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EX-32 - EXHIBIT 32 - Northrop Grumman Innovation Systems, Inc.atk12282014xexhibit32.htm
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EXCEL - IDEA: XBRL DOCUMENT - Northrop Grumman Innovation Systems, Inc.Financial_Report.xls

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 2014
 
OR
 
 
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from                    to                  
Commission file number 1-10582
Alliant Techsystems Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
41-1672694
(I.R.S. Employer
Identification No.)
1300 Wilson Boulevard, Suite 400
 
 
Arlington, Virginia
 
22209-2307
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (703) 412-5960

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ý
 
Accelerated Filer o
 
Non-Accelerated Filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of February 4, 2015, there were 31,937,736 shares of the registrant's voting common stock outstanding.
 




TABLE OF CONTENTS



PART I— FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 
Quarter Ended
 
Nine Months Ended
(Amounts in thousands except per share data)
 
December 28, 2014
 
December 29, 2013
 
December 28, 2014
 
December 29, 2013
Sales
 
$
1,251,378

 
$
1,208,404

 
$
3,800,017

 
$
3,429,526

Cost of sales
 
947,534

 
919,234

 
2,885,513

 
2,630,919

Gross profit
 
303,844

 
289,170

 
914,504

 
798,607

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
12,194

 
11,899

 
31,024

 
34,126

Selling
 
62,122

 
56,952

 
185,366

 
146,617

General and administrative
 
72,537

 
74,344

 
224,891

 
198,003

Goodwill/tradename impairment
 
52,220

 

 
52,220

 

Income before interest, income taxes, and noncontrolling interest
 
104,771

 
145,975

 
421,003

 
419,861

Interest expense
 
(21,394
)
 
(28,501
)
 
(68,169
)
 
(57,634
)
Interest income
 
28

 
1,793

 
72

 
1,884

Income before income taxes and noncontrolling interest
 
83,405

 
119,267

 
352,906

 
364,111

Income taxes
 
37,617

 
38,954

 
126,262

 
118,991

Net income before noncontrolling interest
 
45,788

 
80,313

 
226,644

 
245,120

Less net income attributable to noncontrolling interest
 
141

 
27

 
291

 
210

Net income attributable to Alliant Techsystems Inc. 
 
$
45,647

 
$
80,286

 
$
226,353

 
$
244,910

 
 
 
 
 
 
 
 
 
Alliant Techsystems Inc. earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
1.44

 
$
2.55

 
$
7.15

 
$
7.73

Diluted
 
$
1.43

 
$
2.46

 
$
6.98

 
$
7.55

Cash dividends paid per common share
 
$
0.32

 
$
0.26

 
$
0.96

 
$
0.78

Alliant Techsystems Inc. weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
31,693

 
31,536

 
31,676

 
31,701

Diluted
 
31,998

 
32,613

 
32,410

 
32,418

 
 


 


 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
Net income before noncontrolling interest
 
$
45,788

 
$
80,313

 
$
226,644

 
$
245,120

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Pension and other postretirement benefit liabilities:
 
 
 
 
 
 
 
 
Reclassification of prior service credits for pension and postretirement benefit plans recorded to net income, net of tax benefit of $2,955, $2,810, $8,864, and $8,430, respectively
 
(4,761
)
 
(4,531
)
 
(14,285
)
 
(13,594
)
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(11,582), $(14,198), and $(34,747) $(42,594), respectively
 
18,638

 
22,847

 
55,919

 
68,541

Change in fair value of derivatives, net of tax benefit (expense) of $1,623, $(1,406), $(885) and $342, respectively
 
(2,592
)
 
2,246

 
1,414

 
(547
)
Change in fair value of available-for-sale securities, net of tax (expense) benefit of $(18), $(35), $(172), and $29, respectively
 
30

 
56

 
276

 
(47
)
Change in cumulative translation adjustment, net of tax benefits of $4,806, $1,035, $9,650, and $1,011, respectively
 
(7,677
)
 
(1,654
)
 
(15,415
)
 
(1,620
)
Total other comprehensive income
 
3,638

 
18,964

 
27,909

 
52,733

Comprehensive income
 
49,426

 
99,277

 
254,553

 
297,853

Less comprehensive income attributable to noncontrolling interest
 
141

 
27

 
291

 
210

Comprehensive income attributable to Alliant Techsystems Inc.
 
$
49,285

 
$
99,250

 
$
254,262

 
$
297,643

See Notes to the Condensed Consolidated Financial Statements.

2


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Amounts in thousands except share data)
 
December 28, 2014
 
March 31, 2014
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
112,920

 
$
266,632

Net receivables
 
1,711,654

 
1,473,820

Net inventories
 
552,390

 
558,250

Income tax receivable
 
33,233

 

Deferred income taxes
 
97,855

 
93,616

Other current assets
 
81,400

 
69,280

Total current assets
 
2,589,452

 
2,461,598

Net property, plant, and equipment
 
692,992

 
697,551

Goodwill
 
1,883,711

 
1,916,921

Net intangibles
 
537,168

 
577,850

Deferred charges and other noncurrent assets
 
116,396

 
117,226

Total assets
 
$
5,819,719

 
$
5,771,146

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
159,997

 
$
249,228

Accounts payable
 
341,697

 
315,605

Contract advances and allowances
 
142,742

 
105,787

Accrued compensation
 
100,317

 
128,821

Accrued income taxes
 

 
7,877

Other current liabilities
 
315,129

 
322,832

Total current liabilities
 
1,059,882

 
1,130,150

Long-term debt
 
1,908,503

 
1,843,750

Noncurrent deferred income taxes
 
141,358

 
117,515

Postretirement and postemployment benefits
 
67,253

 
74,874

Pension
 
464,869

 
557,775

Other noncurrent liabilities
 
128,707

 
124,944

Total liabilities
 
3,770,572

 
3,849,008

Commitments and contingencies (Note 16)
 

 

Common stock—$.01 par value:
 
 
 
 
Authorized—180,000,000 shares, Issued and outstanding—31,938,188 shares at December 28, 2014 and 31,842,642 shares at March 31, 2014
 
319

 
318

Additional paid-in-capital
 
435,746

 
534,015

Retained earnings
 
2,984,960

 
2,789,264

Accumulated other comprehensive loss
 
(652,900
)
 
(680,809
)
Common stock in treasury, at cost—9,638,009 shares held at December 28, 2014 and 9,712,877 shares held at March 31, 2014
 
(729,832
)
 
(731,213
)
Total Alliant Techsystems Inc. stockholders' equity
 
2,038,293

 
1,911,575

Noncontrolling interest
 
10,854

 
10,563

Total equity
 
2,049,147

 
1,922,138

Total liabilities and equity
 
$
5,819,719

 
$
5,771,146

See Notes to the Condensed Consolidated Financial Statements.

3


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Nine Months Ended
(Amounts in thousands)
 
December 28, 2014
 
December 29, 2013
Operating Activities:
 
 
 
 
Net income before noncontrolling interest
 
$
226,644

 
$
245,120

Adjustments to net income to arrive at cash provided by operating activities:
 
 
 
 
Depreciation
 
78,605

 
70,160

Amortization of intangibles
 
25,433

 
17,239

Amortization of debt discount
 
3,212

 
5,481

Amortization of deferred financing costs
 
3,887

 
9,047

Goodwill/tradename impairment
 
52,220

 

Deferred income taxes
 
31,920

 
12,170

Loss on disposal of property
 
2,448

 
3,908

Share-based plans expense
 
12,005

 
9,437

Excess tax benefits from share-based plans
 
(6,983
)
 
(833
)
Changes in assets and liabilities net of effects of business acquisitions:
 
 
 
 
Net receivables
 
(241,072
)
 
46,217

Net inventories
 
3,515

 
(47,679
)
Accounts payable
 
39,455

 
(177,435
)
Contract advances and allowances
 
36,955

 
(11,910
)
Accrued compensation
 
(32,445
)
 
(35,570
)
Accrued income taxes
 
(22,135
)
 
9,726

Pension and other postretirement benefits
 
(33,006
)
 
41,284

Other assets and liabilities
 
(26,472
)
 
25,922

Cash provided by operating activities
 
154,186

 
222,284

Investing Activities:
 
 
 
 
Capital expenditures
 
(91,991
)
 
(80,580
)
Acquisition of business, net of cash acquired
 

 
(1,301,597
)
Proceeds from the disposition of property, plant, and equipment
 
2,154

 
5,326

Cash used for investing activities
 
(89,837
)
 
(1,376,851
)
Financing Activities:
 
 
 
 
Borrowings on line of credit
 
635,000

 
280,000

Repayments of line of credit
 
(535,000
)
 
(280,000
)
Payments made on bank debt
 
(28,250
)
 
(25,000
)
Payments made to extinguish debt
 
(404,462
)
 
(510,000
)
Proceeds from issuance of long-term debt
 
150,000

 
1,560,000

Payments made for debt issue costs
 
(1,008
)
 
(21,641
)
Purchase of treasury shares
 
(9,001
)
 
(53,270
)
Dividends paid
 
(30,657
)
 
(24,951
)
Proceeds from employee stock compensation plans
 

 
729

Excess tax benefits from share-based plans
 
6,983

 
833

Cash provided by (used for) financing activities
 
(216,395
)
 
926,700

Effect of foreign currency exchange rate fluctuations on cash
 
(1,666
)
 
335

Decrease in cash and cash equivalents
 
(153,712
)
 
(227,532
)
Cash and cash equivalents at beginning of period
 
266,632

 
417,289

Cash and cash equivalents at end of period
 
$
112,920

 
$
189,757

 
 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
 
Noncash operating and investing activities:
 
 
 
 
Capital expenditures included in accounts payable
 
$
4,787

 
$
2,991

   See Notes to the Condensed Consolidated Financial Statements.

4


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
 
 
Common Stock $.01 Par Value
 
Additional
Paid-in-capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Noncontrolling
Interest
 
Total
Equity
(Amounts in thousands except share data)
 
Shares
 
Amount
 
 
 
 
 
 
Nine Months Ended December 28, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2014
 
31,842,642

 
$
318

 
$
534,015

 
$
2,789,264

 
$
(680,809
)
 
$
(731,213
)
 
$
10,563

 
$
1,922,138

Comprehensive income
 
 
 
 
 
 
 
226,353

 
27,909

 
 
 
291

 
254,553

Exercise of stock options
 

 

 

 

 

 

 

 

Restricted stock grants
 
29,122

 

 
(3,312
)
 

 

 
3,312

 

 

Share-based compensation
 

 

 
12,005

 

 

 

 

 
12,005

Treasury stock purchased
 

 

 

 

 

 

 

 

Performance shares issued net of treasury stock withheld
 
66,702

 

 
(8,290
)
 

 

 
1,967

 

 
(6,323
)
Tax benefit related to share-based plans and other
 

 

 
12,663

 

 

 

 

 
12,663

Dividends paid
 

 

 

 
(30,657
)
 

 

 

 
(30,657
)
Convertible debt premium, net of tax ($42,322)
 

 

 
(112,555
)
 

 

 

 

 
(112,555
)
Employee benefit plans and other
 
(278
)
 
1

 
1,220

 

 

 
(3,898
)
 

 
(2,677
)
Balance, December 28, 2014
 
31,938,188

 
$
319

 
$
435,746

 
$
2,984,960

 
$
(652,900
)
 
$
(729,832
)
 
$
10,854

 
$
2,049,147

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended December 29, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2013
 
32,318,295

 
$
323

 
$
534,137

 
$
2,483,483

 
$
(828,304
)
 
$
(687,470
)
 
$
10,392

 
$
1,512,561

Comprehensive income
 
 
 
 
 
 
 
244,910

 
52,733

 
 
 
210

 
297,853

Exercise of stock options
 
13,173

 

 
(252
)
 

 

 
981

 

 
729

Restricted stock grants
 
72,342

 

 
(6,017
)
 

 

 
6,017

 

 

Share-based compensation
 

 

 
9,437

 

 

 

 

 
9,437

Treasury stock purchased
 
(609,922
)
 

 

 

 

 
(52,130
)
 

 
(52,130
)
Performance shares issued net of treasury stock withheld
 
34,138

 

 
(3,856
)
 

 

 
2,450

 

 
(1,406
)
Tax benefit related to share-based plans and other
 

 

 
4,582

 

 

 

 

 
4,582

Dividends paid
 

 

 

 
(24,951
)
 

 

 

 
(24,951
)
Employee benefit plans and other
 
(4,330
)
 
(5
)
 
532

 

 

 
(918
)
 

 
(391
)
Balance, December 29, 2013
 
31,823,696

 
$
318

 
$
538,563

 
$
2,703,442

 
$
(775,571
)
 
$
(731,070
)
 
$
10,602

 
$
1,746,284

See Notes to the Condensed Consolidated Financial Statements.

5


ALLIANT TECHSYTEMS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Quarter and Nine Months Ended December 28, 2014
(Amounts in thousands except share and per share data and unless otherwise indicated)
1. Basis of Presentation and Responsibility for Interim Financial Statements
The unaudited condensed consolidated financial statements of Alliant Techsystems Inc. (“the Company” or “ATK”) as set forth in this quarterly report have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States can be condensed or omitted. ATK’s accounting policies are described in the notes to the consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended March 31, 2014 (“fiscal 2014”). Management is responsible for the unaudited condensed consolidated financial statements included in this document. The condensed consolidated financial statements included in this document are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of ATK’s financial position as of December 28, 2014, and its results of operations for the quarters and nine months ended December 28, 2014 and December 29, 2013, and cash flows for the nine months ended December 28, 2014 and December 29, 2013.

On April 28, 2014, the Company entered into a Transaction Agreement (the “Transaction Agreement”) with Vista Outdoor Inc. (formerly Vista SpinCo Inc.), a Delaware corporation and a wholly owned subsidiary of ATK (“Sporting”), Vista Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of ATK, and Orbital Sciences Corporation, a Delaware corporation (“Orbital”), providing for the tax-free spin-off of the Sporting Group business to ATK stockholders (the “Distribution”), which will be immediately followed by a tax-free merger of Vista Merger Sub Inc. with and into Orbital (the “Merger” and together with the Distribution, the “Transaction”), with Orbital surviving the Merger as a wholly owned subsidiary of ATK. The Sporting Group continues to be included as part of continuing operations. The stockholders of both ATK and Orbital approved the merger on January 27, 2015. The transaction is anticipated to close on February 9, 2015.

Sales, expenses, cash flows, assets, and liabilities can and do vary during the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its fiscal 2014 Annual Report on Form 10-K.

2. New Accounting Pronouncements

On May 28, 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. This guidance is effective for periods beginning after December 15, 2016 and early application is not permitted. ATK is in the process of evaluating the impact this standard will have on the Company.
On April 10, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, Reporting Discontinued Operations and Disclosures of Components of an Entity. The new guidance amends the definition of a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The new guidance will be effective prospectively in the first quarter of fiscal 2016, although early adoption is permitted. The Company is evaluating the impact adoption of the new guidance will have on our consolidated financial statements.
Other new pronouncements issued but not effective for the Company until after December 28, 2014 are not expected to have a material impact on the Company's continuing financial position, results of operations, or liquidity.
3. Fair Value of Financial Instruments
The current authoritative guidance on fair value clarifies the definition of fair value, prescribes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about the use of fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The valuation techniques required by the current authoritative literature are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

6

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
3. Fair Value of Financial Instruments (Continued)

Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3—Significant inputs to the valuation model are unobservable.
The following section describes the valuation methodologies used by ATK to measure its financial instruments at fair value.
Investments in marketable securities—ATK's investments in marketable securities represent investments held in a common collective trust ("CCT") that primarily invests in fixed income securities which are used to pay benefits under a nonqualified supplemental executive retirement plan for certain executives and highly compensated employees. Investments in a collective investment vehicle are valued by multiplying the investee company's net asset value per share with the number of units or shares owned at the valuation date as determined by the investee company. Net asset value per share is determined by the investee company's custodian or fund administrator by deducting from the value of the assets of the investee company all its liabilities and the resulting number is divided by the outstanding number of shares or units. Investments held by the CCT, including collateral invested for securities on loan, are valued on the basis of valuations furnished by a pricing service approved by the CCT's investment manager, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the CCT's investment manager. The fair value of these securities is included within other current assets and deferred charges and other noncurrent assets on the consolidated balance sheets. ATK considers these to be Level 2 instruments.
Derivative financial instruments and hedging activities—In order to manage its exposure to commodity pricing, interest rate risk, and foreign currency risk, ATK periodically utilizes commodity, interest rate, and foreign currency derivatives, which are considered Level 2 instruments. As discussed further in Note 7, ATK has outstanding commodity forward contracts that were entered into to hedge forecasted purchases of copper and zinc. Commodity derivatives are valued based on prices of futures exchanges and recently reported transactions in the marketplace. During fiscal 2014, ATK entered into five interest rate swaps. These swaps are valued based on future LIBOR rates and the established fixed-rate is based primarily on quotes from banks. Foreign currency derivatives are valued based on observable market transactions of spot currency rates and forward currency prices. During the nine months ended December 28, 2014, the Company entered into various foreign currency forward contracts. There were no foreign currency derivatives outstanding as of March 31, 2014.
Long-term debt—The fair value of the variable-rate long-term debt is calculated based on current market rates for debt of the same risk and maturities. The fair value of the fixed-rate debt is based on market quotes for each issuance. ATK considers these to be Level 2 instruments.
The following table sets forth by level within the fair value hierarchy ATK's financial assets and liabilities that are measured at fair value on a recurring basis:
 
 
December 28, 2014
 
 
Fair Value Measurements
Using Inputs Considered as
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Marketable securities
 
$

 
$
11,902

 
$

Derivatives
 

 
1,150

 

Liabilities:
 
 
 
 
 
 
Derivatives
 
$

 
$
6,982

 
$



7

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
3. Fair Value of Financial Instruments (Continued)

 
 
March 31, 2014
 
 
Fair Value Measurements
Using Inputs Considered as
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Marketable securities
 
$

 
$
10,130

 
$

Derivatives
 

 
328

 

Liabilities:
 
 
 
 
 
 
Derivatives
 
$

 
$
8,459

 
$

The following table presents ATK's assets and liabilities that are not measured at fair value on a recurring basis:
 
 
December 28, 2014
 
March 31, 2014
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Fixed-rate debt
 
$
650,000

 
$
672,500

 
$
846,228

 
$
1,062,078

Variable-rate debt
 
1,418,500

 
1,414,956

 
1,246,750

 
1,247,062


4. Acquisitions
In accordance with the accounting standards regarding business combinations, the results of acquired businesses are included in ATK’s consolidated financial statements from the date of acquisition. For each acquisition, the purchase price is allocated to the acquired assets and liabilities based on fair value. The excess purchase price over estimated fair value of the net assets acquired is recorded as goodwill.

Savage Acquisition

On June 21, 2013, ATK acquired Caliber Company, parent company of Savage Sports Corporation ("Savage"), a leading manufacturer of sporting long guns. Operating under the brand names of Savage Arms, Stevens and Savage Range Systems, the company designs, manufactures and markets centerfire and rimfire rifles, shotguns and shooting range systems used for hunting as well as competitive and recreational target shooting. The purchase price was $315,000 net of cash acquired, and the settlement of purchase price adjustments. ATK believes the acquisition complements ATK's growing portfolio of leading consumer brands and has allowed the Company to build upon its offerings with Savage's prominent, respected brands known for accuracy, quality, innovation, value and craftsmanship. Savage's sales distribution channels, new product development, and sophistication in manufacturing will significantly increase ATK's presence with a highly relevant product offering to distributors, retailers and consumers. Savage employs approximately 400 employees and is included in ATK's Sporting Group. The purchase price allocation was completed during the first quarter of fiscal 2015. None of the goodwill generated in this acquisition will be deductible for tax purposes.

