UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 30, 2007 |
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
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| Commission file number 1-10582 |
Alliant Techsystems Inc.
(Exact name of Registrant as specified in its charter)
Delaware |
| 41-1672694 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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5050 Lincoln Drive |
| 55436-1097 |
(Address of principal executive offices) |
| (Zip Code) |
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Registrant’s telephone number, including area code: (952) 351-3000 |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed under 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” as defined in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x Accelerated Filer o Non-Accelerated Filer 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 x
As of October 28, 2007, 32,703,697 shares of the Registrant’s common stock, par value $.01 per share, were outstanding.
TABLE OF CONTENTS
2
PART I – FINANCIAL INFORMATION
ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
|
| QUARTERS ENDED |
| SIX MONTHS ENDED |
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(In thousands except per share data) |
| September 30, |
| October 1, |
| September 30, |
| October 1, |
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Sales |
| $ | 1,029,345 |
| $ | 830,374 |
| $ | 1,987,717 |
| $ | 1,652,868 |
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Cost of sales |
| 830,976 |
| 669,155 |
| 1,597,158 |
| 1,335,044 |
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Gross profit |
| 198,369 |
| 161,219 |
| 390,559 |
| 317,824 |
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Operating expenses: |
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Research and development |
| 17,325 |
| 13,894 |
| 30,008 |
| 25,551 |
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Selling |
| 30,861 |
| 23,167 |
| 60,791 |
| 48,782 |
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General and administrative |
| 45,108 |
| 42,239 |
| 93,181 |
| 82,194 |
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Total operating expenses |
| 93,294 |
| 79,300 |
| 183,980 |
| 156,527 |
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Income before interest, income taxes, and minority interest |
| 105,075 |
| 81,919 |
| 206,579 |
| 161,297 |
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Interest expense |
| (26,055 | ) | (17,851 | ) | (45,352 | ) | (34,686 | ) | ||||
Interest income |
| 416 |
| 341 |
| 700 |
| 544 |
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Income before income taxes and minority interest |
| 79,436 |
| 64,409 |
| 161,927 |
| 127,155 |
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Income tax provision |
| 28,171 |
| 24,337 |
| 58,084 |
| 48,137 |
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Income before minority interest |
| 51,265 |
| 40,072 |
| 103,843 |
| 79,018 |
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Minority interest, net of income taxes |
| 90 |
| 145 |
| 264 |
| 218 |
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Net income |
| $ | 51,175 |
| $ | 39,927 |
| $ | 103,579 |
| $ | 78,800 |
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Earnings per common share: |
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Basic |
| $ | 1.55 |
| $ | 1.17 |
| $ | 3.12 |
| $ | 2.27 |
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Diluted |
| 1.44 |
| 1.15 |
| 2.95 |
| 2.24 |
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Weighted-average number of common shares outstanding: |
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Basic |
| 33,120 |
| 34,187 |
| 33,193 |
| 34,767 |
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Diluted |
| 35,450 |
| 34,612 |
| 35,157 |
| 35,196 |
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See Notes to the Condensed Consolidated Financial Statements.
3
ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except share data) |
| September 30, 2007 |
| March 31, 2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 23,629 |
| $ | 16,093 |
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Net receivables |
| 821,342 |
| 733,304 |
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Net inventories |
| 213,087 |
| 170,602 |
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Deferred income tax assets |
| 64,221 |
| 75,333 |
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Other current assets |
| 32,016 |
| 33,686 |
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Total current assets |
| 1,154,295 |
| 1,029,018 |
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Net property, plant, and equipment |
| 456,437 |
| 454,748 |
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Goodwill |
| 1,236,309 |
| 1,163,186 |
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Prepaid and intangible pension assets |
| 58,034 |
| 27,998 |
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Deferred charges and other non-current assets |
| 192,170 |
| 199,732 |
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Total assets |
| $ | 3,097,245 |
| $ | 2,874,682 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Cash overdrafts |
| $ | 17,388 |
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Current portion of long-term debt |
| 480,000 |
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Accounts payable |
| 175,480 |
| $ | 153,572 |
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Contract advances and allowances |
| 79,859 |
| 80,904 |
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Accrued compensation |
| 111,806 |
| 123,696 |
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Accrued income taxes |
| 17,388 |
| 11,791 |
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Other accrued liabilities |
| 169,488 |
| 133,309 |
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Total current liabilities |
| 1,051,409 |
| 503,272 |
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Long-term debt |
| 1,050,000 |
| 1,455,000 |
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Deferred income tax liabilities |
| 49,025 |
| 22,278 |
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Postretirement and postemployment benefits liabilities |
| 157,343 |
| 163,709 |
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Accrued pension liability |
| 63,861 |
| 89,383 |
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Other long-term liabilities |
| 100,506 |
| 83,159 |
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Total liabilities |
| 2,472,144 |
| 2,316,801 |
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Contingencies (Note 12) |
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Common stock - $.01 par value |
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Authorized – 90,000,000 shares |
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Issued and outstanding 32,699,217 shares at September 30, 2007 and 33,075,268 at March 31, 2007 |
| 327 |
| 331 |
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Additional paid-in-capital |
| 452,775 |
| 477,554 |
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Retained earnings |
| 1,197,154 |
| 1,112,649 |
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Accumulated other comprehensive loss |
| (365,273 | ) | (424,075 | ) | ||
Common stock in treasury, at cost, 8,855,844 shares held at September 30, 2007 and 8,479,793 shares held at March 31, 2007 |
| (659,882 | ) | (608,578 | ) | ||
Total stockholders’ equity |
| 625,101 |
| 557,881 |
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Total liabilities and stockholders’ equity |
| $ | 3,097,245 |
| $ | 2,874,682 |
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See Notes to the Condensed Consolidated Financial Statements.
4
ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| SIX MONTHS ENDED |
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(In thousands) |
| September 30, 2007 |
| October 1, 2006 |
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Operating activities |
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Net income |
| $ | 103,579 |
| $ | 78,800 |
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Adjustments to net income to arrive at cash provided by operating activities: |
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Depreciation |
| 34,980 |
| 34,066 |
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Amortization of intangible assets |
| 2,865 |
| 4,218 |
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Amortization of deferred financing costs |
| 2,441 |
| 1,630 |
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Write-off of debt issuance costs associated with convertible notes |
| 5,600 |
| — |
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Deferred income taxes |
| 4,184 |
| 70,976 |
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Loss (gain) on disposal of property |
| 1,610 |
| (84 | ) | ||
Minority interest, net of income taxes |
| 264 |
| 218 |
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Share-based plans expense |
| 11,770 |
| 18,310 |
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Excess tax benefits from share-based plans |
| (8,062 | ) | (2,049 | ) | ||
Changes in assets and liabilities: |
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Net receivables |
| (49,882 | ) | 10,464 |
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Net inventories |
| (40,327 | ) | (44,540 | ) | ||
Accounts payable |
| 16,203 |
| 12,887 |
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Contract advances and allowances |
| (1,045 | ) | 18,115 |
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Accrued compensation |
| (36,478 | ) | (18,243 | ) | ||
Accrued income taxes |
| 38,486 |
| (24,858 | ) | ||
Pension and other postretirement benefits |
| 17,243 |
| (186,031 | ) | ||
Other assets and liabilities |
| 27,826 |
| 31,054 |
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Cash provided by operating activities |
| 131,257 |
| 4,933 |
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Investing activities |
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Capital expenditures |
| (34,595 | ) | (35,569 | ) | ||
Acquisition of business, net of cash acquired |
| (101,195 | ) | — |
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Proceeds from the disposition of property, plant, and equipment |
| 319 |
| 510 |
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Cash used for investing activities |
| (135,471 | ) | (35,059 | ) | ||
Financing activities |
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Change in cash overdrafts |
| 17,388 |
| (60,937 | ) | ||
Net borrowings on line of credit |
| 75,000 |
| 37,000 |
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Payments made on bank debt |
| — |
| (13,500 | ) | ||
Payments made to extinguish debt |
| — |
| (2,596 | ) | ||
Proceeds from issuance of long-term debt |
| — |
| 300,000 |
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Purchase of call options |
| — |
| (50,850 | ) | ||
Sale of warrants |
| — |
| 23,220 |
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Payments made for debt issue costs |
| (105 | ) | (6,344 | ) | ||
Net purchase of treasury shares |
| (100,068 | ) | (208,027 | ) | ||
Proceeds from employee stock compensation plans |
| 11,473 |
| 13,635 |
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Excess tax benefits from share-based plans |
| 8,062 |
| 2,049 |
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Cash provided by financing activities |
| 11,750 |
| 33,650 |
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Increase in cash and cash equivalents |
| 7,536 |
| 3,524 |
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Cash and cash equivalents - beginning of period |
| 16,093 |
| 9,090 |
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Cash and cash equivalents - end of period |
| $ | 23,629 |
| $ | 12,614 |
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Supplemental Cash Flow Disclosure: |
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Noncash investing activity: |
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Capital expenditures included in accounts payable |
| $ | 4,904 |
| $ | 3,022 |
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See Notes to the Condensed Consolidated Financial Statements.
5
Alliant Techsystems Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Quarter Ended September 30, 2007
(Dollar 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, 2007 (fiscal 2007). 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 30, 2007, and its results of operations and cash flows for the quarters and six months ended September 30, 2007 and October 1, 2006.
Subsequent to the issuance of its financial statements for the year ended March 31, 2007, ATK has made certain reclassifications to the fiscal 2007 consolidated financial statements, as previously reported to correct the prior periods to conform to current presentation. The reclassifications resulted in a decrease in sales of $2,681 ($833,055 to $830,374), a decrease in cost of sales of $3,697 ($672,852 to $669,155), an increase in selling expenses of $510 ($22,657 to $23,167), and an increase in general and administrative expenses of $506 ($41,733 to $42,239) to the quarter ended October 1, 2006 presentation. The reclassifications resulted in a decrease in sales of $2,605 ($1,655,473 to $1,652,868), a decrease in cost of sales of $8,868 ($1,343,912 to $1,335,044), an increase in selling expenses of $1,327 ($47,455 to $48,782), and an increase in general and administrative expenses of $4,936 ($77,258 to $82,194) to the six months ended October 1, 2006 presentation. These reclassifications did not change income before interest, income taxes, and minority interest, net income, earnings per share, or stockholders’ equity as previously reported.
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.
2. New Accounting Pronouncements
In June 2007, the Financial Accounting Standards Board (FASB) ratified EITF Issue No. 07-03, Accounting for Nonrefundable Advance Payments for Goods and Services Received for Use in Future Research and Development Activities (EITF 07-03). EITF 07-03 requires companies to defer nonrefundable advance payments for goods and services and to expense that advance payment as the goods are delivered or services are rendered. If the company does not expect to have the goods delivered or services performed, the advance should be expensed. EITF 07-03 is effective for fiscal years beginning after December 15, 2007 (ATK’s fiscal 2009). ATK is currently evaluating the effect that adoption of EITF 07-03 will have on its financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 (ATK’s fiscal 2009). ATK is currently evaluating the effect that adoption of this statement will have on its financial statements.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R), which requires recognition of the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in the statement of financial position and requires recognition of changes in the funded status in the year in which the changes occur through comprehensive income. ATK adopted these provisions in fiscal 2007. SFAS No. 158 also requires measurement of the funded status of a plan as of the date of the year-end statement of financial position. This provision is applicable for fiscal years ending after December 15, 2008 (ATK’s fiscal 2009). ATK adopted the measurement provisions of SFAS No. 158 effective April 1, 2007 using the method which requires measurement of plan assets and benefit obligations as of the beginning of fiscal 2008. See Note 9.
6
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007 (ATK’s fiscal 2009). ATK is evaluating the impact the adoption of SFAS No. 157 will have on its financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ATK must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, Accounting for Income Taxes. FIN 48 was applicable for ATK as of April 1, 2007. See Note 10.
3. Goodwill and Other Intangible Assets
On June 8, 2007, ATK acquired Swales Aerospace (Swales), a provider of satellite components and subsystems, small spacecraft and engineering services for NASA, Department of Defense and commercial satellite customers, for $101,195, net of cash acquired. ATK believes that the acquisition strengthens ATK’s satellite components, subsystems and small spacecraft portfolios and further increases ATK’s position as a supplier to the U.S. Government and industry. ATK also believes the acquisition will enhance ATK’s systems engineering as ATK pursues strategic initiatives in space exploration programs. Headquartered in Beltsville, Maryland, Swales employs approximately 750 people and is included in the Mission Systems Group. The purchase price allocation for Swales has not yet been completed pending final valuation of certain acquired assets and liabilities. The final purchase price allocation could be significantly different than the estimate currently recorded. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.
ATK used the purchase method of accounting to account for this acquisition and, accordingly, the results of Swales are included in ATK’s consolidated financial statements since the date of the acquisition. The purchase price for the acquisition will be allocated to the acquired assets and liabilities based on estimated fair value. The excess purchase price over estimated fair value of the net assets acquired was recorded as goodwill. Pro forma information on results of operations for fiscal 2008 and 2007, as if the acquisition had occurred at the beginning of fiscal 2007, are not being presented because the acquisition is not material to ATK for that purpose.
The changes in the carrying amount of goodwill by operating segment during the quarter and six months ended September 30, 2007 were as follows:
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| Ammunition Systems |
| Launch Systems |
| Mission Systems |
| Total |
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Balance at April 1, 2007 |
| $ | 171,337 |
| $ | 457,399 |
| $ | 534,450 |
| $ | 1,163,186 |
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Acquisition |
| — |
| — |
| 73,025 |
| 73,025 |
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Balance at July 1, 2007 |
| 171,337 |
| 457,399 |
| 607,475 |
| 1,236,211 |
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Adjustments |
| — |
| — |
| 98 |
| 98 |
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Balance at September 30, 2007 |
| $ | 171,337 |
| $ | 457,399 |
| $ | 607,573 |
| $ | 1,236,309 |
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The acquisition in the Mission Systems Group was Swales, as discussed above. The adjustments within Mission Systems Group relate to the adjustment of certain assets and liabilities of Swales to their fair value including the recording of intangible assets which resulted in a deduction from goodwill.
