10-Q 1 atk-6292014x10xq.htm 10-Q atk-6292014x10-Q

 
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 June 29, 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 August 4, 2014, there were 31,933,878 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)
 
 
QUARTERS ENDED
(Amounts in thousands except per share data)
 
June 29, 2014
 
June 30, 2013
Sales
 
$
1,275,391

 
$
1,078,743

Cost of sales
 
964,806

 
836,731

Gross profit
 
310,585

 
242,012

Operating expenses:
 
 
 
 
Research and development
 
8,814

 
10,425

Selling
 
63,122

 
42,764

General and administrative
 
83,094

 
63,198

Income before interest, income taxes, and noncontrolling interest
 
155,555

 
125,625

Interest expense
 
(23,416
)
 
(13,890
)
Interest income
 
26

 
67

Income before income taxes and noncontrolling interest
 
132,165

 
111,802

Income tax provision
 
46,498

 
39,661

Net income
 
85,667

 
72,141

Less net income attributable to noncontrolling interest
 
69

 
103

Net income attributable to Alliant Techsystems Inc. 
 
$
85,598

 
$
72,038

Alliant Techsystems Inc. earnings per common share:
 
 
 
 
Basic
 
$
2.71

 
$
2.26

Diluted
 
$
2.59

 
$
2.24

Cash dividends paid per share
 
$
0.32

 
$
0.26

Alliant Techsystems Inc. weighted-average number of common shares outstanding:
 
 
 
 
Basic
 
31,640

 
31,892

Diluted
 
33,108

 
32,099

 
 


 


Net Income (from above)
 
$
85,667

 
$
72,141

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 $2,958 and $2,830
 
(4,758
)
 
(4,511
)
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(11,587), and $(14,319)
 
18,636

 
22,653

Change in fair value of derivatives, net of tax (expense) benefit of $(2,101), and $3,817
 
3,356

 
(5,981
)
Other, net of tax (expense) benefit of $(100) and $12
 
160

 
(20
)
Change in cumulative translation adjustment, net of income taxes of $749, and $0
 
1,196

 

Total other comprehensive income
 
$
18,590

 
$
12,141

Comprehensive income
 
104,257

 
84,282

Less comprehensive income attributable to noncontrolling interest
 
69

 
103

Comprehensive income attributable to Alliant Techsystems Inc.
 
$
104,188

 
$
84,179

See Notes to the Condensed Consolidated Financial Statements.

2


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Amounts in thousands except share data)
 
June 29, 2014
 
March 31, 2014
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
132,739

 
$
266,632

Net receivables
 
1,686,669

 
1,473,820

Net inventories
 
562,216

 
558,250

Deferred income tax assets
 
93,914

 
93,616

Other current assets
 
64,556

 
69,280

Total current assets
 
2,540,094

 
2,461,598

Net property, plant, and equipment
 
693,353

 
697,551

Goodwill
 
1,920,914

 
1,916,921

Net intangible assets
 
569,775

 
577,850

Deferred charges and other non-current assets
 
120,821

 
117,226

Total assets
 
$
5,844,957

 
$
5,771,146

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
247,666

 
$
249,228

Accounts payable
 
318,358

 
315,605

Contract advances and allowances
 
120,032

 
105,787

Accrued compensation
 
91,139

 
128,821

Accrued income taxes
 
36,455

 
7,877

Other accrued liabilities
 
293,143

 
322,832

Total current liabilities
 
1,106,793

 
1,130,150

Long-term debt
 
1,843,750

 
1,843,750

Deferred income tax liabilities
 
129,363

 
117,515

Postretirement and postemployment benefits liabilities
 
71,884

 
74,874

Accrued pension liability
 
550,244

 
557,775

Other long-term liabilities
 
119,235

 
124,944

Total liabilities
 
3,821,269

 
3,849,008

Commitments and contingencies (Notes 16)
 

 

Stockholders' equity
 
 
 
 
Common stock—$.01 par value:
 
 
 
 
Authorized—180,000,000 shares, Issued and outstanding—31,934,727 shares at June 29, 2014 and 31,842,642 shares at March 31, 2014
 
319

 
318

Additional paid-in-capital
 
540,080

 
534,015

Retained earnings
 
2,864,643

 
2,789,264

Accumulated other comprehensive loss
 
(662,219
)
 
(680,809
)
Common stock in treasury, at cost—9,641,470 shares held at June 29, 2014 and 9,712,877 shares held at March 31, 2014
 
(729,767
)
 
(731,213
)
Total Alliant Techsystems Inc. stockholders' equity
 
2,013,056

 
1,911,575

Noncontrolling interest
 
10,632

 
10,563

Total equity
 
2,023,688

 
1,922,138

Total liabilities and equity
 
$
5,844,957

 
$
5,771,146

See Notes to the Condensed Consolidated Financial Statements.


