10-Q 1 atk-9282014x10xq.htm 10-Q atk-9282014x10-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 September 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 November 3, 2014, there were 31,931,013 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
 
Six Months Ended
(Amounts in thousands except per share data)
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
Sales
 
$
1,273,249

 
$
1,142,381

 
$
2,548,639

 
$
2,221,122

Cost of sales
 
973,173

 
874,955

 
1,937,978

 
1,711,685

Gross profit
 
300,076

 
267,426

 
610,661

 
509,437

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
10,016

 
11,801

 
18,830

 
22,226

Selling
 
60,122

 
46,899

 
123,244

 
89,664

General and administrative
 
69,260

 
60,460

 
152,354

 
123,658

Income before interest, income taxes, and noncontrolling interest
 
160,678

 
148,266

 
316,233

 
273,889

Interest expense
 
(23,359
)
 
(15,242
)
 
(46,775
)
 
(29,132
)
Interest income
 
19

 
23

 
44

 
91

Income before income taxes and noncontrolling interest
 
137,338

 
133,047

 
269,502

 
244,848

Income tax provision
 
42,148

 
40,376

 
88,645

 
80,037

Net income before noncontrolling interest
 
95,190

 
92,671

 
180,857

 
164,811

Less net income attributable to noncontrolling interest
 
81

 
80

 
150

 
183

Net income attributable to Alliant Techsystems Inc. 
 
$
95,109

 
$
92,591

 
$
180,707

 
$
164,628

Alliant Techsystems Inc. earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
3.00

 
$
2.92

 
$
5.71

 
$
5.18

Diluted
 
$
2.97

 
$
2.86

 
$
5.54

 
$
5.10

Cash dividends paid per common share
 
$
0.32

 
$
0.26

 
$
0.64

 
$
0.52

Alliant Techsystems Inc. weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
31,689

 
31,671

 
31,666

 
31,781

Diluted
 
32,058

 
32,385

 
32,605

 
32,256

 
 


 


 
 
 
 
Net income before noncontrolling interest
 
$
95,190

 
$
92,671

 
$
180,857

 
$
164,811

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 $2,954, $2,790, $5,909, and $5,620, respectively
 
(4,761
)
 
(4,552
)
 
(9,524
)
 
(9,063
)
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(11,582), $(14,077), and $(23,165) $(28,396), respectively
 
18,640

 
22,968

 
37,281

 
45,694

Change in fair value of derivatives, net of tax benefit (expense) of $(407), $(2,097), $(2,508) and $1,721, respectively
 
650

 
3,222

 
4,006

 
(2,759
)
Change in fair value of available-for-sale securities, net of tax benefit (expense) of $(54), $52, $(154), and $64, respectively
 
86

 
(83
)
 
246

 
(103
)
Change in cumulative translation adjustment, net of tax benefits of $5,593, $0, $4,844, and $0, respectively
 
(8,934
)
 

 
(7,738
)
 

Total other comprehensive income
 
5,681

 
21,555

 
24,271

 
33,769

Comprehensive income
 
100,871

 
114,226

 
205,128

 
198,580

Less comprehensive income attributable to noncontrolling interest
 
81

 
80

 
150

 
183

Comprehensive income attributable to Alliant Techsystems Inc.
 
$
100,790

 
$
114,146

 
$
204,978

 
$
198,397

See Notes to the Condensed Consolidated Financial Statements.