Bushnell Acquisition
    
On November 1, 2013, ATK acquired Bushnell Group Holdings, Inc. ("Bushnell"). Bushnell is a leading global designer, marketer and distributor of branded sports optics, outdoor accessories and performance eyewear. The purchase price was $985,000 net of cash acquired, subject to customary post-closing adjustments. ATK believes the acquisition broadened the Company's existing capabilities in the commercial shooting sports market and expands the portfolio of branded shooting sports products. In addition, this transaction enables the Company to enter new sporting markets in golf and snow sports. ATK will leverage Bushnell’s strong sourcing, marketing, branding and distribution capabilities and capitalize on Bushnell’s track record of successfully integrating acquisitions and delivering profitable growth. Bushnell employs approximately 1,100 employees and is included in ATK's Sporting Group. The purchase price allocation was completed during the third quarter of fiscal 2015. A portion of the goodwill generated in this acquisition will be deductible for tax purposes. ATK has recorded sales of approximately $151,164 and $420,736 for the quarter and nine months ended December 28, 2014, respectively and income before interest, income taxes, and noncontrolling interest of approximately $19,994 and $40,365 for the quarter and nine months ended December 28, 2014 associated with the operations of this acquired business which reflects transition costs. Subsequent to November 1, 2013, ATK recorded sales of approximately $85,074 for the quarter and nine months ended

8

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
4. Acquisitions (Continued)

December 29, 2013 and income before interest, income taxes, and noncontrolling interest of approximately $3,123 for the quarter and nine months ended December 29, 2013 associated with the operations of this acquired business which reflects transition costs and $1,377 of inventory step-up costs.

Allocation of Consideration Transferred to Net Assets Acquired:

The following amounts represent the final determination of the fair value of identifiable assets acquired and liabilities assumed from the Bushnell acquisition:

Purchase price net of cash acquired:
 
 
 
 
Cash paid
 
 
 
$
985,000

Cash paid for additional working capital
 
 
 
4,185

Total purchase price
 
 
 
989,185

Fair value of assets acquired:
 
 
 
 
Net receivables
 
$
109,429

 
 
Net inventories
 
157,184

 
 
Tradename, technology, and customer relationship intangibles
 
365,579

 
 
Property, plant, and equipment
 
25,055

 
 
Other assets
 
6,886

 
 
Total assets
 
664,133

 
 
Fair value of liabilities assumed:
 
 
 
 
Accounts payable
 
80,099

 
 
Deferred income taxes
 
88,121

 
 
Other liabilities
 
30,932

 
 
Total liabilities
 
199,152

 
 
Net assets acquired
 
 
 
464,981

Goodwill
 
 
 
$
524,204


Supplemental Pro Forma Data:
    
ATK used the acquisition method of accounting to account for this acquisition and, accordingly, the results of Bushnell are included in ATK’s consolidated financial statements for the period subsequent to the date of acquisition. The following unaudited supplemental pro forma data for the quarter and nine months ended December 29, 2013 present consolidated information as if the acquisition had been completed on April 1, 2012. The pro forma results were calculated by combining the results of ATK with the stand-alone results of Bushnell for the pre-acquisition periods, which were adjusted to account for certain costs which would have been incurred during this pre-acquisition period:
 
 
Quarter Ended
 
Nine Months Ended
 
 
December 29, 2013
 
December 29, 2013
Sales
 
$
1,264,430

 
$
3,783,713

Net income attributable to Alliant Techsystems Inc. 
 
96,640

 
293,024

Basic earnings per common share
 
3.06

 
9.24

Diluted earnings per common share
 
2.96

 
9.04



9

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
4. Acquisitions (Continued)

The unaudited supplemental pro forma data above include the following significant non-recurring adjustments made to account for certain costs which would have been incurred if the acquisition had been completed on April 1, 2012, as adjusted for the applicable tax impact:
 
 
Quarter Ended
 
Nine Months Ended
(Amounts in thousands)
 
December 29, 2013
 
December 29, 2013
Inventory Step-up, net1
 
$
(847
)
 
$
(847
)
ATK/Bushnell fees for advisory, legal, accounting services2
 
(8,369
)
 
(11,031
)
1. Adjustment reflects the increased cost of goods sold expense which results from the fair value step-up in inventory of $3,500 which was expensed over the first inventory cycle.
2. Removed the ATK/Bushnell fees that were incurred in connection with the acquisition of Bushnell from fiscal 2014, and considered those fees as incurred during the first quarter of fiscal 2013. Costs were recorded in General and administrative expense.


There were no acquisitions during fiscal 2015.

10



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)

5. Goodwill, Net Intangibles, and Deferred Charges and Other Noncurrent Assets
The changes in the carrying amount of goodwill by segment were as follows:
 
 
Aerospace
Group
 
Defense
Group
 
Sporting
Group
 
Total
Balance, March 31, 2014
 
$
676,516

 
$
366,947

 
$
873,458

 
$
1,916,921

Opening balance sheet adjustments
 

 

 
22,648

 
22,648

Impairment
 

 

 
(41,020
)
 
(41,020
)
Effect of foreign currency exchange rates
 

 

 
(14,838
)
 
(14,838
)
Balance, December 28, 2014
 
$
676,516

 
$
366,947

 
$
840,248

 
$
1,883,711


The opening balance sheet adjustments in the Sporting Group related to the final purchase price allocation adjustments to the original purchase price allocation for Savage and Bushnell as previously discussed.
As a result of the current market correction impacting demand for firearms and a decline in the Company’s near-term projected cash flows in the Firearms reporting unit during the quarter ending December 28, 2014, ATK determined a triggering event had occurred which indicated it was more likely than not that the fair value of the reporting unit was less than the book value. The fair value of the reporting unit is determined using both an income and market approach. The value estimated using a discounted cash flow model is weighted against the estimated value derived from the guideline company market approach method. This market approach method estimates the price reasonably expected to be realized from the sale of the company based on comparable companies.
The goodwill recorded within the Sporting Group above is presented net of $41,020 of impairment losses. In addition as a result of market correction noted above ATK evaluated the fair value of the trade names as well. ATK determined the fair value of the tradenames based on the relief of royalty method and used a royalty rate of 6% for the Savage Arms tradename based on public guideline royalty-based transactions and a discount rate of 16%. This analysis resulted in a $11,200 noncash impairment charge was recorded within the Firearms reporting unit related to the non-amortizing Savage tradename intangible.
The goodwill recorded within Aerospace Group above is presented net of $108,500 of accumulated impairment losses.
Net intangibles includes amortizing and non-amortizing assets consisting of trademarks, tradenames and brand names that are not being amortized as their estimated useful lives are considered indefinite.

Net intangibles consisted of the following:
 
 
December 28, 2014
 
March 31, 2014
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
Amortizing intangibles:
 
 
 
 
 
 
 
 
 
 
 
 
Tradename
 
$
184,660

 
$
(31,125
)
 
$
153,535

 
$
184,660

 
$
(21,723
)
 
$
162,937

Patented technology
 
33,389

 
(13,027
)
 
20,362

 
33,389

 
(10,325
)
 
23,064

Customer relationships and other
 
221,750

 
(51,577
)
 
170,173

 
226,105

 
(38,554
)
 
187,551

Total amortizing intangibles
 
439,799

 
(95,729
)
 
344,070

 
444,154

 
(70,602
)
 
373,552

Non-amortizing intangibles
 
193,098

 

 
193,098

 
204,298

 

 
204,298

Net intangibles
 
$
632,897

 
$
(95,729
)
 
$
537,168

 
$
648,452

 
$
(70,602
)
 
$
577,850


The amortizing intangibles in the table above are being amortized using a straight-line method over a weighted-average remaining period of approximately 12.4 years. Amortization expense for the quarter and nine months ended December 28, 2014 was $8,508 and $25,433, respectively. Amortization expense for the quarter and nine months ended December 29, 2013 was $10,133 and $17,239, respectively. ATK expects amortization expense related to these assets to be as follows:


11

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
5. Goodwill, Net Intangibles, and Deferred Charges and Other Noncurrent Assets (Continued)


Remainder of fiscal 2015
 
$
8,528

Fiscal 2016
 
32,712

Fiscal 2017
 
30,422

Fiscal 2018
 
30,422

Fiscal 2019
 
27,678

Thereafter
 
214,308

Total
 
$
344,070

Deferred charges and other noncurrent assets consisted of the following:
 
 
December 28, 2014
 
March 31, 2014
Gross debt issuance costs
 
$
28,995

 
$
28,356

Less accumulated amortization
 
(7,600
)
 
(4,084
)
Net debt issuance costs
 
21,395

 
24,272

Parts inventory
 
9,473

 
10,921

Environmental remediation receivable
 
22,840

 
22,128

Derivative contracts
 
167

 
328

Other
 
62,521

 
59,577

Total deferred charges and other noncurrent assets
 
$
116,396

 
$
117,226


6. Earnings Per Share Data
 Basic earnings per share ("EPS") is computed based upon the weighted average number of common shares outstanding for each period. Diluted EPS is computed based on the weighted average number of common shares and common equivalent shares. Common equivalent shares represent the effect of stock-based awards and contingently issuable shares related to ATK's Convertible Senior Subordinated Notes prior to their redemption during the quarter ended September 28, 2014 (see Note 12) during each period presented, which, if exercised, earned, or converted, would have had dilutive effect on EPS. In computing EPS for the quarter and nine months ended December 28, 2014 and December 29, 2013 earnings, as reported for each respective period, is divided by weighted-average shares outstanding, determined as follows (in thousands):
 
 
Quarter Ended
 
Nine Months Ended
Weighted-average Shares Outstanding
 
December 28, 2014
 
December 29, 2013
 
December 28, 2014
 
December 29, 2013
Basic
 
31,693

 
31,536

 
31,676

 
31,701

Dilutive effect of stock-based awards
 
305

 
256

 
340

 
241

Dilutive effect of contingently issuable shares
 

 
821

 
394

 
476

Diluted
 
31,998

 
32,613

 
32,410

 
32,418

Anti-dilutive stock options excluded from the calculation of diluted earnings per share
 
45

 
3

 
45

 
3


7. Derivative Financial Instruments
ATK is exposed to market risks arising from adverse changes in:
commodity prices affecting the cost of raw materials and energy,
interest rates, and
foreign currency exchange risks.

12

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
7. Derivative Financial Instruments (continued)


In the normal course of business, these risks are managed through a variety of strategies, including the use of derivative instruments. ATK uses commodity forward contracts to hedge forecasted purchases of certain commodities, foreign currency exchange contracts to hedge forecasted transactions denominated in a foreign currency, and interest rate swaps to hedge forecasted interest payments and the risk associated with variable interest rates on long-term debt.
ATK entered into forward contracts for copper and zinc during fiscal 2014. The contracts essentially establish a fixed price for the underlying commodity and are designated and qualify as effective cash flow hedges of purchases of the commodity. Ineffectiveness is calculated as the amount by which the change in the fair value of the derivatives exceeds the change in the fair value of the anticipated commodity purchases.
ATK entered into interest rate swaps in fiscal 2014 whereby the Company pays a fixed rate on a total notional amount of $400,000 and receive one-month LIBOR. The fair value of interest rate swap agreements approximates the amount at which they could be settled, based on estimates obtained from the counterparties. The Company performs assessments of the effectiveness of hedge instruments on a quarterly basis and during fiscal 2015 and 2014 determined the hedges to be highly effective. The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. At December 28, 2014, three of the outstanding swap agreements were in a net liability position which would require the Company to make the net settlement payments to the counterparties, and two of the outstanding swap agreements were in a net asset position which would require the counterparties to make the net settlement payments to ATK. ATK does not anticipate nonperformance by the Company's counterparties. ATK does not hold or issue derivative financial instruments for trading purposes.
ATK entered into various foreign currency forward contracts during fiscal 2015. The contracts are used to hedge forecasted inventory purchases and subsequent payments, or customer receivables, denominated in foreign currencies and were designated and qualified as effective cash flow hedges. Ineffectiveness with respect to forecasted inventory purchases is calculated based on changes in the forward rate until the anticipated purchase occurs; ineffectiveness of the hedge of the accounts payable is evaluated based on the change in fair value of its anticipated settlement.
The fair value of the commodity, interest rate, and foreign currency forward contracts are recorded within other assets or liabilities, as appropriate, and the effective portion is reflected in accumulated Other comprehensive income (loss) in the financial statements. The gains or losses on the commodity forward contracts are recorded in inventory as the commodities are purchased. The gains or losses on the foreign currency forward contracts are recorded in earnings when the related inventory is sold. The gains or losses on the interest rate swaps are recorded in interest expense when the interest payments are made.
As of December 28, 2014, ATK had the following outstanding commodity forward contracts that were entered into to hedge forecasted purchases:
 
Number of Pounds
Copper
9,825,000

Zinc
4,350,000

As of December 28, 2014, ATK had three outstanding interest rate swaps with notional amounts of $100,000 each with maturity dates in August 2016, 2017, and 2018, as well as two interest rate swaps with notional amounts of $50,000 each with maturity dates in November 2016 and 2017. See footnote 12 for additional information.
As of December 28, 2014, ATK had outstanding foreign currency forward contracts in place for the following amounts:
 
Notional Amount of Currency
Purchase of foreign currency:
 
Euro
40,654

Sale of foreign currency:
 
Euro
5,983

British Pound Sterling
1,371


13

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
7. Derivative Financial Instruments (continued)


The table below presents the fair value and location of ATK's derivative instruments designated as hedging instruments in the consolidated balance sheets.
 
 
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Location
 
December 28, 2014
 
March 31, 2014
 
December 28, 2014
 
March 31, 2014
Commodity forward contracts
 
Other current assets /
other current liabilities
 
$
163

 
$

 
$
2,848

 
$
6,212

Commodity forward contracts
 
Deferred charges and
other noncurrent assets /
other noncurrent liabilities
 

 

 

 
176

Interest rate contracts
 
Deferred charges and
other noncurrent assets /
other noncurrent liabilities
 
167

 
328

 
2,259

 
2,071

Foreign currency forward contracts
 
Other current assets /
other current liabilities
 
820

 

 
1,620

 

Foreign currency forward contracts
 
Deferred charges and
other noncurrent assets /
other noncurrent liabilities
 

 

 
255

 

Total
 
 
 
$
1,150

 
$
328

 
$
6,982

 
$
8,459

Due to the nature of ATK's business, the benefits associated with the commodity contracts may be passed on to the customer and not realized by ATK.
For the periods presented below, the derivative gains and losses in the consolidated statements of comprehensive income related to commodity forward contracts, interest rate swaps, and foreign currency forward contracts were as follows:
 
 
Pretax Gain
(Loss) Reclassified from
Accumulated Other Comprehensive Income (Loss)
 
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
 
 
Location
 
Amount
 
Location
 
Amount
Quarter Ended December 28, 2014
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(431
)
 
Cost of Sales
 
$

Interest rate contracts
 
Interest expense
 
(1,037
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 
718

 
Cost of Sales
 

Quarter Ended December 29, 2013
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(2,688
)
 
Cost of Sales
 
$

Interest rate contracts
 
Interest expense
 
(869
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 

 
 
 
 
 
 
 
 
 
Nine Months Ended December 28, 2014
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(2,204
)
 
Cost of Sales
 
$

Interest rate contracts
 
Interest expense
 
(3,011
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 
718

 
Cost of Sales
 

Nine Months Ended December 29, 2013
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(4,297
)
 
Cost of Sales
 
$
(1,637
)
Interest rate contracts
 
Interest expense
 
(869
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 

All derivatives used by ATK during the periods presented were designated as hedging instruments.

14

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
7. Derivative Financial Instruments (continued)


During nine months ended December 29, 2013 there was a loss of $1,637 respectively, recognized in earnings as a result of ineffectiveness on forward contracts for copper and zinc. ATK expects that the remaining unrealized losses will be realized and reported in cost of sales as the cost of the commodities is included in cost of sales. Estimated and actual gains or losses will change as market prices change.
8. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive income (loss) ("AOCI"), net of income taxes, are as follows:
 
 
December 28, 2014
 
March 31, 2014
Derivatives
 
$
(3,608
)
 
$
(5,022
)
Pension and other postretirement benefits
 
(633,480
)
 
(675,114
)
Cumulative translation adjustment
 
(16,920
)
 
832

Available-for-sale securities
 
1,108

 
(1,505
)
Total accumulated other comprehensive loss
 
$
(652,900
)
 
$
(680,809
)
The following table summarizes the changes in the balance of AOCI, net of income tax:
 
Quarter Ended December 28, 2014
 
Nine Months Ended December 28, 2014
 
Derivatives
 
Pension and Other Postretire-ment Benefits
 
Available-for-sale Securities
 
Cumulative Translation Adjustment
 
Total
 
Derivatives
 
Pension and Other Postretire-ment Benefits
 
Available-for-sale Securities
 
Cumulative Translation Adjustment
 
Total
Beginning of period unrealized gain (loss) in AOCI
$
(1,016
)
 
$
(647,357
)
 
$
1,078

 
$
(9,243
)
 
$
(656,538
)
 
$
(5,022
)
 
$
(675,114
)
 
$
832

 
$
(1,505
)
 
$
(680,809
)
Net decrease in fair value of derivatives
(3,054
)
 

 

 

 
(3,054
)
 
(1,368
)
 

 

 

 
(1,368
)
Net losses reclassified from AOCI, offsetting the price paid to suppliers (1)
462

 

 

 

 
462

 
2,782

 

 

 

 
2,782

Net actuarial losses reclassified from AOCI (2)

 
18,638

 

 

 
18,638

 

 
55,919

 

 

 
55,919

Prior service costs reclassified from AOCI (2)

 
(4,761
)
 

 

 
(4,761
)
 

 
(14,285
)
 

 

 
(14,285
)
Net change in cumulative translation adjustment

 

 

 
(7,677
)
 
(7,677
)
 

 

 

 
(15,415
)
 
(15,415
)
Net change in available-for-sale securities

 

 
30

 

 
30

 

 

 
276

 

 
276

End of period unrealized gain (loss) in AOCI
$
(3,608
)
 
$
(633,480
)
 
$
1,108

 
$
(16,920
)
 
$
(652,900
)
 
$
(3,608
)
 
$
(633,480
)
 
$
1,108

 
$
(16,920
)
 
$
(652,900
)
(1)
Amounts related to ATK derivative instruments that were reclassified from AOCI and recorded as a component of cost of sales for each period presented.
(2)
Amounts related to ATK pension and other postretirement benefits that were reclassified from AOCI and recorded as a component of net periodic benefit cost for each period presented (Note 13).



15

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
8. Accumulated Other Comprehensive Loss (Continued)


 
Quarter Ended December 29, 2013
 
Nine Months Ended December 29, 2013
 
Derivatives
 
Pension and Other Postretire-ment Benefits
 
Available-for-sale Securities
 
Cumulative Translation Adjustment
 
Total
 
Derivatives
 
Pension and Other Postretire-ment Benefits
 
Available-for-sale Securities
 
Cumulative Translation Adjustment
 
Total
Beginning of period unrealized gain (loss) in AOCI
$
(4,985
)
 
$
(790,267
)
 
$
683

 
$
34

 
$
(794,535
)
 
$
(2,192
)
 
$
(826,898
)
 
$
786

 
$

 
$
(828,304
)
Net decrease in fair value of derivatives
59

 

 

 

 
59

 
(4,730
)
 

 

 

 
(4,730
)
Net losses reclassified from AOCI, offsetting the price paid to suppliers (1)
2,187

 

 

 

 
2,187

 
3,184

 

 

 

 
3,184

Net losses reclassified from AOCI, due to ineffectiveness (1)

 

 

 

 

 
999

 

 

 

 
999

Net actuarial losses reclassified from AOCI (2)

 
22,847

 

 

 
22,847

 

 
68,541

 

 

 
68,541

Prior service costs reclassified from AOCI (2)

 
(4,531
)
 

 

 
(4,531
)
 

 
(13,594
)
 

 

 
(13,594
)
Net change in cumulative translation adjustment
 
 
 
 
 
 
(1,654
)
 
(1,654
)
 
 
 
 
 
 
 
(1,620
)
 
(1,620
)
Net change in available-for-sale securities

 

 
56

 
 
 
56

 

 

 
(47
)
 
 
 
(47
)
End of period unrealized gain (loss) in AOCI
$
(2,739
)
 
$
(771,951
)
 
$
739

 
$
(1,620
)
 
$
(775,571
)
 
$
(2,739
)
 
$
(771,951
)
 
$
739

 
$
(1,620
)
 
$
(775,571
)
(1)
Amounts related to our derivative instruments that were reclassified from AOCI and recorded as a component of cost of sales for each period presented.
(2)
Amounts related to our pension and other postretirement benefits that were reclassified from AOCI and recorded as a component of net periodic benefit cost for each period presented (Note 13).
9. Net Receivables
Net receivables, including amounts due under long-term contracts ("contract receivables"), consisted of the following:
 
 
December 28, 2014
 
March 31, 2014
Billed receivables
 
$
577,256

 
$
479,950

Unbilled receivables
 
1,123,364

 
979,640

Other
 
11,034

 
14,230

Net receivables
 
$
1,711,654

 
$
1,473,820

Receivable balances are shown net of customer progress payments received of $534,411 as of December 28, 2014 and $527,670 as of March 31, 2014.
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 contractually billable as of the balance sheet date. These amounts include expected additional billable general overhead costs and fees on flexibly priced contracts awaiting final rate negotiations.
As of December 28, 2014 and March 31, 2014, the net receivable balance includes contract related unbilled receivables that ATK does not expect to collect within the next fiscal year of $309,200 and $264,400, respectively.