3


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
QUARTERS ENDED
(Amounts in thousands)
 
June 29, 2014
 
June 30, 2013
Operating Activities
 
 
 
 
Net income
 
$
85,667

 
$
72,141

Adjustments to net income to arrive at cash provided by operating activities:
 
 
 
 
Depreciation
 
24,949

 
23,143

Amortization of intangible assets
 
8,369

 
2,734

Amortization of debt discount
 
1,927

 
1,799

Amortization of deferred financing costs
 
1,174

 
899

Deferred income taxes
 
49

 
54

(Gain) loss on disposal of property
 
761

 
87

Share-based plans expense
 
3,861

 
3,012

Excess tax benefits from share-based plans
 
(6,739
)
 
(622
)
Changes in assets and liabilities:
 
 
 
 
Net receivables
 
(212,474
)
 
(868
)
Net inventories
 
(3,980
)
 
(18,208
)
Accounts payable
 
8,989

 
(175,904
)
Contract advances and allowances
 
14,245

 
(18,681
)
Accrued compensation
 
(42,437
)
 
(46,601
)
Accrued income taxes
 
42,392

 
30,865

Pension and other postretirement benefits
 
11,267

 
(12,918
)
Other assets and liabilities
 
(29,500
)
 
3,305

Cash used for operating activities
 
(91,480
)
 
(135,763
)
Investing Activities
 
 
 
 
Capital expenditures
 
(29,501
)
 
(29,552
)
Acquisition of business, net of cash acquired
 

 
(313,963
)
Proceeds from the disposition of property, plant, and equipment
 
2,168

 
5,190

Cash used for investing activities
 
(27,333
)
 
(338,325
)
Financing Activities
 
 
 
 
Borrowings on line of credit
 
65,000

 
200,000

Payments on line of credit
 
(65,000
)
 

Payments made on bank debt
 
(3,489
)
 
(12,500
)
Purchase of treasury shares
 
(8,360
)
 
(24,322
)
Dividends paid
 
(10,219
)
 
(8,372
)
Proceeds from employee stock compensation plans
 

 
656

Excess tax benefits from share-based plans
 
6,739

 
622

Cash (used for) provided by financing activities
 
(15,329
)
 
156,084

Effect of foreign exchange rate fluctuations on cash
 
249

 

Decrease in cash and cash equivalents
 
(133,893
)
 
(318,004
)
Cash and cash equivalents at beginning of period
 
266,632

 
417,289

Cash and cash equivalents at end of period
 
$
132,739

 
$
99,285

Supplemental Cash Flow Disclosures:
 
 
 
 
Noncash investing activity:
 
 
 
 
Capital expenditures included in accounts payable
 
$
10,497

 
$
3,293

Noncash financing activity:
 
 
 
 
Treasury Shares purchased included in other accrued liabilities
 
$

 
$
1,140


   See Notes to the Condensed Consolidated Financial Statements.

4


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
 
 
Common Stock $.01 Par Value
 
 
 
 
 
 
 
 
 
 
 
 
(Amounts in thousands except share data)
 
Shares
 
Amount
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Noncontrolling
Interest
 
Total
Equity
For the quarter ended June 29, 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
 

 

 

 
85,598

 
18,590

 

 
69

 
104,257

Exercise of stock options
 

 

 

 

 

 

 

 

Restricted stock grants
 
32,163

 

 
(2,862
)
 

 

 
2,862

 

 

Share-based compensation
 

 

 
3,861

 

 

 

 

 
3,861

Treasury stock purchased
 

 

 

 

 

 

 

 

Performance shares issued net of treasury stock withheld
 
59,193

 

 
(7,388
)
 

 

 
1,580

 

 
(5,808
)
Tax benefit related to share based plans and other
 

 

 
12,011

 

 

 

 

 
12,011

Dividends paid
 

 

 

 
(10,219
)
 

 

 

 
(10,219
)
Employee benefit plans and other
 
729

 
1

 
443

 

 

 
(2,996
)
 

 
(2,552
)
Balance, June 29, 2014
 
31,934,727

 
$
319

 
$
540,080

 
$
2,864,643

 
$
(662,219
)
 
$
(729,767
)
 
$
10,632

 
$
2,023,688

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the quarter ended June 30, 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
 
 
 
 
 
 
 
72,038

 
12,141

 
 
 
103

 
84,282

Exercise of stock options
 
11,873

 

 
(227
)
 

 

 
883

 

 
656

Restricted stock grants
 
59,141

 

 
(4,908
)
 

 

 
4,908

 

 

Share-based compensation
 

 

 
3,013

 

 

 

 