2


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Amounts in thousands except share data)
 
September 28, 2014
 
March 31, 2014
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
42,668

 
$
266,632

Net receivables
 
1,687,130

 
1,473,820

Net inventories
 
563,453

 
558,250

Deferred income tax assets
 
135,931

 
93,616

Other current assets
 
54,471

 
69,280

Total current assets
 
2,483,653

 
2,461,598

Net property, plant, and equipment
 
691,793

 
697,551

Goodwill
 
1,912,995

 
1,916,921

Net intangible assets
 
558,898

 
577,850

Deferred charges and other non-current assets
 
118,460

 
117,226

Total assets
 
$
5,765,799

 
$
5,771,146

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

 
$
249,228

Accounts payable
 
316,806

 
315,605

Contract advances and allowances
 
118,600

 
105,787

Accrued compensation
 
86,486

 
128,821

Accrued income taxes
 
16,526

 
7,877

Other accrued liabilities
 
304,184

 
322,832

Total current liabilities
 
1,002,599

 
1,130,150

Long-term debt
 
1,923,503

 
1,843,750

Noncurrent deferred income tax liabilities
 
123,789

 
117,515

Postretirement and postemployment benefits liabilities
 
68,716

 
74,874

Accrued pension liability
 
520,064

 
557,775

Other long-term liabilities
 
121,269

 
124,944

Total liabilities
 
3,759,940

 
3,849,008

Commitments and contingencies (Notes 16)
 

 

Common stock—$.01 par value:
 
 
 
 
Authorized—180,000,000 shares, Issued and outstanding—31,931,354 shares at September 28, 2014 and 31,842,642 shares at March 31, 2014
 
319

 
318

Additional paid-in-capital
 
431,967

 
534,015

Retained earnings
 
2,949,533

 
2,789,264

Accumulated other comprehensive loss
 
(656,538
)
 
(680,809
)
Common stock in treasury, at cost—9,644,843 shares held at September 28, 2014 and 9,712,877 shares held at March 31, 2014
 
(730,135
)
 
(731,213
)
Total Alliant Techsystems Inc. stockholders' equity
 
1,995,146

 
1,911,575

Noncontrolling interest
 
10,713

 
10,563

Total equity
 
2,005,859

 
1,922,138

Total liabilities and equity
 
$
5,765,799

 
$
5,771,146

See Notes to the Condensed Consolidated Financial Statements.


3


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Six Months Ended
(Amounts in thousands)
 
September 28, 2014
 
September 29, 2013
Operating Activities
 
 
 
 
Net income before noncontrolling interest
 
$
180,857

 
$
164,811

Adjustments to net income to arrive at cash provided by operating activities:
 
 
 
 
Depreciation
 
50,865

 
46,442

Amortization of intangible assets
 
16,925

 
7,106

Amortization of debt discount
 
3,212

 
3,619

Amortization of deferred financing costs
 
2,698

 
1,798

Deferred income taxes
 
(8,058
)
 
3,577

Loss on disposal of property
 
1,319

 
1,581

Share-based plans expense
 
7,927

 
6,308

Excess tax benefits from share-based plans
 
(6,783
)
 
(713
)
Changes in assets and liabilities net of effects of business acquisitions:
 
 
 
 
Net receivables
 
(214,780
)
 
(44,550
)
Net inventories
 
(2,725
)
 
(40,458
)
Accounts payable
 
11,104

 
(129,474
)
Contract advances and allowances
 
12,813

 
(8,756
)
Accrued compensation
 
(46,690
)
 
(49,880
)
Accrued income taxes
 
25,905

 
27,983

Pension and other postretirement benefits
 
425

 
13,735

Other assets and liabilities
 
(10,499
)
 
39,424

Cash provided by operating activities
 
24,515

 
42,553

Investing Activities
 
 
 
 
Capital expenditures
 
(59,699
)
 
(52,262
)
Acquisition of business, net of cash acquired
 

 
(313,963
)
Proceeds from the disposition of property, plant, and equipment
 
2,174

 
5,363

Cash used for investing activities
 
(57,525
)
 
(360,862
)
Financing Activities
 
 
 
 
Borrowings on line of credit
 
410,000

 
235,000

Repayments of line of credit
 
(310,000
)
 
(145,000
)
Payments made on bank debt
 
(13,250
)
 
(12,500
)
Payments made to extinguish debt
 
(404,462
)
 

