Operating Segment Information

9 Months Ended

Jan. 01, 2012

Operating Segment Information

Operating Segment Information

17.Operating Segment Information

ATK operates its business structure within four operating groups. These operating segments are defined based on the reporting and review process used by ATK’s chief executive officer and other management.  Each operating segment is described below:

· Aerospace Systems, which generated 30% of ATK’s external sales in the nine months ended January 1, 2012, develops and produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, missile defense interceptors, small and micro-satellites, satellite components, structures and subsystems, lightweight space deployables and solar arrays, and provides engineering and technical services.  Additionally, Aerospace Systems operates in the military and commercial aircraft and launch structures markets.  Other products include ordnance, such as decoy and illuminating flares.

· Armament Systems, which generated 33% of ATK’s external sales in the nine months ended January 1, 2012, develops and produces military small, medium, and large caliber ammunition, precision munitions, gun systems, and propellant and energetic materials.  It also operates the U.S. Army ammunition plants in Independence, MO and Radford, VA.

· Missile Products, which generated 15% of ATK’s external sales in the nine months ended January 1, 2012, operates across the following market areas: strike weapons, tactical propulsion, in-space propulsion, hypersonic research, missile defense and missile interceptor capabilities, fuzes and warheads, composites, special mission aircraft, and electronic warfare.

· Security and Sporting, which generated 22% of ATK’s external sales in the nine months ended January 1, 2012, develops and produces commercial products and tactical systems and equipment.

The military small-caliber ammunition contract, which is reported within Armament Systems, contributed approximately 15% of total external sales during each of the nine months ended January 1, 2012 and January 2, 2011.

The following table summarizes ATK’s results by operating segment:

	Quarters Ended						Nine Months Ended
	January 1, 2012			January 2, 2011			January 1, 2012			January 2, 2011
Sales to external customers:
Aerospace Systems	$	301,843		$	321,288		$	988,148		$	1,067,020
Armament Systems	403,654			431,493			1,108,771			1,313,046
Missile Products	168,926			167,875			484,261			483,693
Security and Sporting	243,061			208,634			720,977			676,917
Total external sales	1,117,484			1,129,290			3,302,157			3,540,676
Intercompany sales:
Aerospace Systems	4,216			3,073			11,671			9,032
Armament Systems	30,280			21,585			107,542			74,931
Missile Products	34,006			24,862			93,354			82,605
Security and Sporting	5,632			3,561			16,207			7,776
Eliminations	(74,134		)	(53,081		)	(228,774		)	(174,344		)
Total intercompany sales	—			—			—			—
Total sales	$	1,117,484		$	1,129,290		$	3,302,157		$	3,540,676
Income before interest, income taxes, and noncontrolling interest:
Aerospace Systems	$	34,839		$	23,935		$	115,060		$	98,499
Armament Systems	67,048			55,049			190,415			158,185
Missile Products	23,515			19,389			61,532			47,689
Security and Sporting	22,787			30,537			75,436			95,623
Corporate	(42,765		)	(2,302		)	(59,072		)	(6,157		)
Total income before interest, income taxes, and noncontrolling interest	$	105,424		$	126,428		$	383,371		$	393,839

During the third quarter of fiscal 2011, Aerospace Systems recognized a $25,000 reduction in sales and profit on a commercial aerospace structures program. This reduction in sales and profit resulted from increased program costs, scope changes, and new factory start-up costs.

On January 23, 2012, ATK and the DOJ met in a second mediation session regarding the LUU flare litigation as discussed in Note 15, which 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.

Certain administrative functions are primarily managed by “Corporate”. Some examples of such functions are human resources, pension and postretirement benefits, corporate accounting, legal, tax, and treasury. Significant assets and liabilities managed at Corporate include those associated with debt, pension and postretirement benefits, environmental liabilities, and income taxes.

Costs related to the administrative functions managed by Corporate are either recorded at Corporate or allocated to the business units based on the nature of the expense.  The difference between pension and postretirement benefit expense calculated under Financial Accounting Standards and the expense calculated under U.S. Cost Accounting Standards is recorded at the corporate level which provides for greater clarity on the operating results of the business segments. Administrative expenses such as corporate accounting, legal, and treasury costs, are generally allocated out to the business segments.  Environmental expenses are allocated to each segment based on the origin of the underlying environmental cost. Transactions between segments are recorded at the segment level, consistent with ATK’s financial accounting policies. Intercompany balances and transactions involving different segments are eliminated at ATK’s consolidated financial statements level. These eliminations are shown above in “Corporate” and were $8,738 and $5,582 for the quarters ended January 1, 2012 and January 2, 2011, respectively, and $24,370 and $16,224 for the nine months ended January 1, 2012 and January 2, 2011, respectively.

On February 2, 2012, ATK announced that at the beginning of fiscal year 2013, it will operate a three group structure. The segments will be the Aerospace Group, the Defense Group, and the Sporting Group. This realignment will maximize efficiency, reduce cost, support customer needs, leverage investments, and improve overall agility within ATK’s markets.