 
3,013

Treasury stock purchased
 
(321,596
)
 

 

 

 

 
(24,322
)
 

 
(24,322
)
Performance shares issued net of treasury stock withheld
 
31,608

 

 
(3,540
)
 

 

 
2,328

 

 
(1,212
)
Tax benefit related to share based plans and other
 

 

 
2,669

 

 

 

 

 
2,669

Dividends paid
 

 

 

 
(8,372
)
 

 

 

 
(8,372
)
Employee benefit plans and other
 
(1,958
)
 
(2
)
 
431

 

 

 
(577
)
 

 
(148
)
Balance, June 30, 2013
 
32,097,363

 
$
321

 
$
531,575

 
$
2,547,149

 
$
(816,163
)
 
$
(704,250
)
 
$
10,495

 
$
1,569,127

See Notes to the Condensed Consolidated Financial Statements.

5


ALLIANT TECHSYTEMS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Quarter Ended June 29, 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 June 29, 2014, and its results of operations and cash flows for the quarters ended June 29, 2014 and June 30, 2013.

On April 28, 2014, the Company entered into a Transaction Agreement (the “Transaction Agreement”) with 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. This transaction is subject to stockholder approval prior to closing. As a result, the Sporting Group continues to be included as part of continuing operations.

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. Other new pronouncements issued but not effective for the Company until after June 29, 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:
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.

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)

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 non-current assets on the consolidated balance sheet.
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. No foreign currency derivatives were outstanding as of June 29, 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 has considered 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:
 
 
As of June 29, 2014
 
 
Fair Value Measurements
Using Inputs Considered as
 
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
Marketable securities
 
$

 
$
10,395

 
$

Derivatives
 

 
1,550

 

Liabilities
 
 
 
 
 
 
Derivatives
 
$

 
$
4,224

 
$


 
 
As of 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

 
$


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)

The following table presents ATK's assets and liabilities that are not measured at fair value on a recurring basis. The carrying values and estimated fair values were as follows:
 
 
As of June 29, 2014
 
As of March 31, 2014
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Fixed rate debt
 
$
844,666

 
$
1,045,514

 
$
846,228

 
$
1,062,078

Variable rate debt
 
1,246,750

 
1,244,880

 
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 600 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.

ATK used the acquisition method of accounting to account for this acquisition and, accordingly, the results of Savage are included in ATK’s consolidated financial statements at the date of acquisition. The purchase price for the acquisition has been allocated to the acquired assets and liabilities based on estimated fair value. Pro forma information on the results of operations for fiscal 2014 as if the acquisition had occurred at the beginning of fiscal 2014 is not being presented because the acquisition is not material to ATK for that purpose. ATK has recorded sales of approximately $41,847 and $6,400 for the quarters ended June 29, 2014 and June 30, 2013 and income before interest, income taxes, and noncontrolling interest of approximately $7,521 and $700 for the quarters ended June 29, 2014 and June 30, 2013 associated with the operations of this acquired business. The June 30, 2013 income before interest, income taxes, and noncontrolling interest reflects the expense of a portion of the $12,000 inventory step-up cost.

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 skiing. 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 has been preliminarily allocated based on the estimated fair value of net assets acquired and liabilities assumed at the date of the acquisition. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. These adjustments will primarily relate to working capital adjustments, certain contingent liabilities and income tax-related items. ATK expects the purchase price allocation to be completed within 12 months of the acquisition date. A portion of the goodwill generated in this acquisition will be deductible for tax purposes. ATK has recorded sales of approximately $124,778 for the quarter 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)

June 29, 2014 and income before interest, income taxes, and noncontrolling interest of approximately $5,321 for the quarter ended June 29, 2014 associated with the operations of this acquired business, including transition costs.

Preliminary Allocation of Consideration Transferred to Net Assets Acquired:

The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the Bushnell acquisition. The final determination of the fair value of certain assets and liabilities will be completed within the 12-month measurement period from the date of acquisition as required. The size and breadth of the Bushnell acquisition will necessitate the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date, including the significant contractual and operational factors underlying the trade name and customer relationship intangible assets, the assumptions utilized on certain reserves such as those for inventory obsolescence, the assumptions used in transfer pricing analysis, and the related tax impacts of any changes made. Any potential adjustments made could be material in relation to the preliminary values presented below:
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
 
$
111,036

 
 
Net inventories
 
153,748

 
 
Tradename, technology, and customer relationship intangibles
 
364,843

 
 
Property, Plant, and Equipment
 
25,080

 
 
Other assets
 
9,820

 
 
Total assets
 
664,527

 
 
Fair value of liabilities assumed:
 
 
 
 
Accounts Payable
 
80,092

 
 
Deferred tax liabilities
 
72,349

 
 
Other liabilities
 
28,746

 
 
Total liabilities
 
$
181,187

 
 
Net assets acquired
 
 
 
$
483,340

Preliminary goodwill
 
 
 
$
505,845


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 ended June 30, 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
(Amounts in thousands except per share data)
 
June 30, 2013
Sales
 
$
1,220,004

Net income attributable to Alliant Techsystems Inc. 
 