16


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)

10. Net Inventories
Net inventories consist of the following:
 
 
December 28, 2014
 
March 31, 2014
Raw materials
 
$
160,269

 
$
136,414

Work/contracts in process
 
147,333

 
150,071

Finished goods
 
244,788

 
271,765

Net inventories
 
$
552,390

 
$
558,250

11. Other Current and Noncurrent Liabilities
Other current and noncurrent liabilities consisted of the following:
 
 
December 28, 2014
 
March 31, 2014
Other current liabilities:
 
 
 
 
Employee benefits and insurance, including pension, and other postretirement and postemployment benefits
 
$
71,865

 
$
65,858

Warranties
 
17,615

 
19,080

Interest
 
14,528

 
8,341

Environmental remediation
 
5,679

 
8,550

Rebates
 
30,592

 
17,593

Deferred lease obligations
 
19,391

 
26,257

Derivative contracts
 
4,468

 
6,212

Federal excise tax
 
25,559

 
35,892

Other
 
125,432

 
135,049

Total other current liabilities
 
$
315,129

 
$
322,832

 
 
 
 
 
Other noncurrent liabilities:
 
 
 
 
Environmental remediation
 
$
45,375

 
$
44,938

Management nonqualified deferred compensation plans
 
15,275

 
17,043

Income taxes
 
24,830

 
18,659

Deferred lease obligations
 
18,798

 
19,791

Other
 
24,429

 
24,513

Total other noncurrent liabilities
 
$
128,707

 
$
124,944


17


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
11. Other Current and Noncurrent Liabilities (Continued)


ATK provides product warranties, which entail repair or replacement of non-conforming items, in conjunction with sales of certain products. Estimated costs related to warranties are recorded in the period in which the related product sales occur. The warranty liability recorded at each balance sheet date reflects the estimated liability for warranty coverage for products delivered based on historical information and current trends. The following table summarizes the changes in the product warranty:
Balance, March 31, 2014
$
19,080

Payments made
(686
)
Warranties issued
1,139

Changes related to preexisting warranties
(426
)
Balance, June 29, 2014
19,107

Payments made
(1,852
)
Warranties issued
2,233

Changes related to preexisting warranties
(734
)
Balance, September 28, 2014
18,754

Payments made
(1,146
)
Warranties issued
1,094

Changes related to preexisting warranties
(1,087
)
Balance, December 28, 2014
$
17,615


18


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)

12. Long-term Debt

Long-term debt, including the current portion, consisted of the following:
 
 
December 28, 2014
 
March 31, 2014
Senior Credit Facility dated November 1, 2013 (1):
 
 
 
 
Term A Loan due 2018
 
$
972,125

 
$
997,375

Term A Loan due 2019
 
148,125

 

Term B Loan due 2020
 
198,250

 
249,375

Revolving Credit Facility due 2018
 
100,000

 

5.25% Senior Notes due 2021 (2)
 
300,000

 
300,000

6.875% Senior Subordinated Notes due 2020 (3)
 
350,000

 
350,000

3.00% Convertible Senior Subordinated Notes due 2024 (4)
 

 
199,440

Principal amount of long-term debt
 
2,068,500

 
2,096,190

Less: Unamortized discounts
 

 
3,212

Carrying amount of long-term debt
 
2,068,500

 
2,092,978

Less: Current portion of long-term debt
 
159,997

 
249,228

Long-term debt
 
$
1,908,503

 
$
1,843,750

(1) In fiscal 2014, ATK entered into a Third Amended and Restated Credit Agreement (the "2013 Senior Credit Facility"), which replaced its 2010 Senior Credit Facility. The 2013 Senior Credit Facility is comprised of a Term A Loan of $1,010,000 and a $700,000 Revolving Credit Facility, both of which mature on November 1, 2018, and a Term B Loan of $250,000, which matures on November 1, 2020. The Term A Loan is subject to quarterly principal payments of $12,625, with the remaining balance due on November 1, 2018. Under the terms of the 2013 Senior Credit Facility, ATK exercised its option to increase the Term A Loan by $150,000 (the "Accordion") during the quarter ended September 28, 2014. Proceeds of the Accordion were used to partially finance the redemption of the 3.00% Convertible Notes, as discussed below. Terms of the Accordion are the same as the existing Term A Loan with the exception that it will mature on January 31, 2019, approximately three months after the existing Term A Loan. The Accordion is subject to quarterly principal payments of $1,875, with the balance due on January 31, 2019. During the quarter ended September 28, 2014, ATK also repaid $50,000 of its Term B Loan. The Term B Loan is now subject to quarterly principal payments of $499, with the remaining balance due on November 1, 2020. Substantially all domestic tangible and intangible assets of ATK and its subsidiaries are pledged as collateral under the 2013 Senior Credit Facility. Borrowings under the 2013 Senior Credit Facility bear interest at a rate equal to either the sum of a base rate plus a margin or the sum of a Eurodollar rate plus a margin. Each margin is based on ATK's senior secured credit ratings. Based on ATK's current credit rating, the current base rate margin is 1.00% and the current Eurodollar margin is 2.00%. The weighted average interest rate for the Term A Loan, after taking into account the interest rate swaps discussed below, was 2.52% at December 28, 2014. ATK pays an annual commitment fee on the unused portion of the Revolving Credit Facility based on its senior secured credit ratings. Based on ATK's current rating, this fee is currently 0.30%. As of December 28, 2014, ATK had $100,000 of borrowings against its $700,000 Revolving Credit Facility and had outstanding letters of credit of $191,009, which reduced amounts available on the Revolving Credit Facility to $408,991. Debt issuance costs totaling approximately $19,000 are being amortized over the term of each related Term Loan.
(2) In fiscal 2014, ATK issued $300,000 aggregate principal amount of 5.25% Senior Notes (the "5.25% Notes") that mature on October 1, 2021. These notes are general unsecured obligations. Interest on these notes is payable on April 1 and October 1 of each year. ATK has the right to redeem some or all of these notes from time to time on or after October 1, 2016, at specified redemption prices. Prior to October 1, 2016, ATK may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In addition, prior to October 1, 2016, ATK may redeem up to 35% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 105.25% of their principal amount plus accrued and unpaid interest to the date of redemption. Debt

19

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
12. Long-term Debt (Continued)

issuance costs of approximately $3,000 related to these notes are being amortized to interest expense over 8 years, the term of the notes.
(3) In fiscal 2011, ATK issued $350,000 aggregate principal amount of 6.875% Senior Subordinated Notes ("the 6.875% Notes") that mature on September 15, 2020. These notes are general unsecured obligations. Interest on these notes is payable on March 15 and September 15 of each year. ATK has the right to redeem some or all of these notes from time to time on or after September 15, 2015, at specified redemption prices. Prior to September 15, 2015, ATK may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. Debt issuance costs of approximately $7,100 related to these notes are being amortized to interest expense over 10 years. In accordance with the terms of the Transaction Agreement ATK anticipates redeeming these notes as during the closing process of the Transaction.
(4) In fiscal 2005, ATK issued $200,000 aggregate principal amount of 3.00% Convertible Senior Subordinated Notes (the "3.00% Convertible Notes") that were scheduled to mature on August 15, 2024. During the second quarter of fiscal 2015, ATK retired these notes and paid a total of approximately $354,000 in cash for $199,440 in principal amount. The amount paid in excess of the principal balance was recorded as a reduction to additional paid in capital of approximately $154,000 in the second quarter. The convertible shares had no impact on diluted shares outstanding for the quarter ended December 28, 2014 as the notes were redeemed during the second quarter of fiscal 2015 and an impact of 821,000 for the quarter ended December 29, 2013 because ATK's average stock price exceeded the conversion price during that period. For the nine months ended December 28, 2014 and December 29, 2013 convertible shares had an impact of 394,000 and 476,000, respectively, because ATK's average stock price exceeded the conversion price during those periods.
See Note 9 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014 for additional information regarding the terms and conditions of the Company’s outstanding debt agreements.

Interest Rate Swaps
During fiscal 2014, ATK entered into five floating-to-fixed interest rate swap agreements in order to manage interest costs and the risk associated with variable interest rates. As of December 28, 2014, ATK had the following cash flow hedge interest rate swaps in place:
 
Notional
 
Fair Value
 
Pay Fixed
 
Receive Floating
 
Maturity Date
Non-amortizing swap
$
100,000

 
$
(432
)
 
0.87
%
 
0.16
%
 
August 2016
Non-amortizing swap
$
100,000

 
$
(647
)
 
1.29
%
 
0.16
%
 
August 2017
Non-amortizing swap
$
100,000

 
$
(1,180
)
 
1.69
%
 
0.16
%
 
August 2018
Non-amortizing swap
$
50,000

 
$
105

 
0.65
%
 
0.16
%
 
November 2016
Non-amortizing swap
$
50,000

 
$
62

 
1.10
%
 
0.16
%
 
November 2017
The amount to be paid or received under these swaps is recorded as an adjustment to interest expense.
Rank and Guarantees
The 5.25% Notes rank senior in right of payment to the 6.875% Notes, both of which are subordinated in right of payment to all existing and future senior secured indebtedness, including the Senior Credit Facility. The outstanding notes are guaranteed on an unsecured basis, jointly and severally and fully and unconditionally, by substantially all of ATK's domestic subsidiaries. The parent company has no independent assets or operations. As a result of the acquisition of Bushnell during the third quarter of fiscal 2014, ATK's non-guarantor subsidiaries become more than minor. See footnote 20 for condensed consolidating financial information of the guarantor and non-guarantor subsidiaries. All of these guarantor subsidiaries are 100% owned by ATK. These guarantees are senior or senior subordinated obligations, as applicable, of the applicable subsidiary guarantors. The guarantee by any Subsidiary Guarantor of ATK’s obligations in respect of the 5.25% Notes and the 6.875% Notes will be released in each of the following circumstances:
if, as a result of the sale of its capital stock, such Subsidiary Guarantor ceases to be a Restricted Subsidiary;

20

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
12. Long-term Debt (Continued)

if such Subsidiary Guarantor is designated as an “Unrestricted Subsidiary”;
upon defeasance or satisfaction and discharge of the 5.25% Notes or the 6.875% Notes, as applicable; and
if such Subsidiary Guarantor has been released from its guarantees of indebtedness under the Credit Agreement and all capital markets debt securities.
Scheduled Minimum Payments of Long-term Debt
Remainder of fiscal 2015
$
29,999

Fiscal 2016
59,997

Fiscal 2017
59,997

Fiscal 2018
59,997

Fiscal 2019 (1)
1,019,247

Thereafter
839,263

Total
$
2,068,500

(1) This balance includes $100,000 of borrowings on the Revolving Credit Facility which has been classified as current as ATK intends to repay the balance within the next 12 months.
ATK's total debt (current portion of debt and long-term debt) as a percentage of total capitalization (total debt and stockholders' equity) was 50% and 52% as of December 28, 2014 and March 31, 2014, respectively.
Covenants and Default Provisions
ATK's Senior Credit Facility and the indentures governing the 5.25% Notes and the 6.875% Notes impose restrictions on ATK, including limitations on its ability to incur additional debt, enter into capital leases, grant liens, pay dividends and make certain other payments, sell assets, or merge or consolidate with or into another entity. In addition, the Senior Credit Facility limits ATK's ability to enter into sale-and-leaseback transactions. ATK’s 5.25% Notes and its 6.875% Notes limit the aggregate sum of dividends, share repurchases, and other designated restricted payments to an amount based on ATK’s net income, stock issuance proceeds, and certain other items, less restricted payments made, since April 1, 2001. As of December 28, 2014, this limit was approximately $967,000. The 2013 Senior Credit Facility allows ATK to make unlimited “restricted payments” (as defined in the credit agreement), which, among other items, would allow payments for future stock repurchases, as long as ATK maintains a certain amount of liquidity and maintains certain senior debt limits, with a limit, when those senior debt limits are not met, of $250,000 plus proceeds of any equity issuances plus 50% of net income since October 7, 2010. The Senior Credit Facility also requires that ATK meet and maintain specified financial ratios, including a minimum interest coverage ratio, a maximum consolidated senior leverage ratio, and a maximum consolidated leverage ratio. Many of ATK's debt agreements contain cross-default provisions so that noncompliance with the covenants within one debt agreement could cause a default under other debt agreements as well. ATK's ability to comply with these covenants and to meet and maintain the financial ratios may be affected by events beyond its control. Borrowings under the 2013 Senior Credit Facility are subject to compliance with these covenants. As of December 28, 2014, ATK was in compliance with the financial covenants.
Cash Paid for Interest on Debt
Cash paid for interest totaled $53,800 and $45,931 in the nine months ended December 28, 2014, and December 29, 2013.


21

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)


13. Employee Benefit Plans
The components of net periodic benefit cost are as follows:
 
 
Pension Benefits
 
 
Quarter Ended
 
Nine Months Ended
 
 
December 28, 2014
 
December 29, 2013
 
December 28, 2014
 
December 29, 2013
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
Service cost
 
$
5,849

 
$
8,691

 
$
17,547

 
$
26,072

Interest cost
 
32,596

 
32,563

 
97,788

 
97,690

Expected return on plan assets
 
(41,803
)
 
(40,278
)
 
(125,409
)
 
(120,833
)
Amortization of unrecognized net loss
 
29,814

 
36,473

 
89,442

 
109,418

Amortization of unrecognized prior service cost
 
(5,622
)
 
(5,246
)
 
(16,866
)
 
(15,738
)
Net periodic benefit cost
 
$
20,834

 
$
32,203

 
$
62,502

 
$
96,609


 
 
Other Postretirement Benefits
 
 
Quarter Ended
 
Nine Months Ended
 
 
December 28, 2014
 
December 29, 2013
 
December 28, 2014
 
December 29, 2013
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
Service cost
 
$
1

 
$
2

 
$
3

 
$
7

Interest cost
 
1,203

 
1,302

 
3,609

 
3,905

Expected return on plan assets
 
(888
)
 
(855
)
 
(2,665
)
 
(2,564
)
Amortization of unrecognized net loss
 
409

 
572

 
1,227

 
1,716

Amortization of unrecognized prior service cost
 
(2,094
)
 
(2,095
)
 
(6,282
)
 
(6,286
)
Net periodic benefit income
 
$
(1,369
)
 
$
(1,074
)
 
$
(4,108
)
 
$
(3,222
)
Employer Contributions. During the nine months ended December 28, 2014, ATK contributed $80,400 directly to the pension trust and $2,432 directly to retirees under its nonqualified supplemental executive retirement plan. ATK also contributed $8,138 to its other postretirement benefit plans. ATK does not anticipate making any additional contributions to the pension trust during the remainder of FY 2015. ATK anticipates making additional contributions of approximately $2,068 directly to retirees under the nonqualified plan and $2,668 to its other postretirement benefit plans during the remainder of fiscal 2015.
14. Income Taxes
ATK’s provision for income taxes includes federal, foreign, and state income taxes. Income tax provisions for interim periods are based on estimated effective annual income tax rates.
The income tax provisions for the quarters ended December 28, 2014 and December 29, 2013 represent tax rates of 45.1% and 32.7%, respectively. The increase in the rate from the prior year quarter is primarily due to the nondeductible goodwill impairment partially offset by the retroactive extension of the Federal research and development (R&D) tax credit and the absence of the nondeductible acquisition costs in the prior year.
The income tax provisions for the nine months ended December 28, 2014 and December 29, 2013 represent tax rates of 35.8% and 32.7%, respectively. The increase in the rate from the prior year period is primarily due to the nondeductible goodwill impairment, absence of the prior year revaluation of unrecognized tax benefits due to proposed Treasury Department regulations, and the true-up of prior-year taxes partially offset by the benefit from an initiative resulting in a tax basis adjustment and the absence of the nondeductible acquisition costs in the prior year.


22

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
14. Income Taxes (Continued)

The IRS released final regulations relating to the capitalization of tangible personal property on September 13, 2013. ATK is currently analyzing the impact of these new regulations. We do not believe they will have a material impact on our financial statements.
ATK or one of its subsidiaries files income tax returns in the U.S. federal, various U.S. state, and foreign jurisdictions. With few exceptions, ATK is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2008. The IRS is currently auditing ATK for fiscal 2013 and 2014. We believe appropriate provisions for all outstanding issues have been made for all remaining open years in all jurisdictions.
Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $2,243 reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in earnings from $0 to $1,785.
15. Stock-based Compensation
ATK has authorized 5,000,000 shares of preferred stock, par value $1.00, none of which has been issued.
Total pretax stock-based compensation expense of $4,078 and $3,129 was recognized during the quarters ended December 28, 2014 and December 29, 2013, respectively. Total pre-tax stock-based compensation expense of $12,005 and $9,437 was recognized during the nine months ended December 28, 2014 and December 29, 2013, respectively.
The total income tax benefit recognized in the income statement for share-based compensation was $1,564 and $1,199 during the quarters ended December 28, 2014 and December 29, 2013, respectively. The total income tax benefit recognized in the income statement for share-based compensation was $4,606 and $3,620 during the nine months ended December 28, 2014 and December 29, 2013, respectively.
ATK sponsors three stock-based incentive plans, which are the Alliant Techsystems Inc. 1990 Equity Incentive Plan, the Non-Employee Director Restricted Stock Plan, and the 2005 Stock Incentive Plan. As of December 28, 2014, ATK has authorized up to 3,982,360 common shares under the 2005 Stock Incentive Plan, of which 997,719 common shares are available to be granted. No new grants will be made out of the other two plans.
There are four types of awards outstanding under ATK's stock incentive plans: performance awards, total stockholder return performance awards ("TSR awards"), restricted stock, and stock options. ATK issues treasury shares upon the payment of performance awards and TSR awards, grant of restricted stock, or exercise of stock options.
As of December 28, 2014, there were up to 279,871 shares reserved for performance awards for key employees. Performance shares are valued at the fair value of ATK stock as of the grant date and expense is recognized based on the number of shares expected to vest under the terms of the award under which they are granted. Of these shares:
up to 102,848 shares will become payable only upon achievement of certain financial performance goals, including sales and return on invested capital for the fiscal 2013 through fiscal 2015 period;

up to 94,926 shares will become payable only upon achievement of certain performance goals, including sales and return on invested capital, for the fiscal 2014 through fiscal 2016 period; and

up to 82,097 shares will become payable only upon achievement of certain performance goals, including sales and return on invested capital, for the fiscal 2015 through fiscal 2017 period.
There were 54,489 shares earned during fiscal 2014 upon achievement of certain financial performance goals, including EPS, for the fiscal 2012 through fiscal 2014 period, which were distributed or deferred in May 2014. As other financial performance goals were not met, 165,951 shares were forfeited during fiscal 2014.
As of December 28, 2014, there were up to 27,366 shares reserved for TSR awards for key employees. ATK uses an integrated Monte Carlo simulation model to determine the fair value of the TSR awards. The Monte Carlo model calculates the probability of satisfying the market conditions stipulated in the award. This probability is an input into the trinomial lattice model used to determine the fair value of the awards as well as the assumptions of other variables, including the risk-free interest rate and expected volatility of ATK's stock price in future periods. The risk-free rate is based on the U.S. dollar-denominated U.S. Treasury strip rate with a remaining term that approximates the life assumed at the date of grant. There were no TSR awards granted during the nine months ended December 28, 2014.