Proceeds from issuance of long-term debt
 
150,000

 

Payments made for debt issue costs
 
(507
)
 

Purchase of treasury shares
 
(8,451
)
 
(48,259
)
Dividends paid
 
(20,438
)
 
(16,679
)
Proceeds from employee stock compensation plans
 

 
656

Excess tax benefits from share-based plans
 
6,783

 
713

Cash provided by (used for) financing activities
 
(190,325
)
 
13,931

Effect of foreign currency exchange rate fluctuations on cash
 
(629
)
 

Decrease in cash and cash equivalents
 
(223,964
)
 
(304,378
)
Cash and cash equivalents at beginning of period
 
266,632

 
417,289

Cash and cash equivalents at end of period
 
$
42,668

 
$
112,911

Supplemental Cash Flow Disclosures:
 
 
 
 
Noncash operating and investing activities:
 
 
 
 
Capital expenditures included in accounts payable
 
$
6,598

 
$
2,775


   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 Six Months Ended September 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
 
 
 
 
 
 
 
180,707

 
24,271

 
 
 
150

 
205,128

Exercise of stock options
 

 

 

 

 

 

 

 

Restricted stock grants
 
29,497

 

 
(3,312
)
 

 

 
3,312

 

 

Share-based compensation
 

 

 
7,927

 

 

 

 

 
7,927

Treasury Stock Purchased
 

 

 

 

 

 

 

 

Performance shares issued net of treasury stock withheld
 
59,193

 

 
(7,388
)
 

 

 
1,581

 

 
(5,807
)
Tax benefit related to share based plans and other
 

 

 
12,108

 

 

 

 

 
12,108

Dividends paid
 

 

 

 
(20,438
)
 

 

 

 
(20,438
)
Convertible debt premium, net of tax ($42,322)
 
 
 
 
 
(112,555
)
 
 
 
 
 
 
 
 
 
(112,555
)
Employee benefit plans and other
 
22

 
1

 
1,172

 

 

 
(3,815
)
 

 
(2,642
)
Balance, September 28, 2014
 
31,931,354

 
$
319

 
$
431,967

 
$
2,949,533

 
$
(656,538
)
 
$
(730,135
)
 
$
10,713

 
$
2,005,859

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended September 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
 
 
 
 
 
 
 
164,628

 
33,769

 
 
 
183

 
198,580

Exercise of stock options
 
11,873

 

 
(227
)
 

 

 
883

 

 
656

Restricted stock grants
 
74,162

 

 
(5,969
)
 

 

 
5,969

 

 

Share-based compensation
 

 

 
6,308

 

 

 

 

 
6,308

Treasury stock purchased
 
(574,669
)
 

 

 

 

 
(48,259
)
 

 
(48,259
)
Performance shares issued net of treasury stock withheld
 
31,618

 

 
(3,541
)
 

 

 
2,329

 

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

 

 
3,934

 

 

 

 

 
3,934

Dividends paid
 

 

 

 
(16,679
)
 

 

 

 
(16,679
)
Employee benefit plans and other
 
(3,305
)
 
(4
)
 
373

 

 

 
(647
)
 

 
(278
)
Balance, September 29, 2013
 
31,857,974

 
$
319

 
$
535,015

 
$
2,631,432

 
$
(794,535
)
 
$
(727,195
)
 
$
10,575

 
$
1,655,611

See Notes to the Condensed Consolidated Financial Statements.

5


ALLIANT TECHSYTEMS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Quarter and Six Months Ended September 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 September 28, 2014, and its results of operations for the quarters and six months ended September 28, 2014 and September 29, 2013, and cash flows for the six months ended September 28, 2014 and September 29, 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. The Sporting Group continues to be included as part of continuing operations.

An unfortunate failure occurred during Orbital Sciences Corporation's Antares launch on October 28, 2014. ATK is conducting a thorough evaluation of any potential implications resulting from this incident, including current operating plans, long-term strategies, and the proposed transaction to merge the company's Aerospace and Defense businesses with Orbital.