74,392

Basic earnings per common share
 
2.33

Diluted earnings per common share
 
2.32


There were no acquisitions during the first quarter of fiscal 2015.


9

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

 

 
3,358

 
3,358

Effect of foreign currency exchange rates
 

 

 
635

 
635

Balance at June 29, 2014
 
$
676,516

 
$
366,947

 
$
877,451

 
$
1,920,914


The acquisitions in the Sporting Group related to the final purchase price allocation adjustments to the original purchase price allocation for Savage and the preliminary purchase price allocation Bushnell as previously discussed.
The goodwill recorded within Aerospace Group above is presented net of $108,500 of accumulated impairment losses.
Included in Net intangible assets as of June 29, 2014 and March 31, 2014 are $204,298 of other intangible assets consisting of trademarks and brand names that are not being amortized as their estimated useful lives are considered indefinite and amortizing assets, as follows:
 
 
June 29, 2014
 
March 31, 2014
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
Trade name
 
$
184,660

 
$
(24,857
)
 
$
159,803

 
$
184,660

 
$
(21,723
)
 
$
162,937

Patented technology
 
33,389

 
(11,225
)
 
22,164

 
33,389

 
(10,325
)
 
23,064

Customer relationships and other
 
226,399

 
(42,889
)
 
183,510

 
226,105

 
(38,554
)
 
187,551

Total
 
$
444,448

 
$
(78,971
)
 
$
365,477

 
$
444,154

 
$
(70,602
)
 
$
373,552


The assets in the table above are being amortized using a straight-line method over a weighted average remaining period of approximately 12.8 years. Amortization expense for the quarter ended June 29, 2014 and June 30, 2013 was $8,369 and $2,734, respectively. ATK expects amortization expense related to these assets to be as follows:

Remainder of fiscal 2015
 
$
25,584

Fiscal 2016
 
32,712

Fiscal 2017
 
30,422

Fiscal 2018
 
30,422

Fiscal 2019
 
27,678

Thereafter
 
218,659

Total
 
$
365,477

Deferred charges and other non-current assets consist of the following:
 
 
June 29, 2014
 
March 31, 2014
Gross debt issuance costs
 
$
28,356

 
$
28,356

Less accumulated amortization
 
(5,258
)
 
(4,084
)
Net debt issuance costs
 
23,098

 
24,272

Parts inventory
 
11,117

 
10,921

Environmental remediation receivable
 
21,421

 
22,128

Derivative contracts
 
3

 
328

Other non-current assets
 
65,182

 
59,577

Total deferred charges and other non-current assets
 
$
120,821

 
$
117,226


10



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
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 (see Note 12) during each period presented, which, if exercised, earned, or converted, would have a dilutive effect on EPS. In computing EPS for the quarter ended June 29, 2014 and June 30, 2013 earnings, as reported for each respective period, is divided by (in thousands):
 
 
Quarters Ended
 
 
 
June 29, 2014
 
June 30, 2013
 
Basic EPS shares outstanding
 
31,640

 
31,892

 
Dilutive effect of stock-based awards
 
315

 
207

 
Dilutive effect of contingently issuable shares
 
1,153

 

 
Diluted EPS shares outstanding
 
33,108

 
32,099

 
Shares excluded from the calculation of diluted EPS because the option exercise/threshold price was greater than the average market price of the common shares
 
44

 
110

 
As discussed further in Note 12, contingently issuable shares related to ATK’s 3.00% Convertible Senior Subordinated Notes due 2024 are not included in diluted EPS for the quarter ended June 30, 2013 because ATK’s average stock price during that period did not exceed the triggering price.
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.
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 perform's 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. However, at June 29, 2014, four 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. ATK does not anticipate nonperformance by the Company's counterparties. ATK does not hold or issue derivative financial instruments for trading purposes.
ATK has not entered into any foreign currency forward contracts during fiscal 2015 or 2014. Previous contracts were 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

11

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)


purchases was calculated based on changes in the forward rate until the anticipated purchase occurs; ineffectiveness of the hedge of the accounts payable was 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 June 29, 2014, ATK had the following outstanding commodity forward contracts that were entered into to hedge forecasted purchases:
 
Number of
Pounds
Copper
25,800,000

Zinc
10,025,000

As of June 29, 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 June 29, 2014, ATK had no outstanding foreign currency forward contracts in place.
The table below presents the fair value and location of ATK's derivative instruments designated as hedging instruments in the consolidated balance sheet as of the periods presented.
 