23

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
15. Stock-based Compensation (Continued)


Of the shares reserved for TSR awards for key employees, 27,366 shares will become payable upon satisfaction of the market conditions stipulated for the fiscal 2015 through 2017 period.
Of the shares reserved for TSR awards for key employees, 42,022 shares were earned during fiscal 2014 as the market conditions stipulated for the fiscal 2012 through 2014 period were satisfied. The remaining 3,958 TSR awards were forfeited during fiscal 2014.
Restricted stock granted to non-employee directors and certain key employees totaled 39,499 shares during the nine months ended December 28, 2014. Restricted shares vest over periods generally ranging from one to three years from the date of award and are valued at the fair value of ATK's common stock as of the grant date.
Stock options may be granted periodically, with an exercise price equal to the fair market value of ATK's common stock on the date of grant, and generally vest from one to three years from the date of grant. Options are generally granted with seven-year or ten-year terms. The weighted average fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and represents the difference between fair market value on the date of grant and the estimated market value on the expected exercise date. The option pricing model requires ATK to make assumptions. The risk-free rate is based on U.S. Treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of grant. Expected volatility is based on the historical volatility of ATK's stock over the past seven years. The expected option life is based on the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. There were no stock options granted during the nine months ended December 28, 2014. The weighted average fair value of options granted was $23.00 during the nine months ended December 29, 2013.
The following weighted average assumptions were used for grants:
 
Nine Months Ended December 29, 2013
Risk-free rate
1.86%
Expected volatility
25.95%
Expected dividend yield
1.58%
Expected option life
7 years
16. Contingencies
Litigation.    From time to time, ATK is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of ATK's business. ATK does not consider any of such proceedings that are currently pending, individually or in the aggregate, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any particular quarter, to be material to its business or likely to result in a material adverse effect on its operating results, financial condition, or cash flows.
On July 30, 2013, Raytheon Company filed a lawsuit against ATK in the Superior Court of the State of Arizona.  The suit involves ATK's longstanding production of rocket motors used in Raytheon's Advanced Medium-Range Air-to-Air Missiles (AMRAAM).  In the filing, Raytheon's primary allegation is that ATK breached certain of the production contracts by not delivering rocket motors.  Raytheon is claiming damages exceeding $100,000. ATK disputes the allegations of Raytheon's complaint. Although it is not possible at this time to predict the outcome of the litigation, ATK believes, based on all currently available information, that the outcome will not have a material adverse effect on its operating results, financial condition or cash flows. As a result of the uncertainty regarding the outcome of this matter, no provision has been made in the financial statements with respect to this contingent liability.
On May 5, 2014, a purported stockholder class action and derivative complaint was filed in the Circuit Court of Arlington County, Virginia by Michael Blank, who claims to be a stockholder of Orbital, alleging, among other things, that the directors of Orbital breached their fiduciary duties in connection with the Transaction between Orbital and ATK, as described above, and alleging that ATK aided and abetted such breaches of fiduciary duty. A similar purported class action was filed on May 9, 2014, by Gregory Ericksen in the Court of Chancery of the State of Delaware. Plaintiffs in Virginia and Delaware seek, among other relief, to enjoin the Transaction (or, in the Delaware action, to rescind it in the event it is consummated).
On January 16, 2015, following arm's-length negotiation, the parties to In re Orbital Sciences Corporation Stockholder Litigation, C.A. No. 9635-VCN, entered into a Memorandum of Understanding (“MOU”) providing for the settlement in

24

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
16. Contingencies (Continued)

principle of all claims asserted in the action, subject to the approval of the court.  Pursuant to the terms of the MOU, Orbital and ATK agreed to make additional information available to Orbital’s stockholders.  That additional information, which should be read in concert with the previously filed joint proxy statement/prospectus, was included in a Form 8-K filing by Orbital on January 16, 2015.  In addition, the defendants agreed to negotiate in good faith with plaintiffs’ counsel regarding an appropriate amount of fees and expenses to be paid to plaintiffs’ counsel by Orbital or its successor.
ATK, Orbital and the other defendants continue to deny all of the allegations in the lawsuit and believe the disclosures in the joint proxy statement/prospectus are adequate under the law.  Nevertheless, ATK, Orbital and the other defendants have agreed to settle the lawsuit for legal expenses incurred to date in order to avoid the burden, expense, distraction and uncertainties inherent in further litigation.
If approved by the court, the settlement provides for dismissal with prejudice of the lawsuit and provides for the release of any and all claims arising from the merger, except for those relating to any alleged material inaccuracy in ATK's historical financial statements.
There can be no assurance that the parties will ultimately enter into a definitive settlement agreement or that the court will approve the settlement. In such event, or if the merger is not consummated for any reason, the proposed settlement will be null and void and of no force and effect. Payments made in connection with the settlement, which are subject to court approval, are not expected to be material. The settlement will not affect the consideration to be received by Orbital's stockholders in the merger or the timing of the anticipated closing of the merger.
U.S. Government Investigations.    ATK is also subject to U.S. Government investigations from which civil, criminal, or administrative proceedings could result. Such proceedings could involve claims by the U.S. Government for fines, penalties, compensatory and treble damages, restitution, and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. ATK believes, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on its operating results, financial condition, or cash flows.
Claim Recovery.    Profits expected to be realized on contracts are based on management's estimates of total contract sales value and costs at completion. Estimated amounts for contract changes and claims are included in contract sales only when realization is estimated to be probable. At December 28, 2014, based on progress to date on certain contracts, there is approximately $42,991 included in unbilled receivables for contract claims compared to $35,113 as of March 31, 2014.
Environmental Liabilities.    ATK's operations and ownership or use of real property are subject to a number of federal, state, and local environmental laws and regulations, including those for discharge of hazardous materials, remediation of contaminated sites, and restoration of damage to the environment. At certain sites that ATK owns or operates or formerly owned or operated, there is known or potential contamination that ATK is required to investigate or remediate. ATK could incur substantial costs, including remediation costs, resource restoration costs, fines, and penalties, or third party property damage or personal injury claims, as a result of liabilities associated with past practices or violations of environmental laws or noncompliance with environmental permits.
The liability for environmental remediation represents management's best estimate of the present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that ATK expects to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows, using a discount rate of 0.75% and 1.5% as of December 28, 2014 and March 31, 2014, respectively. ATK's discount rate is calculated using the 20-year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9%, rounded to the nearest quarter percent. The following is a summary of the amounts recorded for environmental remediation:
 
 
December 28, 2014
 
March 31, 2014
 
 
Payable
 
Receivable
 
Payable
 
Receivable
Amounts (payable) receivable
 
$
(53,711
)
 
$
27,640

 
$
(58,194
)
 
$
28,540

Unamortized discount
 
2,657

 
(1,241
)
 
4,706

 
(2,152
)
Present value amounts (payable) receivable
 
$
(51,054
)
 
$
26,399

 
$
(53,488
)
 
$
26,388


25

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
16. Contingencies (Continued)

Amounts expected to be paid or received in periods more than one year from the balance sheet date are classified as noncurrent. Of the $51,054 discounted liability as of December 28, 2014, $5,679 was recorded within other current liabilities and $45,375 was recorded within other long-term liabilities. Of the $26,399 discounted receivable, ATK recorded $3,559 within other current assets and $22,840 within other noncurrent assets. As of December 28, 2014, the estimated discounted range of reasonably possible costs of environmental remediation was $51,054 to $80,730.
ATK expects that a portion of its environmental compliance and remediation costs will be recoverable under U.S. Government contracts. Some of the remediation costs that are not recoverable from the U.S. Government that are associated with facilities purchased in a business acquisition may be covered by various indemnification agreements, as described in Note 13 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.
ATK has been identified as a potentially responsible party (“PRP”), along with other parties, in several regulatory agency actions associated with hazardous waste sites. As a PRP, ATK may be required to pay a share of the costs of the investigation and clean-up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, ATK has concluded that these matters, individually or in the aggregate, will not have a material adverse effect on the Company's operating results, financial condition, or cash flows.
17. Share Repurchases
On January 31, 2012, ATK's Board of Directors authorized a share repurchase program of up to $200,000 worth of shares of ATK common stock, executable over the next two years. On January 29, 2014, ATK's Board of Directors extended the share repurchase program through March 31, 2015. The shares may be purchased from time to time in open market, block purchase, or negotiated transactions, subject to compliance with applicable laws and regulations. The repurchase authorization also allows the Company to make repurchases under Rule 10b5-1 of the Securities Exchange Act of 1934. During the quarter ended December 29, 2013, ATK repurchased 35,253 shares for $3,871. During the nine months ended December 29, 2013, ATK repurchased 609,922 shares for $52,130. In accordance with the Transaction Agreement ATK entered into on April 28, 2014, ATK will not repurchase any outstanding shares prior to the closing of the Transaction.
18. Changes in Estimates
The majority of ATK’s sales are accounted for as long-term contracts, which are accounted for under the percentage-of-completion method (“POC”). Accounting for contracts under the POC method requires judgment relative to assessing risks and estimating contract revenues and costs. Profits expected to be realized on contracts are based on management’s estimates of total contract sales value and costs at completion. Estimated amounts for contract changes, including scope and claims, are included in contract sales only when realization is estimated to be probable. Assumptions used for recording sales and earnings are adjusted in the period of change to reflect revisions in contract value and estimated costs. In the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated gross margin loss is charged to cost of sales. Changes in estimates of contract sales, costs, or profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current or prior periods. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception.
Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates, positive or negative, due to unanticipated cost growth or risks affecting contract costs and/or the resolution of contract risks at lower costs than anticipated, as well as changes in contract overhead costs over the performance period. Changes in estimates could have a material effect on the Company’s consolidated financial position or annual results of operations. Aggregate net changes in contract estimates recognized using the cumulative catch-up method of accounting increased operating income by $19,220 and $19,657 for the quarters ended December 28, 2014 and December 29, 2013, respectively. The current quarter adjustments were primarily driven by higher profit expectations in the Armament Systems and

26

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
18. Changes in Estimates (Continued)

Aerospace Structures divisions. The prior year quarter adjustments were primarily driven by higher profit expectations in the Small Caliber Systems and Armament Systems divisions.
Aggregate net changes in contract estimates recognized using the cumulative catch-up method of accounting increased operating income by $62,201 and $86,937 for the nine months ended December 28, 2014 and December 29, 2013, respectively. The current year nine-month period adjustments were primarily driven by higher profit expectations in Space Systems Operations and Defense Electronics System, Armament Systems, and Missile Products divisions. The prior year nine-month period adjustments were primarily driven by higher profit expectations of $39,125 in the Small Caliber Systems division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion, and for programs in the Space Systems Operations and Aerospace Structures divisions.
19. Realignment Obligations
In May 2014, ATK consolidated its Eden Prairie, Minnesota corporate facility. In conjunction with this consolidation, ATK incurred realignment charges in the first quarter of fiscal 2015. The charges related primarily to the fair value of the remaining lease rentals, asset impairment charges, and costs associated with facility reconfiguration. In the quarter and nine months ended December 29, 2013, ATK incurred realignment expenses of approximately $2,600 and $8,000, respectively, associated with restructuring and facility rationalization costs in tactical military accessories within the Sporting Group. The charges related primarily to termination benefits offered to employees, asset impairment charges, and costs associated with the closure of certain facilities. ATK had no realignment liability as of March 31, 2014. The following table summarizes ATK’s realignment liability activity during fiscal 2015 related to the remaining lease rentals and relocation and other costs that were recorded in General and administrative expense:
 
 
Remaining Lease Rentals
 
Asset Impairment
 
Facility
Closure
and Other
Costs
 
Total
Balance, March 31, 2014
 
$

 
$

 
$

 
$

Expense
 
6,774

 
2,465

 
1,385

 
10,624

Cash paid
 

 

 
(1,385
)
 
(1,385
)
Noncash settlements
 

 
(2,465
)
 

 
(2,465
)
Balance, December 28, 2014
 
$
6,774

 
$

 
$

 
$
6,774

20. Condensed Consolidated Financial Statements
In accordance with the provisions of the 6.875% Notes, and the 5.25% Notes, the outstanding notes are guaranteed on an unsecured basis, jointly and severally and fully and unconditionally, by substantially all of ATK's domestic subsidiaries. The parent company has no independent assets or operations. All of these guarantor subsidiaries are 100% owned by ATK. These guarantees are senior or senior subordinated obligations, as applicable, of the applicable subsidiary guarantors. On November 1, 2013, ATK acquired Bushnell, a leading global designer, marketer and distributor of branded sports optics, outdoor accessories and performance eyewear. As a result of this acquisition and the increase in the number of non-guarantor subsidiaries, the subsidiaries of ATK other than the subsidiary guarantors are no longer considered minor and therefore the consolidating financial information of the guarantor and non-guarantor subsidiaries is presented prospectively below.

27

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
20. Condensed Consolidated Financial Statements (Continued)

ALLIANT TECHSYSTEMS INC.
Condensed Consolidated Statement of Comprehensive Income
Quarter Ended December 28, 2014
(unaudited)
 
 
Parent Issuer
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
Sales
 
$

 
$
1,192,946

 
$
69,519

 
$
(11,087
)
 
$
1,251,378

Cost of sales
 

 
919,025

 
39,596

 
(11,087
)
 
947,534

Gross profit
 

 
273,921

 
29,923

 

 
303,844

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
12,195

 
(1
)
 

 
12,194

Selling
 

 
52,327

 
9,795

 

 
62,122

General and administrative
 
4,078

 
63,771

 
4,688

 

 
72,537

Goodwill/tradename impairment
 

 
52,220

 

 

 
52,220

Income before interest, income taxes, and noncontrolling interest
 
(4,078
)
 
93,408

 
15,441

 

 
104,771

Equity in income/(loss) of subsidiaries
 
61,345

 
10,272

 

 
(71,617
)
 

Interest expense
 
(21,438
)
 
1

 
(937
)
 
980

 
(21,394
)
Interest income
 

 
912

 
96

 
(980
)
 
28

Income before income taxes and noncontrolling interest
 
35,829

 
104,593

 
14,600

 
(71,617
)
 
83,405

Income taxes
 
(9,818
)
 
43,104

 
4,331

 

 
37,617

Net income before noncontrolling interest
 
45,647

 
61,489

 
10,269

 
(71,617
)
 
45,788

Less net income attributable to noncontrolling interest
 

 

 
141

 

 
141

Net income attributable to Alliant Techsystems Inc. 
 
$
45,647

 
$
61,489

 
$
10,128

 
$
(71,617
)
 
$
45,647

 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income before noncontrolling interest
 
$
45,647

 
$
61,489

 
$
10,269

 
$
(71,617
)
 
$
45,788

Total other comprehensive income (loss)
 
3,638

 
11,315

 
(7,677
)
 
(3,638
)
 
3,638

Comprehensive income (loss)
 
49,285

 
72,804

 
2,592

 
(75,255
)
 
49,426

Less comprehensive income attributable to noncontrolling interest
 

 

 
141

 

 
141

Comprehensive income (loss) attributable to Alliant Techsystems Inc.
 
$
49,285

 
$
72,804

 
$
2,451

 
$
(75,255
)
 
$
49,285


28

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
20. Condensed Consolidated Financial Statements (Continued)

ALLIANT TECHSYSTEMS INC.
Condensed Consolidated Statement of Comprehensive Income
Nine Months Ended December 28, 2014
(unaudited)
 
 
Parent Issuer
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
Sales
 
$

 
$
3,633,504

 
$
164,339

 
$
2,174

 
$
3,800,017

Cost of sales
 

 
2,787,795

 
95,544

 
2,174

 
2,885,513

Gross profit
 

 
845,709

 
68,795

 

 
914,504

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
30,923

 
101

 
 
 
31,024

Selling
 

 
156,217

 
29,149

 
 
 
185,366

General and administrative
 
12,005

 
198,783

 
14,103

 
 
 
224,891

Goodwill/tradename impairment
 


 
52,220

 

 

 
52,220

Income before interest, income taxes, and noncontrolling interest
 
(12,005
)
 
407,566

 
25,442

 

 
421,003

Equity in income/(loss) of subsidiaries
 
275,688

 
15,220

 

 
(290,908
)
 

Interest expense
 
(68,189
)
 

 
(2,865
)
 
 
 
(68,169
)
Interest income
 

 
2,667

 
290

 
 
 
72

Income before income taxes and noncontrolling interest
 
195,494

 
425,453

 
22,867

 
(290,908
)
 
352,906

Income taxes
 
(30,859
)
 
149,661

 
7,460

 

 
126,262

Net income before noncontrolling interest
 
226,353

 
275,792

 
15,407

 
(290,908
)
 
226,644

Less net income attributable to noncontrolling interest
 

 

 
291

 

 
291

Net income attributable to Alliant Techsystems Inc. 
 
$
226,353

 
$
275,792

 
$
15,116

 
$
(290,908
)
 
$
226,353

 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income before noncontrolling interest
 
$
226,353

 
$
275,792

 
$
15,407

 
$
(290,908
)
 
$
226,644

Total other comprehensive income (loss)
 
27,909

 
43,324

 
(15,415
)
 
(27,909
)
 
27,909

Comprehensive income (loss)
 
254,262

 
319,116

 
(8
)
 
(318,817
)
 
254,553

Less comprehensive income attributable to noncontrolling interest
 

 

 
291

 

 
291

Comprehensive income (loss) attributable to Alliant Techsystems Inc.
 
$
254,262

 
$
319,116

 
$
(299
)
 
$
(318,817
)
 
$
254,262


29

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
20. Condensed Consolidated Financial Statements (Continued)

ALLIANT TECHSYSTEMS INC.
Condensed Consolidated Statement of Comprehensive Income
Quarter Ended December 29, 2013
(unaudited)
 
 
Parent Issuer
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
Sales
 
$

 
$
1,165,686

 
$
62,901

 
$
(20,183
)
 
$
1,208,404

Cost of sales
 

 
891,821

 
47,596

 
(20,183
)
 
919,234

Gross profit
 

 
273,865

 
15,305

 

 
289,170

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
11,853

 
46

 

 
11,899

Selling
 

 
50,441

 
6,511

 

 
56,952

General and administrative
 
3,129

 
66,738

 
4,477

 

 
74,344

Income before interest, income taxes, and noncontrolling interest
 
(3,129
)
 
144,833

 
4,271

 

 
145,975

Equity in income/(loss) of subsidiaries
 
99,743

 
2,258

 

 
(102,001
)
 

Interest expense
 
(28,501
)
 

 

 

 
(28,501
)
Interest income
 

 
1,661

 
132

 

 
1,793

Income before income taxes and noncontrolling interest
 
68,113

 
148,752

 
4,403

 
(102,001
)
 
119,267

Income taxes
 
(12,173
)
 
49,612

 
1,515

 

 
38,954

Net income before noncontrolling interest
 
80,286

 
99,140

 
2,888

 
(102,001
)
 
80,313

Less net income attributable to noncontrolling interest
 

 

 
27

 

 
27

Net income attributable to Alliant Techsystems Inc. 
 
$
80,286

 
$
99,140

 
$
2,861

 
$
(102,001
)
 
$
80,286

 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income before noncontrolling interest
 
$
80,286

 
$
99,140

 
$
2,888

 
$
(102,001
)
 
$
80,313

Total other comprehensive income (loss)
 
18,964

 
18,372

 
(1,654
)
 
(16,718
)
 
18,964

Comprehensive income (loss)
 
99,250

 
117,512

 
1,234

 
(118,719
)
 
99,277

Less comprehensive income attributable to noncontrolling interest
 

 

 
27

 

 
27

Comprehensive income (loss) attributable to Alliant Techsystems Inc.
 
