10-Q 1 atk-12282014x10xq.htm 10-Q atk-12282014x10-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 December 28, 2014
 
OR
 
 
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from                    to                  
Commission file number 1-10582
Alliant Techsystems Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
41-1672694
(I.R.S. Employer
Identification No.)
1300 Wilson Boulevard, Suite 400
 
 
Arlington, Virginia
 
22209-2307
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (703) 412-5960

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ý
 
Accelerated Filer o
 
Non-Accelerated Filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of February 4, 2015, there were 31,937,736 shares of the registrant's voting common stock outstanding.
 




TABLE OF CONTENTS



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

 
$
1,208,404

 
$
3,800,017

 
$
3,429,526

Cost of sales
 
947,534

 
919,234

 
2,885,513

 
2,630,919

Gross profit
 
303,844

 
289,170

 
914,504

 
798,607

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
12,194

 
11,899

 
31,024

 
34,126

Selling
 
62,122

 
56,952

 
185,366

 
146,617

General and administrative
 
72,537

 
74,344

 
224,891

 
198,003

Goodwill/tradename impairment
 
52,220

 

 
52,220

 

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

 
145,975

 
421,003

 
419,861

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

 
1,793

 
72

 
1,884

Income before income taxes and noncontrolling interest
 
83,405

 
119,267

 
352,906

 
364,111

Income taxes
 
37,617

 
38,954

 
126,262

 
118,991

Net income before noncontrolling interest
 
45,788

 
80,313

 
226,644

 
245,120

Less net income attributable to noncontrolling interest
 
141

 
27

 
291

 
210

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

 
$
80,286

 
$
226,353

 
$
244,910

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

 
$
2.55

 
$
7.15

 
$
7.73

Diluted
 
$
1.43

 
$
2.46

 
$
6.98

 
$
7.55

Cash dividends paid per common share
 
$
0.32

 
$
0.26

 
$
0.96

 
$
0.78

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

 
31,536

 
31,676

 
31,701

Diluted
 
31,998

 
32,613

 
32,410

 
32,418

 
 


 


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

 
$
80,313

 
$
226,644

 
$
245,120

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

 
22,847

 
55,919

 
68,541

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

 
1,414

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

 
56

 
276

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

 
18,964

 
27,909

 
52,733

Comprehensive income
 
49,426

 
99,277

 
254,553

 
297,853

Less comprehensive income attributable to noncontrolling interest
 
141

 
27

 
291

 
210

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

 
$
99,250

 
$
254,262

 
$
297,643

See Notes to the Condensed Consolidated Financial Statements.

2


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

 
$
266,632

Net receivables
 
1,711,654

 
1,473,820

Net inventories
 
552,390

 
558,250

Income tax receivable
 
33,233

 

Deferred income taxes
 
97,855

 
93,616

Other current assets
 
81,400

 
69,280

Total current assets
 
2,589,452

 
2,461,598

Net property, plant, and equipment
 
692,992

 
697,551

Goodwill
 
1,883,711

 
1,916,921

Net intangibles
 
537,168

 
577,850

Deferred charges and other noncurrent assets
 
116,396

 
117,226

Total assets
 
$
5,819,719

 
$
5,771,146

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

 
$
249,228

Accounts payable
 
341,697

 
315,605

Contract advances and allowances
 
142,742

 
105,787

Accrued compensation
 
100,317

 
128,821

Accrued income taxes
 

 
7,877

Other current liabilities
 
315,129

 
322,832

Total current liabilities
 
1,059,882

 
1,130,150

Long-term debt
 
1,908,503

 
1,843,750

Noncurrent deferred income taxes
 
141,358

 
117,515

Postretirement and postemployment benefits
 
67,253

 
74,874

Pension
 
464,869

 
557,775

Other noncurrent liabilities
 
128,707

 
124,944

Total liabilities
 
3,770,572

 
3,849,008

Commitments and contingencies (Note 16)
 

 

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

 
318

Additional paid-in-capital
 
435,746

 
534,015

Retained earnings
 
2,984,960

 
2,789,264

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

 
1,911,575

Noncontrolling interest
 
10,854

 
10,563

Total equity
 
2,049,147

 
1,922,138

Total liabilities and equity
 
$
5,819,719

 
$
5,771,146

See Notes to the Condensed Consolidated Financial Statements.

