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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
                               ----------------
 
[X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
 
[_]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                        COMMISSION FILE NUMBER: 0-28942
 
                           PRIMEX TECHNOLOGIES, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
               VIRGINIA                              06-1458069
    (STATE OR OTHER JURISDICTION OF               (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)             IDENTIFICATION NUMBER)
 
       10101 NINTH STREET NORTH                      33716-3807
        ST. PETERSBURG, FLORIDA                      (ZIP CODE)
    (ADDRESS OF PRINCIPAL EXECUTIVE
               OFFICES)
 
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 578-8100
 
       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
                              TITLE OF EACH CLASS
                    COMMON STOCK, PAR VALUE $1.00 PER SHARE
                       SERIES A PARTICIPATING CUMULATIVE
                        PREFERRED STOCK PURCHASE RIGHTS
 
  Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.   Yes [X]   No [_]
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [_]
 
  The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of such stock as of February 27, 1998,
as reported on The Nasdaq Stock Market SM, was $218,103,825.
 
  The number of common shares, par value $1.00 per share, outstanding as of
February 27, 1998 was 5,138,376.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  The definitive Proxy Statement for the 1998 Annual Meeting of Shareholders
is incorporated by reference into Part III of this Form 10-K.
 
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                               TABLE OF CONTENTS
 
                                   FORM 10-K
 
<TABLE>
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                                                                        PAGE NO.
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 <C>        <S>                                                         <C>
 PART I
    Item 1  Business.................................................       1
    Item 2  Properties...............................................      12
    Item 3  Legal Proceedings........................................      13
    Item 4  Submission of Matters to a Vote of Security Holders......      13
 PART II
    Item 5  Market for Registrant's Common Equity and Related
             Stockholder Matters.....................................      14
    Item 6  Selected Financial Data..................................      15
    Item 7  Management's Discussion and Analysis of Financial
             Condition and Results of Operations ....................      16
    Item 7A Quantitative and Qualitative Disclosure About Market
             Risk....................................................      21
    Item 8  Financial Statements and Supplementary Data..............      21
    Item 9  Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure.....................      38
 PART III
    Item 10 Directors and Executive Officers of the Registrant.......      38
    Item 11 Executive Compensation...................................      38
    Item 12 Security Ownership of Certain Beneficial Owners and
             Management .............................................      38
    Item 13 Certain Relationships and Related Transactions ..........      38
 PART IV
    Item 14 Exhibits, Financial Statements, Schedules, and Reports on
             Form 8-K................................................      39
</TABLE>
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                                    PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
  Primex Technologies, Inc. ("PRIMEX") is an ordnance and aerospace contractor
with strong systems management and manufacturing capability. PRIMEX was
organized under the laws of the Commonwealth of Virginia in May 1996 and has
been publicly owned since December 31, 1996, when Olin Corporation ("Olin")
made a distribution (the "Distribution") to its shareholders of all of the
outstanding shares of PRIMEX common stock (the "Common Stock"). Prior to the
Distribution, the assets and business of Olin's ordnance and aerospace
businesses were transferred to PRIMEX. PRIMEX provides a variety of ordnance
and aerospace products and services to the U.S. Government, friendly foreign
governments, and domestic and international commercial and industrial
customers. As used in this Form 10-K the term "PRIMEX" or the "Company" shall
refer to Primex Technologies, Inc. and, with respect to periods prior to the
Distribution, the assets and business entities of Olin's ordnance and
aerospace businesses.
 
  PRIMEX's business operations are organized into two divisions that
correspond to its primary products and services. Through its Ordnance and
Tactical Systems Division, the Company designs and manufactures tank and other
large caliber ammunition and medium caliber ammunition for U.S. and friendly
foreign government customers. These products are used in ships, aircraft,
tanks, and fighting vehicle based weapons and other applications. The Ordnance
and Tactical Systems Division also designs and produces shaped charged
warheads that are used in various weapons. Ball Powder(R) propellant, which is
sold to U.S. and friendly foreign militaries, commercial ammunition
manufacturers, and sporting and recreational customers, is also manufactured
by the Division.
 
  The Aerospace and Electronics Division designs and manufactures electronic
products utilized primarily in aeronautic applications, as well as rocket
engines and electronic products used in space applications. This Division also
produces solid propellant products used in munitions dispensing and inflation
devices and is a supplier of high energy devices used to simulate the
electromagnetic effect of nuclear explosions.
 
  As a result of Olin's prior ownership of the Company and the Distribution,
the Company continues to have various relationships and agreements with Olin.
As part of the Distribution, Olin and PRIMEX entered into agreements providing
for the allocation of tax and certain other liabilities and obligations
arising from the period prior to the Distribution and agreements governing the
ownership and use of certain intellectual property and technology developed
both before and after the Distribution. Olin and PRIMEX are also parties to
agreements pursuant to which Olin and the Company will purchase products from
each other and agreements pursuant to which Olin will act, in certain limited
situations, as an agent or distributor for the sale of certain of the
Company's products. Olin and the Company have also agreed that for a period of
five years from the Distribution, subject to certain exceptions, Olin will not
compete with the Company for the sale of medium and large caliber ammunition
and the Company will not compete with Olin for the sale of small caliber
ammunition.
 
                                       1
<PAGE>
 
PRODUCTS AND SERVICES
 
  The following table sets forth the principal products and services offered
by the Company and identifies the percentage of sales represented by each
category for the years shown.
 
<TABLE>
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       PRODUCTS AND SERVICES                                     1997 1996 1995
       ---------------------                                     ---- ---- ----
<S>                                                              <C>  <C>  <C>
Tank and other Large Caliber Ammunition (1)..................... 29%  35%  28%
Medium Caliber Ammunition....................................... 19%  18%  14%
Ball Powder(R) propellant....................................... 10%  10%  11%
Electronic Products............................................. 10%   7%   8%
Space Products..................................................  9%   7%   4%
Other Products and Services (2)(3).............................. 23%  23%  35%
</TABLE>
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(1) The Company currently has two multi-year contracts with the U.S.
    Government for the supply of 120mm tactical and training ammunition that
    represented approximately 16% and 12%, respectively, of 1997 sales; 25%
    and 10%, respectively, of 1996 sales and approximately 15% and 10%,
    respectively, of 1995 sales. These multi-year contracts provide for
    deliveries through mid-1999.
(2) Approximately 5% of 1997 sales resulted from a contract for artillery
    propelling charges.
(3) Approximately 4% of 1996 sales and 15% of 1995 sales resulted from a U.S.
    Government contract for combined effects munitions. Sales under this
    contract were completed in 1996, and this contract was not renewed.
 
  TANK AND OTHER LARGE CALIBER AMMUNITION. The Company develops and produces a
family of tactical and training ammunition used primarily in the M1A1 and M1A2
Abrams class tanks of the U.S. Army and Marine Corps and certain U.S. allies.
The Company is currently the sole source producer of the 120mm M829A-2 round,
which is an armor piercing, fin stabilized, discarding sabot round with a
depleted uranium penetrator that utilizes kinetic energy to penetrate heavily
armored targets and is used primarily in tank-to-tank warfare. The Company is
also one of two suppliers of 120mm M865 and M831A-1 training rounds to the
U.S. Government. The M865 is the training round for the M829A-2 round and the
M831A-1 is the training round for the M830A-1 tactical multipurpose round
which is produced by the Company's U.S. tank ammunition competitor. During
1995, the Company entered into two contracts with four-year terms to produce
these training and kinetic energy tactical rounds for the U.S. Government. The
Company is currently performing under the third year of these contracts.
 
  A number of foreign countries will not buy ammunition containing depleted
uranium, and the U.S. Government limits the export of depleted uranium
ammunition to NATO and certain other friendly foreign governments. To improve
its opportunities to sell tank ammunition to foreign buyers, the Company, in
association with the foreign company that was the original developer of 120mm
tank ammunition, has developed an advanced 120mm kinetic energy round with a
tungsten alloy penetrator. During 1995, the Company signed a $20 million
contract with the U.S. Army for the sale of 120mm tungsten penetrator
ammunition to a foreign customer, for which delivery was made in 1997. The
Company is actively pursuing additional international tank ammunition sales
involving both training ammunition and the advanced kinetic energy tungsten
round.
 
  Because the Company believes that a key element of its long-term
profitability is its continued participation as a major producer of tank
ammunition for the U.S. Government and friendly foreign governments the
Company continually invests in research and development in this area, focusing
on improving the effectiveness of kinetic energy tactical ammunition and
reducing the cost of training ammunition.
 
  The majority of the Company's large caliber ammunition production contracts
have, to date, related only to tank ammunition. However, the Company believes
that artillery ammunition presents an opportunity for future sales by the
Company because of an extended period of minimal investment by the U.S.
Government in this arena. This was highlighted during Operation Desert Storm,
when United States artillery systems were outranged by enemy guns. The Company
believes that the U.S. Government has recognized the need to match and surpass
the capability of other countries and is investing in the development of new
artillery platforms and ammunition. During 1997 and early 1998, the Company
was awarded subcontracts by a major systems prime contractor to
 
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supply projectile structure and payload under an engineering and manufacturing
development contract for advanced guided artillery rounds to be used by both
the U.S. Army and U.S. Navy. The Company anticipates these development
contracts will result in future production contracts.
 
  MEDIUM CALIBER AMMUNITION. The Company develops and produces medium caliber
ammunition. The Company's medium caliber product line includes 20mm, 25mm, and
30mm ammunition, which is utilized on a variety of platforms, including ships,
airplanes, helicopters, and fighting vehicles. The Company's family of medium
caliber ammunition includes armor piercing, high explosive-incendiary and
training rounds. In addition, through a license with Raufoss A/S, the Company
is a leading developer of multi-purpose medium caliber ammunition that
combines armor-piercing, high explosive and incendiary features in one round.
 
  The Company produces the 25mm M919 round, a medium caliber armor-piercing,
fin stabilized, discarding sabot round, utilizing a depleted-uranium
penetrator that offers increased range and lethality. This round will be the
primary anti-armor round of the Bushmaster cannon used on the Bradley Fighting
Vehicle. In addition, the Company has several contracts with the U.S.
Government for the production of multi-purpose rounds. The Company believes
that the U.S. Government will continue to buy the M919 multi-purpose rounds
and training rounds for the next several years, but does not know whether the
U.S. Government will purchase material quantities of any other medium caliber
ammunition. During 1995 and 1996, the Company experienced difficulties in
producing the M919 round within contract specifications for accuracy and gun
pressure. These difficulties increased the Company's costs and lowered its
margins on this round and delayed recognition of revenue from 1995 and 1996
until 1997. Medium caliber ammunition historically has been used in aircraft
as well as in land vehicles and ships. However, because of the development of
other aircraft weapon platforms that do not require close strikes to be
effective, the Company believes that medium caliber ammunition will be used to
a lesser extent in future aircraft.
 
  NEW WEAPONS AND AMMUNITION. The U.S. Army is developing a series of small-
arms weapons to increase the firepower of 21st century soldiers. The Company
has been selected as the systems developer of the objective crew served weapon
("OCSW"). This two-person weapon system is slated to replace the machine gun
for use against lightly-armored vehicles, fortified positions, infantry and
low-flying aircraft. As systems developer, the Company is responsible for the
development of the entire OCSW, including both the gun and ammunition.
Complementing the OCSW is the objective individual combat weapon ("OICW"), the
future individual weapon for the dismounted soldier. Two teams of companies
are developing the OICW. The Company is the ammunition developer for one of
the teams. It is expected that during 1998, the U.S. Army will select one of
these teams to complete the development of the OICW. The OCSW and OICW are
both expected to be introduced to the field in approximately ten years.
 
  BALL POWDER(R) PROPELLANT. The Company manufactures and sells Ball Powder(R)
propellant, a smokeless gun powder with a spherical grain shape. The Company
manufactures more than one hundred different varieties of propellant in the
Ball Powder(R) product line. Significant amounts of all U.S. military small
caliber ammunition are loaded with the Company's Ball Powder(R) propellant. In
response to the decline in military procurements over recent years, the
Company has focused on increasing its sales of Ball Powder(R) propellant to
the commercial ammunition market. In 1997, 1996 and 1995, approximately 63%,
55% and 65%, respectively, of Ball Powder(R) propellant sales were to
manufacturers of commercial ammunition and to the "reloader" market
("reloaders" are individuals who buy ammunition components and load their own
rounds).
 
  Olin's Winchester division, a leading manufacturer of sporting ammunition,
was the Company's largest Ball Powder(R) propellant customer in 1997, 1996 and
1995, accounting for approximately 34%, 32% and 42% respectively, of the
Company's Ball Powder(R) propellant sales. In conjunction with the
Distribution, a long-term supply contract was entered into between the Company
and Olin with respect to future Ball Powder(R) propellant sales to Winchester.
See "Item 1. Business--Relationship Between Olin and the Company."
 
  Over the years, the Company has attempted to increase the use of Ball
Powder(R) propellant in medium and large caliber military ammunition.
Virtually all of the medium caliber ammunition manufactured by the Company,
except the 25mm M919 rounds, is now loaded with Ball Powder(R) propellant.
Ball Powder(R) propellant has achieved only limited use in U.S. Government
large caliber ammunition. The Company continues to pursue the use of Ball
Powder(R) propellant in additional types of large caliber ammunition.
 
                                       3
<PAGE>
 
  ELECTRONIC PRODUCTS. The Company manufactures a variety of electronic
products for aerospace applications. The Company's line of airborne electronic
products includes controls for lighting, temperature, audio, power and flight
systems, as well as in-flight communications and entertainment components and
products. The Company also produces military ground support equipment,
including stores management and weapons system test sets for the F-16 and
other aircraft. The Company also manufactures a variety of power conditioning
units (which convert one form of electronic power into another) for military,
commercial and space applications.
 
  In 1996, the Company introduced its first EmPower(TM) product, an in-seat
power supply system for airplane passengers' laptop computers and other
personal electronic devices. The Company has contracted to provide EmPower(TM)
products to fifteen domestic and international airline companies, and is
negotiating with several additional prospective domestic and international
customers. During 1997, the Company made its first significant deliveries of
this product.
 
  SPACE PRODUCTS. The Company is the world's leading supplier of
monopropellant hydrazine and electric propulsion ("EP") products. The
Company's hydrazine propulsion products include individual rocket engines or
thrusters, rocket engine modules, gas generators, propellant pressurization
systems and complete integrated propulsion systems. Ranging in size from 0.1
to several hundred pounds of thrust, these products are integral to the
growing commercial launch vehicle and satellite markets. The Company has
delivered over 10,000 rocket engines for spacecraft applications including
orbit insertion, maneuvering, and attitude control, as well as launch vehicle
and upper-stage attitude and velocity control applications.
 