 
 
 
Asset Derivatives
Fair value as of
 
Liability Derivatives
Fair value as of
 
 
Location
 
June 29, 2014
 
March 31, 2014
 
June 29, 2014
 
March 31, 2014
Commodity forward contracts
 
Other current assets /
other accrued liabilities
 
$
1,547

 
$

 
$
783

 
$
6,212

Commodity forward contracts
 
Deferred charges and
other non-current
assets / other long-term liabilities
 

 

 

 
176

Interest rate contracts
 
Deferred charges and
other non-current
assets / other long-term liabilities
 
$
3

 
$
328

 
$
3,441

 
$
2,071

Total
 
 
 
$
1,550

 
$
328

 
$
4,224

 
$
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 income statements related to commodity forward contracts, interest rate swaps, and foreign currency forward contracts were as follows:

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)


 
 
Pretax amount of gain
(loss) reclassified from
Accumulated Other
Comprehensive Income
(Loss)
 
Gain or (loss) recognized
in income on derivative
(ineffective portion and
amount excluded from
effectiveness testing)
 
 
Location
 
Amount
 
Location
 
Amount
Quarter ended June 29, 2014
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(2,525
)
 
Cost of Sales
 
$

Interest rate contracts
 
Interest expense
 
(1,041
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 

Quarter ended June 30, 2013
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(967
)
 
Cost of Sales
 
$
(1,637
)
Interest rate contracts
 
Interest expense
 

 
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.
During the quarter ended June 30, 2013 there was a loss of $1,637 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.

13

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
The components of accumulated other comprehensive income (loss) ("AOCI"), net of income taxes, are as follows:
 
 
June 29, 2014
 
March 31, 2014
Derivatives
 
$
(1,666
)
 
$
(5,022
)
Pension and other postretirement benefit liabilities
 
(661,236
)
 
(675,114
)
Cumulative translation adjustment
 
(309
)
 
832

Available-for-sale securities
 
992

 
(1,505
)
Total accumulated other comprehensive loss
 
$
(662,219
)
 
$
(680,809
)
The following table summarizes the changes in the balance of AOCI, net of income tax:
 
Quarter ended June 29, 2014
 
Derivatives
 
Pension and other Postretire-ment Benefits
 
Available for Sale Securities
 
Cumulative translation adjustment
 
Total
Beginning of period unrealized gain (loss) in AOCI
$
(5,022
)
 
$
(675,114
)
 
$
832

 
$
(1,505
)
 
$
(680,809
)
Net decrease in fair value of derivatives
1,146

 


 


 

 
1,146

Net losses reclassified from AOCI, offsetting the price paid to suppliers ±
2,210

 


 


 

 
2,210

Net actuarial losses reclassified from AOCI #


 
18,636

 


 

 
18,636

Prior service costs reclassified from AOCI #


 
(4,758
)
 


 

 
(4,758
)
Net change in cumulative translation adjustment

 

 

 
1,196

 
1,196

Other


 


 
160

 

 
160

End of period unrealized loss in AOCI
$
(1,666
)
 
$
(661,236
)
 
$
992

 
$
(309
)
 
$
(662,219
)
± Amounts related to the Company's derivative instruments that were reclassified from AOCI were recorded as a component of cost of sales or interest expense for each period presented.
# Amounts related to the Company's pension and other postretirement benefits that were reclassified from AOCI were recorded as a component of net periodic benefit cost for each period presented (Note 13).


14

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 Income (Continued)


 
Quarter ended June 30, 2013
 
Derivatives
 
Pension and other Postretire-ment Benefits
 
Available for Sale Securities
 
Total
Beginning of period unrealized gain (loss) in AOCI
$
(2,192
)
 
$
(826,898
)
 
$
786

 
$
(828,304
)
Net decrease in fair value of derivatives
(7,570
)
 

 

 
(7,570
)
Net losses reclassified from OCI, offsetting the price paid to suppliers ±
590

 

 

 
590

Net losses reclassified from OCI, due to ineffectiveness ±
999

 

 

 
999

Net actuarial losses reclassified from AOCI #

 
22,653

 

 
22,653

Prior service costs reclassified from AOCI #

 
(4,511
)
 

 
(4,511
)
Other

 

 
(20
)
 
(20
)
End of period unrealized loss in AOCI
$
(8,173
)
 
$
(808,756
)
 
$
766

 
$
(816,163
)
± Amounts related to the Company's derivative instruments that were reclassified from AOCI were recorded as a component of cost of sales or interest expense for each period presented.
# Amounts related to the Company's pension and other postretirement benefits that were reclassified from AOCI were recorded as a component of net periodic benefit cost for each period presented (Note 13).

