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TABLE OF CONTENTS
PART IV

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended March 31, 2012

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

LOGO

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Name of each exchange on which registered
Common Stock, par value $.01   New York Stock Exchange
Preferred Stock Purchase Rights   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.



          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

          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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

          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 October 2, 2011, the aggregate market value of the registrant's voting common stock held by non-affiliates was approximately $1.789 billion (based upon the closing price of the common stock on the New York Stock Exchange on September 30, 2011).

          As of May 13, 2012, there were 33,131,599 shares of the registrant's voting common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

          Portions of the registrant's definitive Proxy Statement for the 2012 Annual Meeting of Stockholders are incorporated by reference into Part III.

   


Table of Contents


TABLE OF CONTENTS

 
   
  Page

PART I

   

Item 1.

 

Business

  1

Item 1A.

 

Risk Factors

  11

Item 1B.

 

Unresolved Staff Comments

  23

Item 2.

 

Properties

  23

Item 3.

 

Legal Proceedings

  24

Item 4.

 

Mine Safety Disclosures

  25

PART II

   

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  25

Item 6.

 

Selected Financial Data

  29

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

  31

Item 7A.

 

Quantitative and Qualitative Disclosures about Market Risk

  59

Item 8.

 

Financial Statements and Supplementary Data

  61

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  113

Item 9A.

 

Controls and Procedures

  113

Item 9B.

 

Other Information

  115

PART III

   

Item 10.

 

Directors, Executive Officers and Corporate Governance

  115

Item 11.

 

Executive Compensation

  115

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  115

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

  116

Item 14.

 

Principal Accountant Fees and Services

  116

PART IV

   

Item 15.

 

Exhibits and Financial Statement Schedules

  117

SIGNATURES

  118

EXHIBIT INDEX

  120

Table of Contents


PART I

ITEM 1.    BUSINESS

        Alliant Techsystems Inc. ("ATK" or the "Company") is an aerospace, defense, and commercial products company that operates in 22 states, Puerto Rico, and internationally. ATK was incorporated in Delaware in 1990.

        ATK has grown substantively as a result of both internal expansion and a series of acquisitions. ATK has made the following acquisitions over the past five years:

    Swales Aerospace in June 2007

    Eagle Industries in March 2009

    Blackhawk Industries Products Group Unlimited, LLC in April 2010

        ATK is a leading producer of military small-caliber ammunition for use in soldier-carried weapons such as automatic and semi-automatic rifles, and machine guns. The Company is also one of the largest producers of medium-caliber ammunition used by crew-served weapons on armored vehicles and aircraft. ATK is one of the largest producers of military large-caliber ammunition used by tanks. In addition, the Company is a producer of ammunition for the sport enthusiast and law enforcement markets.

        ATK is a leading manufacturer of solid rocket motors, supporting tactical, strategic, missile defense, and space launch applications. Its large solid rocket motors support NASA's current and planned human spaceflight programs, including the Space Launch Systems heavy-lift vehicle and the International Space Station Cargo Resupply Services. The Company produces other large solid rocket motors used to launch a wide variety of strategic missiles and launch vehicles for satellite insertions or deep-space scientific exploration, including the Trident II ("D5") and Minuteman III which provide strategic deterrence capability for the United States and its allies; Ground-based Missile Defense interceptors, SM-3 interceptors, and missile defense targets; and Graphite Epoxy Motors and Orion Motors for launch vehicles such as the Delta II, Delta IV, Minotaur, Taurus, and Antares. The Company also produces smaller solid rocket motors for tactical missiles such as the Hellfire and Maverick. In addition, ATK is a market leader in orbit insertion solid rocket motors that place satellites in their proper orbit once they have arrived in space.

        ATK is a provider of composite components for commercial and military aircraft, as well as affordable, precision-strike weapon systems. The Company manufactures medium-caliber chain guns for use on a variety of land, sea and airborne platforms. It is a provider of satellite and spacecraft components and subsystems and tactical accessories for military, security, law enforcement and sport enthusiast markets. ATK provides propellent and energetic materials. It provides advanced missile warning sensors for a variety of aircraft; fuzes for a wide variety of weapon systems; and advanced barrier systems used by the U.S. Armed forces and its allies. Additional business lanes include special mission aircraft for intelligence, surveillance and reconnaissance missions; and advanced flares and decoys used for night operations and search and rescue missions.

        We conduct our business through a number of separate legal entities that are listed in Exhibit 21 to this report. These legal entities function within our operating segments. As of March 31, 2012, ATK's four operating segments were Aerospace Systems, Armament Systems, Missile Products, and Security and Sporting.

        Sales, income before interest, income taxes and noncontrolling interest, total assets, and other financial data for each segment for the three years ended March 31, 2012 are set forth in Note 16 to the consolidated financial statements, included in Item 8 of this report.

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        References in this report to a particular fiscal year refer to the year ended March 31 of that calendar year.


Aerospace Systems

        Aerospace Systems, which generated 29% of ATK's external sales in fiscal 2012, develops and produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, missile defense interceptors, small and micro-satellites, satellite components, structures and subsystems, lightweight space deployables and solar arrays, and provides engineering and technical services. Additionally, Aerospace Systems operates in the military and commercial aircraft and launch structures markets. Other products include illuminating flares and aircraft countermeasures. The following is a description of the divisions within the group:

Aerospace Structures

        The division is a provider of composite aircraft components for military and commercial aircraft manufacturers, primarily leveraging advanced automated composite fabrication techniques, including Fiber-Placement Machines and ATK-proprietary Automated Stiffener Forming Machines (ASFM). It provides a wide variety of composite parts for the F-35 II Lightning, a fifth-generation fighter aircraft for the U.S. military and its allies—these parts include upper and lower wing skins, fuselage skins, nacelles, ducts, and access covers. It also provides composite radomes and apertures for a number of military aircraft, including the RQ-4 Global Hawk. The division has completed a commercial aerospace composites center of excellence facility in Clearfield, Utah, to support its commercial aerospace customers, including Airbus, General Electric, Rolls Royce, and Boeing. The division is under contract to produce the majority of the composite stringers and frames for the Airbus A350XWB wide body passenger jetliner, using the ASFM process. Additional major commercial programs include production of the fan containment case for General Electric's GEnx engine which will be used to power the Boeing 747-8 Cargo aircraft, and a partnership with Rolls Royce to produce the aft fan case for the Trent XWB engine, which will be used to power the Airbus A350 aircraft.

Space Systems Operations

        The division is the production home for the Company's reusable solid rocket motors for NASA's current and planned human spaceflight programs, including the Space Launch System ("SLS") heavy lift vehicle and the International Space Station Cargo Resupply Services. In addition, the division produces a launch abort system ("LAS") motor for the Orion crew capsule that was designed to safely pull the crew away from the launch vehicle in the event of an emergency during the launch. The Space Shuttle program was completed in early 2012. During fiscal 2012, ATK continued performance on the SLS program and achieved all contractual milestones. The President's government fiscal year ("GFY") 2013 budget released in February 2012 identified funding for the continuation of the Space Launch System with a planned use of ATK's solid rocket motors for ground testing and at least the first two SLS test flights. ATK is operating under an undefinitized contract action that has transitioned ATK's activities on the Ares I program into the Space Launch System architecture which continues to have strong Congressional support. The recently-enacted GFY 2012 Appropriations Act for NASA codified in statute the funding level and program definition for the Space Launch System. Congress will determine, as part of the 2013 appropriations legislative process, what the policy and funding levels for NASA will be and allocate GFY 2013 funding for the Space Launch System.

        The division also produces large solid rocket motors for the Trident II ("D5") Fleet Ballistic Missile and the Minuteman III Intercontinental Ballistic Missile. These two programs provide the backbone of the United States' strategic deterrence. The Minuteman III program completed its full rate production in fiscal 2010 and was reduced to a "warm-line" status in fiscal 2011. Additional solid rocket motors being produced by the division include GEM 40 and GEM 60 motors for the Delta II,

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Orion® motors for the Orbital Science Corporation's Pegasus®, Taurus®, and Minotaur launch vehicles, and CASTOR® motors for Orbital Science Corporation's Taurus rocket, Missile Defense Agency targets, and Germany's MAXUS program. The division supplies Orion® motors for all three stages of the ground-based missile defense system. In addition, the division produces advanced flares and decoys that provide illumination for search and rescue missions, and countermeasures against missile attacks. The division also produces thermal management systems that provide heating and cooling for spacecraft, either on-orbit or traveling through the solar system. In fiscal 2010, the division also successfully delivered the first satellite bus ("ORS-1") for the U.S. Air Force's Operationally Responsive Space program.

Structures and Components

        The division is a U.S. supplier of satellite mechanical components and assemblies for a wide variety of commercial, civil, and defense spacecraft programs. It has strong market positions in satellite fuel and oxidizer tanks, precision structures, solar power arrays, deployable structures, and various spacecraft composite primary and secondary structures. The division produces the very stable backplane structure for the James Webb Space Telescope ("JWST") mirrors, critically enabling that mission. Under contract to Lockheed Martin, the division has now transitioned from low-rate to full-rate production on the Terminal High Altitude Area Defense ("THAAD") for the mid-body aerostructures. The business also supports multiple Lockheed-Martin A2100 spacecraft programs and Orbital Science's STAR2 commercial geosynchronous programs. Additionally, the unit supports NASA's manned space initiatives via the solar arrays on the Orion/Multi-Purpose Crew Vehicle ("MPCV") and the propulsion tanks on Orbital Science's Crew Resupply Service ("CRS") Cygnus vehicle.


Armament Systems

        Armament Systems, which generated 34% of ATK's external sales in fiscal 2012, develops and produces military small-, medium-, and large-caliber ammunition, precision munitions, gun systems, and propellant and energetic materials. It also operates the U.S. Army ammunition plants in Independence, MO and Radford, VA. The following is a description of the divisions within the group:

Advanced Weapons

        The division is home to the majority of ATK's precision fire weapons and large-caliber ammunition programs. It is under contract to produce the Precision Guidance Kit for 155mm artillery and is the developer and producer of the Mortar Guidance Kit for the U.S. Army's Advanced Precision Mortar Initiative ("APMI"). The division is a large producer of large-caliber ammunition for the United States and allied nations. An additional program of note is the Individual Semi-Automatic Airburst System ("ISAAS") under development for the U.S. Army. ATK was also awarded additional funding to support urgent fielding of the ISAAS for operational evaluation in Afghanistan.

Energetic Systems

        The division currently operates the Radford Army Ammunition Plant ("RFAAP") in Radford, Virginia, where it develops and produces a variety of energetics, including nitrocellulose and nitroglycerin. It also manufactures propellants for medium- and large-caliber ammunition and tactical rocket motors. On January 24, 2012, ATK was notified by the U.S. Army that the Company had not been awarded the contract for the continued operation and maintenance of RFAAP. ATK is currently under contract to operate the RFAAP through June 30, 2012. Sales in fiscal 2012 associated with the RFAAP contract were $195 million compared to $233 million in the prior year. ATK will continue to operate its New River Energetics facility located at RFAAP, which loads, assembles and packs medium-caliber ammunition, supports ATK's commercial ammunition business, international program efforts, and other business not directly associated with the RFAAP contract.

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Integrated Weapon Systems

        The division produces medium-caliber chain guns and is a systems integrator and designer of medium-caliber ammunition for integrated gun systems globally. These gun systems are used on a variety of ground combat vehicles, helicopters and naval vessels, including the Bradley Fighting Vehicle, Light Armored Vehicle, coastal patrol craft, and Apache helicopter. To date, the division has supplied more than 15,000 medium-caliber gun systems to the U.S. military and allied forces worldwide. New products include a link-fed variant of the Apache gun system.

Small-Caliber Systems

        Since 2000, ATK has operated the Lake City Army Ammunition plant ("LCAAP") in Independence, MO. In fiscal 2012, the Company produced approximately 1.5 billion rounds of small-caliber ammunition in the facility. ATK is currently under contract with the U.S. Army to operate the LCAAP until September 2013. The prime contract at Lake City, which includes modernization, accounted for approximately 15% of ATK's total revenue in fiscal 2012. The division also provides non-NATO munitions and weapons systems to the U.S. Army for use by security forces in Afganistan.


Missile Products

        Missile Products, which generated 15% of ATK's external sales in fiscal 2012, is a leader in tactical solid rocket motor development and production for a variety of air-, sea- and land-based systems. The group serves a variety of domestic and international customers in the defense, aerospace, security and energy markets in either a prime contractor, partner or supplier role. Missile Products is home to ATK's missile defense interceptor capabilities, airborne missile warning systems, advanced fuzes, and defense electronics. The group is developing the U.S. Navy's Advanced Anti-Radiation Guided Missile ("AARGM") and the Multi-Stage Super Sonic Missile ("MSST"), as well as advanced air-breathing propulsion systems and special mission aircraft for specialized applications. The following is a description of the divisions within the group:

Defense Electronics Systems

        The division provides customers advanced radiation homing missile systems, special-mission aircraft, missile warning systems, and mission support equipment. Key programs include the AARGM missile, which is undergoing operational testing and evaluation by the U.S. Navy; the AAR-47 missile warning system used by U.S. and allied fixed and rotor-wing aircraft to defeat incoming missile threats; and the MSST supersonic target missile for the U.S. Navy. In July 2011, ATK was awarded a contract by the U.S. Navy for the Engineering and Manufacturing Development phase of the Joint and Allied Threat Awareness System ("JATAS"), a next-generation warning system designed to enhance aircraft survivability against man-portable air-defense systems, small-caliber weapons and rocket-propelled grenades. The division also provides special-mission aircraft that integrate sensors, fire control equipment, and air-to-ground weapons capability for use in counterinsurgency, border/coastal surveillance, and security missions.

Missile Subsystems & Components

        The division provides customers with tactical, high-performance, solid rocket motor propulsion for a variety of surface and air launched missile systems including Hellfire, Maverick, Advanced Medium-Range Air-to-Air Missile ("AMRAAM") and Sidewinder. The division is also home to fuzing and sensors for various artillery, mortar, grenade and air-dropped weapons; metal components for various medium-caliber gun and 120mm tank ammunition and production of specialty composite and ceramic structures used on military platforms and in energy applications.

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Propulsion and Controls

        The division provides customers with the third-stage propulsion and the solid divert and attitude control system ("SDACS") used to guide the kinetic warhead on the Standard Missile ("SM-3") missile defense interceptor. The division is also home to precision fuzing programs, such as the Hard Target Void Sensing Fuze ("HTVSF"). Additional capabilities include the STAR™ family of satellite orbit insertion motors, high performance rocket boosters, the attitude control motor for NASA's launch abort system on the Orion crew vehicle and advanced air-breathing propulsion for platforms designed for Mach 3+ flight.


Security and Sporting

        Security and Sporting, which generated 22% of ATK's external sales in fiscal 2012, develops and produces ammunition and accessories sold to sporting, law enforcement, U.S. Government, and international markets. The following is a description of the divisions within the group:

Accessories

        The division includes ATK's accessories product lines such as reloading equipment, gun care products, targets and traps, riflescopes and mounts, and binoculars. These products are marketed under a number of well-know brand names including: RCBS®, Outers®, Shooter's Ridge®, Weaver Optics®, and Alliant Powder®. This division also produces tactical systems and equipment to the armed forces and allies, special operations forces, and law enforcement, both domestic and international. These products are marketed under well-known brandnames, including BLACKHAWK!® and Eagle®.

Ammunition

        The division develops and produces ammunition for the sport hunting/sport enthusiast markets. It also produces ammunition for the local law enforcement, U.S. Government, and international markets. The division's Federal Premium® line of ammunition enjoys a market-leading position. Additional brands include Fusion®, Estate Cartridge®, CCI®, and Speer®.

Fiscal 2013 Operation Structure

        Beginning in fiscal 2013, ATK commenced operations in a three-group structure. As a result of this realignment, ATK's three operating segments are:

    Aerospace Group, consisting of the current aerospace structures, space systems operations, and structures and components businesses.

    Defense Group, consisting of the former Armament Systems and Missile Products businesses.

    Sporting Group, consisting of the current accessories and commercial ammunition businesses.

        The fiscal 2013 realignment is not reflected in the information contained in this report.

Customers

        Our sales come primarily from contracts with agencies of the U.S. Government and its prime contractors and subcontractors. As the various U.S. Government customers, including the U.S. Army, U.S. Navy, NASA, and the U.S. Air Force, make independent purchasing decisions, we do not generally regard the U.S. Government as one customer. Instead, we view each agency as a separate customer.

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        Sales by customer were as follows:

 
  Percent of Sales
For Fiscal Years Ended:
 
 
  2012   2011   2010  

Sales to:

                   

U.S. Army

    28 %   30 %   28 %

U.S. Navy

    12 %   11 %   11 %

NASA

    10 %   13 %   18 %

U.S. Air Force

    6 %   7 %   7 %

Other U.S. Government customers

    9 %   7 %   5 %
               

Total U.S. Government customers

    65 %   68 %   69 %

Commercial and foreign customers

    35 %   32 %   31 %
               

Total

    100 %   100 %   100 %

        Sales to U.S. Government and its prime contractors during the last three fiscal years were as follows:

Fiscal
  U.S. Government
sales
  Percent of
sales
 

2012

  $2,992 million     65 %

2011

  3,281 million     68 %

2010

  3,333 million     69 %

        Our reliance on U.S. Government contracts entails inherent benefits and risks, including those particular to the aerospace and defense industry. We derived approximately 15% of our total fiscal sales from the military small-caliber ammunition contract at Lake City. No other single contract contributed more than 10% of our sales in fiscal 2012. Our top five contracts accounted for approximately 27% of fiscal 2012 sales.

        The breakdown of our fiscal 2012 sales to the U.S. Government as a prime contractor and a subcontractor was as follows:

Sales as a prime contractor

    65 %

Sales as a subcontractor

    35 %
       

Total

    100 %
       

        No single customer, other than the U.S. Government customers listed above, accounted for more than 10% of our fiscal 2012 sales.

        Foreign sales for each of the last three fiscal years are summarized below:

Fiscal
  Foreign sales   Percent of
sales
 

2012

  $703 million     15.2 %

2011

  695 million     14.3 %

2010

  632 million     13.1 %

        Sales to foreign governments must be approved by the U.S. Department of Defense ("DoD") and the U.S. State Department or the U.S. Commerce Department. Our products are sold directly to U.S. allies as well as through the U.S. Government. Approximately 26% of these sales were in Aerospace Systems, 43% were in Armament Systems, 13% were in Missile Products, and 18% were in Security and Sporting. Sales to no individual country outside the United States accounted for more than 4% of ATK's sales in fiscal 2012.