  EP devices represent an advance over standard chemical rocket engines. The
current generation of these products uses satellite electrical power to heat
propellant gases to provide additional energy and velocity in the process of
producing thrust. There are significant gains in fuel efficiency using the
Company's EP products over conventional hydrazine thrusters. This fuel
efficiency translates into economic benefit for satellite manufacturers and
service providers by reducing spacecraft weight, increasing in-orbit life
and/or allowing for the use of lower cost launch vehicles. The Company is the
only commercially available U.S. source of qualified and flight proven
electric propulsion products. The Company currently has five models in
production. The first EP product, a resistojet, was launched in 1983 and is
now flying on a number of satellites. The latest EP device, the arcjet, was
first flown in 1993 on the Telstar-4 satellite.
 
  The Company is currently developing advanced EP products which it
anticipates will provide greatly improved performance compared to conventional
hydrazine thrusters with commensurate economic benefits to users. These
advanced EP products are being flight-tested on experimental flights in 1998-
99. During 1997, to further advance its propulsion technology, the company
entered into a licensing agreement for an advanced thruster technology with
fuel efficiency capabilities approaching ten times that of first generation
hydrazine thrusters. A number of domestic and foreign companies are developing
EP products and the Company expects increased competition in this area.
 
  OTHER PRODUCTS AND SERVICES. The Company manufactures a range of solid
propellant products. The Company's products are primarily used in military
applications, although the Company is continuously examining potential
commercial applications. Although the products are diverse, they are based on
a common technology, namely, controlled burning of a solid propellant and the
use of the resulting exhaust products for a variety of functions.
 
  The Company provides small gas generators and devices incorporating gas
generators used in a variety of military and commercial applications,
including tactical missiles, jet engine starter cartridges, inflatables,
including buoyance devices and specialized structures, and ammunition
initiating devices. The Company also is developing a family of fire
suppression systems offering a low-cost, low-volume, alternative to halon
compounds in situations, such as fighter aircraft "dry bay" areas, where size
and weight are significant considerations.
 
  During 1997, the Company entered into production of artillery propelling
charges under a contract that was awarded early in the year. Artillery
propelling charges are bags or modules loaded into the breech of an artillery
gun which propel the artillery projectile out of the gun and towards the
target.
 
                                       4
<PAGE>
 
  The Company is a supplier of extremely high-power pulsed energy devices
("pulsed power"). Such devices are used in a wide variety of defense
applications including test and evaluation of electronics, materials testing,
nuclear weapons effects simulation, advanced electric weapon technology (such
as electric guns envisioned for 21st century warfare), high-power microwaves,
and electromagnetic pulse simulation.
 
  The Company is also a developer of precision anti-tank warheads and ordnance
systems for smart weapons for United States, Swiss and other Governmental
agencies. This development activity includes applied research, advanced
development, engineering and development manufacturing and low-rate initial
production programs.
 
  The U.S. Government has decided that it needs to demilitarize or disassemble
large stocks of obsolete conventional ammunition. The Company has bid on a
number of these contracts, and in 1995 was awarded two small contracts for
demilitarization services and a follow-on contract in 1996. During 1996 and
1997, the Company experienced cost overruns on the performance of these
contracts. Success in this area is dependent upon the Company's ability to
develop cost-effective demilitarization operations, the overall level of
funding for ammunition demilitarization, the extent to which these
appropriations are directed to U.S. Government arsenals, and the level of
competition.
 
  Since 1995, the Company has been a supplier of forged steel petroleum
pipeline components and other heavy industrial cylindrical steel products.
Sales of these products have grown annually, and the Company believes they
could represent a significant commercial product line for the future. These
products are produced at the Company's Red Lion, Pennsylvania facility, which
principally produces components for large caliber ammunition and successfully
utilized its existing manufacturing capability and expertise for this
commercial application.
 
CUSTOMERS
 
  The Company's largest customer is the U.S. Government. PRIMEX sells products
to the U.S. Department of Defense, NASA, the U.S. Department of Energy, and
other U.S. Government agencies/laboratories. Other customers of the Company
include friendly foreign governments, major ordnance and aerospace contractors
and a variety of commercial customers. The Company is highly dependent on U.S.
Government sales, which accounted for approximately 66%, 78% and 77% in 1997,
1996 and 1995, respectively, of the Company's sales. See "Item 1. Business--
U.S. Government Contracts and Regulations." With the exception of the U.S.
Government and its agencies, no other single customer accounted for more than
10% of the Company's total annual sales during any of the Company's last three
fiscal years.
 
RAW MATERIALS AND SUPPLIES
 
  The raw materials used in the manufacture of ammunition and ammunition
components include metals, composite materials, chemicals and nitrocellulose.
In addition, the manufacture of ammunition requires components, including
propellants, cartridge cases and primers, all of which may be provided by
subcontractors or supplied directly by the customer. The Company also
purchases various electronic piece parts, printed wire boards, hydrazine
liquid propellants, solid propellant ingredients and subcontracted components,
including capacitors, various metals and explosives, for use in its products.
The Company has not experienced difficulty in recent years in obtaining an
adequate supply of any raw materials, components or other supplies needed in
its manufacturing processes, although continued downsizing in the defense
industry may create difficulties in procuring certain medium caliber
ammunition components in the future. Additionally, availability and cost of
certain unique components will reflect market conditions and the increasing
technical complexity of product requirements. U.S. Government contractors,
such as the Company, are frequently directed to procure materials, components
or services from sources of supply approved or designated by the U.S.
Department of Defense.
 
U.S. GOVERNMENT CONTRACTS AND REGULATIONS
 
  The Company's U.S. Government business is performed under fixed-price
contracts (firm fixed-price and fixed-price incentive) and, to a lesser
extent, under cost-reimbursable contracts (cost-plus-fixed-fee or cost-plus-
incentive-fee).
 
                                       5
<PAGE>
 
  Under firm fixed-price contracts, the Company agrees to perform certain work
for a fixed price and, accordingly, realizes all the benefit or detriment
resulting from decreases or increases in the costs of performing the contract.
From time to time, the Company has experienced cost overruns on fixed-price
contracts. Fixed-price incentive contracts are fixed-price contracts providing
for adjustment of profit and establishment of final contract prices by a
formula based on the relationship which final total costs bear to total target
cost. In 1997, 1996 and 1995, approximately 88%, 78% and 75%, respectively, of
the Company's sales to the U.S. Government were derived from firm fixed-price
contracts.
 
  Cost-plus-fixed-fee contracts provide for reimbursement of costs, to the
extent that such costs are allowable, and the payment of a fixed fee. Cost-
plus-incentive-fee contracts provide for increases or decreases in the
contract fee, within specific limits, based upon actual results as compared to
contractual targets for cost. In 1997, 1996 and 1995, approximately 12%, 19%
and 13%, respectively, of the Company's sales to the U.S. Government were
derived from cost-plus-fixed-fee and cost-plus-incentive-fee contracts.
 
  Under U.S. Government regulations, certain costs, including certain
organization and financing costs, portions of research and development costs,
and certain marketing expenses related to the preparation of competitive bids
and proposals, lobbying costs, and international and commercial sales, are not
reimbursable. In addition, the accuracy and appropriateness of certain direct
and indirect costs of the Company under both fixed-price and cost-plus
contracts are subject to extensive regulation, and are audited by the Defense
Contract Audit Agency ("DCAA"), an arm of the United States Department of
Defense. The DCAA has the right to challenge the Company's cost estimates or
allocations with respect to any such contract. If a DCAA audit establishes
overcharges or other discrepancies in costs or accounting, it can seek the
repayment of such overcharges or seek other reconciliations.
 
  Because the Company engages in U.S. Government contracting activities and
sells to the U.S. Government and prime U.S. Government contractors, it is
subject to extensive and complex U.S. Government procurement laws and
regulations. These laws and regulations provide for U.S. Government audits and
reviews of contractor quality, procurement, performance and administration.
Failure to comply, even inadvertently, with these laws and regulations and
with laws governing the export of munitions and other controlled products and
commodities, could subject the Company or one or more of its businesses to
price adjustments, and to civil and criminal penalties, and under certain
circumstances, suspension or debarment from bidding on future U.S. Government
contracts for a specified period of time. See "Item 3. Legal Proceedings." In
connection with the resolution of the investigation of certain testing
irregularities at the Company's Marion, Illinois facility, which was owned by
Olin at the time of the alleged irregularities and the investigation, Olin
entered into an Administrative Agreement (the "Agreement") with the United
States Department of the Air Force (the "Air Force"). In addition, the Company
has entered into a similar agreement with the Air Force which obligates the
Company to implement and maintain an ethics action plan. This plan is designed
to ensure that the Company and its employees maintain their present
responsibilities as required of all U.S. Government contractors. The Agreement
requires, among other things, a communication and training program for all
employees, the operation of a toll-free, dedicated telephone number for
confidential calls to report suspected misconduct and a self-governance
program that includes the periodic submission of written reports to the Air
Force describing the measures taken by the Company to implement and maintain
the Agreement.
 
  U.S. Government contracts are, by their terms, subject to termination by the
U.S. Government either for its convenience or for default by the contractor.
Cost-reimbursable contracts provide that, upon termination, the contractor is
entitled to reimbursement of its allowable costs; and if the termination is
for convenience, a total fee proportionate to the percentage of the work
completed under the contract. Fixed-priced contracts provide for payment upon
termination for items delivered to and accepted by the U.S. Government, and,
if the termination is for convenience, for payment of cost incurred, plus
profit, for work performed, plus the costs of settling and paying claims by
terminated subcontractors and other settlement expenses. If a contract
termination is for default, however, (i) the contractor is paid an amount
agreed upon for completed and partially completed products and services
accepted by the U.S. Government, (ii) the U.S. Government is not liable for
the contractor's costs with
 
                                       6
<PAGE>
 
respect to unaccepted items, and is entitled to repayment of advance payments
and progress payments, if any, related to the terminated portions of the
contracts, and (iii) the contractor may be liable for excess costs incurred by
the U.S. Government in procuring undelivered items from another source.
 
  In addition to U.S. Government termination rights, Government contracts are
dependent upon the levels and continuing availability of Congressional
appropriations. Congress usually appropriates program funds on a fiscal-year
basis even though contract performance may require more than one year.
Consequently, for multi-year programs, the contract is usually partially
funded, and additional monies are normally committed to the contract by the
procuring agency only as appropriations are made by Congress for future fiscal
years. Accordingly, the Company, like other U.S. Government contractors, is
continually subject to the business risks associated with changes in
Congressional appropriations and the failure of programs which have been
awarded to the Company to be funded for future years.
 
  Because a large percentage of the Company's business is related, directly or
indirectly, to national defense, the Company is subject to the business risks
associated with changes in national defense policies. Future reductions in the
level of defense procurement or changes in the strategic direction of defense
spending could adversely affect the Company's financial performance in future
years, including its income, liquidity, capital resources and financial
condition. The impact of any of these changes will depend on the timing and
magnitude thereof and the Company's ability to mitigate their impact with new
business, business consolidations or cost reductions. In view of the
uncertainty regarding the priorities of the Department of Defense, the
historical financial information of the Company's businesses may not be
indicative of future performance.
 
  U.S. Government contract awards may also be subject to protest or challenge
by unsuccessful bidders.
 
  Licenses are required from U.S. Government agencies for export of many of
the Company's products, including munitions and spacecraft and military
aircraft components and subsystems. These licenses are administered by the
U.S. Department of State and the U.S. Department of Commerce which restrict
exports of certain products and technologies. Failure to comply with these
laws and regulations could subject the Company or one or more of its
businesses to penalties, including, under certain circumstances, the
suspension or debarment from future export licenses for a specified period of
time. In addition, the U.S. Bureau of Alcohol, Tobacco and Firearms ("BATF")
licenses the Company for the handling of explosives and certain other devices.
Failure to comply with BATF regulations could subject the Company to the
revocation of these required licenses.
 
  There can be no assurance that the U.S. Government will not terminate
existing contracts, exercise options to extend existing contracts, or continue
to purchase products from the Company over the long term. The termination of
any of the Company's significant contracts or the failure to obtain either
renewals of existing contracts or additional contracts with the U.S.
Government could have a material adverse effect on the Company's results of
future operations and financial condition.
 
COMPETITION
 
  The Company encounters strong competition in the sale of each of its
products and services. The degree to which the Company participates in future
U.S. Government business will depend, to a large extent, on its ability to
offer better program performance than its competitors at a lower price to the
U.S. Government.
 
  The Company competes principally with Alliant Techsystems Inc. ("Alliant")
for the supply of large and medium caliber ammunition to the U.S. Government
and foreign governments. The Company also faces competition for international
sales of tank and medium caliber ammunition from foreign suppliers.
 
  Ball Powder(R) propellant is the primary propellant used by the U.S.
Government in small caliber ammunition. The Company competes with Alliant and
Expro Chemical Products ("Expro"), a Canadian company, for the supply of
gunpowder for medium caliber ammunition and other military applications. In
many cases, the gunpowder available varies from one supplier to another and,
as a result, competition is based on both price and performance
characteristics. In the commercial gunpowder market, the Company competes with
Alliant, Expro and a variety of foreign suppliers.
 
                                       7
<PAGE>
 
  In other product lines, the Company's principal competitors are: Kaiser
Marquardt Company in the area of monopropellant hydrazine propulsion, Hughes
Aircraft Company and International Space Technology, Inc. with regard to
electric propulsion, and Talley Industries in specialty solid propellant
products. The Company's electronic products compete with a variety of other
companies' technology and hardware. Other than work done by the Government's
National Laboratory System, competition in the field of high-voltage pulsed
power systems is provided principally by Maxwell Laboratories, Inc., and in
the case of high-performance, precision warheads, the competition is comprised
of Alliant, Aerojet-General Corporation and CMS Defense Systems.
 
RESEARCH AND DEVELOPMENT; PATENTS
 
  The Company's research activities are conducted at a number of facilities.
Company-sponsored research expenditures were approximately $6 million, $6
million and $5 million for 1997, 1996, and 1995, respectively. Customer-
sponsored research expenditures by the Company (primarily sponsored by the
U.S. Government) were approximately $54 million, $32 million, and $48 million,
respectively, for such years. Customer-sponsored research increases in 1997
were in the areas of large caliber and medium caliber ammunition and space
products. Customer-sponsored research declined in 1996 due to the completion
of an international contract for electromagnetic systems in 1995.
 
  The Company owns, or is the licensee under, a number of technologies and/or
patents relating to various products and processes. The Company believes that,
in the aggregate, the rights under its technological assets and licenses are
important to the Company but, except as discussed herein, the Company does not
consider any one technology, patent or license or group thereof related to a
specific process or product to be of material importance to the Company as a
whole. The Ball Powder(R) propellant technology is material to the Company's
St. Marks, Florida operation. This technology includes proprietary
manufacturing know-how and trade secret information which is critical in the
manufacture of propellants. A patent covers an important aspect of that know-
how, namely, a process for the production of spherical, single-base, low-
density propellant grains. The patent was issued in 1987 and will expire on
September 22, 2004.
 