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 September 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:
Level 1—Quoted prices for identical instruments in active markets.

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 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 non-current assets on the consolidated balance sheets.
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 quarter ended September 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 consideres 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 September 28, 2014
 
 
Fair Value Measurements
Using Inputs Considered as
 
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
Marketable securities
 
$

 
$
11,199

 
$

Derivatives
 

 
1,794

 

Liabilities
 
 
 
 
 
 
Derivatives
 
$

 
$
3,412

 
$



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)

 
 
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

 
$

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

 
$
678,752

 
$
846,228

 
$
1,062,078

Variable rate debt
 
1,433,500

 
1,433,003

 
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.

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 in 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 $144,794 and $269,572 for the quarter and six months ended September 28, 2014, respectively and income before interest, income taxes, and noncontrolling interest of

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)

approximately $15,051 and $20,371 for the quarter and six months ended September 28, 2014 associated with the operations of this acquired business which reflects 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 in the third quarter of fiscal 2015. 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
 
$
104,312

 
 
Net inventories
 
162,254

 
 
Tradename, technology, and customer relationship intangibles
 
364,843

 
 
Property, plant, and equipment
 
25,080

 
 
Other assets
 
10,938

 
 
Total assets
 
667,427

 
 
Fair value of liabilities assumed:
 
 
 
 
Accounts payable
 
80,092

 
 
Deferred income tax liabilities
 
76,181

 
 
Other liabilities
 
30,025

 
 
Total liabilities
 
$
186,298

 
 
Net assets acquired
 
 
 
481,129

Preliminary goodwill
 
 
 
$
508,056


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 six months ended September 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
 
Six Months Ended
 
 
September 29, 2013
 
September 29, 2013
Sales
 
$
1,299,281

 
$
2,846,800

Net income attributable to Alliant Techsystems Inc. 
 
78,906

 
194,657

Basic earnings per common share
 
2.49

 
6.12

Diluted earnings per common share
 
2.44

 
6.03


There were no acquisitions during 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, Net 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
 

 

 
3,164

 
3,164

Effect of foreign currency exchange rates
 

 

 
(7,090
)
 
(7,090
)
Balance, September 28, 2014
 
$
676,516

 
$
366,947

 
$
869,532

 
$
1,912,995


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 for 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 September 28, 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:
 
 
September 28, 2014
 
March 31, 2014
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
Trade name
 
$
184,660

 
$
(27,991
)
 
$
156,669

 
$
184,660

 
$
(21,723
)
 
$
162,937

Patented technology
 
33,389

 
(12,126
)
 
21,263

 
33,389

 
(10,325
)
 
23,064

Customer relationships and other
 
224,078

 
(47,410
)
 
176,668

 
226,105

 
(38,554
)
 
187,551

Total
 
$
442,127

 
$
(87,527
)
 
$
354,600

 
$
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 12.9 years. Amortization expense for the quarter and six months ended September 28, 2014 was $8,556 and $16,925, respectively. Amortization expense for the quarter and six months ended September 29, 2013 was $4,372 and $7,106, respectively. ATK expects amortization expense related to these assets to be as follows:

Remainder of fiscal 2015
 
$
17,056

Fiscal 2016
 
32,712

Fiscal 2017
 
30,422

Fiscal 2018
 
30,422

Fiscal 2019
 
27,678

Thereafter
 
216,310

Total
 
$
354,600


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 Intangible Assets, and Deferred Charges and Other Non-Current Assets (Continued)


Deferred charges and other non-current assets consist of the following:
 
 
September 28, 2014
 
March 31, 2014
Gross debt issuance costs
 
$
28,493

 
$
28,356

Less accumulated amortization
 
(6,412
)
 
