Orbital Atk 10Q 2014 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2013

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-10582

Alliant Techsystems Inc.

(Exact name of Registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		41-1672694 (I.R.S. Employer Identification No.)
1300 Wilson Boulevard, Suite 400
Arlington, Virginia		22209-2307
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (703) 412-5960

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer ý	Accelerated Filer o	Non-Accelerated Filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of November 4, 2013, there were 31,846,405 shares of the registrant's voting common stock outstanding.

TABLE OF CONTENTS

Table of Contents

PART I— FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALLIANT TECHSYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



	QUARTERS ENDED						SIX MONTHS ENDED
(Amounts in thousands except per share data)	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012
Sales	$	1,142,381		$	1,069,787		$	2,221,122		$	2,152,089
Cost of sales	874,955			841,520			1,711,685			1,674,199
Gross profit	267,426			228,267			509,437			477,890
Operating expenses:
Research and development	11,801			15,914			22,226			29,921
Selling	46,899			39,609			89,664			80,136
General and administrative	60,460			62,187			123,658			126,588
Income before interest, loss on extinguishment of debt, income taxes, and noncontrolling interest	148,266			110,557			273,889			241,245
Interest expense	(15,242		)	(18,098		)	(29,132		)	(37,913		)
Interest income	23			123			91			187
Loss on extinguishment of debt	—			(11,773		)	—			(11,773		)
Income before income taxes and noncontrolling interest	133,047			80,809			244,848			191,746
Income tax provision	40,376			15,640			80,037			55,637
Net income	92,671			65,169			164,811			136,109
Less net income attributable to noncontrolling interest	80			108			183			220
Net income attributable to Alliant Techsystems Inc.	$	92,591		$	65,061		$	164,628		$	135,889
Alliant Techsystems Inc. earnings per common share:
Basic	$	2.92		$	2.01		$	5.18		$	4.18
Diluted	$	2.86		$	2.00		$	5.10		$	4.16
Cash dividends paid per share	$	0.26		$	0.20		$	0.52		$	0.40
Alliant Techsystems Inc. weighted-average number of common shares outstanding:
Basic	31,671			32,406			31,781			32,519
Diluted	32,385			32,591			32,256			32,685

Net Income (from above)	$	92,671		$	65,169		$	164,811		$	136,109
Other comprehensive income (loss), net of tax:
Pension and other postretirement benefit liabilities:
Reclassification of prior service credits for pension and postretirement benefit plans recorded to net income, net of tax benefit of $2,790, $841, $5,620, and $1,683	(4,552		)	(1,352		)	(9,063		)	(2,703		)
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(14,077), $(12,297), and $(28,396) $(24,619)	22,968			19,501			45,694			39,041
Valuation adjustment for pension and postretirement benefit plans, net of tax (expense) benefit of $0, $0, $0, and $(732)	—			—			—			1,268
Change in fair value of derivatives, net of tax benefit (expense) of $(2,097), $(1,971), $1,721 and $847, respectively	3,222			3,073			(2,759		)	(1,334		)
Change in fair value of available-for-sale securities, net of tax benefit of $52, $91, $64, and $148, respectively	(83		)	(142		)	(103		)	(232		)
Total other comprehensive income	$	21,555		$	21,080		$	33,769		$	36,040

Comprehensive income	114,226			86,249			198,580			172,149
Less comprehensive income attributable to noncontrolling interest	80			108			183			220
Comprehensive income attributable to Alliant Techsystems Inc.	$	114,146		$	86,141		$	198,397		$	171,929

See Notes to the Condensed Consolidated Financial Statements.

Table of Contents

ALLIANT TECHSYSTEMS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)



(Amounts in thousands except share data)	September 29, 2013			March 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	112,911		$	417,289
Net receivables	1,391,320			1,312,573
Net inventories	392,021			315,064
Income tax receivable	—			22,066
Deferred income tax assets	61,906			106,566
Other current assets	49,965			45,174
Total current assets	2,008,123			2,218,732
Net property, plant, and equipment	625,277			602,320
Goodwill	1,411,831			1,251,536
Noncurrent deferred income tax assets	65,936			95,007
Deferred charges and other non-current assets	334,191			215,415
Total assets	$	4,445,358		$	4,383,010
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	334,996		$	50,000
Accounts payable	216,639			337,713
Contract advances and allowances	110,735			119,491
Accrued compensation	90,574			137,630
Accrued income taxes	16,154			—
Other accrued liabilities	314,632			262,021
Total current liabilities	1,083,730			906,855
Long-term debt	820,000			1,023,877
Postretirement and postemployment benefits liabilities	87,955			94,087
Accrued pension liability	679,633			719,172
Other long-term liabilities	118,429			126,458
Total liabilities	2,789,747			2,870,449
Commitments and contingencies (Notes 16)
Common stock—$.01 par value:
Authorized—180,000,000 shares, Issued and outstanding—31,857,974 shares at September 29, 2013 and 32,318,295 shares at March 31, 2013	319			323
Additional paid-in-capital	535,015			534,137
Retained earnings	2,631,432			2,483,483
Accumulated other comprehensive loss	(794,535		)	(828,304		)
Common stock in treasury, at cost—9,697,475 shares held at September 29, 2013 and 9,237,154 shares held at March 31, 2013	(727,195		)	(687,470		)
Total Alliant Techsystems Inc. stockholders' equity	1,645,036			1,502,169
Noncontrolling interest	10,575			10,392
Total equity	1,655,611			1,512,561
Total liabilities and equity	$	4,445,358		$	4,383,010

See Notes to the Condensed Consolidated Financial Statements.

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ALLIANT TECHSYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



	SIX MONTHS ENDED
(Amounts in thousands)	September 29, 2013			September 30, 2012
Operating Activities
Net income	$	164,811		$	136,109
Adjustments to net income to arrive at cash used for operating activities:
Depreciation	46,442			52,518
Amortization of intangible assets	7,106			5,735
Amortization of debt discount	3,619			3,378
Amortization of deferred financing costs	1,798			1,979
Deferred income taxes	3,577			(5,330		)
Loss on extinguishment of debt	—			11,773
Loss on disposal of property	1,581			576
Share-based plans expense	6,308			6,437
Excess tax benefits from share-based plans	(713		)	—
Changes in assets and liabilities:
Net receivables	(44,550		)	45,251
Net inventories	(40,458		)	(40,102		)
Accounts payable	(129,474		)	(118,345		)
Contract advances and allowances	(8,756		)	(1,818		)
Accrued compensation	(49,880		)	(19,965		)
Accrued income taxes	27,983			2,181
Pension and other postretirement benefits	13,735			(68,833		)
Other assets and liabilities	39,424			(44,332		)
Cash provided by (used for) operating activities	42,553			(32,788		)
Investing Activities
Capital expenditures	(52,262		)	(40,182		)
Acquisition of business, net of cash acquired	(313,963		)	—
Proceeds from the disposition of property, plant, and equipment	5,363			19
Cash used for investing activities	(360,862		)	(40,163		)
Financing Activities
Borrowings on line of credit	235,000			—
Repayments of line of credit	(145,000		)	—
Payments made on bank debt	(12,500		)	(10,000		)
Payments made to extinguish debt	—			(409,000		)
Proceeds from issuance of long-term debt	—			200,000
Payments made for debt issue costs	—			(1,458		)
Purchase of treasury shares	(48,259		)	(24,997		)
Dividends paid	(16,679		)	(13,064		)
Proceeds from employee stock compensation plans	656			—
Excess tax benefits from share-based plans	713			—
Cash provided by (used for) financing activities	13,931			(258,519		)
Decrease in cash and cash equivalents	(304,378		)	(331,470		)
Cash and cash equivalents at beginning of period	417,289			568,813
Cash and cash equivalents at end of period	$	112,911		$	237,343
Supplemental Cash Flow Disclosures:
Noncash investing activity:
Capital expenditures included in accounts payable	$	2,775		$	1,962
Noncash financing activity:
Treasury Shares purchased included in other accrued liabilities	$	1,140		$	—

See Notes to the Condensed Consolidated Financial Statements.

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ALLIANT TECHSYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)



	Common Stock $.01 Par Value
(Amounts in thousands except share data)	Shares		Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interest		Total Equity
For the six months ended September 29, 2013
Balance, March 31, 2013	32,318,295		$	323		$	534,137		$	2,483,483		$	(828,304	)	$	(687,470	)	$	10,392	$	1,512,561
Comprehensive income									164,628			33,769						183		198,580
Exercise of stock options	11,873		—			(227		)	—			—			883			—		656
Restricted stock grants	74,162		—			(5,969		)	—			—			5,969			—		—
Share-based compensation	—		—			6,308			—			—			—			—		6,308
Treasury Stock Purchased	(574,669	)	—			—			—			—			(48,259		)	—		(48,259		)
Performance shares issued net of treasury stock withheld	31,618		—			(3,541		)	—			—			2,329			—		(1,212		)
Tax benefit related to share based plans and other	—		—			3,934			—			—			—			—		3,934
Dividends paid	—		—			—			(16,679		)	—			—			—		(16,679		)
Employee benefit plans and other	(3,305	)	(4		)	373			—			—			(647		)	—		(278		)
Balance, September 29, 2013	31,857,974		$	319		$	535,015		$	2,631,432		$	(794,535	)	$	(727,195	)	$	10,575	$	1,655,611

For the six months ended September 30, 2012
Balance, March 31, 2012	33,142,408		$	332		$	537,921		$	2,241,711		$	(910,598	)	$	(642,571	)	$	9,956	$	1,236,751
Comprehensive income									135,889			36,040						220		172,149
Exercise of stock options	—		—			—			—			—			—			—		—
Restricted stock grants	(4,771	)	—			(1,334		)	—			—			1,334			—		—
Share-based compensation	—		—			6,437			—			—			—			—		6,437
Treasury stock purchased	(482,044	)	—			—			—			—			(24,997		)	—		(24,997		)
Performance shares issued net of treasury stock withheld	17,884		—			(2,174		)	—			—			1,635			—		(539		)
Tax benefit related to share based plans and other	—		—			2,184			—			—			—			—		2,184
Dividends paid	—		—			—			(13,064		)	—			—			—		(13,064		)
Employee benefit plans and other	(6,315	)	(5		)	1,330			—			—			(1,625		)	—		(300		)
Balance, September 30, 2012	32,667,162		$	327		$	544,364		$	2,364,536		$	(874,558	)	$	(666,224	)	$	10,176	$	1,378,621

See Notes to the Condensed Consolidated Financial Statements.

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ALLIANT TECHSYTEMS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Quarter and Six Months Ended September 29, 2013

(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, 2013 (“fiscal 2013”). 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 29, 2013, and its results of operations for the quarters and six months ended September 29, 2013 and September 30, 2012, and cash flows for the six months ended September 29, 2013 and September 30, 2012.

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

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in its fiscal 2013 Annual Report on Form 10-K.

2. New Accounting Pronouncements

On February 5, 2013, the FASB issued ASU 2013-02 Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income was issued requiring additional disclosure of items reclassified from other comprehensive income (loss) to net income. This guidance is effective for periods beginning after December 15, 2012 and early application was permitted. ATK has implemented this guidance. Refer to the Note 8 for further detail.

3. Fair Value of Financial Instruments

The current authoritative guidance on fair value clarifies the definition of fair value, prescribes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about the use of fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The valuation techniques required by the current authoritative literature are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

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

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3—Significant inputs to the valuation model are unobservable.

The following section describes the valuation methodologies used by ATK to measure its financial instruments at fair value.

Investments in marketable securities—ATK's investments in marketable securities represent investments held in a common collective trust ("CCT") that primarily invests in fixed income securities which are used to pay benefits under a nonqualified supplemental executive retirement plan for certain executives and highly compensated employees. Investments in a collective investment vehicle are valued by multiplying the investee company's net asset value per share with the number of units or shares owned at the valuation date as determined by the investee company. Net asset value per share is determined by the investee company's custodian or fund administrator by deducting from the value of the assets of the investee company all its liabilities and the resulting number is divided by the outstanding number of shares or units. Investments held by the CCT, including collateral invested for securities on loan, are valued on the basis of valuations furnished by a pricing service approved

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

3. Fair Value of Financial Instruments (Continued)

by the CCT's investment manager, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the CCT's investment manager. The fair value of these securities is included within other current assets and deferred charges and other non-current assets on the consolidated balance sheet.

Derivative financial instruments and hedging activities—In order to manage its exposure to commodity pricing, interest rate risk, and foreign currency risk, ATK periodically utilizes commodity, interest rate, and foreign currency derivatives, which are considered Level 2 instruments. As discussed further in Note 7, ATK has outstanding commodity forward contracts that were entered into to hedge forecasted purchases of copper and zinc. Commodity derivatives are valued based on prices of futures exchanges and recently reported transactions in the marketplace. During the second quarter of fiscal 2014 ATK entered into three interest rate swaps. These swaps are valued based on the interest rates of the future LIBOR rates and the established fixed rate based primarily on quotes from banks. Foreign currency derivatives are valued based on observable market transactions of spot currency rates and forward currency prices. No foreign currency derivatives were outstanding as of September 29, 2013.

Long-Term Debt—The fair value of the variable-rate long-term debt is calculated based on current market rates for debt of the same risk and maturities. The fair value of the fixed-rate debt is based on market quotes for each issuance. We have considered these to be Level 2 instruments.

