outstanding
     long-term debt are as follows: fiscal 1999, $0; fiscal 2000, $36.5 million;
     fiscal 2001, $49.5 million; fiscal 2002, $61.0 million; fiscal 2003, $71.2
     million; fiscal 2004, $61.0 million, and thereafter, $61.0 million.

3.   The major categories of other current and long-term accrued liabilities are
     as follows (in thousands):
Period Ending
                                                   ----------------------------------
                                                   December 27, 1998   March 31, 1998
     --------------------------------------------------------------------------------
Employee benefits and insurance                   26,385            29,196
       Legal accruals                                    11,502            21,495
       Other accruals                                    22,027            21,523
     --------------------------------------------------------------------------------
       Other accrued liabilities-current                 59,914            72,214
     ================================================================================

       Environmental remediation liability               16,740            17,264
       Deferred tax liability                            19,499            19,499
       Other long-term                                     --                 571
     --------------------------------------------------------------------------------
       Other long-term liabilities                       36,239            37,334
     ================================================================================
5
The decrease in legal accruals since March 31, 1998 is reflective of
     payments made during the nine-month period ended December 27, 1998, for
     legal settlements agreed to (and reserved for) in previous periods,
     including the $4.5 million installment paid in April 1998 in connection
     with the Accudyne "qui-tam" settlement (reached in June 1995) and payments
     totaling $6.5 million in satisfaction of the liabilities associated with
     two other qui-tam issues previously settled. See Note 6 for further
     discussion of legal settlements.

4.   Alternative minimum taxes of $1.4 and $2.1 million were paid during the
     nine-month period ended December 27, 1998 and December 28, 1997,
     respectively. The effective income tax rate of 15 percent on continuing
     operations in the current nine-month period reflects recognition and
     utilization of $8.0 million of available federal and state loss
     carryforwards (net) for tax purposes.

5.   On December 15, 1998, the Company completed the repurchase of 1.7 million
     shares of its common stock at a price of $77 per share, or approximately
     $130 million in total. The repurchase occurred via the terms and conditions
     of a modified "Dutch auction" tender offer (Dutch auction), and was
     financed under the Company's new bank credit facility.

     In connection with the completion of the Dutch auction, the Company's Board
     of Directors authorized the Company to repurchase up to an additional 1.1
     million shares of its common stock. Any repurchases made under this
     repurchase plan would be subject to market conditions and the Company's
     compliance with its debt covenants. As of December 27, 1998, the Company's
     debt covenants permit the Company to expend up to $90 million specifically
     in connection with future share repurchases. Additionally, the Company may
     make "restricted payments" (as defined in the Company's debt covenants) of
     up to an additional $50 million, which among other items, would allow
     payments for further stock repurchases (over and above the aforementioned
     $90 million). While it is currently the Company's intention to make stock
     repurchases under this program, there can be no assurance that the Company
     will purchase all or any portion of the remaining shares, or as to the
     timing or terms thereof. As of December 27, 1998, minor repurchases have
     been made under the plan, aggregating less than $.2 million.

     On October 24, 1997, the Company entered into an agreement with Hercules
     Incorporated (Hercules) providing for the disposition of the 3.86 million
     shares of Alliant common stock then held by Hercules. The shares
     represented the stock issued by the Company in connection with the March
     15, 1995 acquisition of the Hercules Aerospace Company operations from
     Hercules (Aerospace acquisition). Under the agreement with Hercules (the
     "Hercules repurchase"), during the quarter ended December 28, 1997 the
     Company registered for public offering approximately 2.78 million shares
     (previously unregistered) held by Hercules. The offering was completed on
     November 21, 1997. No new shares were issued in the offering nor did the
     Company receive any proceeds from the offering. The remaining 1.1 million
     shares held by Hercules became subject to a put/call arrangement under
     which Hercules could require the Company to purchase the shares in four
     equal installments of 271,000 shares during each of the four calendar
     quarters of 1998. The Company could likewise require Hercules to sell the
     shares to the Company in four equal installments during each of the four
     calendar quarters of 1998. The price for shares purchased under the
     put/call arrangement was equal to the per-share net proceeds realized by
     Hercules in the secondary public offering, $55.32. In late fiscal 1998, the
     Company did repurchase the first installment of 271,000 shares, for
     approximately $15 million. In May, August, and November of 1998,
     respectively, the Company repurchased the remaining installments of 271,000
     shares, each for approximately $15 million.

     During early fiscal 1998, the Company completed a $50 million stock
     repurchase program started in fiscal 1996. In connection with that program,
     the Company made repurchases in the nine-months ended December 28, 1997 of
     approximately 140,000 shares, for approximately $6.0 million.

                                       6
6.   Contingencies:

     As a U.S. Government contractor, the Company is subject to defective
     pricing and cost accounting standards non-compliance claims by the
     Government. Additionally, the Company has substantial Government contracts
     and subcontracts, the prices of which are subject to adjustment. The
     Company believes that resolution of such claims and price adjustments made
     or to be made by the Government for open fiscal years (1987 through 1998)
     will not materially exceed the amount provided in the accompanying balance
     sheets.

     The Company is a defendant in numerous lawsuits that arise out of, and are
     incidental to, the conduct of its business. Such matters arise out of the
     normal course of business and relate to product liability, intellectual
     property, government regulations, including environmental issues, and other
     issues. Certain of the lawsuits and claims seek damages in large amounts.
     In these proceedings, no director, officer, or affiliate is a party or a
     named defendant.

     Under the terms of the agreements relating to the Aerospace acquisition,
     all litigation and legal disputes arising in the ordinary course of the
     acquired operations will be assumed by the Company except for a few
     specific lawsuits and disputes including two specific qui-tam lawsuits.
     Under terms of the purchase agreement with Hercules, the Company's maximum
     combined settlement liability for both of these qui tam matters was
     approximately $4 million, which the Company had fully reserved. On May 15,
     1998, Hercules announced that it had agreed to a settlement in the first
     qui tam lawsuit which has since been approved by the court. Therefore, in
     July, 1998 the Company paid $4 million in full satisfaction of its
     liability related to these matters.

     In March, 1997 the Company received a partially unsealed complaint, in a
     qui tam action by four former employees (the "Relators") alleging labor
     mischarging to the Intermediate Nuclear Force (INF) contract, and other
     contracts. Damages are not specified in this civil suit. The Company and
     Hercules have agreed to share equally the external attorney's fees and
     investigative fees and related costs and expenses of this action until such
     time as a determination is made as to the applicability of the
     indemnification provisions of the Aerospace acquisition purchase agreement.
     In March 1998, the Company and Hercules settled with the Department of
     Justice on the portion of the complaint alleging labor mischarging to the
     INF contract and agreed to pay $2.25 million each, together with Relators'
     attorney's fees of $150 thousand each, which was paid in April 1998. The
     Department of Justice declined to intervene in the remaining portion of the
     complaint. On October 16, 1998 the Company and Hercules settled with the
     Relators all remaining issues in this action by agreeing to each pay $575
     thousand, subject to court approval. On January 21, 1999, the court
     approved the settlement and entered judgment dismissing the case, subject
     to the right of the Department of Justice to appeal such approval and
     dismissal.