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        Our major law enforcement customers include large metropolitan police departments, the Department of Homeland Security, the Federal Bureau of Investigation, and the U.S. Secret Service. Major customers of our security and sporting business include retailers such as Walmart, Cabela's, and Gander Mountain, as well as large wholesale distributors. Major commercial aerospace customers include Airbus S.A.S., Rolls-Royce Group plc, and General Electric Company.

Backlog

        Contracted backlog is the estimated value of contracts for which we are authorized to incur costs and orders have been recorded, but for which revenue has not yet been recognized. The total amount of contracted backlog was approximately $6.1 billion and $6.5 billion as of March 31, 2012 and 2011, respectively. Included in contracted backlog as of March 31, 2012 was $1.4 billion of contracts not yet funded consisting primarily of the SLS program, which is discussed above. Approximately 47% of contracted backlog as of March 31, 2012 is not expected to be filled within fiscal 2013.

        Total backlog, which includes contracted backlog plus the value of unexercised options, was approximately $6.3 billion as of March 31, 2012 and $6.7 billion as of March 31, 2011.

Seasonality

        Sales of sporting ammunition have historically been lower in our first fiscal quarter. Our other businesses are not generally seasonal in nature.

Competition

        Our aerospace and defense businesses compete against other U.S. and foreign prime contractors and subcontractors, many of which have substantially more resources to deploy than we do in the pursuit of government and industry contracts. Our ability to compete successfully in this environment depends on a number of factors, including the effectiveness and innovativeness of research and development programs, our ability to offer better program performance than our competitors at a lower cost, our readiness with respect to facilities, equipment, and personnel to undertake the programs for which we compete, and our past performance and demonstrated capabilities. Additional information on the risks related to competition can be found under "Risk Factors" in Item 1A. of this report.

        Our Security and Sporting business competes against manufacturers with well-established brand names and strong market positions. A key strategy in these highly competitive markets is the consistent flow of new and innovative products. We also attempt to control operating costs, particularly for raw materials, since retail consumer purchasing decisions are often driven by price. Enhanced product performance is especially important to our law enforcement customers as they rely on our products to protect and serve the public.

        ATK generally faces competition from a number of competitors in each business area, although no single competitor competes along all of ATK's segments. ATK's principal competitors in each of its segments are as follows:

    Aerospace Systems:    Aerojet-General Corporation, a subsidiary of GenCorp Inc.; Kilgore Flares Company, LLC, a subsidiary of Chemring North American; Pratt & Whitney Rocketdyne, Inc., a subsidiary of United Technologies Corporation; Orbital Sciences Corporation; General Dynamics-Integrated Space Systems; Sierra Nevada Corporation; AASC; GKN plc; Vought Aircraft Industries, Inc., a division of Triumph Group; Applied Aerospace Structures Corporation; Ball Aerospace & Technologies Corporation, a subsidiary of Ball Corporation; Keystone & ARDE of United Technologies Corporation; and SpaceX.

    Armament Systems:    General Dynamics Corporation; BAE Systems; Raytheon Company, and various international producers of ammunition and guns.

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    Missile Products:    Aerojet-General Corporation, a subsidiary of GenCorp Inc.; General Dynamics Corporation; Lockheed Martin Corporation; Raytheon Company; Pratt & Whitney Space and Missile Propulsion, a subsidiary of United Technologies Corporation; The Boeing Company; L-3 Communications Corporation; Northrop Grumman Corporation; BAE Systems, AAR Corp.; Goodrich Corporation; Nammo AS; and Science Applications International Corporation ("SAIC").

    Security and Sporting:    Winchester Ammunition of Olin Corporation; Remington Arms; and various smaller manufacturers and importers, including Hornady, Black Hills Ammunition, Wolf, Rio Ammunition, Fiocchi Ammunition, and Selliers & Belloitt.

Research and Development

        We conduct extensive research and development ("R&D") activities. Company-funded R&D is primarily for the development of next-generation technology. Customer-funded R&D is comprised primarily of activities we conduct under contracts with the U.S. Government and its prime contractors. R&D expenditures in each of the last three fiscal years were as follows:

Fiscal
  Company-funded
Research and
Development
  Customer-funded
Research and
Development

2012

  $66.0 million   $598.1 million

2011

  65.0 million   688.1 million

2010

  75.9 million   773.3 million

Raw Materials

        We use a broad range of raw materials in manufacturing our products, including aluminum, steel, copper, lead, graphite fiber, cotton linters, epoxy resins, zinc, and adhesives. We monitor the sources from which we purchase these materials in an attempt to ensure there are adequate supplies to support our operations. We also monitor the price of materials, particularly commodity metals like copper, which have fluctuated dramatically over the past several years.

        We procure these materials from a variety of sources. In the case of our government contracts, we are often required to purchase from sources approved by the U.S. DoD. When these suppliers or others choose to eliminate certain materials we require from their product offering, we attempt to qualify other suppliers or replacement materials to ensure there are no disruptions to our operations. Additional information on the risks related to raw materials can be found under "Risk Factors" in Item 1A. of this report.

Intellectual Property

        As of March 31, 2012, we owned 524 U.S. patents and 200 foreign patents. We also had approximately 200 U.S. patent applications and approximately 151 foreign patent applications pending.

        Although we manufacture various products covered by patents, we do not believe that any single existing patent, license, or group of patents is material to our success. We believe that unpatented research, development, and engineering skills also make an important contribution to our business. The U.S. Government typically receives royalty-free licenses to inventions made under U.S. Government contracts. Consistent with our policy to protect proprietary information from unauthorized disclosure, we ordinarily require employees to sign confidentiality agreements as a condition of employment.

        As many of our products are complex and involve patented and other proprietary technologies, we face a risk of claims that we have infringed upon third-party intellectual property rights. Such claims could result in costly and time-consuming litigation, the invalidation of intellectual property rights, or increased licensing costs.

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Regulatory Matters

U.S. Governmental Contracts

        We are subject to the procurement policies and procedures set forth in the Federal Acquisition Regulation ("FAR"). The FAR governs all aspects of government contracting, including competition and acquisition planning; contracting methods and contract types; contractor qualifications; and acquisition procedures. Every government contract contains a list of FAR provisions that must be complied with in order for the contract to be awarded. The FAR provides for regular audits and reviews of contract procurement, performance, and administration. Failure to comply with the provisions of the FAR could result in contract termination.

        The U.S. Government may terminate its contracts with its suppliers, either for convenience or in the event of a default as a result of our failure to perform under the applicable contract. If a cost-plus contract is terminated for convenience, we are entitled to reimbursement of our approved costs and payment of a total fee proportionate to the percentage of the work completed under the contract. If a fixed-price contract is terminated for convenience, we are entitled to payment for items delivered to and accepted by the U.S. Government and fair compensation for work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses, and a reasonable profit on the costs incurred or committed. If a contract termination is for default, we are paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. Government and may be liable to the U.S. Government for repayment of any advance payments and progress payments related to the terminated portions of the contract, as well as excess costs incurred by the U.S. Government in procuring undelivered items from another source. Additional information on the risks related to government contracts can be found under "Risk Factors" in Item 1A. of this report.

        We also must comply with U.S. and foreign laws governing the export of munitions and other controlled products and commodities. These include regulations relating to import-export control, exchange controls, the Foreign Corrupt Practices Act, and the anti-boycott provisions of the U.S. Export Administration Act.

Environmental

        Our operations are subject to a number of federal, state, and local environmental laws and regulations that govern the discharge, treatment, storage, remediation and disposal of certain materials and wastes, and restoration of damages to the environment. Compliance with these laws and regulations is a responsibility we take seriously. We believe that forward-looking, proper, and cost-effective management of air, land, and water resources is vital to the long-term success of our business. Our environmental policy identifies key objectives for implementing this commitment throughout our operations. Additional information on the risks related to environmental matters can be found under "Risk Factors" in Item 1A. of this report.

Employees

        As of March 31, 2012, ATK had approximately 17,000 employees. Less than 10% of these employees were covered by collective bargaining agreements. The majority of represented employees work at three locations. Two of the major collective bargaining agreements have terms that expire in calendar 2012. One contract will be renegotiated, the other contract will expire and be renegotiated by the successor company that will operate the Radford facility following the expiration of ATK's contract to operate that facility, and three other contracts expire in calendar 2013.

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Executive Officers

        The following table sets forth certain information with respect to ATK's executive officers as of May 1, 2012:

Name
  Age   Title

Mark W. DeYoung

    53   President and Chief Executive Officer

Neal S. Cohen

    52   Executive Vice President and Chief Financial Officer

Steven J. Cortese

    50   Senior Vice President Washington Operations

Ronald P. Johnson

    49   Senior Vice President and President Sporting Group

Michael A. Kahn

    53   Senior Vice President and President Defense Group

Blake E. Larson

    52   Senior Vice President and President Aerospace Group

Deborah Moeschl

    53   Vice President and Interim General Counsel

Christine A. Wolf

    52   Senior Vice President Human Resources

        Each of the above individuals serves at the pleasure of the Board of Directors and is subject to reelection annually on the date of the Annual Meeting of Stockholders. No family relationship exists among any of the executive officers or among any of them and any director of ATK. There are no outstanding loans from ATK to any of these individuals. Information regarding the employment history (in each case with ATK unless otherwise indicated) of each of the executive officers is set forth below.

        Mark W. DeYoung has served in his present position since February 2010. From 2006 to February 2010, he was Senior Vice President and President Armament Systems. From 2004 to 2006, he was Senior Vice President, Ammunition Systems. From 2002 to 2004, he was Group Vice President, Ammunition Systems. From 2001 to 2002, he was President, Ammunition and Related Products. Before that, he was President, Lake City Ammunition.

        Neal S. Cohen has held his position since joining ATK in February 2012. Prior to joining ATK, he was President and Chief Operating Officer of Laureate Education Inc., a global provider of private, post-secondary education, from 2008 to 2011. Before that, he was an executive officer of Northwest Airlines, Inc., serving as Executive Vice President, Strategy and International and also as Chief Executive Officer Regional Operations from 2007 to 2008, and as Executive Vice President and Chief Financial Officer from 2005 to 2007. From 2002 to 2004, Mr. Cohen was Executive Vice President and Chief Financial Officer of U.S. Airways.

        Steven J. Cortese has held his present position since joining ATK in October 2006. Prior to joining ATK, he served as Vice President, Programs and Budgets for Lockheed Martin Washington Operations from 2003 to 2006. Prior to that, he served the U.S. Senate Appropriations Committee in a number of key staff leadership posts from 1986 to 2003, including Minority and Majority Staff Director for the full committee.

        Ronald P. Johnson has held his present position since April 2010. From 2004 to March 2010, he was the Vice President and General Manager of Commercial Products. Prior to joining ATK in 2001, he was Vice President of Finance, Controller, and Vice President of Logistics for Blount International.

        Michael A. Kahn has held his present position since April 1, 2012. From August 2010 through March 2012, he served as the Senior Vice President of Missile Products Group. From 2009 to August 2010, he was Executive Vice President Aerospace Systems. From 2008 to 2009, he was Vice President and General Manager Launch Systems and, from 2001 to 2008, he was Vice President Space Launch Systems. Prior to that, he held a number of leadership positions across a variety of programs and operations of the Company.

        Blake E. Larson has held his present position since April 2010. From 2009 to March 2010, he was Senior Vice President and President Space Systems. From 2008 to 2009, he was Executive Vice President Space Systems and General Manager Spacecraft Systems from August 2008 to January 2009.

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From 2006 to 2008, he was Executive Vice President of Mission Systems Group. From 2005 to 2006, he was Senior Vice President and President Advanced Propulsion and Space Systems. From 2004 to 2005, he was Vice President and General Manager Space Systems. From 2003 to 2004, he was Executive Vice President Ordnance and Ground Systems. He served as President Precision Fuze Company from 2000 to 2003.

        Deborah Moeschl has held the position of Vice President and Interim General Counsel since May 1, 2012. Since April 2012, she has also served as ATK's group counsel for the Defense Group. From 2004 to 2012, she was Assistant General Counsel and Vice President, Armament Systems. From 2003 to 2004, she was Assistant General Counsel and Vice President, Ammunition and Related Products. Prior to that, she served in various legal positions at ATK.

        Christine A. Wolf has held her present position since March 7, 2011. She has nearly 30 years of experience in the Human Resources field. Prior to joining ATK, she was the Senior Vice President and Chief Human Resources Officer for Fannie Mae from 2008 to March 2011. Prior to that, she was the Chief Human Resources Officer for E*Trade from 2004 to 2008.

Available Information

        You can find reports on our company filed with the Securities and Exchange Commission ("SEC") on our Internet site at www.atk.com under the "Investor Relations" heading free of charge. These include our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make these reports available as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

        You can also obtain these reports from the SEC's Public Reference Room, which is located at 100 F Street NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by phone (1-800-SEC-0330) or on the Internet (www.sec.gov). This site contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

ITEM 1A.    RISK FACTORS

        ATK is subject to a number of risks, including those related to being a U.S. Government contractor. Some of the risks facing ATK are discussed below.

ATK's business could be adversely impacted by reductions or changes in NASA or U.S. Government military spending.

        As the majority of ATK's sales are to the U.S. Government and its prime contractors, ATK depends heavily on the contracts underlying these programs. Significant portions of ATK's sales come from a small number of contracts. ATK's top five contracts, all of which are contracts with the U.S. Government, accounted for approximately 27% of fiscal 2012 sales. ATK's military small-caliber ammunition contract contributed approximately 15% of total fiscal 2012 sales. The loss or significant reduction of a material program in which ATK participates could have a material adverse effect on ATK's operating results, financial condition, or cash flows.

        ATK's small-caliber ammunition operations for the U.S. military and U.S. allies are conducted at the Lake City Army Ammunition Plant ("LCAAP" or "Lake City") in Independence, Missouri. Lake City is the Army's principal small-caliber ammunition production facility and is the primary supplier of the U.S. military's small-caliber ammunition needs. ATK took over operation of this facility on April 1, 2000 and is responsible for the operation and management, including leasing excess space to third parties in the private sector. ATK is currently operating under a four-year supply contract with the U.S.

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Army as the primary supplier of small-caliber ammunition to the U.S. DoD for both its training and tactical needs. Production on this contract is expected to continue until September 2013. Through the end of the current contract, ATK will complete government funded projects for modernization of the facility. ATK also has a facilities-use contract for the plant that expires in April 2025. Although the facilities-use contract expires 11 years after the plant production contract, if the plant production contract is not renewed, ATK believes the U.S. Army would relieve ATK of all of its obligations under the facilities-use contract. Future ATK production under this contract or levels of government spending cannot be predicted with certainty. For potential risks associated with the Lake City contract competition, see the risk factor on competition discussed below.

        Congress and the President signed the NASA Authorization Act in October 2010 that directed the development of a Space Launch System. Consistent with the NASA Authorization Act, the President's GFY 2012 budget released in February 2011 identified funding for the replacement to Constellation's crew launch vehicle, designated the Space Launch System ("SLS"). Congress directed that, to the maximum extent possible, the SLS should utilize hardware developed for the Constellation program. On September 14, 2011, NASA and key legislative leaders jointly announced the baseline design for SLS. ATK's five-segment solid rocket motors were selected as the propulsion system for the first two SLS test flights (2017 and 2021). At the same time, NASA announced that it will hold a competition for the final design of the propulsion system for SLS, in which ATK will be eligible to participate.

        On November 18, 2011, President Obama signed the GFY 2012 NASA Appropriations bill, which provided $1.8 billion for the SLS. This legislation further specified the configuration of the Heavy Lift Vehicle consistent with the September 14, 2011 announcement by the NASA Administrator on the SLS configuration. The President's budget for government fiscal year 2013 includes a stable funding request for SLS for GFY13 through GFY17. Congress will determine the GFY13 funding level for NASA as well as the amount of the line item in NASA's budget for the SLS program.

        In fiscal 2012, NASA sales relating to the SLS contracts were approximately $283 million and as of March 31, 2012 ATK had approximately:

    $54 million of billed and unbilled receivables directly related to the program,

    $80 million of net property, plant, and equipment and other assets related to the SLS and other contracts, and

    $518 million of goodwill recorded related to the Space Systems Operations reporting unit.

        All of these assets would be subject to impairment testing if significant changes are made to the SLS program and related contracts in future periods.

        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 August 2011, Congress passed the Budget Control Act (BCA), which set ceilings for total defense and non-defense spending in U.S. government fiscal years 2012 and 2013. Those limits were reflected in the enacted fiscal year 2012 Department of Defense Appropriations Act and the President's Budget Requests for the Department of Defense for fiscal year 2013. The BCA also established a sequestration baseline of total federal spending for a ten-year period, assuming reductions in defense spending of $487 billion when compared to the ten year forecast submitted with the fiscal year 2012 President's Budget Request for the Department of Defense. Failure by Congress to fulfill the deficit reduction targets set in the BCA will result in the sequestration of funds in each of the specified fiscal years to meet the total spending reduction target established by law. That sequestration, if fully implemented

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over the ten-year period, could reduce funds available to the Department of Defense by up to $500 billion more than the reductions already assumed in the BCA.

        If sequestration were triggered by an absence of enacted legislation meeting the conditions of the BCA or otherwise mitigating sequestration, the Department of Defense would be compelled to reduce obligations for each appropriated item within its budget. Such reductions would likely result in the termination, modification or restructuring of procurement and services contracts currently in effect. Department of Defense officials have testified to Congress that they have not commenced planning for sequestration or developing contingency plans to mitigate its impact. If sequestration were to occur in fiscal year 2013, most U.S. Government contracts will be 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 or sequestration, could materially delay or terminate the program. This could have a material adverse effect on ATK's operating results, financial condition, or cash flows.

        ATK's contract to develop solid rocket boosters for NASA's SLS Heavy Lift Vehicle (HLV) could be impacted by sequestration in fiscal 2013. NASA will have greater discretion in allocating sequestration reductions due to the cost-plus nature of many NASA contracts and the different baseline for sequestration that affords NASA greater ability to set program priorities.

ATK is subject to intense competition and therefore may not be able to compete successfully.

        ATK encounters competition for most contracts and programs. Some of these competitors have substantially greater financial, technical, marketing, manufacturing, distribution, and other resources. ATK's ability to compete for these contracts depends to a large extent upon:

    its effectiveness and innovativeness of research and development programs,

    its ability to offer better program performance at a lower cost than the competitors,

    its readiness with respect to facilities, equipment, and personnel to undertake the programs for which it competes, and

    its past performance and demonstrated capabilities.