The following table sets forth by level within the fair value hierarchy ATK's financial assets and liabilities that are measured at fair value on a recurring basis:



	As of September 29, 2013
	Fair Value Measurements Using Inputs Considered as
	Level 1		Level 2		Level 3
Assets
Marketable securities	$	—	$	9,703	$	—
Derivatives	—		160		—
Liabilities
Derivatives	$	—	$	9,547	$	—



	As of March 31, 2013
	Fair Value Measurements Using Inputs Considered as
	Level 1		Level 2		Level 3
Assets
Marketable securities	$	—	$	8,634	$	—
Derivatives	—		—		—
Liabilities
Derivatives	$	—	$	3,530	$	—

The following table presents ATK's assets and liabilities that are not measured at fair value on a recurring basis. The carrying values and estimated fair values were as follows:



	As of September 29, 2013				As of March 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed rate debt	$	542,496	$	638,966	$	538,877	$	596,467
Variable rate debt	612,500		611,194		535,000		534,513

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

4. Acquisitions

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

On June 21, 2013, ATK acquired Caliber Company, parent company of Savage Sports Corporation ("Savage"), a leading manufacturer of sporting long guns. Operating under the brand names of Savage Arms, Stevens and Savage Range Systems, the company designs, manufactures and markets centerfire and rimfire rifles, shotguns and shooting range systems used for hunting as well as competitive and recreational target shooting. The purchase price was $315,000 net of cash acquired, and is subject to purchase price adjustments expected to be settled in fiscal 2014. ATK believes the acquisition complements ATK's growing portfolio of leading consumer brands and will allow us to build upon our offerings with Savage's prominent, respected brands known for accuracy, quality, innovation, value and craftsmanship. Savage's sales distribution channels, new product development, and sophistication in manufacturing will significantly increase ATK's presence with a highly relevant product offering to distributors, retailers and consumers. Savage employs approximately 600 employees and is included in the Sporting Group. The purchase price allocation will be completed in fiscal 2014. None 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 Savage are included in ATK’s consolidated financial statements at the date of acquisition. The purchase price for the acquisition will be allocated to the acquired assets and liabilities based on estimated fair value. Pro forma information on the results of operations for fiscal 2013 as if the acquisition had occurred at the beginning of fiscal 2013 is not being presented because the acquisition is not material to ATK for that purpose. Subsequent to June 21, 2013, ATK has recorded sales of approximately $62,988 for the fiscal year 2014 and $56,607 for the quarter ended September 29, 2013 and income before interest, loss on extinguishment of debt, income taxes, and noncontrolling interest of approximately $5,621 for the fiscal year 2014 and $4,921 for the quarter ended September 29, 2013 associated with the operations of this acquired business which reflects the expense of the inventory step-up cost of $9,000 and $7,809 for inventory sold in the six months and quarter ended September 29, 2013, respectively.

There were no acquisitions during fiscal 2013.

5. Goodwill and Deferred Charges and Other Non-Current Assets

The changes in the carrying amount of goodwill by segment were as follows:



	Aerospace Group		Defense Group		Sporting Group		Total
Balance, March 31, 2013	$	676,516	$	366,947	$	208,073	$	1,251,536
Acquisitions	—		—		160,295		160,295
Balance at September 29, 2013	$	676,516	$	366,947	$	368,368	$	1,411,831

The acquisition in the Sporting Group related to the preliminary purchase price allocation for Savage as previously discussed.

The goodwill recorded within Aerospace Group above is presented net of $108,500 of accumulated impairment losses.

Deferred charges and other non-current assets consist of the following:

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

5. Goodwill and Deferred Charges and Other Non-Current Assets (Continued)



	September 29, 2013			March 31, 2013
Gross debt issuance costs	$	21,341		$	21,341
Less accumulated amortization	(10,287		)	(8,489		)
Net debt issuance costs	11,054			12,852
Other intangible assets	229,847			109,954
Parts inventory	10,510			10,886
Environmental remediation receivable	25,878			28,254
Other non-current assets	56,902			53,469
Total deferred charges and other non-current assets	$	334,191		$	215,415

Included in deferred charges and other non-current assets in the table above as of September 29, 2013 and March 31, 2013 are $109,197 and $38,998, respectively, of other intangible assets consisting of trademarks and brand names that are not being amortized as their estimated useful lives are considered indefinite and amortizing assets as follows:



	September 29, 2013							March 31, 2013
	Gross carrying amount		Accumulated amortization			Total		Gross carrying amount		Accumulated amortization			Total
Trade name	$	78,960	$	(16,042	)	$	62,918	$	66,060	$	(13,531	)	$	52,529
Patented technology	17,400		(8,435		)	8,965		17,400		(7,230		)	10,170
Customer relationships and other	78,085		(29,318		)	48,767		34,185		(25,928		)	8,257
Total	$	174,445	$	(53,795	)	$	120,650	$	117,645	$	(46,689	)	$	70,956

The gross amount of intangible assets increased from March 31, 2013 due to the acquisition of Savage. The assets in the table above are being amortized using a straight-line method over a weighted average remaining period of approximately 9.3 years. Amortization expense for the quarter and six months ended September 29, 2013 was $4,372 and $7,106 respectively. Amortization expense for the quarter and six months ended September 30, 2012 was $2,752 and $5,735, respectively. ATK expects amortization expense related to these assets to be as follows:



Remainder of fiscal 2014	$	8,546
Fiscal 2015	16,204
Fiscal 2016	14,607
Fiscal 2017	12,317
Fiscal 2018	12,317
Thereafter	56,659
Total	$	120,650

6. Earnings Per Share Data

Basic earnings per share ("EPS") is computed based upon the weighted average number of common shares outstanding for each period. Diluted EPS is computed based on the weighted average number of common shares and common equivalent shares. Common equivalent shares represent the effect of stock-based awards and contingently issuable shares related to ATK's Convertible Senior Subordinated Notes (see Note 12) during each period presented, which, if exercised, earned, or converted, would have a dilutive effect on EPS. In computing EPS for the quarter and six months ended September 29, 2013 and September 30, 2012 earnings, as reported for each respective period, is divided by (in thousands):

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

6. Earnings Per Share Data (Continued)



	Quarters Ended		Six months ended
	September 29, 2013	September 30, 2012	September 29, 2013	September 30, 2012
Basic EPS shares outstanding	31,671	32,406	31,781	32,519
Dilutive effect of stock-based awards	224	185	222	166
Dilutive effect of contingently issuable shares	490	—	253	—
Diluted EPS shares outstanding	32,385	32,591	32,256	32,685
Shares excluded from the calculation of diluted EPS because the option exercise/threshold price was greater than the average market price of the common shares	3	152	8	152

As discussed further in Note 12, contingently issuable shares related to ATK’s 3.00% Convertible Senior Subordinated Notes due 2024 are not included in diluted EPS for the three or six months periods ending September 30, 2012 because ATK’s average stock price during these periods did not exceed the triggering price.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

7. Derivative Financial Instruments

ATK is exposed to market risks arising from adverse changes in:


•	commodity prices affecting the cost of raw materials and energy,


•	interest rates, and


•	foreign exchange risks

In the normal course of business, these risks are managed through a variety of strategies, including the use of derivative instruments. Commodity forward contracts are periodically used to hedge forecasted purchases of certain commodities, foreign currency exchange contracts are used to hedge forecasted transactions denominated in a foreign currency, and ATK periodically uses interest rate swaps to hedge forecasted interest payments and the risk associated with variable interest rates on long-term debt.

ATK entered into forward contracts for copper and zinc during fiscal 2014 and 2013. The contracts essentially establish a fixed price for the underlying commodity and are designated and qualify as effective cash flow hedges of purchases of the commodity. Ineffectiveness is calculated as the amount by which the change in the fair value of the derivatives exceeds the change in the fair value of the anticipated commodity purchases.

ATK entered into interest rate swaps in the second quarter of fiscal 2014 whereby we pay a fixed rate on a total notional amount of $300,000 and receive one-month LIBOR. The fair value of interest rate swap agreements approximates the amount at which they could be settled, based on estimates obtained from the counterparties. We assess the effectiveness of our hedge instruments on a quarterly basis. We performed periodic assessments of the cash flow hedge instruments during second quarter of fiscal 2014 and determined the hedges to be highly effective. The counterparties to the interest rate swap agreements expose us to credit risk in the event of nonperformance. However, at September 29, 2013, each outstanding swap agreement was in a net liability position which would require us to make the net settlement payments to the counterparties. We do not anticipate nonperformance by our counterparties. We do not hold or issue derivative financial instruments for trading purposes.

ATK has not entered into any foreign currency forward contracts during fiscal 2014 or 2013. Contracts entered prior to fiscal 2013 were used to hedge forecasted inventory purchases and subsequent payments, or customer receivables, denominated in foreign currencies and were designated and qualified as effective cash flow hedges. Ineffectiveness with respect to forecasted inventory purchases was calculated based on changes in the forward rate until the anticipated purchase occurs; ineffectiveness of the hedge of the accounts payable was evaluated based on the change in fair value of its anticipated settlement.

The fair value of the commodity, interest rate, and foreign currency forward contracts are recorded within other assets or liabilities, as appropriate, and the effective portion is reflected in accumulated Other Comprehensive Income (Loss) in the financial statements. The gains or losses on the commodity forward contracts are recorded in inventory as the commodities are purchased. The gains or losses on the foreign currency forward contracts are recorded in earnings when the related inventory is sold. The gains or losses on the interest rate swaps are recorded in interest expense when the interest payments are made.

As of September 29, 2013, ATK had the following outstanding commodity forward contracts that were entered into to hedge forecasted purchases:



	Number of Pounds
Copper	22,861,000
Zinc	9,104,000

As of September 29, 2013, ATK had three outstanding forward starting interest rate swaps on notional amounts of $100,000 each with maturity dates of August 30, 2016, 2017, and 2018. See footnote 12 for additional information.

As of September 29, 2013, ATK had no outstanding foreign currency forward contracts in place.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

7. Derivative Financial Instruments (continued)

The table below presents the fair value and location of ATK's derivative instruments designated as hedging instruments in the consolidated balance sheet as of the periods presented.



		Asset Derivatives Fair value as of				Liability Derivatives Fair value as of
	Location	September 29, 2013		March 31, 2013		September 29, 2013		March 31, 2013
Commodity forward contracts	Other current assets / other accrued liabilities	$	160	$	—	$	6,266	$	2,871
Commodity forward contracts	Deferred charges and other non-current assets / other long term liabilities	—		—		—		659
Interest rate contracts	Deferred charges and other non-current assets / other long term liabilities	$	—	$	—	$	3,281	$	—
Total		$	160	$	—	$	9,547	$	3,530

Due to the nature of ATK's business, the benefits associated with the commodity contracts may be passed on to the customer and not realized by ATK.

For the periods presented below, the derivative gains and losses in the consolidated income statements related to commodity forward contracts, interest rate swaps, and foreign currency forward contracts were as follows:



	Pretax amount of gain (loss) reclassified from Accumulated Other Comprehensive Income (Loss)				Gain or (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
	Location	Amount			Location	Amount
Quarter ended September 29, 2013
Commodity forward contracts	Cost of Sales	$	(642	)	Cost of Sales	$	—
Interest rate contracts	Interest expense	—			Interest expense	—
Foreign currency forward contracts	Cost of Sales	—			Cost of Sales	—
Quarter ended September 30, 2012
Commodity forward contracts	Cost of Sales	$	(2,518	)	Cost of Sales	$	—
Interest rate contracts	Interest expense	—			Interest expense	—
Foreign currency forward contracts	Cost of Sales	(30		)	Cost of Sales	—

Six months ended September 29, 2013
Commodity forward contracts	Cost of Sales	$	(1,608	)	Cost of Sales	$	(1,637	)
Interest rate contracts	Interest expense	—			Interest expense	—
Foreign currency forward contracts	Cost of Sales	—			Cost of Sales	—
Six months ended September 30, 2012
Commodity forward contracts	Cost of Sales	$	(3,962	)	Cost of Sales	$	—
Interest rate contracts	Interest expense	—			Interest expense	—
Foreign currency forward contracts	Cost of Sales	(30		)	Cost of Sales	—

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

During the quarter and six months ended September 29, 2013 there was a loss of $0 and $1,637 recognized in earnings as a result of ineffectiveness on forward contracts for copper and zinc. ATK expects that the remaining unrealized losses will be realized and reported in cost of sales as the cost of the commodities is included in cost of sales. Estimated and actual gains or losses will change as market prices change.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

8. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive income (loss) ("AOCI"), net of income taxes, are as follows:



	September 29, 2013			March 31, 2013
Derivatives	$	(4,951	)	$	(2,192	)
Pension and other postretirement benefit liabilities	(790,267		)	(826,898		)
Available-for-sale securities	683			786
Total accumulated other comprehensive loss	$	(794,535	)	$	(828,304	)

The following table summarizes the changes in the balance of AOCI, net of income tax:



	Quarter ended September 29, 2013												Six months ended September 29, 2013
	Derivatives			Pension and other Postretire-ment Benefits			Available for Sale Securities			Total			Derivatives			Pension and other Postretire-ment Benefits			Available for Sale Securities			Total
Beginning of period unrealized gain (loss) in accumulated OCI	$	(8,173	)	$	(808,683	)	$	766		$	(816,090	)	$	(2,192	)	$	(826,898	)	$	786		$	(828,304	)
Net decrease in fair value of derivatives	2,827			—			—			2,827			(4,743		)	—			—			(4,743		)
Net losses reclassified from AOCI, offsetting the price paid to suppliers ±	395			—			—			395			985			—			—			985
Net losses reclassified from AOCI, due to ineffectiveness ±	—			—			—			—			999			—			—			999
Net actuarial losses reclassified from AOCI #	—			22,968			—			22,968			—			45,694			—			45,694
Prior service costs reclassified from AOCI #	—			(4,552		)	—			(4,552		)	—			(9,063		)	—			(9,063		)
Other	—			—			(83		)	(83		)	—			—			(103		)	(103		)
End of period unrealized loss in accumulated OCI	$	(4,951	)	$	(790,267	)	$	683		$	(794,535	)	$	(4,951	)	$	(790,267	)	$	683		$	(794,535	)

± Amounts related to our derivative instruments that were reclassified from AOCI were recorded as a component of cost of sales for each period presented.