BACKLOG
 
  The aggregate amount of contracted backlog orders for the Company on
December 31, 1997, and 1996 was approximately $399 million and $297 million,
respectively. The backlog represents the value of contracts for which goods
and services are yet to be provided. Under multiyear contracts, a portion of
the backlog is subject to approval of Government appropriations. The backlog
consists of firm contracts, and although they can be and sometimes are changed
or canceled, the amount of changes and cancellations historically has been
insignificant.
 
EXPORT SALES
 
  The Company's export sales from the United States were approximately $68
million, $29 million and $24 million in 1997, 1996, and 1995, respectively.
The increase in export sales during 1997 was primarily a result of a contract
for artillery propelling charges.
 
SEASONALITY
 
  Although the business of the Company is not seasonal in nature, sales to the
Department of Defense are historically stronger in the latter part of the
year, reflecting the procurement cycle utilized by the U.S. Army. Certain
commercial sales, such as Ball Powder(R) propellant volumes, tend to be
stronger in the first half of the year.
 
ENVIRONMENTAL MATTERS
 
  The establishment and implementation of federal, state and local standards
to regulate air, water and land quality has affected, and will continue to
affect, substantially all of the Company's manufacturing facilities. Federal
legislation providing for regulation of the manufacture, transportation, use
and disposal of hazardous and toxic substances has imposed additional
regulatory requirements on the industry. In addition, implementation of
environmental laws, such as the Resource Conservation and Recovery Act and the
Clean Air Act, has required
 
                                       8
<PAGE>
 
and will continue to require new capital expenditures and will increase
operating costs. In order to help finance the cleanup of waste disposal sites,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986
("Superfund"), imposes a tax on the disposal of certain hazardous wastes. The
Company employs waste minimization programs at most of its manufacturing
sites.
 
  In connection with the Distribution, the Company and Olin have agreed,
pursuant to the Assumption of Liabilities and Indemnity Agreement, that the
Company will assume, and indemnify and hold Olin harmless against, all
liabilities associated with the removal, remediation and control of
environmental conditions at several of the Company's existing and former plant
sites. Such liabilities are not expected to have a material adverse effect
upon the Company's financial condition or results of operations. See "Item 1.
Business--Relationship Between Olin and the Company--Assumption of Liabilities
and Indemnity Agreement."
 
RELATIONSHIP BETWEEN OLIN AND THE COMPANY
 
  The Company and Olin entered into certain agreements governing their
relationship subsequent to the Distribution and providing for the allocation
of tax and certain other liabilities and obligations arising from periods
prior to the Distribution. While these agreements contain terms which
generally are comparable to those which would have been reached in arms-length
negotiations with unaffiliated parties, these agreements were reached while
the Company was wholly owned by Olin. Certain of these agreements are
described below.
 
 Powder Supply Requirements Agreement; Component Supply Agreement
 
  The Company and Olin have a powder supply requirements agreement (the
"Powder Supply Requirements Agreement") and a component supply agreement (the
"Component Supply Agreement") which set forth the terms on which Olin will
purchase propellant powder from the Company and the Company will purchase
certain ammunition components from Olin following the Distribution.
 
  The Powder Supply Requirements Agreement generally provides that Olin will
purchase, at prices to be agreed upon from time to time, a certain percentage
of the propellant powder required in any calendar year by its Winchester
Division from the Company, starting at 100% of such requirements for 1997 for
Ball Powder(R) propellant and decreasing annually to 70% for 2002. The prices
are expected to be at a range of discounts from competitive prices depending
on requirements purchased. The Powder Supply Requirements Agreement provides
for reductions in the amounts of propellant powder that Olin is required to
purchase to the extent that the Company is unable or unwilling to meet a
request by Olin to produce a type of propellant powder or to match pricing and
other terms offered by third parties. The arrangement provides that Olin will
reimburse the Company for any lost profits resulting from Olin's failure to
purchase the required amount of propellant powder from the Company in any
year. The term of the Powder Supply Requirements Agreement expires on December
31, 2002, unless earlier terminated in accordance with its terms. Pursuant to
the Powder Supply Requirements Agreement, the Company shall indemnify Olin
against all losses arising from actual or alleged manufacturing or design
defects in the products delivered pursuant thereto and Olin shall indemnify
the Company against all losses arising from Olin's negligent misuse or
improper handling thereof or defects in the ammunition (other than powder
defects).
 
  The Component Supply Agreement provides that the Company will purchase
certain ammunition components (the "Components") from Olin at agreed-upon
prices until December 31, 1999, unless the Component Supply Agreement is
earlier terminated in accordance with its terms. Pursuant to the Component
Supply Agreement, Olin will indemnify the Company against all losses arising
in connection with actual or alleged manufacturing and design defects in the
Components delivered pursuant thereto and the Company will indemnify Olin
against all losses arising in connection with the Company's negligent misuse
or improper handling of the Components delivered pursuant thereto.
 
                                       9
<PAGE>
 
 Assumption of Liabilities and Indemnity Agreement
 
  The Company and Olin have entered into an assumption of liabilities and
indemnity agreement (the "Assumption of Liabilities and Indemnity Agreement")
which generally provides for the assumption of liabilities and cross
indemnities designed to place with the Company responsibility for liabilities
of the Ordnance/Aerospace Business and with Olin responsibility for
liabilities of the businesses retained by Olin after the Distribution.
Specifically, the Company has agreed, subject to certain exceptions, to
assume, and indemnify and hold Olin harmless from and against, all damages,
losses, liabilities, fines, penalties, costs and expenses arising out of or
associated with the business, conduct, operations, assets, properties or
status of the Company prior to, on or after the Distribution.
 
  The Assumption of Liabilities and Indemnity Agreement also provides that the
Company will assume, and indemnify and hold Olin harmless from, all
liabilities in connection with the removal, remediation or control of
environmental conditions at certain of the Company's facilities (see "Item 1.
Business--Environmental Matters") and that the Company will indemnify Olin for
any liabilities arising out of Olin's existing guarantee of certain lease
obligations of the Company. The Assumption of Liabilities and Indemnity
Agreement also provides for cross indemnities relating to certain employee
benefit claims.
 
 Covenant Not To Compete Agreement
 
  The Company and Olin have entered into a covenant not to compete agreement
which generally provides that, for a period of five years, Olin will not,
subject to certain exceptions, directly or indirectly manufacture, sell or
distribute medium or large caliber ammunition or components and that the
Company will not, subject to certain exceptions, directly or indirectly
manufacture, sell or distribute small caliber ammunition or components,
ejection cartridges or shotshells.
 
 Novation of U.S. Government Contracts
 
  In connection with the Distribution, the Company became successor in
interest to Olin on certain contracts between Olin and the U.S. Government. As
required by federal procurement regulations providing for the U.S. Government
to recognize the Company as the successor in interest to Olin on such
contracts, Olin has entered into novation agreements with the Company and the
U.S. Government which provide, among other things, for Olin to directly or
indirectly guarantee or otherwise become liable for the performance of the
Company's obligations under such contracts which were transferred to the
Company in connection with the Distribution (the "Guaranteed Contracts"),
including post-novation modifications to the Guaranteed Contracts. Such
novation agreements also provide that the Company assumes all obligations
under the Guaranteed Contracts and that the U.S. Government recognizes the
transfer of such Guaranteed Contracts and related assets. While these
Guaranteed Contracts are scheduled to be performed over a period of time, it
is not expected that they will be fully and finally discharged for a number of
years.
 
  The Company has agreed in the Assumption of Liabilities and Indemnity
Agreement to perform all of its obligations under each Guaranteed Contract and
to indemnify Olin against any liability Olin may incur under the novation
agreements by reason of any failure by the Company to perform such
obligations.
 
EMPLOYEES
 
  As of December 31, 1997, the Company had approximately 2,680 employees, six
of whom were working in foreign countries. Approximately 490 of the hourly
paid employees of the Company located at its St. Marks, Florida and Marion,
Illinois facilities are represented, for purposes of collective bargaining, by
local unions affiliated with the United Steelworkers of America. The Company
is a party to labor contracts expiring in October 2000 and December 2001
relating to such employees at its St. Marks, Florida and Marion, Illinois
facilities, respectively. No major work stoppages have occurred in the last
three years. While relations between the Company and its employees and their
various representatives are generally considered satisfactory, there can be no
assurance that new labor contracts can be concluded without stoppages.
 
                                      10
<PAGE>
 
EXECUTIVE OFFICERS OF THE COMPANY
 
  Set forth below is certain information regarding the Company's executive
officers.
 
<TABLE>
<CAPTION>
  NAME AND AGE                                            POSITION
  ------------                                            --------
<S>                      <C>
James G. Hascall, 59.... Chairman of the Board and Chief Executive Officer
Angelo A. Catani, 65.... Vice Chairman of the Board
J. Douglas DeMaire, 51.. Executive Vice President
William W. Smith, 63.... Executive Vice President and President, Aerospace and Electronics Division
John E. Fischer, 42..... Vice President and Chief Financial Officer
George H. Pain, 47...... Vice President, General Counsel and Secretary
Stephen C. Curley, 45... Vice President and Treasurer
Jackson C. Picker, 48... Vice President, Human Resources and Administration
Michael S. Wilson, 51... Vice President and President, Ordnance and Tactical Systems Division
</TABLE>
 
  Mr. Hascall has served as Chairman and Chief Executive Officer of the
Company since January 1997. From January 1, 1996 through December 1996, Mr.
Hascall served as Executive Vice President of Olin Corporation, having
operating responsibility for Olin's Brass, Winchester, Ordnance and Aerospace
Divisions. From 1985 through 1995, Mr. Hascall served as President of Olin's
Brass Division. He was an Olin Corporate Vice President from 1985 to 1990 and
a Senior Vice President from 1990 to December 1995.
 
  Mr. Catani has served as Vice Chairman of the Board of the Company since
January 1997. From 1988 through December 1996, Mr. Catani was President of
Olin Corporation's Ordnance Division and served as Vice President and General
Manager of Olin's Defense Products Group from 1985 to 1987. Mr. Catani was an
Olin Vice President from April 1993 until December 1996.
 
  Mr. DeMaire has served as Executive Vice President of the Company since
January 1997. From January 1996 to December 1996, he served as Corporate Vice
President, Corporate Planning for Olin. From 1991 to December 1995, Mr.
DeMaire served as Vice President, Planning for Olin's Winchester Division and
from 1985 to 1995 served as Vice President, Planning for Olin's Brass
Division.
 
  Mr. Smith has served as Executive Vice President of the Company and
President of the Company's Aerospace and Electronics Division since January
1997. From April 1993 until December 1996 he served as Corporate Vice
President for Olin where he also served as President of Olin's Aerospace
Division from 1988 through January 1997.
 
  Mr. Fischer has served as Vice President and Chief Financial Officer of the
Company since January 1997. From January 1995 to December 1996, he served as
Vice President and Chief Financial Officer of Olin's Ordnance Division. Prior
to January 1995, Mr. Fischer served in a number of financial and contract
management positions with Olin's subsidiary, General Defense Corporation
("GDC"). Mr. Fischer was Corporate Controller of GDC when it was acquired by
Olin in 1988.
 
  Mr. Pain has served as Vice President, General Counsel and Secretary of the
Company since January 1997. From January 1995 until December 1996, Mr. Pain
served as Vice President, Legal of Olin's Brass and Winchester Divisions, and
as Deputy General Counsel of Olin. Prior to that time, Mr. Pain had served in
Olin's legal department since 1986.
 
  Mr. Curley has served as Vice President and Treasurer of the Company since
January 1997. From September 1990 to December 1996, Mr. Curley served as
Assistant Treasurer of Olin. Prior to that date, Mr. Curley served as Senior
Tax Counsel in Olin's Tax Department.
 
  Mr. Picker has served as Vice President, Human Resources and administration
of the Company since January 1997. From 1989 to December 1996, Mr. Picker
served as Vice President, Human Resources for Olin's Ordnance Division. Prior
to that time, Mr. Picker had served in various human resources positions with
Olin since 1975.
 
 
                                      11
<PAGE>
 
  Mr. Wilson has served as Vice President of the Company and President of the
Company's Ordnance and Tactical Systems Division since January 1997. From 1991
to December 1996, Mr. Wilson served as Vice President of Tank ammunition for
Olin. From 1990 to 1991, Mr. Wilson served as Vice President of Marketing for
Olin's Ordnance Division where he served as Vice President of Programs from
1988 to 1990. Prior to that time, Mr. Wilson served as Director of Business
Planning for Olin's Ordnance Division since 1985.
 
ITEM 2. PROPERTIES
 
  The table below sets forth the locations where the Company conducts its
business and a brief description of the activities conducted at each
identified location. The Company believes its facilities are sufficiently
maintained and suitable and adequate for its immediate needs and that
additional space is available to accommodate expansion. Unless otherwise noted
below, the identified location is owned by the Company.
 
<TABLE>
<CAPTION>
         LOCATION                           PRIMARY ACTIVITIES
         --------                           ------------------
 <C>                      <S>
 St. Petersburg,          
  Florida(1)............. Corporate headquarters
                          Systems management operation for large caliber
                          ammunition
 Red Lion, Pennsylvania.. Manufacturing and research and development facility
                          for large caliber ammunition metal parts and
                          composite parts
 Redmond, Washington..... Design, manufacturing and test facility for space,
                          solid propellant and electronic products
                          Office facilities
                          Research and development laboratory
 St. Marks, Florida...... Manufacturing facility for Ball Powder(R) Propellant
                          Research and development laboratory
 Marion, Illinois(1)..... Loading, assembly and packing of medium caliber
                          ammunition and artillery propelling changes
                          Manufacturing and test facility for solid propellant
                          products
                          Demilitarization services
                          Research and development laboratory
 Marion, Illinois........ Test range
 San Leandro,             
  California(1).......... Pulsed power research and development laboratory and
                          test facilities; pulsed power and advanced warhead
                          engineering and management
 Downey, California(1)... Manufacturing facility for medium caliber ammunition
                          components and air dispensed munitions components
                          System management and research and development
 Moses Lake,              
  Washington(1).......... Manufacturing and test facility for solid propellant
                          products
 Camden, Arkansas(2)..... Test range
                          Support for the ammunition business
 Tracy, California....... Manufacturing and test facility for advanced anti-
                          armor warhead systems
 Lucerne, Switzerland(1). Design, development and testing of anti-armor warhead
                          systems for the Swiss Government
</TABLE>
--------
(1) Leased.
(2) Leased in part and occupied in part under a subcontract.
 