$
99,250

 
$
117,512

 
$
1,207

 
$
(118,719
)
 
$
99,250


30

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
20. Condensed Consolidated Financial Statements (Continued)

ALLIANT TECHSYSTEMS INC.
Condensed Consolidated Statement of Comprehensive Income
Nine Months Ended December 29, 2013
(unaudited)
 
 
Parent Issuer
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
Sales
 
$

 
$
3,366,598

 
$
98,047

 
$
(35,119
)
 
$
3,429,526

Cost of sales
 

 
2,585,195

 
80,843

 
(35,119
)
 
2,630,919

Gross profit
 

 
781,403

 
17,204

 

 
798,607

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
33,922

 
204

 

 
34,126

Selling
 

 
138,874

 
7,743

 

 
146,617

General and administrative
 
9,437

 
182,140

 
6,426

 

 
198,003

Income before interest, income taxes, and noncontrolling interest
 
(9,437
)
 
426,467

 
2,831

 

 
419,861

Equity in income/(loss) of subsidiaries
 
286,172

 
(1,432
)
 

 
(284,740
)
 

Interest expense
 
(57,634
)
 

 

 

 
(57,634
)
Interest income
 

 
1,569

 
315

 

 
1,884

Income before income taxes and noncontrolling interest
 
219,101

 
426,604

 
3,146

 
(284,740
)
 
364,111

Income taxes
 
(25,809
)
 
142,303

 
2,497

 

 
118,991

Net income before noncontrolling interest
 
244,910

 
284,301

 
649

 
(284,740
)
 
245,120

Less net income attributable to noncontrolling interest
 

 

 
210

 

 
210

Net income attributable to Alliant Techsystems Inc. 
 
$
244,910

 
$
284,301

 
$
439

 
$
(284,740
)
 
$
244,910

 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income before noncontrolling interest
 
$
244,910

 
$
284,301

 
$
649

 
$
(284,740
)
 
$
245,120

Total other comprehensive income (loss)
 
52,733

 
54,900

 
(1,620
)
 
(53,280
)
 
52,733

Comprehensive income (loss)
 
297,643

 
339,201

 
(971
)
 
(338,020
)
 
297,853

Less comprehensive income attributable to noncontrolling interest
 

 

 
210

 

 
210

Comprehensive income (loss) attributable to Alliant Techsystems Inc.
 
$
297,643

 
$
339,201

 
$
(1,181
)
 
$
(338,020
)
 
$
297,643



31

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
20. Condensed Consolidated Financial Statements (Continued)

ALLIANT TECHSYSTEMS INC.
Condensed Consolidated Balance Sheet
December 28, 2014
(unaudited)
 
 
Parent Issuer
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
92,105

 
$
20,815

 
$

 
$
112,920

Net receivables
 

 
1,654,270

 
57,384

 

 
1,711,654

Due from affiliates
 

 

 
4,082

 
(4,082
)
 

Net inventories
 

 
489,808

 
62,582

 

 
552,390

Income tax receivable
 

 
38,044

 
(4,811
)
 

 
33,233

Deferred income taxes
 

 
93,300

 
4,555

 

 
97,855

Other current assets
 
983

 
76,930

 
3,487

 

 
81,400

Total current assets
 
983

 
2,444,457

 
148,094

 
(4,082
)
 
2,589,452

Net property, plant, and equipment
 

 
680,137

 
12,855

 

 
692,992

Investment in subsidiaries
 
6,205,902

 
184,547

 

 
(6,390,449
)
 

Goodwill
 

 
1,764,231

 
119,480

 

 
1,883,711

Net intangibles
 

 
493,968

 
43,200

 

 
537,168

Due from affiliates
 

 
2,158,532

 

 
(2,158,532
)
 

Deferred charges and other noncurrent assets
 
21,561

 
93,426

 
1,409

 

 
116,396

Total assets
 
$
6,228,446

 
$
7,819,298

 
$
325,038

 
$
(8,553,063
)
 
$
5,819,719

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
159,997

 
$

 
$

 
$

 
$
159,997

Accounts payable
 

 
324,974

 
16,723

 

 
341,697

Due to affiliates
 

 
4,082

 

 
(4,082
)
 

Contract advances and allowances
 

 
142,628

 
114

 

 
142,742

Accrued compensation
 

 
96,959

 
3,358

 

 
100,317

Other current liabilities
 
18,996

 
279,128

 
17,005

 

 
315,129

Total current liabilities
 
178,993

 
847,771

 
37,200

 
(4,082
)
 
1,059,882

Long-term debt
 
1,908,503

 

 

 

 
1,908,503

Postretirement and postemployment benefits
 

 
67,253

 

 

 
67,253

Pension
 

 
464,869

 

 

 
464,869

Deferred income taxes
 

 
128,404

 
12,954

 

 
141,358

Due to affiliates
 
2,100,143

 

 
58,389

 
(2,158,532
)
 

Other noncurrent liabilities
 
2,514

 
125,661

 
532

 

 
128,707

Total liabilities
 
4,190,153

 
1,633,958

 
109,075

 
(2,162,614
)
 
3,770,572

Shareholders’ equity attributable to ATK and subsidiaries
 
2,038,293

 
6,185,340

 
205,109

 
(6,390,449
)
 
2,038,293

Noncontrolling interest
 

 

 
10,854

 

 
10,854

Total equity
 
2,038,293

 
6,185,340

 
215,963

 
(6,390,449
)
 
2,049,147

Total liabilities and equity
 
$
6,228,446

 
$
7,819,298

 
$
325,038

 
$
(8,553,063
)
 
$
5,819,719


32

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
20. Condensed Consolidated Financial Statements (Continued)

ALLIANT TECHSYSTEMS INC.
Condensed Consolidated Balance Sheet
March 31, 2014
(unaudited)
 
 
Parent Issuer
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
220,056

 
$
46,576

 
$

 
$
266,632

Net receivables
 

 
1,418,583

 
55,237

 
 
 
1,473,820

Due from affiliates
 

 
4,876

 

 
(4,876
)
 

Net inventories
 

 
499,046

 
59,204

 
 
 
558,250

Deferred income taxes
 

 
88,543

 
5,073

 
 
 
93,616

Other current assets
 

 
57,324

 
11,956

 
 
 
69,280

Total current assets
 

 
2,288,428

 
178,046

 
(4,876
)
 
2,461,598

Net property, plant, and equipment
 

 
684,424

 
13,127

 
 
 
697,551

Investment in subsidiaries
 
5,921,889

 
203,738

 

 
(6,125,627
)
 

Goodwill
 

 
1,783,737

 
133,184

 
 
 
1,916,921

Net intangibles
 

 
527,565

 
50,285

 
 
 
577,850

Due from affiliates
 

 
1,997,307

 

 
(1,997,307
)
 

Deferred charges and other noncurrent assets
 
24,600

 
92,475

 
151

 
 
 
117,226

Total assets
 
$
5,946,489

 
$
7,577,674

 
$
374,793

 
$
(8,127,810
)
 
$
5,771,146

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
$
249,228

 
$

 
$

 
$

 
$
249,228

Accounts payable
 

 
300,132

 
15,473

 

 
315,605

Due to affiliates
 

 

 
4,876

 
(4,876
)
 

Contract advances and allowances
 

 
105,592

 
195

 

 
105,787

Compensation
 

 
125,908

 
2,913

 

 
128,821

Income taxes
 

 
6,254

 
1,623

 

 
7,877

Other current liabilities
 
14,553

 
269,809

 
38,470

 

 
322,832

Total current liabilities
 
263,781

 
807,695

 
63,550

 
(4,876
)
 
1,130,150

Long-term debt
 
1,843,750

 

 

 

 
1,843,750

Deferred income taxes
 

 
103,149

 
14,366

 

 
117,515

Postretirement and postemployment benefits
 

 
74,874

 

 

 
74,874

Pension
 

 
557,775

 

 

 
557,775

Due to affiliates
 
1,925,136

 

 
72,168

 
(1,997,304
)
 

Other noncurrent liabilities
 
2,247

 
122,153

 
544

 
 
 
124,944

Total liabilities
 
4,034,914

 
1,665,646

 
150,628

 
(2,002,180
)
 
3,849,008

Stockholders’ equity attributable to ATK and subsidiaries
 
1,911,575

 
5,912,028

 
213,602

 
(6,125,630
)
 
1,911,575

Noncontrolling interest
 

 

 
10,563

 

 
10,563

Total equity
 
1,911,575

 
5,912,028

 
224,165

 
(6,125,630
)
 
1,922,138

Total liabilities and equity
 
$
5,946,489

 
$
7,577,674

 
$
374,793

 
$
(8,127,810
)
 
$
5,771,146




33

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
20. Condensed Consolidated Financial Statements (Continued)

ALLIANT TECHSYSTEMS INC.
Condensed Consolidated Statement of Cash Flows
Nine Months Ended December 28, 2014
(unaudited)
 
 
Parent Issuer
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
Operating Activities:
 
 
 
 
 
 
 
 
 
 
Cash provided by (used for) operating activities
 
$
(8,076
)
 
$
182,718

 
$
(13,456
)
 
$
(7,000
)
 
$
154,186

Investing Activities:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 

 
(88,356
)
 
(3,635
)
 

 
(91,991
)
Due to (from) Affiliates
 

 
(224,471
)
 

 
224,471

 

Proceeds from the disposition of property, plant, and equipment
 

 
2,158

 
(4
)
 

 
2,154

Cash provided by (used for) investing activities
 

 
(310,669
)
 
(3,639
)
 
224,471

 
(89,837
)
Financing Activities
 
 
 
 
 
 
 
 
 
 
Due to (from) Affiliates
 
224,471

 

 

 
(224,471
)
 

Borrowings on line of credit
 
635,000

 

 

 

 
635,000

Repayments of line of credit
 
(535,000
)
 

 

 

 
(535,000
)
Payments made on bank debt
 
(28,250
)
 

 

 

 
(28,250
)
Payments made to extinguish debt
 
(404,462
)
 

 

 

 
(404,462
)
Proceeds from issuance of long-term debt
 
150,000

 

 

 

 
150,000

Payments made for debt issue costs
 
(1,008
)
 

 

 

 
(1,008
)
Purchase of treasury shares
 
(9,001
)
 

 

 

 
(9,001
)
Dividends paid
 
(30,657
)
 

 
(7,000
)
 
7,000

 
(30,657
)
Excess tax benefits from share-based plans
 
6,983

 

 

 

 
6,983

Cash provided by (used for) financing activities
 
8,076

 

 
(7,000
)
 
(217,471
)
 
(216,395
)
Effect of foreign currency exchange rate fluctuations on cash
 

 

 
(1,666
)
 

 
(1,666
)
Decrease in cash and cash equivalents
 

 
(127,951
)
 
(25,761
)
 

 
(153,712
)
Cash and cash equivalents at beginning of period
 

 
220,056

 
46,576

 

 
266,632

Cash and cash equivalents at end of period
 
$

 
$
92,105

 
$
20,815

 
$

 
$
112,920





34

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
20. Condensed Consolidated Financial Statements (Continued)

ALLIANT TECHSYSTEMS INC.
Condensed Consolidated Statement of Cash Flows
Nine Months Ended December 29, 2013
(unaudited)
 
 
Parent Issuer
 
Guarantors
 
Non-guarantors
 
Consolidating Adjustments
 
Consolidated
Operating Activities:
 
 
 
 
 
 
 
 
 
 
Cash provided by (used for) operating activities
 
$
7,060

 
$
202,788

 
$
17,436

 
$
(5,000
)
 
$
222,284

Investing Activities
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 

 
(79,997
)
 
(583
)
 

 
(80,580
)
Acquisition of business, net of cash acquired
 
(1,344,119
)
 
36,978

 
5,544

 

 
(1,301,597
)
Due to (from) Affiliates
 

 
(410,359
)
 

 
410,359

 

Proceeds from the disposition of property, plant, and equipment
 

 
5,326

 

 

 
5,326

Cash used for investing activities
 
(1,344,119
)
 
(448,052
)
 
4,961

 
410,359

 
(1,376,851
)
Financing Activities
 
 
 
 
 
 
 
 
 
 
Due to (from) Affiliates
 
410,359

 

 

 
(410,359
)
 

Borrowings on line of credit
 
280,000

 

 

 

 
280,000

Repayments of line of credit
 
(280,000
)
 

 

 

 
(280,000
)
Payments made on bank debt
 
(25,000
)
 

 

 

 
(25,000
)
Payments made to extinguish debt
 
(510,000
)
 

 

 

 
(510,000
)
Proceeds from issuance of long-term debt
 
1,560,000

 

 

 

 
1,560,000

Payments made for debt issue costs
 
(21,641
)
 

 

 

 
(21,641
)
Purchase of treasury shares
 
(53,270
)
 

 

 

 
(53,270
)
Dividends paid
 
(24,951
)
 

 
(5,000
)
 
5,000

 
(24,951
)
Proceeds from employee stock compensation plans
 
729

 

 

 

 
729

Excess tax benefits from share-based plans
 
833

 

 

 

 
833

Cash provided by (used for) financing activities
 
1,337,059

 

 
(5,000
)
 
(405,359
)
 
926,700

Effect of foreign currency exchange rate fluctuations on cash
 

 
(820
)
 
1,155

 

 
335

Decrease in cash and cash equivalents
 

 
(246,084
)
 
18,552

 

 
(227,532
)
Cash and cash equivalents at beginning of period
 

 
382,725

 
34,564

 

 
417,289

Cash and cash equivalents at end of period
 
$

 
$
136,641

 
$
53,116

 
$

 
$
189,757




21. Operating Segment Information
ATK operates its business structure within three operating groups. These operating segments (“groups”) are defined based on the reporting and review process used by ATK’s chief executive officer and other management.  The operating structure aligns ATK’s capabilities and resources with its customers and markets and positions the Company for long-term growth and improved profitability. Each group is described below: 
Aerospace Group, which generated 26% of ATK’s external sales in the nine months ended December 28, 2014, develops and produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, and missile defense interceptors. They also produce small- and micro-satellites, satellite components, structures and subsystems, lightweight space deployables and solar arrays, and provide engineering and technical services.  Additionally, the Aerospace Group operates in the military and commercial aircraft and launch structures markets.  Other products include ordnance, such as decoy and illuminating flares.
Defense Group, which generated 31% of ATK’s external sales in the nine months ended December 28, 2014, develops and produces military small-, medium-, and large-caliber ammunition, propulsion systems for tactical missiles and

35

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
21. Operating Segment Information (Continued)


missile defense applications, strike weapons, precision munitions, gun systems, aircraft survivability systems, fuzes and warheads, energetic materials and special mission aircraft.
Sporting Group, which generated 43% of ATK’s external sales in the nine months ended December 28, 2014, develops, produces, and provides commercial ammunition, accessories, rifles and shotguns for the hunting, shooting, law enforcement, outdoor and sporting markets.
No contract contributed more than 10% of total external sales during the nine months ended December 28, 2014 and December 29, 2013 .
The following summarizes ATK's results by segment:
 
 
Quarter Ended
 
Nine Months Ended
 
 
December 28, 2014
 
December 29, 2013
 
December 28, 2014
 
December 29, 2013
Sales to external customers:
 
 
 
 
 
 
 
 
Aerospace Group
 
$
319,916

 
$
313,222

 
$
971,347

 
$
930,080

Defense Group
 
426,950

 
373,304

 
1,233,081

 
1,203,743

Sporting Group
 
504,512

 
521,878

 
1,595,589

 
1,295,703

Total sales to external customers
 
1,251,378

 
1,208,404

 
3,800,017

 
3,429,526

Intercompany sales:
 
 
 
 
 
 
 
 
Aerospace Group
 
4,717

 
4,856

 
15,395

 
14,589

Defense Group
 
39,066

 
81,945

 
162,820

 
198,223

Sporting Group
 
2,369

 
2,350

 
7,406

 
8,191

Eliminations
 
(46,152
)
 
(89,151
)
 
(185,621
)
 
(221,003
)
Total intercompany sales
 

 

 

 

Total sales
 
$
1,251,378

 
$
1,208,404

 
$
3,800,017

 
$
3,429,526

 
 
 
 
 
 
 
 
 
Income before interest, income taxes and noncontrolling interest:
 
 
 
 
 
 
 
 
Aerospace Group
 
$
40,000

 
$
33,383

 
$
117,725

 
$
111,039

Defense Group
 
48,553

 
53,078

 
144,038

 
170,236

Sporting Group
 
18,322

 
81,119

 
171,744

 
183,059

Corporate
 
(2,104
)
 
(21,605
)
 
(12,504
)
 
(44,473
)
Total income before interest, income taxes, and noncontrolling interest
 
$
104,771

 
$
145,975

 
$
421,003

 
$
419,861

 
 
December 28, 2014
 
March 31, 2014
Assets:
 
 
 
 
Aerospace Group
 
$
1,711,185

 
$
1,646,563

Defense Group
 
1,390,527

 
1,209,150

Sporting Group
 
2,401,722

 
2,382,617

Corporate
 
316,285

 
532,816

Total assets
 
$
5,819,719

 
$
5,771,146

Certain administrative functions are primarily managed by ATK at the corporate headquarters ("Corporate"). Some examples of such functions are human resources, pension and postretirement benefits, corporate accounting, legal, tax, and treasury. Significant assets and liabilities managed at Corporate include those associated with debt, pension and postretirement benefits, environmental liabilities, strategic growth costs, and income taxes.
Costs related to the administrative functions managed by Corporate are either recorded at Corporate or allocated to the business units based on the nature of the expense. The difference between pension and postretirement benefit expense

36

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
21. Operating Segment Information (Continued)


calculated under Financial Accounting Standards and the expense calculated under U.S. Cost Accounting Standards is recorded at the corporate level which provides for greater clarity on the operating results of the business segments. Administrative expenses, such as corporate accounting, legal, and treasury costs, are allocated out to the business segments. Environmental expenses are allocated to each segment based on the origin of the underlying environmental cost. Transactions between segments are recorded at the segment level, consistent with ATK's financial accounting policies. Intercompany balances and transactions involving different segments are eliminated at ATK's consolidated financial statements level. These eliminations are shown above in "Corporate" and were $5,254 and $9,689 for the quarters ended December 28, 2014 and December 29, 2013, respectively, and $18,787 and $21,258 for the nine months ended December 28, 2014 and December 29, 2013, respectively.