        In some instances, the U.S. Government directs a program to a single supplier. In these cases, there may be other suppliers who have the capability to compete for the programs involved, but they can only enter or reenter the market if the U.S. Government chooses to open the particular program to competition. ATK's sole-source contracts accounted for 32% of U.S. Government sales in fiscal 2012 and include the following programs: RSRM Space Shuttle boosters, SLS, Trident II missiles, Minuteman III Propulsion Replacement Program, Advanced Medium-Range Air-to-Air Missile, Hellfire, Sensor Fuzed Weapon propulsion systems, multi-purpose tank ammunition rounds, tank ammunition, the AAR-47 missile warning system, Javelin launch tubes, SM-3 Solid Divert and Attitude Control Systems and Third Stage Rocket Motors, STARTM Motors, Advanced Anti-Radiation Guided Missile ("AARGM"), Mobile Ground-to-Air Radar Jamming System, Spider barrier system, and the Individual Semi-Automatic Airburst System ("ISAAS").

        In the commercial ammunition and accessories markets, ATK competes against manufacturers that have well-established brand names and strong market positions. Competitive responses to market dynamics and commodity cost fluctuations could impact the marketplace and cause adverse impacts to ATK financial results.

        The downsizing of the munitions industrial base has resulted in a reduction in the number of competitors through consolidations and departures from the industry. This has reduced the number of competitors for some contracts and programs, but has strengthened the capabilities of some of the remaining competitors. In addition, it is possible that there will be increasing competition from the

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remaining competitors in business areas where they do not currently compete, particularly in those business areas dealing with electronics.

        ATK submitted its proposal for the continued operation of the LCAAP on January 23, 2012, in response to a competitive solicitation issued by the U.S. Army. The contract is expected to be awarded in the fall of 2012. ATK is currently under contract with the U.S. Army to operate the LCAAP until September 2013. Loss of the Lake City contract would reduce Armament Systems' and ATK's sales and profit. The prime contract at Lake City, which includes modernization, accounted for approximately 15% of ATK's total revenue in fiscal 2012.

        On September 14, 2011, NASA and key legislative leaders jointly announced the baseline design for SLS. ATK's five-segment solid rocket motors were selected as the propulsion system for the first two SLS test flights (2017 and 2021). At the same time, NASA announced that it will hold a competition in 2015 for the final design of the propulsion system for SLS, in which ATK will be eligible to participate.

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

        ATK's U.S. Government contracts can be categorized as either "cost-plus" or "fixed-price."

        Cost-Plus Contracts.    Cost-plus contracts are cost-plus-fixed-fee, cost-plus-incentive-fee, or cost-plus-award-fee contracts. Cost-plus-fixed-fee contracts allow ATK to recover its approved costs plus a fixed fee. Cost-plus-incentive-fee contracts and cost-plus-award-fee contracts allow ATK to recover its approved costs plus a fee that can fluctuate based on actual results as compared to contractual targets for factors such as cost, quality, schedule, and performance. The award or incentive fees that are typically associated with these programs are subject to uncertainty and may be earned over extended periods. In these cases, the associated financial risks are primarily in lower profit rates or program cancellation if cost, schedule, or technical performance issues arise.

        Fixed-Price Contracts.    Fixed-price contracts are firm-fixed-price, fixed-price-incentive, or fixed-price-level-of-effort contracts. Under firm-fixed-price contracts, ATK agrees to perform certain work for a fixed price and absorb any cost underruns or overruns. Fixed-price-incentive contracts are fixed-price contracts under which the final contract price may be adjusted based on total final costs compared to total target cost, and may be affected by schedule and performance. Fixed-price-level-of-effort contracts allow for a fixed price per labor hour, subject to a contract cap. All fixed-price contracts present the inherent risk of unreimbursed cost overruns. If the initial estimates used to calculate the contract price and the cost to perform the work prove to be incorrect, there could be a material adverse effect on operating results, financial condition, or cash flows. In addition, some contracts have specific provisions relating to cost, schedule, and performance. If ATK fails to meet the terms specified in those contracts, the cost to perform the work could increase or ATK's price could be reduced, which would adversely affect the Company's financial condition. The U.S. Government also regulates the accounting methods under which costs are allocated to U.S. Government contracts.

        The following table summarizes how much each of these types of contracts contributed to ATK's U.S. Government business in fiscal 2012:

Cost-plus contracts:

       

Cost-plus-fixed-fee

    14 %

Cost-plus-incentive-fee/cost-plus-award-fee

    22 %

Fixed-price contracts:

       

Firm-fixed-price

    64 %
       

Total

    100 %

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ATK uses estimates in accounting for its programs. Changes in estimates could affect ATK's financial results.

        Contract accounting requires judgment relative to assessing risks, estimating contract revenues, including the impact of scope change negotiations, estimating program costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of ATK's contracts, the estimation of total revenues and cost at completion is complex and subject to many variables. Assumptions are made regarding the length of time to complete the contract because costs also include expected increases in wages and prices for materials. Similarly, many assumptions are made regarding the future impacts of such things as the business base, efficiency initiatives, cost reduction efforts, and contract changes and claim recovery. Incentives or penalties related to performance on contracts are considered in estimating revenue and profit rates, and are recorded when there is sufficient information to assess anticipated performance. Estimates of award and incentive fees are also used in estimating revenue and profit rates based on actual and anticipated awards.

        Because of the significance of the judgments and estimation processes described above, it is likely that materially different amounts could be recorded if ATK used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect future period financial performance. Additional information on ATK's accounting policies for revenue recognition can be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the section titled "Critical Accounting Policies" in Item 7 of this report.

ATK's U.S. Government contracts are subject to termination.

        ATK is subject to the risk that the U.S. Government may terminate its contracts with its suppliers, either for convenience or in the event of a default by the contractor. If a cost-plus contract is terminated, the contractor is entitled to reimbursement of its approved costs. If the contractor would have incurred a loss had the entire contract been performed, then no profit is allowed by the U.S. Government. If the termination is for convenience, the contractor is also entitled to receive payment of a total fee proportionate to the percentage of the work completed under the contract. If a fixed-price contract is terminated, the contractor is entitled to receive payment for items delivered to and accepted by the U.S. Government. If the termination is for convenience, the contractor is also entitled to receive fair compensation for work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses, and a reasonable profit on the costs incurred or committed. While the contractor is entitled to these claims under either type of contract, there can be no assurance that these amounts will be recovered. If a contract termination is for default:

    the contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. Government,

    the U.S. Government is not liable for the contractor's costs for unaccepted items, and is entitled to repayment of any advance payments and progress payments related to the terminated portions of the contract, and

    the contractor may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.

ATK could experience a change or reduction in demand for commercial ammunition.

        In recent years, ATK has seen a significant increase in demand for commercial ammunition. Although ATK services a broad base of customers, there is no assurance the recent growth rate can be sustained, which could have an impact on the Company's operating results. In addition, a further shift in consumer demand toward lower-margin products could have an adverse impact on the company's operating results.

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ATK is exposed to risks associated with expansion into commercial markets.

        ATK's long-term business growth strategy includes expansion into markets such as commercial aerospace structures. Such efforts involve a number of risks, including increased capital expenditures, market uncertainties, schedule delays, performance risk, extended payment terms, diversion of management attention, additional credit risk associated with new customers, and costs incurred in competing with companies with strong brand names and market positions. An unfavorable event or trend in any one or more of these factors could adversely affect ATK's operating results, financial condition, or cash flows.

The level of returns on pension and postretirement plan assets, changes in interest rates and other factors could affect ATK's earnings and cash flows.

        ATK's earnings may be positively or negatively impacted by the amount of expense or income recorded for employee benefit plans, primarily pension plans and other postretirement plans. Generally accepted accounting principles ("GAAP") in the United States of America require ATK to calculate income or expense for the plans using actuarial valuations. These valuations are based on assumptions made relating to financial market and other economic conditions. Changes in key economic indicators can result in changes in these assumptions. The key year-end assumptions used to estimate pension and postretirement benefit expense or income for the following year are the discount rate, the expected long-term rate of return on plan assets, the rate of increase in future compensation levels, mortality rates, and the health care cost trend rate. ATK is required to remeasure its plan assets and benefit obligations annually, which may result in a significant change to equity through other comprehensive income (loss). ATK's pension and other postretirement benefit income or expense can also be affected by legislation or other regulatory actions. Additional information on how ATK's financial statements can be affected by pension plan accounting policies can be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the section titled "Critical Accounting Policies" in Item 7 of this report.

International sales are subject to greater risks that sometimes are associated with doing business in foreign countries.

        Over the next several years, ATK intends to focus on the expansion of our business into international markets. In fiscal 2012, approximately 15% of ATK's sales were to foreign customers, compared to 14% in the prior year. ATK's international business may pose greater risks than its business in the United States because in some countries there is increased potential for changes in economic, legal and political environments. ATK's international business is also sensitive to changes in a foreign government's national priorities and budgets. International transactions frequently involve increased financial and legal risks arising from foreign exchange rate variability and differing legal systems and customs in other countries. In addition, some international customers require contractors to agree to offset programs that may require in-country purchases or manufacturing or financial support arrangements as a condition to awarding contracts. The contracts may include penalties in the event the Company fails to perform in accordance with the offset requirements. An unfavorable event or trend in any one or more of these factors could adversely affect ATK's operating results, financial condition, or cash flows. Foreign sales subject ATK to numerous stringent U.S. and foreign laws and regulations, including regulations relating to import-export control, exchange controls, the Foreign Corrupt Practices Act, and the anti-boycott provisions of the U.S. Export Administration Act. Failure to comply with these laws and regulations could result in material adverse consequences to ATK.

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Other risks associated with U.S. Government contracts may expose ATK to adverse consequences.

        In addition, like all U.S. Government contractors, ATK is subject to risks associated with uncertain cost factors related to:

    scarce technological skills and components,

    the frequent need to bid on programs in advance of design completion, which may result in unforeseen technological difficulties and/or cost overruns,

    the substantial time and effort required for design and development,

    design complexity,

    rapid obsolescence, and

    the potential need for design improvement.

ATK has a substantial amount of debt, and the cost of servicing that debt could adversely affect ATK's business and hinder ATK's ability to make payments on its debt.

        As of March 31, 2012, ATK had total debt of $1.3 billion. In addition, ATK had $175.8 million of outstanding but undrawn letters of credit and, taking into account these letters of credit, an additional $424.2 million of availability under its revolving credit facility. Additional information on ATK's debt can be found under "Liquidity and Capital Resources" in Item 7 of this report.

        ATK has demands on its cash resources in addition to interest and principal payments on its debt including, among others, operating expenses. ATK's level of indebtedness, possible interest rate increases, and these significant demands on ATK's cash resources could:

    make it more difficult for ATK to satisfy its obligations,

    require ATK to dedicate a substantial portion of its cash flow from operations to payments on its debt, thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions, share repurchases, dividends, and other general corporate purposes,

    limit ATK's flexibility in planning for, or reacting to, changes in the defense and aerospace industries,

    place ATK at a competitive disadvantage compared to competitors that have lower debt service obligations and significantly greater operating and financing flexibility,

    limit, along with the financial and other restrictive covenants applicable to ATK's indebtedness, among other things, ATK's ability to borrow additional funds,

    increase ATK's vulnerability to general adverse economic and industry conditions, and

    result in a default event upon a failure to comply with financial covenants contained in ATK's senior credit facilities which, if not cured or waived, could have a material adverse effect on ATK's business, financial condition, or results of operations.

        ATK's ability to pay interest on and repay its long-term debt and to satisfy its other liabilities will depend upon future operating performance and ATK's ability to refinance its debt as it becomes due. ATK's future operating performance and ability to refinance will be affected by prevailing economic conditions at that time and financial, business and other factors, many of which are beyond ATK's control.

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        If ATK is unable to service its indebtedness and fund operating costs, ATK will be forced to adopt alternative strategies that may include:

    reducing or delaying expenditures for capital equipment and/or share repurchases,

    seeking additional debt financing or equity capital,

    selling assets, or

    restructuring or refinancing debt.

        There can be no assurance that any such strategies could be implemented on satisfactory terms, if at all.

ATK's business could be negatively impacted by security threats and other disruptions.

        As a defense contractor, ATK faces certain security threats, including threats to its information technology infrastructure and unlawful attempts to gain access to its proprietary or classified information. ATK's information technology networks and related systems are critical to the smooth operation of its business and essential to its ability to perform day-to-day operations. Loss of security within this critical operational infrastructure could disrupt ATK's operations, require significant management attention and resources and could have a material adverse effect on ATK's performance.

        ATK also manages information technology systems for various customers. While ATK maintains information security policies and procedures for managing these systems, the Company generally faces the same security threats for these systems as for its own systems. Computer viruses, malware, attempts to gain access to customer data or other electronic security breaches could lead to disruptions in mission critical systems for ATK's customers, unauthorized release of confidential or personally identifiable information and corruption of customer data.

        These events could damage ATK's reputation and lead to financial losses from remedial actions it must take, potential liability to customers and litigation expenses.

Disruptions in the supply of key raw materials and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact ATK.

        Key raw materials used in ATK's operations include aluminum, steel, steel alloys, copper, zinc, lead, graphite fiber, prepreg, hydroxy terminated polybutadiene, epoxy resins and adhesives, ethylene propylene diene monomer rubbers, cotton fiber, wood pulp cellulose, diethylether, x-ray film, plasticizers and nitrate esters, impregnated ablative materials, various natural and synthetic rubber compounds, polybutadiene, acrylonitrile, and ammonium perchlorate. ATK also purchases chemicals; electronic, electro-mechanical and mechanical components; subassemblies; and subsystems that are integrated with the manufactured parts for final assembly into finished products and systems.

        ATK monitors sources of supply to attempt to assure that adequate raw materials and other supplies needed in manufacturing processes are available. As a U.S. Government contractor, ATK is frequently limited to procuring materials and components from sources of supply approved by the U.S. DoD. In addition, as business conditions, the DoD budget, and Congressional allocations change, suppliers of specialty chemicals and materials sometimes consider dropping low volume items from their product lines, which may require, as it has in the past, qualification of new suppliers for raw materials on key programs. The supply of ammonium perchlorate, a principal raw material used in ATK's operations, is limited to a single source that supplies the entire domestic solid propellant industry. This single source, however, maintains two separate manufacturing lines a reasonable distance apart, which mitigates the likelihood of a fire, explosion, or other problem impacting all production. ATK may also rely on one primary supplier for other production materials. Although other suppliers of the same materials may exist, the addition of a new supplier may require ATK to qualify the new

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source for use. The qualification process may impact ATK's profitability or ability to meet contract deliveries.

        Certain suppliers of materials used in the manufacturing of rocket motors have discontinued the production of some materials. These materials include certain insulation and resin materials for rocket motor cases and aerospace-grade rayon for nozzles. ATK has qualified new replacement materials for some programs. For other programs, ATK or ATK's customer has procured sufficient inventory to cover current program requirements and is in the process of qualifying new replacement materials to be qualified in time to meet future production needs. ATK's profitability may be affected if unforeseen difficulties in developing and qualifying replacement materials occur.

        ATK is also impacted by increases in the prices of raw materials used in production on commercial and fixed-price business. ATK has seen a significant fluctuation in the prices of commodity metals, including copper, lead, steel, and zinc. The fluctuating costs of natural gas and electricity also have an impact on the cost of operating ATK's factories.

        Prolonged disruptions in the supply of any of ATK's key raw materials, difficulty completing qualification of new sources of supply, implementing use of replacement materials or new sources of supply, or a continuing increase in the prices of raw materials and energy could have a material adverse effect on ATK's operating results, financial condition, or cash flows.

ATK is subject to procurement and other related laws and regulations, non-compliance with which may expose ATK to adverse consequences.

        ATK is subject to extensive and complex U.S. Government procurement laws and regulations, along with ongoing U.S. Government audits and reviews of contract procurement, performance, and administration. ATK could suffer adverse consequences if it were to fail to comply, even inadvertently, with these laws and regulations or with laws governing the export of controlled products and commodities; or commit a significant violation of any other federal law. These consequences could include contract termination; civil and criminal penalties; and, under certain circumstances, ATK's suspension and debarment from future U.S. Government contracts for a period of time. In addition, foreign sales are subject to greater variability and risk than ATK's domestic sales. Foreign sales subject ATK to numerous stringent U.S. and foreign laws and regulations, including regulations relating to import-export control, exchange controls, the Foreign Corrupt Practices Act, and the anti-boycott provisions of the U.S. Export Administration Act. Failure to comply with these laws and regulations could result in material adverse consequences to ATK.

        In addition to the regulation-related risks identified above, the manufacture, sale and purchase of firearms and ammunition are also subject to extensive governmental regulation on the federal, state and local levels. Changes in regulation could materially adversely affect our business by restricting the types of products we manufacture or sell or by imposing additional costs on us or our customers in connection with the manufacture or sale of our products. Regulatory proposals, even if never enacted, may affect firearms or ammunition sales as a result of consumer perceptions. While we do not believe that existing federal and state legislation relating to the regulation of firearms and ammunition had a material adverse effect on our sales, no assurance can be given that more restrictive regulations, if proposed or enacted, will not have a material adverse effect on us in the future.

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Novation of U.S. Government contracts involves risk.

        When U.S. Government contracts are transferred from one contractor to another, such as in connection with the sale of a business, the U.S. Government may require that the parties enter into a novation agreement. A novation agreement generally provides that:

    the transferring contractor guarantees or otherwise assumes liability for the performance of the acquiring contractor's obligations under the contract,

    the acquiring contractor assumes all obligations under the contract, and

    the U.S. Government recognizes the transfer of the contract and related assets.

Failure of ATK's subcontractors to perform their contractual obligations could materially and adversely impact ATK's prime contract performance and ability to obtain future business.

        ATK relies on subcontracts with other companies to perform a portion of the services ATK provides its customers on many of its contracts. There is a risk that ATK may have disputes with its subcontractors, including disputes regarding the quality and timeliness of work performed by the subcontractor, customer concerns about the subcontract, ATK's failure to extend existing task orders or issue new task orders under a subcontract, or ATK's hiring of personnel of a subcontractor. A failure by one or more of ATK's subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact ATK's ability to perform its obligations as the prime contractor. Subcontractor performance deficiencies could result in a customer terminating a contract for default. A default termination could expose ATK to liability and have a material adverse effect on the ability to compete for future contracts and orders.

ATK's future success will depend, in part, on its ability to develop new technologies and maintain a qualified workforce to meet the needs of its customers.

        Virtually all of the products produced and sold by ATK are highly engineered and require sophisticated manufacturing and system integration techniques and capabilities. Both the commercial and government markets in which the Company operates are characterized by rapidly changing technologies. The product and program needs of ATK's government and commercial customers change and evolve regularly. Accordingly, ATK's future performance in part depends on its ability to identify emerging technological trends, develop and manufacture competitive products, and bring those products to market quickly at cost-effective prices. In addition, because of the highly specialized nature of its business, ATK must be able to hire and retain the skilled and appropriately qualified personnel necessary to perform the services required by its customers. ATK's operating results, financial condition, or cash flows may be adversely affected if it is unable to develop new products that meet customers' changing needs or successfully attract and retain qualified personnel.