Included in deferred charges and other non-current assets as of September 30, 2007 are other intangible assets of $87,973, which consist of trademarks, patented technology, and brand names that are not being amortized because ATK considers their estimated useful lives to be indefinite. Also included in deferred charges and other non-current assets as of September 30, 2007 and March 31, 2007 are amortizing intangible assets, as follows:
7
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| September 30, 2007 |
| March 31, 2007 |
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| Gross carrying |
| Accumulated |
| Total |
| Gross carrying |
| Accumulated |
| Total |
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Contracts |
| $ | 22,644 |
| $ | (18,064 | ) | $ | 4,580 |
| $ | 19,944 |
| $ | (16,349 | ) | $ | 3,595 |
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Customer relationships and other |
| 27,407 |
| (8,213 | ) | 19,194 |
| 27,407 |
| (7,063 | ) | 20,344 |
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Total |
| $ | 50,051 |
| $ | (26,277 | ) | $ | 23,774 |
| $ | 47,351 |
| $ | (23,412 | ) | $ | 23,939 |
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These assets are being amortized over their estimated useful lives over a weighted average remaining period of approximately 7.0 years. Amortization expense for the quarter and six months ended September 30, 2007 was $1,555 and $2,865, respectively. Amortization expense for the quarter and six months ended October 1, 2006 was $2,175 and $4,218, respectively. ATK expects amortization expense related to these assets to be as follows:
Remainder of fiscal 2008 |
| $ | 3,187 |
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Fiscal 2009 |
| 3,985 |
| |
Fiscal 2010 |
| 3,262 |
| |
Fiscal 2011 |
| 2,278 |
| |
Fiscal 2012 |
| 2,269 |
| |
Thereafter |
| 8,793 |
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Total |
| $ | 23,774 |
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During fiscal 2003, ATK acquired the assets of Science and Applied Technology, Inc. (now included in the Mission Systems Group). The sellers of this acquired business have the ability to earn up to an additional $7,500 of cash consideration if certain pre-specified milestones are attained with respect to one of the contracts acquired. Any additional contingent consideration paid to the sellers will be recorded by ATK as goodwill.
4. 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 8) during each period presented, which, if exercised or earned, would have a dilutive effect on EPS. In computing EPS for the quarters and six months ended September 30, 2007 and October 1, 2006, net income as reported for each respective period is divided by (in thousands):
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| Quarters Ended |
| Six Months Ended |
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| September 30, |
| October 1, |
| September 30, |
| October 1, |
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Weighted-average basic shares outstanding |
| 33,120 |
| 34,187 |
| 33,193 |
| 34,767 |
|
Dilutive effect of stock-based awards |
| 558 |
| 425 |
| 528 |
| 429 |
|
Dilutive effect of contingently issuable shares |
| 1,772 |
| — |
| 1,436 |
| — |
|
Weighted-average diluted shares outstanding |
| 35,450 |
| 34,612 |
| 35,157 |
| 35,196 |
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Stock options excluded from the calculation of diluted EPS because the option exercise/threshold price was greater than the average market price of the common shares |
| — |
| 39 |
| — |
| 45 |
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Contingently issuable shares related to ATK’s 3.00% Convertible Senior Subordinated Notes, 2.75% Convertible Senior Subordinated Notes due 2024, and 2.75% Convertible Senior Subordinated Notes due 2011, as discussed in Note 8, are included in diluted EPS for the quarter and six months ended September 30, 2007 but are not included in the quarter or six months ended October 1, 2006 because ATK’s average stock price was below the conversion price during those periods. The Warrants, as discussed in Note 8, are not included in diluted EPS as ATK’s average stock price during the quarter and six months ended September 30, 2007 and October 1, 2006 did not exceed $116.75. The Call Options, also discussed in Note 8, are anti-dilutive and are therefore excluded from the calculation of diluted shares outstanding.
8
5. Comprehensive Income
The components of comprehensive income, net of income taxes, for the quarters and six months ended September 30, 2007 and October 1, 2006 were as follows:
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| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
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Net income |
| $ | 51,175 |
| $ | 39,927 |
| $ | 103,579 |
| $ | 78,800 |
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Other comprehensive income (OCI): |
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Pension and other postretirement benefit liabilities, net of income taxes of $(3,556) and $(7,145), respectively |
| 5,499 |
| — |
| 10,964 |
| — |
| ||||
Change in fair value of derivatives, net of income taxes of $(105), $4,852, $(163), and $4,571, respectively |
| 155 |
| (7,203 | ) | 331 |
| (6,786 | ) | ||||
Change in fair value of available-for-sale securities, net of income taxes of $40, $(142), $79, and $(261), respectively |
| (59 | ) | 211 |
| (69 | ) | 387 |
| ||||
Total other comprehensive income (loss) |
| 5,595 |
| (6,992 | ) | 11,226 |
| (6,399 | ) | ||||
Total comprehensive income |
| $ | 56,770 |
| $ | 32,935 |
| $ | 114,805 |
| $ | 72,401 |
|
The components of accumulated OCI, net of income taxes, are as follows:
|
| September 30, 2007 |
| March 31, 2007 |
| ||
Derivatives |
| $ | (819 | ) | $ | (1,150 | ) |
Pension and other postretirement benefit liabilities |
| (364,770 | ) | (423,310 | ) | ||
Available-for-sale securities |
| 316 |
| 385 |
| ||
Total accumulated other comprehensive loss |
| $ | (365,273 | ) | $ | (424,075 | ) |
Commodity Forward Contracts
ATK periodically uses derivatives to hedge certain commodity price risks. During the quarter and six months ended September 30, 2007, ATK had no such forward contracts. ATK did have such contracts for copper and zinc during the quarter and six months ended October 1, 2006. The contracts essentially established a fixed price for the underlying commodities and were designated and qualified as effective cash flow hedges of purchases of these commodities. Ineffectiveness was calculated as the amount by which the change in the fair value of the derivatives exceeded the change in the fair value of the anticipated commodity purchases. The fair value of these contracts was recorded as a current asset and the effective portion was reflected in accumulated OCI in the financial statements. The gains on these contracts were recorded in cost of sales as the commodities were purchased. The following table summarizes the pre-tax activity in OCI related to these forward contracts during the quarter and six months ended October 1, 2006:
|
| Quarter Ended |
| Six Months Ended |
| ||
Beginning of period unrealized gain in accumulated OCI |
| $ | 15,652 |
| $ | 15,162 |
|
Increase in fair value of derivatives |
| 1,476 |
| 14,919 |
| ||
Gains reclassified from OCI, offsetting the price paid to suppliers |
| (13,739 | ) | (26,692 | ) | ||
End of period unrealized gain in accumulated OCI |
| $ | 3,389 |
| $ | 3,389 |
|
The amount of ineffectiveness recognized in earnings for these contracts during the quarter and six months ended October 1, 2006 was insignificant.
6. Inventories
Inventories consist of the following:
|
| September 30, 2007 |
| March 31, 2007 |
| ||
Raw materials |
| $ | 74,213 |
| $ | 51,239 |
|
Work in process |
| 42,543 |
| 47,520 |
| ||
Finished goods |
| 33,825 |
| 35,373 |
| ||
Contracts in progress |
| 62,506 |
| 36,470 |
| ||
Net inventories |
| $ | 213,087 |
| $ | 170,602 |
|
9
7. Other Liabilities
Other current and long-term accrued liabilities consisted of the following:
|
| September 30, 2007 |
| March 31, 2007 |
| ||
Employee benefits and insurance, including pension and other postretirement benefits |
| $ | 56,180 |
| $ | 55,879 |
|
Warranty |
| 13,709 |
| 14,870 |
| ||
Interest |
| 16,180 |
| 2,121 |
| ||
Environmental remediation |
| 12,743 |
| 11,668 |
| ||
Other |
| 70,676 |
| 48,771 |
| ||
Total other accrued liabilities - current |
| $ | 169,488 |
| $ | 133,309 |
|
|
|
|
|
|
| ||
Environmental remediation |
| $ | 43,818 |
| $ | 45,422 |
|
Management nonqualified deferred compensation plan |
| 31,023 |
| 28,155 |
| ||
Long-term portion of accrued income taxes |
| 16,070 |
| — |
| ||
Minority interest in joint venture |
| 8,299 |
| 8,035 |
| ||
Other |
| 1,296 |
| 1,547 |
| ||
Total other long-term liabilities |
| $ | 100,506 |
| $ | 83,159 |
|
ATK provides product warranties in conjunction with sales of certain products. These warranties entail repair or replacement of non-conforming items. Provisions for warranty costs are generally recorded when the product is shipped and are based on historical information and current trends. The product warranties relate primarily to the commercial rocket motors (within the Launch Systems Group). The following is a reconciliation of the changes in ATK’s product warranty liability during the quarter and six months ended September 30, 2007:
Balance at April 1, 2007 |
| $ | 14,870 |
|
Warranties issued |
| 1,038 |
| |
Changes related to preexisting warranties |
| (1,064 | ) | |
Balance at July 1, 2007 |
| 14,844 |
| |
Warranties issued |
| 317 |
| |
Changes related to preexisting warranties |
| (1,452 | ) | |
Balance at September 30, 2007 |
| $ | 13,709 |
|
8. Long-Term Debt and Interest Rate Swaps
Long-term debt, including the current portion, consisted of the following:
|
| September 30, 2007 |
| March 31, 2007 |
| ||
Senior Credit Facility dated March 29, 2007: |
|
|
|
|
| ||
Term A Loan due 2012 |
| $ | 275,000 |
| $ | 275,000 |
|
Revolving Credit Facility due 2012 |
| 75,000 |
| — |
| ||
2.75% Convertible Senior Subordinated Notes due 2011 |
| 300,000 |
| 300,000 |
| ||
6.75% Senior Subordinated Notes due 2016 |
| 400,000 |
| 400,000 |
| ||
2.75% Convertible Senior Subordinated Notes due 2024 |
| 280,000 |
| 280,000 |
| ||
3.00% Convertible Senior Subordinated Notes due 2024 |
| 200,000 |
| 200,000 |
| ||
Total debt |
| 1,530,000 |
| 1,455,000 |
| ||
Less current portion |
| 480,000 |
| — |
| ||
Long-term debt |
| $ | 1,050,000 |
| $ | 1,455,000 |
|
In March 2007, ATK entered into an amended and restated Senior Credit Facility dated March 29, 2007 (the Senior Credit Facility), which is comprised of a Term A Loan of $275,000 and a $500,000 Revolving Credit Facility, both of which mature in 2012. The Term A Loan is subject to quarterly principal payments of $0 in the years ending March 31, 2008 and 2009; $3,438 in the years ending March 31, 2010 and 2011; and $6,875 in the year ending March 31, 2012; with the remaining balance due on March 29, 2012. Substantially
10
all domestic, tangible and intangible assets of ATK and its subsidiaries are pledged as collateral under the Senior Credit Facility. Borrowings under the Senior Credit Facility bear interest at a rate equal to the sum of a base rate (currently equal to the bank’s prime rate) or a Eurodollar rate plus an applicable margin, which is based on ATK’s senior secured credit ratings. The weighted average interest rate for the Term A Loan was 5.88% at September 30, 2007. The annual commitment fee in effect on the unused portion of ATK’s Revolving Credit Facility was 0.20% at September 30, 2007. As of September 30, 2007, ATK had $75,000 outstanding against its $500,000 revolving credit facility and had outstanding letters of credit of $95,469, which reduced amounts available on the revolving facility to $329,531. During the quarter and six months ended September 30, 2007, ATK’s weighted average interest rate on short-term borrowings was 6.58% and 6.71%, respectively. Debt issuance costs of approximately $3,000 are being amortized over the term of the Senior Credit Facility.
During March 2006, ATK terminated a $100,000 notional amount interest rate swap, resulting in a cash payout of $2,496. This amount is included in accumulated other comprehensive loss and is being amortized to interest expense, at a rate of $936 per year, through November 2008, the original maturity date of the swap.
In September 2006, ATK issued $300,000 aggregate principal amount of 2.75% Convertible Senior Subordinated Notes (the 2.75% Convertible Notes due 2011) that mature on September 15, 2011. Interest on these notes is payable on March 15 and September 15 of each year. Holders may convert their notes at a conversion rate of 10.3617 shares of ATK’s common stock per $1 principal amount of these notes (a conversion price of $96.51 per share) under the following circumstances: (1) during any fiscal quarter if the last reported sale price of ATK stock is greater than or equal to 130% of the conversion price, or $125.46, for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) upon the occurrence of certain corporate transactions; or (3) during the last month prior to maturity. ATK is required to satisfy 100% of the principal amount of these notes solely in cash, with any amounts above the principal amount to be satisfied in cash, common stock, or a combination of cash and common stock, at the sole election of ATK. If certain fundamental changes occur prior to maturity, ATK will in certain circumstances increase the conversion rate by a number of additional shares of common stock or, in lieu thereof, ATK may in certain circumstances elect to adjust the conversion rate and related conversion obligation so that these notes are convertible into shares of the acquiring or surviving company. These contingently issuable shares increased the number of ATK’s diluted shares outstanding during the quarter and six months ended September 30, 2007 by 274,846 and 145,547 shares, respectively, because ATK’s average stock price exceeded the conversion price during those periods. There was no impact on the diluted shares outstanding during the quarter or six months ended October 1, 2006 because ATK’s average stock price was below the conversion price during those periods. Debt issuance costs of approximately $7,200 are being amortized to interest expense over five years. Approximately $100,000 of the net proceeds from the issuance of these notes was used to concurrently repurchase 1,285,200 shares of ATK’s common stock.