                                      12
<PAGE>
 
ITEM 3. LEGAL PROCEEDINGS
 
  The Company is a party to a number of pending or threatened investigations,
claims and proceedings. Except for the investigations, claims and proceedings
described below, the Company believes that all such investigations, claims and
proceedings are immaterial to the Company or routine and incidental to the
Company's business.
 
  One such investigation concluded in 1996. In May 1994, the Company
discovered that an employee may have modified inspection and testing software
used on certain medium caliber ammunition production lines at its Marion,
Illinois testing facility to permit inspections to be performed at tolerances
which may not have been fully compliant with applicable contract
specifications. Upon discovering the issue, the Company promptly notified U.S.
Government contract representatives, voluntarily disclosed the circumstances
then known to the Department of Defense's Office of the Inspector General and
expressed its intent to investigate fully the matter and take all necessary
corrective actions. In September 1994, a federal grand jury in the United
States District Court for the Southern District of Illinois issued two
subpoenas to the Company requesting production of documents relating generally
to certain medium caliber ammunition programs and specifically to the software
modification described above. Subsequently, the Company received additional
subpoenas and several Marion employees have received subpoenas to testify
before the grand jury. The Company complied with the subpoenas and cooperated
with Government officials to resolve the matter. After discussion with the
U.S. Attorney's Office regarding the investigation of the performance of the
contracts in question, the Company and the U.S. Attorney entered into an
agreement to settle this matter on September 11, 1996. Under the agreement,
the U.S. Government agreed not to pursue any criminal or civil claims against
the Company or its subsidiaries in connection with these government contracts.
The Company has paid to the U.S. Government $8.0 million in connection with
the settlement and without admitting to any wrongdoing or liability. The
Company's financial statements reflect the expenses associated with this
matter, including the $8.0 million settlement, of which $6.0 million and $2.0
million was charged to operations during 1996 and 1995, respectively.
 
  The Company is a party to a contract dispute with the Belgium Ministry of
Defense related to a 1985 sale of artillery ammunition. The Belgium Ministry
of Defense has alleged improprieties committed by the Belgium national who
represented the Company in the transaction. Based on these allegations, the
Belgium Ministry of Defense withheld final payment on the contract. On July 2,
1990, the Company's wholly owned subsidiary G.D. International ("GDI")
instituted an action in the Court of First Instance of Brussels (the "Court")
seeking that the Court declare that because the Ministry of Defense withheld
the final payment, the contract had been terminated and GDI's obligations
thereunder extinguished. The Company agreed to extend a letter of credit
related to the contract guarantee pending resolution of the underlying
contract dispute. In March 1996, the trial court ruled against the Company.
The decision has been appealed. In the event that the trial court's decision
is sustained, the resultant liability is estimated at approximately $4.5
million, net of a $1.1 million receivable, at current exchange rates. The
Company's financial statements reflect this estimate as a charge to operations
in 1996. Olin has agreed, in conjunction with the Distribution, to assume
responsibility for legal fees and costs, monetary judgments and civil
settlements associated with this contract dispute in Belgium.
 
  While the Company cannot predict the ultimate outcome of the Belgian
contract dispute summarized above, as well as other pending or threatened
proceedings, including matters arising under provisions relating to the
protection of the environment, it does not believe that the consequences will
be materially adverse to its results of operation or financial position or
that the Company's liability with respect thereto will exceed the amounts
which have previously been charged to operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1997.
 
                                      13
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  The shares of the Company's common stock commenced regular way trading on The
Nasdaq Stock Market SM under the symbol PRMX on January 7, 1997. As of February
27, 1998, there were approximately 6,569 holders of record of the Company's
common stock. The following table sets forth the quarterly high and low closing
sale prices and dividends paid for 1997:
 
<TABLE>
<CAPTION>
                                                     SALES PRICE
                                                   --------------- CASH DIVIDEND
   QUARTER ENDED                                    HIGH     LOW     DECLARED
   -------------                                   ------- ------- -------------
   <S>                                             <C>     <C>     <C>
   March 31....................................... $21 1/8 $16         $0.15
   June 30........................................ $24     $17 3/4     $0.15
   September 30................................... $35     $22         $0.15
   December 31.................................... $37 3/4 $30 3/4     $0.15
</TABLE>
 
  The Company anticipates it will continue its policy of paying regular
quarterly cash dividends which, on an annual basis, will aggregate $0.60 per
share. The payment of cash dividends in the future will be dependent upon the
Company's results of operations, earnings, capital requirements, contractual
restrictions and other factors considered relevant by the Board of Directors.
 
  The Company's credit facility imposes limits ("Restricted Payments") on the
payment or declaration of dividends as well as any other distribution,
liquidation, purchase or other acquisition of the Company's stock by it or any
subsidiary. At December 31, 1997, the amount available for Restricted Payments
was approximately $17.5 million.
 
                                       14
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
 
  The following table summarizes certain selected historical financial and
operating data of the Company for the five most recently completed fiscal
years. This historical data should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
in Item 8 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7.
 
<TABLE>
<CAPTION>
                                         YEARS ENDED DECEMBER 31,
                               ------------------------------------------------
                                 1997      1996      1995      1994      1993
                               --------  --------  --------  --------  --------
                                 ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                            <C>       <C>       <C>       <C>       <C>
OPERATIONS FOR THE YEAR:
Sales........................  $490,824  $471,488  $508,113  $416,148  $376,332
Cost of Goods Sold...........   401,590   399,187   428,707   335,303   304,717
Selling and Administration...    62,751    53,336    51,297    46,758    43,643
Research and Development.....     5,568     6,241     5,016     5,364     6,055
Other Charges (1)............       --     10,500     2,000       --     12,600
                               --------  --------  --------  --------  --------
Operating Income.............    20,915     2,224    21,093    28,723     9,317
Interest Expense.............     3,735     9,256     9,276     8,638     7,880
Interest and Other Income....     1,776       663       807     1,743     2,307
                               --------  --------  --------  --------  --------
Income (Loss) Before Taxes...    18,956    (6,369)   12,624    21,828     3,744
Income Tax Provision.........     8,331     1,533     6,963     9,805     2,722
                               --------  --------  --------  --------  --------
Net Income (Loss)............  $ 10,625  $ (7,902) $  5,661  $ 12,023  $  1,022
                               ========  ========  ========  ========  ========
FINANCIAL POSITION AT YEAR-
 END:
Property Plant and Equipment,
 Net.........................  $ 98,660  $105,023  $114,473  $114,113  $ 98,771
Total Assets.................   296,291   373,743   380,979   364,175   294,077
Capitalization:
  Short-Term Borrowing.......    24,100       --        --        --        --
  Long-Term Debt.............       --    145,000   125,000   125,000   125,000
  Shareholders' Equity.......   152,801   145,134   158,535   131,113    91,287
                               --------  --------  --------  --------  --------
Total Capitalization.........   176,901   290,134   283,535   256,113   216,287
Total Debt to Total
 Capitalization..............      13.6%     50.0%     44.1%     48.8%     57.8%
OTHER OPERATING DATA:
Depreciation.................  $ 16,731  $ 17,211  $ 16,633  $ 16,955  $ 14,323
Capital Expenditures.........    10,641    13,273    19,191    17,821    12,682
PER SHARE DATA:
Net Income (Loss) Per Share
 (2)(3):
  Basic......................  $   2.05  $  (1.51) $   1.08  $   2.30  $   0.20
  Diluted....................  $   2.01  $  (1.51) $   1.08  $   2.30  $   0.20
  Cash Dividends Per Share...  $   0.60  $    --   $    --   $    --   $    --
</TABLE>
--------
(1) Other charges include a charge for the settlement of claims relating to a
    government investigation of certain testing irregularities at the
    Company's Marion, Illinois facility ($6.0 million in 1996 and $2.0 million
    in 1995) and a $4.5 million charge in 1996 related to a trial court ruling
    involving a contract dispute with the Belgium Ministry of Defense related
    to a 1985 sale of artillery ammunition. Also, 1993 other charges include a
    charge for a strategic action plan of $12.6 million.
(2) The calculation of net income per share for all periods prior to 1997 is
    presented on a pro forma basis assuming that all 5,220,276 shares of
    Common Stock outstanding immediately after the Distribution were
    outstanding for all periods prior to the Distribution.
(3) The earnings per share amounts have been restated as required to comply
    with Statement of Financial Accounting Standards No. 128, Earnings Per
    Share.
 
                                      15
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
  This Management's Discussion and Analysis of Financial Condition and Results
of Operations covers the Company's year ended December 31, 1997 as well as
periods prior to 1997 when the Company operated as the Ordnance and Aerospace
Divisions of Olin, but has been prepared as if the Company were a separate
entity for all periods discussed.
 
RESULTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                                    ---------------------------
                                                      1997     1996      1995
                                                    -------- --------  --------
                                                         ($ IN THOUSANDS)
<S>                                                 <C>      <C>       <C>
Sales.............................................. $490,824 $471,488  $508,113
Gross Margin.......................................   89,234   72,301    79,406
Selling and Administration.........................   62,751   53,336    51,297
Other Charges......................................      --    10,500     2,000
Net Income (Loss)..................................   10,625   (7,902)    5,661
</TABLE>
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO 1996
 
  Sales increased 4% in 1997 compared to 1996 sales primarily due to higher
shipments of medium caliber ammunition, artillery propelling charges, Ball
Powder(R) propellant, steel pipe joints, and space and electronics products.
These increases offset lower sales of international tank ammunition, solid
propellant products, and electromagnetic systems. Increases in medium caliber
ammunition sales reflect the correction of production problems that delayed
shipments in 1996. The increases in artillery propelling charge sales reflect
activity on a contract received in early 1997, for which there was no
comparable activity in 1996. Ball Powder(R) propellant sales increased 8% over
the 1996 depressed levels, principally due to improved commercial sales. Space
products sales increases reflect higher shipments associated with the
commercial satellite market. Electronics sales increases resulted from the
introduction of the Company's EmPower(TM) airline passenger seat power supply.
 
  Gross margin as a percentage of sales increased to 18% in 1997 from 15% in
1996. The gross margin percentage on medium caliber ammunition increased by
approximately 181% and reflects the improved delivery and cost performance for
those products. Margin improvements also benefited from a product mix which
included sales of artillery propelling charges and higher space, electronics,
and Ball Powder(R) propellant sales. These higher margin sales offset
unfavorable performance that resulted in cost overruns during 1997 on
ammunition de-militarization and high-pulsed energy contracts.
 
  Selling and administration expenses as a percentage of sales increased to
13% in 1997 from 11% in 1996. The increase reflects the combination of higher
bid and proposal costs, which increased 19% over the 1996 level, additional
costs associated with the Company's start-up and status as a new independent
public company and management incentive expense associated with improvements
in the Company's operating performance.
 
  Interest expense decreased 60% from the 1996 level. This reduction reflects
the application of the Company's cash flow to debt reduction and lower
interest rates on outstanding debt. The 1996 financial statements reflected
$125 million of debt outstanding for the entire year with an average interest
rate of 7.4%. The average debt outstanding during 1997 was $54 million with an
average interest rate of 6.2%.
 
  Income tax expense of $8.3 million and $1.5 million was recorded in 1997 and
1996, respectively, on pre-tax income of $19.0 million in 1997 and a pre-tax
loss of $6.4 million in 1996. The Company's 1997 effective tax rate of 43.9%
is higher than statutory rates due principally to goodwill amortization, which
is non-deductible.
 
                                      16
<PAGE>
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995
 
  Sales declined 7% in 1996 compared to 1995 sales attributable principally to
lower shipments of combined effects munitions, Ball Powder(R) propellant, and
electromagnetic systems, which more than offset higher tank ammunition sales.
The lower sales levels of combined effects munitions and electromagnetic
systems reflect the completion of major programs during 1996. The U.S.
Government contract for combined effects munitions is not expected to be
renewed. Sales of commercial Ball Powder(R) propellant declined 16% in the
1996 period as sporting ammunition customers drastically reduced their
purchases. In 1995, heavy consumer buying patterns for sporting ammunition
were driven by a concern over the threat of restrictive legislation and
taxation, which increased the demand for Ball Powder(R) propellant.
Restrictive legislation in the form of the Brady bill and the assault weapons
ban was passed in 1993 and 1994, respectively, while a proposed prohibitive
tax on ammunition was not adopted.
 
  Gross margin as a percentage of sales decreased to 15% in 1996 from 16% in
1995 due primarily to the decline in sales of Ball Powder(R) propellant.
 
  Selling and administration expenses as a percentage of sales increased to
11% in 1996 from 10% in 1995 due to lower sales and a higher level of expenses
primarily associated with the Distribution.
 
  Other charges in 1996 represented the provision for the settlement of claims
related to a government investigation of certain testing irregularities at the
Company's Marion, Illinois facility ($6.0 million) and the charge for the
contract dispute with the Belgian Ministry of Defense related to a 1985 sale
of artillery ammunition ($4.5 million).
 
  Income tax expense of $1.5 million and $7.0 million was recorded in 1996 and
1995, respectively, on pre-tax losses of $6.4 million in 1996 and pre-tax
income of $12.6 million in 1995. The impact of the Marion legal settlement,
which is non-deductible, and other higher non-deductible expenses on a lower
level of profits in 1996 were the main contributors to the higher effective
tax rate for 1996.
 
U.S. GOVERNMENT SALES
 
  U.S. Government sales amounted to $322.6 million in 1997, $368.3 million in
1996 and $391.1 million in 1995. See "Item 1. Business--U.S. Government
Contracts and Regulations." Approximately 88%, 75% and 80%, respectively, of
total 1997, 1996, and 1995 U.S. Government sales were to the United States
Department of Defense ("DoD") or agencies thereof. Changes in the strategic
direction of defense spending, the timing of defense procurements and specific
defense program appropriation decisions may adversely affect the performance
of the Company in future years, including its income, liquidity, capital
resources, and financial condition. The precise impact of these decisions will
depend upon their timing and the size of changes and the Company's ability to
mitigate their impact with new business, business consolidations or cost
reductions. In view of the continuing uncertainty regarding the size, content
and priorities of the annual DoD budget, the historical financial information
of the Company may not be indicative of future performance and the viability
of certain facilities and equipment may also be impacted. DoD sales activities
are historically stronger in the latter part of the year because the timing of
the recognition of the DoD ammunition sales tends to reflect the procurement
cycle utilized by the U.S. Army.
 
  Since the U.S. Government usually awards and funds ordnance contracts on a
year-by-year basis and the Company's business is dependent upon periodic
awards of new contracts and the exercise of options contained in existing
contracts, there can be no assurance that the U.S. Government will continue to
purchase the Company's products and services over the long-term. The
termination of any of the Company's significant contracts or the failure to
obtain either renewals of certain existing contracts or additional contracts
with the U.S. Government would have a material adverse effect on its results
of future operations and financial condition.
 