Due to the volatile and flammable nature of its products, fires or explosions may disrupt ATK's business.

        Many of ATK's products involve the manufacture and/or handling of a variety of explosive and flammable materials. From time to time, these activities have resulted in incidents which have temporarily shut down or otherwise disrupted some manufacturing processes, causing production delays and resulting in liability for workplace injuries and fatalities. ATK has safety and loss prevention programs which require detailed pre-construction reviews of process changes and new operations, along with routine safety audits of operations involving explosive materials, to mitigate such incidents, as well as a variety of insurance policies. However, ATK cannot ensure that it will not experience similar incidents in the future or that any similar incidents will not result in production delays or otherwise have a material adverse effect on its results of operations, financial condition, or cash flows.

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ATK is subject to environmental laws and regulations that govern both past practices and current compliance which may expose ATK to adverse consequences.

        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, remediate, or provide resource restoration. 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.

        ATK expects that a portion of its environmental compliance and remediation costs will be recoverable under U.S. Government contracts. Some of the remediation costs that are not recoverable from the U.S. Government that are associated with facilities purchased in a business acquisition may be covered by various indemnification agreements, as described below.

    As part of its acquisition of the Hercules Aerospace Company in fiscal 1995, ATK generally assumed responsibility for environmental compliance at the facilities acquired from Hercules (the "Hercules Facilities"). ATK believes that a portion of the compliance and remediation costs associated with the Hercules Facilities will be recoverable under U.S. Government contracts. If ATK were unable to recover those environmental remediation costs under these contracts, ATK believes these costs will be covered by Hercules Incorporated, a subsidiary of Ashland Inc., ("Hercules") under environmental agreements entered into in connection with the Hercules acquisition. Under these agreements, Hercules has agreed to indemnify ATK for environmental conditions relating to releases or hazardous waste activities occurring prior to ATK's purchase of the Hercules Facilities as long as they were identified in accordance with the terms of the agreement; fines relating to pre-acquisition environmental compliance; and environmental claims arising out of breaches of Hercules' representations and warranties. Hercules is not required to indemnify ATK for any individual claims below $50 thousand. Hercules is obligated to indemnify ATK for the lowest cost response of remediation required at the facility that is acceptable to the applicable regulatory agencies. ATK is not responsible for conducting any remedial activities with respect to the Clearwater, FL facility. In accordance with its agreement with Hercules, ATK notified Hercules of all known contamination on non-federal lands on or before March 31, 2000, and on federal lands on or before March 31, 2005.

    ATK generally assumed responsibility for environmental compliance at the Thiokol Facilities acquired from Alcoa Inc. ("Alcoa") in fiscal 2002. ATK expects that a portion of the compliance and remediation costs associated with the acquired Thiokol Facilities will be recoverable under U.S. Government contracts. In accordance with its agreement with Alcoa, ATK notified Alcoa of all known environmental remediation issues as of January 30, 2004. Of these known issues, ATK is responsible for any costs not recovered through U.S. Government contracts at Thiokol Facilities up to $29 million, ATK and Alcoa have agreed to split evenly any amounts between $29 million and $49 million, and ATK is responsible for any payments in excess of $49 million. At this time, ATK believes that costs not recovered through U.S. Government contracts will be immaterial.

        ATK cannot ensure that the U.S. Government, Hercules, Alcoa, or other third parties will reimburse it for any particular environmental costs or reimburse ATK in a timely manner or that any claims for indemnification will not be disputed. U.S. Government reimbursements for cleanups are financed out of a particular agency's operating budget and the ability of a particular governmental agency to make timely reimbursements for cleanup costs will be subject to national budgetary constraints. ATK's failure to obtain full or timely reimbursement from the U.S. Government, Hercules,

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Alcoa, or other third parties could have a material adverse effect on its operating results, financial condition, or cash flows.

        In December 2001, ATK received notice from the State of Utah of a potential claim against ATK under Section 107(f) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") for natural resource damages at Bacchus, one of the Hercules Facilities, in Magna, Utah. The notice letter, which was issued to preserve the State's rights under CERCLA, also expressly acknowledged the State's willingness to allow ATK to go forward with its currently-planned monitoring and remediation program. The State's preliminary estimate of damages contained in this claim was $139 million, which is based on known and alleged groundwater contamination at and near Bacchus and is related to Hercules' manufacturing operations at the site. ATK has had discussions with the State regarding this claim and entered into a tolling agreement with the State in fiscal 2002. In fiscal 2003, ATK entered into a similar tolling agreement with the State regarding the Promontory facility that was acquired from Alcoa in the acquisition of Thiokol. These agreements allow ATK time to continue to identify and address the contamination by the normal and planned regulatory remediation processes in Utah. The tolling agreements expire in January 2016 and September 2012, respectively. Although ATK has previously made accruals for its best estimate of the probable and reasonably estimable costs related to the remediation obligations known to ATK with respect to the affected areas, ATK cannot yet predict if or when a suit may be filed against it, nor can ATK determine any additional costs that may be incurred in connection with this matter.

        While ATK has environmental management programs in place to mitigate risks, environmental laws and regulations have not had a material adverse effect on ATK's operating results, financial condition, or cash flows in the past, and it is difficult to predict whether they will have a material impact in the future.

Capital market volatility could adversely impact ATK's earnings because of ATK's capital structure.

        As of March 31, 2012, ATK had a total of $199 million of convertible senior subordinated notes outstanding, subject to the terms of the indenture. The indenture requires ATK to satisfy up to the principal amount of these notes solely in cash. In addition, the indenture requires ATK to pay any additional amounts above the principal amount of the notes in cash, common stock, or a combination of cash and common stock at ATK's discretion. As the price of ATK's common stock increases above the conversion price of the notes, ATK includes the dilutive impact of the number of shares that would be issued if converted, which decreases earnings per share.

        ATK is also exposed to the risk of fluctuation in interest rates. If interest rates increase, ATK may incur increased interest expense on variable interest-rate debt or short-term borrowings, which could have an adverse impact on ATK's operating results and cash flows.

ATK may pursue or complete acquisitions, or other transactions, which represent additional risk and could impact future financial results.

        ATK's business strategy includes the potential for future acquisitions or other transactions. Acquisitions involve a number of risks including integration of the acquired company with ATK's operations and unanticipated liabilities or contingencies related to the acquired company. ATK cannot ensure that the expected benefits of any future acquisitions will be realized. Costs could be incurred on pursuits or proposed acquisitions that have not yet or may not close which could significantly impact ATK's operating results, financial condition, or cash flows. Additionally, after the acquisition, unforeseen issues could arise which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from initial estimates. Futhermore, ATK may engage in other strategic business transactions. Such transactions could cause unanticipated costs and difficulties, may

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not achieve intended results, and may require significant time and attention from management which could have an adverse impact on our business, operating results, financial condition, or cash flows.

ATK's profitability could be impacted by unanticipated changes in its tax provisions or exposure to additional income tax liabilities.

        ATK's business operates in many locations under government jurisdictions that impose income taxes. Changes in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, thereby affecting income tax expense and profitability. In addition, audits by income tax authorities could result in unanticipated increases in income tax expense.

ATK is involved in a number of legal proceedings. We cannot predict the outcome of litigation and other contingencies with certainty.

        ATK is subject to lawsuits, investigations, and disputes (some of which involve substantial amounts claimed) which arise out of the conduct of ATK's business. Resolution of these matters can be prolonged and costly, and ATK's business may be adversely affected by the ultimate outcome of these matters that cannot be predicted with certainty. Moreover, ATK's potential liabilities are subject to change over time due to new developments, changes in settlement strategy, or the impact of evidentiary requirements, and we may become subject to or be required to pay damage awards or settlements that could have a material adverse affect on our results of operations, cash flows, and financial condition. Additional information can be found in Item 3 of this report.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        There are no unresolved staff comments as of the date of this report.

ITEM 2.    PROPERTIES

        Facilities.    As of March 31, 2012, ATK occupied manufacturing, assembly, warehouse, test, research, development, and office facilities having a total floor space of approximately 21 million square feet. These facilities are either owned or leased, or are occupied under facilities-use contracts with the U.S. Government.

        As of March 31, 2012, ATK's operating segments had significant operations at the following locations:

Aerospace Systems   Commerce, CA; Goleta, CA; San Diego, CA; Beltsville, MD; Iuka, MS; Dayton, OH; Brigham City/ Promontory, UT; Clearfield, UT; Magna, UT

Armament Systems

 

Mesa, AZ; Elk River, MN; Plymouth, MN; Independence, MO; Radford, VA

Missile Products

 

Woodland Hills, CA; Clearwater, FL; Elkton, MD; Ronkonkoma, NY; Fort Worth, TX ; Rocket Center, WV

Security and Sporting

 

Oroville, CA; Boise, ID; Lewiston, ID; Anoka, MN; Fenton, MO; Bozeman, MT; Lares, Puerto Rico; Mayaguez, Puerto Rico; Norfolk, VA; Onalaska, WI; the Dominican Republic

Corporate

 

Minneapolis, MN; Arlington, VA

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        The following table summarizes the floor space, in thousands of square feet, occupied by each operating segment as of March 31, 2012:

 
  Owned   Leased   Government
Owned(1)
  Total  

Aerospace Systems

    5,321     3,635     479     9,435  

Armament Systems

    202     373     6,532     7,107  

Missile Products

    489     505     1,110     2,104  

Security and Sporting

    1,615     775         2,390  

Corporate

        155         155  
                   

Total

    7,627     5,443     8,121     21,191  

Percentage of total

    36 %   26 %   38 %   100 %

(1)
These facilities are occupied under facilities contracts that generally require ATK to pay for all utilities, services, and maintenance costs.

        Land.    ATK also uses land that it owns or leases for assembly, test, and evaluation, in Brigham City, Corrine, and Magna, UT, which is used by Aerospace Systems; in Elk River, MN, and Socorro, NM, which are used by Armament Systems.

        ATK personnel occupy space at the following facilities that are not owned or operated by ATK: Marshall Space Flight Center, Huntsville, AL; Kennedy Space Center, Cape Canaveral, FL; Vandenberg Air Force Base, Vandenberg, CA; and Picatinny Arsenal, Picatinny, NJ. The square footage of these facilities are included in the table above.

        ATK's properties are well maintained and in good operating condition and are sufficient to meet ATK's near-term operating requirements.

ITEM 3.    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.

        On or about April 10, 2006, a former ATK employee filed a qui tam complaint in federal court in Utah alleging that ATK knowingly submitted claims for payment to the U.S. Government for defective LUU series illuminating flares that failed to conform to certain safety specifications and falsely certified compliance with those specifications. On January 23, 2012, the parties met in a mediation session that resulted in an agreement to settle the lawsuit. As a result of the settlement agreement, ATK established a litigation accrual of $25.5 million during fiscal 2012. This payment was made in April 2012. An additional warranty accrual of approximately $10.7 million was recorded during fiscal 2012 as the Company will retrofit up to 76,000 flares as part of the settlement.

        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.

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        Environmental Liabilities.    ATK's operations and ownership or use of real property are subject to a number of federal, state, and local laws and regulations, including those for discharge of hazardous materials, remediation of contaminated sites, and restoration of damage to the environment. Due in part to their complexity and pervasiveness, such laws and regulations have resulted in ATK being involved with a number of related legal proceedings, claims, and remediation obligations. ATK routinely assesses, based on in-depth studies, expert analyses, and legal reviews, its contingencies, obligations, and commitments for remediation of contaminated sites and past practices, including assessments of ranges and probabilities of recoveries from other responsible parties. ATK's policy is to accrue and charge to expense in the current period any identified exposures related to environmental liabilities based on estimates of investigation, cleanup, monitoring, and resource restoration costs to be incurred.

        ATK could incur substantial costs, including cleanup costs, resource restoration, fines, and penalties or third-party property damage or personal injury claims, as a result of violations or liabilities under environmental laws or non-compliance with environmental permits. While environmental laws and regulations have not had a material adverse effect on ATK's operating results, financial condition, or cash flows in the past, and ATK has environmental management programs in place to mitigate these risks, it is difficult to predict whether they will have a material impact in the future.

        The description of certain environmental matters contained in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Contingencies" is incorporated herein by reference.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.


PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

        ATK's common stock is listed and traded on the New York Stock Exchange under the symbol "ATK". The following table presents the high and low sales prices of the common stock for the periods indicated:

Period
  High   Low  

Fiscal 2012:

             

Quarter ended March 31, 2012

  $ 62.95   $ 49.78  

Quarter ended January 1, 2012

    64.76     52.07  

Quarter ended October 2, 2011

    72.53     51.26  

Quarter ended July 3, 2011

    76.24     66.17  

Fiscal 2011:

             

Quarter ended March 31, 2011

  $ 78.17   $ 66.90  

Quarter ended January 2, 2011

    79.96     71.78  

Quarter ended October 3, 2010

    76.15     60.13  

Quarter ended July 4, 2010

    83.98     61.24  

        The number of holders of record of ATK's common stock as of May 13, 2012 was 5,904.

        During fiscal 2012, ATK paid quarterly dividends of $0.20 per share, totalling $26.6 million. On May 1, 2012, ATK's Board of Directors declared a quarterly cash dividend of $0.20 per share payable on June 28, 2012, to stockholders of record on June 11, 2012. 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

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are not determinable. ATK's dividend policy is reviewed by the Board of Directors in light of relevant factors, including our earnings, liquidity position, financial condition, capital requirements, and credit ratings, as well as the extent to which the payment of cash dividends may be restricted by covenants contained in ATK's 6.875% and 6.75% Senior Subordinated Notes and its Senior Credit Facility (as described under "Liquidity and Capital Resources" in Item 7 of this report). As of March 31, 2012, ATK's 6.875% and 6.75% 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 March 31, 2012, this limit was approximately $710.4 million. As of March 31, 2012, 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, with a limit, when those senior debt limits are not met, of $250 million 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.

Equity Compensation Plan Information

        The following table gives information about ATK's common stock that may be issued upon the exercise of options, warrants and rights under each of ATK's existing equity compensation plans as of March 31, 2012:

Plan category
  Number of
securities to
be issued upon
exercise of
outstanding
options, warrants
and rights
(a)
  Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
  Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
(c)
 

Equity compensation plans approved by security holders:

                   

1990 Equity Incentive Plan(1)

                   

Stock Options

    214,286     $62.38      

Deferred Compensation(2)

    73,067          

Non-Employee Director Restricted Stock Plan(1)

                 

Deferred Compensation(2)

    9,474          

2005 Stock Incentive Plan(3)

                99,360  

Stock Options

    171,661     61.70      

Performance Awards(4)

    750,277          

Deferred Compensation(2)

    101,533          

Equity compensation plans not approved by security holders:

                   

2000 Stock Incentive Plan(1)

                   

Stock Options

    32,175     61.27      
               

Total

    1,352,473     $62.02     99,360  

(1)
No additional awards may be granted under this plan.

(2)
Shares reserved for payment of deferred stock units in accordance with the terms of the plan.

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(3)
Under the 2005 Stock Incentive Plan, no more than 2,350,000 shares are available for performance awards, restricted stock awards, restricted stock units, dividend equivalents, and stock awards, and of that number only 50,000 shares may be issued as stock awards. No more than 119,118 shares in the aggregate may be granted pursuant to awards to non-employee directors of ATK.

(4)
Shares reserved for issuance in connection with outstanding performance awards. The amount shown assumes the maximum payout of the performance shares based on achievement of the highest level of performance. The actual number of shares to be issued depends on the performance levels achieved for the respective performance periods.

        The 2000 Stock Incentive Plan (the "2000 Plan") is administered by the Personnel and Compensation Committee (the "P&C Committee") of ATK's Board of Directors. ATK stopped granting options and all other awards under the 2000 Plan in January 2004 and is only continuing the plan for the exercise, payment or forfeiture of awards granted in or before January 2004. Under the 2000 Plan, all employees (other than officers and directors), consultants, and independent contractors providing services to ATK or its affiliates were eligible to receive awards. The P&C Committee designated the participants who received awards, determined the types and amounts of awards granted, and determined the terms and conditions of awards granted, subject to the provisions of the 2000 Plan. Awards granted under the 2000 Plan consisted of stock options, restricted stock, and performance awards. Options granted under the 2000 Plan have an exercise price equal to the fair market value of ATK's common stock on the date of grant. Options granted under the 2000 Plan prior to January 2004 vested in three equal annual installments and have a term of 10 years. Options granted after January 2004 vested after three years and have a term of seven or ten years. If an option holder's employment terminates, the option remains exercisable for a fixed period of time, as determined by the P&C Committee, up to the remainder of the option's term. Payment of the exercise price of an option may be made in cash or in shares of ATK common stock previously acquired by the option holder.


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)*
 

January 1 - January 29

      $            

January 30 - February 26

    7,951     58.66            

February 27 - March 31

    12,513     50.57            
                     

Fiscal quarter ended March 31, 2012

    20,464   $ 53.71         3,990,423  

*
The maximum number of shares that may yet be purchased under the program was calculated using the ATK closing stock price of $50.12 on March 31, 2012.

(1)
The 20,464 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 August 5, 2008, ATK's Board authorized the repurchase of up to 5 million shares. The Board had determined that the repurchase program would serve primarily to offset dilution from the Company's employee and director benefit compensation programs, but it could also be used for other corporate purposes, as determined by the Board. During fiscal 2009, ATK repurchased 299,956 shares for $31.6 million. No shares were purchased pursuant to this authorization during fiscal 2010 or 2011. In fiscal 2012, ATK repurchased 742,000 shares for $50.0 million. On

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    January 31, 2012, ATK's Board of Directors authorized a new 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 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.

            The discussion of limitations upon the payment of dividends as a result of the indentures governing ATK's debt instruments as discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Debt," is incorporated herein by reference.


STOCKHOLDER RETURN PERFORMANCE GRAPH

            The following graph compares, for the five fiscal years ended March 31, 2012, the cumulative total return for ATK common stock with the comparable cumulative total return of two indexes:

    Standard & Poor's Composite 500 Index, a broad equity market index; and

    Dow Jones U.S. Aerospace and Defense Index, a published industry index.

        The graph assumes that on April 1, 2007, $100 was invested in ATK common stock (at the closing price on the previous trading day) and in each of the indexes. The comparison assumes that all dividends, if any, were reinvested. The graph indicates the dollar value of each hypothetical $100 investment as of March 31 in each of the years 2008, 2009, 2010, 2011, and 2012.


COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

GRAPHIC

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ITEM 6.    SELECTED FINANCIAL DATA

 
  Years Ended March 31  
(Amounts in thousands except per share data)
  2012   2011   2010   2009   2008  

Results of Operations

                               

Sales

  $ 4,613,399   $ 4,842,264   $ 4,807,666   $ 4,583,224   $ 4,171,725  

Cost of sales

    3,618,503     3,840,698     3,776,355     3,607,312     3,325,410  
                       

Gross profit

    994,896     1,001,566     1,031,311     975,912     846,315  

Operating expenses:

                               

Research and development

    66,403     64,960     75,896     81,529     68,333  

Selling

    169,984     164,063     168,986     161,805     131,068  

General and administrative

    262,923     246,817     236,084     239,621     216,386  

Trade name and goodwill impairment(2)

            38,008     108,500      
                       

Income before interest, income taxes, and noncontrolling interest

    495,586     525,726     512,337     384,457     430,528  

Interest expense, net

    (88,620 )   (87,052 )   (76,920 )   (86,408 )   (102,473 )
                       

Income before income taxes and noncontrolling interest

    406,966     438,674     435,417     298,049     328,055  

Income tax provision

    143,762     124,963     156,473     157,096     118,678  
                       

Income before noncontrolling interest

    263,204     313,711     278,944     140,953     209,377  

Less net income attributable to noncontrolling interest

    592     536     230     187     376  
                       

Net income attributable to Alliant Techsystems Inc. 

  $ 262,612   $ 313,175   $ 278,714   $ 140,766   $ 209,001  
                       

Alliant Techsystems Inc.'s earnings per common share:

                               

Basic

  $ 7.99   $ 9.41   $ 8.48   $ 4.30   $ 6.35  
                       

Diluted

  $ 7.93   $ 9.32   $ 8.33   $ 4.14   $ 5.94  
                       

Financial Position

                               

Net current assets

  $ 1,089,915   $ 995,747   $ 931,163   $ 573,434   $ 617,029  

Net property, plant, and equipment

    604,498     587,749     561,931     540,041     492,336  

Total assets(1)

    4,541,746     4,443,845     3,869,624     3,577,345     3,196,194  

Long-term debt (including current portion)

    1,302,002     1,609,709     1,393,554     1,387,603     1,364,301  

Total Alliant Techsystems Inc. stockholders' equity(1)

    1,226,795     1,156,758     798,594     665,971     810,344  

Other Data

                               

Depreciation and amortization of intangible assets

  $ 108,885   $ 111,186   $ 99,830   $ 85,753   $ 77,486  

Capital expenditures(3)

    122,292     130,201     143,472     111,481     100,709  

Cash dividends per common share

    0.80     0.20              

Gross margin (gross profit as a percentage of sales)

    21.6 %   20.7 %   21.5 %   21.3 %   20.3 %

(1)
In fiscal 2008, ATK adopted the measurement provisions of the new standard on accounting for defined benefit pension and other postretirement plans and remeasured its defined benefit pension and other postretirement plan assets and benefit obligations. The after-tax cumulative effect

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    changes of this adoption included a net decrease in total Alliant Techsystems Inc. stockholders' equity of $38.6 million and an increase of $30.7 million in total assets.

(2)
In fiscal 2010, ATK recorded a non-cash asset impairment charge of $38.0 million related to the decision to discontinue use of the Thiokol and MRC trade names. ATK recorded a goodwill impairment charge of $108.5 million in fiscal 2009.

(3)
Capital expenditures are shown net of capital expenditures included in accounts payable and financed through operating leases.

        See Note 4 to the consolidated financial statements for a description of acquisitions made since the beginning of fiscal 2010.

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ITEM 7.    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 and budgetary policies, including impacts of potential 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,

    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,

    information security threats or 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,

    the novation of U.S. Government contracts,

    performance of ATK's subcontractors,

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    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,

    results of acquisitions or other transactions, 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. Additional information regarding certain of these factors is contained in Item 1A of this report and may also be contained in ATK's filings with the Securities and Exchange Commission on 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 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 March 31, 2012, ATK operated in four 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 March 31, 2012, ATK's four operating groups were:

    Aerospace Systems, which generated 29% of ATK's external sales in fiscal 2012, develops and produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, missile defense interceptors, small and micro-satellites, satellite components, structures and subsystems, lightweight space deployables and solar arrays, and provides engineering and technical services. Additionally, Aerospace Systems operates in the military and commercial aircraft and launch structures markets. Other products include ordnance, such as decoy and illuminating flares.

    Armament Systems, which generated 34% of ATK's external sales in fiscal 2012, develops and produces military small-, medium-, and large-caliber ammunition, precision munitions, gun systems, and propellant and energetic materials. It also operates the U.S. Army ammunition plants in Independence, MO and Radford, VA.

    Missile Products, which generated 15% of ATK's external sales in fiscal 2012, operates across the following market areas: strike weapons, tactical propulsion, inspace propulsion, hypersonic research, missile defense and missile interceptor capabilities, fuzes and warheads, composites, special mission aircraft, and electronic warfare.

    Security and Sporting, which generated 22% of ATK's external sales in fiscal 2012, develops and produces commercial products and tactical systems and equipment.

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Financial Highlights and Notable Events

        Certain notable events or activities affecting our fiscal 2012 financial results included the following:

Financial highlights for fiscal 2012

    Annual sales of $4.6 billion.

    Diluted earnings per share of $7.93.

    Total orders of $4.2 billion.

    Total backlog of $6.3 billion at March 31, 2012 compared to $6.7 billion at March 31, 2011.

    Income before interest, income taxes, and noncontrolling interest as a percentage of sales was 10.7% for the years ended March 31, 2012 and 2011, respectively. The current year rate reflects an approximately $36,000 accrual regarding a previously disclosed lawsuit related to the manufacture of LUU flares, and a favorable contract settlement of $18,000 within Armament Systems group. The prior year rate reflected a $25,000 reduction in sales and profit in a commercial aerospace program.

    The increase in the current period tax rate to 35.3% is primarily due to the absence of the benefit that was realized in fiscal 2011 from the settlement of the examination of the fiscal 2007 and 2008 tax returns, the estimated nondeductible portion of the fiscal 2012 accrual related to the LUU flare litigation agreement, and the retroactive extension of the federal research and development ("R&D") credit in fiscal 2011, partially offset by increased benefit from the domestic manufacturing deduction ("DMD") and a discrete revaluation of the deferred tax assets caused by a change in state tax law.

    During fiscal 2012, ATK paid quarterly cash dividends of $0.20 per share, totalling $26,552.

Notable events

    Effective October 1, 2011, ATK relocated its corporate headquarters to Arlington, VA. ATK believes the move will provide the Company with opportunities for increased engagement with its customers and Congress, as well as with its aerospace and defense industry peers located in the region.

    On January 23, 2012, ATK was notified that the Government Accountability Office did not uphold ATK's pre-award protest of the request for proposal for the continued operation and maintenance of the Radford Army Ammunition Plan ("RFAAP") in Radford, Virginia. On January 24, 2012, ATK was notified that the U.S. Army had completed its review of ATK's revised proposal for the RFAAP contract and that ATK had not been awarded the contract.

    On January 23, 2012, ATK and the Department of Justice ("DOJ") met in a mediation session regarding the LUU flare litigation, which resulted in a tentative agreement to settle the lawsuit. As a result of the tentative agreement, ATK established a litigation accrual of $25,500. This payment was subsequently made in fiscal 2013 upon finalization of the settlement. An additional warranty accrual of approximately $10,700 was recorded during fiscal 2012 as the Company will retrofit up to 76,000 flares as part of the settlement.

    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 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

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      Exchange Act of 1934. This share repurchase program replaces the prior program authorized in 2008.

    On February 2, 2012, ATK's Board of Directors appointed Neal S. Cohen as the company's Executive Vice President and Chief Financial Officer. Mr. Cohen has responsibility for accounting and controls, treasury, tax, financial planning and analysis, internal audit and investor relations.

    On February 2, 2012, ATK announced that at the beginning of fiscal year 2013, it will operate a three-group structure. The segments will be the Aerospace Group, the Defense Group, and the Sporting Group. This realignment will maximize efficiency, reduce cost, support customer needs, leverage investments, and improve overall agility within ATK's markets.

    On May 1, 2012, ATK's Board of Directors declared a quarterly cash dividend of $0.20 per share, payable on June 28, 2012, to stockholders of record on June 11, 2012.

    On May 1, 2012, ATK's Board of Directors appointed Deborah Moeschl as Vice President and Interim General Counsel of ATK.

Outlook

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

        The U.S. defense industry has experienced significant changes over the 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 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.

        Congress and the President signed the NASA Authorization Act in October 2010 that directed the development of a Space Launch System. Consistent with the NASA Authorization Act, the President's GFY 2012 budget released in February 2011 identified funding for the replacement to Constellation's crew launch vehicle, designated the Space Launch System ("SLS"). Congress directed that, to the maximum extent possible, the SLS should utilize hardware developed for the Constellation program. On September 14, 2011, NASA and key legislative leaders jointly announced the baseline design for SLS. ATK's five-segment solid rocket motors were selected as the propulsion system for the first two SLS test flights (2017 and 2021). At the same time, NASA announced that it will hold a competition for the final design of the propulsion system for SLS, in which ATK will be eligible to participate.

        On November 18, 2011, President Obama signed the GFY 2012 NASA Appropriations bill, which provided $1.8 billion for the SLS. This legislation further specified the configuration of the Heavy Lift Vehicle consistent with the September 14, 2011 announcement by the NASA Administrator on the SLS configuration. The President's government fiscal year 2013 budget includes a stable funding request for SLS for GFY13 through GFY17. Congress will determine the GFY13 funding level for NASA as well as the amount of the line item in NASA's budget for the SLS program.

        In fiscal 2012, NASA sales relating to the SLS programs were approximately $283,000 and as of March 31, 2012 ATK had approximately:

    $54,000 of billed and unbilled receivables directly related to the program,

    $80,000 of net property, plant, and equipment and other assets related to the SLS and other contracts, and

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    $518,000 of goodwill recorded related to the Space Systems Operations reporting unit.

        All of these assets would be subject to impairment testing if significant changes are made to the SLS programs and related contracts in future periods.

        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.

        As discussed above, on January 23, 2012, ATK was notified that the U.S. Army had completed its review of ATK's revised proposal for a contract to continue operating and maintaining the RFAAP and that ATK had not been awarded the contract. Loss of the Radford facility management contract will reduce Armament Systems' and ATK's sales and profit. ATK will continue to operate its New River Energetics facility located at RFAAP, which supports ATK's commercial business, international program efforts and other business not directly associated with the RFAAP contract, and therefore ATK does not expect to lose all revenues associated with this division. Sales and operating profit associated with the RFAAP contract during fiscal 2012 were $195,000 and $39,000, respectively. ATK will continue to operate the facility through the first quarter of fiscal 2013. Therefore, there will be continued Radford revenues into fiscal 2013.

        ATK submitted its proposal for the continued operation of the Lake City Army Ammunition Plant ("Lake City" or "LCAAP") on January 23, 2012, in response to a competitive solicitation issued by the U.S. Army. The contract is expected to be awarded in the fall of 2012. ATK is currently under contract with the U.S. Army to operate the LCAAP until September 2013. Loss of the Lake City contract would reduce Armament Systems' and ATK's sales and profit. The prime contract at Lake City, which includes modernization, accounted for approximately 15% of ATK's total revenue in fiscal 2012.

        Recent Developments in U.S. Cost Accounting Standards ("CAS") Pension Recovery Rules —The Company maintains defined benefit plans that are subject to CAS and Pension Protection Act of 2006 ("PPA") requirements. The CAS Board issued the final ruling on December 27, 2011 which allows for recognition of a minimum actuarial liability ("MAL") determined on a PPA basis; shortens the amortization period for CAS actuarial gains/losses from 15 to 10 years; and allows for a five-year phase-in of PPA minimum actuarial liability. ATK is currently in process of completing an analysis of the impact the final ruling will have. Due to the phase-in approach within the ruling, there will be minimal impact to ATK prior to fiscal 2015.

Critical Accounting Policies

        ATK's discussion and analysis of its financial condition and results of operations are based upon ATK's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, ATK makes 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.

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        ATK believes the following are its critical accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

        Our sales come primarily from contracts with agencies of the U.S. Government and its prime contractors and subcontractors. As the various U.S. Government customers, including the U.S. Army, U.S. Navy, NASA, and the U.S. Air Force, make independent purchasing decisions, we do not generally regard the U.S. Government as one customer. Instead, we view each agency as a separate customer.

        Sales by customer were as follows:

 
  Percent of Sales
For Fiscal Years Ended:
 
 
  2012   2011   2010  

Sales to:

                   

U.S. Army

    28 %   30 %   28 %

U.S. Navy

    12 %   11 %   11 %

NASA

    10 %   13 %   18 %

U.S. Air Force

    6 %   7 %   7 %

Other U.S. Government customers

    9 %   7 %   5 %
               

Total U.S. Government customers

    65 %   68 %   69 %

Commercial and foreign customers

    35 %   32 %   31 %
               

Total

    100 %   100 %   100 %

        Long-Term Contracts—The majority of ATK's sales to the U.S. Government and commercial and foreign customers are accounted for as long-term contracts. Sales under long-term contracts are accounted for under the percentage-of-completion method and include cost-plus and fixed-price contracts. Sales under cost-plus contracts are recognized as costs are incurred. Sales under fixed-price contracts are either recognized as the actual cost of work performed relates to the estimate at completion ("cost-to-cost") or based on results achieved, which usually coincides with customer acceptance ("units-of-delivery"). The majority of ATK's total revenue is accounted for using the cost-to-cost method of accounting.

        Profits expected to be realized on contracts are based on management 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.

        Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates 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. In fiscal 2012, 2011 and 2010, the Company recognized favorable operating income adjustments of $187,718, $121,108, and $85,598, and unfavorable operating income adjustments of $80,745, $69,600 and $41,215, respectively, consisting of changes in estimates on contracts accounted for under the percentage-of-completion method of accounting. The adjustments recorded during the year ended

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March 31, 2012 were primarily driven by greater than expected performance at the Radford facility due to increased production volumes, changes in estimates as contracts near completion in energetics and small-caliber systems programs, the absence of a reduction in sales and profit on a commercial aerospace program recorded in fiscal 2011, and changes in expectations on an international advanced weapons program, a defense electronic systems program, and others.

        Contracts may contain provisions to earn incentive and award fees if specified targets are achieved as well as penalty provisions related to performance. Incentive and award fees and penalties that can be reasonably estimated and are probable are recorded over the performance period of the contract. Incentive and award fees that cannot be reasonably estimated are recorded when awarded.

        The complexity of the estimation process and all issues related to assumptions, risks, and uncertainties inherent with the application of the cost-to-cost method of accounting affect the amounts reported in ATK's financial statements. A number of internal and external factors affect the cost of sales estimates, including labor rate and efficiency variances, overhead rate estimates, revised estimates of warranty costs, estimated future material prices, and customer specification and testing requirement changes. If business conditions were different, or if ATK had used different assumptions in the application of this and other accounting policies, it is likely that materially different amounts would be reported in ATK's financial statements. In the past, ATK's estimates and assumptions have been materially accurate.

        Other Revenue Recognition Methodology—Sales not recognized under the long-term contract method primarily relate to sales within the Security and Sporting group which are recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred, and payment is reasonably assured. Sales are reduced for allowances and price discounts.

        Fiscal 2012 sales by revenue recognition method were as follows:

 
  Percent
of Sales
 

Sales recorded under:

       

Long-term contracts method

    78 %

Other method

    22 %
       

Total

    100 %

Employee Benefit Plans

        Defined Benefit Pension Plans.    ATK's noncontributory defined benefit pension plans (the "Plans") cover substantially all employees hired prior to January 1, 2007. Eligible non-union employees hired on or after January 1, 2007 and certain union employees are not covered by a defined benefit plan but substantially all receive an employer contribution through a defined contribution plan. Plans provide either pension benefits based on employee annual pay levels and years of credited service or based on stated amounts for each year of credited service. ATK funds the Plans in accordance with federal requirements calculated using appropriate actuarial methods. Plan assets for ATK are held in a trust and are invested in a diversified portfolio of equity investments, fixed income investments, real estate, timber, energy investments, hedge funds, private equity, and cash. For certain Plan assets where the fair market value is not readily determinable, estimates of the fair value are determined using the best available information including the most recent audited financial statements.

        ATK also sponsors nonqualified supplemental executive retirement plans which provide certain executives and highly compensated employees the opportunity to receive pension benefits in excess of those payable through tax qualified pension plans.

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        ATK recorded pension expense for the Plans of $133,957 in fiscal 2012, an increase of $4,818 from $129,139 of pension expense recorded in fiscal 2011. The expense related to these Plans is calculated based upon a number of actuarial assumptions, including the expected long-term rate of return on plan assets, the discount rate, and the rate of compensation increase. The following table sets forth ATK's assumptions used in determining pension expense for fiscal 2012, 2011, and 2010, and projections for fiscal 2013:

 
  Years Ending March 31  
 
  2013   2012   2011   2010  

Expected long-term rate of return on plan assets

    7.50 %   8.00 %   8.00 %   8.00 %

Discount rate

    4.90 %   5.60 %   5.90 %   8.15 %

Rate of compensation increase:

                         

Union

    3.26 %   3.79 %   3.84 %   3.82 %

Salaried

    3.55 %   4.02 %   4.05 %   4.09 %

        In developing the expected long-term rate of return assumption, ATK considers input from its actuaries and other advisors, annualized returns of various major indices over a long-term time horizon and ATK's own historical investment returns. The expected long-term rate of return of 8.0% used in fiscal 2012 for the Plans was based on an asset allocation range of 30-50% in equity investments, 30-40% in fixed income investments, 5-15% in real estate/real asset investments, 5-27% collectively in hedge fund and private equity investments, and 0-6% in cash investments. The expected long-term rate of return assumed for fiscal 2013 has been decreased to 7.5%. This decrease is primarily a result of the lower interest rate environment and decreased expectations for the equity risk premium. The actual return in any fiscal year will likely differ from ATK's assumption, but ATK estimates its return based on long-term projections and historical results. Therefore, any variance in a given year does not necessarily indicate that the assumption should be changed.

        In determining its discount rate, ATK uses the current investment yields on high-quality corporate bonds (rated AA or better) that coincide with the cash flows of the estimated benefit payouts from ATK's plans. The model uses a yield curve approach to discount each cash flow of the liability stream at an interest rate specifically applicable to the timing of the respective cash flow. The model totals the present values of all cash flows and calculates the equivalent weighted average discount rate by imputing the singular interest rate that equates the total present value with the stream of future cash flows. This resulting weighted average discount rate is then used in evaluating the final discount rate. The discount rate was 4.90%, 5.60%, and 5.90% at March 31, 2012, March 31, 2011, and March 31, 2010, respectively. The discount rate as of March 31 impacts the following fiscal year's pension expense.