# Amounts related to our pension and other postretirement benefits that were reclassified from AOCI were recorded as a component of net periodic benefit cost for each period presented (Note 13).

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

8. Accumulated Other Comprehensive Income (Continued)



	Quarter ended September 30, 2012												Six months ended September 30, 2012
	Derivatives			Pension and other Postretire-ment Benefits			Available for Sale Securities			Total			Derivatives			Pension and other Postretire-ment Benefits			Available for Sale Securities			Total
Beginning of period unrealized gain (loss) in accumulated OCI	$	(991	)	$	(895,553	)	$	906		$	(895,638	)	$	3,416		$	(913,742	)	$	996		$	(909,330	)
Net decrease in fair value of derivatives	1,523			—			—			1,523			(3,766		)	—			—			(3,766		)
Net losses reclassified from OCI, offsetting the price paid to suppliers ±	1,550			—			—			1,550			2,432			—			—			2,432
Net actuarial losses reclassified from AOCI #	—			19,501			—			19,501			—			39,041			—			39,041
Prior service costs reclassified from AOCI #	—			(1,352		)	—			(1,352		)	—			(2,703		)	—			(2,703		)
Other	—			—			(142		)	(142		)	—			—			(232		)	(232		)
End of period unrealized loss in accumulated OCI	$	2,082		$	(877,404	)	$	764		$	(874,558	)	$	2,082		$	(877,404	)	$	764		$	(874,558	)

± Amounts related to our derivative instruments that were reclassified from AOCI were recorded as a component of cost of sales for each period presented.

# Amounts related to our pension and other postretirement benefits that were reclassified from AOCI were recorded as a component of net periodic benefit cost for each period presented (Note 13).

9. Receivables

Receivables, including amounts due under long-term contracts ("contract receivables"), are summarized as follows:



	September 29, 2013		March 31, 2013
Billed receivables	$	457,615	$	395,309
Unbilled receivables	915,824		892,577
Other	17,881		24,687
Net receivables	$	1,391,320	$	1,312,573

Receivable balances are shown net of customer progress payments received of $398,757 as of September 29, 2013 and $381,503 as of March 31, 2013.

Unbilled receivables represent the balance of recoverable costs and accrued profit, comprised principally of revenue recognized on contracts for which billings have not been presented to the customer because the amounts were earned but not contractually billable as of the balance sheet date. These amounts include expected additional billable general overhead costs and fees on flexibly priced contracts awaiting final rate negotiations.

As of September 29, 2013 and March 31, 2013, the net receivable balance includes contract related unbilled receivables that ATK does not expect to collect within the next fiscal year of $278,876 and $282,068, respectively.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

10. Inventories

Inventories consist of the following:



	September 29, 2013		March 31, 2013
Raw materials	$	134,836	$	102,238
Work/Contracts in process	119,238		82,454
Finished Goods	137,947		130,372
Net inventories	$	392,021	$	315,064

11. Other Liabilities

The major categories of other current and long-term accrued liabilities are as follows:



	September 29, 2013		March 31, 2013
Employee benefits and insurance, including pension and other postretirement benefits	$	79,616	$	75,882
Warranty	16,291		19,669
Interest	3,177		1,887
Environmental remediation	5,394		6,847
Rebate	29,501		6,875
Deferred lease obligation	29,333		28,424
Commodity forward contracts	6,266		2,871
Federal excise tax	37,559		22,367
Other	107,495		97,199
Total other accrued liabilities—current	$	314,632	$	262,021
Environmental remediation	$	47,024	$	49,373
Management nonqualified deferred compensation plan	17,174		17,409
Non-current portion of accrued income tax liability	14,968		25,400
Deferred lease obligation	13,935		14,342
Other	25,328		19,934
Total other long-term liabilities	$	118,429	$	126,458

ATK provides product warranties, which entail repair or replacement of non-conforming items, in conjunction with sales of certain products. Estimated costs related to warranties are recorded in the period in which the related product sales occur. The warranty liability recorded at each balance sheet date reflects the estimated liability for warranty coverage for products delivered based on historical information and current trends. The following is a reconciliation of the changes in ATK's product warranty liability during fiscal 2014:



Balance at March 31, 2013	$	19,669
Payments made	(2,313		)
Warranties issued	113
Changes related to preexisting warranties	33
Balance at June 30, 2013	$	17,502
Payments made	(2,576		)
Warranties issued	1,288
Changes related to preexisting warranties	77
Balance at September 29, 2013	$	16,291

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

12. Long-Term Debt

On November 1, 2013, ATK refinanced its existing credit facility and entered into $300,000 in Senior Notes. See footnote 21 for additional detail. As of September 29, 2013, long-term debt, including the current portion, consisted of the following:



	September 29, 2013		March 31, 2013
Senior Credit Facility dated October 7, 2010(1):
Term A Loan due 2015	$	330,000	$	340,000
Term A Loan due 2017	192,500		195,000
Revolving Credit Facility due 2015	90,000		—
6.875% Senior Subordinated Notes due 2020 (2)	350,000		350,000
3.00% Convertible Senior Subordinated Notes due 2024 (3)	199,453		199,453
Principal amount of long-term debt	1,161,953		1,084,453
Less: Unamortized discounts	6,957		10,576
Carrying amount of long-term debt	1,154,996		1,073,877
Less: current portion	334,996		50,000
Carrying amount of long-term debt, excluding current portion	$	820,000	$	1,023,877

(1) In fiscal 2011, ATK entered into a Second Amended and Restated Credit Agreement (the "2010 Senior Credit Facility"), which was comprised of a Term A Loan of $400,000 and a $600,000 Revolving Credit Facility, both of which were to mature in 2015. Under the terms of the 2010 Senior Credit Facility, ATK exercised its option to increase the Term A Loan by $200,000 (the “Accordion”) during fiscal 2013. Proceeds of the Accordion were used to partially finance the redemption of the $400,000 6.75% Senior Subordinated Notes that were to mature in 2016. Terms of the Accordion were the same as the original Term A Loan with the exception that it was to mature on September 5, 2017, approximately two years after the original Term A Loan. The original Term A Loan was subject to annual principal payments of $20,000 in each of the first and second years and $40,000 in each of the third, fourth, and fifth years, paid on a quarterly basis, with the balance due on October 7, 2015. The Accordion was subject to annual principal payments of $10,000 in each of the first and second years and $20,000 in each of the third, fourth, and fifth years, paid on a quarterly basis, with the balance due on September 5, 2017. Substantially all domestic tangible and intangible assets of ATK and its subsidiaries were pledged as collateral under the 2010 Senior Credit Facility. Borrowings under the 2010 Senior Credit Facility bore interest at a rate equal to either the sum of a base rate plus a margin or the sum of a Eurodollar rate plus a margin. Each margin was based on ATK's senior secured credit ratings. Based on ATK's credit rating, the base rate margin at September 29, 2013, was 1.25% and the Eurodollar margin was 2.25%. The weighted average interest rate for the Term A Loan, after taking into account the interest rate swaps discussed below was 3.08%, and for Revolving Credit Facility was 2.43% at September 29, 2013. ATK pays an annual commitment fee on the unused portion of the Revolving Credit Facility based on its senior secured credit ratings. Based on ATK's rating, this fee was 0.35% at September 29, 2013. As of September 29, 2013, ATK had $90,000 of borrowings against its $600,000 Revolving Credit Facility and had outstanding letters of credit of $114,498, which reduced amounts available on the Revolving Credit Facility to $395,502. ATK intends to repay the Revolving Credit Facility borrowings within the next 12 months. Debt issuance costs of approximately $12,800 were being amortized over the term of the Term A Loan, and as a result of the increase in the Term A Loan, ATK recorded $1,458 of deferred financing costs, which were being amortized over the term of the Accordion.

(2) In fiscal 2011, ATK issued $350,000 aggregate principal amount of 6.875% Senior Subordinated Notes ("the 6.875% Notes") that mature on September 15, 2020. These notes are general unsecured obligations. Interest on these notes is payable on March 15 and September 15 of each year. ATK has the right to redeem some or all of these notes from time to time on or after September 15, 2015, at specified redemption prices. Prior to September 15, 2015, ATK may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

12. Long-term Debt (Continued)

Debt issuance costs of approximately $7,100 related to these notes are being amortized to interest expense over ten years.

(3) 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. Under select conditions, ATK will pay contingent interest on these notes, which is treated as an embedded derivative; the fair value of this feature was insignificant at September 29, 2013 and March 31, 2013. ATK may redeem some or all of these notes in cash, for 100% of the principal amount plus any accrued but unpaid interest, at any time on or after August 20, 2014. Holders of these notes may require ATK to repurchase in cash, for 100% of the principal amount plus any accrued but unpaid interest, some or all of these notes on August 15, 2014 and August 15, 2019. Under specified conditions, holders may also convert their 3.00% Convertible Notes into shares of ATK’s common stock. These notes had an initial conversion rate of 12.5392 shares per $1 principal amount (a conversion price of $79.75). Pursuant to provisions in the indenture requiring adjustment of the conversion rate upon the payment of dividends, the conversion rate for these notes is now 13.0323, which correspondingly has changed the conversion price per share to $76.73. The stock price condition was met during fiscal 2009 and $547 of these notes were converted in fiscal 2009. As the holders of these notes may require ATK to repurchase in cash, for 100% of these notes on August 15, 2014 the remaining principal amount of $199,453 was classified as short-term. The convertible shares had an impact on diluted shares outstanding for the quarter and six month periods ended September 29, 2013 of 490,000 and 253,000, respectively, because ATK's average stock price exceeded the conversion price during those periods. These shares had no impact on the diluted shares outstanding for the quarter and six month period ended September 30, 2012 as the average stock price did not exceed the conversion price during those periods.

The current authoritative accounting literature requires that issuers of convertible debt instruments that may be settled in cash upon conversion separately account for the liability and equity components in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This provision applies to the convertible debt instrument discussed above.

The unamortized discount is amortized through interest expense into earnings over the expected term of the convertible notes. The following table provides additional information about ATK’s 3.00% Convertible Notes:




	September 29, 2013			March 31, 2013
Carrying amount of the equity component	$	56,849		$	56,849
Principal amount of the liability component	$	199,453		$	199,453
Unamortized discount of liability component	$	6,957		$	10,576
Net carrying amount of liability component	$	192,496		$	188,877
Remaining amortization period of discount	131			137
Effective interest rate on liability component	7.000		%	7.000		%

Based on ATK's closing stock price of $98.23 on September 29, 2013, the if-converted value of these notes exceeded the aggregate principal amount of the notes by $55,879.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

12. Long-term Debt (Continued)

Interest Rate Swaps

During the quarter ended September 29, 2013, ATK entered into three floating-to-fixed interest rate swap agreements in order to manage interest costs and the risk associated with variable interest rates. As of September 29, 2013, ATK had the following cash flow hedge interest rate swaps in place:



	Notional		Fair Value			Pay Fixed		Receive Floating		Maturity Date
Non-amortizing swap	$	100,000	$	(657	)	0.87	%	0.18	%	August 2016
Non-amortizing swap	$	100,000	$	(1,118	)	1.29	%	0.18	%	August 2017
Non-amortizing swap	$	100,000	$	(1,506	)	1.69	%	0.18	%	August 2018

The amount to be paid or received under these swaps is recorded as an adjustment to interest expense.

See Note 9 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013 for additional information regarding the terms and conditions of the Company’s outstanding debt agreements.

Rank and Guarantees

The 3.00% Convertible Notes and the 6.875% 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. The parent company has no independent assets or operations. 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.

Scheduled Minimum Loan Payments

The scheduled minimum loan payments on outstanding long-term debt are as follows:




Remainder of fiscal 2014	$	37,500
Fiscal 2015	256,953
Fiscal 2016 +	370,000
Fiscal 2017	20,000
Fiscal 2018	127,500
Thereafter	350,000
Total	$	1,161,953

+ This balance includes $90,000 of borrowings on the Revolving Credit Facility which has been classified as current as ATK intends to repay the balance within the next 12 months.

ATK's total debt (current portion of debt and long-term debt) as a percentage of total capitalization (total debt and stockholders' equity) was 41% and 42% as of September 29, 2013 and March 31, 2013, respectively.