In connection with the issuance of the 2.75% Convertible Notes due 2011, ATK purchased, at a cost of $50,850, call options (the Call Options) on its common stock. The Call Options, which become exercisable upon conversion of the related convertible notes, allow ATK to purchase approximately 3.1 million shares of ATK’s common stock and/or cash from the counterparty at an amount equal to the amount of common stock and/or cash related to the excess conversion value that ATK would pay to the holders of the related convertible notes upon conversion. For income tax reporting purposes, the related convertible notes and the Call Options are integrated. This creates an original issue discount for income tax reporting purposes, and therefore the cost of the Call Options will be accounted for as interest expense over the term of the convertible notes for income tax reporting purposes. The associated income tax benefits will be recognized in the period in which the deduction is taken for income tax reporting purposes as an increase in additional paid-in capital (APIC) in stockholders’ equity. In addition, ATK sold warrants (the Warrants) to issue approximately 3.3 million shares of ATK’s common stock at an exercise price of $116.75 per share. The proceeds from the sale of the Warrants totaled $23,220. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), and Emerging Issues Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, ATK recorded the net cost of the Call Options and the Warrants of $27,630 in APIC and will not recognize any changes in the fair value of the instruments. On a combined basis, the Call Options and the Warrants are intended to reduce the potential dilution of ATK’s common stock in the event that the 2.75% Convertible Notes due 2011 are converted by effectively increasing the conversion price of these notes from $96.51 to $116.75. The Call Options are anti-dilutive and are therefore excluded from the calculation of diluted shares outstanding. The Warrants will result in additional diluted shares outstanding if ATK’s average common stock price exceeds $116.75. The Call Options and the Warrants are separate and legally distinct instruments that bind ATK and the counterparty and have no binding effect on the holders of the convertible notes.
In fiscal 2006, ATK issued $400,000 aggregate principal amount of 6.75% Senior Subordinated Notes (the 6.75% Notes) that mature on April 1, 2016. These notes are general unsecured obligations. Interest on these notes accrues at a rate of 6.75% per annum and is payable
11
Semi-annually 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 April 1, 2011, at specified redemption prices. Prior to April 1, 2011, 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 makewhole premium. In addition, prior to April 1, 2009, ATK may redeem up to 35% of the aggregate principal amount of these notes, at a price equal to 106.75% of their principal amount plus accrued and unpaid interest to the date of redemption, with the proceeds of certain equity offerings. Debt issuance costs related to these notes of approximately $7,700 are being amortized to interest expense over ten years.
In fiscal 2005, ATK issued $200,000 aggregate principal amount of 3.00% Convertible Senior Subordinated Notes (the 3.00% Convertible Notes) that mature on August 15, 2024. Interest on these notes is payable on February 15 and August 15 of each year. Starting with the period beginning on August 20, 2014 and ending on February 14, 2015, and for each of the six-month periods thereafter beginning on February 15, 2015, ATK will pay contingent interest during the applicable interest period if the average trading price of these notes on the five trading days ending on the third day immediately preceding the first day of the applicable interest period equals or exceeds 120% of the principal amount of these notes. The contingent interest payable per note within any applicable interest period will equal an annual rate of 0.30% of the average trading price of a note during the measuring period. The contingent interest feature is treated as an embedded derivative under SFAS No. 133, and the fair value of this feature was insignificant at September 30, 2007 and March 31, 2007. ATK may redeem some or all of these notes in cash at any time on or after August 20, 2014. Holders of these notes may require ATK to repurchase in cash some or all of these notes on August 15, 2014 and August 15, 2019. Holders may also convert their 3.00% Convertible Notes at a conversion rate of 12.5392 shares of ATK’s common stock per $1 principal amount of 3.00% Convertible Notes (a conversion price of $79.75 per share) under the following circumstances: (1) when, during any fiscal quarter, the last reported sale price of ATK stock is greater than or equal to 130% of the conversion price, or $103.68, for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) if ATK calls these notes for redemption; or (3) upon the occurrence of certain corporate transactions. The stock price condition was satisfied on September 17, 2007. Accordingly, the 3.00% Convertible Notes are now convertible at any time at the option of the holder from October 1, 2007 through December 30, 2007, and will remain convertible so long as ATK’s stock price continues to meet the 130%-of-conversion-price condition, as described above. As a result of the notes becoming convertible, the principal amount of $200,000 was reclassified to current liabilities on the consolidated balance sheet as of September 30, 2007. In addition, the unamortized debt issuance costs, which were previously being amortized through the first redemption date of these notes, of approximately $3,200 were written off during the quarter ended September 30, 2007. In fiscal 2005, ATK amended the indenture to require ATK to satisfy 100% of the principal amount of these notes solely in cash, with any amounts above the principal amount to be satisfied in cash, common stock, or a combination of cash and common stock, at the sole election of ATK. If certain fundamental changes occur on or prior to August 15, 2014, ATK will in certain circumstances increase the conversion rate by a number of additional shares of common stock or, in lieu thereof, ATK may in certain circumstances elect to adjust the conversion rate and related conversion obligation so that these notes are convertible into shares of the acquiring or surviving company. These contingently issuable shares increased the number of ATK’s diluted shares outstanding during the quarter and six months ended September 30, 2007 by 618,731 and 532,531 shares, respectively, because ATK’s average stock price exceeded the conversion price during those periods. There was no impact on the diluted shares outstanding during the quarter or six months ended October 1, 2006 because ATK’s average stock price was below the conversion price during those periods.
In fiscal 2004, ATK issued $280,000 aggregate principal amount of 2.75% Convertible Senior Subordinated Notes (the 2.75% Convertible Notes due 2024) that mature on February 15, 2024. Interest on these notes is payable on February 15 and August 15 of each year. Starting with the period beginning on August 20, 2009 and ending on February 14, 2010, and for each of the six-month periods thereafter beginning on February 15, 2010, ATK will pay contingent interest during the applicable interest period if the average trading price of these notes on the five trading days ending on the third day immediately preceding the first day of the applicable interest period equals or exceeds 120% of the principal amount of these notes. The contingent interest payable per note within any applicable interest period will equal an annual rate of 0.30% of the average trading price of a note during the measuring period. The contingent interest feature is treated as an embedded derivative under SFAS No. 133, and the fair value of this feature was insignificant at September 30, 2007 and March 31, 2007. ATK may redeem some or all of these notes in cash at any time on or after August 20, 2009. Holders of these notes may require ATK to repurchase in cash some or all of these notes on August 15, 2009, February 15, 2014, or February 15, 2019. Holders may also convert their 2.75% Convertible Notes at a conversion rate of 12.5843 shares of ATK’s common stock per $1 principal amount of 2.75% Convertible Notes (a conversion price of $79.46 per share) under the following circumstances: (1) when, during any fiscal quarter, the last reported sale price of ATK stock is greater than or equal to 130% of the conversion price, or $103.30, for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) if ATK calls these notes for redemption; or (3) upon the occurrence of certain corporate transactions. The stock price condition was satisfied on September 17, 2007. Accordingly, the 2.75% Convertible Notes due 2024 are now convertible
12
at any time at the option of the holder from October 1, 2007 through December 30, 2007, and will remain convertible so long as ATK’s stock price continues to meet the 130%-of-conversion-price condition, as described above. As a result of the notes becoming convertible, the principal amount of $280,000 was reclassified to current liabilities on the consolidated balance sheet as of September 30, 2007. In addition, the unamortized debt issuance costs, which were previously being amortized through the first redemption date of these notes, of approximately $2,400 were written off during the quarter ended September 30, 2007. In fiscal 2005, ATK amended the indenture to require ATK to satisfy 100% of the principal amount of these notes solely in cash, with any amounts above the principal amount to be satisfied in cash, common stock, or a combination of cash and common stock, at the sole election of ATK. These contingently issuable shares increased the number of ATK’s diluted shares outstanding during the quarter and six months ended September 30, 2007 by 878,851 and 758,172 shares, respectively, because ATK’s average stock price exceeded the conversion price during those periods. There was no impact on the diluted shares outstanding during the quarter or six months ended October 1, 2006 because ATK’s average stock price was below the conversion price during those periods.
The 3.00% Convertible Notes, the 2.75% Convertible Notes due 2024, the 2.75% Convertible Notes due 2011, and the 6.75% Notes rank equal in right of payment with each other and all of ATK’s future senior subordinated indebtedness and are subordinated in right of payment to all existing and future senior 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. Subsidiaries of ATK other than the subsidiary guarantors are minor. All of these guarantor subsidiaries are 100% owned by ATK. These guarantees are senior subordinated obligations of the applicable subsidiary guarantors.
Long-term debt maturities are as follows:
Remainder of fiscal 2008 |
| $ | 480,000 |
|
Fiscal 2009 |
| — |
| |
Fiscal 2010 |
| 13,750 |
| |
Fiscal 2011 |
| 13,750 |
| |
Fiscal 2012 |
| 622,500 |
| |
Thereafter |
| 400,000 |
| |
Total payments |
| $ | 1,530,000 |
|
Although the 2.75% Convertible Notes due 2024 and the 3.00% Convertible Notes do not contractually mature until 2024, these amounts are categorized as current in the consolidated balance sheet and within the “Remainder of fiscal 2008” category above as they are now convertible at the option of the holders, as discussed above.
ATK’s total debt (current portion of debt and long-term debt) as a percentage of total capitalization (total debt and stockholders’ equity) was 71% as of September 30, 2007 and 72% as of March 31, 2007.
ATK’s Senior Credit Facility and the indentures governing the 6.75% Notes, the 2.75% Convertible Notes due 2011, the 2.75% Convertible Notes due 2024, and the 3.00% Convertible Notes impose restrictions on ATK, including limitations on its ability to incur additional debt, enter into capital leases, grant liens, pay dividends and make certain other payments, sell assets, or merge or consolidate with or into another entity. In addition, the Senior Credit Facility limits ATK’s ability to enter into sale-and-leaseback transactions. The Senior Credit Facility also requires that ATK meet and maintain specified financial ratios, including a minimum interest coverage ratio and a maximum consolidated leverage ratio. 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 Senior Credit Facility are subject to compliance with these covenants. As of September 30, 2007, ATK was in compliance with the covenants.
ATK has limited payment requirements under the Senior Credit Facility over the next few years. ATK’s other debt service requirements consist principally of interest expense on its long-term debt. As discussed above, additional cash may be required to repurchase or convert any or all of the convertible notes under certain circumstances. ATK’s short-term cash requirements for operations are expected to consist mainly of capital expenditures to maintain and expand production facilities and working capital requirements.
Net cash paid for interest totaled $21,557 in the six months ended September 30, 2007 and $17,835 in the six months ended October 1, 2006.
Shelf Registration. On March 2, 2006, ATK filed a shelf registration statement with the Securities and Exchange Commission allowing
13
ATK to issue debt and/or equity securities at any time. As of September 30, 2007, ATK has the capacity to issue approximately 48.4 million shares of common stock and 5 million shares of preferred stock.
Interest Rate Swaps
ATK may use interest rate swaps to hedge forecasted interest payments and the risk associated with changing interest rates of long-term debt. ATK did not have any outstanding interest rate swaps as of September 30, 2007 or March 31, 2007.
9. Employee Benefit Plans
Components of Net Periodic Benefit Cost
|
| Pension Benefits |
| ||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
Service cost |
| $ | 15,229 |
| $ | 14,364 |
| $ | 30,458 |
| $ | 28,096 |
|
Interest cost |
| 32,489 |
| 31,741 |
| 64,977 |
| 62,084 |
| ||||
Expected return on plan assets |
| (45,537 | ) | (40,599 | ) | (91,073 | ) | (77,012 | ) | ||||
Amortization of unrecognized net loss |
| 10,511 |
| 12,051 |
| 21,023 |
| 23,572 |
| ||||
Amortization of unrecognized prior service cost |
| (144 | ) | (219 | ) | (289 | ) | (428 | ) | ||||
Net periodic benefit cost |
| $ | 12,548 |
| $ | 17,338 |
| $ | 25,096 |
| $ | 36,312 |
|
Components of Net Periodic Benefit Cost
|
| Postretirement Benefits |
| ||||||||||
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
Service cost |
| $ | 138 |
| $ | 124 |
| $ | 276 |
| $ | 248 |
|
Interest cost |
| 3,056 |
| 3,174 |
| 6,113 |
| 6,348 |
| ||||
Expected return on plan assets |
| (1,008 | ) | (963 | ) | (2,016 | ) | (1,926 | ) | ||||
Amortization of unrecognized net loss |
| 940 |
| 1,302 |
| 1,879 |
| 2,604 |
| ||||
Amortization of unrecognized prior service cost |
| (2,252 | ) | (2,257 | ) | (4,503 | ) | (4,514 | ) | ||||
Net periodic benefit cost |
| $ | 874 |
| $ | 1,380 |
| $ | 1,749 |
| $ | 2,760 |
|
Effective April 1, 2007, ATK adopted the measurement provisions of SFAS No. 158 and remeasured the plan assets and benefit obligations. Other than a change in the discount rate from 5.9% to 6.1%, the assumptions used to remeasure the assets and liabilities remain unchanged from fiscal 2007. The funded status of the pension and other postretirement benefit plans was ($156,152) and ($221,109) as of September 30, 2007 and March 31, 2007, respectively. The after-tax cumulative effect changes of this adoption included a decrease of approximately $9,000 in retained earnings, a decrease of approximately $47,600 in accumulated other comprehensive loss, an increase of approximately $30,700 in total assets, and a decrease of approximately $7,900 in total liabilities.
Employer Contributions. During the six months ended September 30, 2007, ATK contributed $1,617 directly to retirees and $8,625 to its other postretirement benefit (PRB) plans. ATK anticipates making additional contributions of approximately $2,300 directly to retirees and approximately $8,200 to its other PRB plans during the remainder of fiscal 2008. ATK does not anticipate making any contributions to its qualified pension plans during the remainder of fiscal 2008.
