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ATK Reports First Quarter FY15 Operating Results

Companies mentioned in this article: ATK

ARLINGTON, Va., July 31, 2014 /PRNewswire/ -- ATK (NYSE: ATK) today reported operating results for the first quarter of its Fiscal Year 2015 (FY15), which ended on June 29, 2014.

ATK reported first quarter sales of $1.3 billion, up 18 percent from the prior-year quarter, due to higher sales in the Sporting Group (including acquisitions) and the Aerospace Group, partially offset by a decrease in the Defense Group.

Operating profit in the first quarter was $156 million, an increase of approximately $30 million from the prior-year period. Excluding facility rationalization, transaction costs, and the Radford Army Ammunition Plant (RFAAP) pension segment close out, FY15 first quarter adjusted operating profit increased 35 percent to approximately $170 million compared to $126 million in the first quarter of FY14 (see reconciliation table for details). The increase was primarily driven by higher profit in the Sporting Group (including acquisitions) and lower pension expense, partially offset by lower profit, as expected, in the Defense Group. This lower profit resulted from the transition to a new contract and the absence of prior-year performance improvements in the Small Caliber Systems division. Net income for the quarter was up 19 percent to $85.6 million compared to $72 million in the prior-year quarter. Adjusted net income increased 31 percent to $94 million (see reconciliation table for details). The increase relative to prior-year adjusted net income was due to higher profit, partially offset by higher interest expense resulting from increased debt.

Fully diluted earnings per share (EPS) in the quarter were $2.59 compared to $2.24 in the prior-year period. Adjusted first quarter fully diluted EPS increased 28 percent to $2.86 (see reconciliation table for details). First quarter EPS increased due to higher net income, partially offset by increased share count.

First quarter orders were $1.3 billion, down from $1.4 billion, driven by lower orders in ATK's Sporting and Aerospace Groups, partially offset by an increase in the Defense Group. ATK's book-to-bill ratio for the quarter was 1.0. (Please see segment and corporate results below.)

"ATK had a strong financial quarter with year-over-year increases in sales, operating profit and EPS," said Mark DeYoung, ATK President and Chief Executive Officer. "The company also achieved significant milestones in all three groups during the quarter. The Aerospace Group recorded strong performance across its programs. The Defense Group secured new orders from U.S. allies in support of our international growth strategy. And the Sporting Group delivered 13 percent organic sales growth and an increase of 50 percent organic operating profit."

SUMMARY OF REPORTED RESULTS

ATK operates in a three business group structure: the Aerospace Group, the Defense Group and the Sporting Group. The following tables present the company's results for the first quarter of the fiscal year, which ended June 29, 2014 (in thousands).

Sales:

                   Quarter Ended
                   -------------

                   June 29, 2014                                                  $              %

                                                    June 30, 2013           Change            Change
                                                    -------------           ------            ------

    Aerospace
     Group                                 $332,920                          307,188                    25,732

                                                                         $                         $            8.4 %

    Defense Group                442,151                                             (32,665)

                                                                   474,816                           (6.9)  %

    Sporting Group               563,612                                              205,302

                                                                   358,310                            57.3  %

    Eliminations                 (63,292                                              (1,721)

                                                                  (61,571)                             2.8  %
                                                                   -------

    Total sales                          $1,275,391                        1,078,743                   196,648

                                                                         $                         $           18.2 %
                                                                       ===                       ===

Income before Interest, Income Taxes, and Noncontrolling Interest (Operating Profit):

                   Quarter Ended
                   -------------

                   June 29, 2014                  June 30, 2013                 $              %
                                                                          Change            Change
                                                                          ------            ------

    Aerospace
     Group                                $38,378                          $37,086                    $1,292   3.5 %

    Defense Group                 45,144                           62,088          (16,944)         (27.3)  %

    Sporting Group                78,963                           44,117            34,846           79.0  %

    Corporate                    (6,930)                        (17,666)            10,736         (60.8)  %
                                  ------                          -------            ------

    Total
     operating
     profit                              $155,555                         $125,625                   $29,930  23.8 %
                                         ========                         ========                   =======

AEROSPACE GROUP

First quarter sales were up 8 percent to $333 million compared to $307 million in the prior-year quarter, primarily driven by increased sales in the Aerospace Structures and Space Systems Operations divisions, partially offset by a decrease in the Space Components division.

Operating profit in the quarter increased 3 percent to $38 million compared to $37 million in the prior-year quarter. The increase was driven by higher sales, partially offset by the absence of improved profit expectations in the Space Systems Operations division recorded in the prior year.