9. Receivables
Receivables, including amounts due under long-term contracts ("contract receivables"), are summarized as follows:
 
 
June 29, 2014
 
March 31, 2014
Billed receivables
 
$
664,250

 
$
479,950

Unbilled receivables
 
1,011,277

 
979,640

Other
 
11,142

 
14,230

Net receivables
 
$
1,686,669

 
$
1,473,820

Receivable balances are shown net of customer progress payments received of $509,937 as of June 29, 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 June 29, 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 $258,200 and $264,400, respectively.

10. Inventories
Inventories consist of the following:
 
 
June 29, 2014
 
March 31, 2014
Raw materials
 
$
170,177

 
$
136,414

Work/Contracts in process
 
128,132

 
150,071

Finished Goods
 
263,907

 
271,765

Net inventories
 
$
562,216

 
$
558,250


15


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

The major categories of other current and long-term accrued liabilities are as follows:
 
 
June 29, 2014
 
March 31, 2014
Employee benefits and insurance, including pension and other postretirement benefits
 
$
67,738

 
$
65,858

Warranty
 
19,107

 
19,080

Interest
 
15,156

 
8,341

Environmental remediation
 
6,996

 
8,550

Rebate
 
22,958

 
17,593

Deferred lease obligation
 
24,005

 
26,257

Derivative contracts
 
783

 
6,212

Federal excise tax
 
33,926

 
35,892

Other
 
102,474

 
135,049

Total other accrued liabilities—current
 
$
293,143

 
$
322,832

Environmental remediation
 
$
42,998

 
$
44,938

Management nonqualified deferred compensation plan
 
16,069

 
17,043

Non-current portion of accrued income tax liability
 
19,696

 
18,659

Deferred lease obligation
 
19,949

 
19,791

Other
 
20,523

 
24,513

Total other long-term liabilities
 
$
119,235

 
$
124,944

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 is a reconciliation of the changes in ATK's product warranty liability during fiscal 2015:
Balance at March 31, 2014
$
19,080

Payments made
1,139

Warranties issued
(686
)
Changes related to preexisting warranties
(426
)
Balance at June 29, 2014
$
19,107


16


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

As of June 29, 2014, long-term debt, including the current portion, consisted of the following:
 
 
June 29, 2014
 
March 31, 2014
Senior Credit Facility dated November 1, 2013 (1):
 
 
 
 
Term A Loan due 2018
 
$
997,375

 
$
997,375

Term B Loan due 2020
 
249,375

 
249,375

Revolving Credit Facility due 2018
 

 

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)
 
195,951

 
199,440

Principal amount of long-term debt
 
2,092,701

 
2,096,190

Less: Unamortized discounts
 
1,285

 
3,212

Carrying amount of long-term debt
 
2,091,416

 
2,092,978

Less: current portion
 
247,666

 
249,228

Carrying amount of long-term debt, excluding current portion
 
$
1,843,750

 
$
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 Loan B 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. The Term B Loan is subject to quarterly principal payments of $625, 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 2.56% at June 29, 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 current fee is 0.30%. As of June 29, 2014, ATK had no borrowings against its $700,000 Revolving Credit Facility and had outstanding letters of credit of $159,341, which reduced amounts available on the Revolving Credit Facility to $540,659. 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 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

17

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)

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.
(4) In fiscal 2005, ATK issued $200,000 aggregate principal amount of 3.00% Convertible Senior Subordinated Notes (the 3.00% Convertible Notes) that mature on August 15, 2024. Interest on these notes is payable on February 15 and August 15 of each year.
Subsequent to June 29, 2014, ATK purchased the majority of these notes and announced an offer to repurchase the remaining notes on August 15, 2014, as well as ATK's election to redeem any then remaining notes on August 20, 2014. See footnote 22 for additional information. The convertible shares had an impact on diluted shares outstanding for the quarter ended June 29, 2014 of 1,153,000 because ATK's average stock price exceeded the conversion price during that period. For the quarter ended June 30, 2013, there was no impact on diluted shares outstanding because ATK's average stock price did not exceed the conversion price during that period.
The current authoritative accounting literature requires that issuers of convertible debt instruments that may be settled in cash upon conversion separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This provision applies to the convertible debt instrument discussed above.
The unamortized discount is amortized through interest expense into earnings over the expected term of the convertible notes. The following table provides additional information about ATK’s 3.00% Convertible Notes:
 
 
 
 
 
 
 
June 29, 2014
 
March 31, 2014
Carrying amount of the equity component
 
$
56,849

 
$
56,849

Principal amount of the liability component
 
$
195,951

 
$
199,440

Unamortized discount of liability component
 
$
1,285

 
$
3,212

Net carrying amount of liability component
 
$
194,666

 
$
196,228

Remaining amortization period of discount (months)
 
