Contingencies

9 Months Ended

Jan. 01, 2012

Contingencies

Contingencies

15.Contingencies

Litigation.  From time to time, ATK is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of ATK’s business. ATK does not consider any of such proceedings that are currently pending, individually or in the aggregate, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any particular quarter, to be material to its business or likely to result in a material effect on its operating results, financial condition, or cash flows.

On or about April 10, 2006, a former employee filed a qui tam complaint in federal court alleging that ATK knowingly submitted claims for payment to the U.S. Government for defective LUU series illuminating flares that failed to conform to certain safety specifications and falsely certified compliance with those specifications.  The lawsuit was initially filed under seal.  ATK was first informed of the lawsuit by the United States Department of Justice (“DOJ”) on March 13, 2007.  Thereafter, the DOJ intervened in the qui tam action and filed an amended complaint on November 2, 2007.  On May 29, 2008, ATK filed its answer to the complaint.  Discovery in the case is substantially complete, and ATK and the DOJ have each filed motions for summary judgment. A hearing on these motions is set for April 12, 2012. No trial date is currently set.

On November 14, 2011, the parties met in mediation in an attempt to settle this matter. That effort was unsuccessful. On January 23, 2012, however, the parties met in a second mediation session that resulted in a tentative agreement to settle the lawsuit. As a result of the tentative agreement, the Company increased its warranty liability by $7,805 to reflect the additional cost of retrofitting the existing flares, as well as increased its litigation reserve by $25,500 for the amount of cash it expects to pay for this settlement. The final agreement is subject to agreement upon certain terms and conditions and final internal DOJ approval.  The agreement is expected in ATK’s fourth quarter.

U.S. Government Investigations.   ATK is also subject to U.S. Government investigations from which civil, criminal, or administrative proceedings could result. Such proceedings could involve claims by the U.S. Government for fines, penalties, compensatory and treble damages, restitution, and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. ATK believes, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on its operating results, financial condition, or cash flows.

Claim Recovery.   Profits expected to be realized on contracts are based on management’s estimates of total contract sales value and costs at completion. Estimated amounts for contract changes and claims are included in contract sales only when realization is estimated to be probable.  At January 1, 2012, based on progress to date on certain contracts, there is approximately $117,949 included in unbilled receivables for contract claims.

Environmental Liabilities.  ATK’s operations and ownership or use of real property are subject to a number of federal, state, and local environmental laws and regulations, including those for discharge of hazardous materials, remediation of contaminated sites, and restoration of damage to the environment. At certain sites that ATK owns or operates or formerly owned or operated, there is known or potential contamination that ATK is required to investigate or remediate. ATK could incur substantial costs, including remediation costs, resource restoration costs, fines, and penalties, or third-party property damage or personal injury claims, as a result of liabilities associated with past practices or violations of environmental laws or non-compliance with environmental permits.

The liability for environmental remediation represents management’s best estimate of the present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that ATK expects to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows, using a discount rate, net of estimated inflation, of 0.75% and 2.50% as of January 1, 2012 and March 31, 2011, respectively. ATK’s discount rate is calculated using the 20-year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9%, rounded to the nearest quarter percent.  The following is a summary of the amounts recorded for environmental remediation:

	January 1, 2012						March 31, 2011
	Liability			Receivable			Liability			Receivable
Amounts (payable) receivable	$	(61,565	)	$	35,609		$	(59,869	)	$	34,337
Unamortized discount	2,854			(1,465		)	7,983			(3,862		)
Present value amounts (payable) receivable	$	(58,711	)	$	34,144		$	(51,886	)	$	30,475

Amounts expected to be paid or received in periods more than one year from the balance sheet date are classified as non-current.  Of the $58,711 discounted liability as of January 1, 2012, $5,104 was recorded within other current liabilities and $53,607 was recorded within other long-term liabilities. Of the $34,144 discounted receivable, ATK recorded $4,679 within other current assets and $29,465 within other non-current assets. As of January 1, 2012, the estimated discounted range of reasonably possible costs of environmental remediation was $58,710 to $91,277.

ATK expects that a portion of its environmental compliance and remediation costs will be recoverable under U.S. Government contracts. Some of the remediation costs that are not recoverable from the U.S. Government that are associated with facilities purchased in a business acquisition may be covered by various indemnification agreements, as described in Note 13 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011.