ATK Reports Strong FY10 Year-End and Fourth-Quarter Operating Results

MINNEAPOLIS, May 6 /PRNewswire-FirstCall/ -- Alliant Techsystems (NYSE: ATK) today reported strong operating results for Fiscal Year 2010 (FY10), which ended on March 31, 2010.  Full-year sales in FY10 increased five percent to $4.8 billion, led by the strength of the Armament Systems group. Fully diluted earnings per share (EPS) were the highest in company history.  Strong cash flow enabled ATK to contribute $300 million to its pension funds during the course of the year, while its year-end cash balance provides significant financial flexibility as the company enters FY11.

FY10 EPS was $8.33, compared to $4.14 in the prior year.  FY10 EPS included a previously announced $38 million non-cash impairment charge, which reduced the total by $0.71.  In FY09, the company recorded $109 million of non-cash goodwill impairment charges that reduced FY09 EPS by $3.19.  Excluding both charges, FY10 EPS rose 23 percent to $9.04, compared to $7.33 in the prior year (see reconciliation tables for details).  Orders for the year were $5.1 billion, a book-to-bill ratio of 1.1.  The total year-end backlog was $7.1 billion.  Full-year operating margins were 10.7 percent, which included the impact of the $38 million, non-cash asset impairment charge.  Excluding the charge, full-year margins were 11.4 percent.  Year-end free cash flow was $50 million, which included $300 million of contributions to the company's pension plans and $143 million of capital expenditures (see reconciliation table for details).

Sales in the fourth quarter surpassed $1.2 billion, down 1 percent from the prior-year quarter.  The expected lower sales in the Space Systems group were partially offset by strong sales in the Armament Systems group.  Fully diluted EPS was $1.73, compared to a loss of $1.12 per share in the prior-year quarter. Absent the impairment charges, fully diluted EPS increased 13 percent to $2.44, compared to $2.16 in the prior-year quarter (see reconciliation table for details).  Orders in the fourth quarter were $1.7 billion, a book-to-bill ratio of 1.4.  The orders profile benefitted from a $250 million order for composite aircraft structures for the F-35 Joint Strike Fighter, and continued strong demand for commercial and military ammunition.  Operating margins for the quarter were 8.8 percent.  Excluding the impact of impairment charges, fourth quarter operating margins of 11.8 percent were in line with the prior-year quarter, despite higher pension expenses (see reconciliation table for details).

"FY10 was a strong year for ATK.  The company delivered solid sales and earnings growth, improved profit margins, and successfully expanded into adjacent markets and new product areas," said Mark DeYoung, President and CEO.  "While pension headwinds and NASA programs present near-term challenges, I am confident that our focus on growth, crisp execution, margin improvement, and strong cash flow, combined with our healthy orders backlog, positions us well for continued solid performance."

SUMMARY OF REPORTED RESULTS

The following table presents the company's results for fiscal year 2010 and the fourth quarter ending March 31, 2010 (in thousands).

Sales:

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

SEGMENT RESULTS

In FY10, ATK operated three principal business groups: Armament Systems; Mission Systems; and Space Systems.

ARMAMENT SYSTEMS

For the full year, sales in the Armament Systems group increased 25 percent to $2.2 billion, compared to $1.7 billion in the prior year, reflecting robust growth in military and commercial ammunition, strong sales of non-standard ammunition, energetics programs, and increased modernization efforts at the Lake City and Radford Army Ammunition Plants.  The acquisition of Eagle Industries contributed $63 million to sales.  Organic sales were up 21 percent.

Earnings before interest, taxes, and minority interest (operating profit) for the year rose 50 percent to $257 million from $172 million in the prior year.  The increase was driven by additional sales volume, particularly in commercial and medium-caliber ammunition, as well as improved profitability due to execution efficiencies across the group.  The higher operating profit was partially offset by the costs associated with the construction of an energetics facility for the Australian Ministry of Defense, and higher depreciation and pension expense.

Sales in the fourth quarter rose 26 percent to $549 million compared to $435 million in the prior-year quarter, driven by strong growth of military and commercial ammunition, non-standard ammunition, energetics programs, and increased modernization sales.  Operating profit for the quarter rose 59 percent to $65 million compared to $41 million in the prior-year quarter due to higher sales volume and improved profit margins in commercial ammunition and medium-caliber ammunition.  The higher operating profit for the quarter was partially offset by cost growth associated with the Australian energetics facility, and higher depreciation and pension expense.

MISSION SYSTEMS

Full-year sales in the Mission Systems group rose 5 percent to $1.3 billion, compared to $1.2 billion in the prior year.  The increase was primarily due to stronger sales of commercial and military aircraft structures, and advanced weapon systems.  These were partially offset by lower sales of special mission aircraft, tank ammunition, and composite structures for the USEC American Centrifuge Program.  Full-year operating profit declined 11 percent to $137 million compared to $153 million in the prior year.  The decline was primarily driven by the previously announced $13 million non-cash charge for discontinuing the use of the Mission Research Corporation (MRC) trade name, and higher pension expense (see reconciliation table for details).