10. Income Taxes
ATK’s provision for income taxes includes both federal and state income taxes. Income tax provisions for interim periods are based on estimated effective annual income tax rates.
The income tax provisions for the six months ended September 30, 2007 and October 1, 2006 represent effective tax rates of 35.9% and 37.9%, respectively. The decrease in the rate for the six months ended September 30, 2007 from the prior year period is primarily due to the existence of federal research and development (R&D) credit, an increase in the domestic manufacturing deduction (DMD),
14
and adjustment of the provision amounts to the returns as filed. The reduction in rate was offset by the elimination of the extraterritorial income (ETI) exclusion for fiscal 2008.
ATK adopted FIN 48 as of April 1, 2007. The cumulative effects of applying this interpretation have been recorded as a decrease of $7,676 to retained earnings, an increase of $2,693 to net deferred income tax assets and an increase of $10,369 to accrued income taxes.
In conjunction with the adoption of FIN 48, ATK classified uncertain tax positions as non-current income tax liabilities unless expected to be paid in one year. ATK also began reporting income tax-related interest income within the income tax provision. In prior periods, such interest income was reported in other income. Penalties and tax-related interest expense are reported as a component of the income tax provision. As of September 30, 2007 and April 1, 2007, $1,142 and $671 of income tax-related interest and $575 and $551 of penalties were included in accrued income taxes, respectively.
ATK or one of its subsidiaries files income tax returns in the United States (U.S.) federal, various U.S. state, and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2001. The Internal Revenue Service has completed the audits of ATK through fiscal 2006.
As of September 30, 2007 and April 1, 2007, the total amount of unrecognized tax benefits was $16,763 and $16,243, respectively, of which $13,034 and $12,763, respectively, would affect the effective tax rate, if recognized. In the next 12 months it is reasonably possible that the gross liability for unrecognized tax benefits will decrease by $693 as a result of the completion of examinations or amendment of income tax returns.
11. Stock-Based Compensation
ATK sponsors four stock-based incentive plans, which are the Alliant Techsystems Inc. 1990 Equity Incentive Plan, the Non-Employee Director Restricted Stock Plan, the 2000 Stock Incentive Plan, and the 2005 Stock Incentive Plan. As of September 30, 2007, ATK has authorized up to 1,532,360 common shares under the 2005 Stock Incentive Plan, of which 618,071 common shares are yet available to be granted. No new grants will be made out of the other three plans.
Total pre-tax stock-based compensation expense recognized during the quarter and six months ended September 30, 2007 was $5,740 and $11,770, respectively. Total pre-tax stock-based compensation expense recognized during the quarter and six months ended October 1, 2006 was $9,173 and $18,310, respectively. The total income tax benefit recognized in the income statement for share-based compensation during the quarter and six months ended September 30, 2007 was $2,286 and $4,689, respectively. The total income tax benefit recognized in the income statement for share-based compensation during the quarter and six months ended October 1, 2006 was $3,563 and $6,916, respectively.
There are three types of awards outstanding under ATK’s stock incentive plans: performance awards, restricted stock, and stock options. ATK issues treasury shares upon the payment of performance awards, grant of restricted stock, or exercise of stock options. As of September 30, 2007, there were up to 556,233 shares reserved for performance awards for key employees. Performance shares are valued at the fair value of ATK stock as of the grant date and expense is recognized based on the number of shares expected to vest under the terms of the award under which they are granted. Of these shares, up to 170,671 shares will become payable only upon attainment of a specified performance goal related to achievement of supply chain management savings at any point through the end of fiscal 2012; up to 180,362 shares will become payable only upon achievement of certain financial performance goals, including sales and EPS, for the fiscal 2007 through fiscal 2009 period; and up to 205,200 shares will become payable only upon achievement of certain financial performance goals, including sales and EPS, for the fiscal 2008 through fiscal 2010 period. In May 2007, 637,810 shares were issued based upon achievement of certain financial performance goals achieved through fiscal 2007.
Restricted stock issued to non-employee directors and certain key employees totaled 22,663 shares during the six months ended September 30, 2007. Restricted shares vest over periods ranging from one to five years from the date of award.
Stock options may be granted periodically, with an exercise price equal to the fair market value of ATK’s common stock on the date of grant, and generally vest from one to three years from the date of grant. Since fiscal 2004, options are generally issued with a seven-year term; grants issued prior to that generally had a ten-year term. The weighted average fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and represents the difference between fair market value on the date of grant and the estimated market value on the expected exercise date. The option pricing model requires ATK to make assumptions. The risk-free rate is based on U.S. Treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of
15
grant. Expected volatility is based on the historical volatility of ATK’s stock over the past five years. The expected option life is based on the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. No options were granted during the six months ended September 30, 2007. The weighted average fair value of options granted during the six months ended October 1, 2006 was $28.58. The following weighted average assumptions were used for grants:
|
| Six Months Ended October 1, 2006 |
|
|
|
|
|
Risk-free rate |
| 4.9 | % |
Expected volatility |
| 30.9 | % |
Expected dividend yield |
| 0 | % |
Expected option life |
| 5 years |
|
12. 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, to be material to its business or likely to result in a material adverse effect on its operating results, financial condition, or cash flows.
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.
On June 20, 2006, ATK was informed that the United States Department of Justice (DOJ) had opened a civil investigation into ATK’s LUU series illuminating flares. ATK was informed that the DOJ had received allegations that ATK knowingly delivered defective products. Further details regarding the investigation were not provided to ATK. On or about March 13, 2007, ATK received notice, for the first time, that the source and basis of the Government’s investigation was a qui tam complaint filed in federal court in Utah on or about April 10, 2006 by a former employee. Thereafter in June 2007, ATK was informed by the DOJ that it intended to intervene in the qui tam action and that it intends to file an amended complaint.
ATK cooperated with the investigation and voluntarily produced documents to the DOJ; however, ATK denies any allegations of improper conduct. Based on what is known to ATK about the subject matter of the DOJ investigation and the complaint, ATK does not believe that it has violated any law or regulation and believes it has valid defenses to all allegations of improper conduct. Although it is not possible at this time to predict the outcome of the litigation, ATK believes, based on all available information, that the outcome will not have a material adverse effect on its operating results, financial condition or cash flows.
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 damages 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 3.00% as of September 30, 2007 and March 31, 2007. The following is a summary of the amounts recorded for environmental remediation:
16
|
| September 30, 2007 |
| March 31, 2007 |
| ||||||||
|
| Liability |
| Receivable |
| Liability |
| Receivable |
| ||||
Undiscounted (liability) receivable |
| $ | (65,531 | ) | $ | 40,894 |
| $ | (65,603 | ) | $ | 40,587 |
|
Unamortized discount |
| 8,970 |
| (4,758 | ) | 8,513 |
| (4,490 | ) | ||||
Discounted (liability) receivable |
| $ | (56,561 | ) | $ | 36,136 |
| $ | (57,090 | ) | $ | 36,097 |
|
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 $56,561 discounted liability as of September 30, 2007, $12,743 was recorded within other current liabilities and $43,818 was recorded within other long-term liabilities. Of the $36,136 discounted receivable, ATK recorded $6,914 within other current assets and $29,222 within other non-current assets. As of September 30, 2007, the estimated discounted range of reasonably possible costs of environmental remediation was $56,561 to $91,865.
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 below.
• As part of its acquisition of the Hercules Aerospace Company in fiscal 1995, ATK assumed responsibility for environmental compliance at the facilities acquired from Hercules (the Hercules Facilities). ATK believes that a portion of the compliance and remediation costs associated with the Hercules Facilities will be recoverable under U.S. Government contracts, and that those environmental remediation costs not recoverable under these contracts will be covered by Hercules Incorporated (Hercules) under environmental agreements entered into in connection with the Hercules acquisition. Under these agreements, Hercules has agreed to indemnify ATK for environmental conditions relating to releases or hazardous waste activities occurring prior to ATK’s purchase of the Hercules Facilities; fines relating to pre-acquisition environmental compliance; and environmental claims arising out of breaches of Hercules’s representations and warranties. Hercules is not required to indemnify ATK for any individual claims below $50. Hercules is obligated to indemnify ATK for the lowest cost response of remediation required at the facility that is acceptable to the applicable regulatory agencies. ATK is not responsible for conducting any remedial activities with respect to the Kenvil, NJ facility or the Clearwater, FL facility. In accordance with its agreement with Hercules, ATK notified Hercules of all known contamination on non-federal lands on or before March 31, 2000 and on federal lands on or before March 31, 2005.
• ATK generally assumed responsibility for environmental compliance at the Thiokol Facilities acquired from Alcoa Inc. in fiscal 2002. While ATK expects that a portion of the compliance and remediation costs associated with the acquired Thiokol Facilities will be recoverable under U.S. Government contracts, ATK has recorded an accrual to cover those environmental remediation costs at these facilities that will not be recovered through U.S. Government contracts. In accordance with its agreement with Alcoa, ATK notified Alcoa of all known environmental remediation issues as of January 30, 2004. Of these known issues, ATK is responsible for any costs not recovered through U.S. Government contracts at Thiokol Facilities up to $29,000, ATK and Alcoa have agreed to split evenly any amounts between $29,000 and $49,000, and ATK is responsible for any payments in excess of $49,000.
• With respect to the civil ammunition business’ facilities purchased from Blount in fiscal 2002, Blount has agreed to indemnify ATK for certain compliance and remediation liabilities, to the extent those liabilities are related to pre-closing environmental conditions at or related to these facilities. Some other remediation costs are expected to be paid directly by a third party pursuant to an existing indemnification agreement with Blount. Blount’s indemnification obligations relating to environmental matters, which extended through December 7, 2006, are capped at $30,000, less any other indemnification payments made for breaches of representations and warranties. The third party’s obligations, which extend through November 4, 2007, are capped at approximately $125,000, less payments previously made.
ATK cannot ensure that the U.S. Government, Hercules, Alcoa, Blount, or other third parties will reimburse it for any particular environmental costs or reimburse ATK in a timely manner or that any claims for indemnification will not be disputed. U.S. Government reimbursements for cleanups are financed out of a particular agency’s operating budget and the ability of a particular governmental agency to make timely reimbursements for cleanup costs will be subject to national budgetary constraints. ATK’s failure to obtain full or timely reimbursement from the U.S. Government, Hercules, Alcoa, Blount, or other third parties could have a material adverse effect on its operating results, financial condition, or cash flows. While ATK has environmental management programs in place to mitigate these risks, and environmental laws and regulations have not had a material adverse effect on ATK’s operating results, financial condition, or cash flows in the past, it is difficult to predict whether they will have a material impact in the future.
17
Other Contingencies. ATK is also subject to a number of other potential risks and contingencies. These risks and contingencies are described in Item 1A of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007.
13. Stock Repurchases
On January 31, 2006, ATK’s Board of Directors authorized the repurchase of an additional 5,000,000 shares through January 31, 2008. In February and March 2006, ATK repurchased 1,315,104 shares for $100,000. During fiscal 2007, ATK repurchased 2,585,200 shares for $201,880. During the quarter ended September 30, 2007, ATK repurchased 942,200 shares for $100,068. As of September 30, 2007, there were 157,496 remaining shares authorized to be repurchased.
14. Operating Segment Information
ATK has three segments: Ammunition Systems Group, Launch Systems Group, and Mission Systems Group. These operating segments are defined based on the reporting and review process used by ATK’s chief executive officer.
• The Ammunition Systems Group, which generated 35% of ATK’s external sales in the six months ended September 30, 2007, produces military ammunition and gun systems; civil ammunition and accessories; and propellant and energetic materials. It also operates the U.S. Army ammunition plants in Independence, Missouri and Radford, Virginia.
• The Launch Systems Group, which generated 31% of ATK’s external sales in the six months ended September 30, 2007, produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, and missile defense interceptors. Other products include ordnance which includes decoy and illuminating flares.
• The Mission Systems Group, which generated 34% of ATK’s external sales in the six months ended September 30, 2007, operates in four areas: Weapon Systems, Aerospace Systems, Space Systems, and Technical Services.
The military small-caliber ammunition contract, which is reported within the Ammunition Systems Group, contributed approximately 13% and 14% of total external sales during the six months ended September 30, 2007 and October 1, 2006, respectively. ATK’s contract with NASA for Reusable Solid Rocket Motors (RSRM) for the Space Shuttle, which is reported within the Launch Systems Group, represented approximately 9% and 12% of total external sales during the six months ended September 30, 2007 and October 1, 2006, respectively.