(4,084
)
Net debt issuance costs
 
22,081

 
24,272

Parts inventory
 
10,550

 
10,921

Environmental remediation receivable
 
22,116

 
22,128

Derivative contracts
 
302

 
328

Other non-current assets
 
63,411

 
59,577

Total deferred charges and other non-current assets
 
$
118,460

 
$
117,226



11



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 and six months ended September 28, 2014 and September 29, 2013 earnings, as reported for each respective period, is divided by (in thousands):
 
 
Quarters Ended
 
Six Months Ended
 
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
Basic EPS shares outstanding
 
31,689

 
31,671

 
31,666

 
31,781

Dilutive effect of stock-based awards
 
314

 
224

 
336

 
222

Dilutive effect of contingently issuable shares
 
55

 
490

 
603

 
253

Diluted EPS shares outstanding
 
32,058

 
32,385

 
32,605

 
32,256

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

 
3

 
44

 
8


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 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 September 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 was

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)


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 September 28, 2014, ATK had the following outstanding commodity forward contracts that were entered into to hedge forecasted purchases:
 
Number of
Pounds
Copper
18,550,000

Zinc
7,385,000

As of September 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 September 28, 2014, ATK had outstanding foreign currency forward contracts in place for the following amounts:
 
Notional Amount of Currency
Purchase foreign currency
 
Euro
6,295

Sale of foreign currency
 
Euro
11,458

British Pound Sterling
3,043


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
Fair value as of
 
Liability Derivatives
Fair value as of
 
 
Location
 
September 28, 2014
 
March 31, 2014
 
September 28, 2014
 
March 31, 2014
Commodity forward contracts
 
Other current assets /
other accrued liabilities
 
$
668

 
$

 
$
1,516

 
$
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
 
302

 
328

 
1,850

 
2,071

Foreign currency forward contracts
 
Other current assets/
other accrued liabilities
 
824

 

 
44

 

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

 

 
2

 

Total
 
 
 
$
1,794

 
$
328

 
$
3,412

 
$
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 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 September 28, 2014
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
752

 
Cost of Sales
 
$

Interest rate contracts
 
Interest expense
 
(929
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 

Quarter Ended September 29, 2013
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(642
)
 
Cost of Sales
 
$

Interest rate contracts
 
Interest expense
 

 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 

 
 
 
 
 
 
 
 
 
Six Months Ended September 28, 2014
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(1,772
)
 
Cost of Sales
 
$

Interest rate contracts
 
Interest expense
 
(1,970
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 

Six Months Ended September 29, 2013
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of Sales
 
$
(1,608
)
 
Cost of Sales
 
$
(1,637
)
Interest rate contracts
 
Interest expense
 

 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 


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)


All derivatives used by ATK during the periods presented were designated as hedging instruments.
During six months ended September 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:
 
 
September 28, 2014
 
March 31, 2014
Derivatives
 
$
(1,016
)
 
$
(5,022
)
Pension and other postretirement benefit liabilities
 
(647,357
)
 
(675,114
)
Cumulative translation adjustment
 
(9,243
)
 
832

Available-for-sale securities
 
1,078

 
(1,505
)
Total accumulated other comprehensive loss
 
$
(656,538
)
 
$
(680,809
)
The following table summarizes the changes in the balance of AOCI, net of income tax:
 
Quarter Ended September 28, 2014
 
Six Months Ended September 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
$
(1,666
)
 
$
(661,236
)
 
$
992

 
$
(309
)
 
$
(662,219
)
 
$
(5,022
)
 
$
(675,114
)
 
$
832

 
$
(1,505
)
 
$
(680,809
)
Net decrease in fair value of derivatives
541

 

 

 

 
541

 
1,705

 

 

 

 
1,705

Net losses reclassified from AOCI, offsetting the price paid to suppliers ±
109

 

 

 

 
109

 
2,301

 

 

 

 
2,301

Net actuarial losses reclassified from AOCI #

 
18,640

 