     The Company has also been served with a complaint in a civil action
     alleging violation of the False Claims Act and the Truth in Negotiations
     Act. The complaint alleges defective pricing on a government contract.
     Based upon documents provided to the Company in connection with the action,
     the Company believes that the U.S. Government may seek damages and
     penalties of approximately $5 million.

     The Company is a defendant in a patent infringement case brought by Cordant
     Technologies (formerly Thiokol Corporation), which the Company believes is
     without merit. The complaint does not quantify the amount of damages
     sought. Through its analysis of an October 27, 1997, court filing, the
     Company now believes that, based on an economist's expert testimony,
     Cordant Technologies may seek lost profits, interest and costs of
     approximately $240 million. Even if the Company is found liable, it
     believes that damages should be based upon a reasonable royalty of less
     than $5 million. The court has bifurcated the trial, with the liability
     issue being tried first, and if liability is found, the damages issue being
     tried second. The liability issue was tried in January 1998, after which
     the court 

                                       7
requested, and the parties submitted, post-trial briefs. A decision on the
     liability issue is not expected until several months after submission of
     the parties' post-trial briefs. In the judgment of management, the case
     will not have a material adverse effect upon the Company's future financial
     condition or results of operations. However, there can be no assurance that
     the outcome of the case will not have a material adverse effect on the
     Company.

     During fiscal 1998, the Company substantially completed the requirements of
     the M117 Bomb reclamation contract. The contract contained a priced option,
     having approximate contract value less than $5 million, whereby the
     customer could require the reclamation of additional quantities, given that
     such option be exercised within the terms and conditions of the contract.
     On August 4, 1997, the customer informed the Company that it was exercising
     the option. The Company, based on advice from its counsel, maintains that
     the option exercise was invalid and has therefore not performed on the
     option. The Company is currently appealing the validity of the option to
     the United States Court of Appeals, based on the Company's continued belief
     that such exercise was invalid. In late December 1997, the Company was
     informed by the customer that the Company was being terminated for default
     on the contract option. The Company expects the appeals process to conclude
     in calendar 1999. Depending on the outcome of the appeal, which will drive
     the outcome of the termination for default, management currently estimates
     that the range of possible adverse impact to the Company's future operating
     earnings is from $0-$4 million, in total.

     During fiscal 1998, the Company identified potential technical and safety
     issues on its Explosive "D" contracts that, depending on the outcome of the
     continuing evaluation of these risks and the potentially mitigating
     solutions, could add cost growth to the program. These potential technical
     and safety issues have caused the Company to delay contract performance
     until the issues are resolved to the satisfaction of the Company. As a
     result, the Government customer has provided the Company notification that
     it has been terminated for default on the contracts. The Company is
     currently working closely with the customer to resolve these matters. Based
     on information known at this time, management's estimated range of
     reasonably possible additional cost growth that could occur as a result of
     the potential technical and safety issues on the Explosive "D" program is
     currently $0-$7 million, on which ultimate outcome is dependent on the
     extent to which the Company is able to mitigate these potential risks and
     ultimately resolve the contractual performance issues on a mutually
     agreeable basis.

     The Company does not believe that the above contract terminations will have
     a material adverse impact on the Company's results of operations, its
     liquidity, or its financial position.

     The Company is subject to various local and national laws relating to
     protection of the environment and is in various stages of investigation or
     remediation of potential, alleged, or acknowledged contamination. At
     December 27, 1998, the accrued liability for environmental remediation of
     $31.3 million represents management's best estimate of the present value of
     the probable and reasonably estimable costs related to the Company's known
     remediation obligations. It is expected that a significant portion of the
     Company's environmental costs will be reimbursed to the Company. As
     collection of those reimbursements is estimated to be probable, the Company
     has recorded a receivable of $9.6 million, representing the present value
     of those reimbursements at December 27, 1998. Such receivable primarily
     represents the expected reimbursement of costs associated with the
     Aerospace operations, acquired from Hercules in March, 1995, whereby the
     Company generally assumed responsibility for environmental compliance at
     Aerospace facilities. It is expected that much of the compliance and
     remediation costs associated with these facilities will be reimbursable
     under U.S. government contracts, and that those environmental remediation
     costs not covered through such contracts will be covered by Hercules under
     various indemnification agreements, subject to the Company having
     appropriately notified Hercules of issues identified, prior to the
     expiration of the stipulated notification periods (March 2000 or March
     2005, depending on site ownership). The Company's accrual for environmental
     remediation liabilities and the associated receivable for reimbursement
     thereof, have been discounted to reflect the present value of the expected
     future cash 

                                       8
flows, using a discount rate, net of estimated inflation, of 4.5 percent.
     The following is a summary of the Company's amounts recorded for
     environmental remediation at December 27, 1998 (in millions):
Accrued Environmental    Environmental Costs - 
                                                            Liability         Reimbursement Receivable
      ------------------------------------------------------------------------------------------------
Amounts (Payable)/Receivable                       $ (40.4)                    $  12.4
      Unamortized Discount                                   9.1                        (2.8)
      ------------------------------------------------------------------------------------------------
      Present Value Amounts
               (Payable)/Receivable                      $ (31.3)                    $   9.6
      ================================================================================================
At December 27, 1998, the estimated discounted range of reasonably possible
     costs of environmental remediation is between $31 and $49 million. The
     Company does not anticipate that resolution of the environmental
     contingencies in excess of amounts accrued, net of recoveries, will
     materially affect future operating results.

     In future periods, new laws or regulations, advances in technologies,
     outcomes of negotiations/litigations with regulatory authorities and other
     parties, additional information about the ultimate remedy selected at new
     and existing sites, the Company's share of the cost of such remedies,
     changes in the extent and type of site utilization, the number of parties
     found liable at each site, and their ability to pay are all factors that
     could significantly change the Company`s estimates.

     It is reasonably possible that management's current estimates of
     liabilities for the above contingencies could change in the near term, as
     more definitive information becomes available.

7.   Interest paid during the nine-month periods ended December 27, 1998 and
     December 28, 1997 totalled $14.3 and $16.3 million, respectively.

     In late fiscal 1998, the Company entered into treasury rate-lock agreements
     to hedge against increases in market interest rates on the anticipated
     refinancing of its debt. In connection with completing the refinancing of
     its debt (see footnotes 1 and 2) during the third quarter of fiscal 1999,
     these treasury rate-locks have been converted into interest rate swaps
     having a total notional amount of $200 million. Of this total, swaps having
     a $100 million notional amount have 6 year terms and swap interest rates of
     between 6.32 and 6.55 percent (6.43% average). The remaining swap has a
     $100 million notional amount, a swap interest rate of 6.1 percent, and is
     effective for 10 years, with a bank cancellation option at 5 years.