The following summarizes ATK’s results by operating segment:
|
| Quarters Ended |
| Six Months Ended |
| ||||||||
|
| September 30, |
| October 1, |
| September 30, |
| October 1, |
| ||||
Sales to external customers: |
|
|
|
|
|
|
|
|
| ||||
Ammunition Systems Group |
| $ | 354,697 |
| $ | 282,653 |
| $ | 690,199 |
| $ | 569,587 |
|
Launch Systems Group |
| 318,217 |
| 262,236 |
| 623,316 |
| 526,858 |
| ||||
Mission Systems Group |
| 356,431 |
| 285,485 |
| 674,202 |
| 556,423 |
| ||||
Total external sales |
| 1,029,345 |
| 830,374 |
| 1,987,717 |
| 1,652,868 |
| ||||
Intercompany sales: |
|
|
|
|
|
|
|
|
| ||||
Ammunition Systems Group |
| 2,599 |
| 4,625 |
| 7,185 |
| 9,781 |
| ||||
Launch Systems Group |
| 928 |
| 4,293 |
| 4,277 |
| 8,785 |
| ||||
Mission Systems Group |
| 40,323 |
| 24,211 |
| 70,683 |
| 44,975 |
| ||||
Eliminations |
| (43,850 | ) | (33,129 | ) | (82,145 | ) | (63,541 | ) | ||||
Total intercompany sales |
| — |
| — |
| — |
| — |
| ||||
Total sales |
| $ | 1,029,345 |
| $ | 830,374 |
| $ | 1,987,717 |
| $ | 1,652,868 |
|
|
|
|
|
|
|
|
|
|
| ||||
Income before interest, income taxes, and minority interest: |
|
|
|
|
|
|
|
|
| ||||
Ammunition Systems Group |
| $ | 32,182 |
| $ | 26,194 |
| $ | 61,059 |
| $ | 46,014 |
|
Launch Systems Group |
| 43,305 |
| 35,427 |
| 88,152 |
| 73,073 |
| ||||
Mission Systems Group |
| 35,003 |
| 26,385 |
| 68,505 |
| 53,491 |
| ||||
Corporate |
| (5,415 | ) | (6,087 | ) | (11,137 | ) | (11,281 | ) | ||||
Total income before interest, income taxes, and minority interest |
| $ | 105,075 |
| $ | 81,919 |
| $ | 206,579 |
| $ | 161,297 |
|
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands except share and per share data and unless otherwise indicated)
Forward-Looking Information is Subject to Risk and Uncertainty
Some of the statements made and information contained in this report, excluding historical information, are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Words such as “may,” “will,” “expected,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” and similar expressions are used to identify forward-looking statements. From time to time, ATK also may provide oral or written forward-looking statements in other materials released to the public. Any or all forward-looking statements in this report and in any public statements ATK makes could be materially different. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Any change in the following factors may impact the achievement of results:
• reductions or changes in NASA or U.S. Government military spending and budgetary policies and sourcing strategy,
• increases in costs, which ATK may not be able to react to due to the nature of its U.S. Government contracts,
• the potential termination of U.S. Government contracts,
• government laws and other rules and regulations applicable to ATK, such as procurement and import-export control,
• the novation of U.S. Government contracts,
• other risks associated with U.S. Government contracts that might expose ATK to adverse consequences,
• changes in cost estimates and/or timing of programs,
• costs of servicing ATK’s debt, including cash requirements and interest rate fluctuations,
• intense competition,
• performance of ATK’s subcontractors,
• supply, availability, and costs of raw materials and components, including commodity price fluctuations,
• development of key technologies and retention of a qualified workforce,
• fires or explosions at any of ATK’s facilities,
• environmental laws that govern past practices and rules and regulations, noncompliance with which may expose ATK to adverse consequences,
• actual pension asset returns and assumptions regarding future returns, discount rates, and service costs,
• greater risk associated with international business,
• results of acquisitions, and
• unanticipated changes in the tax provision or exposure to additional tax liabilities.
This list of factors is not exhaustive and new factors may emerge or changes to the foregoing factors may occur that would impact ATK’s business. ATK undertakes no obligation to update any forward-looking statements. A more detailed description of risk factors can be found in Item 1A, Risk Factors, of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007. Additional information regarding these factors may be contained in ATK’s subsequent filings with the Securities and Exchange Commission, including Forms 8-K.
Overview
ATK is a supplier of aerospace and defense products to the U.S. Government, allied nations, and prime contractors. ATK is also a supplier of ammunition and related accessories to law enforcement agencies and commercial customers. ATK is headquartered in Edina, Minnesota and has operating locations throughout the United States.
ATK has three segments: Ammunition Systems Group, Launch Systems Group, and Mission Systems Group.
• The Ammunition Systems Group, which generated 35% of ATK’s external sales in the six months ended September 30, 2007, produces military ammunition and gun systems; civil ammunition and accessories; and propellant and energetic materials. It
19
also operates the U.S. Army ammunition plants in Independence, Missouri and Radford, Virginia.
• The Launch Systems Group, which generated 31% of ATK’s external sales in the six months ended September 30, 2007, produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, and missile defense interceptors. Other products include ordnance which includes decoy and illuminating flares.
• The Mission Systems Group, which generated 34% of ATK’s external sales in the six months ended September 30, 2007, operates in four areas: Weapon Systems, Aerospace Systems, Space Systems, and Technical Services.
The majority of ATK’s sales are recognized as costs are incurred. ATK’s customers pay ATK cash based on costs incurred and profit earned, upon achievement of program milestones, or upon delivery of the product.
As a supplier to the U.S. aerospace and defense industry, ATK is dependent on funding levels of the U.S. Department of Defense (DoD) and NASA. The U.S. defense industry has experienced significant changes over the past few years. During the 1990s, the DoD budget declined, but that trend has reversed during the 2000s due to continuing geopolitical uncertainties. While the DoD’s budget for procurement and research, development, test, and evaluation continues to grow each year, the degree of future growth is not known and it may slow or even contract. However, ATK believes it is well positioned in this budget environment to maintain or even increase its relative participation in the DoD budget, as it derives the majority of its DoD sales from products that are consumed (and then reprocured) in both tactical and training operations. ATK anticipates that, to the extent that future budget pressures mount, the majority of budget cuts would come in the areas where the DoD is developing new “platforms” - the vehicles used to deliver the weapons, including ships, aircraft, tanks and helicopters. Much of ATK’s product portfolio is “platform independent,” meaning it can be used in the legacy platforms of today, as well as in the platforms being developed for future use. Therefore, if and when these future platform development programs come under budget pressures, ATK believes that it has limited exposure, relative to its industry peers.
ATK management believes that the key to ATK’s continued success is to focus on performance, simplicity, and affordability, and that ATK’s future lies in being a leading provider of advanced weapon and space systems. ATK is positioning itself where management believes there will be continued strong defense funding, even as pressures on procurement and research and development accounts mount. ATK will concentrate on developing the systems that will extend the life and improve the capability of existing platforms. ATK anticipates budget pressures will increasingly drive the life extension of platforms such as ships, aircrafts, and main battle tanks. ATK’s transformational weapons such as its Precision Guided Mortar Munition, Mid-Range Munition, Advanced Anti-Radiation Guided Missile, and the Precision Guidance Kit are aimed squarely at this growing market. At the same time, ATK believes it is on the leading edge of technologies essential to “generation after next” weapons and platforms - advanced sensor/seeker integration, directed energy, high-speed, long-range projectiles, thermal-resistant materials, reactive materials, and scramjet engines are examples.
Critical Accounting Policies
ATK’s significant accounting policies are described in Note 1 to the consolidated financial statements included in ATK’s Annual Report on Form 10-K for the year ended March 31, 2007 (fiscal 2007). The accounting policies used in preparing ATK’s interim fiscal 2008 consolidated financial statements are the same as those described in ATK’s Annual Report, except as described in this report in Note 2, New Accounting Pronouncements, to the unaudited condensed consolidated financial statements.
In preparing the consolidated financial statements, ATK follows accounting principles generally accepted in the United States. The preparation of these financial statements requires ATK to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. ATK re-evaluates its estimates on an on-going basis. ATK’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
ATK believes its critical accounting policies are those related to:
• revenue recognition,
• environmental remediation and compliance,
• employee benefit plans,
• income taxes, and
• acquisitions and goodwill.
20
More information on these policies can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007.
Results of Operations
Acquisition
On June 8, 2007, ATK acquired Swales Aerospace (Swales), a provider of satellite components and subsystems, small spacecraft and engineering services for NASA, Department of Defense and commercial satellite customers, for $101,195, net of cash acquired. ATK believes that the acquisition strengthens ATK’s satellite components, subsystems and small spacecraft portfolios and further increases ATK’s position as a supplier to the U.S. Government and industry. ATK also believes the acquisition will enhance ATK’s systems engineering as ATK pursues strategic initiatives in space exploration programs. Headquartered in Beltsville, Maryland, Swales employs approximately 750 people and is included in the Mission Systems Group.
ATK will follow the purchase method of accounting to account for this acquisition and, accordingly, the results of Swales are included in ATK’s consolidated financial statements since the date of acquisition.
Sales
The military small-caliber ammunition contract, which is reported within the Ammunition Systems Group, contributed approximately 13% and 14% of total external sales during the six months ended September 30, 2007 and October 1, 2006, respectively. The RSRM program, which is reported within the Launch Systems Group, represented approximately 9% and 12% of total external sales during the six months ended September 30, 2007 and October 1, 2006, respectively.
The following is a summary of each operating segment’s external sales:
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||
|
| September 30, |
| October 1, |
| $ Change |
| % |
| September 30, |
| October 1, |
| $ Change |
| % |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ammunition Systems Group |
| $ | 354,697 |
| $ | 282,653 |
| $ | 72,044 |
| 25.5 | % | $ | 690,199 |
| $ | 569,587 |
| $ | 120,612 |
| 21.2 | % |
Launch Systems Group |
| 318,217 |
| 262,236 |
| 55,981 |
| 21.3 | % | 623,316 |
| 526,858 |
| 96,458 |
| 18.3 | % | ||||||
Mission Systems Group |
| 356,431 |
| 285,485 |
| 70,946 |
| 24.9 | % | 674,202 |
| 556,423 |
| 117,779 |
| 21.2 | % | ||||||
Total external sales |
| $ | 1,029,345 |
| $ | 830,374 |
| $ | 198,971 |
| 24.0 | % | $ | 1,987,717 |
| $ | 1,652,868 |
| $ | 334,849 |
| 20.3 | % |
Quarter.
The increase in sales was due to organic growth in all of ATK’s segments as well as the acquisition of Swales, as discussed above, which is reported within the Mission Systems Group.
Ammunition Systems Group. The increase in sales was driven by:
• a $25,600 increase in military small-caliber ammunition sales at the Lake City Army Ammunition Plant as a result of continued strong customer requirements,
• an increase of $20,500 in civil ammunition due to an increase in volume of domestic, law enforcement, and OEM sales, along with price increases,
• an increase of $17,600 in medium-caliber guns and ammunition due to various new programs, and
• a $6,500 increase in TNT sales due to increased shipments.
Launch Systems Group. The increase in sales was due to:
• an increase of $39,000 on the new contract for NASA’s ARES I launch vehicle,
• an increase of $13,700 on the new contract for NASA’s Orion Crew Exploration Vehicle (CEV) launch abort system,
• a $6,000 increase due to the timing of U.S. Air Force sales, and
• a $4,000 increase due to higher demand for Castor® rocket motor systems.
21
These increases were partially offset by a decrease of $13,600 on the Space Shuttle program due to synergies with the ARES I program.
Mission Systems Group. The increase in sales was driven by:
• an increase of $38,000 due to the acquisition of Swales during the first quarter of fiscal 2008,
• an increase of $17,000 in aircraft integration due to increased demand and new program awards,
• a $12,000 increase in apertures and radomes due to increased volume, and
• an increase of $8,000 for solar array and deployable satellite components.
Six Months.
Ammunition Systems Group. The increase in sales was driven by:
• a $52,500 increase in military small-caliber ammunition sales at the Lake City Army Ammunition Plant as a result of continued strong customer requirements,
• an increase of $41,200 in civil ammunition due to an increase in volume of domestic, law enforcement, OEM, and international sales, along with price increases, and
• an increase of $26,900 in medium-caliber guns and ammunition due to various new programs.
Launch Systems Group. The increase in sales was due to:
• an increase of $72,500 on ARES I,
• an increase of $26,100 on the new launch abort system for the Orion CEV, and
• a $5,000 increase due to higher demand for Castor® rocket motor systems.
These increases were partially offset by a decrease of $14,700 on the Space Shuttle program due to synergies with the ARES I program.
Mission Systems Group. The increase in sales was driven by:
• an increase of $47,900 due to the acquisition of Swales during the period,
• an increase of $24,000 in aircraft integration due to increased demand and new program awards,
• an increase of $22,000 for solar array and deployable satellite components,
• an increase of $16,000 in missile defense, primarily due to increased volume on the Standard Missile 3 program,
• a $13,000 increase in apertures and radomes due to increased volume,
• a $9,000 increase in force protection, specifically due to the Spider Advanced Munition program, and
• an increase of $7,000 in international advanced weapon sales due to the Shielder anti-tank barrier system which was awarded in the second quarter of fiscal 2007.
These increases were partially offset by:
• a $10,000 decline in technical services due to decreased orders,
• a decrease of $9,000 in fuzes due to lower volume on the Multi-option Fuze for Artillery program and production delays on other fuze programs, and
• a $7,000 decrease in missile systems, specifically the Advanced Anti-radiation Guided Missile (AARGM) program.
Gross Profit
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||||||
|
| September 30, |
| As a % |
| October 1, |
| As a % |
| Change |
| September 30, |
| As a % |
| October 1, |
| As a % |
| Change |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross profit |
| $ | 198,369 |
| 19.3 | % | $ | 161,219 |
| 19.4 | % | $ | 37,150 |
| $ | 390,559 |
| 19.6 | % | $ | 317,824 |
| 19.2 | % | $ | 72,735 |
|
Quarter and Six Months. The increase in gross profit was driven by higher sales along with a reduction in pension expenses and increased operating efficiencies.
22
Operating Expenses
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||||||
|
| September 30, |
| As a % |
| October 1, |
| As a % |
| Change |
| September 30, |
| As a % |
| October 1, |
| As a % |
| Change |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Research and development |
| $ | 17,325 |
| 1.7 | % | $ | 13,894 |
| 1.7 | % | $ | 3,431 |
| $ | 30,008 |
| 1.5 | % | $ | 25,551 |
| 1.5 | % | $ | 4,457 |
|
Selling |
| 30,861 |
| 3.0 | % | 23,167 |
| 2.8 | % | 7,694 |
| 60,791 |
| 3.1 | % | 48,782 |
| 3.0 | % | 12,009 |
| ||||||
General and administrative |
| 45,108 |
| 4.4 | % | 42,239 |
| 5.1 | % | 2,869 |
| 93,181 |
| 4.7 | % | 82,194 |
| 5.0 | % | 10,987 |
| ||||||
Total |
| $ | 93,294 |
| 9.1 | % | $ | 79,300 |
| 9.5 | % | $ | 13,994 |
| $ | 183,980 |
| 9.3 | % | $ | 156,527 |
| 9.5 | % | $ | 27,453 |
|
Quarter.