        Future actual pension expense can vary significantly depending on future investment performance, changes in future discount rates, legally required plan changes, and various other factors related to the populations participating in the Plans. If the assumptions of the discount rate, compensation increase, and/or expected rate of return for fiscal 2013 were different, the impact on fiscal 2013 expense would be as follows: each 0.25% change in the discount rate would change fiscal 2013 pension expense by approximately $8 million; each 0.25% change in the rate of compensation increase would change fiscal 2013 pension expense by approximately $2.4 million; and each 0.25% change in the expected rate of return on plan assets would change fiscal 2013 pension expense by approximately $5.5 million.

        ATK bases its determination of pension expense or income on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

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        ATK made contributions to the qualified pension trust of $74,600 during fiscal 2012. ATK made a qualified pension plan trust contribution of $140,000 in April 2012 (fiscal 2013) towards the legally required minimum contribution of $155,000 for fiscal 2013. ATK distributed $6,900 under its supplemental executive retirement plans during fiscal 2012, and expects to make distributions directly to retirees of approximately $7,147 in fiscal 2013. A substantial portion of ATK's Plan contributions are recoverable from the U.S. Government as allowable indirect contract costs at amounts generally equal to the pension plan contributions, although not necessarily in the same year the contribution is made. ATK's funded pension status was approximately 71% as of March 31, 2012.

        Other Postretirement Benefits.    ATK also provides postretirement health care benefits and life insurance coverage to certain employees and retirees.

        The following table sets forth ATK's assumptions used to determine net periodic benefit cost for other postretirement benefit ("PRB") plans for fiscal 2012, 2011, and 2010, and projections for fiscal 2013:

 
  Years Ending March 31  
 
  2013   2012   2011   2010  

Expected long-term rate of return on plan assets:

                         

Held solely in fixed income investments

    5.00 %   6.00 %   6.00 %   6.00 %

Held in pension master trust and fixed income investments

    6.25 %   7.00 %   7.00 %   7.00 %

Discount rate

    4.40 %   5.00 %   5.35 %   7.90 %

Weighted average initial health care cost trend rate

    7.70 %   7.60 %   7.70 %   6.90 %

        Health care cost trend rates are set specifically for each benefit plan and design. Health care cost trend rates used to determine the net periodic benefit cost for employees during fiscal 2012 were as follows: under age 65 was 8.5%; over age 65 was 7.5%; and the prescription drug portion was 8.0%. The rate of return estimate for fiscal 2013 has been decreased primarily due to lower return expectations for the fixed income investments, driven by lower interest rates, and the decrease in the expected rate of return on pension plan assets from 8.0% to 7.5%.

        The health care cost ultimate trend rates are as follows:

Health care cost trend rate for employees under 65

    5.0 %

Health care cost trend rate for employees over 65

    5.0 %

Health care cost trend rate for prescription drugs

    5.5 %

Weighted average health care cost trend rate

    5.1 %

        Each category of cost declines at a varying rate. The ultimate trend rate will be reached in fiscal 2019 for employees under age 65, in fiscal 2018 for employees over age 65, and in fiscal 2017 for prescription drugs.

        In developing the expected long-term rate of return assumption for other PRB plans, ATK considers input from actuaries, historical returns, and annualized returns of various major indices over long periods. As of March 31, 2012, approximately 38% of the assets were held in a 401(h) account held within the pension master trust and are invested in the same manner as the pension assets. The expected long-term rates of returns are based on the weighted average asset allocation between the assets held within the 401(h) and those held in fixed income investments.

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        Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage point increase or decrease in the assumed health care cost trend rates would have the following effects:

 
  One-Percentage
Point Increase
  One-Percentage
Point Decrease
 

Effect on total service and interest cost

  $ 397   $ (348 )

Effect on postretirement benefit obligation

    9,031     (7,917 )

        ATK made other PRB plan contributions of $10,807 in fiscal 2012 and expects to make contributions of approximately $12,926 in fiscal 2013. A substantial portion of ATK's PRB plan contributions are recoverable from the U.S. Government as allowable indirect costs at amounts generally equal to the plan contributions, although not necessarily in the same year the contribution is made.

        The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) reduced ATK's accumulated projected benefit obligation ("APBO") measured as of December 31, 2005. One of ATK's other PRB plans is actuarially equivalent to Medicare, but ATK does not believe that the subsidies it will receive under the Act will be significant. Because ATK believes that participation levels in its other PRB plans will decline, the impact to ATK's results of operations in any period has not been and is not expected to be significant.

        Defined Contribution Plan.    ATK also sponsors a 401(k) defined contribution plan. Participation in this plan is available to substantially all U.S. employees.

Income Taxes

        Provisions for federal, state, and foreign income taxes are calculated based on reported pre-tax earnings and current tax law. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions. ATK periodically assesses its liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information. Where it is not more likely than not that ATK's tax position will be sustained, the Company records the entire resulting tax liability and when it is more likely than not of being sustained, the Company records its best estimate of the resulting tax liability. Any applicable interest and penalties related to these positions are also recorded in the consolidated financial statements. To the extent ATK's assessment of the tax outcome of these matters changes, such change in estimate will impact the income tax provision in the period of the change. It is ATK's policy to record any interest and penalties related to income taxes as part of the income tax expense for financial reporting purposes. Deferred tax assets related to carryforwards are reduced by a valuation allowance when it is not more likely than not that the amount will be realized before expiration of the carryforward period. As part of this analysis ATK takes into account the amount and character to determine if the carryforwards will be realized. Significant estimates are required for this analysis. Changes in the amounts of valuation allowance are recorded in the tax provision in the period when the change occurs.

Acquisitions

        The results of acquired businesses are included in ATK's consolidated financial statements from the date of acquisition. ATK allocates the purchase price of an acquired business to the underlying tangible and intangible acquired assets and liabilities assumed based on their fair value. Estimates are used in determining the fair value and estimated remaining lives of intangible assets until the final

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purchase price allocation is completed. Actual fair values and remaining lives of intangible assets may vary from those estimates. The excess purchase price over the estimated fair value of the net assets acquired is recorded as goodwill.

        On April 9, 2010, ATK acquired Blackhawk for a purchase price of $172,251. Blackhawk is a manufacturer of high quality tactical gear. ATK believes that the acquisition provides ATK with a leading tactical systems brand, an expanded portfolio of quality products, and additional design and development expertise for innovative tactical accessories which will strengthen ATK's position in tactical accessories and equipment for domestic and international military, law enforcement, security, and sport enthusiast markets. Blackhawk employs approximately 300 employees and is included in the Security and Sporting group. The purchase price allocation was completed in fiscal 2011. Most of the goodwill generated in this acquisition will be deductible for tax purposes.

        On March 31, 2009, ATK acquired Eagle Industries ("Eagle"), a manufacturer of high-quality, individual operational nylon gear and equipment for military, homeland security, and law enforcement agencies for $63,000 net of cash acquired, subject to purchase price contingencies. During the second quarter of fiscal 2010, ATK received a preliminary purchase price adjustment of $5,002, as determined by a working capital adjustment identified in the audited financial statements. Eagle manufactures more than 5,000 products which include tactical assault vests, load-bearing equipment, weapon transporting gear, nylon holsters, personal gear carriers, and other high quality accessories. The purchase price allocation was finalized during fiscal 2010. Most of the goodwill generated in this acquisition will be deductible for tax purposes.

Accounting for Goodwill

        ATK tests goodwill for impairment on the first day of its fourth fiscal quarter or upon the occurrence of events or changes in circumstances that indicate that the asset might be impaired. The Company has determined that the reporting units for its goodwill impairment review are its operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available, and for which segment management regularly reviews the operating results. Based on this analysis, the Company has identified 12 reporting units within its reportable segments as of the fiscal 2012 testing date.

        The goodwill impairment test is performed using a two-step process. In the first step, ATK determines the estimated fair value of each reporting unit and compares it to the carrying value of the reporting unit, including goodwill. If the carrying amount of a reporting unit is higher than its estimated fair value, an indication of impairment exists and the second step must be performed in order to determine the amount of the impairment. In the second step, ATK must determine the implied fair value of the reporting unit's goodwill which is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The implied fair value is compared to the carrying amount and if the carrying amount of the reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss must be recognized for the excess.

        The fair value of each reporting unit is determined using both an income and market approach. The value estimated using a discounted cash flow model is weighted against the estimated value derived from two separate market approaches: the guideline company and transaction methods. These market approach methods estimate the price reasonably expected to be realized from the sale of the company based on comparable companies and recent transactional data.

        In developing its discounted cash flow analysis, ATK's assumptions about future revenues and expenses, capital expenditures, and changes in working capital are based on its three-year plan, as approved by the Board of Directors, and assumes a terminal growth rate thereafter. A separate discount rate is determined for each reporting unit and these cash flows are then discounted to determine the fair value of the reporting unit.

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        Projecting discounted future cash flows requires ATK to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate. The projections also take into account several factors including current and estimated economic trends and outlook, costs of raw materials, consideration of ATK's market capitalization in comparison to the estimated fair values of the Company's reporting units, and other factors which are beyond ATK's control. If the current economic conditions were to deteriorate, or if ATK were to lose a significant contract or business, causing a reduction in estimated discounted cash flows, it is possible that the estimated fair value of certain reporting units could fall below their carrying value resulting in the necessity to conduct additional goodwill impairment tests in future periods. ATK continually monitors the reporting units for impairment indicators and updates assumptions used in the most recent calculation of the estimated fair value of a reporting unit as appropriate.

        To test the reasonableness of the valuation, ATK compares the indicated fair value of the reporting units to the estimated public market capitalization value of ATK and the appropriateness of the assumed control premium.

Results of ATK's fiscal 2012 Annual Impairment Test

        For the fiscal 2012 impairment assessment performed as of January 2, 2012, ATK utilized estimated cashflows from its three-year plan and assumed a terminal growth rate thereafter ranging from 0% to 4%. The cashflows were then discounted using a separate discount rate for each reporting unit which ranged from 9.5% to12%. An assumed value was also determined using multiples from recent transactions in the industry and by comparing operating results from guideline companies.

        The results of ATK's fiscal 2012 annual goodwill impairment test indicated that no goodwill impairment existed as the estimated fair value for most reporting units exceeded their carrying value by greater than 10%. Although there is no indication of impairment, based on the annual test, ATK determined that three of its reporting units had estimated fair values that exceeded their carrying values by less than 10% which ATK does not deem to be a significant excess. These reporting units include Space Systems Operations, Space Structures and Components, and Accessories and are discussed in further detail below.

        The Space Systems Operations reporting unit had an estimated fair value that exceeded its carrying value by approximately 5%. The reporting unit had approximately $518,000 of goodwill recorded as of March 31, 2012. This reporting unit contains much of the work ATK does related to the Space Launch System ("SLS") program for NASA. As previously discussed, the baseline design for SLS has been announced and ATK's five-segment solid rocket boosters were selected as the propulsion system for the first two SLS test flights, however NASA intends to hold a competition for the final design of the propulsion system for SLS, in which ATK will be eligible to participate. Congress will determine, as part of the 2013 appropriations legislative process, what the policy and funding levels for NASA will be and allocate the GFY 2013 funding for the Space Launch System. ATK has assumed continuation of the SLS program in the estimated cash flows for Space Systems Operations. However, if Congress significantly changes NASA's FY 2013 budget or does not appropriate the expected funds to the SLS program, there could be an adverse effect on ATK's operating results, financial condition, and cash flows within the Space Systems Operations reporting unit. If significant changes are made to the program in future periods, there would likely be an indication of impairment which would require the Company to perform a test for impairment.

        The Space Structures and Components reporting unit had an estimated fair value that exceeded its carrying value by approximately 7%. This reporting unit had approximately $85,000 of goodwill recorded in fiscal 2012. In fiscal 2009, ATK recorded a non-cash goodwill impairment charge of $108,500 within this reporting unit and, given the fact that any excess estimated fair value over carrying

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value was written-off at that time, ATK would not expect any significant excess within this reporting unit. There have been no significant changes in the underlying business since the date of the impairment and, based on ATK's expected sales growth in the base business, ATK does not believe there is any indication of impairment.

        The Accessories reporting unit had an estimated fair value that exceeded its carrying value by approximately 7%. This reporting unit had approximately $125,000 of goodwill recorded at March 31, 2012. A majority of the goodwill recorded within this reporting unit, approximately $116,000, relates to goodwill acquired in the fiscal 2009 acquisition of Eagle and the fiscal 2011 acquisition of Blackhawk. Given the fact that the purchase accounting valuation was recently performed and there have been no significant changes in the underlying business since the date of acquisition, ATK would not expect to see significant excess within this reporting unit. Based on the expected sales growth for Accessories, ATK does not believe there is any indication of impairment given ATK's continuing expansion into the market.

        As previously discussed, ATK was notified by the U.S. Army that the Company had not been awarded a contract for the continued operation and maintenance of the RFAAP. Loss of the Radford facility management contract will reduce Armament System's and ATK's sales and profit in future periods. For purposes of our fiscal 2012 impairment test, ATK assumed that it would not win the bid to continue managing the Radford facility. Based on the fact that ATK will continue to operate its New River Energetics facility located at RFAAP, the loss of the Radford facility management contract does not result in an impairment of goodwill. At March 31, 2012, ATK had approximately $18,000 of goodwill recorded associated with this reporting unit that was subject to impairment testing.

        The fiscal 2013 operating segment realignment previously discussed will result in a decrease in the number of reportable units from 12 to 10 for purposes of goodwill impairment testing, as reporting units within the existing Armament Systems and Missile Products groups will be consolidated. There will be no impact on Space Systems Operations, Space Structures and Components, or Accessories, which will continue to be tested separately for goodwill impairment.

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.

Fiscal 2012

Sales

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

 
  Years Ended March 31    
   
 
 
  2012   2011   $ Change   % Change  

Aerospace Systems

  $ 1,347,802   $ 1,432,678   $ (84,876 )   (5.9 )%

Armament Systems

    1,580,644     1,806,339     (225,695 )   (12.5 )%

Missile Products

    682,133     673,694     8,439     1.3 %

Security and Sporting

    1,002,820     929,553     73,267     7.9 %
                   

Total external sales

  $ 4,613,399   $ 4,842,264   $ (228,865 )   (4.7 )%
                   

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

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        Aerospace Systems.    The decrease in sales was driven by:

    a $114,300 decrease in Space Systems Operations sales volumes due to shifts in NASA funding priorities, the completion of the Space Shuttle Program, and the termination of the Launch Abort System, partially offset by higher sales on programs in strategic and commercial systems, flare and decoy sales, and space systems and services operations.

      This decrease was partially offset by an increase in aerospace structures of $35,600 due to the absence of the $25,000 sales reduction in the third quarter of the prior year on a commercial aircraft structures program.

        Armament Systems.    The decrease in sales was driven by:

    a $106,200 decrease in small-caliber systems due to lower volume of small-caliber ammunition sales, decreased demand for non-standard ammunition, and a reduction in modernization due to the program nearing completion.

    a decrease of $71,300 in energetics systems due to a reduction in modernization resulting from completion of the program and energetics program sales volume, partially offset by increased volume on a propellant program.

    a decrease of $34,800 in integrated weapon systems driven by lower volumes across multiple medium-caliber gun programs.

    a decrease in advanced weapons of $3,300 due to decreases in projectile systems, partially offset by an increase in sales on combat systems programs.

        Missile Products.    The increase in sales was driven by:

    a $28,100 increase in sales across various programs within propulsion and controls.

    an $11,700 increase in sales within defense electronic systems driven by the award of the JATAS program.

      These increases were partially offset by a decrease of $34,500 across various programs within the composites and tactical rocket motor products.

        Security and Sporting.    The increase in sales was driven by:

    a $56,800 increase in ammunition driven by an increase in ammunition sales volume resulting primarily from increased demand and new capacity.

    an increase of $17,000 in accessories driven by the higher sales volume within the retail channels.

Gross Profit

 
  Years Ended March 31    
 
 
  2012   As a %
of Sales
  2011   As a %
of Sales
  Change  

Gross profit

  $ 994,896     21.6 % $ 1,001,566     20.7 % $ (6,670 )

        The decrease in gross profit was driven by lower overall sales and lower gross profit in Security and Sporting due to sales mix and higher pension expense. These decreases were partially offset by the absence of the $25,000 reduction in the third quarter of the prior year on a commercial aircraft structures program and increased profit in energetics programs.

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Operating Expenses

 
  Years Ended March 31    
 
 
  2012   As a %
of Sales
  2011   As a %
of Sales
  Change  

Research and development

  $ 66,403     1.4 % $ 64,960     1.3 % $ 1,443  

Selling

    169,984     3.7 %   164,063     3.4 %   5,921  

General and administrative

    262,923     5.7 %   246,817     5.1 %   16,106  
                       

Total

  $ 499,310     10.8 % $ 475,840     9.8 % $ 23,470  
                       

        Operating expenses increased by $23,470 year-over-year. Research and development costs were relatively flat year-over-year. The increase in selling expenses was primarily driven by the Lake City Army Ammunition Plant competition. General and administrative costs increased due to the LUU flares litigation accrual, the reversal of certain long-term incentive accruals, realignment charges, and costs related to strategic growth initiatives. These increases were partially offset by cost management initiatives.

Income before Interest, Income Taxes, and Noncontrolling Interest

 
  Years Ended March 31    
 
 
  2012   2011   Change  

Aerospace Systems

  $ 143,817   $ 131,011   $ 12,806  

Armament Systems

    247,240     211,740     35,500  

Missile Products

    87,448     68,787     18,661  

Security and Sporting

    91,234     128,437     (37,203 )

Corporate

    (74,153 )   (14,249 )   (59,904 )
               

Total

  $ 495,586   $ 525,726   $ (30,140 )
               

        The decrease in income before interest, income taxes, and noncontrolling interest was due to decreased sales. Significant changes within the operating segments are also described below.

    Aerospace Systems.    The increase reflects the absence of the $25,000 profit reduction in the commercial aircraft program in the third quarter of the prior year, partially offset by lower sales volume within the space systems operations as discussed above.

    Armament Systems.    The increase is the result of an $18,000 favorable contract resolution in the second quarter of fiscal 2012 within Armament Systems, greater than expected performance at the Radford facility due to increased production volumes in anticipation of contract completion, and better performance and profit expectations on other programs. These increases were partially offset by lower sales as discussed above.

    Missile Products.    The increase was primarily driven by increased sales as noted above, and updated profitability expectations on programs within defense electronic systems, and operating efficiencies, cost management initiatives across multiple programs, and higher sales volumes.

    Security and Sporting.    The decrease primarily relates to sales mix, with a shift to lower margin ammunition products as well as delays and start-up costs associated with a DoD contract in the tactical accessories business and higher raw material costs. These were partially offset by operating efficiencies and cost management initiatives.

    Corporate.    The income before interest, income taxes, and noncontrolling interest primarily reflects expenses incurred for administrative functions that are performed centrally at the corporate

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    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 the LUU flare accrual, higher pension expense, the realignment accrual, higher intercompany profit eliminations, and costs related to strategic growth initiatives.