8.   In February 1997, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
     Share", which requires companies to present basic earnings per share (EPS)
     and diluted EPS, instead of the primary and fully diluted EPS that were
     previously required. The Company adopted the provisions of SFAS 128 during
     fiscal 1998, as required under the Statement. Accordingly, the financial
     statements have been reported consistent with the requirements of SFAS 128.

     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 redeemable common
     stock (see Note 5) and stock options outstanding during each period
     presented, which, if exercised, would have a dilutive effect on EPS. The
     diluted EPS calculation results in the same EPS that the Company has
     historically reported as fully diluted.

                                       9
In computing EPS for the three and nine month periods ended December 27,
     1998 and December 28, 1997, net income as reported for each respective
     period, is divided by:
Three-Months Ended                    Nine-Months Ended
                                               ----------------------------------   -------------------------------------
                                                 Dec. 27, 1998      Dec. 28, 1997     Dec. 27, 1998      Dec. 28, 1997
  -----------------------------------------------------------------------------------------------------------------------
Basic EPS:
  - Average Shares Outstanding                        12,047             13,155             12,419            13,067
  =======================================================================================================================

  Diluted EPS:

  - Average Shares Outstanding                        12,047             13,155             12,419            13,067
  - Dilutive effect of options and                       339                384                321               376
     redeemable common shares
  -----------------------------------------------------------------------------------------------------------------------

  Diluted EPS Shares Outstanding                      12,386             13,539             12,740            13,443
  =======================================================================================================================
For the three-month period ended December 28, 1997, 1,084,000 common
     shares, which were subject to the put/call agreement with Hercules (see
     Note 5) were not included in the calculation of diluted EPS, as inclusion
     of those redeemable shares would have been anti-dilutive. There were no
     anti-dilutive securities for the three or nine month periods ended December
     27, 1998, or for the nine-month period ended December 28, 1997.

9.   Goodwill represents the excess of the cost of purchased businesses over the
     fair value of their net assets at date of acquisition and is being
     amortized on a straight-line basis over periods of 25 to 40 years. The
     recoverability of the carrying value of goodwill is periodically evaluated
     by comparison of the carrying value of the underlying assets which gave
     rise to the goodwill (including the carrying value of the goodwill itself)
     with the estimated future undiscounted cash flows from the related
     operations. An impairment loss would be measured as the amount by which the
     carrying value of the asset exceeds the fair value of the asset based on
     discounted estimated future cash flows. To date, management has determined
     that no impairment exists.

10.  Certain reclassifications have been made to the fiscal 1998 financial
     statements, as previously reported, to conform to the current
     classification. These reclassifications did not affect the net income from
     operations, as previously reported.

11.  The figures set forth in this quarterly report are unaudited but, in the
     opinion of the Company, include all adjustments necessary for a fair
     presentation of the results of operations for the three and nine month
     periods ended December 27, 1998, and December 28, 1997. The Company's
     accounting policies are described in the notes to financial statements in
     its fiscal 1998 Annual Report on Form 10-K.

12.  In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
     Income," which requires businesses to disclose comprehensive income and its
     components in the Company's general-purpose financial statements. Effective
     April 1, 1998, the Company adopted SFAS No. 130. The Company's net income
     (as reported) is identical to its "comprehensive income", as defined by
     SFAS 130, for the three and nine month periods ended December 27, 1998, and
     December 28, 1997, respectively.

     In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of
     an Enterprise and Related Information," which requires additional
     disclosure only, and as such, is expected to have no financial impact to
     the Company. The statement is effective for the Company's fiscal year
     ending March 31, 1999.

                                       10
In March 1998, the AICPA issued Statement of Position (SOP) 98-1
     "Accounting for the Costs of Computer Software Developed or Obtained for
     Internal Use." The SOP provides guidance on when costs incurred for
     internal use computer software are to be capitalized. The SOP is currently
     not expected to have a material impact to the Company's results of
     operations or its financial position. The SOP is effective for the
     Company's fiscal year beginning April 1, 1999.

                                       11
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

RESULTS OF OPERATIONS

Sales

Sales for the quarter ended December 27, 1998 totaled $274.4 million, an
increase of $5.2 million compared to $269.2 million for the comparable quarter
in the prior year. Conventional Munitions Group sales were $110.0 million for
the current year quarter, compared to $111.8 million in the comparable quarter
of the prior year. Space and Strategic Systems Group sales were $97.8 million
for the current year quarter, an increase of $4.9 million, or 5.3 percent,
compared to $92.9 million in the comparable quarter of the prior year. The
increase is attributable to higher propulsion sales, up $12.1 million compared
to the comparable quarter of the prior year, primarily on the Titan and Delta
space propulsion programs. These propulsion sales increases were partially
offset by an $8.1 million decrease in composite structures sales on the
substantial completion of the X-33 contract for the development and sub-assembly
of liquid hydrogen fuel tanks for the next-generation Space Shuttle. Defense
Systems Group sales were $69.4 million for the current year quarter, an increase
of $4.6 million, or 7.1 percent, compared to $64.8 million in the comparable
quarter of the prior year. The increase was primarily attributable to the timing
of deliveries on anti-tank munition programs.

Sales for the nine-month period ended December 27, 1998 totaled $789.8 million,
compared to $787.8 million for the comparable period of the prior year.
Conventional Munitions Group sales for the nine-month period ended December 27,
1998 were $349.6 million, an increase of $4.6 million, or 1.3 percent, compared
to $345.0 million for the comparable period of the prior year. Space and
Strategic Systems Group sales for the nine-month period ended December 27, 1998
were $292.0 million, an increase of $25.1 million, or 9.4 percent, compared to
$266.9 million for the comparable period of the prior year. The increase is
attributable to higher propulsion sales, up $52.1 million compared to the
comparable period of the prior year, primarily on the Titan and Delta space
propulsion programs. These propulsion sales increases were partially offset by a
$27.1 million decrease in composite structures sales due to the substantial
completion of the X-33 development contract. Defense Systems Group sales for the
nine-month period ended December 27, 1998 were $152.5 million, a decrease of
$19.0 million, or 11.1 percent, compared to $171.5 million for the comparable
period of the prior year. The decrease is primarily attributable to the
substantial completion of the Outrider (TM) Unmanned Aerial Vehicle development
program.

Company sales for fiscal 1999 are expected to be approximately $1.1 billion.

Gross Margin

The Company's gross margin in the quarter ended December 27, 1998, was $48.4
million or 17.6 percent of sales, compared to $48.1 million, or 17.9 percent of
sales for the comparable quarter of the prior year. The slight decrease in
margin for the current quarter was due to a combination of sales mix and timing.
Gross margin for the nine-month period ended December 27, 1998, totaled $139.0
million, or 17.6 percent of sales, compared to $137.6 million, or 17.5 percent
of sales for the comparable period of the prior year. Gross margin in the
current year nine-month period

                                       12
improved slightly, as a percent of sales, due to higher award fees on space
propulsion systems programs.