Covenants and Default Provisions

ATK's Senior Credit Facility and the indentures governing the 6.875% Notes 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. ATK’s 6.875% Senior Subordinated Notes limit the aggregate sum of dividends, share repurchases, and other designated restricted payments to an amount based on ATK’s net income, stock issuance proceeds, and certain other items, less restricted payments made, since April 1, 2001. As of September 29, 2013, this limit was approximately $808,000. As of September 29, 2013, the 2010 Senior Credit Facility allows ATK to make unlimited “restricted payments” (as defined in the credit agreement), which, among other items, would allow payments for future stock repurchases, as long as ATK

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

12. Long-term Debt (Continued)

maintains a certain amount of liquidity and maintains certain senior debt limits, with a limit, when those senior debt limits are not met, of $250,000 plus proceeds of any equity issuances plus 50% of net income since October 7, 2010. The Senior Credit Facility also requires that ATK meet and maintain specified financial ratios, including a minimum interest coverage ratio and a maximum consolidated senior leverage ratio, and a maximum consolidated leverage ratio. Many of ATK's debt agreements contain cross-default provisions so that non-compliance with the covenants within one debt agreement could cause a default under other debt agreements as well. ATK's ability to comply with these covenants and to meet and maintain the financial ratios may be affected by events beyond its control. Borrowings under the Senior Credit Facility are subject to compliance with these covenants. As of September 29, 2013, ATK was in compliance with the financial covenants.

Cash Paid for Interest on Debt

Cash paid for interest totaled $22,139 in the six months ended September 29, 2013, and $45,931 in the six months ended September 30, 2012.

13. Employee Benefit Plans

The components of net periodic benefit cost are as follows:



	Pension Benefits
	Quarters Ended						Six Months Ended
Components of Net Periodic Benefit Cost	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012
Service cost	$	8,691		$	16,007		$	17,382		$	32,015
Interest cost	32,563			36,145			65,127			72,313
Expected return on plan assets	(40,278		)	(42,007		)	(80,556		)	(84,015		)
Amortization of unrecognized net loss	36,473			31,134			72,945			62,333
Amortization of unrecognized prior service cost	(5,246		)	(98		)	(10,492		)	(196		)
Net periodic benefit cost before special termination benefits cost / curtailment	32,203			41,181			64,406			82,450
Special termination benefits cost / curtailment	—			—			—			2,000
Net periodic benefit cost	$	32,203		$	41,181		$	64,406		$	84,450



	Other Postretirement Benefits
	Quarters Ended						Six Months Ended
Components of Net Periodic Benefit Cost	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012
Service cost	$	2		$	1		$	4		$	2
Interest cost	1,302			1,623			2,603			3,246
Expected return on plan assets	(855		)	(813		)	(1,709		)	(1,626		)
Amortization of unrecognized net loss	572			663			1,144			1,326
Amortization of unrecognized prior service cost	(2,095		)	(2,095		)	(4,190		)	(4,190		)
Net periodic benefit income	$	(1,074	)	$	(621	)	$	(2,148	)	$	(1,242	)

During the six months ended September 30, 2012, ATK recorded a settlement expense of $2,000 to recognize the impact of lump sum benefit payments made under the nonqualified supplemental executive retirement plan.

Employer Contributions. During the six months ended September 29, 2013, ATK contributed $40,000 directly to the pension trust and $1,492 directly to retirees under its nonqualified supplemental executive retirement plan. ATK also contributed $6,097 to its other postretirement benefit plans. ATK anticipates making additional contributions of approximately $2,105 directly to retirees under the nonqualified plan and $5,865 to its other postretirement benefit plans during the remainder of fiscal 2014.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

14. Income Taxes

ATK’s provision for income taxes includes federal, foreign, 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 quarters ended September 29, 2013 and September 30, 2012 represent effective tax rates of 30.3% and 19.4%, respectively. The increase in the rate from the prior year quarter is primarily due to the prior year quarter settlement of the examination by the Internal Revenue Service ("IRS") of the fiscal 2009 and 2010 tax returns, decreased benefits from the domestic manufacturing deduction, and a current year period discrete revaluation of deferred tax assets caused by a change in state tax law, partially offset by the revaluation of unrecognized tax benefits due to proposed IRS regulations enacted in the second quarter.

The income tax provisions for the six months ended September 29, 2013 and September 30, 2012 represent effective tax rates of 32.7% and 29.0%, respectively. The increase in the rate from the prior year period is primarily due to the prior year period settlement of the examination by the IRS of the fiscal 2009 and 2010 tax returns and a current year period discrete revaluation of deferred tax assets caused by a change in state tax law, partially offset by the revaluation of unrecognized tax benefits due to proposed IRS regulations enacted in the second quarter.

The IRS released final regulations relating to the capitalization of tangible personal property on September 13, 2013. ATK is currently analyzing the impact of these new regulations. We do not believe they will have a material impact on our financial statements.

ATK or one of its subsidiaries files income tax returns in the U.S. federal, various U.S. state, and foreign jurisdictions. With few exceptions, ATK is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2007. The IRS had completed the audits of ATK through fiscal 2010 and is currently auditing ATK's tax returns for fiscal years 2011 and 2012. We believe appropriate provisions for all outstanding issues have been made for all remaining open years in all jurisdictions.

Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $3,751 reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in earnings from $0 to $3,375.

15. Stock-Based Compensation

ATK has authorized 5,000,000 shares of preferred stock, par value $1.00, none of which has been issued.

Total pre-tax stock-based compensation expense of $3,296 and $3,215 was recognized during the quarters ended September 29, 2013 and September 30, 2012, respectively. Total pre-tax stock-based compensation expense of $6,308 and $6,437 was recognized during the six months ended September 29, 2013 and September 30, 2012, respectively.

The total income tax benefit recognized in the income statement for share-based compensation was $1,252 and $1,246 during the quarters ended September 29, 2013 and September 30, 2012, respectively. The total income tax benefit recognized in the income statement for share-based compensation was $2,421 and $2,496 during the six months ended September 29, 2013 and September 30, 2012, respectively.

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 29, 2013, ATK has authorized up to 3,982,360 common shares under the 2005 Stock Incentive Plan, of which 1,321,818 common shares are available to be granted. No new grants will be made out of the other three plans.

There are four types of awards outstanding under ATK's stock incentive plans: performance awards, total stockholder return performance awards ("TSR awards"), restricted stock, and stock options. ATK issues treasury shares upon the payment of performance awards and TSR awards, grant of restricted stock, or exercise of stock options.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

15. Stock-based Compensation (Continued)

As of September 29, 2013, there were up to 419,283 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 221,509 shares will become payable only upon achievement of certain financial performance goals, including sales and return on invested capital for the fiscal 2012 through fiscal 2014 period;


•	up to 102,848 shares will become payable only upon achievement of certain performance goals, including sales and return on invested capital, for the fiscal 2013 through fiscal 2015 period; and


•	up to 94,926 shares will become payable only upon achievement of certain performance goals, including sales and return on invested capital, for the fiscal 2014 through fiscal 2016 period.

There were 35,852 shares earned during fiscal 2013 upon achievement of certain financial performance goals, including EPS, for the fiscal 2011 through fiscal 2013 period, which were distributed or deferred in May 2013. As other financial performance goals were not met, 155,359 shares were forfeited during fiscal 2013.

As of September 29, 2013, there were up to 45,980 shares reserved for TSR awards for key employees. ATK uses an integrated Monte Carlo simulation model to determine the fair value of the TSR awards. The Monte Carlo model calculates the probability of satisfying the market conditions stipulated in the award. This probability is an input into the trinomial lattice model used to determine the fair value of the awards as well as the assumptions of other variables, including the risk-free interest rate and expected volatility of ATK's stock price in future periods. The risk-free rate is based on the U.S. dollar-denominated U.S. Treasury strip rate with a remaining term that approximates the life assumed at the date of grant. There were no TSR awards granted during the six months ended September 29, 2013.

Of the shares reserved for TSR awards for key employees,


•	45,980 shares will become payable upon satisfaction of the market conditions stipulated for the fiscal 2012 through 2014 period.

No shares were earned during fiscal 2013 as the market conditions stipulated for the fiscal 2011 through 2013 period were not satisfied and as such, 26,000 TSR awards were forfeited during fiscal 2013.

Restricted stock granted to non-employee directors and certain key employees totaled 74,075 shares during the six months ended September 29, 2013. Restricted shares vest over periods generally ranging from one to three years from the date of award and are valued at the fair value of ATK's common stock as of the grant date.

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. Options are generally granted with seven-year or ten-year terms. 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 grant. Expected volatility is based on the historical volatility of ATK's stock over the past seven 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. The weighted average fair value of options granted was $23.00 during the six months ended September 29, 2013. There were no stock options granted during the six months ended September 30, 2012. The following weighted average assumptions were used for grants:



	Six Months ended September 29, 2013
Risk-free rate	1.86%
Expected volatility	25.95%
Expected dividend yield	1.58%
Expected option life	7 years

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

16. Contingencies

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

On July 30, 2013, Raytheon Company filed a lawsuit against ATK in the Superior Court of the State of Arizona. The suit involves ATK's longstanding production of rocket motors used in Raytheon's Advanced Medium-Range Air-to-Air Missiles (AMRAAM). In the filing, Raytheon's primary allegation is that ATK breached certain of the production contracts by not delivering rocket motors. Raytheon is claiming damages exceeding $100,000.

ATK disputes the allegations of Raytheon's complaint. Although it is not possible at this time to predict the outcome of the litigation, ATK believes, based on all currently available information, that the outcome will not have a material adverse effect on its operating results, financial condition or cash flows. As a result of the uncertainty regarding the outcome of this matter, no provision has been made in the financial statements with respect to this contingent liability.

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

Claim Recovery. Profits expected to be realized on contracts are based on management's estimates of total contract sales value and costs at completion. Estimated amounts for contract changes and claims are included in contract sales only when realization is estimated to be probable. At September 29, 2013, based on progress to date on certain contracts, there is approximately $22,021 included in unbilled receivables for contract claims compared to $27,797 as of March 31, 2013.

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

The liability for environmental remediation represents management's best estimate of the present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that ATK expects to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows, using a discount rate of 1.5% and 0.8% as of September 29, 2013 and March 31, 2013, respectively. ATK's discount rate is calculated using the 20-year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9%, rounded to the nearest quarter percent. The following is a summary of the amounts recorded for environmental remediation:



	September 29, 2013						March 31, 2013
	Liability			Receivable			Liability			Receivable
Amounts (payable) receivable	$	(58,379	)	$	34,004		$	(61,227	)	$	35,638
Unamortized discount	5,961			(3,123		)	3,731			(1,925		)
Present value amounts (payable) receivable	$	(52,418	)	$	30,881		$	(57,496	)	$	33,713

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

16. Contingencies (Continued)

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 $52,418 discounted liability as of September 29, 2013, $5,394 was recorded within other current liabilities and $47,024 was recorded within other long-term liabilities. Of the $30,881 discounted receivable, ATK recorded $5,003 within other current assets and $25,878 within other non-current assets. As of September 29, 2013, the estimated discounted range of reasonably possible costs of environmental remediation was $52,418 to $84,930.

ATK expects that a portion of its environmental compliance and remediation costs will be recoverable under U.S. Government contracts. Some of the remediation costs that are not recoverable from the U.S. Government that are associated with facilities purchased in a business acquisition may be covered by various indemnification agreements, as described in Note 13 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

ATK has been identified as a potentially responsible party (“PRP”), along with other parties, in several regulatory agency actions associated with hazardous waste sites. As a PRP, we may be required to pay a share of the costs of the investigation and clean-up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our operating results, financial condition, or cash flows.

17. Share Repurchases

On January 31, 2012, ATK's Board of Directors authorized a share repurchase program of up to $200,000 worth of shares of ATK common stock, executable over the next two years. The shares may be purchased from time to time in open market, block purchase, or negotiated transactions, subject to compliance with applicable laws and regulations. The repurchase authorization also allows the Company to make repurchases under Rule 10b5-1 of the Securities Exchange Act of 1934. This share repurchase program replaces the prior program authorized in 2008. During the quarter ended September 29, 2013, ATK repurchased 253,073 shares for $23,937 compared to no shares during the quarter ended September 30, 2012. During the six months ended September 29, 2013, ATK repurchased 574,669 shares for $48,259 compared to 482,044 shares for $25,000 during the six months ended September 30, 2012.

18. Changes in Estimates

The majority of ATK’s sales are accounted for as long-term contracts, which are accounted for under the percentage-of-completion method. Accounting for contracts under the percentage-of-completion (“POC”) method requires judgment relative to assessing risks and estimating contract revenues and costs. Profits expected to be realized on contracts are based on management’s estimates of total contract sales value and costs at completion. Estimated amounts for contract changes, including scope and claims, are included in contract sales only when realization is estimated to be probable. Assumptions used for recording sales and earnings are adjusted in the period of change to reflect revisions in contract value and estimated costs. In the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated gross margin loss is charged to cost of sales. Changes in estimates of contract sales, costs, or profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current or prior periods. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception.

Aggregate net changes in contract estimates recognized using the cumulative catch-up method of accounting increased operating income by $69,139 and $68,102 for the six months ended September 29, 2013 and September 30, 2012, respectively. The current period adjustments were primarily driven by higher profit expectations of $32,900 in the Small Caliber Systems

division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion, and for programs in Space Systems Operations and Aerospace Structures division. The prior year period adjustments were primarily driven by greater than expected performance at the Radford facility due to increased production volumes, a gain on sale of residual assets, and changes in estimates as contracts near completion in Energetics and Small-Caliber Systems programs.