                                      17
<PAGE>
 
ENVIRONMENTAL
 
  The Company is a party to various governmental and private environmental
actions associated with waste disposal, manufacturing and test sites.
Associated costs of investigatory and remedial activities are provided for in
accordance with generally accepted accounting principles governing probability
and the ability to reasonably estimate future costs.
 
  Cash outlays for remedial and investigatory activities associated with
former manufacturing and test facilities and past operations were not charged
to income but instead were charged to reserves established for such costs
identified and expensed to income in prior years. Cash outlays for normal
plant operations for the disposal of waste and the operation and maintenance
of pollution control equipment and facilities to ensure compliance with
mandated and voluntarily imposed environmental quality standards were charged
to income. Historically, the Company has funded its environmental capital
expenditures through cash flow from operations and expects to do so in the
future.
 
  The Company's consolidated balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting
to $1.2 million and $1.9 million at December 31, 1997 and, 1996 respectively,
which are classified as other noncurrent liabilities. Those amounts did not
take into account any discounting of future expenditures or any consideration
of insurance recoveries or advances in technology. Those liabilities are
reassessed periodically to determine if environmental circumstances have
changed and/or remediation efforts and their costs can be better estimated. As
a result of these reassessments, future charges to income may be made for
additional liabilities.
 
  Environmental-related cash outlays for site investigation and remediation,
capital projects and normal plant operations are expected to range between $2
million and $5 million annually over the next several years. While the Company
does not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such
increases may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
time periods (sometimes lengthy) over which site remediation occurs. It is
possible that some of these matters (the outcomes of which are subject to
various uncertainties) may be resolved unfavorably against the Company.
 
SERVICE COSTS
 
  From the time of the Distribution to December 31, 1997, the Company obtained
certain services from Olin, such as payroll and benefits administration,
mainframe computing services, and telecommunications support. Olin was
reimbursed by the Company at rates comparable to the pre-Distribution inter-
company charges. The cost of these services for 1997 was approximately $1.4
million. During 1997, the Company has developed or obtained these services on
its own, at costs which approximate the rates charged by Olin.
 
NEW ACCOUNTING STANDARDS
 
  In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 128, "Earnings per Share." Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. The Company adopted the provisions of
Statement 128 effective December 31, 1997. All earnings per share amounts for
all periods presented have been restated to conform to the Statement 128
requirements.
 
  In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 130, "Reporting Comprehensive Income."
Statement 130 establishes standards for reporting and display of comprehensive
income and its components in financial statements. Comprehensive income, as
defined, is the
 
                                      18
<PAGE>
 
change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. The provisions of
Statement 130 are effective for periods beginning after December 15, 1997.
 
  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 131, "Disclosures about Segments of an
Enterprise and Related Information." Statement 131 establishes standards for
segment reporting and disclosure of additional information on products and
services, geographic areas and major customers. The Company is assessing
implementation of the disclosure requirements of this standard which is
effective for periods beginning after December 15, 1997. The adoption of
Statement 131 will result in additional financial statement disclosure.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  In connection with the Distribution, the Company assumed a $160 million
floating-rate Revolving Credit Agreement (the "RCA") with participating banks
to provide financing for the Company's working capital requirements, capital
expenditures, and general corporate purposes. Prior to the Distribution, Olin
borrowed $145 million under the RCA based on the Company's estimated working
capital on the date of the Distribution, however, a final determination of the
appropriate debt level by Olin resulted in targeted debt of $125 million.
Accordingly, the Company was provided $20 million in cash by Olin, which was
reflected in the Company's balance sheet as of the Distribution.
 
  The RCA permits unsecured borrowings on a revolving basis over a five-year
term which expires on December 31, 2001. Principal repayments are not required
until the end of the five-year term. The Company pays interest under the RCA
on outstanding borrowings at the Company's choice of various floating rate
options and is required to pay a facility fee of 0.125% of the borrowing
commitment. The RCA contains a number of financial covenants including
requirements to maintain ratios of (i) minimum earnings before interest and
taxes to interest expense, and (ii) maximum total debt to earnings before
interest, taxes, depreciation and amortization and contains certain minimum
tangible net worth requirements. The RCA also contains limitations on amounts
available to pay dividends or repurchase shares of Common Stock ("Restricted
Payments"). At December 31, 1997, the amount available for Restricted Payments
was $17.5 million. To facilitate short-term borrowing flexibility, certain RCA
participating banks have agreed to provide the Company uncommitted and
unsecured short-term lines of credit at interest rates similar to those under
the RCA. Aggregate borrowings under the RCA and short-term lines are limited
to the committed maximum of $160 million. At December 31, 1997, the Company
had unused availability of $135.9 million under the RCA and short-term lines
of credit. There were no outstanding borrowings under the RCA at December 31,
1997. Outstanding borrowings under short-term lines of credit at December 31,
1997 were $24.1 million with a weighted average interest rate of 6.1%.
 
  For the year ended December 31, 1997, net cash provided by operations
totaled $116.3 million which was the result of working capital reductions
associated with the receipt of contract advances, improved operating
performance, and the correction of shipment delays experienced in 1996. During
the fourth quarter of 1996, the Company entered into a contract modification
under one of its multi-year contracts which allowed for the acceleration of
contract payments in exchange for reduced selling prices. During 1997, the
Company entered into similar contract modifications on two additional
contracts. To qualify for such payments, the Company must achieve certain
performance milestones. During 1997, a total of approximately $155 million of
such contract advances were received.
 
  Capital spending for the year ended December 31, 1997 decreased 20% from
1996 due to a planned program to control capital costs.
 
  During the year, the Company announced a program to purchase lots of less
than 100 shares of its stock held by any single shareholder ("odd-lot
shares"). During the term of the program, the Company purchased and retired
85,446 odd-lot shares of Common Stock at a cost of approximately $1.7 million
in cash.
 
                                      19
<PAGE>
 
  Cash dividends paid during 1997 totaled approximately $3.1 million.
 
  Cash flow from net operating activities, after capital spending, odd-lot
stock repurchases, and dividends, plus the $20 million of cash provided by
Olin were used to reduce debt from $145 million at December 31, 1996 to $24.1
million at December 31, 1997.
 
  For the year ended December 31, 1996, net cash provided by operations
totaled $14.3 million. During 1996, cash was provided by the reduction in
accounts receivable resulting from completion of a combined effects munition
contract and a cash settlement resulting from an in-flight entertainment
contract cancellation that occurred in 1995. These were offset in part by
lower current liabilities, increased inventory associated with medium caliber
ammunition shipment delays and unfavorable operating results.
 
  Subject to the forward-looking statements set forth below and based upon the
availability under the RCA and the Company's projected cash flow from
operations, management believes that the Company's capital resources are
adequate to meet its foreseeable business needs.
 
EFFECT OF INFLATION
 
  Because of the relatively low level of inflation experienced in the U.S.,
inflation did not have a material adverse effect on the sales or operating
results of the Company during the three most recent fiscal years.
 
IMPACT OF YEAR 2000
 
  The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000
date are a known risk. The Company is addressing this risk relating to the
availability and integrity of financial systems and the reliability of
operational systems. The Company has established processes for evaluating and
managing the risks and costs associated with this potential problem. The
computing portfolio was identified and an initial assessment has been
completed. Based on this assessment, the Company believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are
not completed timely, the Year 2000 issue could have an adverse impact on
operations of the Company.
 
  The Company is in the process of evaluating whether its vendors, customers
(including the U.S. Government) and other third party service providers are
making adequate efforts to achieve Year 2000 compliance. The Company cannot
presently conclude whether Year 2000 non-compliance by such third parties is
likely to have a material adverse effect on the Company's operations.
 
  The Company has not made a final determination of what the cost of achieving
Year 2000 compliance will be over the cost of normal software upgrades and
replacements. However, the Company believes, based on the preliminary
assessment, that the costs of the project, which will be incurred through
fiscal 1999, will not be material.
 
FORWARD LOOKING STATEMENTS
 
  All statements other than statements of historical facts in this Form 10-K
are "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995, and are based on management's current
expectations of the Company's near-term results, based on current information
available and pertaining to the Company. Actual results may differ materially
from those projected in the forward-looking statements. These forward-looking
statements involve risks and uncertainties, including, but not limited to, the
following: demand for commercial powder; international business opportunities;
ammunition lot acceptance; timing of contract funding and continued receipt of
accelerated payments under the multi-year tank ammunition contracts; changing
 
                                      20
<PAGE>
 
economic and political conditions in the United States and in other countries;
changes in governmental laws and regulations surrounding various matters, such
as environmental remediation, contract pricing, and international trading
restrictions; changes in governmental spending and budgetary policies, such as
reductions in the level of defense spending or redirection of Department of
Defense program funding; production and pricing levels of important raw
materials, lower than anticipated levels of plant utilization resulting in
production inefficiencies and higher costs, whether related to the delay of
new product introductions, improved production processes or equipment, or
labor relation issues; difficulties or delays in the development, production,
testing and marketing of products; product margins and customer product
acceptance; and costs and effects of legal and administrative cases,
proceedings, settlements and investigations involving the Company.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  Not Applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                                   INDEX TO
 
                       CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Independent Auditors' Report--Ernst & Young LLP...........................   22
Independent Auditors' Report--KPMG Peat Marwick LLP.......................   23
Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996.   24
Consolidated Statements of Operations, Years Ended December 31, 1997, 1996
 and 1995.................................................................   25
Consolidated Statements of Shareholders' Equity, Years Ended December 31,
 1997, 1996 and 1995......................................................   26
Consolidated Statements of Cash Flow, Years Ended December 31, 1997, 1996
 and 1995.................................................................   27
Notes to Consolidated Financial Statements................................   28
</TABLE>
 
                                      21
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Primex Technologies, Inc.
 
  We have audited the accompanying consolidated balance sheet of Primex
Technologies, Inc. as of December 31, 1997, and the related consolidated
statement of operations, shareholders' equity, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Primex Technologies, Inc. at December 31, 1997, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
 
                                          Ernst & Young LLP
 
Tampa, Florida
January 26, 1998
 
                                      22
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Primex Technologies, Inc.
 
  We have audited the accompanying consolidated balance sheet of Primex
Technologies, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows of
each of the years in the two-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Primex Technologies, Inc. and subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows of each of the years in the
two-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
 
                                          KPMG Peat Marwick LLP
 
Tampa, Florida
February 13, 1997
 
                                      23
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                    ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              ------------------
                                                                1997      1996
                                                              --------  --------
<S>                                                           <C>       <C>
                           ASSETS
Current Assets:
  Cash......................................................  $    --   $ 20,000
  Receivables...............................................    94,657   123,658
  Inventories, Net..........................................    35,157    57,241
  Other Current Assets......................................     7,263     5,843
                                                              --------  --------
    Total Current Assets....................................   137,077   206,742
Property, Plant and Equipment, Net..........................    98,660   105,023
Goodwill, Net...............................................    44,821    47,385
Other Assets................................................    15,733    14,593
                                                              --------  --------
    Total Assets............................................  $296,291  $373,743
                                                              ========  ========
            LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Short-Term Borrowing......................................  $ 24,100  $    --
  Accounts Payable..........................................    28,894    30,147
  Contract Advances.........................................    35,070       --
  Accrued Liabilities.......................................    32,522    28,873
                                                              --------  --------
    Total Current Liabilities...............................   120,586    59,020
Long-Term Debt..............................................       --    145,000
Other Liabilities...........................................    22,904    24,589
                                                              --------  --------
    Total Liabilities.......................................   143,490   228,609
Commitments and Contingencies
Shareholders' Equity:
Common Stock, $1.00 par value; 60,000,000 shares authorized;
 5,137,637 and 5,220,276 shares issued and outstanding in
 1997 and 1996, respectively................................     5,138     5,220
Additional Paid-in Capital..................................   144,510   139,914
Retained Earnings...........................................     7,322       --
Unamortized Value of Restricted Stock Grants................    (4,145)      --
Cumulative Translation Adjustment...........................       (24)      --
                                                              --------  --------
    Total Shareholders' Equity..............................   152,801   145,134
                                                              --------  --------
    Total Liabilities and Shareholders' Equity..............  $296,291  $373,743
                                                              ========  ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
 
                                       24
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                   ---------------------------
                                                     1997     1996      1995
                                                   -------- --------  --------
<S>                                                <C>      <C>       <C>
Sales............................................. $490,824 $471,488  $508,113
Operating Expenses:
  Cost of Goods Sold..............................  401,590  399,187   428,707
  Selling and Administration......................   62,751   53,336    51,297
  Research and Development........................    5,568    6,241     5,016
  Other Charges...................................      --    10,500     2,000
                                                   -------- --------  --------
Operating Income..................................   20,915    2,224    21,093
Interest Expense..................................    3,735    9,256     9,276
Interest and Other Income.........................    1,776      663       807
                                                   -------- --------  --------
Income (Loss) Before Taxes........................   18,956   (6,369)   12,624
Income Tax Provision..............................    8,331    1,533     6,963
                                                   -------- --------  --------
Net Income (Loss)................................. $ 10,625 $ (7,902) $  5,661
                                                   ======== ========  ========
Net Income (Loss) Per Share (1996 and 1995
 Unaudited Proforma Information):
  Basic........................................... $   2.05 $  (1.51) $   1.08
                                                   ======== ========  ========
  Diluted......................................... $   2.01 $  (1.51) $   1.08
                                                   ======== ========  ========
</TABLE>
 
 
 
          See accompanying notes to consolidated financial statements.
 