Net Interest Expense

        Net interest expense for fiscal 2012 was $89,296, an increase of $1,684 compared to $87,612 in fiscal 2011. The increase was primarily due to increases in the average amount of debt outstanding as well as the average borrowing rate following the issuance of the new debt in the prior fiscal year, partially offset by a reduction of $4,875 in non-cash amortization of the debt discount, due to the repayment of the 2.75% Convertible Senior Subordinated Notes in September 2011, as well as the absence of the $936 write-off of the remaining deferred debt issuance costs associated with our previous Term A Loan.

Income Tax Provision

 
  Years Ended March 31    
 
 
  2012   Effective
Rate
  2011   Effective
Rate
  Change  

Income tax provision

  $ 143,762     35.3 % $ 124,963     28.5 % $ 18,799  

        The increase in the current period tax rate is primarily due to the absence of the benefit that was realized in fiscal 2011 from the settlement of the examination of the fiscal 2007 and 2008 tax returns, the estimated nondeductible portion of the fiscal 2012 accrual related to the LUU flare litigation agreement, and the retroactive extension of the federal research and development ("R&D") credit in fiscal 2011, partially offset by increased benefit from the domestic manufacturing deduction ("DMD") and a discrete revaluation of the deferred tax assets caused by a change in state tax law.

        ATK's provision for income taxes includes both federal and state income taxes. The effective tax rate for fiscal 2012 of 35.3% differs from the federal statutory rate of 35.0% due to state income taxes and the estimated nondeductible portion of the accrual related to the LUU flare litigation which increased the rate, as well as the DMD and partial year R&D credit which decreased the rate.

        The effective tax rate for fiscal 2011 of 28.5% differs from the federal statutory rate of 35.0% due to the contingent tax liability release, and the DMD and R&D tax credits which decreased the rate, as well as state income taxes which increased the rate.

        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 2005. The Internal Revenue Service ("IRS") has completed the federal audits of ATK through fiscal 2008. The IRS is currently auditing ATK's tax returns for fiscal years 2009 and 2010. We believe appropriate provisions for all outstanding issues have been made for all remaining open years in all jurisdictions.

        As of March 31, 2012 and 2011, the total amount of unrecognized tax benefits was $37,906 and $31,855, respectively, of which $30,248 and $25,206, respectively, would affect the effective tax rate, if recognized. The remaining balance is related to deferred tax items which only impact the timing of tax payments. Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $15,252 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 $12,788. See Note 11 to the consolidated financial statements for further details.

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        ATK believes it is more likely than not that the recorded deferred benefits will be realized through the reduction of future taxable income. ATK's recorded valuation allowance of $4,754 at March 31, 2012 relates to capital loss carryovers and certain state net operating loss and credit carryforwards that are not expected to be realized before their expiration. The valuation allowance increased during fiscal 2012 due to the recognition of current year capital losses and a change in the amount of state carryforward benefits expected to be utilized before expiration, partially offset by the expiration of capital loss carryforwards, expiration of state credit carryforwards, and utilization of prior year capital loss carryforwards.

Net Income Before Noncontrolling Interest

        Net income before noncontrolling interest for fiscal 2012 was $263,204, a decrease of 50,507 compared to $313,711 in fiscal 2011. This decrease was driven by an $18,799 increase in income tax expense, a $23,470 increase in operating expenses, a $6,670 decrease in gross profit, and an increase of $1,568 in net interest expense 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.

Fiscal 2011

Sales

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

 
  Years Ended March 31    
   
 
 
  2011   2010   $ Change   % Change  

Aerospace Systems

  $ 1,432,678   $ 1,623,038   $ (190,360 )   (11.7 )%

Armament Systems

    1,806,339     1,662,583     143,756     8.6 %

Missile Products

    673,694     760,200     (86,506 )   (11.4 )%

Security and Sporting

    929,553     761,845     167,708     22.0 %
                   

Total external sales

  $ 4,842,264   $ 4,807,666   $ 34,598     0.7 %
                   

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

        Aerospace Systems.    The decrease in sales was driven by:

    a $214,700 decrease in space launch systems resulting from the wind-down of the Space Shuttle Program which was partially offset by $49,900 of higher Ares I program sales,

    a $27,000 decrease within strategic and commercial rocket motors driven by lower volume across multiple programs, and

    a decrease of $26,300 resulting from the termination of a space mission systems program.

      These decreases were partially offset by a $23,700 increase in aerospace structures driven by higher volumes on the Airbus A350 program.

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        Armament Systems.    The increase in sales was driven by:

    an increase of $110,700 in small-caliber systems due to continued strong customer requirements for small-caliber ammunition, non-standard ammunition and weapon sales, and facility modernization project sales,

    a $19,900 increase in energetic systems at the Radford Army Ammunition Plant relating primarily to the timing of MK90 sales to meet customer requirements and higher volume across multiple other programs, partially offset by lower modernization funding, and

    an $18,000 increase in advanced weapons driven by higher sales volume on guided projectile programs, partially offset by lower sales of large-caliber gun ammunition as several programs near completion.

      These increases were partially offset by a $16,900 decrease in integrated weapon systems which was driven by lower volumes across multiple medium-caliber ammunition programs.

        Missile Products.    The decrease in sales was driven by:

    a $76,200 decrease within propulsion and controls primarily related to decreased scope and funding on the NASA Constellation Attitude Control Motor and Standard Missile-3 programs,

    a decrease of $32,000 within special mission aircraft driven by lower volume across multiple programs, and

    a decrease of $14,300 within defense components driven by lower composite program sales.

      These decreases were partially offset by an increase of $30,400 on the AAR-47 program within defense electronic systems.

        Security and Sporting.    The increase in sales was driven by:

    an increase of $99,600 in accessories driven by the acquisition of Blackhawk in April 2010 and higher sales volume across multiple programs, and

    a $68,900 increase in ammunition driven by an increase in ammunition sales volume resulting primarily from increased production capacity and timing.

Gross Profit

 
  Years Ended March 31    
 
 
  2011   As a %
of Sales
  2010   As a %
of Sales
  Change  

Gross profit

  $ 1,001,566     20.7 % $ 1,031,311     21.5 % $ (29,745 )

        The decrease in gross profit was driven by lower sales from the higher margin Space Shuttle program, cost growth on a commercial aerospace structures program as previously discussed, and higher pension expense. This decrease is partially offset by sales growth in other programs, improved operating efficiencies and cost management initiatives, and the absence of an $11,400 noncash charge in the prior year within Armament Systems related to the TNT production facility. ATK also received a $6,300 favorable legal settlement in Armament Systems during fiscal 2011 related to legal action ATK initiated against the designer of the TNT production line which offset the decreases discussed above.

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Operating Expenses

 
  Years Ended March 31    
 
 
  2011   As a %
of Sales
  2010   As a %
of Sales
  Change  

Research and development

  $ 64,960     1.3 % $ 75,896     1.6 % $ (10,936 )

Selling

    164,063     3.4 %   168,986     3.5 %   (4,923 )

General and administrative

    246,817     5.1 %   236,084     5.0 %   10,733  

Trade name and goodwill impairments

    0     0.0 %   38,008     0.8 %   (38,008 )
                       

Total

  $ 475,840     9.8 % $ 518,974     10.9 % $ (43,134 )
                       

        Excluding the non-cash trade name impairments in fiscal 2010, operating expenses remained relatively consistent year over year. The decrease in research and development expenses was attributable to management cost initiatives and selling expenses were down consistent with lower sales within Aerospace Systems and Missile Products. General and administrative expenses were higher in fiscal 2011 due primarily to the lack of a decrease in the provision for bad debts that occurred in the prior year and expenses generated for Blackhawk subsequent to the April 2010 acquisition.

Income before Interest, Income Taxes, and Noncontrolling Interest

 
  Years Ended March 31    
 
 
  2011   2010   Change  

Aerospace Systems

  $ 131,011   $ 145,858   $ (14,847 )

Armament Systems

    211,740     168,094     43,646  

Missile Products

    68,787     58,653     10,134  

Security and Sporting

    128,437     107,891     20,546  

Corporate

    (14,249 )   31,841     (46,090 )
               

Total

  $ 525,726   $ 512,337   $ 13,389  
               

        The increase in income before interest, income taxes, and noncontrolling interest was due to the higher sales and the lack of the non-cash trade name impairment charges in Missile Products and Aerospace Systems totaling $38,008, partially offset by higher pension expense. Significant changes within the operating segments are also described below.

    Aerospace Systems.    The decrease was primarily the result of lower sales volume as noted above and reduced profits on a commercial aerospace structures program, as previously discussed. These decreases were partially offset by the lack of the $24,586 non-cash trade name impairment charge in fiscal 2010.

    Armament Systems.    The increase primarily relates to higher overall sales and improved operating efficiencies, as well as the lack of an $11,400 non-cash charge related to the TNT production facility and approximately $12,000 of cost growth in contract costs associated with the construction of an energetics facility taken in fiscal 2010. In addition, Armament Systems received a $6,300 favorable settlement during fiscal 2011 related to legal action ATK initiated against the designer of the TNT production line.

    Missile Products.    The increase was primarily driven by the lack of the $13,422 non-cash trade name impairment charge taken in fiscal 2010 and improved margins in tactical rocket motors driven by improved operating efficiencies and cost management initiatives. These increases were partially offset by reduced incentive fees recorded on propulsion and control programs compared to the prior year.

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    Security and Sporting.    The increase primarily relates to higher overall sales volume and improved operating efficiencies, partially offset by higher raw material costs and softening demand in some areas of commercial ammunition.

    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 decrease from the prior year is driven by higher pension expense and intercompany profit eliminations, partially offset by cost-management initiatives.

Net Interest Expense

        Net interest expense for fiscal 2011 was $87,052, an increase of $10,132 compared to $76,920 in fiscal 2010. The increase was primarily due to the issuance of new debt during fiscal 2011 which increased the amount outstanding and ATK's average borrowing rate, as well as the $936 write-off of the remaining deferred debt issuance costs associated with our previous Term A Loan. These increases were partially offset by a reduction of $2,698 in non-cash amortization of the debt discount (which declined primarily because amortization for the 2.75% Convertible Notes due 2024 was complete in August 2009, the first date that holders of these notes could have required ATK to repurchase the notes).

Income Tax Provision

 
  Years Ended March 31    
 
 
  2011   Effective
Rate
  2010   Effective
Rate
  Change  

Income tax provision

  $ 124,963     28.5 % $ 156,473     35.9 % $ (31,510 )

        The reduction in tax rate from fiscal 2010 to fiscal 2011 was primarily related to the release of contingent tax liabilities related to the settlement of the IRS audits of ATK's fiscal 2007 and 2008 tax returns, an increase in the domestic manufacturing deduction (DMD), and retroactive extension of the federal research and development (R&D) tax credit.

        ATK's provision for income taxes includes both federal and state income taxes. The effective tax rate for fiscal 2011 of 28.5% differs from the federal statutory rate of 35.0% due to the contingent tax liability release, the DMD and R&D tax credits which decreased the rate, as well as state income taxes which increased the rate.

        The effective tax rate for fiscal 2010 of 35.9% differs from the federal statutory rate of 35.0% due to state income taxes, valuation allowances, and other provision adjustments which increased the rate, as well as the DMD and R&D tax credits which decreased the rate.

        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 2004. The Internal Revenue Service has completed the audits of ATK through fiscal 2008. We believe appropriate provisions for all outstanding issues have been made for all open years in all jurisdictions.

        As of March 31, 2011 and 2010, the total amount of unrecognized tax benefits was $31,855 and $42,627, respectively, of which $25,206 and $33,695, respectively, would affect the effective tax rate, if recognized. The remaining balance is related to deferred tax items which only impact the timing of tax payments. Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $640 reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of

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these unrecognized tax benefits could result in earnings up to $433 based on current estimates. See Note 11 to the consolidated financial statements for further details.

        ATK believes it is more likely than not that the recorded deferred benefits will be realized through the reduction of future taxable income. The valuation allowance of $4,121 at March 31, 2011 relates to capital loss carryovers and certain state net operating loss and credit carryforwards that are not expected to be realized before their expiration. The valuation allowance was decreased by $4,010 during fiscal 2011 primarily related to expiration of capital loss carryforwards, expiration of state credit carryforwards, and changes to prior year capital loss carryforwards. The amount was increased by $648 related to the recognition of current year capital losses and a change in the amount of state carryforward benefits expected to be utilized before expiration.

        The federal R&D tax credit was retroactively extended on December 17, 2010 in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This law retroactively extended the federal R&D tax credit from January 1, 2010 through December 31, 2011. The impact of this extension was included in the tax rate for fiscal 2011.

Net Income Before Noncontrolling Interest

        Net income before noncontrolling interest for fiscal 2011 was $313,711, an increase of $34,767 compared to $278,944 in fiscal 2010. The increase was driven by the absence of the non-cash tradename impairment charges in Missile Products and Aerospace Systems totaling $38,008 in the prior year and $31,510 of lower tax expense in fiscal 2011 as discussed above. These increases were partially offset by a $29,745 decrease in gross profit and $10,104 increase in net interest expense over the prior year period.

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

        ATK's cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows for the years ended March 31, 2012, 2011, and 2010 are summarized as follows:

 
  2012   2011   2010  

Cash flows provided by operating activities

  $ 372,307   $ 421,070   $ 193,662  

Cash flows used for investing activities

    (114,957 )   (299,451 )   (132,624 )

Cash flows (used for) provided by financing activities

    (390,811 )   186,762     (3,844 )
               

Net cash flows

  $ (133,461 ) $ 308,381   $ 57,193  
               

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Operating Activities.

        Net cash provided by operating activities decreased $48,763 compared to the prior year period. This decrease was driven by a $74,600 funding payment to the pension trust during the current year and an increase in cash used for working capital. These decreases were partially offset by $25,460 less cash used to pay taxes in the current year and the absence of the repayment of a government grant which occurred in fiscal 2011.

        Net cash provided by operating activities increased $227,408 in fiscal 2011 compared to fiscal 2010. This increase was driven by the absence of $300,000 of cash used to fund the pension plans during fiscal 2010 and an increase of $34,767 in net income over the prior year. These increases were partially offset by a $48,246 increase in cash used for working capital primarily to support higher commercial aerospace sales which is driving the long-term receivable balance higher, the repayment of a government grant, and more cash used to pay taxes in the current year.

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

Investing Activities.

        Net cash used for investing activities decreased $184,494 primarily due to the lack of $172,251 paid in fiscal 2011 to acquire Blackhawk. In addition there was a decrease of cash used for capital expenditures of $7,909. These decreases were partially offset by proceeds from the disposition of a non-essential parcel of land within Aerospace Systems during the current year.

        Net cash used for investing activities increased from fiscal 2010 to 2011 by $166,826 primarily due to the $172,251 paid in fiscal 2011 to acquire Blackhawk as well as the lack of $5,002 of cash received in September 2009 related to a preliminary purchase price adjustment for the fiscal 2009 acquisition of Eagle Industries. These increases were partially offset by a decrease in the amount of cash used for capital expenditures.

Financing Activities.

        Net cash used for financing activities increased $577,573 as compared to fiscal 2011. This increase was primarily due to the lack of $750,000 in proceeds received from the issuance of the 6.875% Senior Subordinated Notes in the prior year, the repurchase of $49,991 of ATK's common stock, and the payment of $26,552 of dividends to ATK stockholders during the current period. These increases were partially offset by the $300,000 used to repay the 2.75% Convertible Notes due 2011 this year compared to $280,000 used to repay the 2.75% Convertible Notes due 2024 and $290,000 used to extinguish the Term A Loan in the prior year period.

        Net cash provided by financing activities was $186,762 in fiscal 2011 compared to a use of $3,844 in fiscal 2010. This change was primarily due to $750,000 in proceeds received from entering into the Second Amended and Restated Credit Agreement and issuing the 6.875% Senior Subordinated Notes. This cash inflow was partially offset by $537,576 of cash used to pay-down and extinguish the original Term A Loan and repay the 2.75% Convertible Senior Subordinated Notes due 2024 in October 2010. ATK also paid $19,883 in cash for debt issuance costs during fiscal 2011 and a $6,700 dividend to its stockholders during fiscal 2011.

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

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consist of principal payments due under the new Senior Credit Facility, 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.

        During fiscal 2012, ATK paid quarterly dividends of $0.20 per share totaling $26,552. On May 1, 2012, ATK's Board of Directors declared a quarterly cash dividend of $0.20 per share payable on June 28, 2012, to stockholders of record on June 11, 2012. 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. Capital expenditures for fiscal 2013 are expected to be approximately $100,000.

        ATK's access to liquidity sources has not been materially impacted by the current credit environment, and ATK does not expect that it 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.

Long-Term Debt and Credit Facilities

        As of March 31, 2012, ATK had actual total indebtedness of $1,319,453, and the $600,000 Revolving Credit Facility provided for the potential of additional borrowings up to $424,227. There were no outstanding borrowings under the Revolving Credit Facility as of March 31, 2012, although ATK had outstanding letters of credit of $175,773 which reduced amounts available under the facility.

        ATK's indebtedness consisted of the following:

 
  March 31,
2012
  March 31,
2011
 

Senior Credit Facility dated October 7, 2010:

             

Term A Loan due 2015

  $ 370,000   $ 390,000  

Revolving Credit Facility due 2015

         

2.75% Convertible Senior Subordinated Notes due 2011

        300,000  

6.75% Senior Subordinated Notes due 2016

    400,000     400,000  

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

    1,319,453     1,639,453  

Less: Unamortized discounts

    17,451     29,744  
           

Carrying amount of long-term debt

    1,302,002     1,609,709  

Less: current portion

    30,000     320,000  
           

Carrying amount of long-term debt, excluding current portion

  $ 1,272,002   $ 1,289,709  
           

        See Note 9 "Long-Term Debt" to the consolidated financial statements in Part II, Item 8 for a detailed discussion of these borrowings.

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Senior Credit Facility

        In fiscal 2011, ATK entered into a Second Amended and Restated Credit Agreement ("the Senior Credit Facility"), which was comprised of a Term A Loan of $400,000 and a $600,000 Revolving Credit Facility, both of which mature in 2015. The Term A Loan is 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.

        Substantially all domestic, tangible and intangible assets of ATK and its subsidiaries are pledged as collateral under the Senior Credit Facility. Borrowings under the Senior Credit Facility bear interest at a rate equal to 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 1.25% and the current Eurodollar margin is 2.25%. ATK must also pay an annual commitment fee on the unused portion of the Revolving Credit Facility.

        It is currently expected that there will be no borrowings against the Revolving Credit Facility at March 31, 2013.

2.75% Convertible Notes due 2011

        ATK's 2.75% Convertible Notes due 2011 were repaid in fiscal 2012.