 

 
18,640

 

 
37,281

 

 

 
37,281

Prior service costs reclassified from AOCI #

 
(4,761
)
 

 

 
(4,761
)
 

 
(9,524
)
 

 

 
(9,524
)
Net change in cumulative translation adjustment

 

 

 
(8,934
)
 
(8,934
)
 

 

 

 
(7,738
)
 
(7,738
)
Other

 

 
86

 

 
86

 

 

 
246

 

 
246

End of period unrealized gain (loss) in AOCI
$
(1,016
)
 
$
(647,357
)
 
$
1,078

 
$
(9,243
)
 
$
(656,538
)
 
$
(1,016
)
 
$
(647,357
)
 
$
1,078

 
$
(9,243
)
 
$
(656,538
)
± Amounts related to ATK derivative instruments that were reclassified from AOCI were recorded as a component of cost of sales for each period presented.
# Amounts related to ATK 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).


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 Income (Continued)


 
Quarter Ended September 29, 2013
 
Six Months Ended September 29, 2013
 
Derivatives
 
Pension and other postretire-ment benefits
 
Available for sale securities
 
Total
 
Derivatives
 
Pension and other postretire-ment benefits
 
Available for sale securities
 
Total
Beginning of period unrealized gain (loss) in AOCI
$
(8,173
)
 
$
(808,683
)
 
$
766

 
$
(816,090
)
 
$
(2,192
)
 
$
(826,898
)
 
$
786

 
$
(828,304
)
Net decrease in fair value of derivatives
2,827

 

 

 
2,827

 
(4,743
)
 

 

 
(4,743
)
Net losses reclassified from OCI, offsetting the price paid to suppliers ±
395

 

 

 
395

 
985

 

 

 
985

Net losses reclassified from OCI, due to ineffectiveness ±

 

 

 

 
999

 

 

 
999

Net actuarial losses reclassified from AOCI #

 
22,968

 

 
22,968

 

 
45,694

 

 
45,694

Prior service costs reclassified from AOCI #

 
(4,552
)
 

 
(4,552
)
 

 
(9,063
)
 

 
(9,063
)
Other

 

 
(83
)
 
(83
)
 

 

 
(103
)
 
(103
)
End of period unrealized gain (loss) in AOCI
$
(4,951
)
 
$
(790,267
)
 
$
683

 
$
(794,535
)
 
$
(4,951
)
 
$
(790,267
)
 
$
683

 
$
(794,535
)
± Amounts related to our derivative instruments that were reclassified from AOCI were recorded as a component of cost of sales for each period presented.
# Amounts related to our 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. Net Receivables
Net receivables, including amounts due under long-term contracts ("contract receivables"), are summarized as follows:
 
 
September 28, 2014
 
March 31, 2014
Billed receivables
 
$
604,256

 
$
479,950

Unbilled receivables
 
1,067,603

 
979,640

Other
 
15,271

 
14,230

Net receivables
 
$
1,687,130

 
$
1,473,820

Receivable balances are shown net of customer progress payments received of $487,707 as of September 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 September 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 $270,600 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:
 
 
September 28, 2014
 
March 31, 2014
Raw materials
 
$
165,422

 
$
136,414

Work/contracts in process
 
141,444

 
150,071

Finished goods
 
256,587

 
271,765

Net inventories
 
$
563,453

 
$
558,250

11. Other Accrued Liabilities
The major categories of other current and long-term accrued liabilities are as follows:
 
 
September 28, 2014
 
March 31, 2014
Employee benefits and insurance, including pension and other postretirement benefits
 