19. Realignment Obligations

In April 2012, ATK commenced operations under a three-group structure. In conjunction with this realignment, ATK incurred realignment charges in the fourth quarter of fiscal 2012. In the quarter and six months ended September 29, 2013, ATK incurred realignment expenses of approximately $2,900 and $5,400, respectively, associated with restructuring and facility rationalization costs in tactical military accessories within the Sporting Group. The charges related primarily to termination benefits offered to employees, asset impairment charges, and costs associated with the closure of certain facilities. ATK had no realignment liability as of March 31, 2013 and September 29, 2013. The following table summarizes ATK’s realignment liability activity during fiscal 2013 related to the termination benefits and facility closure and other costs:



	Termination Benefits			Asset Impairment		Facility Closure and Other Costs		Total

Balance at March 31, 2012	$	7,148		$	—	$	25	$	7,173
Expense	—			—		—		—
Cash paid	(4,910		)	—		—		(4,910		)
Non-cash settlements	—			—		—		—
Balance at September 30, 2012	$	2,238		$	—	$	25	$	2,263

20. Operating Segment Information

ATK operates its business structure within three operating groups. These operating segments (“groups”) are defined based on the reporting and review process used by ATK’s chief executive officer and other management. The operating structure aligns ATK’s capabilities and resources with its customers and markets and positions the Company for long-term growth and improved profitability. Each group is described below:

•

Aerospace Group, which generated 28% of ATK’s external sales in the six months ended September 29, 2013, develops and produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, and missile defense interceptors. They also produce small and micro-satellites, satellite components, structures and subsystems, lightweight space deployables and solar arrays, and provide engineering and technical services. Additionally, the Aerospace Group operates in the military and commercial aircraft and launch structures markets. Other products include ordnance, such as decoy and illuminating flares.

•

Defense Group, which generated 37% of ATK’s external sales in the six months ended September 29, 2013, develops and produces military small-, medium-, and large-caliber ammunition, propulsion systems for tactical missiles and missile defense applications, strike weapons, precision munitions, gun systems, aircraft survivability systems, fuzes and warheads, energetic materials and special mission aircraft.


•	Sporting Group, which generated 35% of ATK’s external sales in the six months ended September 29, 2013, develops and produces commercial ammunition, accessories and tactical systems, and hunting rifles and shotguns.

The military small-caliber ammunition contract, which is reported within Defense Group, contributed approximately 10% and 17% of total external sales during the six months ended September 29, 2013 and September 30, 2012, respectively.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

The following summarizes ATK's results by segment:



	Quarters Ended						Six Months Ended
	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012
Sales to external customers:
Aerospace Group	$	315,244		$	310,298		$	616,857		$	604,954
Defense Group	409,287			484,133			830,439			998,613
Sporting Group	417,850			275,356			773,826			548,522
Total external Sales	1,142,381			1,069,787			2,221,122			2,152,089
Intercompany sales:
Aerospace Group	4,159			4,773			9,733			10,058
Defense Group	62,613			36,714			116,277			68,406
Sporting Group	3,509			9,133			5,840			14,931
Eliminations	(70,281		)	(50,620		)	(131,850		)	(93,395		)
Total intercompany Sales	—			—			—			—
Total sales	$	1,142,381		$	1,069,787		$	2,221,122		$	2,152,089

Income before interest, loss on extinguishment of debt, income taxes and noncontrolling interest
Aerospace Group	$	40,570		$	37,077		$	77,656		$	72,028
Defense Group	55,071			64,546			117,159			155,907
Sporting Group	57,823			25,133			101,939			45,927
Corporate	(5,198		)	(16,199		)	(22,865		)	(32,617		)
Total Income before interest, loss on extinguishment of debt, income taxes and noncontrolling interest	$	148,266		$	110,557		$	273,889		$	241,245



	Period Ended
	September 29, 2013		March 31, 2013
Total assets:
Aerospace Group	$	1,572,032	$	1,580,775
Defense Group	1,189,293		1,122,416
Sporting Group	1,270,223		803,493
Corporate	413,810		876,326
Total assets	$	4,445,358	$	4,383,010

Certain administrative functions are primarily managed by ATK at the corporate headquarters ("Corporate"). Some examples of such functions are human resources, pension and postretirement benefits, corporate accounting, legal, tax, and treasury. Significant assets and liabilities managed at Corporate include those associated with debt, pension and postretirement benefits, environmental liabilities, strategic growth costs, and income taxes.

Costs related to the administrative functions managed by Corporate are either recorded at Corporate or allocated to the business units based on the nature of the expense. The difference between pension and postretirement benefit expense calculated under Financial Accounting Standards and the expense calculated under U.S. Cost Accounting Standards is recorded at the corporate level which provides for greater clarity on the operating results of the business segments. Administrative expenses such as corporate accounting, legal, and treasury costs, are allocated out to the business segments. Environmental expenses are allocated to each segment based on the origin of the underlying environmental cost. Transactions between segments are recorded at the segment level, consistent with ATK's financial accounting policies. Intercompany balances and

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

20. Operating Segment Information (Continued)

transactions involving different segments are eliminated at ATK's consolidated financial statements level. These eliminations are shown above in "Corporate" and were $6,882 and $5,323, for the quarters ended September 29, 2013 and September 30, 2012, respectively, and $11,569 and $9,426, for the six months ended September 29, 2013 and September 30, 2012, respectively.

21. Subsequent Events

Bushnell Acquisition

On November 1, 2013, ATK acquired Bushnell Group Holdings, Inc. ("Bushnell"). Bushnell is a leading global designer, marketer and distributor of branded sports optics, outdoor accessories and performance eyewear. The purchase price was $985,000 in cash, subject to customary post-closing adjustments expected to be settled in fiscal 2014. ATK believes the acquisition will broaden our existing capabilities in the commercial shooting sports market and expand our portfolio of branded shooting sports products. In addition, this transaction will enable the Company to enter new sporting markets in golf and snow skiing. ATK will leverage Bushnell’s strong sourcing, marketing, branding and distribution capabilities and capitalize on Bushnell’s track record of successfully integrating acquisitions and delivering profitable growth. Bushnell employs approximately 1,100 employees and will be included in the Sporting Group. The purchase price allocation will be completed within twelve months of the acquisition date. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.

ATK will use the purchase method of accounting to account for this acquisition and, accordingly, the results of Bushnell will be included in ATK’s consolidated financial statements at the date of acquisition. Due to the limited time between the acquisition date and the date of this filing, ATK was not able to prepare pro forma financial statements including Bushnell. These statements will be included in the next filing.

Senior Credit Facility

In order to finance the purchase of Bushnell and refinance a portion of our existing long term debt, on November 1, 2013, ATK entered into a Third Amended and Restated Credit Agreement (the "2013 Senior Credit Facility"), which replaced the 2010 Senior Credit Facility. The 2013 Senior Credit Facility is comprised of a Term A Loan of $1,010,000 and a $700,000 Revolving Credit Facility, both of which mature in 2018, and a Term Loan B of $250,000, which matures in 2020. The Term A Loan is subject to quarterly principal payments of $12,625, with the remaining balance due on November 1, 2018. The Term B Loan is subject to quarterly principal payments of $625, with the remaining balance due on November 1, 2020. Substantially all domestic tangible and intangible assets of ATK and its subsidiaries are pledged as collateral under the 2013 Senior Credit Facility. Borrowings under the 2013 Senior Credit Facility bear interest at a rate equal to either the sum of a base rate plus a margin or the sum of a Eurodollar rate plus a margin. Each margin is based on ATK's senior secured credit ratings. Based on ATK's current credit rating, the current base rate margin is 1.00% and the current Eurodollar margin is 2.00%. ATK pays an annual commitment fee on the unused portion of the Revolving Credit Facility based on its senior secured credit ratings. Based on ATK's current rating, this fee is 0.30%. Debt issuance costs will be amortized over the term of the related Term Loan. In connection with this financing activity, the unamortized deferred debt issuance costs related to the 2010 Senior Credit Facility of $5,816 will be written off in the third quarter.

The 2013 Senior Credit Facility imposes 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. ATK is required to meet and maintain the following financial ratios:



	Maximum Senior Leverage Ratio	Maximum Total Leverage Ratio	Minimum Interest Coverage Ratio
Requirement under 2013 Senior Credit Facility	3.00	4.00	3.00

The Leverage Ratio is the sum of ATK's total debt plus financial letters of credit and surety bonds, net of up to $100,000 in cash, divided by Covenant EBITDA (which includes adjustments for items such as non-recurring or extraordinary noncash items, non-cash charges related to stock-based compensation, and intangible asset impairment charges) for the past four fiscal quarters. The Senior Leverage Ratio is the sum of ATK's senior debt plus financial letters of credit and surety bonds, net of up

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)

(Amounts in thousands except share and per share data and unless otherwise indicated)

21. Subsequent Events (Continued)

to $100,000 in cash, divided by Covenant EBITDA. The Interest Coverage Ratio is Covenant EBITDA divided by interest expense (excluding non-cash charges).

5.25% Senior Notes due 2021

On November 1, 2013, ATK issued $300,000 aggregate principal amount of 5.25% Senior Notes (the "5.25% Notes") that mature on October 1, 2021. These notes are general unsecured obligations. Interest on these notes is payable on April 1 and October 1 of each year. ATK has the right to redeem some or all of these notes from time to time on or after October 1, 2016, at specified redemption prices. Prior to October 1, 2016, ATK may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In addition, prior to October 1, 2016, ATK may redeem up to 35% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 105.25% of their principal amount plus accrued and unpaid interest to the date of redemption. Debt issuance costs related to these notes will be amortized to interest expense over the term of the notes.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollar amounts in thousands except share and per share data or 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 ATK's 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, timing of payments and budgetary policies, including impacts of sequestration under the Budget Control Act of 2011, and sourcing strategies,


•	intense competition,


•	increases in costs, which ATK may not be able to react to due to the nature of its U.S. Government contracts,


•	changes in cost and revenue estimates and/or timing of programs,


•	the potential termination of U.S. Government contracts and the potential inability to recover termination costs,


•	reduction or change in demand for commercial ammunition, firearms or accessories, including the risk that placed orders exceed actual customer requirements,


•	risks associated with expansion into commercial markets,


•	actual pension and other postretirement plan asset returns and assumptions regarding future returns, discount rates, service costs, mortality rates, and health care cost trend rates,


•	greater risk associated with international business,


•	other risks associated with U.S. Government contracts that might expose ATK to adverse consequences,


•	costs of servicing ATK's debt, including cash requirements and interest rate fluctuations,


•	security threats, including cybersecurity and other industrial and physical security threats, and other disruptions,


•	supply, availability, and costs of raw materials and components, including commodity price fluctuations,


•	government laws and other rules and regulations applicable to ATK, such as procurement and import-export control, and federal and state firearms and ammunition regulations,


•	the novation of U.S. Government contracts,


•	performance of ATK's subcontractors,


•	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,


•	impacts of financial market disruptions or volatility to ATK's customers and vendors,

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•	results of acquisitions or other transactions, including our ability to successfully integrate acquired businesses and realize anticipated synergies, cost savings and other benefits, and costs incurred for pursuits and proposed acquisitions that have not yet or may not close,


•	unanticipated changes in the tax provision or exposure to additional tax liabilities, and


•	the costs and ultimate outcome of litigation matters and other legal proceedings.

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 Part 1, Item 1A, Risk Factors, of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013. Additional information regarding these factors may be contained in ATK's subsequent filings with the Securities and Exchange Commission, including Forms 10-Q and 8-K. All such risk factors are difficult to predict, contain material uncertainties that may affect actual results, and may be beyond our control.

Executive Summary

ATK is an aerospace, defense, and commercial products company and supplier of products to the U.S. Government, allied nations, and prime contractors. ATK is also a major supplier of ammunition, rifles and shotguns, and related accessories to commercial customers and law enforcement agencies. ATK is headquartered in Arlington, Virginia and has operating locations throughout the United States, Puerto Rico, and internationally.

As of September 29, 2013, ATK operated in three business segments. These operating segments are defined based on the reporting and review process used by ATK's chief executive officer and other management. As of September 29, 2013, ATK's three operating groups were:

•

Aerospace Group, which generated 28% of ATK's external sales in the six months ended September 29, 2013, develops and produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, and missile defense interceptors. They also produce small and micro-satellites, satellite components, structures and subsystems, lightweight space deployables and solar arrays, and provide engineering and technical services. Additionally, the Aerospace Group operates in the military and commercial aircraft and launch structures markets. Other products include ordnance, such as decoy and illuminating flares.

•

Defense Group, which generated 37% of ATK's external sales in the six months ended September 29, 2013, develops and produces military small-, medium-, and large-caliber ammunition, propulsion systems for tactical missiles and missile defense applications, strike weapons, precision munitions, gun systems, aircraft survivability systems, fuzes and warheads, energetic materials and special mission aircraft.


•	Sporting Group, which generated 35% of ATK's external sales in the six months ended September 29, 2013, develops and produces commercial ammunition, accessories and tactical systems, and hunting rifles and shotguns.

Financial Highlights and Notable Events

Certain notable events or activities affecting our fiscal 2014 financial results included the following:

Financial highlights for the quarter ended September 29, 2013


•	Quarterly sales of $1.1 billion.


•	Diluted earnings per share of $2.86.


•	Orders for the quarter ended September 29, 2013 of $1.5 billion compared to $1.3 billion in the quarter ended September 30, 2012. Orders include orders in ATK's Sporting Group, which are cancelable and may not be indicative of future sales, as ATK believes there may have been a number of ammunition orders placed that exceeds actual customer requirements.