3


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

 
$
245,120

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

 
70,160

Amortization of intangibles
 
25,433

 
17,239

Amortization of debt discount
 
3,212

 
5,481

Amortization of deferred financing costs
 
3,887

 
9,047

Goodwill/tradename impairment
 
52,220

 

Deferred income taxes
 
31,920

 
12,170

Loss on disposal of property
 
2,448

 
3,908

Share-based plans expense
 
12,005

 
9,437

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

Net inventories
 
3,515

 
(47,679
)
Accounts payable
 
39,455

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

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

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

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

Cash provided by operating activities
 
154,186

 
222,284

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

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

 
5,326

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

 
280,000

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

 
1,560,000

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

 
729

Excess tax benefits from share-based plans
 
6,983

 
833

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

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

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

 
417,289

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

 
$
189,757

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

 
$
2,991

   See Notes to the Condensed Consolidated Financial Statements.

4


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

 
$
318

 
$
534,015

 
$
2,789,264

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

 
$
1,922,138

Comprehensive income
 
 
 
 
 
 
 
226,353

 
27,909

 
 
 
291

 
254,553

Exercise of stock options
 

 

 

 

 

 

 

 

Restricted stock grants
 
29,122

 

 
(3,312
)
 

 

 
3,312

 

 

Share-based compensation
 

 

 
12,005

 

 

 

 

 
12,005

Treasury stock purchased
 

 

 

 

 

 

 

 

Performance shares issued net of treasury stock withheld
 
66,702

 

 
(8,290
)
 

 

 
1,967

 

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

 

 
12,663

 

 

 

 

 
12,663

Dividends paid
 

 

 

 
(30,657
)
 

 

 

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

 

 
(112,555
)
 

 

 

 

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

 
1,220

 

 

 
(3,898
)
 

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

 
$
319

 
$
435,746

 
$
2,984,960

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

 
$
2,049,147

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

 
$
323

 
$
534,137

 
$
2,483,483

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

 
$
1,512,561

Comprehensive income
 
 
 
 
 
 
 
244,910

 
52,733

 
 
 
210

 
297,853

Exercise of stock options
 
13,173

 

 
(252
)
 

 

 
981

 

 
729

Restricted stock grants
 
72,342

 

 
(6,017
)
 

 

 
6,017

 

 

Share-based compensation
 

 

 
9,437

 

 

 

 

 
9,437

Treasury stock purchased
 
(609,922
)
 

 

 

 

 
(52,130
)
 

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

 

 
(3,856
)
 

 

 
2,450

 

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

 

 
4,582

 

 

 

 

 
4,582

Dividends paid
 

 

 

 
(24,951
)
 

 

 

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

 

 

 
(918
)
 

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

 
$
318

 
$
538,563

 
$
2,703,442

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

 
$
1,746,284

See Notes to the Condensed Consolidated Financial Statements.

5


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

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

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

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

2. New Accounting Pronouncements

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

6

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

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

 
$
11,902

 
$

Derivatives
 

 
1,150

 

Liabilities:
 
 
 
 
 
 
Derivatives
 
$

 
$
6,982

 
$



7

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

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

 
$
10,130

 
$

Derivatives
 

 
328

 

Liabilities:
 
 
 
 
 
 
Derivatives
 
$

 
$
8,459

 
$

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

 
$
672,500

 
$
846,228

 
$
1,062,078

Variable-rate debt
 
1,418,500

 
1,414,956

 
1,246,750

 
1,247,062


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

Savage Acquisition

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

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

8

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

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

Allocation of Consideration Transferred to Net Assets Acquired:

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

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

Cash paid for additional working capital
 
 
 
4,185

Total purchase price
 
 
 
989,185

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

 
 
Net inventories
 
157,184

 
 
Tradename, technology, and customer relationship intangibles
 
365,579

 
 
Property, plant, and equipment
 
25,055

 
 
Other assets
 
6,886

 
 
Total assets
 
664,133

 
 
Fair value of liabilities assumed:
 
 
 
 
Accounts payable
 
80,099

 
 
Deferred income taxes
 
88,121

 
 
Other liabilities
 
30,932

 
 
Total liabilities
 
199,152

 
 
Net assets acquired
 
 
 
464,981

Goodwill
 
 
 
$
524,204


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

 
$
3,783,713

Net income attributable to Alliant Techsystems Inc. 
 
96,640

 
293,024

Basic earnings per common share
 
3.06

 
9.24

Diluted earnings per common share
 
2.96

 
9.04



9

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

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


There were no acquisitions during fiscal 2015.

10



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

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

 
$
366,947

 
$
873,458

 
$
1,916,921

Opening balance sheet adjustments
 

 

 
22,648

 
22,648

Impairment
 

 

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

 

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

 
$
366,947

 
$
840,248

 
$
1,883,711


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

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

 
$
(31,125
)
 
$
153,535

 
$
184,660

 
$
(21,723
)
 
$
162,937

Patented technology
 
33,389

 
(13,027
)
 
20,362

 
33,389

 
(10,325
)
 
23,064

Customer relationships and other
 
221,750

 
(51,577
)
 
170,173

 
226,105

 
(38,554
)
 
187,551

Total amortizing intangibles
 
439,799

 
(95,729
)
 
344,070

 
444,154

 
(70,602
)
 
373,552

Non-amortizing intangibles
 
193,098

 

 
193,098

 
204,298

 

 
204,298

Net intangibles
 
$
632,897

 
$
(95,729
)
 
$
537,168

 
$
648,452

 
$
(70,602
)
 
$
577,850


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


11

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


Remainder of fiscal 2015
 
$
8,528

Fiscal 2016
 
32,712

Fiscal 2017
 
30,422

Fiscal 2018
 
30,422

Fiscal 2019
 
27,678

Thereafter
 
214,308

Total
 
$
344,070

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

 
$
28,356

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

 
24,272

Parts inventory
 
9,473

 
10,921

Environmental remediation receivable
 
22,840

 
22,128

Derivative contracts
 
167

 
328

Other
 
62,521

 
59,577

Total deferred charges and other noncurrent assets
 
$
116,396

 
$
117,226


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

 
31,536

 
31,676

 
31,701

Dilutive effect of stock-based awards
 
305

 
256

 
340

 
241

Dilutive effect of contingently issuable shares
 

 
821

 
394

 
476

Diluted
 
31,998

 
32,613

 
32,410

 
32,418

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

 
3

 
45

 
3


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

12

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


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

Zinc
4,350,000

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

Sale of foreign currency:
 
Euro
5,983

British Pound Sterling
1,371


13

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


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

 
$

 
$
2,848

 
$
6,212

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

 

 

 
176

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

 
328

 
2,259

 
2,071

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

 

 
1,620

 

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

 

 
255

 

Total
 
 
 
$
1,150

 
$
328

 
$
6,982

 
$
8,459

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

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

Foreign currency forward contracts
 
Cost of Sales
 
718

 
Cost of Sales
 

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

Interest rate contracts
 
Interest expense
 
(869
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 

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

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

Foreign currency forward contracts
 
Cost of Sales
 
718

 
Cost of Sales
 

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

Foreign currency forward contracts
 
Cost of Sales
 

 
Cost of Sales
 

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

14

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


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

Available-for-sale securities
 
1,108

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

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

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

 