Operating expenses increased primarily due to higher selling expenses consistent with higher sales and increased program proposal efforts within Mission Systems Group and Launch Systems Group. Research and development expenses were up due to increased spending on major launch vehicle programs within the Launch Systems Group. General and administrative expenses also increased as a result of increased spending to support increasing sales.
Six Months.
Operating expenses increased primarily due to higher selling expenses consistent with higher sales and increased program proposal efforts within the Mission Systems Group. General and administrative expenses were up as a result of increased spending to support increasing sales. Research and development expenses were also up due to increased spending on major launch vehicle programs within the Launch Systems Group, partially offset by a reduction within the Mission Systems Group as a result of a shift to program proposal efforts.
Income Before Interest, Income Taxes, and Minority Interest
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||
|
| September 30, |
| October 1, |
| Change |
| September 30, |
| October 1, |
| Change |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Ammunition Systems Group |
| $ | 32,182 |
| $ | 26,194 |
| $ | 5,988 |
| $ | 61,059 |
| $ | 46,014 |
| $ | 15,045 |
|
Launch Systems Group |
| 43,305 |
| 35,427 |
| 7,878 |
| 88,152 |
| 73,073 |
| 15,079 |
| ||||||
Mission Systems Group |
| 35,003 |
| 26,385 |
| 8,618 |
| 68,505 |
| 53,491 |
| 15,014 |
| ||||||
Corporate |
| (5,415 | ) | (6,087 | ) | 672 |
| (11,137 | ) | (11,281 | ) | 144 |
| ||||||
Total |
| $ | 105,075 |
| $ | 81,919 |
| $ | 23,156 |
| $ | 206,579 |
| $ | 161,297 |
| $ | 45,282 |
|
The increase in income before interest, income taxes, and minority interest was due to higher sales, a reduction in pension expense in all operating segments, as well as program-related changes within the operating segments as described below.
Quarter.
Ammunition Systems Group. The increase relates to higher sales partially offset by a higher mix of medium caliber ammunition programs which have lower margins.
Launch Systems Group. The increase was mainly due to higher sales on ARES I and the launch abort system, as discussed above, partially offset by increased spending on strategic pursuits.
Mission Systems Group. The increase relates primarily to higher sales volume along with an incentive fee on the Standard Missile 3 program, partially offset by increased program proposal efforts.
Corporate. The net expense of Corporate primarily reflects expenses incurred for administrative functions that are performed centrally at the corporate headquarters, the elimination of intercompany profits, and stock option expense.
23
Six Months.
Ammunition Systems Group. The increase relates to higher sales along with margin improvement in the TNT program which incurred start up costs in the same period of the prior year.
Launch Systems Group. The increase was mainly due to higher sales on ARES I and the launch abort system, as discussed above, partially offset by increased spending on strategic pursuits.
Mission Systems Group. The increase relates to higher sales along with an incentive fee on the Standard Missile 3 program, partially offset by lower margins in missile systems and increased program proposal efforts.
Corporate. The net expense of Corporate primarily reflects expenses incurred for administrative functions that are performed centrally at the corporate headquarters, the elimination of intercompany profits, and stock option expense.
Interest Expense
Quarter.
Net interest expense for the quarter ended September 30, 2007 was $25,639, an increase of $8,129 compared to $17,510 in the comparable quarter of fiscal 2007 primarily due to the accelerated noncash write-off of $5,600 of debt issuance costs as a result of the 3.00% Convertible Senior Subordinated Notes and 2.75% Convertible Senior Subordinated Notes due 2024 becoming convertible during the quarter as well as an increase in the average outstanding debt balance, as discussed below within “Liquidity and Capital Resources” under the heading “Debt”.
Six Months.
Net interest expense for the six months ended September 30, 2007 was $44,652, an increase of $10,510 compared to $34,142 in the comparable period of fiscal 2007 primarily due to the accelerated noncash write-off of $5,600 of debt issuance costs discussed above as well as an increase in the average outstanding debt balance, as discussed below within “Liquidity and Capital Resources” under the heading “Debt”.
Income Tax Provision
|
| Quarters Ended |
| Six Months Ended |
| ||||||||||||||||||||||
|
| September 30, |
| Effective |
| October 1, |
| Effective |
| Change |
| September 30, |
| Effective |
| October 1, |
| Effective |
| Change |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Income tax provision |
| $ | 28,171 |
| 35.5 | % | $ | 24,337 |
| 37.8 | % | $ | 3,834 |
| $ | 58,084 |
| 35.9 | % | $ | 48,137 |
| 37.9 | % | $ | 9,947 |
|
ATK’s provision for income taxes includes both federal and state income taxes. Income tax provisions for interim periods are based on estimated effective annual income tax rates.
The income tax provisions for the six months ended September 30, 2007 and October 1, 2006 represent effective tax rates of 35.9% and 37.9%, respectively. The decrease in the rate for the six months ended September 30, 2007 from the prior year period is primarily due to the existence of federal research and development (R&D) credit, an increase in the domestic manufacturing deduction (DMD), and adjustment of the provision amounts to the returns as filed. The reduction in rate was offset by the elimination of the extraterritorial income (ETI) exclusion for fiscal 2008.
Minority Interest
The minority interest in each period represents the minority owners’ portion of the income of a joint venture in which ATK is the primary owner. This joint venture is consolidated into ATK’s financial statements.
24
Net Income
Quarter.
Net income for the quarter ended September 30, 2007 was $51,175, an increase of $11,248 compared to $39,927 in the comparable quarter of fiscal 2007. This increase was due to an increase of $37,150 in gross profit, partially offset by increases in operating expenses of $13,994, net interest expense of $8,129, and income tax expense of $3,834.
Six Months.
Net income for the six months ended September 30, 2007 was $103,579, an increase of $24,779 compared to $78,800 in the comparable period of fiscal 2007. This increase was due to an increase of $72,735 in gross profit, partially offset by increases in operating expenses of $27,453, net interest expense of $10,510, and income tax expense of $9,947.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
|
| Six Months Ended |
| |||||||
|
| September 30, |
| October 1, |
| Change |
| |||
|
|
|
|
|
|
|
| |||
Cash flows provided by operating activities |
| $ | 131,257 |
| $ | 4,933 |
| $ | 126,324 |
|
Cash flows used for investing activities |
| (135,471 | ) | (35,059 | ) | (100,412 | ) | |||
Cash flows provided by financing activities |
| 11,750 |
| 33,650 |
| (21,900 | ) | |||
Net cash flows |
| $ | 7,536 |
| $ | 3,524 |
| $ | 4,012 |
|
Cash provided by operating activities for the six months ended September 30, 2007 totaled $131,257, compared to $4,933 in the comparable period of the prior year. The increase was primarily due to a decrease in pension contributions of $212,271 and an increase in net income of $24,779 over the prior year period.
These increases were partially offset by a $71,977 increase in cash used for working capital (defined as net receivables plus net inventories less accounts payable less contract advances and allowances) due to increasing sales, timing of cash receipts from customers, liquidation of contract advances received in the same period of the prior fiscal year, and the cash payment during the six months ended September 30, 2007 of withholding taxes equal to the value of shares withheld from employees in connection with a payout of stock-based compensation for the fiscal 2005-2007 performance period.
Cash used for investing activities totaled $135,471, an increase of $100,412 compared to $35,059 used in the comparable period of the prior year primarily as a result of the acquisition of Swales Aerospace for $101,195 during the six months ended September 30, 2007, as discussed above.
Cash provided by financing activities totaled $11,750, compared to $33,650 in the comparable period of the prior year. Net borrowings on the line of credit increased $38,000 due to cash requirements for the Swales acquisition and share repurchase partially offset by cash provided from operations. During the prior year period, ATK issued $300,000 of 2.75% Convertible Senior Subordinated Notes due 2011, purchased call options for $50,850, and sold warrants for $23,220, as discussed below. Payments on debt decreased $16,096 due primarily to the refinancing during March 2007 which requires no payments until March 2010. The increase in cash overdrafts was $17,388 compared to a decrease in the prior period of $60,937 due to the timing of payments.
Postretirement Benefit Plans Contributions
During the six months ended September 30, 2007, ATK contributed $1,617 directly to retirees and $8,625 to its other postretirement benefit (PRB) plans. ATK anticipates making additional contributions of approximately $2,300 directly to retirees and approximately $8,200 to its other PRB plans during the remainder of fiscal 2008. ATK does not anticipate making any contributions to its qualified pension plans during the remainder of fiscal 2008.
25
ATK typically generates cash flows from operating activities in excess of its commitments. ATK has several opportunities for capital deployment, which may include debt repayments, stock repurchases, pension funding, funding acquisitions, and other alternatives.
Debt
Long-term debt, including the current portion, consisted of the following:
|
| September 30, 2007 |
| March 31, 2007 |
| ||
Senior Credit Facility dated March 29, 2007: |
|
|
|
|
| ||
Term A Loan due 2012 |
| $ | 275,000 |
| $ | 275,000 |
|
Revolving Credit Facility due 2012 |
| 75,000 |
| — |
| ||
2.75% Convertible Senior Subordinated Notes due 2011 |
| 300,000 |
| 300,000 |
| ||
6.75% Senior Subordinated Notes due 2016 |
| 400,000 |
| 400,000 |
| ||
2.75% Convertible Senior Subordinated Notes due 2024 |
| 280,000 |
| 280,000 |
| ||
3.00% Convertible Senior Subordinated Notes due 2024 |
| 200,000 |
| 200,000 |
| ||
Total debt |
| 1,530,000 |
| 1,455,000 |
| ||
Less current portion |
| 480,000 |
| — |
| ||
Long-term debt |
| $ | 1,050,000 |
| $ | 1,455,000 |
|
In March 2007, ATK entered into an amended and restated Senior Credit Facility dated March 29, 2007 (the Senior Credit Facility), which is comprised of a Term A Loan of $275,000 and a $500,000 Revolving Credit Facility, both of which mature in 2012. The Term A Loan is subject to quarterly principal payments of $0 in the years ending March 31, 2008 and 2009; $3,438 in the years ending March 31, 2010 and 2011; and $6,875 in the year ending March 31, 2012; with the remaining balance due on March 29, 2012. Substantially all domestic, tangible and intangible assets of ATK and its subsidiaries are pledged as collateral under the Senior Credit Facility. Borrowings under the Senior Credit Facility bear interest at a rate equal to the sum of a base rate (currently equal to the bank’s prime rate) or a Eurodollar rate plus an applicable margin, which is based on ATK’s senior secured credit ratings. The weighted average interest rate for the Term A Loan was 5.88% at September 30, 2007. The annual commitment fee in effect on the unused portion of ATK’s Revolving Credit Facility was 0.20% at September 30, 2007. As of September 30, 2007, ATK had $75,000 outstanding against its $500,000 revolving credit facility and had outstanding letters of credit of $95,469, which reduced amounts available on the revolving facility to $329,531. During the quarter and six months ended September 30, 2007, ATK’s weighted average interest rate on short-term borrowings was 6.58% and 6.71%, respectively. Debt issuance costs of approximately $3,000 are being amortized over the term of the Senior Credit Facility.
During March 2006, ATK terminated a $100,000 notional amount interest rate swap, resulting in a cash payout of $2,496. This amount is included in accumulated other comprehensive loss and is being amortized to interest expense, at a rate of $936 per year, through November 2008, the original maturity date of the swap.
In September 2006, ATK issued $300,000 aggregate principal amount of 2.75% Convertible Senior Subordinated Notes (the 2.75% Convertible Notes due 2011) that mature on September 15, 2011. Interest on these notes is payable on March 15 and September 15 of each year. Holders may convert their notes at a conversion rate of 10.3617 shares of ATK’s common stock per $1 principal amount of these notes (a conversion price of $96.51 per share) under the following circumstances: (1) during any fiscal quarter if the last reported sale price of ATK stock is greater than or equal to 130% of the conversion price, or $125.46, for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) upon the occurrence of certain corporate transactions; or (3) during the last month prior to maturity. ATK is required to satisfy 100% of the principal amount of these notes solely in cash, with any amounts above the principal amount to be satisfied in cash, common stock, or a combination of cash and common stock, at the sole election of ATK. If certain fundamental changes occur prior to maturity, ATK will in certain circumstances increase the conversion rate by a number of additional shares of common stock or, in lieu thereof, ATK may in certain circumstances elect to adjust the conversion rate and related conversion obligation so that these notes are convertible into shares of the acquiring or surviving company. These contingently issuable shares increased the number of ATK’s diluted shares outstanding during the quarter and six months ended September 30, 2007 by 274,846 and 145,547 shares, respectively, because ATK’s average stock price exceeded the conversion price during those periods. There was no impact on the diluted shares outstanding during the quarter or six months ended October 1, 2006 because ATK’s average stock price was below the conversion price during those periods. Debt issuance costs of approximately $7,200 are being amortized to interest expense over five years. Approximately $100,000 of the net proceeds from the issuance of these notes was used to concurrently repurchase 1,285,200 shares of ATK’s common stock.