DEFENSE GROUP

Sales in the first quarter were down 7 percent to $442 million compared to $475 million in the prior-year quarter. Excluding the RFAAP pension segment close out, adjusted first quarter sales were $439 million (see reconciliation table for details). As expected, lower volumes and pricing under a new contract in the Small Caliber Systems division, as well as the absence of the prior-year performance improvements on a program within that division, contributed to the Defense Group's sales decrease, which was partially offset by foreign military sales.

Operating profit for the quarter was down 27 percent to $45 million compared to $62 million in the prior-year quarter. The decrease was driven by reduced sales as noted above.

SPORTING GROUP

First quarter sales increased 57 percent to $564 million compared to $358 million in the prior-year quarter. Organic sales increased 13 percent. Sales from Savage and Bushnell were $42 million and $125 million, respectively.

Operating profit in the first quarter increased 79 percent to $79 million compared to $44 million in the prior-year quarter. Organic operating profit increased 50 percent, driven by additional sales as noted above, product mix, and the absence of prior-year restructuring and inventory write-offs for military accessories. Operating profit from Savage and Bushnell was $8 million and $5 million, respectively, including transition costs for Bushnell.

CORPORATE AND OTHER

In the first quarter, corporate and other expense totaled $7 million compared to an expense of $18 million in the prior-year quarter. On an adjusted basis, corporate and other was income of $7 million (see reconciliation table for details). This year-over-year improvement reflects lower pension expense. Interest expense was $23 million compared to $14 million in the prior-year quarter, primarily reflecting the increased average debt level as a result of the November 2013 acquisition of Bushnell.

The tax rate for the quarter was 35.2 percent compared to 35.5 percent in the prior-year quarter. The lower tax rate is primarily due to nondeductible acquisition-related costs in the prior year, offset by the absence of the Federal R&D tax credit in the current year.

Free cash flow use was $128 million down from a use of $165 million in the prior year (see reconciliation table for details), primarily due to lower pension contributions.

OUTLOOK

ATK reaffirms its FY15 full-year guidance for sales in the range of $5.15 billion to $5.25 billion, and is increasing FY15 full-year guidance for EPS and free cash flow. ATK now expects FY15 EPS, excluding transaction costs for the full year, in a range of $11.50 to $11.90 (see reconciliation table for details), up from previous guidance of $10.80 to $11.20. The increase in EPS guidance reflects strong performance in the quarter, and the retirement of the convertible notes and the tax rate change of $0.25 and $0.15, respectively. The company now expects full-year FY15 free cash flow, excluding transaction costs, in a range of $280 million to $305 million (see reconciliation table for details), up from $250 million to $275 million, due to the strong performance as noted above.

Due to ATK's tender offer for its outstanding 3.00% convertible notes, the FY15 share count is estimated to be approximately 32 million shares.

The effective tax rate for the year is expected to be approximately 34 percent, down from previous guidance of approximately 35 percent, due primarily to a higher Domestic Manufacturing Deduction and lower state taxes. This assumes retroactive extension of the Federal R&D tax credit that expired on December 31, 2013.

The FY15 guidance above is for ATK's ongoing operation in its current form and does not include any impact for the proposed tax-free spin-off of the company's Sporting Group to ATK shareholders and the tax-free, all-stock merger between ATK's Aerospace and Defense Groups and Orbital Sciences Corporation (NYSE: ORB), which was announced on April 29, 2014.

"ATK performed very well in the quarter, and we expect to continue delivering strong results for the full year," said Neal Cohen, ATK Executive Vice President and Chief Financial Officer. "This outlook is reflected in our raised FY15 guidance and our recent execution of the tender offer, which retired more than 90 percent of our convertible notes."

Reconciliation of Non-GAAP Financial Measures

Sales, EBIT, Margins, and Earnings Per Share

The Sales, EBIT, Margins, and Earnings Per Share (EPS) excluding corporate facility rationalization costs, transaction costs associated with proposed transactions, and Radford pension segment close out are non-GAAP financial measures that ATK defines as Sales, EBIT, Margins, and EPS excluding the impact of these items. ATK management is presenting these measures so a reader may compare Sales, EBIT, Margins, and EPS excluding these items as the measures provide investors with an important perspective on the operating results of the Company. ATK management uses these measurements internally to assess business performance, and ATK's definition may differ from those used by other companies.