 
                                       25
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                ($ IN THOUSANDS)
 
<TABLE>
<CAPTION>
                            COMMON STOCK
                          -----------------
                                                                  UNAMORTIZED               EQUITY IN
                                             ADDITIONAL             VALUE OF   CUMULATIVE    EARNINGS       TOTAL
                                              PAID-IN   RETAINED   RESTRICTED  TRANSLATION   PRIOR TO   SHAREHOLDERS'
                           SHARES    AMOUNT   CAPITAL   EARNINGS  STOCK GRANTS ADJUSTMENT  DISTRIBUTION    EQUITY
                          ---------  ------  ---------- --------  ------------ ----------- ------------ -------------
<S>                       <C>        <C>     <C>        <C>       <C>          <C>         <C>          <C>
BALANCE DECEMBER 31,
 1994...................                                                                    $ 131,113     $131,113
Net Intercompany Activ-
 ity with Olin..........                                                                       21,761       21,761
Net Income..............                                                                        5,661        5,661
                                                                                            ---------     --------
BALANCE DECEMBER 31,
 1995...................                                                                      158,535      158,535
Net Intercompany
 Activity with Olin.....                                                                       (5,499)      (5,499)
Net Loss................                                                                       (7,902)      (7,902)
Capitalization of
 Divisional Equity......  5,220,276  $5,220   $139,914  $   --      $   --        $--        (145,134)         --
                          ---------  ------   --------  -------     -------       ----      ---------     --------
BALANCE DECEMBER 31,
 1996...................  5,220,276   5,220    139,914      --          --         --             --       145,134
Grant of 344,000
 Restricted Stock Units.        --      --       6,128      --       (6,128)       --             --           --
Amortization of
 Restricted Stock Grant.        --      --         --       --        1,983        --             --         1,983
Dividends Paid..........        --      --         --    (3,098)        --         --             --        (3,098)
Dividends on Stock
 Compensation...........        --      --         --      (205)        --         --             --          (205)
Issuance of Stock Under
 Directors Stock Plan...      2,807       3         49      --          --         --             --            52
Purchase of Common
 Stock..................    (85,446)    (85)    (1,581)     --          --         --             --        (1,666)
Translation Adjustments.        --      --         --       --          --         (24)           --           (24)
Net Income..............        --      --         --    10,625         --         --             --        10,625
                          ---------  ------   --------  -------     -------       ----      ---------     --------
BALANCE DECEMBER 31,
 1997...................  5,137,637  $5,138   $144,510  $ 7,322     $(4,145)      $(24)     $     --      $152,801
                          =========  ======   ========  =======     =======       ====      =========     ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       26
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                ($ IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                                -----------------------------
                                                  1997       1996      1995
                                                ---------  --------  --------
<S>                                             <C>        <C>       <C>
OPERATING ACTIVITIES
Net Income (Loss).............................. $  10,625  $ (7,902) $  5,661
Adjustments to Reconcile Net Income (Loss) to
 Net Cash Provided (Used) by Operating
 Activities:
Depreciation...................................    16,731    17,211    16,633
Amortization of Intangibles....................     2,977     2,954     3,042
Deferred Taxes.................................    (2,863)   (3,805)    2,502
Stock Compensation.............................     2,035       --        --
Changes in Assets and Liabilities:
  Receivables..................................    29,001    29,418   (48,182)
  Inventories..................................    22,084    (7,478)   16,038
  Other Current Assets.........................      (431)      659       481
  Other Assets.................................    (1,552)   (7,737)   10,482
  Accounts Payable.............................    (1,253)  (12,634)   (8,925)
  Contract Advances............................    35,070       --        --
  Accrued Liabilities..........................     3,649     5,161    (7,974)
  Other Liabilities............................       189    (2,472)    2,217
Other Operating Activities.....................        43       947       201
                                                ---------  --------  --------
  Net Operating Activities.....................   116,305    14,322    (7,824)
                                                ---------  --------  --------
INVESTING ACTIVITIES
Capital Expenditures...........................   (10,641)  (13,273)  (19,191)
Disposition of Property Plant and Equipment....       --      4,565     3,859
Other Investing Activities.....................       --       (195)      --
                                                ---------  --------  --------
  Net Investing Activities.....................   (10,641)   (8,903)  (15,332)
                                                ---------  --------  --------
FINANCING ACTIVITIES
Net Short-Term Borrowing.......................    24,100       --        --
Net Long-Term Borrowing (Repayment)............  (145,000)   20,000       --
Net Transfers from (to) Olin...................       --     (5,419)   23,156
Repurchase of Common Shares....................    (1,666)      --        --
Dividends Paid.................................    (3,098)      --        --
                                                ---------  --------  --------
  Net Financing Activities.....................  (125,664)   14,581    23,156
                                                ---------  --------  --------
Net Increase (Decrease) in Cash................   (20,000)   20,000       --
Cash, Beginning of Year........................    20,000       --        --
                                                ---------  --------  --------
Cash, End of Year.............................. $     --   $ 20,000  $    --
                                                =========  ========  ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       27
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
 
FORMATION OF PRIMEX TECHNOLOGIES, INC. AND DESCRIPTION OF BUSINESS
 
  Primex Technologies, Inc. (the "Company") was organized in May 1996 and has
been publicly owned since December 31, 1996, when Olin Corporation ("Olin")
made a distribution (the "Distribution") to its shareholders consisting of all
of the outstanding shares of the Company's Common stock. Regular way trading
in the Common Stock commenced on the Nasdaq National Market on January 7,
1997.
 
  Prior to December 31, 1996, the Company was a wholly owned subsidiary of
Olin. In connection with the Distribution, the assets and liabilities of
Olin's former Ordnance Division ("Ordnance") and Aerospace Division
("Aerospace") were transferred to the Company.
 
  Ordnance produces large and medium caliber ammunition for aircraft,
artillery, tanks and warships; Ball Powder(R) propellant for sporting,
military and commercial applications; and propulsion systems for large caliber
gun systems. Ordnance's primary customers are the U.S. Department of Defense
and other U.S. Government research and development agencies/laboratories,
allied U.S. Governments and sporting ammunition manufacturers.
 
  Aerospace products include rocket engines, advanced electric propulsion
systems, aerospace electronic products, pulsed power systems and solid
propellant products, including munitions dispensing systems. Aerospace's
primary customers are satellite, aircraft and missile contractors; other
defense/aerospace subsystems and systems contractors; NASA and other U.S.
Government research and development agencies/laboratories.
 
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
  The accompanying 1997 consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, which were transferred to
the Company prior to the Distribution. Intercompany balances and transactions
between entities included in these financial statements have been eliminated.
These financial statements include the assets, liabilities, revenues and
expenses of the following subsidiaries:
 
  Primex Aerospace Company
  Primex Physics International Company
  U.S. Ordnance Company
  General Defense Corporation (GDC)
  GD International, LTD, a wholly owned subsidiary of GDC
  Olin Services, Inc., a wholly owned subsidiary of GDC
  PI Physics International (Schweiz) A.G., a wholly owned subsidiary of
  Primex Physics International Company
 
  The accompanying consolidated financial statements, for periods prior to
1997, include the combined operations of Olin's former Ordnance and Aerospace
Divisions and have been prepared as if the Company had operated as a separate
stand-alone entity for the periods presented. The consolidated financial
statements, for periods prior to 1997, include only those assets and
liabilities transferred to the Company, and revenues and expenses attributable
to the Company's operations. An assessment of corporate overhead is included
in selling and administration expenses with the allocation based on either
effort committed or number of employees. Management believes that the
allocation method used to allocate the costs and expenses was reasonable.
However, such allocated amounts may not be indicative of what selling and
administration expenses would have been if the Company operated independently
of Olin.
 
                                      28
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The preparation of the consolidated financial statements requires estimates
and assumptions that affect amounts reported and disclosed in the financial
statements and related notes. Actual results could differ from these
estimates.
 
 Long-Term Contracts
 
  Sales and cost of sales related to government contracts that extend beyond
one year are primarily recognized under the percentage-of-completion method of
accounting as costs are incurred. Profits expected to be realized on contracts
are based on the Company's estimates of costs at completion compared to total
contract sales value; profits for interim reporting periods are based on costs
incurred relative to total estimated costs at completion. When the Company
believes the cost of completing a contract will exceed contract-related
revenues, the full amount of the anticipated contract loss is recognized. For
contracts or commercial orders with performance periods of under one year,
sales are recognized on the units shipped method of accounting.
 
  Contract advances represent payments received by the Company for costs which
have not yet been incurred and are liquidated as costs on the related
contracts are recognized.
 
  Sales from contracts with the U.S. Government or U.S. Government prime
contractors were approximately 66%, 78%, and 77% of total 1997, 1996 and 1995
sales, respectively. Export sales from the United States were $67,867, $28,875
and $24,285 in 1997, 1996 and 1995, respectively.
 
 Inventories
 
  Inventories are stated at the lower of cost or net realizable value. Work-
in-process inventories related to long-term contracts and programs are stated
at the accumulated cost of material, labor and manufacturing overhead, less
the estimated cost of units delivered. To the extent total costs relating to
long-term contracts and programs are estimated to exceed the total sales
price, charges are made to current operations to reduce inventoried costs to
net realizable value.
 
  Approximately 38% and 21% of 1997 and 1996 consolidated inventories,
respectively, are valued by the dollar value last-in, first-out (LIFO) method
of inventory accounting. Prior to 1997, LIFO inventory was included in a
larger Olin pool of which the Company was allocated a percentage share as part
of the Distribution.
 
  Pursuant to contract provisions, agencies of the U.S. Government and other
customers have title to, or a security in, certain inventories as a result of
progress payments and advances.
 
 Property, Plant and Equipment
 
  Property, plant and equipment are recorded at cost. Depreciation is computed
on a straight-line basis over the following estimated useful lives:
 
<TABLE>
     <S>                                                          <C>
     Improvements to land........................................ 10 to 20 years
     Building and building equipment.............................  5 to 45 years
     Machinery and equipment.....................................  3 to 12 years
</TABLE>
 
  Leasehold improvements are amortized over the term of the lease or the
estimated useful life of the improvement, whichever is less.
 
 Goodwill
 
  Goodwill, the excess of the purchase price of the acquired businesses over
the fair value of the respective net assets, is amortized over 30 years on a
straight-line basis. Accumulated amortization was $22,994 and
 
                                      29
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
$20,430 at December 31, 1997 and 1996 respectively. The Company periodically
reviews the value of its goodwill to determine if an impairment has occurred.
The Company assesses the potential impairment of recorded goodwill by
comparing the undiscounted value of expected future operating cash flows to
its carrying cost. An impairment, if necessary, would be recorded based on the
estimated fair value or a cash flow measure.
 
 Environmental Liabilities and Expenditures
 
  Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated, based upon current law and existing technologies. These amounts,
which are not discounted and exclusive of claims against third parties, are
adjusted periodically as assessment and remediation efforts progress or
additional technical or legal information becomes available. Environmental
remediation costs are charged to expense. Environmental costs are capitalized
if the costs increase the value of the property and/or mitigate or prevent
contamination from future operations.
 
 Stock-Based Compensation
 
  The Company accounts for stock-based employee compensation using the
intrinsic value method of accounting.
 
 Income Taxes
 
  The Company accounts for income taxes under the liability method. Deferred
taxes are provided for differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Prior to the Distribution,
the Company's operations were included in the U.S. federal consolidated tax
returns of Olin. The provision for income taxes includes the Company's
allocated share of Olin's consolidated income tax provision and is calculated
on a separate Company basis.
 
 Net Income (Loss) Per Share
 
  In 1997, the Financial Accounting Standards Board Issued Statement 128,
"Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
All earnings per share amounts for all periods presented have been restated to
conform to the Statement 128 requirements.
 
  The weighted average number of shares outstanding and shares vested in 1997
used to calculated basic earnings per share was 5,173,669. The weighted
average number of shares adjusted for 113,239 incremental shares of non-vested
restricted stock grants in 1997 used to calculate diluted earnings per share
was 5,286,908. The calculation of net income (loss) per share for all periods
prior to 1997 on a pro forma basis, assumes that all 5,220,276 common shares
outstanding immediately after the Distribution were outstanding for all
periods prior to the Distribution.
 
 Fair Value of Financial Instruments
 
  The fair value of financial instruments, consisting primarily of cash,
receivables, and accounts payable, approximates carrying value due to the
liquid nature of the instruments. The fair value of life insurance policies,
included in other assets, approximates cash surrender value, which is carrying
value. The fair value of the short-term borrowing and long-term debt
approximately carrying value based on borrowing rates available to the Company
for borrowings with similar terms and maturities.
 
 Foreign Currency Translation
 
  Adjustments resulting from translating foreign functional currency financial
statements into U.S. dollars are included in the currency translation
adjustment in shareholders' equity.
 
                                      30
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Derivatives
 
  The Company enters into foreign currency contracts in order to reduce the
impact of certain foreign currency fluctuations. Firmly committed transactions
and the related receivables and payables may be hedged with forward exchange
contracts or purchased options. Premiums paid on purchased options and any
gains or losses are included in other assets or accrued liabilities and are
recognized in earnings when the transaction being hedged is recognized.
 
RECEIVABLES
 
  Receivables, including amounts due under long-term contracts (contract
receivables), consist of the following:
 
<TABLE>
<CAPTION>
                                                                1997     1996
                                                               ------- --------
   <S>                                                         <C>     <C>
   Contract receivables:
     Billed receivables....................................... $46,359 $ 18,490
     Unbilled receivables.....................................  46,823   85,898
   Trade and other receivables................................   1,475   19,270
                                                               ------- --------
   Total receivables.......................................... $94,657 $123,658
                                                               ======= ========
</TABLE>
 
  Unbilled receivables represent the balance of recoverable costs and accrued
profit comprised principally of revenue recognized on contracts for which
billings have not been presented to the customer because the amounts were
earned but not billable as of the balance sheet date under the contractual
terms. Billed and unbilled contract receivables include amounts related to
Government contracts of $18,664 and $25,678 in 1997, and $12,478 and $72,278
in 1996.
 
INVENTORIES
 
  Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                                 1997    1996
                                                                ------- -------
   <S>                                                          <C>     <C>
   Raw materials and work-in-progress.......................... $34,832 $58,355
   Finished goods..............................................   8,232   7,927
                                                                ------- -------
                                                                 43,064  66,282
   Less revaluation to LIFO....................................   7,907   9,041
                                                                ------- -------
   Total inventories........................................... $35,157 $57,241
                                                                ======= =======
</TABLE>
 
  Inventory balances at December 31, 1997 and 1996 are net of reductions for
progress payments in the amount of $9,657 and $6,039, respectively.
 
  During 1997, contract inventory quantities valued at LIFO were reduced
resulting in a LIFO liquidation, the effect of which decreased cost of sales
by approximately $1,616.
 