26
In connection with the issuance of the 2.75% Convertible Notes due 2011, ATK purchased, at a cost of $50,850, call options (the Call Options) on its common stock. The Call Options, which become exercisable upon conversion of the related convertible notes, allow ATK to purchase approximately 3.1 million shares of ATK’s common stock and/or cash from the counterparty at an amount equal to the amount of common stock and/or cash related to the excess conversion value that ATK would pay to the holders of the related convertible notes upon conversion. For income tax reporting purposes, the related convertible notes and the Call Options are integrated. This creates an original issue discount for income tax reporting purposes, and therefore the cost of the Call Options will be accounted for as interest expense over the term of the convertible notes for income tax reporting purposes. The associated income tax benefits will be recognized in the period in which the deduction is taken for income tax reporting purposes as an increase in additional paid-in capital (APIC) in stockholders’ equity. In addition, ATK sold warrants (the Warrants) to issue approximately 3.3 million shares of ATK’s common stock at an exercise price of $116.75 per share. The proceeds from the sale of the Warrants totaled $23,220. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), and Emerging Issues Task Force (EITF) Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, ATK recorded the net cost of the Call Options and the Warrants of $27,630 in APIC and will not recognize any changes in the fair value of the instruments. On a combined basis, the Call Options and the Warrants are intended to reduce the potential dilution of ATK’s common stock in the event that the 2.75% Convertible Notes due 2011 are converted by effectively increasing the conversion price of these notes from $96.51 to $116.75. The Call Options are anti-dilutive and are therefore excluded from the calculation of diluted shares outstanding. The Warrants will result in additional diluted shares outstanding if ATK’s average common stock price exceeds $116.75. The Call Options and the Warrants are separate and legally distinct instruments that bind ATK and the counterparty and have no binding effect on the holders of the convertible notes.
In fiscal 2006, ATK issued $400,000 aggregate principal amount of 6.75% Senior Subordinated Notes (the 6.75% Notes) that mature on April 1, 2016. These notes are general unsecured obligations. Interest on these notes accrues at a rate of 6.75% per annum and is payable semi-annually 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 April 1, 2011, at specified redemption prices. Prior to April 1, 2011, 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 makewhole premium. In addition, prior to April 1, 2009, ATK may redeem up to 35% of the aggregate principal amount of these notes, at a price equal to 106.75% of their principal amount plus accrued and unpaid interest to the date of redemption, with the proceeds of certain equity offerings. Debt issuance costs related to these notes of approximately $7,700 are being amortized to interest expense over ten years.
In fiscal 2005, ATK issued $200,000 aggregate principal amount of 3.00% Convertible Senior Subordinated Notes (the 3.00% Convertible Notes) that mature on August 15, 2024. Interest on these notes is payable on February 15 and August 15 of each year. Starting with the period beginning on August 20, 2014 and ending on February 14, 2015, and for each of the six-month periods thereafter beginning on February 15, 2015, ATK will pay contingent interest during the applicable interest period if the average trading price of these notes on the five trading days ending on the third day immediately preceding the first day of the applicable interest period equals or exceeds 120% of the principal amount of these notes. The contingent interest payable per note within any applicable interest period will equal an annual rate of 0.30% of the average trading price of a note during the measuring period. The contingent interest feature is treated as an embedded derivative under SFAS No. 133, and the fair value of this feature was insignificant at September 30, 2007 and March 31, 2007. ATK may redeem some or all of these notes in cash at any time on or after August 20, 2014. Holders of these notes may require ATK to repurchase in cash some or all of these notes on August 15, 2014 and August 15, 2019. Holders may also convert their 3.00% Convertible Notes at a conversion rate of 12.5392 shares of ATK’s common stock per $1 principal amount of 3.00% Convertible Notes (a conversion price of $79.75 per share) under the following circumstances: (1) when, during any fiscal quarter, the last reported sale price of ATK stock is greater than or equal to 130% of the conversion price, or $103.68, for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) if ATK calls these notes for redemption; or (3) upon the occurrence of certain corporate transactions. The stock price condition was satisfied on September 17, 2007. Accordingly, the 3.00% Convertible Notes are now convertible at any time at the option of the holder from October 1, 2007 through December 30, 2007, and will remain convertible so long as ATK’s stock price continues to meet the 130%-of-conversion-price condition, as described above. As a result of the notes becoming convertible, the principal amount of $200,000 was reclassified to current liabilities on the consolidated balance sheet as of September 30, 2007. In addition, the unamortized debt issuance costs, which were previously being amortized through the first redemption date of these notes, of approximately $3,200 were written off during the quarter ended September 30, 2007. In fiscal 2005, ATK amended the indenture to require ATK to satisfy 100% of the principal amount of these notes solely in cash, with any amounts above the principal amount to be satisfied in cash, common stock, or a combination of cash and common stock, at the sole election of ATK. If certain fundamental changes occur on or prior to August 15, 2014, ATK will in certain circumstances increase the conversion rate by a number of additional shares of common stock or, in lieu thereof, ATK may in certain circumstances elect to adjust the conversion rate
27
and related conversion obligation so that these notes are convertible into shares of the acquiring or surviving company. These contingently issuable shares increased the number of ATK’s diluted shares outstanding during the quarter and six months ended September 30, 2007 by 618,731 and 532,531 shares, respectively, because ATK’s average stock price exceeded the conversion price during those periods. There was no impact on the diluted shares outstanding during the quarter or six months ended October 1, 2006 because ATK’s average stock price was below the conversion price during those periods.
In fiscal 2004, ATK issued $280,000 aggregate principal amount of 2.75% Convertible Senior Subordinated Notes (the 2.75% Convertible Notes due 2024) that mature on February 15, 2024. Interest on these notes is payable on February 15 and August 15 of each year. Starting with the period beginning on August 20, 2009 and ending on February 14, 2010, and for each of the six-month periods thereafter beginning on February 15, 2010, ATK will pay contingent interest during the applicable interest period if the average trading price of these notes on the five trading days ending on the third day immediately preceding the first day of the applicable interest period equals or exceeds 120% of the principal amount of these notes. The contingent interest payable per note within any applicable interest period will equal an annual rate of 0.30% of the average trading price of a note during the measuring period. The contingent interest feature is treated as an embedded derivative under SFAS No. 133, and the fair value of this feature was insignificant at September 30, 2007 and March 31, 2007. ATK may redeem some or all of these notes in cash at any time on or after August 20, 2009. Holders of these notes may require ATK to repurchase in cash some or all of these notes on August 15, 2009, February 15, 2014, or February 15, 2019. Holders may also convert their 2.75% Convertible Notes at a conversion rate of 12.5843 shares of ATK’s common stock per $1 principal amount of 2.75% Convertible Notes (a conversion price of $79.46 per share) under the following circumstances: (1) when, during any fiscal quarter, the last reported sale price of ATK stock is greater than or equal to 130% of the conversion price, or $103.30, for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) if ATK calls these notes for redemption; or (3) upon the occurrence of certain corporate transactions. The stock price condition was satisfied on September 17, 2007. Accordingly, the 2.75% Convertible Notes due 2024 are now convertible at any time at the option of the holder from October 1, 2007 through December 30, 2007, and will remain convertible so long as ATK’s stock price continues to meet the 130%-of-conversion-price condition, as described above. As a result of the notes becoming convertible, the principal amount of $280,000 was reclassified to current liabilities on the consolidated balance sheet as of September 30, 2007. In addition, the unamortized debt issuance costs, which were previously being amortized through the first redemption date of these notes, of approximately $2,400 were written off during the quarter ended September 30, 2007. In fiscal 2005, ATK amended the indenture to require ATK to satisfy 100% of the principal amount of these notes solely in cash, with any amounts above the principal amount to be satisfied in cash, common stock, or a combination of cash and common stock, at the sole election of ATK. These contingently issuable shares increased the number of ATK’s diluted shares outstanding during the quarter and six months ended September 30, 2007 by 878,851 and 758,172 shares, respectively, because ATK’s average stock price exceeded the conversion price during those periods. There was no impact on the diluted shares outstanding during the quarter or six months ended October 1, 2006 because ATK’s average stock price was below the conversion price during those periods.
The 3.00% Convertible Notes, the 2.75% Convertible Notes due 2024, the 2.75% Convertible Notes due 2011, and the 6.75% Notes rank equal in right of payment with each other and all of ATK’s future senior subordinated indebtedness and are subordinated in right of payment to all existing and future senior 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. Subsidiaries of ATK other than the subsidiary guarantors are minor. All of these guarantor subsidiaries are 100% owned by ATK. These guarantees are senior subordinated obligations of the applicable subsidiary guarantors.
Long-term debt maturities are as follows:
Remainder of fiscal 2008 |
| $ | 480,000 |
|
Fiscal 2009 |
| — |
| |
Fiscal 2010 |
| 13,750 |
| |
Fiscal 2011 |
| 13,750 |
| |
Fiscal 2012 |
| 622,500 |
| |
Thereafter |
| 400,000 |
| |
Total payments |
| $ | 1,530,000 |
|
Although the 2.75% Convertible Notes due 2024 and the 3.00% Convertible Notes do not contractually mature until 2024, these amounts are categorized as current in the consolidated balance sheet and within the “Remainder of fiscal 2008” category above as they are now convertible at the option of the holders, as discussed above.
28
ATK management does not believe the holders of the 2.75% Convertible Notes due 2024 and the 3.00% Convertible Notes will choose to convert their notes as the current market value exceeds the convertible value. Based on ATK’s current financial condition, management believes that cash generated from operating activities, combined with the availability of funding, if needed, under its revolving credit facilities ($329,531 available as of September 30, 2007), as well as through future sources of funding, including additional bank financing, accessing equity markets through its shelf registration as well as debt markets, will be adequate to fund its current and long-term debt obligations, including the potential conversion of these notes, make capital expenditures, and fund future growth at ATK over 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 71% as of September 30, 2007 and 72% as of March 31, 2007.
ATK’s Senior Credit Facility and the indentures governing the 6.75% Notes, the 2.75% Convertible Notes due 2024, the 2.75% Convertible Notes due 2011, and the 3.00% Convertible Notes impose restrictions on ATK, including limitations on its ability to incur additional debt, enter into capital leases, grant liens, pay dividends and make certain other payments, sell assets, or merge or consolidate with or into another entity. In addition, the Senior Credit Facility limits ATK’s ability to enter into sale-and-leaseback transactions. The Senior Credit Facility also requires that ATK meet and maintain specified financial ratios, including a minimum interest coverage ratio and a maximum consolidated leverage ratio. 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 Senior Credit Facility are subject to compliance with these covenants. As of September 30, 2007, ATK was in compliance with the covenants.
Moody’s Investors Service has assigned ATK an issuer rating of Ba3 with a stable outlook. Standard & Poor’s Ratings Services has assigned ATK a BB corporate credit rating with a stable outlook.
ATK has limited payment requirements under the Senior Credit Facility over the next few years. ATK’s other debt service requirements consist principally of interest expense on its long-term debt. As discussed above, additional cash may be required to repurchase or convert any or all of the convertible notes under certain circumstances. ATK’s short-term cash requirements for operations are expected to consist mainly of capital expenditures to maintain and expand production facilities and working capital requirements.
Shelf Registration. On March 2, 2006, ATK filed a shelf registration statement with the Securities and Exchange Commission allowing ATK to issue debt and/or equity securities at any time. As of September 30, 2007, ATK has the capacity to issue approximately 48.4 million shares of common stock and 5 million shares of preferred stock.
Interest Rate Swaps
ATK may use interest rate swaps to hedge forecasted interest payments and the risk associated with changing interest rates of long-term debt. ATK did not have any outstanding interest rate swaps as of September 30, 2007 or March 31, 2007.
Commodity Forward Contracts
ATK periodically uses derivatives to hedge certain commodity price risks. During the quarter and six months ended September 30, 2007, ATK had no such forward contracts. ATK did have such contracts for copper and zinc during the quarter and six months ended October 1, 2006. The contracts essentially established a fixed price for the underlying commodities and were designated and qualified as effective cash flow hedges of purchases of these commodities. Ineffectiveness was calculated as the amount by which the change in the fair value of the derivatives exceeded the change in the fair value of the anticipated commodity purchases. The fair value of these contracts was recorded as a current asset and the effective portion was reflected in accumulated other comprehensive (loss) income (OCI) in the financial statements. The gains on these contracts were recorded in cost of sales as the commodities were purchased. The following table summarizes the pre-tax activity in OCI related to these forward contracts during the quarter and six months ended October 1, 2006:
|
| Quarter Ended |
| Six Months Ended |
| ||
Beginning of period unrealized gain in accumulated OCI |
| $ | 15,652 |
| $ | 15,162 |
|
Increase in fair value of derivatives |
| 1,476 |
| 14,919 |
| ||
Gains reclassified from OCI, offsetting the price paid to suppliers |
| (13,739 | ) | (26,692 | ) | ||
End of period unrealized gain in accumulated OCI |
| $ | 3,389 |
| $ | 3,389 |
|
29
The amount of ineffectiveness recognized in earnings for these contracts during the quarter and six months ended October 1, 2006 was insignificant.
Share Repurchases
On January 31, 2006, ATK’s Board of Directors authorized the repurchase of an additional 5,000,000 shares through January 31, 2008. In February and March 2006, ATK repurchased 1,315,104 shares for $100,000. During fiscal 2007, ATK repurchased 2,585,200 shares for $201,880. During the quarter ended September 30, 2007, ATK repurchased 942,200 shares for $100,068. As of September 30, 2007, there were 157,496 remaining shares authorized to be repurchased.
Other Contractual Obligations
The total liability for uncertain tax positions under FIN 48 at September 30, 2007 was approximately $16,763 (see Note 10). Of this amount, $16,070 is not expected to be paid within twelve months and is therefore classified within other long-term liabilities.
There have been no material changes with respect to the contractual obligations, other than noted above, or off-balance sheet arrangements described in ATK’s Annual Report on Form 10-K for fiscal 2007.
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, to be material to its business or likely to result in a material adverse effect on its operating results, financial condition, or cash flows.
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.
On June 20, 2006, ATK was informed that the United States Department of Justice (DOJ) had opened a civil investigation into ATK’s LUU series illuminating flares. ATK was informed that the DOJ had received allegations that ATK knowingly delivered defective products. Further details regarding the investigation were not provided to ATK. On or about March 13, 2007, ATK received notice, for the first time, that the source and basis of the Government’s investigation was a qui tam complaint filed in federal court in Utah on or about April 10, 2006 by a former employee. Thereafter in June 2007, ATK was informed by the DOJ that it intended to intervene in the qui tam action and that it intends to file an amended complaint.