2

 
5

Effective interest rate on liability component
 
7.000
%
 
7.000
%
Based on ATK's closing stock price of $136.60 on June 29, 2014, the if-converted value of these notes exceeded the aggregate principal amount of the notes by $154,758.
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 June 29, 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

 
$
(753
)
 
0.87
%
 
0.15
%
 
August 2016
Non-amortizing swap
$
100,000

 
$
(1,055
)
 
1.29
%
 
0.15
%
 
August 2017
Non-amortizing swap
$
100,000

 
$
(1,523
)
 
1.69
%
 
0.15
%
 
August 2018
Non-amortizing swap
$
50,000

 
$
3

 
0.65
%
 
0.15
%
 
November 2016
Non-amortizing swap
$
50,000

 
$
(109
)
 
1.10
%
 
0.15
%
 
November 2017
The amount to be paid or received under these swaps is recorded as an adjustment to interest expense.
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.

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 (Continued)

Rank and Guarantees
The 5.25% Notes rank senior in right of payment to the 3.00% Convertible Notes and the 6.875% Notes (the latter two of which rank equal with each other), 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. As a result of the acquisition of Bushnell during the third quarter, ATK's non-guarantor subsidaries become more than minor. See footnote 20 for 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;
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.

The guarantee by any Subsidiary Guarantor of the Company’s obligations in respect of the 3.00% Convertible Notes due 2024 will be released if such Subsidiary Guarantor is released from its guarantee of the 5.25% Notes and the 6.875% Notes.

Scheduled Minimum Loan Payments
The scheduled minimum loan payments on outstanding long-term debt are as follows:
 
 
Remainder of fiscal 2015
$
248,951

Fiscal 2016
53,000

Fiscal 2016
53,000

Fiscal 2018
53,000

Fiscal 2019
797,875

Thereafter
886,875

Total
$
2,092,701

ATK's total debt (current portion of debt and long-term debt) as a percentage of total capitalization (total debt and stockholders' equity) was 51% and 52% as of June 29, 2014 and March 31, 2014, respectively.
Covenants and Default Provisions
ATK's Senior Credit Facility and the indentures governing the 5.25% Notes, the 6.875% Notes, and the 3.00% Convertible 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 June 29, 2014, this limit was approximately $913,249. 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 non-compliance with the covenants within one debt agreement could cause a default under

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)

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 June 29, 2014, ATK was in compliance with the financial covenants.
Cash Paid for Interest on Debt
Cash paid for interest totaled $12,291 in the quarter ended June 29, 2014 and $3,726 in the quarter ended June 30, 2013.
Subsequent Events
See footnote 22 for information regarding debt transactions that occurred subsequent to June 29, 2014.
13. Employee Benefit Plans
The components of net periodic benefit cost are as follows:
 
 
Pension Benefits
 
 
Quarters Ended
 
Components of Net Periodic Benefit Cost
 
June 29, 2014
 
June 30, 2013
 
Service cost
 
$
5,849

 
$
8,691

 
Interest cost
 
32,596

 
32,563

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

 
36,473

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

 
$
32,203

 

 
 
Other Postretirement Benefits
 
 
Quarters Ended
 
Components of Net Periodic Benefit Income
 
June 29, 2014
 
June 30, 2013
 
Service cost
 
$
1

 
$
2

 
Interest cost
 
1,203

 
1,302

 
Expected return on plan assets
 
(888
)
 
(855
)
 
Amortization of unrecognized net loss
 
409

 
572

 
Amortization of unrecognized prior service cost
 
(2,094
)
 
(2,095
)
 
Net periodic benefit income
 
$
(1,369
)
 
$
(1,074
)
 

Employer Contributions. During the quarter ended June 29, 2014, ATK contributed $3,000 directly to the pension trust and $1,174 directly to retirees under its nonqualified supplemental executive retirement plan. ATK also contributed $3,162 to its other postretirement benefit plans. ATK anticipates making additional contributions of approximately $77,400 in order to meet the minimum required contributions for FY 2015. ATK anticipates making additional contributions of approximately $3,326 directly to retirees under the nonqualified plan and $7,644 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 June 29, 2014 and June 30, 2013 represent effective tax rates of 35.2% and 35.5%, respectively. The decrease in the rate from the prior year quarter is primarily due to nondeductible acquisition-related costs in the prior year offset by the expiration of the Federal research and development tax credit ("R&D tax credit").