                                      31
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
PROPERTY, PLANT AND EQUIPMENT
 
<TABLE>
<CAPTION>
                                                                1997     1996
                                                              -------- --------
   <S>                                                        <C>      <C>
   Land and improvements to land............................. $ 14,913 $ 14,399
   Building and building equipment...........................   41,526   39,869
   Machinery and equipment...................................  170,601  162,419
   Leasehold improvements....................................   20,238   20,161
   Construction-in-progress..................................   12,911   17,502
                                                              -------- --------
                                                               260,189  254,350
   Less accumulated depreciation.............................  161,529  149,327
                                                              -------- --------
                                                              $ 98,660 $105,023
                                                              ======== ========
</TABLE>
 
LONG-TERM BORROWINGS
 
  As a result of the Distribution, the Company assumed all obligations for a
revolving credit agreement ("RCA") entered into on December 23, 1996, by Olin,
under the terms of which participating banks have committed a maximum of
$160,000 to the Company for cash borrowings and letters of credit. The RCA
expires on December 31, 2001 and contains a number of financial covenants
including requirements to maintain ratios of (i) minimum earnings before
interest and taxes to interest expense, and (ii) maximum total debt to
earnings before interest, taxes, depreciation and amortization and contains
certain minimum tangible net worth requirements. The RCA also contains
limitations on amounts available to pay dividends or repurchase Company stock
("Restricted Payments"). At December 31, 1997, the amounts available for
Restricted Payments were $17,549. The Company pays interest under the RCA on
outstanding borrowings at the Company's choice of various floating rate
options and is required to pay a facility fee of 0.125% of the borrowing
commitment. To facilitate short-term borrowing flexibility, certain RCA
participating banks have agreed to provide the Company uncommitted and
unsecured short-term lines of credit at interest rates similar to those under
the RCA. Aggregate borrowings under the RCA and short-term lines are limited
to the committed maximum of $160,000. At December 31, 1997, the Company had
unused availability of $135,900 under the RCA and short-term lines of credit.
There were no outstanding borrowings under the RCA at December 31, 1997.
Outstanding borrowings under short-term lines of credit at December 31, 1997
were $24,100 with a weighted average interest rate of 6.1%. Interest paid in
1997 was $3,585.
 
  The financial statements include $125,000 of debt for all periods prior to
establishment of the RCA which has been classified as long-term debt as a
result of the Distribution and assumption of the Revolving Credit Agreement.
Interest expense of $9,256 and $9,276 in 1996 and 1995, respectively, was
determined using Olin's annual average borrowing rates for those periods.
 
OTHER CHARGES
 
  Other charges include a provision for the settlement of claims relating to a
government investigation of certain testing irregularities at the Company's
Marion, Illinois facility of $6,000 in the year ended December 31, 1996 and
$2,000 in the year ended December 31, 1995. Also included in other charges in
the year ended December 31, 1996 is a $4,500 provision relating to the Belgian
contract dispute. See note titled "Legal Proceedings" included herein.
 
                                      32
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
ACCRUED LIABILITIES
 
  Accrued liabilities consist of the following:
 
<TABLE>
<CAPTION>
                                                                 1997    1996
                                                                ------- -------
   <S>                                                          <C>     <C>
   Accrued payroll and employee benefits....................... $17,266 $12,506
   Contract Liabilities........................................  13,982  11,776
   Other.......................................................   1,274   4,591
                                                                ------- -------
   Total accrued liabilities................................... $32,522 $28,873
                                                                ======= =======
</TABLE>
 
  Contract liabilities are principally reserves for anticipated losses on
certain incomplete contracts as well as estimated costs to perform contractual
activities associated with completed contracts.
 
INCOME TAXES
 
 Components of Income Tax Expense (Benefit):
 
<TABLE>
<CAPTION>
                                                           1997    1996    1995
                                                          ------  ------  ------
   <S>                                                    <C>     <C>     <C>
   Currently payable:
     Federal............................................. $9,528  $4,509  $3,774
     State...............................................  1,666     829     687
   Deferred.............................................. (2,863) (3,805)  2,502
                                                          ------  ------  ------
   Income Tax Expense.................................... $8,331  $1,533  $6,963
                                                          ======  ======  ======
</TABLE>
 
  The following table accounts for the difference between the income tax
provision and the amounts obtained by applying the statutory U.S. federal
income tax rate to income before taxes.
 
  Effective Tax Rate Reconciliation (percent):
 
<TABLE>
<CAPTION>
                                                               1997  1996   1995
                                                               ----  -----  ----
   <S>                                                         <C>   <C>    <C>
   Statutory Federal Tax Rate................................. 35.0  (35.0) 35.0
   State Income Taxes, Net....................................  4.4    2.4   5.5
   Goodwill...................................................  4.7   14.1   7.0
   Fines and Penalties........................................  --    33.0   5.5
   Supplemental Pension....................................... (2.6)   --    0.8
   Other, Net.................................................  2.4    9.6   1.4
                                                               ----  -----  ----
   Effective Tax Rate......................................... 43.9   24.1  55.2
                                                               ====  =====  ====
</TABLE>
 
  Components of Deferred Tax Assets and Liabilities:
 
<TABLE>
<CAPTION>
                                                                 1997    1996
                                                                ------- -------
   <S>                                                          <C>     <C>
   Deferred Tax Assets:
     Post-retirement Benefits.................................. $ 5,084 $ 4,889
     Accruals and Reserves.....................................  12,622  10,941
     Other Miscellaneous Items.................................   1,632   1,300
                                                                ------- -------
   Total Deferred Tax Assets................................... $19,338 $17,130
                                                                ======= =======
   Deferred Tax Liabilities:
     Property, Plant and Equipment............................. $ 9,725 $11,396
     Deferred Contract Income..................................   5,958   4,942
                                                                ------- -------
   Total Deferred Tax Liabilities.............................. $15,683 $16,338
                                                                ======= =======
</TABLE>
 
                                      33
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Income from a foreign subsidiary is not significant. Included in other
current assets at December 31, 1997 and 1996, respectively, are $5,706 and
$4,717 of net current deferred assets.
 
  Income taxes paid in 1997 were $12,117. Income taxes allocated for periods
prior to 1997 were settled with Olin on a current basis.
 
EMPLOYEE BENEFIT PLANS
 
  Effective January 1, 1997, pension benefits for substantially all domestic
employees are provided through the Company's sponsorship of a defined
contribution plan (the "Plan"). The Plan is intended to meet the requirements
of Section 401(k) of the Internal Revenue Code. The Plan allows the Company to
match participant contributions up to certain limits and to make age weighted
profit sharing contributions for eligible participants. Total expense for Plan
contributions in 1997 was $6,244.
 
  Prior to the Distribution, virtually all U.S. employees of the Company
participated in one of several Olin pension benefit plans covering employees
of other Olin businesses. The pension liability for active and retired
employees participating in the Olin plans prior to the Distribution remained
with Olin. Additionally, prior to the Distribution, Company employees
participated in a defined contribution plan available to essentially all
domestic Olin employees which provided a match of employee contributions. The
total pension plan expense and matching contribution allocable to the Company
employees and included in the accompanying financial statements and was $7,872
and $6,896 in 1996 and 1995, respectively.
 
  Certain Company employees participate in a supplemental non-qualified
pension plan (the "MSP Plan"). The Company's benefit obligation under the MSP
Plan is secured by life insurance agreements on the lives of the participants.
The Company owns the policies and pays the premiums. At December 31, 1997 the
discounted value of benefits payable under the MSP Plan, included in other
liabilities, was $8,093 and the cash value of the life insurance policies,
included in other assets, was $13,453. MSP Plan expenses during 1997 were
$1,280 which were offset by increases in insurance cash values and policy
proceeds of $1,490.
 
  Prior to the Distribution, certain Company employees participated in
supplemental non-qualified executive benefit plans for which the expenses were
$1,036 in 1996 and $566 in 1995. The liability for payment of benefits accrued
under these plans prior to the Distribution remained with Olin.
 
  The Company provides certain post-retirement health care and life insurance
benefits for eligible active and retired domestic employees. Post-retirement
benefit expense amounted to $1,260, $1,176 and $1,100 in 1997, 1996 and 1995,
respectively. The liability for employees retired prior to the Distribution
remained with Olin. The Company's post-retirement health care and life
insurance benefit plans are unfunded.
 
  The following table reflects the components of post-retirement liability for
active and retired employees of the Company.
 
<TABLE>
<CAPTION>
                                                                    1997   1996
                                                                   ------ ------
   <S>                                                             <C>    <C>
   Accumulated post-retirement benefit obligation:
   Fully eligible active plan participants........................ $3,636 $3,312
   Other active participants......................................  6,006  4,501
                                                                   ------ ------
   Cumulative accumulated post-retirement benefit obligation......  9,642  7,813
   Unrecognized loss..............................................    573    --
                                                                   ------ ------
   Net post-retirement benefit liability.......................... $9,069 $7,813
                                                                   ====== ======
</TABLE>
 
                                      34
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The accumulated post-retirement benefit obligation was determined using the
projected unit credit method and an assumed discount rate of 7.25% in 1997,
8.0% in 1996 and 7.5% in 1995. The assumed health care cost trend rate used
for pre-65 retirees was 9.7% in 1997, 11.2% in 1996 and 12.5% in 1995,
declining one-half percent per annum to 5.5%. A one percent increase in the
health care cost trend rate used would have resulted in a $64 increase in
aggregate service and interest components of expense for the year 1997, and a
$514 increase in the accumulated post-retirement benefit obligation at
December 31, 1997.
 
LONG-TERM INCENTIVE PLAN
 
  The Company adopted a long-term incentive plan to encourage selected
salaried employees to acquire a proprietary interest in the Company's growth
and performance and to attract and retain qualified individuals. The plan
provides the ability to grant stock options, stock appreciation rights,
restricted stock and restricted stock units, performance awards, and other
stock-based awards. At December 31, 1997, a total of 350,000 shares of common
stock were reserved for issuance under this plan.
 
  During 1997, the Company granted 344,000 restricted stock units to certain
officers and employees of the Company. The average per share and total value
of the restricted stock units granted was $17.81 and $6,128, respectively,
which is being amortized over the anticipated vesting period of 3 years.
Compensation expense recognized on restricted stock units in 1997 was $1,983.
 
SHAREHOLDER RIGHTS PLAN
 
  The Company has adopted a Shareholder Rights Plan which is designed to
prevent a potential acquirer from gaining control of the Company without
offering a fair price to all shareholders. Each right entitles a shareholder
(other than the acquirer) to buy one-thousandth of a share of Series A
Participating Cumulative Preferred Stock at an exercise price of $55. The
rights are exercisable only if a person acquires more than 15% of the
Company's common stock or if the Board of Directors so determines following
the commencement of a tender or exchange offer to acquire more than 15% of the
Company's common stock. If any person acquires more than 15% of the Company's
common stock and in the event of a subsequent merger or combination, each
right will entitle the holder (other than the acquirer) to purchase stock or
other property of the acquirer having a value of twice the exercise price. The
rights will expire on December 19, 2006, unless earlier redeemed at $0.01 per
right by the Company.
 
COMMITMENTS AND CONTINGENCIES
 
  The Company leases certain properties, such as manufacturing, warehousing
and office space, data processing and office equipment. Leases covering these
properties generally contain escalation clauses based on increased costs of
the lessor, primarily property taxes, maintenance and insurance and have
renewal or purchase options. Total rent expense charged to operations amounted
to $5,515 in 1997, $5,222 in 1996 and $4,684 in 1995 (sublease income is not
significant). Future minimum rent payments under operating leases having
initial or remaining non-cancelable lease terms in excess of one year at
December 31, 1997 are as follows: $4,931 in 1998; $4,759 in 1999; $3,761 in
2000; $2,393 in 2001; $2,161 in 2002.
 
  In the ordinary course of business, the Company is contingently liable for
performance under letters of credit totaling approximately $22,416 at December
31, 1997. The Company does not believe that exposure to loss is likely and is
of the opinion that the fair value of these instruments is zero.
 
ENVIRONMENTAL
 
  The Company is party to various governmental and private environmental
actions associated with waste disposal, manufacturing and test sites. There
were no environmental provisions charged to operations in 1997 or
 
                                      35
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
1996, and $795 in 1995. The consolidated balance sheets include reserves for
future environmental expenditures to investigate and remediate known sites
amounting to $1,186 in 1997, and $1,865 in 1996, which are classified as other
non-current liabilities.
 
  Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting
from investigator studies, advances in technology, changes in environmental
laws and regulations and their application, the scarcity of reliable data
pertaining to identified sites, the difficulty in assessing the involvement
and financial capability of other potentially responsible parties and the time
periods (sometimes lengthy) over which site remediation occurs. It is possible
that some of these matters (the outcomes of which are subject to various
uncertainties) may be resolved unfavorably against the Company.
 
LEGAL PROCEEDINGS
 
  The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion of
management, none of these matters will materially affect the Company's
consolidated financial position or results of operations.
 
  In May 1994, the Company discovered that an employee may have modified
inspection and testing software used on certain medium caliber ammunition
production lines at its Marion, Illinois testing facility to permit
inspections to be performed at tolerances which may not have been fully
compliant with applicable contract specifications. Upon discovering the issue,
the Company promptly notified U.S. Government contracting representatives,
voluntarily disclosed the circumstances then known to the Department of
Defense's Office of the Inspector General and expressed its intent to fully
investigate the matter and take all necessary corrective actions. In September
of 1996 this matter was settled with the U.S. Government for $8,000. The
settlement charges of which $6,000 and $2,000 was charged to operations during
1996 and 1995, respectively, are included in "Other Charges" in the
accompanying consolidated statements of operations.
 
  The Company is involved in a contract dispute with the Belgium Ministry of
Defense related to the 1985 sale of artillery ammunition. The Belgium Ministry
of Defense has alleged improprieties committed by the Belgium national who
represented the Company in the transaction. Based on these allegations, the
Belgium Ministry of Defense withheld final payment on the contract and the
Company agreed to extend the letter of credit related to the contract
guarantee pending a decision by the Belgium courts on the underlying contract
dispute. The trial court ruled against the Company. The decision has been
appealed. In the event that the trial court's decision is sustained, the
resultant liability is estimated at approximately $4,500, net of a $1,100
receivable, at current exchange rates. The provision for the estimated
settlement is included in "Other Charges" in the accompanying consolidated
statements of operations. However, since the net liability for this matter
including legal fees and costs, monetary judgments, and cost settlements was
assumed by Olin in conjunction with the Distribution the balance sheet does
not include any reserves related to this matter.
 
RELATED PARTY TRANSACTIONS
 
  The Company and Olin have entered into an agreement which generally provides
that Olin will purchase from the Company, at prices to be agreed upon from
time to time, a certain percentage of the propellant powder required in any
calendar year by its Winchester Division, starting at 100% of such
requirements for 1997 for Ball Powder propellant and decreasing annually to
70% for 2002. The prices are expected to be at a range of discounts from
competitive prices depending on requirements purchased. Propellant sales to
Olin's Winchester Division were $16,547 in 1997, $15,813 in 1996, and $23,272
in 1995.
 
  During 1997, the Company obtained various transition related services from
Olin. These services include, but are not limited to, administration of
employee benefit programs, tax compliance, internal audit, management
 
                                      36
<PAGE>
 
                           PRIMEX TECHNOLOGIES, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
information systems, and treasury. The cost of these services, which the
Company has developed or obtained on its own, was approximately $1,389 during
1997.
 
  Prior to 1997, the Company was charged by Olin for the Company's share of
expenses of certain centralized activities using various allocation bases.
These services were similar to the transition services and included legal and
general corporate functions. Charges to the Company for centralized corporate
services were $4,273 in 1996, and $2,170 in 1995. In 1996, the charges for
centralized corporate services included a number of one time costs associated
with the Distribution.
 