Fiscal 1999 gross margin, as a percent of sales, is expected to be in the 17.5 -
18.0 percent range.

Operating Expenses

The Company's operating expenses for the quarter ended December 27, 1998,
totaled $22.4 million, or 8.2 percent of sales, compared to $24.0 million, or
8.9 percent of sales for the comparable quarter of the prior year. The decrease
in current year operating expenses is due primarily to decreases in selling and
research and development expenses incurred, compared to the comparable quarter
of the prior year, due to timing of expenses in the prior year on program
pursuits, including the Company's pursuit of the Intercontinental Ballistic
Missile (ICBM) Prime Integration Program. These cost decreases were partially
offset by increased legal expenses in the current year (see discussion of
ongoing legal matters in Contingencies, below).

Operating expenses for the nine-month period ended December 27, 1998 totaled
$64.7 million, or 8.2 percent of sales, compared to $70.0 million, or 8.9
percent of sales for the comparable period of the prior year. The decrease in
current year expenses is due to decreases in selling and research and
development expenses, primarily driven by the absence of approximately $6.9
million of selling expenses incurred on the ICBM pursuit in the comparable
period of the prior year, offset partially by higher legal expenses incurred in
the current year period.

Fiscal 1999 operating expenses, as a percent of sales, are expected to be
approximately 8.5 percent.

Interest Expense

The Company's interest expense for the quarter ended December 27, 1998 was $5.2
million, a decrease of $1.7 million compared to $6.9 million for the comparable
quarter in the prior year. Interest expense for the nine-month period ended
December 27, 1998 was $16.1 million, a decrease of $5.8 million compared to
interest expense of $21.9 million for the comparable period of the prior year.
The large decrease in the current year expense was driven by significantly
reduced average level of borrowings outstanding in the current year periods, as
well as lower interest rates, as compared to the comparable periods of the prior
year.

Interest Income

Interest income for the quarter ended December 27, 1998, was $.5 million,
compared to $.8 million for the comparable quarter of the prior year, a decrease
of $.3 million. Interest income for the nine-month period ended December 27,
1998 was $1.2 million, a decrease of $1.5 million, compared to $2.7 million for
the comparable period of the prior year. The decrease in interest income in the
current year periods is driven by the absence of interest income earned on
higher average cash balances in the comparable periods of the prior year. Cash
balances during the prior year periods included approximately $40.0 million in
proceeds from the Company's February, 1997 sale of its former Marine Systems
Group. These proceeds were used late in fiscal 1998 to pre-pay a portion of the
Company's outstanding long-term debt.

Income Taxes

                                       13
The three and nine-month periods ended December 27, 1998, reflect an effective
income tax rate of 15 percent. The three and nine month periods ended December
28, 1997, reflect an effective income tax rate of 0 percent. These tax rates
differ from statutory tax rates due to the partial recognition of available
tax-loss carryforwards. Recognition of such carryforwards is expected to
continue to reduce future tax expense. It is currently expected that required
payments for taxes in fiscal 1999 will also be reduced due to the aforementioned
tax-loss carryforwards. However, the Company may be subject to the provisions of
the Alternative Minimum Tax (AMT), in which case tax payments could be required.
To the extent that AMT is required to be paid currently, the resulting deferred
tax asset can be carried forward indefinitely, and can be recovered via
reductions in tax payments on future taxable income.

Extraordinary Loss

In connection with the Company's September, 1998 early extinguishment of its
Senior Subordinated Notes and the refinancing of its bank borrowings in
November, 1998, the Company incurred extraordinary charges for the early
extinguishment of debt, totalling $16.3 million, for the nine-month period
ending December 27, 1998. The extraordinary charge includes charges associated
with the Company's September 16, 1998, completion of the tender offer and
consent solicitation relating to its then outstanding $150 million 11.75 percent
Senior Subordinated Notes which were due March 1, 2003 (the "Notes"). Under the
tender offer (the "Offer"), the Company accepted all validly tendered Notes for
payment under the Offer, and accordingly paid approximately $153 million to
purchase the Notes from noteholders holding approximately $140 million principal
amount of the Notes. In conjunction with the early extinguishment of the Notes,
the Company also refinanced its bank borrowings under a new bank credit facility
on November 23, 1998. See "Liquidity, Capital Resources and Financial Condition"
below, for further discussion of the new bank credit facility. In connection
with these early extinguishments of debt, the Company recorded a $19.2 million
extraordinary charge ($16.3 million, after the tax benefit of $2.9 million),
which is comprised of the $13.2 million cash premium paid to acquire the Notes,
as well as the write-off of approximately $6.0 million representing the
unamortized portion of the debt issuance costs associated with the original
borrowings.

Net Income

Net income reported for the quarter ended December 27, 1998, was $16.4 million,
a decrease of $1.7 million, compared to net income of $18.0 million for the
comparable quarter of the prior year. The decrease was driven by the $1.7
million extraordinary loss on the early extinguishment of debt, and by $3.2
million of higher tax expense in the quarter, offset partially by lower
operating expenses and interest expenses in the current year period. Net income
for the nine-month period ended December 27, 1998 was $34.2 million, a decrease
of $14.4 million, compared to net income of $48.6 million for the prior year
period. The decrease was driven by the $16.3 million extraordinary loss on the
early extinguishment of debt, and $8.9 million of higher tax expense in the
current year period, offset partially by reduced operating and interest expenses
in the current year.

LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION

Cash provided by operations totaled $29.1 million for the nine months ended
December 27, 1998, an increase in cash provided of $23.7 million, when compared
with cash provided by operations of 

                                       14
$5.4 million in the comparable period of the prior year. The increased level of
cash provided by operations in the current year period resulted from a
combination of factors, the most significant of which included lower spending on
restructuring and facility consolidation activities, as these activities are now
substantially complete, and improved profitability (before the extraordinary
loss on early extinguishment of debt) for the nine-months ended December 27,
1998, as compared to the comparable period of the prior year. Cash usage for the
nine months ended December 27, 1998, also included approximately $13 million in
payments for legal settlements settled and accrued in prior years. See
"Contingencies" below.

Cash used by investing activities for the nine-month period ended December 27,
1998, was $28.3 million, a $12.1 million increase in cash used, compared to cash
used by investing activities of $16.2 million in the comparable period of the
prior year. This difference primarily represented increased capital expenditures
in the current year. The Company currently expects capital expenditures to be
approximately $40 million for fiscal 1999. This represents a significant
increase in capital spending relative to fiscal 1998. The increased planned
expenditures are primarily the result of facilitization costs required to
prepare for significant expected growth in the space propulsion business. This
business increase is primarily associated with orders received from Boeing in
fiscal 1999, totaling approximately $750 million ($1.7 billion if additional
options exercised), for the production related to solid rocket boosters and
composite structures for the Delta Space Launch Vehicle family. Planned
expenditures also include facilitization spending associated with moving the
Company's Joliet, Illinois operations to the Radford Army Ammunition Plant in
Virginia, and capital spending relating to an electronic fuze business acquired
in fiscal 1998.