37


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands except share and per share data or unless otherwise indicated)
Forward-Looking Information is Subject to Risk and Uncertainty
Some of the statements made and information contained in this report, excluding historical information, are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements give ATK's current expectations or forecasts of future events. Words such as "may," "will," "expected," "intend," "estimate," "anticipate," "believe," "project," or "continue," and similar expressions are used to identify forward-looking statements. From time to time, ATK also may provide oral or written forward-looking statements in other materials released to the public. Any or all forward-looking statements in this report and in any public statements ATK makes could be materially different. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Any change in the following factors may impact the achievement of results:
reductions or changes in NASA or U.S. Government military spending, timing of payments and budgetary policies, including impacts of sequestration under the Budget Control Act of 2011, and sourcing strategies,
intense competition for U.S. Government contracts and programs,
increases in costs, which ATK may not be able to react to due to the nature of its U.S. Government contracts,
changes in cost and revenue estimates and/or timing of programs,
the potential termination of U.S. Government contracts and the potential inability to recover termination costs,
other risks associated with U.S. Government contracts that might expose ATK to adverse consequences,
government laws and other rules and regulations applicable to ATK, including procurement and import-export control,
the novation of U.S. Government contracts,
intense competition in the commercial ammunition, firearms, and accessories markets,
reduction or change in demand and manufacturing costs for commercial ammunition, firearms or accessories, including the risk that placed orders exceed actual customer requirements,
changes in the regulation of the manufacture, sale and purchase of firearms and ammunition could adversely affect ATK,
the manufacture and sale of products that create exposure to potential product liability, warranty liability or personal injury claims and litigation,
risks associated with expansion into new and adjacent commercial markets,
results of acquisitions or other transactions, including the Company's ability to successfully integrate acquired businesses and realize anticipated synergies, cost savings and other benefits, and costs incurred for pursuits and proposed acquisitions that have not yet or may not close, including the announced spin-off of the Sporting Group and ATK's merger with Orbital Sciences Corporation,
greater risk associated with international business, including foreign currency exchange rates and fluctuations in those rates,
federal and state regulation of defense products, ammunition, and firearms,
costs of servicing ATK's debt, including cash requirements and interest rate fluctuations,
actual pension and other postretirement plan asset returns and assumptions regarding future returns, discount rates, service costs, mortality rates, and health care cost trend rates,

38


security threats, including cybersecurity and other industrial and physical security threats, and other disruptions,
supply, availability, and costs of raw materials and components, including commodity price fluctuations,
new regulations related to conflict minerals,
performance of ATK's subcontractors,
development of key technologies and retention of a qualified workforce,
fires or explosions at any of ATK's facilities,
environmental laws that govern past practices and rules and regulations, noncompliance with which may expose ATK to adverse consequences,
impacts of financial market disruptions or volatility to ATK's customers and vendors,
unanticipated changes in the tax provision or exposure to additional tax liabilities, and
the costs and ultimate outcome of litigation matters and other legal proceedings.
This list of factors is not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact ATK's business. ATK undertakes no obligation to update any forward-looking statements. A more detailed description of risk factors can be found in Part 1, Item 1A, Risk Factors, of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014. Additional information regarding these factors may be contained in ATK's subsequent filings with the Securities and Exchange Commission, including Forms 10-Q and 8-K. All such risk factors are difficult to predict, contain material uncertainties that may affect actual results, and may be beyond our control.
Executive Summary
ATK is an aerospace, defense, and commercial products company and supplier of products to the U.S. Government, allied nations, and prime contractors. ATK is also a major supplier of ammunition, rifles and shotguns, and related accessories to commercial customers and law enforcement agencies. ATK is headquartered in Arlington, Virginia and has operating locations throughout the United States, Puerto Rico, and internationally.
Aerospace Group, which generated 26% of ATK’s external sales in the nine months ended December 28, 2014, develops and produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, and missile defense interceptors. They also produce small- and micro-satellites, satellite components, structures and subsystems, lightweight space deployables and solar arrays, and provide engineering and technical services.  Additionally, the Aerospace Group operates in the military and commercial aircraft and launch structures markets.  Other products include ordnance, such as decoy and illuminating flares.
Defense Group, which generated 31% of ATK’s external sales in the nine months ended December 28, 2014, develops and produces military small-, medium-, and large-caliber ammunition, propulsion systems for tactical missiles and missile defense applications, strike weapons, precision munitions, gun systems, aircraft survivability systems, fuzes and warheads, energetic materials and special mission aircraft.
Sporting Group, which generated 43% of ATK’s external sales in the nine months ended December 28, 2014, develops, produces, and provides commercial ammunition, accessories, rifles and shotguns for the hunting, shooting, law enforcement, outdoor and sporting markets.
Financial Highlights and Notable Events
Certain notable events or activities affecting our fiscal 2015 financial results included the following:
Financial highlights for the quarter ended December 28, 2014
Quarterly sales of $1.3 billion.

Diluted earnings per share of $1.43 including a $52,220 goodwill and tradename impairment charge ($48,076 net of tax) or $1.50.

Orders for the quarter ended December 28, 2014 of $1.0 billion compared to $1.3 billion in the quarter ended December 29, 2013.

39



Total backlog of $6.7 billion at December 28, 2014 compared to $7.6 billion at December 29, 2013.

Income before interest, income taxes, and noncontrolling interest as a percentage of sales was 8.4% and 12.1% for the quarters ended December 28, 2014 and December 29, 2013, respectively. The decrease was driven by a $52 million goodwill and tradename non-cash impairment charge, partially offset by lower transaction costs, higher sales and improved profit expectations in the Aerospace Group.

The increase in the current quarter's tax rate to 45.1% from 32.7% in the quarter ended December 29, 2013 is primarily due to the non-deductibility for tax purposes of the goodwill impairment offset by the retroactive extension of the Federal R&D tax credit through December 31, 2014, as a result of the Tax Increase Prevention Act of 2014, signed into law on December 19, 2014 and the absence of nondeductible acquisition-related costs from the prior year.

Other notable events for fiscal 2015

On January 22, 2015, ATK’s Board of Directors declared a quarterly cash dividend of $0.32 per share, payable on February 6, 2015, to stockholders of record on February 2, 2015.

On April 28, 2014, ATK entered into a Transaction Agreement to spin-off the Sporting Group business and merge the remaining Aerospace and Defense Group businesses with Orbital Sciences Corporation. The stockholders of both ATK and Orbital approved the merger on January 27, 2015. The transaction is anticipated to close on February 9, 2015.

In the nine months ended December 28, 2014, ATK completed the retirement of its 3.00% Convertible Notes, for which ATK paid a total of $354,367 in cash, including accrued interest.

Under the terms of the Senior Credit Facility, ATK exercised an option to increase the Term A Loan by $150,000 (the "Accordion") during the nine months ended December 28, 2014. ATK used the proceeds of the Accordion to partially finance the tender offer of the 3.00% Convertible Notes, as discussed above, and to repay $50,000 of the outstanding Term B Loan.

Outlook

Transaction Agreement - On April 28, 2014, ATK entered into a Transaction Agreement (the “Transaction Agreement”) with Vista Outdoor Inc. (formerly Vista SpinCo Inc.), a Delaware corporation and a wholly owned subsidiary of ATK (“Sporting”), Vista Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of ATK, and Orbital Sciences Corporation, a Delaware corporation (“Orbital”), providing for the tax-free spin-off of the Sporting Group business to ATK stockholders (the “Distribution”), which will be immediately followed by the tax-free merger of Vista Merger Sub Inc. with and into Orbital (the “Merger” and together with the Distribution, the “Transaction”), with Orbital surviving the Merger as a wholly owned subsidiary of ATK. The stockholders of both ATK and Orbital approved the merger on January 27, 2015. The transaction is anticipated to close on February 9, 2015.

On December 19, 2014, Vista Outdoor Inc. (“Vista Outdoor”), a wholly-owned subsidiary of Alliant Techsystems Inc. (“ATK”), entered into a Credit Agreement (the “Vista Outdoor Credit Agreement”). Vista Outdoor entered into the Vista Outdoor Credit Agreement in connection with the proposed transaction between ATK and Orbital Sciences Corporation (“Orbital”), pursuant to which ATK’s Aerospace and Defense Groups will merge with Orbital immediately following the spin-off of ATK’s Sporting Group business to ATK stockholders as a newly formed sporting company, Vista Outdoor (the “Distribution” and, collectively, the “Transaction”). The Vista Outdoor Credit Agreement is comprised of a senior secured term loan of $350 million (the “Term Loan”) and a senior secured revolving credit facility of $400 million (the “Revolving Credit Facility,” together with the Term Loan, the “Senior Credit Facility”), both of which mature five years from the date the Term Loan is drawn under the Vista Outdoor Credit Agreement (such date the Term Loan is drawn, the “Closing Date” and such date the Senior Credit Facility matures, the “Maturity Date”). In connection with the Transaction, Vista Outdoor will use a portion of the Senior Credit Facility to pay a cash dividend. The Term Loan will be drawn upon the close of the Transaction.

Government Funding—ATK’s defense and aerospace businesses are highly dependent on funding levels of the U.S. Department of Defense ("DoD") and NASA, while a relatively small portion of ATK’s Sporting Group is derived from contracts with DoD and other federal agencies.

40


The government budget structure remains constrained by the 2011 Budget Control Act which initially reduced the DoD topline budget by approximately $490,000,000 over 10 years starting in fiscal year 2012. In January 2013, the American Taxpayer Relief Act of 2012 was enacted, triggering further defense budget cuts of approximately $50,000,000 per year (or sequestration) beginning in March 2013. The first round of sequestration was triggered in GFY13, reducing DoD accounts by $37,000,000. The NASA budget was under similar sequestration pressure but had greater flexibility to manage the reductions across the portfolio and decided to preserve funding for key priorities such as the Space Launch System (SLS).
With regard to GFY15, the President signed the final GFY15 spending bill into law on December 16, 2014. The bill provides funding through September 30, 2015 for all agencies, including NASA; the one exception to full fiscal year funding is the Department of Homeland Security, which is funded under a CR through Feb 27, 2015.
The GFY15 National Defense Authorization Act (NDAA) was also signed into law in December. It authorizes $584,200,000 in spending ($495,500,000 for the Department of Defense and $17,900,000 for the defense activities of the Department of Energy and the Defense Nuclear Facilities Safety Board) and $63,700,000 for Overseas Contingency Operations (OCO).

Budget pressures, such as rising personnel costs despite significant force reductions in the Army and Marine Corps, continue to pressure modernization and research accounts. ATK planning is focused on execution and accounting for reduced demand in certain categories of products. Force reductions and a winding-down of overseas operations, coupled with reduced training cycles and fairly healthy inventory levels for many ammunition and missile items, have resulted in less demand in some categories of products. However, the heightened threat from new threats and actions taken to blunt the threat has resulted in calls to reverse the reductions in OCO funds, and may result in new demands for precision weapons, tank and medium caliber ammunition, non-standard ammunition and special mission aircraft. Some of the same categories are high on the list of ATK offerings to international customers.
ATK's management believes that the key to ATK's continued success regardless of these outcomes is to focus on performance, innovation, and affordability. ATK is positioning itself where management believes there will be continued strong defense funding, even as pressures mount on procurement and research and development accounts. ATK will concentrate on developing systems that will extend the life and improve the capability of existing platforms. ATK anticipates budget pressures will increasingly drive the life extension of platforms such as ships, aircraft and main battle tanks. As importantly, ATK is actively engaged with the Administration and Congress on priorities in the GFY16 budget request that will be delivered in February 2015, as well as highlighting programs and issues as DoD begins work on the GFY17 program objective memorandum.
Finally, US Government contracts are also dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance and obligation may take more than one year. As a result, at the outset of a major program, the contract is usually incrementally funded, and additional monies are committed to the contract by the procuring agency only as Congress makes appropriations for future fiscal years. In addition, most U.S. Government contracts are subject to modification if funding is changed. Any failure by Congress to appropriate additional funds to any program in which ATK participates, or any contract modification as a result of funding changes, could materially delay or terminate a program. This could have a material adverse effect on ATK's operating results, financial condition, or cash flows.
The Bipartisan Budget Act of 2013, which was signed by President Obama on December 26, 2013, reduced the allowable compensation costs for employees of government contractors to $487 from previous level of $952. The limit will be adjusted annually to reflect the change in the Employment Cost Index for all workers as calculated by the Bureau of Labor Statistics.   This Act limits the amount of compensation that ATK can propose and bill on contracts. The interim implementing rule was published in the Federal Register on June 24, 2014, and is effective for all contracts awarded after that date.  This new limit will be phased in as old contracts that are subject to the old limit are completed and new contracts subject to the new limit are received. Once fully phased in, ATK believes this Act will reduce the amount of cost ATK can bid and collect by approximately $9,000 per year.
Shooting Sports market - There has been a decline in the number of new long-gun background checks as evidenced by the The National Instant Criminal Background Check System, or NICS.  This decline indicates there is decreased demand for long-guns and related accessory categories and may impact ATK’s future revenue.  Previous market declines have lasted 12-24 months, but it is difficult to predict the significance or length of the current market situation. As a result of this decline and a decline in the Company’s near-term projected cash flows in the Firearms division a $52,220 non-cash impairment charge ($41,020 impairment to goodwill and $11,200 impairment to tradename) was recorded in the quarter ended December 28, 2014.


41


Critical Accounting Policies
ATK’s significant accounting policies are described in Note 1 to the consolidated financial statements included in ATK’s Annual Report on Form 10-K for the year ended March 31, 2014 (“fiscal 2014”). The accounting policies used in preparing ATK’s interim fiscal 2015 consolidated financial statements are the same as those described in ATK’s Annual Report except for the addition of the following:
Accounting for Goodwill:
During the quarter ATK recorded a $41,020 impairment of goodwill related to the Firearms reporting unit. As such the fair value of the reporting unit no longer exceeds the carrying value by more than 10% and therefore has less than a significant excess over carrying value. The fair value of the Firearms reporting unit was determined using both an income and market approach. The value estimated using a discounted cash flow model requires ATK to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate and is weighted against the estimated value derived from the guideline company market approach method. ATK used a discount rate of 12.5% and a 3% terminal growth rate. The market approach method estimates the price reasonably expected to be realized from the sale of the company using comparable company multiples and a control premium of 25%.
In preparing the consolidated financial statements, ATK follows accounting principles generally accepted in the United States. The preparation of these financial statements requires ATK to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosure of contingent assets and liabilities. ATK re-evaluates its estimates on an on-going basis. ATK’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
ATK believes its critical accounting policies are those related to:
revenue recognition,
employee benefit plans,
income taxes,
acquisitions, and
goodwill.
More information on these policies can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.
Results of Operations
The following information should be read in conjunction with ATK's consolidated financial statements. The key performance indicators that ATK's management uses in managing the business are sales, income before interest and income taxes, and cash flows.
Group total Sales, Cost of sales, and Income before interest, income taxes, and noncontrolling interest include intergroup sales and profit. Corporate and Eliminations includes intergroup sales and profit eliminations and corporate expenses.
Acquisitions

On November 1, 2013, ATK acquired Bushnell Group Holdings, Inc. Bushnell is a leading global designer, marketer and distributor of branded sports optics, outdoor accessories and performance eyewear. The purchase price was $985,000 in cash, subject to customary post-closing adjustments expected to be settled in fiscal 2014. ATK believes the acquisition will broaden our existing capabilities in the commercial shooting sports market and expand our portfolio of branded shooting sports products. In addition, this transaction will enable the Company to enter new sporting markets in golf and snow sports. ATK will leverage Bushnell’s strong sourcing, marketing, branding and distribution capabilities and capitalize on Bushnell’s track record of successfully integrating acquisitions and delivering profitable growth. Bushnell employs approximately 1,100 employees and will be included in the Sporting Group. The purchase price allocation was completed during the third quarter of fiscal 2015. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.

ATK used the acquisition method of accounting to account for this acquisition and, accordingly, the results of Bushnell are included in ATK’s consolidated financial statements at the date of acquisition. ATK has recorded sales of approximately $151,164 and $420,736 for the quarter and nine months ended December 28, 2014, respectively and income before interest,

42


income taxes, and noncontrolling interest of approximately $19,994 and $40,365 for the quarter and nine months ended December 28, 2014 associated with the operations of this acquired business which reflects transition costs.

On June 21, 2013, ATK acquired Caliber Company, parent company of Savage Sports Corporation ("Savage"), a leading manufacturer of sporting long guns. Operating under the brand names of Savage Arms, Stevens and Savage Range Systems, the company designs, manufactures and markets centerfire and rimfire rifles, shotguns and shooting range systems used for hunting as well as competitive and recreational target shooting. The purchase price was $315,000 net of cash acquired, and the settlement of purchase price adjustments. ATK believes the acquisition complements ATK's growing portfolio of leading consumer brands and has allowed the Company to build upon its offerings with Savage's prominent, respected brands known for accuracy, quality, innovation, value and craftsmanship. Savage's sales distribution channels, new product development, and sophistication in manufacturing will significantly increase ATK's presence with a highly relevant product offering to distributors, retailers and consumers. Savage employs approximately 400 employees and is included in ATK's Sporting Group. The purchase price allocation was completed during the first quarter of fiscal 2015. None of the goodwill generated in this acquisition will be deductible for tax purposes.

There were no acquisitions during fiscal 2015.
Sales
No contract contributed more than 10% of total external sales during the nine months ended December 28, 2014 and December 29, 2013.
The following is a summary of each operating segment's sales:
 
Quarter Ended
 
Nine Months Ended
 
December 28, 2014
 
December 29, 2013
 
$
Change
 
%
Change
 
December 28, 2014
 
December 29, 2013
 
$
Change
 
%
Change
Aerospace Group
$
324,633

 
$
318,078

 
$
6,555

 
2.1
 %
 
$
986,742

 
$
944,669

 
$
42,073

 
4.5
 %
Defense Group
466,016

 
455,249

 
10,767

 
2.4
 %
 
1,395,901

 
1,401,966

 
(6,065
)
 
(0.4
)%
Sporting Group
506,881

 
524,228

 
(17,347
)
 
(3.3
)%
 
1,602,995

 
1,303,894

 
299,101

 
22.9
 %
Eliminations
(46,152
)
 
(89,151
)
 
42,999

 
(48.2
)%
 
(185,621
)
 
(221,003
)
 
35,382

 
(16.0
)%
Total external sales
$
1,251,378

 
$
1,208,404

 
$
42,974

 
3.6
 %
 
$
3,800,017

 
$
3,429,526

 
$
370,491

 
10.8
 %
Quarter:
Aerospace Group.    The increase in sales was primarily driven by a $19,800 increase in Aerospace Structures division due to increased production and improved profit expectations of commercial and military aircraft programs.
This increase was partially offset by a decrease of $7,600 in Space System Operations division due to decrease in classified programs and timing of contracts.
Defense Group.    The increase in sales was primarily driven by:
a $13,000 increase in Armament Systems division due to increased international sales, and
a $9,600 increase in Missile Products division due to increased production.
These increases were partially offset by:
a decrease of $10,300 in Defense Electronic Systems division due to completion of programs and
a decrease of $8,400 in Small Caliber Systems division due to decreased commercial ammunition production, partially offset by increased international sales.
Sporting Group.    The decrease in sales was primarily driven by a $83,500 decrease due to reduced demand as a result of a market correction in the ammunition and firearms markets, partially offset by increase of $66,100 due to the acquisition of Bushnell.
Corporate. The decrease in intergroup eliminations is due to decreased intergroup sales within the Defense Group.
Nine Months:

43


Aerospace Group.    The increase in sales was primarily driven by a $66,100 increase in Aerospace Structures division due to increased production and improved profit expectations of commercial and military aircraft programs.
This increase was partially offset by a decrease of $26,000 in Space Components division due to lower production volumes.
Defense Group.    The decrease in sales was primarily driven by:
a $26,300 decrease in Small Caliber Systems division due to reduced volume as programs neared completion and impacts from federal budget reductions partially offset by increased international sales, and
a $14,300 decrease in Defense Electronic Systems division driven by completion of programs.
This decrease was partially offset by an increase of $22,200 in Missile Products division due to increased production volumes.
Sporting Group.    The increase in sales was primarily driven by a $335,700 increase due to the acquisition of Bushnell and Savage, partially offset by a reduction in firearms and legacy accessories sales due to reduction in market demand.
Corporate. The decrease in intergroup eliminations is due to decreased intergroup sales within the Defense Group.
Cost of Sales
The following is a summary of each operating segment's cost of sales:
 
Quarter Ended
 
Nine Months Ended
 
December 28, 2014
 
December 29, 2013
 
$
Change
 
%
Change
 
December 28, 2014
 
December 29, 2013
 
$
Change
 
%
Change
Aerospace Group
$
254,673

 
$
254,077

 
$
596

 
0.2
 %
 
$
780,472

 
$
746,355

 
$
34,117

 
4.6
%
Defense Group
373,621

 
360,987

 
12,634

 
3.5
 %
 
1,125,193

 
1,105,062

 
20,131

 
1.8
%
Sporting Group
367,979

 
382,626

 
(14,647
)
 
(3.8
)%
 
1,179,092

 
974,948

 
204,144

 
20.9
%
Corporate/eliminations
(48,739
)
 
(78,456
)
 
29,717

 
(37.9
)%
 
(199,244
)
 
(195,446
)
 
(3,798
)
 
1.9
%
Total cost of sales
$
947,534

 
$
919,234

 
$
28,300

 
3.1
 %
 
$
2,885,513

 
$
2,630,919

 
$
254,594

 
9.7
%
Quarter:
Aerospace Group.    The increase in cost of sales was primarily driven by a $9,300 increase in Aerospace Structures division due to increased production on commercial and military aircraft programs.
This increase was partially offset by a decrease of $7,000 in Space System Operations division due to decrease in classified programs and timing of contracts.
Defense Group.    The increase in cost of sales was primarily driven by:
a $11,300 increase in Missile Products division due to increased production volumes and
a $10,100 increase in Armament Systems division due to increased international production.
This increase was partially offset by a decrease of $10,700 in Defense Electronic Systems division due to decreased production levels.
Sporting Group.    The decrease in cost of sales was primarily driven by a $58,100 decrease due to reduced demand and market correction in the ammunition, firearms and legacy accessories markets, partially offset by $42,300 increase due to the acquisition of Bushnell.
Corporate. The decrease in corporate cost of sales eliminations was driven by decreased intercompany transaction eliminations, and lower pension expense.
Nine Months:
Aerospace Group.    The increase in cost of sales was primarily driven by a $57,600 increase in Aerospace Structures division due to increased production on commercial and military aircraft programs.
This increase was partially offset by a decrease of $17,400 in Space Components division due to lower production volumes.