QUARTERLY FINANCIAL DATA (UNAUDITED)
 
  The following is a summary of unaudited quarterly operating results for
years ending December 31, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                         FIRST     SECOND   THIRD     FOURTH
                                        QUARTER   QUARTER  QUARTER   QUARTER
                                        --------  -------- --------  --------
   <S>                                  <C>       <C>      <C>       <C>
   1997:
   Sales............................... $114,799  $112,921 $118,861  $144,243
   Gross Profit........................   19,086    23,166   22,173    24,809
   Operating Income....................    3,387     6,079    5,734     5,715
   Net Income..........................      871     2,864    3,027     3,863
   Net Income Per Share:
     Basic.............................    $0.17     $0.55    $0.58     $0.75
     Diluted...........................    $0.17     $0.55    $0.57     $0.72
   1996:
   Sales............................... $102,081  $125,622 $101,072  $142,713
   Gross Profit........................   16,120    18,631   17,008    20,542
   Operating Income (Loss).............   (4,672)    4,273     (156)    2,779
   Net Income (Loss)...................   (5,671)      959   (3,037)     (153)
   Net Income (Loss) Per Share (Pro
    Forma):
     Basic.............................   $(1.08)    $0.18   $(0.58)   $(0.03)
     Diluted...........................   $(1.08)    $0.18   $(0.58)   $(0.03)
</TABLE>
 
  The first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards 128,
"Earnings per Share." 1997 primary and fully diluted per share earnings as
previously reported for the first, second and third quarters was $0.16, $0.52
and $0.55, respectively.
 
                                      37
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
  On February 4, 1997, the Company, based on the recommendation of the Audit
Committee of the Company's Board of Directors, retained Ernst & Young LLP
("Ernst & Young") to serve as independent accountants for the Company and its
subsidiaries for periods ending after December 31, 1996. KPMG Peat Marwick LLP
("Peat Marwick"), the Company's former independent accountants were terminated
for future periods. No Peat Marwick report on the financial statements of the
Company for the past two years contained an adverse opinion or a disclaimer of
opinion or was qualified or modified as to uncertainty, audit scope, or
accounting principles. During the two most recent fiscal years and the
subsequent interim period, there has been no disagreement between the Company
and Peat Marwick on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures.
 
                                   PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  Information relating to executive officers is included in this report at the
end of Part I under the caption "Executive Officers of the Company."
 
  The information relating to directors appearing under the caption "Proposal
No. 1--Election of Directors" in the definitive Proxy Statement for the 1998
Annual Meeting of Shareholders and filed with the Securities and Exchange
Commission is incorporated herein by reference.
 
  The information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, appearing under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the definitive Proxy Statement
for the 1998 Annual Meeting of Shareholders and filed with the Commission is
incorporated herein by reference.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
  The information contained under the caption "Executive Compensation"
contained in the definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders and filed with the Commission is incorporated herein by
reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  The information contained under the captions "Security Ownership of
Directors and Officers" and "Certain Beneficial Owners" contained in the
definitive Proxy Statement for the 1998 Annual Meeting of Shareholders and
filed with the Commission is incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  The information contained under the caption "Certain Relationships and
Related Transactions" contained in the definitive Proxy Statement for the 1998
Annual Meeting of Shareholders and filed with the Commission is incorporated
herein by reference.
 
                                      38
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(a)Documents Filed as Part of this Report:
 
  (1)Financial Statements.
 
    The following is a list of all the Consolidated Financial Statements
    included in Item 8 of Part II.
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
   <S>                                                                     <C>
   Independent Auditors' Report--Ernst & Young LLP........................  22
   Independent Auditors' Report--KPMG Peat Marwick LLP....................  23
   Consolidated Balance Sheets as of December 31, 1997 and 1996...........  24
   Consolidated Statements of Operations , Years Ended December 31, 1997,
    1996 and 1995.........................................................  25
   Consolidated Statements of Shareholders' Equity, Years Ended December
    31, 1997, 1996 and 1995...............................................  26
   Consolidated Statements of Cash Flow, Years Ended December 31, 1997,
    1996 and 1995.........................................................  27
   Notes to the Consolidated Financial Statements.........................  28
</TABLE>
 
  (2)Financial Statement Schedules
 
  All schedules are omitted because they are not applicable or not required,
or because the required information is included in the Consolidated Financial
Statements or notes thereto.
 
  (3)Exhibits
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>     <S>
 2       Distribution Agreement dated as of December 30, 1996 between Primex
         Technologies, Inc. and Olin Corporation. Incorporated by reference to
         Exhibit 2 to the Company's Amendment No. 1 to the Form 8-K/A filed
         January 24, 1997 (SEC File No. 0-28942).
  3.1    Amended and Restated Articles of Incorporation. Incorporated by
         referenced to Exhibit 3.1 to the Company's Amendment No. 1 to the Form
         8-K/A filed January 24, 1997 (SEC File No. 0-28942).
  3.2    Amended and Restated By-laws. Incorporated by reference to Exhibit 3.2
         to the Company's Amendment No. 1 to the Form 8-K/A filed January 24,
         1997 (SEC File No. 0-28942).
  4.1    Amended and Restated Articles of Incorporation. Incorporated by
         referenced to Exhibit 3.1 to the Company's Amendment No. 1 to the Form
         8-K/A filed January 24, 1997 (SEC File No. 0-28942).
  4.2    Amended and Restated By-laws. Incorporated by reference to Exhibit 3.2
         to the Company's Amendment No. 1 to the Form 8-K/A filed January 24,
         1997 (SEC File No. 0-28942).
  4.3    Rights Agreement. Incorporated by reference to Exhibit 4.4 to the
         Company's Form 10-K filed March 27, 1997 (SEC File No. 333-18043).
  4.4    Rights Certificate. Incorporated by reference as Exhibit B to Exhibit
         4.4 to the Company's Form 10-K filed March 27, 1997 (SEC File No. 333-
         18043).
  4.5    Primex Retirement Investment Management Experience Plan. Incorporated
         by reference to Exhibit 4 to the Company's S-8 filed May 23, 1997 (SEC
         file No. 333-27793).
  4.6    1996 Long Term Incentive Plan of Primex Technologies, Inc., as
         amended.*
  4.7    Primex Stock Plan for Nonemployee Directors, as amended.*
 10.1    Executive Agreement between Primex Technologies, Inc. and J. G.
         Hascall dated January 1, 1998.*
 10.2    Executive Agreement between Primex Technologies, Inc. and J. D.
         DeMaire dated January 1, 1998.*
 10.3    Executive Agreement between Primex Technologies, Inc. and A. A. Catani
         dated January 1, 1998.*
</TABLE>
 
                                      39
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>     <S>
 10.4    Executive Agreement between Primex Technologies, Inc. and M. S. Wilson
         dated January 1, 1998.*
 10.5    Executive Agreement between Primex Technologies, Inc. and W. W. Smith
         dated January 1, 1998.*
 10.6    Form of Executive Agreement for Company executives other than the
         Named Executive Officers.
 10.7    Primex Retirement Investment Management Experience Plan. Incorporated
         by reference to Exhibit 4 to the Company's S-8 filed May 23, 1997 (SEC
         file No. 333-27793).
 10.8    Primex Stock Plan for Nonemployee Directors (filed as Exhibit 4.7
         hereto).
 10.9    1996 Long Term Incentive Plan of Primex Technologies, Inc. (filed as
         Exhibit 4.6 hereto).*
 10.10   Distribution Agreement dated as of December 30, 1996 between Primex
         Technologies, Inc. and Olin Corporation. Incorporated by reference to
         Exhibit 2 to the Company's Amendment No. 1 to the Form 8-K/A filed
         January 24, 1997 (SEC File No. 0-28942).
 10.11   Technology Transfer and License Agreement dated December 30, 1996
         between Primex Technologies, Inc. and Olin Corporation. Incorporated
         by reference to Exhibit 10.2 to the Company's Amendment No. 1 to the
         Form 8-K/A filed January 24, 1997 (SEC File No. 0-28942).
 10.12   Tax Sharing Agreement dated December 31, 1996 between Primex
         Technologies, Inc. and Olin Corporation. Incorporated by reference to
         Exhibit 10.3 to the Company's Amendment No. 1 to the Form 8-K/A filed
         January 24, 1997 (SEC File No. 0-28942).
 10.13   Powder Supply Requirements Agreement dated December 31, 1996 between
         Primex Technologies, Inc. and Olin Corporation. Incorporated by
         reference to Exhibit 10.4 to the Company's Amendment No. 1 to the Form
         8-K/A filed January 24, 1997 (SEC File No. 0-28942).
 10.14   Assignment of Ball Powder(R) Trademark to Primex and Limited License
         to Olin dated December 30, 1996 between Primex Technologies, Inc. and
         Olin Corporation. Incorporated by reference to Exhibit 10.5 to the
         Company's Amendment No. 1 to the Form 8-K/A filed January 24, 1997
         (SEC File No. 0-28942).
 10.15   Assumption of Liabilities and Indemnity Agreement dated December 31,
         1996 between Primex Technologies, Inc. and Olin Corporation.
         Incorporated by reference to Exhibit 10.6 to the Company's Amendment
         No. 1 to the Form 8-K/A filed January 24, 1997 (SEC File No. 0-28942).
 10.16   Covenant Not To Compete Agreement dated December 31, 1996 between
         Primex Technologies, Inc. and Olin Corporation. Incorporated by
         reference to Exhibit 10.7 to the Company's Amendment No. 1 to the Form
         8-K/A filed January 24, 1997 (SEC File No. 0-28942).
 10.17   Assignment of Raufoss Agreements to Primex and Sublicense to Olin for
         Small Caliber Ammunition dated December 30, 1996 between Primex
         Technologies, Inc. and Olin Corporation. Incorporated by reference to
         Exhibit 10.8 to the Company's Amendment No. 1 to the Form 8-K/A filed
         January 24, 1997 (SEC File No. 0-28942).
 10.18   Credit Agreement dated as of December 23, 1996 among Primex
         Technologies, Inc., Olin Corporation, Morgan Guaranty Trust Co. of New
         York, as Agent, and various financial institutions. Incorporated by
         reference to Exhibit 10.10 to the Company's Amendment No. 1 to the
         Form 8-K/A filed January 24, 1997 (SEC File No. 0-28942).
 10.19   Trade Name License Agreement dated December 31, 1996 between Primex
         Technologies, Inc. and Olin Corporation. Incorporated by reference to
         Exhibit 10.11 to the Company's Amendment No. 1 to the Form 8-K/A filed
         January 24, 1997 (SEC File No. 0-28942).
 10.20   Transition Services Agreement dated December 31, 1996 between Primex
         Technologies, Inc. and Olin Corporation. Incorporated by reference to
         Exhibit 10.12 to the Company's Amendment No. 1 to the Form 8-K/A filed
         January 24, 1997 (SEC File No. 0-28942).
 10.21   Description of the Incentive Compensation Plan of Primex Technologies,
         Inc.
 10.22   Transition Bonus Program of Primex Technologies, Inc.
</TABLE>
 
                                       40
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>     <S>
 10.23   Building and Igloo Lease between U.S. Fish and Wildlife Service and
         Primex Technologies, Inc. dated January 1, 1997.
 10.24   Land Lease Agreement between D. Hebden Porteus, David M. Haig, Fred C.
         Weyand and Paul M. Ganley, The Connecticut National Bank and Merced
         Associates (includes Primex Technologies, Inc. through assignment)
         dated December 29, 1986.
 10.25   Lease Agreement between Zaser and Longston, Inc. and Rocket Research
         Company (now Primex Aerospace Company) dated July 14, 1982.
 10.26   Lease Agreement between The Northwestern Mutual Life Insurance Company
         and Rheem Manufacturing Company (now U.S. Ordnance Company) dated July
         1, 1956.
 10.27   Facility Lease between The Connecticut National Bank, Merced
         Associates and Physics International Company (now Primex Physics
         International Company) dated December 29, 1986.
 10.28   Lease Agreement between Heger Realty Corporation and Aerojet Ordnance
         Company (now U.S. Ordnance Company) dated October 15, 1985.
 16      Letter of consent from KPMG Peat Marwick regarding change in
         certifying accountant. Incorporated by reference to Exhibit 16 to the
         Company's Amendment No. 1 to the Form 8-K/A filed February 19, 1997
         (SEC File No. 0-28942).
 21      List of Subsidiaries of Primex Technologies, Inc. Incorporated by
         reference to Exhibit 21 to the Company's 10-K filed March 27, 1997
         (SEC File No. 333-18043).
 23.1    Consent of KPMG Peat Marwick LLP.
 23.2    Consent of Ernst & Young LLP.
 27      Financial Data Schedule.
</TABLE>
--------
* Denotes a management contract or compensatory plan or arrangement required
  to be filed as an exhibit to Item 14(c) of Form 10-K.
 
(b)Reports on Form 8-K:
 
  No reports on Form 8-K were filed by the Company during the fiscal quarter
  ended December 31, 1997.
 
                                      41
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
 
                                          Primex Technologies, Inc.
                                          (Registrant)
March 18, 1998
 
                                                    /s/ George H. Pain
                                          By: _________________________________
                                              GEORGE H. PAIN VICE PRESIDENT,
                                               GENERAL COUNSEL AND SECRETARY
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
 
              SIGNATURE                      CAPACITY                DATE
 
        /s/ James G. Hascall           Chairman of the          March 18, 1998
-------------------------------------   Board and Chief
          JAMES G. HASCALL              Executive Officer
                                        and Director
 
        /s/ Angelo A. Catani           Vice Chairman of the     March 18, 1998
-------------------------------------   Board and Director
          ANGELO A. CATANI
 
         /s/ John E. Fischer           Vice President and       March 18, 1998
-------------------------------------   Chief Financial and
           JOHN E. FISCHER              Accounting Officer
 
       /s/ Edwin M. Glasscock          Director                 March 18, 1998
-------------------------------------
         EDWIN M. GLASSCOCK
 
           /s/ David Lasky             Director                 March 18, 1998
-------------------------------------
             DAVID LASKY
 
          /s/ Bob Martinez             Director                 March 18, 1998
-------------------------------------
            BOB MARTINEZ
 
       /s/ William B. Mitchell         Director                 March 18, 1998
-------------------------------------
         WILLIAM B. MITCHELL
 
          /s/ Robert H. Rau            Director                 March 18, 1998
-------------------------------------
            ROBERT H. RAU
 
       /s/ Anthony W. Ruggiero         Director                 March 18, 1998
-------------------------------------
 
         ANTHONY W. RUGGIERO
 
         /s/ Leon E. Salomon           Director                 March 18, 1998
-------------------------------------
           LEON E. SALOMON
 
                                      42