On November 23, 1998, the Company entered into a new $650 million bank credit
facility (the facility). The facility, which refinanced the Company's previously
existing bank credit facility, has a six-year term and consists of term-debt
credit facilities totalling up to $400 million, and a revolving credit facility
of $250 million. Interest charges under the new facility are primarily at the
London Inter-Bank Offering Rate (LIBOR), plus 2.25 percent (which totalled 7.3
percent at December 27, 1998), and will be subject to change in the future, as
changes occur in market conditions and in the Company's financial performance.
Borrowings under the facility are subject to financial leverage covenants, as
well as other customary covenants (e.g., restrictions on additional indebtedness
and liens, sales of assets, and restricted payments). Fees associated with the
refinancing were approximately $9 million. These costs are classified in "Other
Assets and Deferred Charges", and are being amortized to interest expense over
the six-year term of the facility.

At December 27, 1998, the Company had borrowings of $20.0 million against its
$250 million bank revolving credit facility. Additionally, the Company had
outstanding letters of credit of $31.4 million, which further reduced amounts
available on the revolving facility to $198.6 million at December 27, 1998.
Scheduled minimum loan repayments on the Company's outstanding long-term debt
are as follows: fiscal 1999, $0; fiscal 2000, $36.5 million; fiscal 2001, $49.5
million; fiscal 2002, $61.0 million; fiscal 2003, $71.2 million; fiscal 2004,
$61.0 million, and thereafter, $61.0 million.

The Company's total debt (current portion of debt and long-term debt) as a
percentage of total capitalization increased to 74 percent on December 27, 1998,
from 43 percent on March 31, 1998. This increase reflects higher total debt, up
$161.5 million, which primarily reflects the borrowings required to fund the
Company's purchases of its common stock in fiscal 1999. 

                                       15
During the nine months ended December 27, 1998, the Company repurchased a total
of 2.3 million shares, at a cost of $175.6 million. These repurchases were
primarily made under terms of the Company's "Dutch auction" and the completion
of the Hercules repurchase, as described below.

On December 15, 1998, the Company completed the repurchase of 1.7 million shares
of its common stock at a price of $77 per share, or approximately $130 million
in total. The repurchase occurred via the terms and conditions of a modified
"Dutch auction" tender offer (Dutch auction), and was financed under the
Company's new bank credit facility.

In connection with the completion of the Dutch auction, the Company's Board of
Directors authorized the Company to repurchase up to an additional 1.1 million
shares of its common stock. Any repurchases made under this plan would be
subject to market conditions and the Company's compliance with its debt
covenants. As of December 27, 1998, the Company's debt covenants permit the
Company to expend up to $90 million specifically in connection with future share
repurchases. Additionally, the Company may make "restricted payments" (as
defined in the Company's debt covenants) of up to an additional $50 million,
which among other items, would allow payments for further stock repurchases
(over and above the aforementioned $90 million). While it is currently the
Company's intention to make stock repurchases under this program, there can be
no assurance that the Company will purchase all or any portion of the remaining
shares, or as to the timing or terms thereof. As of December 27, 1998, minor
repurchases have been made under the program, aggregating less than $.2 million.

On October 24, 1997, the Company entered into an agreement with Hercules
Incorporated (Hercules) providing for the disposition of the 3.86 million shares
of Alliant common stock then held by Hercules. The shares represented the stock
issued by the Company in connection with the March 15, 1995 acquisition of the
Hercules Aerospace Company operations from Hercules (Aerospace acquisition).
Under the agreement with Hercules (the "Hercules repurchase"), during the
quarter ended December 28, 1997 the Company registered for public offering
approximately 2.78 million shares (previously unregistered) held by Hercules.
The offering was completed on November 21, 1997. No new shares were issued in
the offering nor did the Company receive any proceeds from the offering. The
remaining 1.1 million shares held by Hercules became subject to a put/call
arrangement under which Hercules could require the Company to purchase the
shares in four equal installments of 271,000 shares during each of the four
calendar quarters of 1998. The Company could likewise require Hercules to sell
the shares to the Company in four equal installments during each of the four
calendar quarters of 1998. The price for shares purchased under the put/call
arrangement was equal to the per-share net proceeds realized by Hercules in the
secondary public offering, $55.32. In late fiscal 1998, the Company did
repurchase the first installment of 271,000 shares, for approximately $15
million. In May, August, and November of 1998, respectively, the Company
repurchased the remaining installments of 271,000 shares, each for approximately
$15 million.

During early fiscal 1998, the Company completed a $50 million stock repurchase
program started in fiscal 1996. In connection with that program, the Company
made repurchases in the nine-months ended December 28, 1997 of approximately
140,000 shares, for approximately $6.0 million.

Based on the financial condition of the Company at December 27, 1998, the
Company believes that future operating cash flows, combined with existing cash
balances and the availability of 

                                       16
funding under its bank revolving credit facility, will be adequate to fund the
future growth of the Company, as well as to service its long-term debt
obligations.

CONTINGENCIES

As a U.S. Government contractor, the Company is subject to defective pricing and
cost accounting standards non-compliance claims by the Government. Additionally,
the Company has substantial Government contracts and subcontracts, the prices of
which are subject to adjustment. The Company believes that resolution of such
claims and price adjustments made or to be made by the Government for open
fiscal years (1987 through 1998) will not materially exceed the amount provided
in the accompanying balance sheets.

The Company is a defendant in numerous lawsuits that arise out of, and are
incidental to, the conduct of its business. Such matters arise out of the normal
course of business and relate to product liability, intellectual property,
government regulations, including environmental issues, and other issues.
Certain of the lawsuits and claims seek damages in large amounts. In these
proceedings, no director, officer, or affiliate is a party or a named defendant.

In June 1995, the Company and claimants reached an agreement to settle the
Accudyne "qui tam" lawsuit. Terms of the agreement include payments to be made
by the Company over three years, totaling $12.0 million. The final payment of
$4.5 million was paid in June, 1998.

Under the terms of the agreements relating to the Aerospace acquisition, all
litigation and legal disputes arising in the ordinary course of the acquired
operations will be assumed by the Company except for a few specific lawsuits and
disputes including two specific qui-tam lawsuits. Under terms of the purchase
agreement with Hercules, the Company's maximum combined settlement liability for
both of these qui tam matters was approximately $4 million, which the Company
had fully reserved. On May 15, 1998, Hercules announced that it had agreed to a
settlement in the first qui tam lawsuit which has since been approved by the
court. Therefore, in July, 1998 the Company paid $4 million in full satisfaction
of its liability related to these matters.