•	Total backlog of $8.4 billion at September 29, 2013 compared to $6.4 billion at September 30, 2012. Backlog includes orders within the Sporting Group which are cancelable, and ATK believes there may have been a number of ammunition orders placed that exceeds actual customer requirements.


•	Income before interest, loss on extinguishment of debt, income taxes, and noncontrolling interest as a percentage of sales was 13.0% and 10.3% for the quarters ended September 29, 2013 and September 30, 2012, respectively. The

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increase was driven by increases in the Sporting group, higher profit expectations of $22 million in the Small Caliber Systems division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion, and lower pension expense.


•	The increase in the current quarter's tax rate to 30.3% from 19.4% in the quarter ended September 30, 2012 is primarily the absence of a favorable settlement of the IRS audit of the company's tax returns recorded in the prior-year quarter, partially offset by a discrete impact of several tax law changes in the current quarter.


•	On July 31, 2013, ATK’s Board of Directors declared a quarterly cash dividend of $0.26 per share to stockholders of record on September 4, 2013. The dividend was paid on September 26, 2013.

Notable events for fiscal 2014


•	On November 1, 2013, ATK acquired Bushnell Group Holdings, Inc. Bushnell is a leading global designer, marketer and distributor of branded sports optics, outdoor accessories and performance eyewear.


•	On November 1, 2013, ATK entered into a Third Amended and Restated Credit Agreement ("the 2013 Senior Credit Facility"), which replaced the 2010 Senior Credit Facility and issued $300,000 aggregate principal amount of 5.25% Senior Notes (‘‘the 5.25% Notes’’) that mature on October 1, 2021 to pay for the Bushnell acquisition.


•	On June 21, 2013, ATK acquired Caliber Company, parent company of Savage Sports Corporation ("Savage"), a leading manufacturer of sporting long guns.


•	During the six months ended September 29, 2013, ATK repurchased 574,669 shares for $48,259.


•	On November 5, 2013, ATK’s Board of Directors declared a quarterly cash dividend of $0.26 per share, payable on December 12, 2013, to stockholders of record on November 20, 2013.


•	ATK's Board of Directors appointed Jay Tibbets Senior Vice President and President Sporting Group effective July 31, 2013.


•	ATK's Board of Directors appointed Stephen Nolan Senior Vice President Strategy and Business Development effective July 31, 2013.

Outlook

Government Funding—ATK is dependent on funding levels of the U.S. Department of Defense ("DoD") and NASA.

In August 2011, the Budget Control Act (“the Act”) reduced the DoD top line budget by approximately $490 billion over 10 years starting in fiscal year 2012. In January 2013, the “American Taxpayer Relief Act of 2012” was enacted, triggering further budget cuts (or sequestration) as outlined in the Act beginning in March 2013. This would lead to additional reductions of approximately $500 billion from the defense top line budget over the next nine years, resulting in aggregate reductions of about $1 trillion through 2021. Congress and the Administration have been unable to reach a broader fiscal agreement that would amend the Budget Control Act, and in March of 2013 passed the FY13 Appropriations Act, triggering sequestration. In June 2013, the DoD Comptroller issued guidance on the specific level of reductions required by each department and agency for each program and the funding sources available. For GFY13, the total reduction required in the DoD accounts is $37 billion. The NASA budget is under similar sequestration pressure but has greater flexibility to manage the reductions across the portfolio.

Entering GFY14, a second round of sequestration cuts will be triggered on January 15, 2014, absent a budget deal to repeal or modify that requirement. Sequestration in GFY14 would further reduce GFY13 DoD spending levels by an additional $20 billion. The DoD has taken the position that these additional sequester reductions in GFY14 would generate significant operational risks and may require the termination of certain, as yet undetermined, procurement programs. Given the uncertainty regarding how the Congress will reduce the U.S. deficit, the lack of specifics on if, or how, sequestration cuts will be implemented in GFY14, and how these same factors will be decided as Congress considers the GFY 2014 budget during ongoing negotiations, ATK is unable to predict the impact, which could be material, on its programs or financial outlook beyond FY14, including our revenues, operating earnings and margins, cash flow, orders and backlog and recovery of long-lived assets. Further refinement of these assessments will be made after the current mid-December deadline for conclusion of Congressional budget negotiations expires.

The U.S. defense industry has experienced significant changes over the years. ATK's management believes that the key to ATK's continued success is to focus on performance, innovation, simplicity, and affordability. ATK is positioning itself where

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management believes there will be continued strong defense funding, even as pressures mount on procurement and research and development accounts. ATK will concentrate on developing 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, aircraft and main battle tanks.

U.S. Government contracts are also dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year basis even though contract performance may take more than one year. As a result, at the outset of a major program, the contract is usually incrementally funded, and additional monies are normally committed to the contract by the procuring agency only as Congress makes appropriations for future fiscal years. In addition, most U.S. Government contracts are subject to modification if funding is changed. Any failure by Congress to appropriate additional funds to any program in which ATK participates, or any contract modification as a result of funding changes, could materially delay or terminate the program. This could have a material adverse effect on ATK's operating results, financial condition, or cash flows.

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, 2013 (“fiscal 2013”). The accounting policies used in preparing ATK’s interim fiscal 2014 consolidated financial statements are the same as those described in ATK’s Annual Report.

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, 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,


•	employee benefit plans,


•	income taxes,


•	acquisitions, and


•	accounting for goodwill.

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, 2013.

Results of Operations

The following information should be read in conjunction with ATK's consolidated financial statements. The key performance indicators that ATK's management uses in managing the business are sales, income before interest and income taxes, and cash flows.

Group total net Sales, Cost of Sales, and Income before Interest, Loss on Extinguishment of Debt, Income Taxes, and Noncontrolling Interest include intergroup sales and profit. Corporate and Eliminations includes intergroup sales and profit eliminations and corporate expenses.

Acquisitions

On June 21, 2013, ATK acquired Caliber Company, parent company of Savage Sports Corporation ("Savage"), a leading manufacturer of sporting long guns. Operating under the brand names of Savage Arms, Stevens and Savage Range Systems, the company designs, manufactures and markets centerfire and rimfire rifles, shotguns and shooting range systems used for hunting as well as competitive and recreational target shooting. The purchase price was $315,000 net of cash acquired, and is subject to purchase price adjustments expected to be settled in fiscal 2014. ATK believes the acquisition will complement ATK's growing portfolio of leading consumer brands and will allow us to build upon our offerings with Savage's prominent, respected brands known for accuracy, quality, innovation, value and craftsmanship. Savage's sales distribution channels, new product development, and sophistication in manufacturing will significantly increase ATK's presence with a highly relevant product offering to distributors, retailers and consumers. Savage employs approximately 600 employees and is included in the Sporting Group. The purchase price allocation will be completed in fiscal 2014. None of the goodwill generated in this acquisition will be deductible for tax purposes.

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ATK used the purchase method of accounting to account for this acquisition and, accordingly, the results of Savage are included in ATK’s consolidated financial statements at the date of acquisition. The purchase price for the acquisition will be allocated to the acquired assets and liabilities based on estimated fair value. Pro forma information on the results of operations for fiscal 2013 as if the acquisition had occurred at the beginning of fiscal 2013 is not being presented because the acquisition is not material to ATK for that purpose. Subsequent to June 21, 2013, ATK has recorded sales of approximately $62,988 for the fiscal year 2014 and $56,607 for the quarter ended September 29, 2013 and income before interest, loss on extinguishment of debt, income taxes, and noncontrolling interest of approximately $5,621 for the fiscal year 2014 and $4,921 for the quarter ended September 29, 2013 associated with the operations of this acquired business which reflects the expense of the inventory step-up cost of $9,000 and $7,809 for inventory sold in the quarter and six months ended September 29, 2013, respectively.

On November 1, 2013, ATK acquired Bushnell Group Holdings, Inc. Bushnell is a leading global designer, marketer and distributor of branded sports optics, outdoor accessories and performance eyewear. The purchase price was $985,000 in cash, subject to customary post-closing adjustments expected to be settled in fiscal 2014. ATK believes the acquisition will broaden our existing capabilities in the commercial shooting sports market and expand our portfolio of branded shooting sports products. In addition, this transaction will enable the Company to enter new sporting markets in golf and snow skiing. ATK will leverage Bushnell’s strong sourcing, marketing, branding and distribution capabilities and capitalize on Bushnell’s track record of successfully integrating acquisitions and delivering profitable growth. Bushnell employs approximately 1,100 employees and will be included in the Sporting Group. The purchase price allocation will be completed within twelve months of the acquisition date. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.

ATK will use the purchase method of accounting to account for this acquisition and, accordingly, the results of Bushnell will be included in ATK’s consolidated financial statements at the date of acquisition. Due to the limited time between the acquisition date and the date of this filing, ATK was not able to prepare proforma financial statements including Bushnell. These statements will be included in the 10-Q filed for the third quarter ending December 29, 2013.

There were no acquisitions during fiscal 2013.

Sales

The following is a summary of each operating segment's sales:



	Quarters Ended											Six Months Ended
	September 29, 2013			September 30, 2012			$ Change			% Change		September 29, 2013			September 30, 2012			$ Change			% Change
Aerospace Group	$	319,403		$	315,071		$	4,332		1.4	%	$	626,590		$	615,012		$	11,578		1.9	%
Defense Group	471,900			520,847			(48,947		)	(9.4	)%	946,716			1,067,019			(120,303		)	(11.3	)%
Sporting Group	421,359			284,489			136,870			48.1	%	779,666			563,453			216,213			38.4	%
Eliminations	(70,281		)	(50,620		)	(19,661		)	38.8	%	(131,850		)	(93,395		)	(38,455		)	41.2	%
Total external sales	$	1,142,381		$	1,069,787		$	72,594		6.8	%	$	2,221,122		$	2,152,089		$	69,033		3.2	%

The fluctuation in sales was driven by the program-related changes within the operating segments as described below.

Quarter:

Aerospace Group. The increase in sales was primarily driven by a $2,489 increase in Space System Operations due to startup and completions on multiple programs.

Defense Group. The decrease in sales was primarily driven by:


•	a decrease of $52,713 in Small Caliber Systems due to reduced volume, partially offset by increased profit expectations due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion.

This decrease was partially offset by an increase of $11,265 in the Missile Products division due to increased volume across multiple programs.

Sporting Group. The increase in sales was primarily driven by:

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•	a $80,261 increase in ammunition and accessories products driven by increased volume and previously announced price increases for ammunition, partially offset by a reduction in military accessories due to completion of programs, and


•	an increase of $56,607 due to the acquisition of Savage.

Corporate. The increase in intergroup eliminations is due to increased intergroup sales within the Defense Group.

Six Months:

Aerospace Group. The increase in sales was primarily driven by an $14,262 increase in Space Components Division sales volumes due to increased production across multiple programs.

Defense Group. The decrease in sales was primarily driven by:


•	a decrease of $52,269 in Small Caliber Systems due to reduced volume, partially offset by increased profit expectations due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion,


•	a decrease of $37,339 in Missile Products driven by the loss of the Radford facility management contract, and


•	a decrease of $31,602 in Armament Systems driven by lower volumes on medium-caliber ammunition programs, and completion of programs.

Sporting Group. The increase in sales was primarily driven by:


•	a $153,225 increase in ammunition and accessories products driven by increased volume and previously announced price increases for ammunition, partially offset by a reduction in military accessories due to completion of programs, and


•	an increase of $62,988 due to the acquisition of Savage.

Corporate. The increase in intergroup eliminations is due to increased intergroup sales within the Defense Group.

Cost of Sales

The following is a summary of each operating segment's cost of sales:



	Quarters Ended											Six Months Ended
	September 29, 2013			September 30, 2012			$ Change			% Change		September 29, 2013			September 30, 2012			$ Change			% Change
Aerospace Group	$	251,352		$	244,005		$	7,347		3.0	%	$	492,279		$	475,344		$	16,935		3.6	%
Defense Group	373,512			408,755			(35,243		)	(8.6	)%	744,075			813,670			(69,595		)	(8.6	)%
Sporting Group	317,892			224,634			93,258			41.5	%	592,321			449,776			142,545			31.7	%
Corporate/Eliminations	(67,801		)	(35,874		)	(31,927		)	89.0	%	(116,990		)	(64,591		)	(52,399		)	81.1	%
Total cost of sales	$	874,955		$	841,520		$	33,435		4.0	%	$	1,711,685		$	1,674,199		$	37,486		2.2	%

The fluctuation in cost of sales was driven by the program-related changes within the operating segments as described below.

Quarter:

Aerospace Group. The increase in cost of sales was primarily driven by a $9,636 increase in Space System Operations due to the start up of new programs.

Defense Group. The decrease in cost of sales was primarily driven by:


•	a decrease of $45,929 in Small Caliber Systems due to reduced volume and operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion.

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This decrease was partially offset by an increase of $10,160 in the Missile Products division due to increased volume across multiple programs.

Sporting Group. The increase in cost of sales was primarily driven by:


•	a $48,211 increase in ammunition and accessories products driven by an increase in ammunition sales volume, and facility rationalization costs partially offset by product mix and a reduction in military accessories due to completion of programs, and


•	a $45,047 increase due to the acquisition of Savage.

Corporate. The increase in corporate cost of sales eliminations was driven by increased intercompany transaction eliminations, partially offset by lower pension expense.