ATK cooperated with the investigation and voluntarily produced documents to the DOJ; however, ATK denies any allegations of improper conduct. Based on what is known to ATK about the subject matter of the DOJ investigation and the complaint, ATK does not believe that it has violated any law or regulation and believes it has valid defenses to all allegations of improper conduct. Although it is not possible at this time to predict the outcome of the litigation, ATK believes, based on all available information, that the outcome will not have a material adverse effect on its operating results, financial condition or cash flows.
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 damages 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 3.00% as of September 30, 2007 and March 31, 2007. The following is a summary of the amounts recorded for environmental remediation:
|
| September 30, 2007 |
| March 31, 2007 |
| ||||||||
|
| Liability |
| Receivable |
| Liability |
| Receivable |
| ||||
Undiscounted (liability) receivable |
| $ | (65,531 | ) | $ | 40,894 |
| $ | (65,603 | ) | $ | 40,587 |
|
Unamortized discount |
| 8,970 |
| (4,758 | ) | 8,513 |
| (4,490 | ) | ||||
Discounted (liability) receivable |
| $ | (56,561 | ) | $ | 36,136 |
| $ | (57,090 | ) | $ | 36,097 |
|
30
As of September 30, 2007, the estimated discounted range of reasonably possible costs of environmental remediation was $56,561 to $91,865.
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 below.
• As part of its acquisition of the Hercules Aerospace Company in fiscal 1995, ATK assumed responsibility for environmental compliance at the facilities acquired from Hercules (the Hercules Facilities). ATK believes that a portion of the compliance and remediation costs associated with the Hercules Facilities will be recoverable under U.S. Government contracts, and that those environmental remediation costs not recoverable under these contracts will be covered by Hercules Incorporated (Hercules) under environmental agreements entered into in connection with the Hercules acquisition. Under these agreements, Hercules has agreed to indemnify ATK for environmental conditions relating to releases or hazardous waste activities occurring prior to ATK’s purchase of the Hercules Facilities; fines relating to pre-acquisition environmental compliance; and environmental claims arising out of breaches of Hercules’s representations and warranties. Hercules is not required to indemnify ATK for any individual claims below $50. Hercules is obligated to indemnify ATK for the lowest cost response of remediation required at the facility that is acceptable to the applicable regulatory agencies. ATK is not responsible for conducting any remedial activities with respect to the Kenvil, NJ facility or the Clearwater, FL facility. In accordance with its agreement with Hercules, ATK notified Hercules of all known contamination on non-federal lands on or before March 31, 2000 and on federal lands on or before March 31, 2005.
• ATK generally assumed responsibility for environmental compliance at the Thiokol Facilities acquired from Alcoa Inc. in fiscal 2002. While ATK expects that a portion of the compliance and remediation costs associated with the acquired Thiokol Facilities will be recoverable under U.S. Government contracts, ATK has recorded an accrual to cover those environmental remediation costs at these facilities that will not be recovered through U.S. Government contracts. In accordance with its agreement with Alcoa, ATK notified Alcoa of all known environmental remediation issues as of January 30, 2004. Of these known issues, ATK is responsible for any costs not recovered through U.S. Government contracts at Thiokol Facilities up to $29,000, ATK and Alcoa have agreed to split evenly any amounts between $29,000 and $49,000, and ATK is responsible for any payments in excess of $49,000.
• With respect to the civil ammunition business’ facilities purchased from Blount in fiscal 2002, Blount has agreed to indemnify ATK for certain compliance and remediation liabilities, to the extent those liabilities are related to pre-closing environmental conditions at or related to these facilities. Some other remediation costs are expected to be paid directly by a third party pursuant to an existing indemnification agreement with Blount. Blount’s indemnification obligations relating to environmental matters, which extended through December 7, 2006, are capped at $30,000, less any other indemnification payments made for breaches of representations and warranties. The third party’s obligations, which extend through November 4, 2007, are capped at approximately $125,000, less payments previously made.
ATK cannot ensure that the U.S. Government, Hercules, Alcoa, Blount, or other third parties will reimburse it for any particular environmental costs or reimburse ATK in a timely manner or that any claims for indemnification will not be disputed. U.S. Government reimbursements for cleanups are financed out of a particular agency’s operating budget and the ability of a particular governmental agency to make timely reimbursements for cleanup costs will be subject to national budgetary constraints. ATK’s failure to obtain full or timely reimbursement from the U.S. Government, Hercules, Alcoa, Blount, or other third parties could have a material adverse effect on its operating results, financial condition, or cash flows. While ATK has environmental management programs in place to mitigate these risks, and environmental laws and regulations have not had a material adverse effect on ATK’s operating results, financial condition, or cash flows in the past, it is difficult to predict whether they will have a material impact in the future.
Other Contingencies. ATK is also subject to a number of other potential risks and contingencies. These risks and contingencies are described in Item 1A of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to the unaudited condensed consolidated financial statements in Item 1 of this report.
31
INFLATION AND COMMODITY PRICE RISK
In management’s opinion, inflation in general has not had a significant impact upon the results of ATK’s operations. The selling prices under contracts, the majority of which are long term, generally include estimated costs to be incurred in future periods. These cost projections can generally be negotiated into new buys under fixed-price government contracts, while actual cost increases are recoverable on cost-type contracts.
ATK, however, has been impacted by increases in the prices of raw materials used in production. In particular, the prices of commodity metals, such as copper, lead, and zinc, have significantly increased. These price increases generally impact our small caliber ammunition business.
With respect to ATK’s commercial ammunition business, ATK has improved manufacturing efficiencies and initiated price increases to mitigate the impact of increased commodity costs. ATK will continue to evaluate the need for future price increases in light of these trends, ATK’s competitive landscape, and its financial results. If commodity costs continue to increase, and if ATK is unable to offset these increases with ongoing manufacturing efficiencies and price increases, ATK’s future results from operations and cash flows would be materially impacted.
With respect to ATK’s firm fixed-price contract to supply the DoD’s small-caliber ammunition needs through April 1, 2010, significant increases in commodities can negatively impact operating results. Depending on market conditions, ATK has historically entered into futures contracts in order to reduce the impact of metal price fluctuations. The majority of ATK’s copper purchases under the small-caliber ammunition contract were hedged through September 30, 2006. Since that time, ATK has purchased a majority of the copper for use in this contract at prevailing market prices. Depending on market conditions, ATK will continue to evaluate commodity hedging as a means to reduce the impact of commodity price fluctuations. ATK continues to work within the terms of its contract to mitigate impacts from the increased cost of copper. Depending on the timing and outcome of these actions, the Ammunition Systems Group’s operating results could be adversely impacted.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion within Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in the section titled “Inflation and Commodity Price Risk”.
There have been no material changes in ATK’s market risk during the quarter or six months ended September 30, 2007. For additional information, refer to Item 7A of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of September 30, 2007, ATK’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of ATK’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) and have concluded that ATK’s disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed by ATK in reports that ATK files or submits under the Securities Exchange Act of 1934 and that such information is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports ATK files or submits is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2007, there were no changes in ATK’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, ATK’s internal control over financial reporting.
32
From time to time, ATK is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the ordinary conduct of ATK’s business. ATK does not consider any of such proceedings, individually or in the aggregate, to be material to its business or likely to result in a material adverse effect on its future operating results, financial condition, or cash flows.
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.
On June 20, 2006, ATK was informed that the United States Department of Justice (DOJ) had opened a civil investigation into ATK’s LUU series illuminating flares. ATK was informed that the DOJ had received allegations that ATK knowingly delivered defective products. Further details regarding the investigation were not provided to ATK. On or about March 13, 2007, ATK received notice, for the first time, that the source and basis of the Government’s investigation was a qui tam complaint filed in federal court in Utah on or about April 10, 2006 by a former employee. Thereafter in June 2007, ATK was informed by the DOJ that it intended to intervene in the qui tam action and that it intends to file an amended complaint.
ATK cooperated with the investigation and voluntarily produced documents to the DOJ; however, ATK denies any allegations of improper conduct. Based on what is known to ATK about the subject matter of the DOJ investigation and the complaint, ATK does not believe that it has violated any law or regulation and believes it has valid defenses to all allegations of improper conduct. Although it is not possible at this time to predict the outcome of the litigation, ATK believes, based on all available information, that the outcome will not have a material adverse effect on its operating results, financial condition or cash flows.
The description of certain environmental matters contained in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Contingencies,” is incorporated herein by reference.
While ATK attempts to identify, manage and mitigate risks and uncertainties associated with its business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007 describes some of the risks and uncertainties associated with its business. These risks and uncertainties have the potential to materially affect ATK’s business, financial condition, results of operations, cash flows, projected results and future prospects. ATK does not believe that there have been any material changes to the risk factors previously disclosed in the fiscal 2007 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
Period |
| Total Number |
| Average Price Paid per |
| Total Number of Shares |
| Maximum Number of |
| |
July 2 – July 29 |
| 443 |
| $ | 100.47 |
| — |
|
|
|
July 30 – August 26 |
| 942,448 |
| 106.21 |
| 942,200 |
|
|
| |
August 27 – September 30 |
| 165 |
| 105.69 |
| — |
|
|
| |
Fiscal quarter ended September 30, 2007 |
| 943,056 |
| $ | 106.20 |
| — |
| 157,496 |
|
(1) Of the shares purchased, 856 shares purchased represent shares withheld to pay taxes upon vesting of restricted stock, which shares were issued under ATK’s stock-based incentive compensation plans.
33
(2) On January 31, 2006, ATK’s Board of Directors authorized the repurchase of an additional 5,000,000 shares through January 31, 2008. In February and March 2006, ATK repurchased 1,315,104 shares for $100 million. During fiscal 2007, ATK repurchased 2,585,200 shares for $202 million. During the quarter ended September 30, 2007, ATK repurchased 942,200 shares for $100 million. As of September 30, 2007, there were 157,496 remaining shares authorized to be repurchased.
The discussion of limitations upon the payment of dividends as a result of the indentures governing ATK’s debt instruments as discussed in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Debt,” is incorporated herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On July 31, 2007, ATK held its annual meeting of stockholders.
(b) At the annual meeting, the stockholders elected the following persons as directors to serve until the next annual meeting of stockholders: Frances D. Cook, Martin C. Faga, Ronald R. Fogleman, Cynthia L. Lesher, Douglas L. Maine, Roman Martinez IV, Daniel J. Murphy, Mark H. Ronald, Michael T. Smith, and William G. Van Dyke.
(c) At the annual meeting, the stockholders voted upon the following proposals: (1) election of ten directors, (2) ratification of the appointment of Deloitte & Touche LLP as ATK’s independent registered public accounting firm for the fiscal year ending March 31, 2008, (3) approval of an amendment and restatement of the Alliant Techsystems Inc. 2005 Stock Incentive Plan, and (4) a stockholder proposal (Report on Depleted Uranium Weapons and Components). The voting results are as follows:
Proposal Number 1: Election of Directors
|
| For |
| Withheld |
|
Frances D. Cook |
| 31,249,418 |
| 269,789 |
|
|
|
|
|
|
|
Martin C. Faga |
| 31,323,034 |
| 196,173 |
|
|
|
|
|
|
|
Ronald R. Fogleman |
| 31,232,855 |
| 286,352 |
|
|
|
|
|
|
|
Cynthia L. Lesher |
| 31,248,559 |
| 270,648 |
|
|
|
|
|
|
|
Douglas L. Maine |
| 31,258,690 |
| 260,517 |
|
|
|
|
|
|
|
Roman Martinez IV |
| 31,304,265 |
| 214,942 |
|
|
|
|
|
|
|
Daniel J. Murphy |
| 31,166,446 |
| 352,761 |
|
|
|
|
|
|
|
Mark H. Ronald |
| 31,327,109 |
| 192,098 |
|
|
|
|
|
|
|
Michael T. Smith |
| 31,241,084 |
| 278,123 |
|
|
|
|
|
|
|
William G. Van Dyke |
| 31,317,230 |
| 201,977 |
|
Proposal Number 2: Ratification of the appointment of Deloitte & Touche LLP as ATK’s independent registered public accounting firm for the fiscal year ending March 31, 2008
For |
| Against |
| Abstain |
| Broker Non-Votes |
|
31,325,609 |
| 136,319 |
| 57,277 |
| — |
|
34
Proposal Number 3: Approval of an Amendment and Restatement of the Alliant Techsystems Inc. 2005 Stock Incentive Plan
For |
| Against |
| Abstain |
| Broker Non-Votes |
|
26,000,416 |
| 2,944,364 |
| 157,424 |
| 2,417,002 |
|
Proposal Number 4: Stockholder proposal – Report on Depleted Uranium Weapons and Components
For |
| Against |
| Abstain |
| Broker Non-Votes |
|
1,302,925 |
| 25,755,837 |
| 5,043,442 |
| 2,417,002 |
|
None.
35
ITEM 6. EXHIBITS
Exhibit |
| Description of Exhibit (and document from |
10.1 |
| Alliant Techsystems Inc. 2005 Stock Incentive Plan (As Amended and Restated Effective July 31, 2007) (incorporated by reference to Exhibit 10.1 to Form 8-K dated July 31, 2007). |
10.2 |
| Alliant Techsystems Inc. Nonqualified Deferred Compensation Plan, as Amended and Restated Effective January 1, 2005, as Further Adopted on September 6, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K/A dated September 6, 2007). |
31.1 |
| Rule 13a-14(a) Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
| Rule 13a-14(a) Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32 |
| Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
| ALLIANT TECHSYSTEMS INC. | |
|
|
|
| |
|
|
|
| |
Date: November 2, 2007 | By: |
| /s/ John L. Shroyer |
|
| Name: |
| John L. Shroyer | |
| Title: |
| Senior Vice President and Chief Financial Officer | |
|
|
| (On behalf of the Registrant and as principal financial and |
36