    Total ATK for the Quarter Ended
    -------------------------------


    June 29, 2014:


                                    Sales              EBIT             Margin    Taxes             Net Income             EPS
                                    -----              ----             ------    -----             ----------             ---

                                             1,275,391                $                                        $                      $85,598   $2.59

    As reported                           $                              155,555   12.2  %                         46,498

    Facility
     Rationalization                      -             10,623                       4,037                  6,586             0.20

    Transaction Costs

                                                         6,682                       2,539                  4,143             0.13

    Radford pension
     segment close out                        $(3,074)

                                                               (3,074)                     (1,168)                     (1,906)       (0.06)
                                                                ------                       ------                      ------         -----

    As adjusted                             $1,272,317                    169,786                               $                  $          $

                                                                     $            13.3  %                         51,906               94,421    2.86
                                                                   ===                                            ======               ======    ====


    Defense Group for the
     Quarter Ended
    ---------------------


    June 29, 2014:




                            Sales                  EBIT Margin
                            -----                  ---- ------

    As reported                           $442,151       $45,144 10.2  %

    Radford pension segment
     close out                    (3,074)

    As adjusted                           $439,077       $45,144 10.3  %
                                          ========       =======  ======



    Corporate for the Quarter Ended
    -------------------------------


    June 29, 2014:


                                      EBIT
                                      ----

                                                 $(6,930)

    As reported

    Facility Rationalization              10,623

    Transaction Costs                      6,682

    Radford pension segment close out            $(3,074)
                                                 -------

    As adjusted                                  $7,301
                                                 ======


Adjusted Earnings Per Share-Guidance Reconcilation Table

The projected Adjusted Earnings Per Share (EPS), excluding transaction costs for the full year, associated with proposed transactions is a non-GAAP financial measure that ATK defines as EPS excluding the impact of this item. ATK management is presenting this measure so a reader may compare EPS excluding this item as this measure provides investors with an important perspective on the operating results of the Company. ATK management uses this measurement internally to assess business performance, and ATK's definition may differ from those used by other companies.

    Current FY15 Full Year
     Guidance                      Low            High
                                   ---            ----


                                           $11.37              $11.77

            EPS Guidance including
                 transaction costs

    Transaction costs incurred to
     date                             0.13            0.13
                                                     ----

    Adjusted EPS Guidance                  $11.50               11.90

                                                             $
                                                           ===

Free Cash Flow

Free cash flow is defined as cash provided by operating activities less capital expenditures and excluding transaction costs incurred to date. ATK management believes free cash flow provides investors with an important perspective on the cash available for debt repayment, cash dividends, share repurchases and acquisitions after making the capital investments required to support ongoing business operations. ATK management uses free cash flow internally to assess both business performance and overall liquidity.

                       Quarter ended June              Quarter ended      Projected Year Ending March
                             29, 2014                  June 30, 2013                31, 2015
                      -------------------             --------------     ----------------------------

    Cash provided by
     operating
     activities                             $(99,840)                                       (135,763)         $411,000-$436,000

                                                                       $

    Capital
     expenditures                 (29,501)                  (29,552)                       ~(135,000)

    Transaction costs
     incurred to
     date, net of tax                1,117

                                                                                               ~4,000

    Free cash flow                         $(128,224)                                       (165,315) $280,000-$305,000

                                                                       $
                                                                     ===

ATK is an aerospace, defense, and commercial products company with operations in 22 states, Puerto Rico, and internationally. News and information can be found on the Internet at www.atk.com, on Facebook at www.facebook.com/atk, or on Twitter @ATK.

Certain information discussed in this press release constitutes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Although ATK believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected. Among these factors are: the risk that the anticipated benefits and cost savings from the Bushnell transaction may not be fully realized or may take longer than expected to realize; assumptions regarding the demand for Bushnell's products; the ability of ATK to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners of Bushnell; costs or difficulties related to the integration of Bushnell; and changes in the business, industry or economic conditions or competitive environment; assumptions related to the profitability of commercial aerospace structures programs; uncertainties related to the development of NASA's new Space Launch System; demand for commercial and military ammunition; sales levels of firearms; changes in federal and state firearms and ammunition regulation; changes in governmental spending, budgetary policies, including the impacts of sequestration under the Budget Control Act of 2011, and product sourcing strategies; the company's competitive environment; risks inherent in the development and manufacture of advanced technology; risks associated with compliance and diversification into new markets, including international markets; assumptions regarding the company's long-term growth strategy; assumptions regarding growth opportunities in international and commercial markets; increases in commodity costs, energy prices and production costs; foreign currency exchange rates and fluctuations in those rates; assumptions regarding orders; the terms and timing of awards and contracts; program performance; program terminations; the outcome of contingencies, including litigation and environmental remediation; cybersecurity and other industrial and physical security threats; actual pension asset returns and assumptions regarding future returns, discount rates and service costs; capital market volatility and corresponding assumptions related to the company's shares outstanding; the availability of capital market financing; changes to accounting standards or policies; changes in tax rules or pronouncements; economic conditions; and the company's capital deployment strategy, including debt repayment, dividend payments, share repurchases, pension funding, mergers and acquisitions -- including the related costs and any integration thereof. ATK undertakes no obligation to update any forward-looking statements. For further information on factors that could impact ATK, and statements contained herein, please refer to ATK's most recent Annual Report on Form 10-K and any subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with the U.S. Securities and Exchange Commission.

ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(preliminary and unaudited)

                                    QUARTERS ENDED
                                    --------------

    (Amounts in thousands except
     per share data)                June 29, 2014                                              June 30, 2013

    Sales                                                   $1,275,391      1,078,743

                                                                         $

    Cost of sales                                   964,806                             836,731
                                                    -------                             -------

    Gross profit                                    310,585                             242,012

    Operating expenses:

    Research and development                          8,814                              10,425

    Selling                                          63,122                              42,764

    General and administrative                       83,094                              63,198
                                                     ------                              ------

    Income before interest, income
     taxes, and noncontrolling
     interest                                       155,555                                           125,625

    Interest expense                               (23,416)                           (13,890)

    Interest income                                      26                                  67

    Income before income taxes and
     noncontrolling interest                        132,165                                           111,802

    Income tax provision                             46,498                              39,661
                                                     ------                              ------

    Net income                                       85,667                              72,141

    Less net income attributable to
     noncontrolling interest                             69             103

    Net income attributable to
     Alliant Techsystems Inc.                                  $85,598         72,038

                                                                         $
                                                                       ===

    Alliant Techsystems Inc.
     earnings per common share:

    Basic                                                        $2.71           2.26

                                                                         $

    Diluted                                                      $2.59           2.24

                                                                         $

    Cash dividends paid per share                                $0.32          $0.26

    Alliant Techsystems Inc.
     weighted-average number of
     common shares outstanding:

    Basic                                            31,640                              31,892

    Diluted                                          33,108                              32,099

    Net Income (from above)                                    $85,667         72,141

                                                                         $

    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 $2,958
     and $2,830                                     (4,758)                                                   (4,511)

    Reclassification of net
     actuarial loss for pension and
     postretirement benefit plans
     recorded to net income, net of
     tax expense of $(11,587), and
     $(14,319)                                      18,636                                                     22,653

    Change in fair value of
     derivatives, net of tax
     (expense) benefit of $(2,101),
     and $3,817                                       3,356                                           (5,981)

    Other, net of tax (expense)
     benefit of $(100) and $12                          160                                              (20)

    Change in cumulative
     translation adjustment, net of
     income taxes of $749, and $0                     1,196                                                 -

    Total other comprehensive
     income                                                    $18,590        $12,141


    Comprehensive income                            104,257                              84,282

    Less comprehensive income
     attributable to noncontrolling
     interest                                            69                                               103

    Comprehensive income
     attributable to Alliant
     Techsystems Inc.                                         $104,188         84,179

                                                                         $


ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(preliminary and unaudited)

    (Amounts in thousands except share
     data)                             June 29, 2014                March 31, 2014
    ---------------------------------- -------------                --------------

    ASSETS

    Current assets:

    Cash and cash equivalents                              $132,739                          266,632

                                                                                       $

    Net receivables                            1,686,669                   1,473,820

    Net inventories                              562,216                     558,250

    Deferred income tax assets                    93,914                      93,616

    Other current assets                          64,556                      69,280
                                                  ------                      ------

    Total current assets                       2,540,094                   2,461,598

    Net property, plant, and equipment           693,353                     697,551

    Goodwill                                   1,920,914                   1,916,921

    Net intangible assets                        569,775                     577,850

    Deferred charges and other non-
     current assets                              120,821                     117,226
                                                 -------                     -------

    Total assets                                         $5,844,957                       5,771,146

                                                                                       $
                                                                                     ===

    LIABILITIES AND EQUITY

    Current liabilities:

    Current portion of long-term debt                      $247,666                        $249,228