20

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. ATK does not believe they will have a material impact on ATK's 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 has completed the audits of ATK through fiscal 2010 and is currently auditing ATK's tax returns for fiscal years 2011 and 2012. The Company believes 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 $4,677 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 $4,286.
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 pre-tax stock-based compensation expense of $3,861 and $3,012 was recognized during the quarters ended June 29, 2014 and June 30, 2013, respectively.
The total income tax benefit recognized in the income statement for share-based compensation was $1,482 and $1,169 during the quarters ended June 29, 2014 and June 30, 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 June 29, 2014, ATK has authorized up to 3,982,360 common shares under the 2005 Stock Incentive Plan, of which 999,703 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 June 29, 2014, there were up to 280,714 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 82,940 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 June 29, 2014, there were up to 27,647 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 quarter ended June 29, 2014.
Of the shares reserved for TSR awards for key employees, 27,647 shares will become payable upon satisfaction of the market conditions stipulated for the fiscal 2015 through 2017 period.

21

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, 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 38,015 shares during the quarter ended June 29, 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 quarters ended June 29, 2014 and June 30, 2013.

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 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 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). ATK believes the allegations and claims asserted in the complaints in the Virginia and Delaware actions to be without merit and intends to defend those actions vigorously. 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.
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

22

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)

realization is estimated to be probable. At June 29, 2014, based on progress to date on certain contracts, there is approximately $32,074 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 non-compliance 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 1.25% and 1.5% as of June 29, 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:
 
 
June 29, 2014
 
March 31, 2014
 
 
Liability
 
Receivable
 
Liability
 
Receivable
Amounts (payable) receivable
 
$
(55,107
)
 
$
28,062

 
$
(58,194
)
 
$
28,540

Unamortized discount
 
5,113

 
(2,388
)
 
4,706

 
(2,152
)
Present value amounts (payable) receivable
 
$
(49,994
)
 
$
25,674

 
$
(53,488
)
 
$
26,388

Amounts expected to be paid or received in periods more than one year from the balance sheet date are classified as non-current. Of the $49,994 discounted liability as of June 29, 2014, $6,996 was recorded within other current liabilities and $42,998 was recorded within other long-term liabilities. Of the $25,674 discounted receivable, ATK recorded $4,253 within other current assets and $21,421 within other non-current assets. As of June 29, 2014, the estimated discounted range of reasonably possible costs of environmental remediation was $49,994 to $77,051.
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 following 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 June 29, 2014, ATK did not repurchase any shares. During the quarter ended June 30, 2013, ATK repurchased 321,956 shares for $24,322. 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.

23

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
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 $23,845 and $26,010 for the quarters ended June 29, 2014 and June 30, 2013, respectively. The current quarter adjustments were primarily driven by higher profit expectations Space Systems Operations division. The prior year quarter adjustments were primarily driven by performance improvements as the current contracts for the Lake City Army Ammunition Plant neared completion and improved profit expectations for a Space Systems Operations program.
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. 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
Relocation
and Other
Costs
 
Total
 
 
 
 
 
 
 
 
 
Balance at March 31, 2014
 
$

 
$

 
$

 
$

Expense
 
6,774

 
2,465

 
1,385

 
10,624

Cash paid
 

 

 
(452
)
 
(452
)
Non-cash settlements
 

 
(2,465
)
 

 
(2,465
)
Balance at June 29, 2014
 
$
6,774

 
$

 
$
933

 
$
7,707

20. Condensed Consolidating Financial Statements
In accordance with the provisions of the 3.00% Convertible Notes, 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 on the following pages.

24

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

ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 
Quarter Ended June 29, 2014
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Consolidating Adjustments
 
Consolidated
Sales
 
$

 
$
1,218,686

 
$
40,198

 
$
16,507

 
$
1,275,391

Cost of sales
 

 
930,345

 
17,954

 
16,507

 
964,806

Gross profit
 

 
288,341

 
22,244

 

 
310,585

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
7,646

 
1,168

 

 
8,814

Selling
 

 
53,641

 
9,481

 

 
63,122

General and administrative
 
3,861

 
74,980

 
4,253

 

 
83,094

Income before interest, loss on extinguishment of debt, income taxes, and noncontrolling interest
 
(3,861
)
 
152,074

 
7,342

 

 
155,555

Equity in income/(loss) of subsidiaries
 
102,383

 
4,049

 

 
(106,432
)
 

Interest expense
 
(23,425
)
 

 
(1,030
)
 
1,039

 
(23,416
)
Interest income
 

 
969

 
96

 
(1,039
)
 
26

Income before income taxes and noncontrolling interest
 
75,097

 
157,092

 
6,408

 
(106,432
)
 
132,165

Income tax provision
 
(10,501
)
 
54,948

 
2,051

 

 
46,498

Net income
 
85,598

 
102,144

 
4,357

 
(106,432
)
 
85,667

Less net income attributable to noncontrolling interest