In March, 1997 the Company received a partially unsealed complaint, in a qui tam
action by four former employees (the "Relators") alleging labor mischarging to
the Intermediate Nuclear Force (INF) contract, and other contracts. Damages are
not specified in this civil suit. The Company and Hercules have agreed to share
equally the external attorney's fees and investigative fees and related costs
and expenses of this action until such time as a determination is made as to the
applicability of the indemnification provisions of the Aerospace acquisition
purchase agreement. In March 1998, the Company and Hercules settled with the
Department of Justice on the portion of the complaint alleging labor mischarging
to the INF contract and agreed to pay $2.25 million each, together with
Relators' attorney's fees of $150 thousand each, which was paid in April 1998.
The Department of Justice declined to intervene in the remaining portion of the
complaint. On October 16, 1998 the Company and Hercules settled with the
Relators all remaining issues in this action by agreeing to each pay $575
thousand, subject to court approval. On January 21, 1999, the court approved the
settlement and entered judgment dismissing the case, subject to the right of the
Department of Justice to appeal such approval and dismissal.

The Company has also been served with a complaint in a civil action alleging
violation of the False Claims Act and the Truth in Negotiations Act. The
complaint alleges defective pricing on a government contract. Based upon
documents provided to the Company in connection with the 

                                       17
action, the Company believes that the U.S. Government may seek damages and
penalties of approximately $5 million.

The Company is a defendant in a patent infringement case brought by Cordant
Technologies (formerly Thiokol Corporation), which the Company believes is
without merit. The complaint does not quantify the amount of damages sought.
Through its analysis of an October 27, 1997, court filing, the Company now
believes that, based on an economist's expert testimony, Cordant Technologies
may seek lost profits, interest and costs of approximately $240 million. Even if
the Company is found liable, it believes that damages should be based upon a
reasonable royalty of less than $5 million. The court has bifurcated the trial,
with the liability issue being tried first, and if liability is found, the
damages issue being tried second. The liability issue was tried in January 1998,
after which the court requested, and the parties submitted, post-trial briefs. A
decision on the liability issue is not expected until several months after
submission of the parties' post-trial briefs. In the judgment of management, the
case will not have a material adverse effect upon the Company's future financial
condition or results of operations. However, there can be no assurance that the
outcome of the case will not have a material adverse effect on the Company.

During fiscal 1998, the Company substantially completed the requirements of the
M117 Bomb reclamation contract. The contract contained a priced option, having
approximate contract value less than $5 million, whereby the customer could
require the reclamation of additional quantities, given that such option be
exercised within the terms and conditions of the contract. On August 4, 1997,
the customer informed the Company that it was exercising the option. The
Company, based on advice from its counsel, maintains that the option exercise
was invalid and has therefore not performed on the option. The Company is
currently appealing the validity of the option to the United States Court of
Appeals, based on the Company's continued belief that such exercise was invalid.
In late December 1997, the Company was informed by the customer that the Company
was being terminated for default on the contract option. The Company expects the
appeals process to conclude in calendar 1999. Depending on the outcome of the
appeal, which will drive the outcome of the termination for default, management
currently estimates that the range of possible adverse impact to the Company's
future operating earnings is from $0-$4 million, in total.

During fiscal 1998, the Company identified potential technical and safety issues
on its Explosive "D" contracts that, depending on the outcome of the continuing
evaluation of these risks and the potentially mitigating solutions, could add
cost growth to the program. These potential technical and safety issues have
caused the Company to delay contract performance until the issues are resolved
to the satisfaction of the Company. As a result, the Government customer has
provided the Company notification that it has been terminated for default on the
contracts. The Company is currently working closely with the customer to resolve
these matters. Based on information known at this time, management's estimated
range of reasonably possible additional cost growth that could occur as a result
of the potential technical and safety issues on the Explosive "D" program is
currently $0-$7 million, on which ultimate outcome is dependent on the extent to
which the Company is able to mitigate these potential risks and ultimately
resolve the contractual performance issues on a mutually agreeable basis.

The Company does not believe that the above contract terminations will have a
material adverse impact on the Company's results of operations, its liquidity,
or its financial position.

                                       18
The Company is subject to various local and national laws relating to protection
of the environment and is in various stages of investigation or remediation of
potential, alleged, or acknowledged contamination. At December 27, 1998, the
accrued liability for environmental remediation of $31.3 million represents
management's best estimate of the present value of the probable and reasonably
estimable costs related to the Company's known remediation obligations. It is
expected that a significant portion of the Company's environmental costs will be
reimbursed to the Company. As collection of those reimbursements is estimated to
be probable, the Company has recorded a receivable of $9.6 million, representing
the present value of those reimbursements at December 27, 1998. Such receivable
primarily represents the expected reimbursement of costs associated with the
Aerospace operations, acquired from Hercules in March, 1995, whereby the Company
generally assumed responsibility for environmental compliance at Aerospace
facilities. It is expected that much of the compliance and remediation costs
associated with these facilities will be reimbursable under U.S. government
contracts, and that those environmental remediation costs not covered through
such contracts will be covered by Hercules under various indemnification
agreements, subject to the Company having appropriately notified Hercules of
issues identified, prior to the expiration of the stipulated notification
periods (March 2000 or March 2005, depending on site ownership). The Company's
accrual for environmental remediation liabilities and the associated receivable
for reimbursement thereof, have been discounted to reflect the present value of
the expected future cash flows, using a discount rate, net of estimated
inflation, of 4.5 percent. The following is a summary of the Company's amounts
recorded for environmental remediation at December 27, 1998 (in millions):
Accrued Environmental         Environmental Costs -
                                           Liability              Reimbursement Receivable
     ---------------------------------------------------------------------------------------
Amounts (Payable)/Receivable          $(40.4)                         $12.4
     Unamortized Discount                     9.1                           (2.8)
     ---------------------------------------------------------------------------------------
     Present Value Amounts
              (Payable)/Receivable         $(31.3)                          $9.6
     =======================================================================================
At December 27, 1998, the estimated discounted range of reasonably possible
costs of environmental remediation is between $31 and $49 million. The Company
does not anticipate that resolution of the environmental contingencies in excess
of amounts accrued, net of recoveries, will materially affect future operating
results.

In future periods, new laws or regulations, advances in technologies, outcomes
of negotiations/litigations with regulatory authorities and other parties,
additional information about the ultimate remedy selected at new and existing
sites, the Company's share of the cost of such remedies, changes in the extent
and type of site utilization, the number of parties found liable at each site,
and their ability to pay are all factors that could significantly change the
Company`s estimates.

It is reasonably possible that management's current estimates of liabilities for
the above contingencies could change in the near term, as more definitive
information becomes available.

The Company does not generate a significant amount of revenues or costs, nor
does it maintain significant assets or liabilities in European Union (EU)
countries or in European currencies. 

                                       19
Therefore, the Company does not expect that the EU's conversion to the Euro will
have a material impact to the Company's financial position or its results of
operations.