44


Defense Group.    The increase in cost of sales was primarily driven by:
a $20,300 increase in Small Caliber Systems division due to increased international sales partially offset by reduced commercial ammunition production and
a $16,600 increase in Missile Products division due to increased production volumes.
This increase was partially offset by a decrease of $16,900 in Defense Electronic Systems division due to decreased production levels.
Sporting Group.    The increase in cost of sales was primarily driven by:
a $238,395 increase due to the acquisition of Bushnell and Savage, and
increase in ammunition costs driven by changes in product mix and increased promotional activity, partially offset by a reduction in legacy accessories due to reduction in market demand.
Corporate. The increase in corporate cost of sales eliminations was driven by lower pension expense partially offset by decreased intercompany transaction eliminations.
Operating Expenses
 
Quarter Ended
 
Nine Months Ended
 
December 28, 2014
 
As a %
of Sales
 
December 29, 2013
 
As a %
of Sales
 
$ Change
 
December 28, 2014
 
As a %
of Sales
 
December 29, 2013
 
As a %
of Sales
 
$ Change
Research and development
$
12,194

 
1.0
%
 
$
11,899

 
1.0
%
 
$
295

 
$
31,024

 
0.8
%
 
$
34,126

 
1.0
%
 
$
(3,102
)
Selling
62,122

 
5.0
%
 
56,952

 
4.7
%
 
5,170

 
185,366

 
4.9
%
 
146,617

 
4.3
%
 
38,749

General and administrative
72,537

 
5.8
%
 
74,344

 
6.2
%
 
(1,807
)
 
224,891

 
5.9
%
 
198,003

 
5.8
%
 
26,888

Total operating expense
$
146,853

 
11.8
%
 
$
143,195

 
11.9
%
 
$
3,658

 
$
441,281

 
11.6
%
 
$
378,746

 
11.1
%
 
$
62,535

Quarter:
Operating expenses increased by $3,658 from the prior-year period. Research and development costs were flat. Selling expenses increased primarily due to increased commissions due to the Bushnell acquisition. General and administrative costs decreased due to the absence of transaction costs associated with the Bushnell acquisition in the prior-year quarter partially offset by costs related to the proposed Transaction.
Nine Months:
Operating expenses increased by $62,535 from the prior-year period. Research and development costs decreased due to timing of expenditures in the Defense Group. Selling expenses increased primarily due to increased commissions as result of increased sales in the Sporting Group and as a result of the acquisition of Bushnell and Savage. General and administrative costs increased due to transaction costs related to the proposed Transaction and the addition of costs associated with Bushnell and Savage partially offset by the absence of transaction costs associated with the Bushnell acquisition in the prior-year.
Income before Interest, Income Taxes, and Noncontrolling Interest
 
Quarter Ended
 
Nine Months Ended
 
December 28, 2014
 
December 29, 2013
 
Change
 
December 28, 2014
 
December 29, 2013
 
Change
Aerospace Group
$
40,000

 
$
33,383

 
$
6,617

 
$
117,725

 
$
111,039

 
$
6,686

Defense Group
48,553

 
53,078

 
(4,525
)
 
144,038

 
170,236

 
(26,198
)
Sporting Group
18,322

 
81,119

 
(62,797
)
 
171,744

 
183,059

 
(11,315
)
Corporate/eliminations
(2,104
)
 
(21,605
)
 
19,501

 
(12,504
)
 
(44,473
)
 
31,969

Total
$
104,771

 
$
145,975

 
$
(41,204
)
 
$
421,003

 
$
419,861

 
$
1,142

Quarter:

45


Aerospace Group.    The increase was primarily driven by increased production and improved profit expectations of commercial and military aircraft programs.
Defense Group.    The decrease primarily driven by program mix in the Small Caliber Systems division due to the transition to the new contract at the Lake City Army Ammunition Plant, partially offset by sales increases in the Missile Products and Armament Systems division.
Sporting Group.    The decrease was primarily driven by a $52,220 goodwill and tradename non-cash impairment charge, lower organic sales due to lower sales volume in ammunition, firearms and legacy accessories, partially offset by the Bushnell acquisition.
Corporate.    The income before interest, income taxes, and noncontrolling interest primarily reflects expenses incurred for administrative functions that are performed centrally at the corporate headquarters, the difference between pension and postretirement benefit expense calculated under the Financial Accounting Standards ("FAS") and the expense calculated under U.S. Cost Accounting Standards ("CAS"), and the elimination of intercompany profits. The change from the prior year is driven by lower pension expenses, transaction costs, and decreased intercompany transaction eliminations.
Nine Months:
Aerospace Group.    The increase was primarily driven by increased production and improved profit expectations of commercial and military aircraft programs.
Defense Group.    The decrease reflects the absence of a change in profit expectations on a program in Small Caliber Systems division, due to operation efficiencies gained as one contract neared completion and a new contract was initiated in the prior year, partially offset by increased sales in Missile Products division and improved international contract mix.
Sporting Group.    The decrease primarily reflects the goodwill and tradename non-cash impairment charge offset by Bushnell and Savage results.
Corporate.    The income before interest, income taxes, and noncontrolling interest primarily reflects expenses incurred for administrative functions that are performed centrally at the corporate headquarters, the difference between pension and postretirement benefit expense calculated under FAS and the expense calculated under CAS, and the elimination of intercompany profits. The change from the prior year is driven by lower pension expenses, lower transaction costs and decreased intercompany transaction eliminations.
The majority of ATK’s sales are accounted for as long-term contracts, which are accounted for under the POC method. Accounting for contracts under the POC method requires judgment relative to assessing risks and estimating contract revenues and costs. Profits expected to be realized on contracts are based on management’s estimates of total contract sales value and costs at completion. Estimated amounts for contract changes, including scope and claims, are included in contract sales only when realization is estimated to be probable. Assumptions used for recording sales and earnings are adjusted in the period of change to reflect revisions in contract value and estimated costs. In the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated gross margin loss is charged to cost of sales. Changes in estimates of contract sales, costs, or profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current or prior periods. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception.

Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates, positive or negative, due to unanticipated cost growth or risks affecting contract costs and/or the resolution of contract risks at lower costs than anticipated, as well as changes in contract overhead costs over the performance period. Changes in estimates could have a material effect on the Company’s consolidated financial position or annual results of operations. During the quarters ended December 28, 2014 and December 29, 2013, the Company recognized favorable operating income adjustments of $44,788 and $42,552, and unfavorable operating income adjustments of $25,568 and $22,895, respectively. The current quarter adjustments were primarily driven by higher profit expectations in the Armament Systems and Aerospace Structures divisions. The prior year quarter adjustments were primarily driven by higher profit expectations in the Small Caliber Systems and Armament Systems divisions. During the nine months ended December 28, 2014 and December 29, 2013, the Company recognized favorable operating income adjustments of $104,937 and $140,641, and unfavorable operating income adjustments of $42,736 and $53,704, respectively. The current year nine-month period adjustments were primarily driven by higher profit expectations in Space Systems Operations and Defense Electronics System, Armament Systems, and Missile Products divisions. The prior year period adjustments were primarily driven by higher profit expectations of $39,125 in Small Caliber Systems division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion, and for programs in Space Systems Operations and Aerospace Structures division.

46


Net Interest Expense
Quarter:
Net interest expense for the quarter ended December 28, 2014 was $21,366, a decrease of $5,342 compared to $26,708 in the comparable quarter of fiscal 2014. The decrease was due to a decrease in the weighted average interest rate and the prior year write-off of deferred financing costs due to debt refinancing activity, partially offset by an increase in the average amount of debt outstanding.
Nine Months:
Net interest expense for the nine months ended December 28, 2014 was $68,097, an increase of $12,347 compared to $55,750 in the comparable nine-month period of fiscal 2014. The increase was due to an increase in the average amount of debt outstanding, partially offset by a decrease in the weighted average interest rate and the prior year write-off of deferred financing costs due to debt refinancing activity.
Income Tax Provision
 
Quarter Ended
 
Nine Months Ended
 
December 28, 2014
 
Effective
Rate
 
December 29, 2013
 
Effective
Rate
 
$ Change
 
December 28, 2014
 
Effective
Rate
 
December 29, 2013
 
Effective
Rate
 
$ Change
Income taxes
$
37,617

 
45.1
%
 
$
38,954

 
32.7
%
 
$
(1,337
)
 
$
126,262

 
35.8
%
 
$
118,991

 
32.7
%
 
$
7,271

ATK’s provision for income taxes includes U.S. federal, foreign, and state income taxes. Income tax provisions for interim periods are based on estimated effective annual income tax rates.
The IRS released final regulations relating to the capitalization of tangible personal property on September 13, 2013. ATK is currently analyzing the impact of these new regulations. We do not believe they will have a material impact on our financial statements.
Quarter:
The income tax provisions for the quarters ended December 28, 2014 and December 29, 2013 represent effective tax rates of 45.1% and 32.7%, respectively. The increase in the rate from the prior year quarter is primarily due to the nondeductible goodwill impairment partially offset by the retroactive extension of the Federal research and development (R&D) tax credit and the absence of the nondeductible acquisition costs in the prior year.
Nine Months:
The income tax provisions for the nine months ended December 28, 2014 and December 29, 2013 represent effective tax rates of 35.8% and 32.7%, respectively. The increase in the rate from the prior year period is primarily due to the nondeductible goodwill impairment, absence of the prior year revaluation of unrecognized tax benefits due to proposed Treasury Department regulations, and the true-up of prior-year taxes partially offset by the benefit from an initiative resulting in a tax basis adjustment and the absence of the nondeductible acquisition costs in the prior year.
ATK or one of its subsidiaries files income tax returns in the U.S. federal, various U.S. state, and foreign jurisdictions. With few exceptions, ATK is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2008. The IRS is currently auditing ATK for fiscal 2013 and 2014. We believe appropriate provisions for all outstanding issues have been made for all remaining open years in all jurisdictions.
Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $2,243 reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in earnings from $0 to $1,785.
Net Income Before Noncontrolling Interest
Quarter:
Net income before noncontrolling interest for the quarter ended December 28, 2014 was $45,788, a decrease of $34,525 compared to $80,313 in the second quarter of fiscal 2014. This change was driven by a $52,220 goodwill and tradename impairment, a $3,658 increase in operating expenses, and an decrease of $1,337 in income taxes, partially offset by a $14,674 increase in gross profit, and a decrease of $5,342 in net interest expense over the prior-year period.
Nine Months:

47


Net income before noncontrolling interest for the nine months ended December 28, 2014 was $226,644, a decrease of $18,476 compared to $245,120 in the comparable period of fiscal 2014. This decrease was driven by a $52,220 goodwill and tradename impairment, a $62,535 increase in operating expenses, a an increase of $12,347 in net interest expense, and an increase of $7,271 income taxes, partially offset by a $115,897 increase in gross profit over the prior year.
Noncontrolling Interest
The noncontrolling interest represents the noncontrolling owner's portion of the income of a joint venture in which ATK is the primary owner. This joint venture was acquired with Composite Optics, Inc. ("COI") and is consolidated into ATK's financial statements.
Liquidity and Capital Resources
ATK manages its business to maximize operating cash flows as the primary source of liquidity. In addition to cash on hand and cash generated by operations, sources of liquidity include a committed credit facility, long-term borrowings, and access to the public debt and equity markets. ATK uses its cash to fund its investments in its existing core businesses and for debt repayment, cash dividends, share repurchases, and acquisition or other activities.
Cash Flow Summary
Cash flows provided by operations was $154,186 for the first nine months of fiscal 2015 compared to $222,284 for the first nine months of fiscal 2014. Cash flows provided by operations included the increased pension contributions and cash taxes paid partially offset by the collection of the pension segment close-out payment at the Radford Army Ammunition Plant. Capital expenditures in the first nine months of fiscal 2015 were $91,991.
ATK's cash flows from operating, investing and financing activities, as reflected in the Condensed Consolidated Statements of Cash Flows for the nine months ended December 28, 2014 and December 29, 2013 are summarized as follows:
 
Nine Months Ended
 
December 28, 2014
 
December 29, 2013
Cash provided by (used for):
 
 
 
Operating activities
$
154,186

 
$
222,284

Investing activities
(89,837
)
 
(1,376,851
)
Financing activities
(216,395
)
 
926,700

Effect of foreign currency exchange rate fluctuations on cash
(1,666
)
 
335

Net cash flows
$
(153,712
)
 
$
(227,532
)
Operating Activities
Net cash provided by operating activities decreased $68,098 as compared to the prior year. This decrease was driven by increased pension contributions and cash taxes paid partially offset by the collection of the pension segment close-out payment at the Radford Army Ammunition Plant.
Investing Activities
Net cash used for investing activities decreased $1,287,014, primarily due to the acquisition of Bushnell and Savage in the prior year.
Financing Activities
Net cash used for financing activities was $216,395 compared to net cash provided by financing activities of $926,700 in the prior period, a change of $1,143,095. This change was due to the current year retirement of the 3.00% Convertible Notes, repayment of $50,000 of its Term B Loan, partially offset by ATK's exercise of its option to increase the Term A Loan by $150,000 and $100,000 of borrowings under ATK's Revolving Credit Facility. In addition, in the prior year, ATK issued debt for the acquisition of Bushnell.
Liquidity

48


In addition to ATK's normal operating cash requirements, the Company's principal future cash requirements will be to fund capital expenditures, debt repayments, employee benefit obligations, share repurchases, dividends, any strategic acquisitions and the anticipated spin-off of the Sporting Group and the merger of ATK with Orbital. ATK's short-term cash requirements for operations are expected to consist mainly of capital expenditures to maintain and expand production facilities and working capital requirements. ATK's debt service requirements over the next two years consist of principal payments due under the Senior Credit Facility, as discussed further below. ATK's other debt service requirements consist of interest expense on its debt. Additional cash will be required to redeem all of the 6.875% Notes as required under the Transaction Agreement. ATK believes the Company has sufficient liquidity to refinance those payments net of a dividend received as a result of the spin-off of the Sporting Group.
During the nine months ended December 28, 2014, ATK paid dividends totaling $30,657. On January 22, 2015, ATK's Board of Directors declared a quarterly cash dividend of $0.32 per share payable on February 6, 2015, to stockholders of record on February 2, 2015. The payment and amount of any future dividends are at the discretion of the Board of Directors and will be based on a number of factors, including the Company's earnings, liquidity position, financial condition, capital requirements, credit ratings and the availability and cost of obtaining new debt. ATK cannot be certain that the Company will continue to declare dividends in the future and, as such, the amount and timing of any future dividends are not determinable.
In fiscal 2014, ATK refinanced the Senior Credit Facility extending the debt maturities and adding additional capacity under the Revolving Credit Facility, which increased our liquidity. In addition, during fiscal 2015, ATK exercised its option to increase the Term A Loan by $150,000. Based on ATK's current financial condition, management believes that ATK's cash position, combined with anticipated generation of cash flows and the availability of funding, if needed, through ATK's revolving credit facilities, access to debt and equity markets, as well as potential future sources of funding including additional bank financing and debt markets, will be adequate to fund future growth and service ATK's currently anticipated long-term debt and pension obligations, make capital expenditures, and fund any share repurchases and payment of dividends over the next 12 months.
ATK does not expect that its access to liquidity sources will be materially impacted in the near future. There can be no assurance, however, that the cost or availability of future borrowings, if any, will not be materially impacted by capital market conditions. ATK believes the recent passage of the GFY14 appropriations and the budget agreement for GFY15 to have diminished the possibility of future government shutdowns or disruption in payments. 
Long-term Debt and Credit Facilities
As of December 28, 2014, ATK had actual total indebtedness of $2,068,500, and the $700,000 Revolving Credit Facility provided for the potential of additional borrowings up to $408,991. There were $100,000 of borrowings under the Revolving Credit Facility as of December 28, 2014, and ATK had outstanding letters of credit of $191,009, which reduced the amount available under the facility.
ATK's indebtedness at December 28, 2014 consisted of the following:
 
December 28, 2014
 
March 31, 2014
Senior Credit Facility dated November 1, 2013:
 
 
 
Term A Loan due 2018
$
972,125

 
$
997,375

Term A Loan due 2019
148,125

 

Term B Loan due 2020
198,250

 
249,375

Revolving Credit Facility due 2018
100,000

 

5.25% Senior Notes due 2021
300,000

 
300,000

6.875% Senior Subordinated Notes due 2020
350,000

 
350,000

3.00% Convertible Senior Subordinated Notes due 2024

 
199,440

Principal amount of long-term debt
2,068,500

 
2,096,190

Less: Unamortized discounts

 
3,212

Carrying amount of long-term debt
2,068,500

 
2,092,978

Less: Current portion of long-term debt
159,997

 
249,228

Long-term debt
$
1,908,503

 
$
1,843,750

See Note 12 "Long-term Debt" to the condensed consolidated financial statements in Part I, Item 1 for a detailed discussion of these borrowings.

49


Senior Credit Facility
In fiscal 2014, ATK entered into a Third Amended and Restated Credit Agreement (the "2013 Senior Credit Facility"), which replaced its 2010 Senior Credit Facility. The 2013 Senior Credit Facility is comprised of a Term A Loan of $1,010,000 and a $700,000 Revolving Credit Facility, both of which mature in 2018, and a Term Loan B of $250,000, which matures in 2020. The Term A Loan is subject to quarterly principal payments of $12,625, with the remaining balance due on November 1, 2018. The Term B Loan is subject to quarterly principal payments of $499, with the remaining balance due on November 1, 2020. As of December 28, 2014, ATK had $100,000 outstanding borrowings under the Revolving Credit Facility.
On June 30, 2014, under the terms of the Senior Credit Facility, ATK exercised an option to increase the Term A Loan by $150,000 (the "Accordion"). ATK used the proceeds of the Accordion to partially finance the tender offer of the 3.00% Convertible Notes and to repay $50,000 of the outstanding Term B Loan. Terms of the Accordion are the same as the existing Term A Loan with the exception of the maturity date, which is January 31, 2019, approximately three months after the existing Term A Loan. The Accordion is subject to annual principal payments of $7,500 each year, paid on a quarterly basis, with the balance due on January 31, 2019.
Substantially all domestic, tangible and intangible assets of ATK and its subsidiaries are pledged as collateral under the Senior Credit Facility. Borrowings under the Senior Credit Facility bear interest at a rate equal to either the sum of a base rate plus a margin or the sum of a Eurodollar rate plus a margin. Each margin is based on ATK's senior secured credit ratings. Based on ATK's credit rating as of December 29, 2013, the base rate margin was 1.00% and the Eurodollar margin was 2.00%. ATK must also pay an annual commitment fee on the unused portion of the Revolving Credit Facility.
5.25% Notes due 2021
On November 1, 2013, ATK issued $300,000 aggregate principal amount of 5.25% Senior Notes (the "5.25% Notes") that mature on October 1, 2021. These notes are general unsecured obligations. Interest on these notes is payable on April 1 and October 1 of each year. ATK has the right to redeem some or all of these notes from time to time on or after October 1, 2016, at specified redemption prices. Prior to October 1, 2016, ATK may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In addition, prior to October 1, 2016, ATK may redeem up to 35% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 105.25% of their principal amount plus accrued and unpaid interest to the date of redemption.
6.875% Notes due 2020
ATK's 6.875% Notes mature on September 15, 2020. These notes are general unsecured obligations. Interest on these notes accrues at a rate of 6.875% per annum and is payable semi-annually on September 15 and March 15 of each year. ATK has the right to redeem some or all of these notes on or after September 15, 2015, at specified redemption prices. Prior to September 15, 2015, ATK may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In accordance with the terms of the Transaction Agreement, ATK anticipates redeeming these notes as during the closing process of the Transaction.
Rank and Guarantees
The 5.25% Notes rank senior in right of payment to the 6.875% Notes, all of which are subordinated in right of payment to all existing and future senior secured indebtedness, including the Senior Credit Facility. The outstanding notes are guaranteed on an unsecured basis, jointly and severally and fully and unconditionally, by substantially all of ATK's domestic subsidiaries. The parent company has no independent assets or operations. See footnote 20 for consolidating financial information of the guarantor and non-guarantor subsidiaries, as subsidiaries of ATK other than the subsidiary guarantors are more than minor. All of these guarantor subsidiaries are 100% owned by ATK. These guarantees are senior or senior subordinated obligations, as applicable, of the applicable subsidiary guarantors.