Six Months:

Aerospace Group. The increase in cost of sales was primarily driven by a $14,060 increase in Space Components Division due to increased production across multiple programs.

Defense Group. The decrease in cost of sales was primarily driven by:


•	a decrease of $49,083 in Small Caliber Systems due to reduced volume and operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion,


•	a $17,285 decrease in Armament Systems driven by lower volumes on medium-caliber ammunition programs and completion of programs.

Sporting Group. The increase in cost of sales was primarily driven by:


•	a $92,809 increase in ammunition and accessories products driven by an increase in ammunition sales volume, and facility rationalization costs partially offset by product mix and a reduction in military accessories due to completion of programs, and


•	a $49,736 increase due to the acquisition of Savage.

Corporate. The increase in corporate cost of sales eliminations was driven by increased intercompany transaction eliminations, partially offset by lower pension expense.

Operating Expenses



	Quarters Ended											Six Months Ended
	September 29, 2013		As a % of Sales		September 30, 2012		As a % of Sales		$ Change			September 29, 2013		As a % of Sales		September 30, 2012		As a % of Sales		$ Change
Research and development	$	11,801	1.0	%	$	15,914	1.5	%	$	(4,113	)	$	22,226	1.0	%	$	29,921	1.4	%	$	(7,695	)
Selling	46,899		4.1	%	39,609		3.7	%	7,290			89,664		4.0	%	80,136		3.7	%	9,528
General and administrative	60,460		5.3	%	62,187		5.8	%	(1,727		)	123,658		5.6	%	126,588		5.9	%	(2,930		)
Total	$	119,160	10.4	%	$	117,710	11.0	%	$	1,450		$	235,548	10.6	%	$	236,645	11.0	%	$	(1,097	)

Quarter:

Operating expenses increased by $1,450 from the prior year period. Research and development costs decreased from the prior year period due to timing of expenditures in Space Systems Operations. Selling expenses increased primarily due to increased commissions as result of increased sales in the Sporting Group. General and administrative costs decreased due to cost management.

Six Months:

Operating expenses decreased by $1,097 from the prior year period. Research and development costs decreased from the prior year period due to timing of expenditures in Space Systems Operations. Selling expenses increased primarily due to

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increased commissions as result of increased sales in the Sporting Group. General and administrative costs decreased due to cost management.

Income before Interest, Loss on Extinguishment of Debt, Income Taxes, and Noncontrolling Interest



	Quarters Ended									Six Months Ended
	September 29, 2013			September 30, 2012			Change			September 29, 2013			September 30, 2012			Change
Aerospace Group	$	40,570		$	37,077		$	3,493		$	77,656		$	72,028		$	5,628
Defense Group	55,071			64,546			(9,475		)	117,159			155,907			(38,748		)
Sporting Group	57,823			25,133			32,690			101,939			45,927			56,012
Corporate/Eliminations	(5,198		)	(16,199		)	11,001			(22,865		)	(32,617		)	9,752
Total	$	148,266		$	110,557		$	37,709		$	273,889		$	241,245		$	32,644

The increase in income before interest, loss on extinguishment of debt, income taxes, and noncontrolling interest was due to increased sales. Significant changes within the operating segments are also described below.

Quarter:

Aerospace Group. The increase was primarily driven by improved profit expectations in the Aerospace Structures division.

Defense Group. The decrease is due to reduced sales volume, offset by increased profit expectations in the Small Caliber Systems division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion.

Sporting Group. The increase primarily reflects higher sales volumes and prices, Savage results, as well as product mix. This is partially offset by lower military accessories sales and facility rationalization costs.

Corporate. The income before interest, income taxes, and noncontrolling interest primarily reflects expenses incurred for administrative functions that are performed centrally at the corporate headquarters, the difference between pension and postretirement benefit expense calculated under Financial Accounting Standards (FAS) and the expense calculated under U.S. Cost Accounting Standards (CAS), and the elimination of intercompany profits. The change from the prior year is driven by lower pension expenses partially offset by transaction costs related to acquisitions and increased intercompany transaction eliminations.

Six Months:

Aerospace Group. The increase was primarily driven by improved profit expectations in Space Systems Operations and Aerospace Structures division.

Defense Group. The decrease is due to the lack of a gain on the sale of residual assets as a result of the loss of the Radford facility management contract, partially offset by higher profit expectations in the Small Caliber Systems division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion.

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the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated gross margin loss is charged to cost of sales. Changes in estimates of contract sales, costs, or profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current or prior periods. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception.

Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates, positive or negative, due to unanticipated cost growth or risks affecting contract costs and/or the resolution of contract risks at lower costs than anticipated, as well as changes in contract overhead costs over the performance period. Changes in estimates could have a material effect on the company’s consolidated financial position or annual results of operations. During the quarters ended September 29, 2013 and September 30, 2012, the Company recognized favorable operating income adjustments of $70,226 and $58,975, and unfavorable operating income adjustments of $24,933 and $34,450, respectively. The current quarter adjustments were primarily driven by higher profit expectations of $21,816 in the Small Caliber Systems division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion, and improved profit expectations for programs in the Aerospace Structures Division. The prior year quarter adjustments were primarily driven by changes in estimates in Small Caliber Systems and Defense Electronic Systems offset by a reduction in Armament. During the six months ended September 29, 2013 and September 30, 2012, the Company recognized favorable operating income adjustments of $114,846 and $131,898, and unfavorable operating income adjustments of $45,707 and $63,796, respectively. The current year six month period adjustments were primarily driven by higher profit expectations of $32,900 in the Small Caliber Systems division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion, and for programs in Space Systems Operations and Aerospace Structures division. The prior year six month adjustments were primarily driven by greater than expected performance at the Radford facility due to increased production volumes, a gain on sale of residual assets, and changes in estimates as contracts near completion in Energetics and Small Caliber Systems programs.

Net Interest Expense

Quarter:

Net interest expense for the quarter ended September 29, 2013 was $15,219, a decrease of $2,756 compared to $17,975 in the comparable quarter of fiscal 2013. The decrease was due to a decrease in the average amount of debt outstanding and a lower weighted average interest rate.

Six Months:

Net interest expense for the six months ended September 29, 2013 was $29,041, a decrease of $8,685 compared to $37,726 in the comparable six month period of fiscal 2013. The decrease was due to a decrease in the average amount of debt outstanding and a lower weighted average interest rate.

Income Tax Provision



	Quarters Ended										Six Months Ended
	September 29, 2013		Effective Rate		September 30, 2012		Effective Rate		$ Change		September 29, 2013		Effective Rate		September 30, 2012		Effective Rate		$ Change
Income tax provision	$	40,376	30.3	%	$	15,640	19.4	%	$	24,736	$	80,037	32.7	%	$	55,637	29.0	%	$	24,400

ATK’s provision for income taxes includes federal, foreign, and state income taxes. Income tax provisions for interim periods are based on estimated effective annual income tax rates.

Quarter:

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Six Months:

Net Income Before Noncontrolling Interest

Quarter:

Net income before noncontrolling interest for the quarter ended September 29, 2013 was $92,671, an increase of $27,502 compared to $65,169 in second quarter of fiscal 2013. This change was driven by a $39,159 increase in gross profit, a $1,450 increase in operating expenses, a decrease of $2,756 in net interest expense, lack of a loss on the extinguishment of debt of $11,773, and an increase of $24,736 in income taxes over the prior year.

Six Months:

Net income before noncontrolling interest for the six months ended September 29, 2013 was $164,811, an increase of $28,702 compared to $136,109 in the comparable period of fiscal 2013. This increase was driven by a $31,547 increase in gross profit, a $1,097 decrease in operating expenses, a decrease of $8,685 in net interest expense, lack of a loss on the extinguishment of debt of $11,773 and an increase of $24,400 income taxes over the prior year.

Noncontrolling Interest

The noncontrolling interest represents the noncontrolling owner's portion of the income of a joint venture in which ATK is the primary owner. This joint venture was acquired with Composite Optics, Inc. ("COI") and is consolidated into ATK's financial statements.

Liquidity and Capital Resources

ATK manages its business to maximize operating cash flows as the primary source of liquidity. In addition to cash on hand and cash generated by operations, sources of liquidity include a committed credit facility, long-term borrowings, and access to the public debt and equity markets. ATK uses its cash to fund its investments in its existing core businesses and for debt repayment, cash dividends, share repurchases, and acquisition or other activities.

Cash Flow Summary

Cash from operations was $42,553 for the first six months of fiscal 2014 compared to $(32,788) for the first six months of fiscal 2013. Cash flows provided by operations included the impact of a reduction in pension contributions of $100,000 over the prior year, the lack of a LUU flare settlement payment in the prior year, and decreased tax payments offset by increased working capital, primarily due to the timing of payments and collection of a significant receivable in the prior year. Capital expenditures in the first six months of fiscal 2014 were $52,262.

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ATK's cash flows from operating, investing and financing activities, as reflected in the Condensed Consolidated Statement of Cash Flows for the six months ended September 29, 2013 and September 30, 2012 are summarized as follows:



	September 29, 2013			September 30, 2012
Cash flows provided by (used) for operating activities	$	42,553		$	(32,788	)
Cash flows used for investing activities	(360,862		)	(40,163		)
Cash flows provided by (used for) financing activities	13,931			(258,519		)
Net cash flows	$	(304,378	)	$	(331,470	)

Operating Activities.

Net cash provided by operating activities increased $75,341 as compared to a use of cash in fiscal 2013. This increase was driven by a $100,000 reduction in funding payment to the pension trust from $140,000 in the prior year to $40,000 during the current year, a reduction in income taxes of $35,621 over the prior year due to timing, and the absence of a $25,500 payment for the LUU flare settlement that was paid in fiscal 2013. These were partially offset by approximately $109,000 more cash required to fund working capital primarily driven by the absence of a significant receivable collection in the prior year and timing of collections and payments.

Cash used for working capital is defined as net receivables plus net inventories, less accounts payables and contract advances.

Investing Activities.

Net cash used for investing activities increased $320,699, primarily due to the acquisition of Savage.

Financing Activities.

Net cash provided by financing activities increased $272,450 as compared to a use of cash in fiscal 2013. This increase was due to the absence of the long-term debt extinguishment that took place in the prior year and the current year borrowing under the revolver for the Savage acquisition, partially offset by an increase in share repurchases.

Liquidity

In addition to ATK's normal operating cash requirements, the Company's principal future cash requirements will be to fund capital expenditures, debt repayments, employee benefit obligations, share repurchases, dividends, and any strategic acquisitions. 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. ATK's debt service requirements over the next two years consist of principal payments due under the Senior Credit Facility and payment of the short-term debt obligation, as discussed further below. ATK's other debt service requirements consist of interest expense on its debt. Additional cash may be required to repurchase or convert any or all of the convertible notes under certain circumstances, including potential premium above the principal amount of the notes.

During the first six months ended September 29, 2013, ATK paid dividends totaling $16,679. On November 5, 2013, ATK's Board of Directors declared a quarterly cash dividend of $0.26 per share payable on December 12, 2013, to stockholders of record on November 20, 2013. The payment and amount of any future dividends are at the discretion of the Board of Directors and will be based on a number of factors, including our earnings, liquidity position, financial condition, capital requirements, credit ratings and the availability and cost of obtaining new debt. We cannot be certain that ATK will continue to declare dividends in the future and, as such, the amount and timing of any future dividends are not determinable.

Based on ATK's current financial condition, management believes that ATK's cash position, combined with anticipated generation of cash flows and the availability of funding, if needed, through ATK's revolving credit facilities, access to debt and equity markets, as well as potential future sources of funding including additional bank financing and debt markets, will be adequate to fund future growth as well as to service ATK's currently anticipated long-term debt and pension obligations, make capital expenditures, and fund any share repurchases and payment of dividends over the next 12 months.

ATK does not expect that its access to liquidity sources will be materially impacted in the near future. There can be no assurance, however, that the cost or availability of future borrowings, if any, will not be materially impacted by capital market conditions. ATK expects that an appropriations bill or continuing resolution for Government Fiscal Year 2014 will continue to support and fund ATK's programs beyond the current January 15, 2014 deadline and that there are no disruption of programs or payments during any potential future shutdown of government operations and no cancellation or termination of any of ATK's significant programs.

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Long-Term Debt and Credit Facilities

On November 1, 2013, ATK refinanced its existing credit facility and entered into $300,000 in Senior Notes. Due to the refinancing the Revolving Credit Facility increased by $100,000 from $600,000 to $700,000. See footnote 21 for additional detail. As of September 29, 2013, ATK had actual total indebtedness of $1,161,953, and the $600,000 Revolving Credit Facility provided for the potential of additional borrowings up to $395,502. There were borrowings of $90,000 under the Revolving Credit Facility as of September 29, 2013, and ATK had outstanding letters of credit of $114,498, which reduced the amount available under the facility.

ATK's indebtedness at September 29, 2013 consisted of the following:



	September 29, 2013		March 31, 2013
Senior Credit Facility dated October 7, 2010:
Term A Loan due 2015	$	330,000	$	340,000
Term A Loan due 2017	192,500		195,000
Revolving Credit Facility due 2015	90,000		—
6.875% Senior Subordinated Notes due 2020	350,000		350,000
3.00% Convertible Senior Subordinated Notes due 2024	199,453		199,453
Principal amount of long-term debt	1,161,953		1,084,453
Less: Unamortized discounts	6,957		10,576
Carrying amount of long-term debt	1,154,996		1,073,877
Less: current portion	334,996		50,000
Carrying amount of long-term debt, excluding current portion	$	820,000	$	1,023,877

See Note 12 "Long-Term Debt" to the condensed consolidated financial statements in Part I, Item 1 for a detailed discussion of these borrowings.