YEAR 2000

Background

The Company utilizes a significant amount of information technology ("IT"), such
as computer hardware and software, and operating systems ("IT systems"), and
non-IT systems, such as applications used in manufacturing, product development,
financial business systems and various administrative functions ("non-IT
systems"). To the extent that these IT systems and non-IT systems contain source
code that is unable to distinguish the upcoming calendar year 2000 from the
calendar year 1900 (the "Year 2000 Issue"), some level of modification or
replacement of such systems will be necessary. The Company has established a
Year 2000 Project Management Plan ("Year 2000 Plan") to identify and address
systems requiring such modification or replacement. The Year 2000 Plan also
involves assessing the extent to which the Company's suppliers and customers are
addressing the Year 2000 Issue. Company management has identified certain
business systems, suppliers, and customers as critical to its ongoing business
needs ("business critical"). Failure of these business critical systems,
suppliers, or customers to become Year 2000 compliant in a timely manner could
have a material adverse impact to the Company.

State of Readiness

The Year 2000 Plan, which encompasses both IT and non-IT systems, involves the
following five-phase approach to the Year 2000 Issue, with the indicated
timetable for completion of business critical items:
Timetable
   Phase                                  Activity                                 for Completion            Status
   -----                                  --------                                 --------------            ------
1    Ensure Company-wide awareness of the Year 2000
          Issue...............................................................    September 30, 1997        Completed

     2    Assess the impact of the Year 2000 Issue on the Company, and conduct
          inventories, analyze systems, prioritize modification or replacement,
          and develop contingency plans.......................................    January 31, 1998          Completed

     3    Begin modification, replacement or elimination of selected platforms,
          applications, databases and utilities, and modify interfaces, as
          appropriate ........................................................    August 31, 1998           Completed          

     4    Complete work begun in Phase 3, and test, verify and validate all
          systems.............................................................    Early 1999                Substantially      
                                                                                                            Completed          
     5    Implement modified or replaced platforms, applications, databases 
          and utilities.......................................................    March 31, 1999            In-process
The Company is not aware of any problems reasonably likely to occur as a result
of third party failures to address the Year 2000 Issue. Phase 3 activity
involved a significant effort to identify 

                                       20
supplier Year 2000 Issues, whereby all suppliers were prioritized and rated, and
suppliers were requested to provide a Year 2000 Issue status on their products,
operating systems, suppliers and facilities. Phase 4 activity encompasses
supplier visits and phone interviews, final testing, and preparation for
complete system implementation. Questionnaires continue to be utilized to secure
additional information from suppliers on specific Year 2000 Issues. Phase 4
activities are substantially complete, except for specific items where
validating actions have been rescheduled into mid-1999 to accommodate business
requirements. Phase 5 activities are also underway. Critical actions and
completion dates have been identified to ensure that no business critical system
will pass its respective time-horizon-to-failure date.

The Company has utilized the services of two independent industry consultants to
assist it in assessing the reliability of its risk and cost estimates.

Costs

The Company currently estimates that costs associated with modifying or
replacing systems affected by the Year 2000 Issue, including the amounts
expended in connection with the Company's ongoing, normal course-of-business
efforts to upgrade or replace business critical systems and software
applications as necessary, will be approximately $13 million, compared to the
Company's normal, annual IT operating budget of approximately $30 million. These
costs are being funded through cash flows from operations. Costs associated with
incremental personnel costs, consulting, and hardware and software modification
are being expensed as incurred. The costs of newly purchased hardware and
software are being capitalized in accordance with normal policy. The majority of
cost is expected to be incurred during fiscal year 1999, and approximately $8
million has been expended through December 27, 1998. Approximately 37% of the
total amount ultimately expended is expected to be for systems modification, and
the balance for systems replacement. There are no IT projects which the Company
has had to delay due to the Year 2000 Issues that would have a material impact
on the Company's results of operations or financial position. The Company
continues to review its contractual obligations relative to the Year 2000 Issue,
and currently believes that there are no such obligations that would have
material impact to the Company's results of operations or its financial
position.

Risks

The failure to resolve a material Year 2000 Issue could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial position. Due to the general
uncertainty inherent in the Year 2000 Issue, resulting in part from the
uncertainty of the Year 2000 Issue readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of failures resulting from the Year 2000 Issue will have a material
impact on the Company's results of operations, liquidity or financial position.
The Year 2000 Plan is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 Issue and, in particular, about the Year 2000
Issue compliance and readiness of its business critical systems, suppliers, and
customers.

The most significant risk to the Company is the potential impact of
circumstances beyond its control, such as the failure of its business critical
suppliers and/or customers (particularly the U.S. Government) to resolve their
Year 2000 Issues, with a resulting inability of such suppliers to supply
critical goods and services to the Company, or of such customers to pay for
their 

                                       21
purchases from the Company. A related significant risk to the Company is that an
inability of its business critical suppliers to resolve their Year 2000 Issues
could result in the Company not being able to meet its contractual obligations.
Another significant risk to the Company could be the significant loss of
critical personnel on its Year 2000 Plan team.

The Company currently believes that there is minimal risk that its Year 2000
Plan will be not be successfully implemented in a timely manner. In the event
that the Company is ultimately unable to implement its Year 2000 Plan in a
timely manner, the Company believes that its contingency plans, described below,
adequately accommodate its business critical systems in a way that would not
result in a material adverse impact to the Company's results of operations, its
liquidity, or its financial position. However, there can be no assurance that
the Company and/or relevant third parties will successfully resolve all of their
Year 2000 Issues or that the Company's contingency plans will be entirely
successful in mitigating those issues. Any such failure could have a material
adverse effect on the Company's operations, liquidity, or its financial
position.

Contingency Plans

It is the Company's understanding that the U.S. Government anticipates resolving
the Year 2000 Issues affecting its payment system by March 1999, which will
allow about 9 months for testing of the payment system. The Company is working
with the Government payment office on a contingency plan that will accommodate a
manual billing and payment process in the event the Year 2000 Issues affecting
the Government payment system are not successfully resolved in a timely manner.
A contingency plan has been established for all business critical Company
systems identified as Year 2000 Issues as of August 31, 1998, and contingency
plans have also been developed for certain critical suppliers, including
identification of back-up supply sources, and consideration of the need to
purchase additional critical supplies. Additionally, the Company will develop
plans addressing the operation of its facilities during and immediately after
the beginning of calendar 2000, to prepare for the possibility of major
infrastructure failure (i.e., power system failure). All contingency plans will
be subjected to further review following completion of Phase 4 of the Year 2000
Plan.