    Accounts payable                             318,358                     315,605

    Contract advances and allowances             120,032                     105,787

    Accrued compensation                          91,139                     128,821

    Accrued income taxes                          36,455                       7,877

    Other accrued liabilities                    293,143                     322,832
                                                 -------                     -------

    Total current liabilities                  1,106,793                   1,130,150

    Long-term debt                             1,843,750                   1,843,750

    Deferred income tax liabilities              129,363                     117,515

    Postretirement and postemployment
     benefits liabilities                         71,884                      74,874

    Accrued pension liability                    550,244                     557,775

    Other long-term liabilities                  119,235                     124,944
                                                 -------                     -------

    Total liabilities                                    $3,821,269                      $3,849,008

    Commitments and contingencies

    Common stock-$.01 par value:

    Authorized-180,000,000 shares,
     Issued and outstanding-31,934,727
     shares at June 29, 2014 and
     31,842,642 shares at March 31,
     2014                                            319                         318

    Additional paid-in-capital                   540,080                     534,015

    Retained earnings                          2,864,643                   2,789,264

    Accumulated other comprehensive
     loss                                       (662,219                   (680,809)

    Common stock in treasury, at cost-
     9,641,470 shares held at June 29,
     2014 and 9,712,877 shares held at
     March 31, 2014                            (729,767)                  (731,213)

    Total Alliant Techsystems Inc.
     stockholders' equity                      2,013,056                   1,911,575

    Noncontrolling interest                       10,632                      10,563
                                                  ------                      ------

    Total equity                               2,023,688                   1,922,138
                                               ---------                   ---------

    Total liabilities and equity                         $5,844,957                       5,771,146

                                                                                       $
                                                                                     ===

ALLIANT TECHSYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(preliminary and unaudited)

                                        QUARTERS ENDED
                                        --------------


                               June 29, 2014       June 30, 2013

    (Amounts in thousands)
    ---------------------

    Operating
     Activities


    Net income                        $85,667

                                                                     $72,141

    Adjustments to net income
     to arrive at cash
     provided by operating
     activities:

    Depreciation                     24,949                          23,143

    Amortization of intangible
     assets                           8,369                           2,734

    Amortization of debt
     discount                         1,927                           1,799

    Amortization of deferred
     financing costs                  1,174                             899

    Deferred income taxes                49                              54

    (Gain) loss on disposal of
     property                           761                              87

    Share-based plans expense         3,861                           3,012

    Excess tax benefits from
     share-based plans               (6,739)                          (622)

    Changes in assets and
     liabilities:

    Net receivables                (212,474)                          (868)

    Net inventories                  (3,980)                       (18,208)

    Accounts payable                  8,989                       (175,904)

    Contract advances and
     allowances                      14,245                        (18,681)

    Accrued compensation            (50,797)                       (46,601)

    Accrued income taxes             42,392                          30,865

    Pension and other
     postretirement benefits         11,267                        (12,918)

    Other assets and
     liabilities                    (29,500)                          3,305
                                    -------                           -----

    Cash used for operating
     activities                     (99,840)                      (135,763)

    Investing Activities

    Capital expenditures            (29,501)                       (29,552)

    Acquisition of business,
     net of cash acquired                 -                      (313,963)

    Proceeds from the
     disposition of property,
     plant, and equipment             2,168                           5,190
                                      -----                           -----

    Cash used for investing
     activities                     (27,333)                      (338,325)

    Financing Activities

    Borrowings on line of
     credit                          65,000                         200,000

    Payments on line of credit      (65,000)                              -

    Payments made on bank debt       (3,489)                       (12,500)

    Purchase of treasury
     shares                               -                       (24,322)

    Dividends paid                  (10,219)                        (8,372)

    Proceeds from employee
     stock compensation plans             -                            656

    Excess tax benefits from
     share-based plans                6,739                             622
                                      -----                             ---

    Cash (used for) provided
     by financing activities         (6,969)                        156,084

    Effect of foreign exchange
     rate fluctuations on cash          249                               -

    Decrease in cash and cash
     equivalents                   (133,893)                      (318,004)

    Cash and cash equivalents
     at beginning of period         266,632                         417,289
                                                                   -------

    Cash and cash equivalents
     at end of period                $132,739

                                                                     $99,285
                                                                     =======

Media Contact:

Amanda Covington
Phone: 703-412-3231
E-mail: amanda.covington@atk.com

Investor Contact:

Michael Pici
Phone: 703-412-3216
E-mail:
michael.pici@atk.com

SOURCE ATK