Sales in the quarter declined 2 percent to $366 million, compared to $373 million in the prior-year quarter.  The decline was driven by lower sales for the USEC program, tank ammunition, and special mission aircraft, partially offset by growth in commercial and military aircraft structures.  Operating profit was $37 million compared to $49 million in the prior-year quarter, primarily reflecting the charge for the MRC trade name, lower sales volume, and higher pension expense.

SPACE SYSTEMS

As expected, full-year sales in the Space Systems group declined 16 percent to $1.4 billion due primarily to lower sales on the Minuteman III and Space Shuttle programs, and the cancellation of the Kinetic Energy Interceptor (KEI) program.  These were partially offset by stronger sales in space structures and components, and the Ares I program.  Full-year operating profit was $138 million compared to $80 million in the prior year.  FY10 operating profit included the impact of the previously announced $25 million non-cash charge for the discontinuation of the Thiokol trade name.  The FY09 operating profit included the impact of a $109 million non-cash goodwill impairment charge.  Excluding these impairment charges, full-year operating profit was $163 million compared to $188 million in the prior year (see reconciliation tables for details), due primarily to lower sales volume and higher pension expense, partially offset by improved profitability in space structures and components.

Fourth quarter sales in the Space Systems group declined 26 percent to $334 million compared to $449 million in the prior-year quarter.  The decrease reflects reduced sales on the Space Shuttle and Minuteman III programs.  The group reported an operating profit of $13 million in the quarter, compared to an operating loss of $49 million in the prior-year quarter.  Results for both years were impacted by the previously mentioned non-cash charges.

CORPORATE AND OTHER

For the full year, corporate and other expenses remained flat at $20 million.  The company reported strong free cash flow of $50 million, which included the impact of $300 million in pension contributions during FY10.  Capital expenditures for the full year were $143 million.  The effective tax rate for the full year was 35.9 percent.

Fourth quarter corporate and other expenses totaled $5 million, compared to $4 million in the prior-year quarter.  The tax rate in the quarter was 35.5 percent.

OUTLOOK

ATK is establishing initial FY11 financial guidance.   The company expects FY11 sales in a range of $4.75 to $4.85 billion, and EPS in a range of $8.00 to $8.50.  The company expects to generate free cash flow in a range of $275 - $300 million, with capital expenditures of approximately $120 million (see reconciliation table for details).  Average share count is expected to be approximately 34 million.  The effective tax rate for the year is expected to be approximately 34 percent, while pension expenses are expected to be approximately $130 million.

Reconciliation of Non-GAAP Financial Measures

EBIT Margin and Earnings Per Share

The EBIT margin excluding the effect of the non-cash goodwill and trade name impairment charges is a non-GAAP financial measure that ATK defines as income before interest, income taxes, and noncontrolling interest excluding the effects of the non-cash goodwill impairment and trade name charges as a percent of sales.  Earnings per share excluding the impact of the non-cash goodwill and trade name impairment charges is a non-GAAP financial measure that ATK defines as earnings per share less the impact of the non-cash goodwill and trade name impairment charges.

ATK management is presenting these measures so that a reader may compare EBIT margin and EPS excluding these items as these 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 that used by other companies.

Group Information:

Free Cash Flow

Free cash flow is defined as cash provided by operating activities less capital expenditures.  ATK management believes free cash flow provides investors with an important perspective on the cash available for debt repayment, share repurchase, 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.

ATK is a premier aerospace and defense company with more than 18,000 employees in 22 states, Puerto Rico and internationally, and revenues in excess of $4.8 billion.  News and information can be found on the Internet at www.atk.com.

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: assumptions related to the Ares I and Ares V programs for NASA; changes in governmental spending, budgetary policies and product sourcing strategies; the company's competitive environment; risks inherent in the development and manufacture of advanced technology; risks associated with the diversification into new markets; increases in commodity costs, energy prices, and production costs; the terms and timing of awards and contracts; program performance; program terminations; changes in cost estimates related to relocation of facilities; the outcome of contingencies, including litigation and environmental remediation; 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; changes in tax rules or pronouncements; economic conditions; and the company's capital deployment strategy, including debt repayment, share repurchases, pension funding, mergers and acquisitions 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.

1) At the beginning of the company's fiscal year on April 1, 2009, ATK retrospectively adopted FSP APB14-1 "Accounting for Convertible Debt Instruments that may be settled in cash upon conversion" (FSP 14-1) and was required to restate certain financial information for all prior periods.  The adoption resulted in an increase to non-cash interest expense of $23.921 million ($14.353 million net of tax, or $0.42 diluted EPS) for the year ended March 31, 2010.  All fiscal 2009 financial amounts included in this press release have been restated to reflect the adoption of FSP 14-1.

SOURCE ATK