$
77,117

 
$
65,858

Warranties
 
18,754

 
19,080

Interest
 
12,381

 
8,341

Environmental remediation
 
6,236

 
8,550

Rebates
 
27,857

 
17,593

Deferred lease obligations
 
22,323

 
26,257

Derivative contracts
 
1,560

 
6,212

Federal excise tax
 
31,803

 
35,892

Other
 
106,153

 
135,049

Total other accrued liabilities—current
 
$
304,184

 
$
322,832

Environmental remediation
 
$
43,884

 
$
44,938

Management nonqualified deferred compensation plans
 
15,283

 
17,043

Non-current portion of accrued income tax liabilities
 
23,204

 
18,659

Deferred lease obligations
 
19,639

 
19,791

Other
 
19,259

 
24,513

Total other long-term liabilities
 
$
121,269

 
$
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, March 31, 2014
$
19,080

Payments made
1,139

Warranties issued
(686
)
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


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

Long-term debt, including the current portion, consisted of the following:
 
 
September 28, 2014
 
March 31, 2014
Senior Credit Facility dated November 1, 2013 (1):
 
 
 
 
Term A Loan due 2018
 
$
984,750

 
$
997,375

Term A Loan due 2019
 
150,000

 

Term B Loan due 2020
 
198,750

 
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
 
2,083,500

 
2,096,190

Less: Unamortized discounts
 

 
3,212

Carrying amount of long-term debt
 
2,083,500

 
2,092,978

Less: Current portion
 
159,997

 
249,228

Carrying amount of long-term debt, excluding current portion
 
$
1,923,503

 
$
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 September 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 September 28, 2014, ATK had $100,000 of borrowings against its $700,000 Revolving Credit Facility and had outstanding letters of credit of $186,698, which reduced amounts available on the Revolving Credit Facility to $413,302. 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

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)

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 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 were scheduled to mature on August 15, 2024. During the quarter ended September 28, 2014, 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 an impact on diluted shares outstanding for the quarter ended September 28, 2014 and September 29, 2013 of 55,000 and 490,000, respectively, because ATK's average stock price exceeded the conversion price during each of 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 September 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

 
$
(401
)
 
0.87
%
 
0.16
%
 
August 2016
Non-amortizing swap
$
100,000

 
$
(551
)
 
1.29
%
 
0.16
%
 
August 2017
Non-amortizing swap
$
100,000

 
$
(836
)
 
1.69
%
 
0.16
%
 
August 2018
Non-amortizing swap
$
50,000

 
$
136

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

 
$
167

 
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 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.

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)


Scheduled Minimum Loan Payments
The scheduled minimum loan payments on outstanding long-term debt are as follows:
 
 
Remainder of fiscal 2015
$
44,998

Fiscal 2016
59,997

Fiscal 2017
59,997

Fiscal 2018
59,997

Fiscal 2019 +
1,019,247

Thereafter
839,264

Total
$
2,083,500

+ 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 51% and 52% as of September 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 September 28, 2014, this limit was approximately $952,000. 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 September 28, 2014, ATK was in compliance with the financial covenants.
Cash Paid for Interest on Debt
Cash paid for interest totaled $36,340 and $45,931 in the six months ended September 28, 2014, and September 29, 2013.


20

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
 
Six Months Ended
Components of Net Periodic Benefit Cost
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014
 
September 29, 2013
Service cost
 
$
5,849

 
$
8,691

 
$
11,698

 
$
17,382

Interest cost
 
32,596

 
32,563

 
65,193

 
65,127

Expected return on plan assets
 
(41,803
)
 
(40,278
)
 
(83,607
)
 
(80,556
)
Amortization of unrecognized net loss
 
29,814

 
36,473

 
59,629

 
72,945

Amortization of unrecognized prior service cost
 
(5,622
)
 
(5,246
)
 
(11,245
)
 
(10,492
)
Net periodic benefit cost
 
$
20,834

 
$
32,203

 
$
41,668

 
$
64,406


 
 
Other Postretirement Benefits
 
 
Quarter Ended
 
Six Months Ended
Components of Net Periodic Benefit Cost
 
September 28, 2014
 
September 29, 2013
 
September 28, 2014