ATK Reports First Quarter FY15 Operating Results

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:

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

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.

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.

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.

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)

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

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

Media Contact:

Amanda Covington
Phone: 703-412-3231
E-mail: [email protected]

Investor Contact:

Michael Pici
Phone: 703-412-3216
E-mail: [email protected]

SOURCE ATK

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