Senior Credit Facility

In fiscal 2011, ATK entered into a Second Amended and Restated Credit Agreement ("the 2010 Senior Credit Facility"), which was comprised of a Term A Loan of $400,000 and a $600,000 Revolving Credit Facility, both of which were to mature in 2015. Under the terms of the 2010 Senior Credit Facility, ATK exercised its option to increase the Term A Loan by $200,000 (the “Accordion”) during the quarter ended September 30, 2012. Proceeds of the Accordion were used to partially finance the redemption of the $400,000 6.75% Senior Subordinated Notes that were to mature in 2016. Terms of the Accordion were the same as the original Term A Loan with the exception that it was to mature on September 5, 2017, approximately two years after the original Term A Loan. The original Term A Loan was subject to annual principal payments of $20,000 in each of the first and second years and $40,000 in each of the third, fourth, and fifth years, paid on a quarterly basis, with the balance due on October 7, 2015. The Accordion was subject to annual principal payments of $10,000 in each of the first and second years and $20,000 in each of the third, fourth, and fifth years, paid on a quarterly basis, with the balance due on September 5, 2017. As of September 29, 2013, ATK had $90,000 in outstanding borrowings under the Revolving Credit Facility.

Substantially all domestic, tangible and intangible assets of ATK and its subsidiaries are pledged as collateral under the Senior Credit Facility. Borrowings under the 2010 Senior Credit Facility bore interest at a rate equal to either the sum of a base rate plus a margin or the sum of a Eurodollar rate plus a margin. Each margin was based on ATK's senior secured credit ratings. Based on ATK's credit rating as of September 29, 2013, the base rate margin was 1.25% and the Eurodollar margin was 2.25%. ATK must also pay an annual commitment fee on the unused portion of the Revolving Credit Facility.

6.875% Notes due 2020

ATK's 6.875% Notes mature on September 15, 2020. These notes are general unsecured obligations. Interest on these notes accrues at a rate of 6.875% per annum and is payable semi-annually on September 15 and March 15 of each year. ATK has the right to redeem some or all of these notes on or after September 15, 2015, at specified redemption prices. Prior to September 15, 2015, ATK may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium.

3.00% Convertible Notes due 2024

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ATK's 3.00% Convertible Notes mature on August 15, 2024. Interest on these notes is payable on February 15 and August 15 of each year. Beginning August 20, 2014, ATK will be required to pay contingent interest at a rate driven by the average trading price of these notes if the trading price reaches specified levels during the measurement period.

ATK may redeem 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 the Notes on August 15, 2014 and August 15, 2019. Upon such note redemption or repurchase, ATK will also be required to satisfy certain deferred tax liabilities related to the notes. Based on the stock price as of the end of the second quarter, the tax liability is estimated to be about $20,000 if the redemption occurs on August 15, 2014. Holders may also convert their notes at a conversion rate of 13.0323 shares of ATK's common stock per $1 principal amount of these notes (a conversion price of $76.73 per share) in the event that the ATK stock price exceeds certain levels, if ATK were to call these notes for redemption, or upon the occurrence of certain corporate transactions. 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.

Rank and Guarantees

Covenants

ATK's Senior Credit Facility imposes 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 the following financial ratios:



	Senior Leverage Ratio*	Leverage Ratio*	Interest Coverage Ratio†
Requirement	3.00	4.00	3.00
Actual at September 29, 2013	0.82	1.65	14.19
* Not to exceed the required financial ratio
† Not to be below the required financial ratio

The Leverage Ratio is the sum of ATK's total debt plus financial letters of credit and surety bonds, net of up to $100,000 of cash, divided by Covenant EBITDA (which includes adjustments for items such as non-recurring or extraordinary non-cash items, non-cash charges related to stock-based compensation, and intangible asset impairment charges, as well as inclusion of EBITDA of acquired companies on a pro forma basis) for the past four fiscal quarters. The Senior Leverage Ratio is the sum of ATK's senior debt plus financial letters of credit and surety bonds, net of up to $100,000 of cash, divided by Covenant EBITDA. The Interest Coverage Ratio is Covenant EBITDA divided by interest expense (excluding non-cash charges).

Many of ATK's debt agreements contain cross-default provisions so that non-compliance with the covenants within one debt agreement could cause a default under other debt agreements as well. ATK's ability to comply with these covenants and to meet and maintain the financial ratios may be affected by events beyond its control. Borrowings under the Senior Credit Facility are subject to compliance with these covenants. The indentures governing the 6.875% Notes and the 3.00% Convertible Notes also 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. As of September 29, 2013, ATK was in compliance with the covenants in all of its debt agreements and expects to be in compliance for the foreseeable future.

Share Repurchases

On January 31, 2012, ATK's Board of Directors authorized a new share repurchase program of up to $200,000 worth of shares of ATK common stock, executable over the next two years. The shares may be purchased in open market, block purchase, or negotiated transactions, subject to compliance with applicable laws and regulations. The new repurchase authorization also allows the Company to make repurchases under Rule 10b5-1 of the Securities Exchange Act of 1934. This share repurchase program replaces the prior program authorized in 2008. During the six months ended September 29, 2013,

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ATK repurchased 574,669 shares for $48,259 compared to 482,044 shares for $25,000 in the six months ended September 30, 2012 .

Any additional authorized repurchases would be subject to market conditions and ATK's compliance with its debt covenants. ATK's 6.875% Senior Subordinated Notes limit the aggregate sum of dividends, share repurchases, and other designated restricted payments to an amount based on ATK's net income, stock issuance proceeds, and certain other items, less restricted payments made, since April 1, 2001. As of September 29, 2013, this limit was approximately $808,000. As of September 29, 2013, the Senior Credit Facility allows ATK to make unlimited "restricted payments" (as defined in the credit agreement), which, among other items, would allow payments for future stock repurchases, as long as ATK maintains a certain amount of liquidity and maintains certain senior debt limits. When those requirements are not met, the limit is equal to $250,000 plus proceeds of any equity issuances plus 50% of net income since October 7, 2010. The Senior Credit Facility also prohibits dividend payments if loan defaults exist or the financial covenants contained in the Facility are not met.

Shelf Registration

On September 10, 2013, ATK filed a shelf registration statement with the Securities and Exchange Commission allowing ATK to issue an unspecified aggregate amount of debt and/or equity securities from time to time.

Other Contractual Obligations and Commitments

There have been no material changes with respect to the contractual obligations and commitments or off-balance sheet arrangements described in ATK’s Annual Report on Form 10-K for fiscal 2013, except on November 1, 2013, ATK refinanced its existing credit facility and entered into $300,000 in Senior Notes. See footnote 21 for additional detail.

Contingencies

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

In April 2012, ATK made a payment to settle the claim associated with the LUU flare litigation which was accrued for during fiscal 2012.

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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 of 1.50% and 0.80% as of September 29, 2013 and March 31, 2013, respectively. ATK's discount rate is calculated using the 20-year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9%, rounded to the nearest quarter percent. The following is a summary of the amounts recorded for environmental remediation:



	September 29, 2013						September 30, 2012
	Liability			Receivable			Liability			Receivable
Amounts (payable) receivable	$	(58,379	)	$	34,004		$	(61,227	)	$	35,638
Unamortized discount	5,961			(3,123		)	3,731			(1,925		)
Present value amounts (payable) receivable	$	(52,418	)	$	30,881		$	(57,496	)	$	33,713

As of September 29, 2013, the estimated discounted range of reasonably possible costs of environmental remediation was $52,418 to $84,930.

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 Part I of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

New Accounting Pronouncements

See Note 2 to the unaudited condensed consolidated financial statements in Item 1 of Part I of this report.

Inflation and Commodity Price Risk

In management’s opinion, inflation 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 as well as rising oil and energy costs. In particular, the prices of commodity metals, such as lead, steel, zinc, and copper, continue to be volatile. These prices generally impact our small-caliber ammunition and commercial ammunition businesses.

With respect to ATK's commercial ammunition business, ATK has a strategic sourcing and price strategy to mitigate risk from commodity price fluctuation. ATK will continue to evaluate the need for future price changes in light of these trends, ATK's competitive landscape, and its financial results. If commodity costs 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.

Significant increases in commodities can negatively impact operating results with respect to ATK's firm fixed-price contract to supply the DoD's small-caliber ammunition needs and ATK's sales within commercial ammunition. Depending on market conditions, ATK has entered into futures contracts in order to reduce the impact of metal price fluctuations. The majority of the impact has been mitigated on the four-year small-caliber ammunition supply contract, as well as the new seven-year contract with the U.S. Army by the terms within that contract, which is expected to continue into 2019. ATK has entered into futures contracts and purchase orders for the current expected production requirements for fiscal 2014 for both the small-caliber ammunition supply contract and the production of commercial ammunition, thereby mitigating near term market risk; however, if metal prices exceed pre-determined levels, the Defense and Sporting Groups' 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 ended September 29, 2013. For additional information, refer to Item 7A of Part II of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of September 29, 2013, 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 to ensure that information required to be disclosed by ATK in reports that ATK files or submits under the Securities Exchange Act of 1934 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 3 months ended September 29, 2013 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.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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.

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.

ITEM 1A. RISK FACTORS

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 Part I of ATK’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013 describes all known material 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.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES



Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet Be Purchased Under the Program(2)*
July 1 - July 28	86	$	88.12	81,902
July 29 - August 25	1,224	97.60		77,851
August 25 - September 29	42	97.73		93,320
Fiscal Quarter Ended September 29, 2013	1,352	$	94.59	253,073	938,923

____________________________________________________________

* The maximum number of shares that may yet be purchased under the program was calculated using the ATK closing stock price of $98.23 on September 29, 2013.


(1)	The 1,352 shares purchased represent shares withheld to pay taxes upon vesting of shares of restricted stock and performance shares that were granted under ATK's incentive compensation plans.

(2)

On January 31, 2012, ATK's Board of Directors authorized a share repurchase program of up to $200 million worth of shares of ATK common stock, executable over the next two years. The shares may be purchased from time to time in open market, block purchase, or negotiated transactions, subject to compliance with applicable laws and regulations. The repurchase authorization also allows the Company to make repurchases under Rule 10b5-1 of the Securities Exchange Act of 1934. This share repurchase program replaces the prior program authorized in 2008. In the six months ended September 29, 2013, ATK repurchased 574,669 shares under this program for $48.3 million.

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. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



Exhibit Number		Description of Exhibit (and document from which incorporated by reference, if applicable)
2.1		Stock Purchase Agreement, dated as of September 4, 2013, by and among Bushnell Group Holdings, Inc., MidOcean Bushnell Holdings, L.P. and the Registrant (Exhibit 2.1 to Form 8-K dated September 4, 2013).

4.1		Indenture, dated as of November 1, 2013, among the Registrant, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (Exhibit 4.1 to Form 8-K dated November 1, 2013).

4.2		Supplemental Indenture, dated as of November 1, 2013, among the Registrant, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (Exhibit 4.2 to Form 8-K dated November 1, 2013).

4.3		Form of 5.25% Senior Notes due 2021 (Exhibit A to Exhibit 4.1 to Form 8-K dated November 1, 2013).

4.4		Registration Rights Agreement, dated November 1, 2013, by and among the Registrant, the subsidiaries of the Registrant party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers named therein (Exhibit 4.4 to Form 8-K dated November 1, 2013).

10.1		Alliant Techsystems Inc. Income Security Plan, As Amended and Restated Effective July 1, 2013 (Exhibit 10.1 to Form 8-K dated July 30, 2013).

10.2		First Amendment to the Second Amended and Restated Credit Agreement, dated as of September 26, 2013, by and among the Registrant, each Lender party thereto and Bank of America, N.A., as Administrative Agent (Exhibit 10.1 to Form 8-K dated September 26, 2013).

10.3		Third Amended and Restated Credit Agreement, dated as of November 1, 2013, among the Registrant, as the Borrower; Bank of America, N.A., as Administrative Agent; the Lenders party thereto; The Bank of Toyko-Mitsubishi UFJ, LTD., RBC Capital Markets, Suntrust Robinson Humphrey, Inc., U.S. Bank National Association, and Wells Fargo Bank National Association, as Co-Syndication Agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Bank of Tokyo-Mitsubishi UFJ, LTD., RBC Capital Markets, Suntrust Robinson Humphrey, Inc., U.S. Bank National Association, and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunning Managers; and Citibank, N.A., Fifth Third Bank, JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A., PNC Bank National Association, Regions Bank, and Sumitomo Mitsui Banking Corporation, as Co-Documentation Agents (Exhibit 10.1 to Form 8-K dated November 1, 2013).

31.1		Certification of Chief Executive Officer.

31.2		Certification of Chief Financial Officer.

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.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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SIGNATURES

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 8, 2013	By:	/s/ Neal S. Cohen
		Name:	Neal S. Cohen
		Title:	Executive Vice President and Chief Financial Officer
			(On behalf of the Registrant and as principal financial and accounting officer)

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		Page
PART I- Financial Information
Item 1.	Financial Statements	2
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42
PART II
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
SIGNATURES		46

Orbital Atk (OA) Inactive 10-Q2014 Q2 Quarterly report

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