50


Covenants
ATK's Senior Credit Facility imposes restrictions on ATK, including limitations on its ability to incur additional debt, enter into capital leases, grant liens, pay dividends and make certain other payments, sell assets, or merge or consolidate with or into another entity. In addition, the Senior Credit Facility limits ATK's ability to enter into sale-and-leaseback transactions. The Senior Credit Facility also requires that ATK meet and maintain the following financial ratios:
 
Senior
Leverage
Ratio (1)
 
Leverage
Ratio (1)
 
Interest
Coverage
Ratio (2)
Requirement
3.00

 
4.00

 
3.00

Actual at December 28, 2014
1.73

 
2.55

 
9.69

(1) Not to exceed the required financial ratio
 
 
 
 
 
(2) Not to be below the required financial ratio
 
 
 
 
 
The Leverage Ratio is the sum of ATK's total debt plus financial letters of credit and surety bonds, net of up to $100,000 of cash, divided by Covenant EBITDA (which includes adjustments for items such as non-recurring or extraordinary noncash items, noncash charges related to stock-based compensation, and intangible asset impairment charges, as well as inclusion of EBITDA of acquired companies on a pro forma basis) for the past four fiscal quarters. The Senior Leverage Ratio is the sum of ATK's senior debt plus financial letters of credit and surety bonds, net of up to $100,000 of cash, divided by Covenant EBITDA. The Interest Coverage Ratio is Covenant EBITDA divided by interest expense (excluding noncash charges).
Many of ATK's debt agreements contain cross-default provisions so that noncompliance with the covenants within one debt agreement could cause a default under other debt agreements as well. ATK's ability to comply with these covenants and to meet and maintain the financial ratios may be affected by events beyond its control. Borrowings under the Senior Credit Facility are subject to compliance with these covenants. The indentures governing the 5.25% Senior Notes and the 6.875% Notes also impose restrictions on ATK, including limitations on its ability to incur additional debt, enter into capital leases, grant liens, pay dividends and make certain other payments, sell assets, or merge or consolidate with or into another entity. As of December 28, 2014, ATK was in compliance with the covenants in all of its debt agreements and expects to be in compliance for the foreseeable future.
Share Repurchases
On January 31, 2012, ATK's Board of Directors authorized a share repurchase program of up to $200,000 worth of shares of ATK common stock, executable over the next two years. On January 29, 2014, ATK's Board of Directors extended the share repurchase program through March 31, 2015. The shares may be purchased in open market, block purchase, or negotiated transactions, subject to compliance with applicable laws and regulations. The repurchase authorization also allows the Company to make repurchases under Rule 10b5-1 of the Securities Exchange Act of 1934. During the nine months ended December 28, 2014, ATK did not repurchase any shares, compared to 609,922 shares for $52,130 in the nine months ended December 29, 2013. In accordance with the Transaction Agreement ATK entered into on April 28, 2014, ATK will not repurchase any outstanding shares prior to the closing of the transaction.
Any additional authorized repurchases would be subject to market conditions and ATK's compliance with its debt covenants. ATK's 6.875% Senior Subordinated Notes limit the aggregate sum of dividends, share repurchases, and other designated restricted payments to an amount based on ATK's net income, stock issuance proceeds, and certain other items, less restricted payments made, since April 1, 2001. As of December 28, 2014, this limit was approximately $967,000. As of December 28, 2014, the Senior Credit Facility allows ATK to make unlimited "restricted payments" (as defined in the credit agreement), which, among other items, would allow payments for future stock repurchases, as long as ATK maintains a certain amount of liquidity and maintains certain senior debt limits. When those requirements are not met, the limit is equal to $250,000 plus proceeds of any equity issuances plus 50% of net income since October 7, 2010. The Senior Credit Facility also prohibits dividend payments if loan defaults exist or the financial covenants contained in the facility are not met.
Shelf Registration
On September 10, 2013, ATK filed a shelf registration statement with the Securities and Exchange Commission allowing ATK to issue an unspecified aggregate amount of debt and/or equity securities from time to time.
Other Contractual Obligations and Commitments
There have been no material changes with respect to the contractual obligations and commitments or off-balance sheet arrangements described in ATK’s Annual Report on Form 10-K for fiscal 2014.

51


Contingencies
Litigation.    From time to time, ATK is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of ATK's business. ATK does not consider any of such proceedings that are currently pending, individually or in the aggregate, notwithstanding that the unfavorable resolution of any matter may have a material effect on the Company's net earnings in any particular quarter, to be material to its business or likely to result in a material adverse effect on its future operating results, financial condition, or cash flows.
On July 30, 2013, Raytheon Company filed a lawsuit against ATK in the Superior Court of the State of Arizona.  The suit involves ATK's longstanding production of rocket motors used in Raytheon's Advanced Medium-Range Air-to-Air Missiles (AMRAAM).  In the filing, Raytheon's primary allegation is that ATK breached certain of the production contracts by not delivering rocket motors.  Raytheon is claiming damages exceeding $100,000. ATK disputes the allegations of Raytheon's complaint. Although it is not possible at this time to predict the outcome of the litigation, ATK believes, based on all currently available information, that the outcome will not have a material adverse effect on its operating results, financial condition or cash flows. As a result of the uncertainty regarding the outcome of this matter, no provision has been made in the financial statements with respect to this contingent liability.
On May 5, 2014, a purported stockholder class action and derivative complaint was filed in the Circuit Court of Arlington County, Virginia by Michael Blank, who claims to be a stockholder of Orbital, alleging, among other things, that the directors of Orbital breached their fiduciary duties in connection with the Transaction between Orbital and ATK, as described above, and alleging that ATK aided and abetted such breaches of fiduciary duty. A similar purported class action was filed on May 9, 2014, by Gregory Ericksen in the Court of Chancery of the State of Delaware. Plaintiffs in Virginia and Delaware seek, among other relief, to enjoin the Transaction (or, in the Delaware action, to rescind it in the event it is consummated).

On January 16, 2015, following arm's-length negotiation, the parties to In re Orbital Sciences Corporation Stockholder Litigation, C.A. No. 9635-VCN, entered into a Memorandum of Understanding (“MOU”) providing for the settlement in principle of all claims asserted in the action, subject to the approval of the court.  Pursuant to the terms of the MOU, Orbital and ATK agreed to make additional information available to Orbital’s stockholders.  That additional information, which should be read in concert with the previously filed joint proxy statement/prospectus, was included in a Form 8-K filing by Orbital on January 16, 2015.  In addition, the defendants agreed to negotiate in good faith with plaintiffs’ counsel regarding an appropriate amount of fees and expenses to be paid to plaintiffs’ counsel by Orbital or its successor.

ATK, Orbital and the other defendants continue to deny all of the allegations in the lawsuit and believe the disclosures in the joint proxy statement/prospectus are adequate under the law.  Nevertheless, ATK, Orbital and the other defendants have agreed to settle the lawsuit for legal expenses incurred to date in order to avoid the burden, expense, distraction and uncertainties inherent in further litigation.

If approved by the court, the settlement provides for dismissal with prejudice of the lawsuit and provides for the release of any and all claims arising from the merger, except for those relating to any alleged material inaccuracy in ATK's historical financial statements.

There can be no assurance that the parties will ultimately enter into a definitive settlement agreement or that the court will approve the settlement. In such event, or if the merger is not consummated for any reason, the proposed settlement will be null and void and of no force and effect. Payments made in connection with the settlement, which are subject to court approval, are not expected to be material. The settlement will not affect the consideration to be received by Orbital's stockholders in the merger or the timing of the anticipated closing of the merger.

U.S. Government Investigations. ATK is also subject to U.S. Government investigations from which civil, criminal, or administrative proceedings could result. Such proceedings could involve claims by the U.S. Government for fines, penalties, compensatory and treble damages, restitution, and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. ATK believes, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on its operating results, financial condition, or cash flows.
Environmental Liabilities.    ATK's operations and ownership or use of real property are subject to a number of federal, state, and local environmental laws and regulations, including those for discharge of hazardous materials, remediation of contaminated sites, and restoration of damage to the environment. At certain sites that ATK owns or operates or formerly owned or operated, there is known or potential contamination that ATK is required to investigate or remediate. ATK could incur substantial costs, including remediation costs, resource restoration costs, fines, and penalties, or third party property damage or

52


personal injury claims, as a result of liabilities associated with past practices or violations of environmental laws or noncompliance with environmental permits.
The liability for environmental remediation represents management's best estimate of the present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that ATK expects to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows, using a discount rate of 0.75% and 1.50% as of December 28, 2014 and March 31, 2014, respectively. ATK's discount rate is calculated using the 20-year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9%, rounded to the nearest quarter percent. The following is a summary of the amounts recorded for environmental remediation:
 
December 28, 2014
 
December 29, 2013
 
Payable
 
Receivable
 
Payable
 
Receivable
Undiscounted (payable) receivable
$
(53,711
)
 
$
27,640

 
$
(58,194
)
 
$
28,540

Unamortized discount
2,657

 
(1,241
)
 
4,706

 
(2,152
)
Present value amounts (payable) receivable
$
(51,054
)
 
$
26,399

 
$
(53,488
)
 
$
26,388


As of December 28, 2014, the estimated discounted range of reasonably possible costs of environmental remediation was $51,054 to $80,730.
ATK expects that a portion of its environmental compliance and remediation costs will be recoverable under U.S. Government contracts. Some of the remediation costs that are not recoverable from the U.S. Government that are associated with facilities purchased in a business acquisition may be covered by various indemnification agreements, as described in Note 13 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014.
ATK has been identified as a potentially responsible party (“PRP”), along with other parties, in several regulatory agency actions associated with hazardous waste sites. As a PRP, we may be required to pay a share of the costs of the investigation and clean-up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our operating results, financial condition, or cash flows.
Other Contingencies. ATK is also subject to a number of other potential risks and contingencies. These risks and contingencies are described in Item 1A of Part I of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.
New Accounting Pronouncements
See Note 2 to the unaudited condensed consolidated financial statements in Item 1 of Part I of this report.
Inflation and Commodity Price Risk
In management’s opinion, inflation has not had a significant impact upon the results of ATK’s operations. The selling prices under contracts, the majority of which are long term, generally include estimated costs to be incurred in future periods. These cost projections can generally be negotiated into new buys under fixed-price government contracts, while actual cost increases are recoverable on cost-type contracts.
ATK, however, has been impacted by changes in the prices of raw materials used in production as well as changes in oil and energy costs. In particular, the prices of commodity metals, such as lead, steel, zinc, and copper, continue to be volatile. These prices generally impact our small-caliber ammunition and commercial ammunition businesses.
With respect to ATK's commercial ammunition business, ATK has a strategic sourcing and price strategy to mitigate risk from commodity price fluctuation. ATK will continue to evaluate the need for future price changes in light of these trends, ATK's competitive landscape, and its financial results. If ATK sourcing and pricing strategy is unable to offset impacts of the commodity price fluctuations, ATK's future results from operations and cash flows would be materially impacted.
Significant increases in commodities can negatively impact operating results with respect to ATK's firm fixed-price contract to supply the DoD's small-caliber ammunition needs and ATK's sales within commercial ammunition. Depending on market conditions, ATK has entered into futures contracts in order to reduce the impact of metal price fluctuations. The majority of the impact has been mitigated on the four-year small-caliber ammunition supply contract, as well as the new seven-year contract with the U.S. Army by the terms within that contract, which is expected to continue into 2019. ATK has entered

53


into futures contracts and purchase orders for the current expected production requirements for fiscal 2015 for both the small-caliber ammunition supply contract and the production of commercial ammunition, thereby mitigating near-term market risk; however, if metal prices exceed pre-determined levels, the Defense and Sporting Groups' operating results could be adversely impacted.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion within Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the section titled “Inflation and Commodity Price Risk.”
During fiscal 2014, ATK completed the acquisition of Bushnell. As a result of this acquisition, ATK conducts business in various locations throughout the world and is subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. ATK may use derivative financial instruments to manage these risks. The functional currencies of our foreign operating locations are the local currency in the country of domicile. We manage these operating activities at the local level, and revenues, costs, assets and liabilities are generally denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange rates. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between those local currencies and the U.S. dollar. From time to time, we may enter in to short-duration foreign currency contracts to hedge foreign currency risks.
There have been no other material changes in ATK’s market risk during the quarter ended December 28, 2014. For additional information, refer to Item 7A of Part II of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.
ITEM 4.    CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 28, 2014, ATK’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of ATK’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) and have concluded that ATK’s disclosure controls and procedures are effective to ensure that information required to be disclosed by ATK in reports that ATK files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports ATK files or submits is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended December 28, 2014, we transitioned certain business units, representing approximately 23% of ATK external sales, from an old accounting system to a new accounting system.  There were no other changes in ATK’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, ATK’s internal control over financial reporting.



54


PART II—OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
From time to time, ATK is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of ATK's business. ATK does not consider any of such proceedings that are currently pending, individually or in the aggregate, notwithstanding that the unfavorable resolution of any matter may have a material effect on the Company's net earnings in any particular quarter, to be material to its business or likely to result in a material adverse effect on its future operating results, financial condition, or cash flows.
On July 30, 2013, Raytheon Company filed a lawsuit against ATK in the Superior Court of the State of Arizona.  The suit involves ATK's longstanding production of rocket motors used in Raytheon's Advanced Medium-Range Air-to-Air Missiles (AMRAAM).  In the filing, Raytheon's primary allegation is that ATK breached certain of the production contracts by not delivering rocket motors.  Raytheon is claiming damages exceeding $100 million. ATK disputes the allegations of Raytheon's complaint. Although it is not possible at this time to predict the outcome of the litigation, ATK believes, based on all currently available information, that the outcome will not have a material adverse effect on its operating results, financial condition or cash flows. As a result of the uncertainty regarding the outcome of this matter, no provision has been made in the financial statements with respect to this contingent liability.
On November 4, 2013, ATK filed a lawsuit against Spirit Aerosystems Inc. in the Second District Court in Farmington, Utah. In its suit, ATK has made various claims, including breach of contract, in relation to a contract with Spirit Aerosystems regarding the manufacture of aircraft parts. ATK is claiming damages of approximately $72 million. Spirit Aerosystems has disputed ATK’s allegations and in its response to ATK’s complaint it asserted a number of affirmative defenses and counterclaims. Although it is not possible at this time to predict the outcome of the litigation, ATK believes, based on all currently available information, that the outcome will not have a material adverse effect on its operating results, financial condition, or cash flows. 
On May 5, 2014, a purported stockholder class action and derivative complaint was filed in the Circuit Court of Arlington County, Virginia by Michael Blank, who claims to be a stockholder of Orbital, alleging, among other things, that the directors of Orbital breached their fiduciary duties in connection with the Transaction between Orbital and ATK, as described above, and alleging that ATK aided and abetted such breaches of fiduciary duty. A similar purported class action was filed on May 9, 2014, by Gregory Ericksen in the Court of Chancery of the State of Delaware. Plaintiffs in Virginia and Delaware seek, among other relief, to enjoin the Transaction (or, in the Delaware action, to rescind it in the event it is consummated).

On January 16, 2015, following arm's-length negotiation, the parties to In re Orbital Sciences Corporation Stockholder Litigation, C.A. No. 9635-VCN, entered into a Memorandum of Understanding (“MOU”) providing for the settlement in principle of all claims asserted in the action, subject to the approval of the court.  Pursuant to the terms of the MOU, Orbital and ATK agreed to make additional information available to Orbital’s stockholders.  That additional information, which should be read in concert with the previously filed joint proxy statement/prospectus, was included in a Form 8-K filing by Orbital on January 16, 2015.  In addition, the defendants agreed to negotiate in good faith with plaintiffs’ counsel regarding an appropriate amount of fees and expenses to be paid to plaintiffs’ counsel by Orbital or its successor.

ATK, Orbital and the other defendants continue to deny all of the allegations in the lawsuit and believe the disclosures in the joint proxy statement/prospectus are adequate under the law.  Nevertheless, ATK, Orbital and the other defendants have agreed to settle the lawsuit for legal expenses incurred to date in order to avoid the burden, expense, distraction and uncertainties inherent in further litigation.

If approved by the court, the settlement provides for dismissal with prejudice of the lawsuit and provides for the release of any and all claims arising from the merger, except for those relating to any alleged material inaccuracy in ATK's historical financial statements.

There can be no assurance that the parties will ultimately enter into a definitive settlement agreement or that the court will approve the settlement. In such event, or if the merger is not consummated for any reason, the proposed settlement will be null and void and of no force and effect. Payments made in connection with the settlement, which are subject to court approval, are not expected to be material. The settlement will not affect the consideration to be received by Orbital's stockholders in the merger or the timing of the anticipated closing of the merger.
ATK is also subject to U.S. Government investigations from which civil, criminal, or administrative proceedings could result. Such proceedings could involve claims by the U.S. Government for fines, penalties, compensatory and treble damages, restitution, and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of

55


investigations. ATK believes, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on its operating results, financial condition, or cash flows.
ATK has been identified as a potentially responsible party (“PRP”), along with other parties, in several regulatory agency actions associated with hazardous waste sites. As a PRP, ATK may be required to pay a share of the costs of the investigation and clean-up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, the Company has concluded that these matters, individually or in the aggregate, will not have a material adverse effect on the Company's operating results, financial condition, or cash flows.
The description of certain environmental matters contained in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contingencies,” is incorporated herein by reference.
ITEM 1A.    RISK FACTORS
While ATK attempts to identify, manage and mitigate risks and uncertainties associated with its business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A of Part I of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014 describes all known material risks and uncertainties associated with its business. These risks and uncertainties have the potential to materially affect ATK’s business, financial condition, results of operations, cash flows, projected results, and future prospects.
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number
of Shares
Purchased(1)
 
Average
Price Paid
per Share
 
Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Program
 
Maximum
Number of
Shares that
May Yet Be
Purchased Under
the Program(2)*
September 29 - October 26
191

 
$
124.47

 

 
 

October 27 - November 23
4,502

 
116.87

 

 
 

November 24 - December 28
9

 
106.46

 

 
 

Fiscal Quarter Ended December 28, 2014
4,702

 
117.16

 

 
772,102

____________________________________________________________
* The maximum number of shares that may yet be purchased under the program was calculated using the ATK closing stock price of $114.44 on December 28, 2014.

(1)
The 4,702 shares purchased represent shares withheld to pay taxes upon vesting of shares of restricted stock and performance shares that were granted under ATK's incentive compensation plans.

(2)
On January 31, 2012, ATK's Board of Directors authorized a share repurchase program of up to $200 million worth of shares of ATK common stock, executable over the next two years. On January 29, 2014, ATK's Board of Directors extended the share repurchase program through March 31, 2015. The shares may be purchased from time to time in open market, block purchase, or negotiated transactions, subject to compliance with applicable laws and regulations. The repurchase authorization also allows the Company to make repurchases under Rule 10b5-1 of the Securities Exchange Act of 1934. In the nine months ended December 28, 2014, ATK repurchased no shares under this program. In accordance with the Transaction Agreement ATK entered into on April 28, 2014, ATK will not repurchase any outstanding shares prior to the closing of the transaction.
The discussion of limitations upon the payment of dividends as a result of the indentures governing ATK's debt instruments as discussed in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Debt," is incorporated herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.

56


ITEM 5.    OTHER INFORMATION
None.

57


ITEM 6.    EXHIBITS
Exhibit
Number
 
Description of Exhibit (and document from which incorporated by reference, if applicable)
31.1
 
Certification of Chief Executive Officer.
 
 
 
31.2
 
Certification of Chief Financial Officer.
 
 
 
32
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.

58


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ALLIANT TECHSYSTEMS INC.
Date: February 5, 2015
 
By:
 
/s/ Neal S. Cohen
 
 
 
 
Name:
 
Neal S. Cohen
 
 
 
 
Title:
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
(On behalf of the Registrant and as principal financial and accounting officer)


59