Cautionary Statement

The costs of the Year 2000 Plan and the timing in which the Company believes it
will implement the Year 2000 Plan are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no assurance that these estimates will be achieved, and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
success of the Company in identifying systems and programs having Year 2000
Issues, the nature and amount of programming required to upgrade or replace the
affected programs, the availability and cost of personnel trained in this area,
and the extent to which the Company might be adversely impacted by the failure
of third parties (i.e., suppliers, customers, etc.) to remediate their own Year
2000 issues. Failure by the Company and/or its suppliers and customers (in
particular, the U.S. Government, on which the Company is materially dependent)
to complete Year 2000 Issue compliance work in a timely manner could have a
material adverse effect on the Company's operations, its liquidity, and/or its
financial position.

                                       22
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 1999 sales, gross margin, operating
expenses, tax payments and capital expenditures. Also included are statements
relating to the realization of net deferred tax benefits, the repurchase of
Company common stock, the funding of future growth, long-term debt repayment,
environmental remediation costs and reimbursement prospects, the financial and
operating impact of the resolution of environmental and litigation contingencies
in general, resolution of the Cordant Technologies matter, the M117 and
Explosive "D" contract terminations for default in particular, and the ultimate
cost and impact of the Company's Year 2000 Issue compliance effort. Such
forward-looking statements involve risks and uncertainties that could cause
actual results or outcomes to differ materially. Some of these risks and
uncertainties are set forth in connection with the applicable statements.
Additional risks and uncertainties include, but are not limited to, changes in
government spending and budgetary policies, governmental laws and other rules
and regulations surrounding various matters such as environmental remediation,
contract pricing, changing economic and political conditions in the United
States and in other countries, international trading restrictions, outcome of
union negotiations, customer product acceptance, the Company's success in
program pursuits, program performance, continued access to technical and capital
resources, supply and availability of raw materials and components, timely
compliance with the technical requirements of the Year 2000 Issue, including
timely compliance by the Company's vendors and customers, and merger and
acquisition activity within the industry. All forecasts and projections in this
report are "forward-looking statements", and are based on management's current
expectations of the Company's near-term results, based on current information
available pertaining to the Company, including the aforementioned risk factors.
Actual results could differ materially.

                                       23
PART II -- OTHER INFORMATION

ITEM 2. LEGAL PROCEEDINGS

         The registrant has previously reported that, in March 1997 the
registrant received a partially unsealed complaint, filed on an unknown date, in
a qui tam action by four former employees ("Relators") alleging violations of
the False Claims Act. The action has since been identified as United States of
America ex rel. P. Robert Pratt and P. Robert Pratt, individually vs. Alliant
Techsystems Inc. and Hercules Incorporated, which was filed in the United States
District Court, Central District of California. The action alleges labor
mischarging to the Intermediate Nuclear Force ("INF") contract and other
contracts at the registrant's Bacchus Works facility in Magna, Utah, which was
acquired as part of its acquisition of Hercules Aerospace Company ("HAC") from
Hercules Incorporated ("Hercules"). Damages are not specified. The registrant
and Hercules have agreed to share equally the external attorney's fees and
investigative fees and related costs and expenses of this action until such time
as a determination is made as to the applicability of the indemnification
provisions of the HAC Purchase Agreement. In March 1998, the registrant and
Hercules settled with the Department of Justice on the portion of the complaint
alleging labor mischarging to the INF contract and agreed to pay $2.25 million
each, together with Relators' attorney's fees of $150,000 each, which amounts
were paid in April 1998. The Department of Justice has declined to intervene in
the remaining portion of the complaint. On October 16, 1998, the registrant and
Hercules settled with the Relators and agreed to pay $500,000 each, together
with Relators' attorney's fees of $75,000 each, subject to Court approval. On
January 21, 1999, the court approved the settlement and entered judgment
dismissing the case, subject to the right of the Department of Justice to appeal
such approval and dismissal.

     Incorporated herein by reference is note 6 of Notes to Financial Statements
included in Item 1 of Part I of this report.

ITEM 5. OTHER INFORMATION

     Attached to this report as Exhibit 99 is a list of the registrant's
directors and executive officers, as of the date of this report, which reflects
the following changes since November 5, 1998: Deletion: Richard Schwartz,
Director and Chairman of the Board. Addition: Paul David Miller, Director,
Chairman of the Board and Chief Executive Officer. New titles: Peter A.
Bukowick, Director, President and Chief Operating Officer; Charles H. Gauck,
Vice President and Secretary; and Paul A. Ross, Senior Group Vice President -
Space and Strategic Systems.

                                       24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits.

            Exhibit No.                 Description of Exhibit
            -----------                 ----------------------

               4.1  Form of Amended and Restated Credit Agreement, dated as of
                    November 23, 1998 between the registrant and The Chase
                    Manhattan Bank

               4.2  Form of Credit Agreement, dated as of November 23, 1998,
                    between the registrant and The Chase Manhattan Bank

               10.1 Compensation arrangement between the registrant and Paul
                    David Miller

               10.2 Form of Restricted Stock Agreement

               27   Financial Data Schedule

               99   Alliant Techsystems Inc. Directors and Executive Officers

     (b)  Reports on Form 8-K.

          During the quarterly period ended December 27, 1998, the registrant
          filed the following report on Form 8-K:

          Date of Report                           Items Reported
          --------------                           --------------

          November 24, 1998                  Item 5. Other Events
                                             Item 7(c). Exhibits

                                       25
SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                         ALLIANT TECHSYSTEMS INC.

Date: February 5, 1999                        By:  /s/ Charles H. Gauck
                                            Name:  Charles H. Gauck
                                           Title:  Secretary
                                                   (On behalf of the registrant)

Date: February 5, 1999                        By:  /s/ Scott S. Meyers
                                            Name:  Scott S. Meyers
                                           Title:  Vice President, Treasurer and
                                                   Chief Financial Officer
                                                   (Principal Financial Officer)

                                       26
ALLIANT TECHSYSTEMS INC.

                                    FORM 10-Q

                                  EXHIBIT INDEX

The following exhibits are filed herewith electronically or incorporated herein
by reference. The applicable Securities and Exchange Commission File Number is
1-10582.
Exhibit
   Number                              Description of Exhibit                                   Method of Filing
   ------                              ----------------------                                   ----------------
4.1     Form of Amended and Restated Credit Agreement, dated as of November 23, 
             1998, between the registrant and The Chase Manhattan Bank..............        Incorporated by reference from  
                                                                                            Exhibit 9.(b)(2) to registrant's
                                                                                            Schedule 13E-4 dated November 30, 1998
                                                                                            
     4.2     Form of Credit Agreement, dated as of November 23, 1998, between the
             registrant and The Chase Manhattan Bank................................        Incorporated by reference from          
                                                                                            Exhibit 9.(b)(3) to registrant's        
                                                                                            Schedule 13E-4 dated November 30, 1998  

     10.1    Compensation arrangement between the registrant and Paul David Miller..         Filed herewith electronically          

     10.2    Form of Restricted Stock Agreement.....................................         Filed herewith electronically          

     27      Financial Data Schedule................................................         Filed herewith electronically          

     99      Alliant Techsystems Inc. Directors and Executive Officers..............         Filed herewith electronically