 

 
(3,054
)
 
(1,368
)
 

 

 

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

 

 

 

 
462

 
2,782

 

 

 

 
2,782

Net actuarial losses reclassified from AOCI (2)

 
18,638

 

 

 
18,638

 

 
55,919

 

 

 
55,919

Prior service costs reclassified from AOCI (2)

 
(4,761
)
 

 

 
(4,761
)
 

 
(14,285
)
 

 

 
(14,285
)
Net change in cumulative translation adjustment

 

 

 
(7,677
)
 
(7,677
)
 

 

 

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

 

 
30

 

 
30

 

 

 
276

 

 
276

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

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

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



15

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


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

 
$
34

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

 
$

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

 

 

 

 
59

 
(4,730
)
 

 

 

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

 

 

 

 
2,187

 
3,184

 

 

 

 
3,184

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

 

 

 

 

 
999

 

 

 

 
999

Net actuarial losses reclassified from AOCI (2)

 
22,847

 

 

 
22,847

 

 
68,541

 

 

 
68,541

Prior service costs reclassified from AOCI (2)

 
(4,531
)
 

 

 
(4,531
)
 

 
(13,594
)
 

 

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

 

 
56

 
 
 
56

 

 

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

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

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

 
$
479,950

Unbilled receivables
 
1,123,364

 
979,640

Other
 
11,034

 
14,230

Net receivables
 
$
1,711,654

 
$
1,473,820

Receivable balances are shown net of customer progress payments received of $534,411 as of December 28, 2014 and $527,670 as of March 31, 2014.
Unbilled receivables represent the balance of recoverable costs and accrued profit, comprised principally of revenue recognized on contracts for which billings have not been presented to the customer because the amounts were earned but not contractually billable as of the balance sheet date. These amounts include expected additional billable general overhead costs and fees on flexibly priced contracts awaiting final rate negotiations.
As of December 28, 2014 and March 31, 2014, the net receivable balance includes contract related unbilled receivables that ATK does not expect to collect within the next fiscal year of $309,200 and $264,400, respectively.


16


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

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

 
$
136,414

Work/contracts in process
 
147,333

 
150,071

Finished goods
 
244,788

 
271,765

Net inventories
 
$
552,390

 
$
558,250

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

 
$
65,858

Warranties
 
17,615

 
19,080

Interest
 
14,528

 
8,341

Environmental remediation
 
5,679

 
8,550

Rebates
 
30,592

 
17,593

Deferred lease obligations
 
19,391

 
26,257

Derivative contracts
 
4,468

 
6,212

Federal excise tax
 
25,559

 
35,892

Other
 
125,432

 
135,049

Total other current liabilities
 
$
315,129

 
$
322,832

 
 
 
 
 
Other noncurrent liabilities:
 
 
 
 
Environmental remediation
 
$
45,375

 
$
44,938

Management nonqualified deferred compensation plans
 
15,275

 
17,043

Income taxes
 
24,830

 
18,659

Deferred lease obligations
 
18,798

 
19,791

Other
 
24,429

 
24,513

Total other noncurrent liabilities
 
$
128,707

 
$
124,944


17


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


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

Payments made
(686
)
Warranties issued
1,139

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

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

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

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

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


18


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

12. Long-term Debt

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

 
$
997,375

Term A Loan due 2019
 
148,125

 

Term B Loan due 2020
 
198,250

 
249,375

Revolving Credit Facility due 2018
 
100,000

 

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

 
300,000

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

 
350,000

3.00% Convertible Senior Subordinated Notes due 2024 (4)
 

 
199,440

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

 
2,096,190

Less: Unamortized discounts
 

 
3,212

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

 
2,092,978

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

 
249,228

Long-term debt
 
$
1,908,503

 
$
1,843,750

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

19

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

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

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

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

 
$
(647
)
 
1.29
%
 
0.16
%