6.75% Notes due 2016

        ATK's 6.75% Notes mature on April 1, 2016. These notes are general unsecured obligations. Interest on these notes accrues at a rate of 6.75% per annum and is payable semi-annually on April 1 and October 1 of each year. ATK now has the right to redeem some or all of these notes from time to time at specified redemption prices.

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

        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. Holders may also convert their notes at a conversion rate of 12.7422 shares of ATK's common stock per $1 principal amount of these notes (a conversion price of $78.48 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.

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Rank and Guarantees

        The 3.00% Convertible Notes, the 6.875%, and the 6.75% Notes rank equal in right of payment with each other and all of ATK's future senior subordinated indebtedness and are subordinated in right of payment to all existing and future senior indebtedness, including the Senior Credit Facility. The outstanding notes are guaranteed on an unsecured basis, jointly and severally and fully and unconditionally, by substantially all of ATK's domestic subsidiaries. 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.

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

    £2.50     £4.00     ³3.00  

Actual at March 31, 2012

    0.66     2.23     8.40  

        The Leverage Ratio is the sum of ATK's total debt plus financial letters of credit divided by Covenant EBITDA (which includes adjustments for items such as non-recurring or extraordinary noncash expenses, 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 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 6.75% Notes, 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 March 31, 2012, 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 August 5, 2008, ATK's Board of Directors authorized the repurchase of up to 5,000,000 shares. The Board had determined that the repurchase program would serve primarily to offset dilution from the Company's employee and director benefit compensation programs, but it could also be used for other corporate purposes, as determined by the Board. In fiscal 2012, ATK repurchased 742,000 shares for $49,991 under this program. ATK repurchased no shares in fiscal years 2011 or 2010.

        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

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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.

        Any additional authorized repurchases would be subject to market conditions and ATK's compliance with its debt covenants. ATK's 6.75% Senior Subordinated Notes and 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 March 31, 2012, this limit was approximately $710,388. As of March 31, 2012, 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, 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.

Contractual Obligations and Commercial Commitments

        The following table summarizes ATK's contractual obligations and commercial commitments as of March 31, 2012:

 
   
  Payments due by period  
 
  Total   Less than
1 year
  1 - 3 years   3 - 5 years   More than
5 years
 

Contractual obligations:

                               

Long-term debt

  $ 1,319,453   $ 30,000   $ 539,453   $ 400,000   $ 350,000  

Interest on debt(1)

    414,631     67,359     131,978     90,941     124,353  

Operating leases

    378,854     69,427     115,600     93,574     100,253  

Environmental remediation costs, net

    25,589     310     2,631     4,588     18,060  

Pension and other PRB plan contributions

    1,310,700     176,200     440,200     403,000     291,300  
                       

Total contractual obligations

  $ 3,449,227   $ 343,296   $ 1,229,862   $ 992,103   $ 883,966  
                       

 

 
   
  Commitment Expiration by period  
 
  Total   Within 1 year   1 - 3 years   3 - 5 years  

Other commercial commitments:

                         

Letters of credit

  $ 175,773   $ 148,888   $ 26,885   $  
                   

(1)
Includes interest on variable rate debt calculated based on interest rates at March 31, 2012. Variable rate debt was approximately 28% of ATK's total debt at March 31, 2012.

        The total liability for uncertain tax positions at March 31, 2012 was approximately $37,906 (see Note 11). $14,824 of this amount could be paid within 12 months and is therefore classified within current taxes payable. ATK is not able to provide a reasonably reliable estimate of the timing of future payments relating to the non-current uncertain tax position obligations.

        Pension plan contributions are an estimate of ATK's minimum funding requirements through fiscal 2022 to provide pension benefits for employees based on expected actuarial estimated service accruals through fiscal 2022 pursuant to the Employee Retirement Income Security Act, although ATK may make additional discretionary contributions. These estimates may change significantly depending on the actual rate of return on plan assets, discount rates, discretionary pension contributions, and regulations. A substantial portion of ATK's Plan contributions are recoverable from the U.S. Government as allowable indirect contract costs at amounts generally equal to the pension plan contributions, although not necessarily in the same year the contribution is made.

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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.

        On or about April 10, 2006, a former ATK employee filed a qui tam complaint in federal court in Utah alleging that ATK knowingly submitted claims for payment to the U.S. Government for defective LUU series illuminating flares that failed to conform to certain safety specifications and falsely certified compliance with those specifications. On January 23, 2012, the parties met in a mediation session that resulted in an agreement to settle the lawsuit. As a result of the settlement agreement, ATK established a litigation accrual of $25,500 during fiscal 2012. This payment was made in April 2012. An additional warranty accrual of approximately $10,700 was recorded during fiscal 2012 as the Company will retrofit up to 76,000 flares as part of the settlement.

        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 1.00% and 2.50% as of March 31, 2012 and 2011, 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:

 
  March 31, 2012   March 31, 2011  
 
  Liability   Receivable   Liability   Receivable  

Amounts (payable) receivable

  $ (61,227 ) $ 35,638   $ (59,869 ) $ 34,337  

Unamortized discount

    3,731     (1,925 )   7,983     (3,862 )
                   

Present value amounts (payable) receivable

  $ (57,496 ) $ 33,713   $ (51,886 ) $ 30,475  
                   

        As of March 31, 2012, the estimated discounted range of reasonably possible costs of environmental remediation was $57,496 to $79,755.

        ATK expects that a portion of its environmental compliance and remediation costs will be recoverable under U.S. Government contracts. Some of the remediation costs that are not recoverable from the U.S. Government that are associated with facilities purchased in a business acquisition may be covered by various indemnification agreements, as described below.

    As part of its acquisition of the Hercules Aerospace Company in fiscal 1995, ATK generally assumed responsibility for environmental compliance at the facilities acquired from Hercules

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      (the "Hercules Facilities"). ATK believes that a portion of the compliance and remediation costs associated with the Hercules Facilities will be recoverable under U.S. Government contracts. If ATK were unable to recover those environmental remediation costs under these contracts, ATK believes these costs will be covered by Hercules Incorporated, a subsidiary of Ashland Inc., (Hercules) under environmental agreements entered into in connection with the Hercules acquisition. Under these agreements, Hercules has agreed to indemnify ATK for environmental conditions relating to releases or hazardous waste activities occurring prior to ATK's purchase of the Hercules Facilities as long as they were identified in accordance with the terms of the agreement; fines relating to pre-acquisition environmental compliance; and environmental claims arising out of breaches of Hercules' representations and warranties. Hercules is not required to indemnify ATK for any individual claims below $50,000. Hercules is obligated to indemnify ATK for the lowest cost response of remediation required at the facility that is acceptable to the applicable regulatory agencies. ATK is not responsible for conducting any remedial activities with respect to the Clearwater, FL facility. In accordance with its agreement with Hercules, ATK notified Hercules of all known contamination on non-federal lands on or before March 31, 2000, and on federal lands on or before March 31, 2005.

    ATK generally assumed responsibility for environmental compliance at the Thiokol Facilities acquired from Alcoa Inc. ("Alcoa") in fiscal 2002. ATK expects that a portion of the compliance and remediation costs associated with the acquired Thiokol Facilities will be recoverable under U.S. Government contracts, In accordance with its agreement with Alcoa, ATK notified Alcoa of all known environmental remediation issues as of January 30, 2004. Of these known issues, ATK is responsible for any costs not recovered through U.S. Government contracts at Thiokol Facilities up to $29,000, ATK and Alcoa have agreed to split evenly any amounts between $29,000 and $49,000, and ATK is responsible for any payments in excess of $49,000. At this time, ATK believes that costs not recovered through U.S. Government contracts will be immaterial.

        ATK cannot ensure that the U.S. Government, Hercules, Alcoa, or other third parties will reimburse it for any particular environmental costs or reimburse ATK in a timely manner or that any claims for indemnification will not be disputed. U.S. Government reimbursements for cleanups are financed out of a particular agency's operating budget and the ability of a particular governmental agency to make timely reimbursements for cleanup costs will be subject to national budgetary constraints. ATK's failure to obtain full or timely reimbursement from the U.S. Government, Hercules, Alcoa, or other third parties could have a material adverse effect on its operating results, financial condition, or cash flows. While ATK has environmental management programs in place to mitigate these risks, and environmental laws and regulations have not had a material adverse effect on ATK's operating results, financial condition, or cash flows in the past, it is difficult to predict whether they will have a material impact in the future.

        At March 31, 2012, the aggregate undiscounted amounts payable for environmental remediation costs, net of expected recoveries, are estimated to be:

Fiscal 2013

  $ 310  

Fiscal 2014

    2,327  

Fiscal 2015

    304  

Fiscal 2016

    2,572  

Fiscal 2017

    2,016  

Thereafter

    18,060  
       

Total

  $ 25,589  
       

        There were no material insurance recoveries related to environmental remediation during any of the periods presented.

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        Factors that could significantly change the estimates described in this section on environmental liabilities include:

    the adoption, implementation, and interpretation of new laws, regulations, or cleanup standards,

    advances in technologies,

    outcomes of negotiations or litigation with regulatory authorities and other parties,

    additional information about the ultimate remedy selected at new and existing sites,

    adjustment of ATK's share of the cost of such remedies,

    changes in the extent and type of site utilization,

    the discovery of new contamination,

    the number of parties found liable at each site and their ability to pay,

    more current estimates of liabilities for these contingencies, or

    liabilities associated with resource restoration as a result of contamination from past practices.

New Accounting Pronouncements

        See Note 1 to the consolidated financial statements in Item 8 of this report for discussion of new accounting pronouncements.

Inflation

        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. The prices of commodity metals, such as lead, zinc, and especially copper, have significantly increased. These price increases generally impact our small-caliber ammunition business. ATK's risk management practices are discussed in Item 7A of this report.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        ATK is exposed to market risk from changes in interest rates. To mitigate the risks from interest rate exposure, ATK occasionally enters into hedging transactions, mainly interest rate swaps, through derivative financial instruments that have been authorized pursuant to corporate policies. ATK uses derivatives to hedge certain interest rate, foreign currency exchange rate, and commodity price risks, but does not use derivative financial instruments for trading or other speculative purposes, and ATK is not a party to leveraged financial instruments. Additional information regarding the financial instruments is contained in Notes 1 and 3 to the consolidated financial statements. ATK's objective in managing exposure to changes in interest rates is to limit the impact of such changes on earnings and cash flow and to lower the overall borrowing costs.

        ATK measures market risk related to holdings of financial instruments based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair values, cash flows, and earnings based on a hypothetical change (increase and decrease) in interest rates. ATK used current market rates on the debt portfolio to perform the sensitivity analysis. Certain

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items such as lease contracts, insurance contracts, and obligations for pension and other postretirement benefits were not included in the analysis.

        Currently, ATK's primary interest rate exposures relate to variable rate debt. The potential loss in fair values is based on an assumed immediate change in the net present values of interest rate-sensitive exposures resulting from a 100 basis point change in interest rates. The potential loss in cash flows and earnings is based on the change in the net interest income/expense over a one-year period due to the change in rates. Based on ATK's analysis, a 100 basis point change in interest rates would not have a material impact on the fair values or ATK's results of operations or cash flows.

        With respect to ATK's commercial ammunition business, ATK has improved manufacturing efficiencies and has initiated price increases to mitigate the impact of increased commodity costs. 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 continue to increase, and if ATK is unable to offset these increases with ongoing manufacturing efficiencies and price increases, ATK's future results from operations and cash flows would be materially impacted.

        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. 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 with the U.S. Army by the terms within that contract, which is expected to continue into fiscal 2014; however, if metal prices exceed pre-determined levels, Armament Systems' operating results could be adversely impacted.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Alliant Techsystems Inc.:

        We have audited the accompanying consolidated balance sheets of Alliant Techsystems Inc. and subsidiaries (the "Company") as of March 31, 2012 and 2011, and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended March 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Alliant Techsystems Inc. and subsidiaries at March 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of March 31, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 23, 2012, expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE, LLP

Minneapolis, MN

May 23, 2012

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CONSOLIDATED INCOME STATEMENTS

 
  Years Ended March 31  
(Amounts in thousands except per share data)
  2012   2011   2010  

Sales

  $ 4,613,399   $ 4,842,264   $ 4,807,666  

Cost of sales

    3,618,503     3,840,698     3,776,355  
               

Gross profit

    994,896     1,001,566     1,031,311  

Operating expenses:

                   

Research and development

    66,403     64,960     75,896  

Selling

    169,984     164,063     168,986  

General and administrative

    262,923     246,817     236,084  

Trade name impairments

            38,008  
               

Income before interest, income taxes, and noncontrolling interest

    495,586     525,726     512,337  

Interest expense

    (89,296 )   (87,612 )   (77,494 )

Interest income

    676     560     574  
               

Income before income taxes and noncontrolling interest

    406,966     438,674     435,417  

Income tax provision

    143,762     124,963     156,473  
               

Net income

    263,204     313,711     278,944  

Less net income attributable to noncontrolling interest

    592     536     230  
               

Net income attributable to Alliant Techsystems Inc. 

  $ 262,612   $ 313,175   $ 278,714  
               

Alliant Techsystems Inc. earnings per common share:

                   

Basic

  $ 7.99   $ 9.41   $ 8.48  
               

Diluted

  $ 7.93   $ 9.32   $ 8.33  
               

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

                   

Basic

    32,874     33,275     32,851  
               

Diluted

    33,112     33,615     33,462  
               

   

See Notes to the Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS

 
  March 31  
(Amounts in thousands except share data)
  2012   2011  

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 568,813   $ 702,274  

Net receivables

    1,029,155     945,611  

Net inventories

    258,495     242,028  

Income tax receivable

        22,228  

Deferred income tax assets

    101,720     65,843  

Other current assets

    51,512     81,249  
           

Total current assets

    2,009,695     2,059,233  

Net property, plant, and equipment

    604,498     587,749  

Goodwill

    1,251,536     1,251,536  

Noncurrent deferred income tax assets

    134,719     100,519  

Deferred charges and other non-current assets

    541,298     444,808  
           

Total assets

  $ 4,541,746   $ 4,443,845  
           

LIABILITIES AND EQUITY

             

Current liabilities:

             

Current portion of long-term debt

  $ 30,000   $ 320,000  

Accounts payable

    333,980     292,281  

Contract advances and allowances

    119,824     121,927  

Accrued compensation

    121,901     135,442  

Accrued income taxes

    6,433      

Other accrued liabilities

    307,642     193,836  
           

Total current liabilities

    919,780     1,063,486  

Long-term debt

    1,272,002     1,289,709  

Postretirement and postemployment benefits liabilities

    111,392     126,012  

Accrued pension liability

    878,819     671,356  

Other long-term liabilities

    123,002     127,160  
           

Total liabilities

    3,304,995     3,277,723  

Commitments and contingencies (Notes 10, 12 and 13)

             

Common stock—$.01 par value:

             

Authorized—180,000,000 shares

             

Issued and outstanding—33,142,408 shares at March 31, 2012 and 33,519,072 shares at March 31, 2011

    332     335  

Additional paid-in-capital

    537,921     559,279  

Retained earnings

    2,241,711     2,005,651  

Accumulated other comprehensive loss

    (910,598 )   (787,077 )

Common stock in treasury, at cost—8,413,041 shares held at March 31, 2012 and 8,036,377 shares held at March 31, 2011

    (642,571 )   (621,430 )
           

Total Alliant Techsystems Inc. stockholders' equity

    1,226,795     1,156,758  

Noncontrolling interest

    9,956     9,364  
           

Total equity

    1,236,751     1,166,122  
           

Total liabilities and equity

  $ 4,541,746   $ 4,443,845  
           

   

See Notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

 
  Years Ended March 31  
(Amounts in thousands)
  2012   2011   2010  

Operating Activities

                   

Net income

  $ 263,204   $ 313,711   $ 278,944  

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

                   

Depreciation

    98,037     100,041     93,739  

Amortization of intangible assets

    10,848     11,145     6,091  

Amortization of debt discount

    12,293     17,168     19,867  

Amortization of deferred financing costs

    4,764     5,157     2,839  

Trade name impairments

            38,008  

Other asset impairment

            11,405  

Deferred income taxes

    7,518     23,018     (3,338 )

(Gain) loss on disposal of property

    (2,928 )   2,281     5,756  

Share-based plans expense

    6,724     9,740     16,664  

Excess tax benefits from share-based plans

    (23 )   (540 )   (1,691 )

Changes in assets and liabilities:

                   

Net receivables

    (207,451 )   (153,723 )   (81,279 )

Net inventories

    (16,466 )   (6,400 )   57  

Accounts payable

    42,557     20,065     (16,221 )

Contract advances and allowances

    (2,103 )   15,108     20,739  

Accrued compensation

    (25,063 )   (53,616 )   800  

Accrued income taxes

    19,801     (40,164 )   59,154  

Pension and other postretirement benefits

    37,547     86,955     (241,560 )

Other assets and liabilities

    123,048     71,124     (16,312 )
               

Cash provided by operating activities

    372,307     421,070     193,662  

Investing Activities

                   

Capital expenditures

    (122,292 )   (130,201 )   (143,472 )

Acquisition of business, net of cash acquired

        (172,251 )   5,002  

Proceeds from the disposition of property, plant, and equipment

    7,335     3,001     5,845  
               

Cash used for investing activities

    (114,957 )   (299,451 )   (132,625 )

Financing Activities

                   

Payments made on bank debt

    (20,000 )   (13,438 )   (13,916 )

Payments made to extinguish debt

    (300,000 )   (537,576 )    

Proceeds from issuance of long-term debt

        750,000      

Payments made for debt issue costs

        (19,883 )    

Purchase of treasury shares

    (49,991 )        

Dividends paid

    (26,552 )   (6,700 )    

Proceeds from employee stock compensation plans

    5,709     13,819     8,381  

Excess tax benefits from share-based plans

    23     540     1,691  

Cash (used for) provided by financing activities

    (390,811 )   186,762     (3,844 )

(Decrease) increase in cash and cash equivalents

    (133,461 )   308,381     57,193  

Cash and cash equivalents at beginning of year

    702,274     393,893     336,700  

Cash and cash equivalents at end of year

  $ 568,813   $ 702,274   $ 393,893  
               

Supplemental Cash Flow Disclosures:

                   

Noncash investing activity:

                   

Capital expenditures included in accounts payable

  $ 14,976   $ 14,118   $ 15,621  

   

See Notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF EQUITY

 
  Common Stock
$.01 Par Value
   
   
   
   
   
   
 
 
   
   
  Accumulated
Other
Comprehensive
Loss
   
   
   
 
 
  Additional
Paid-In
Capital
  Retained
Earnings
  Treasury
Stock
  Noncontrolling
Interest
  Total
Equity
 
(Amounts in thousands except share data)
  Shares   Amount  

Balance, March 31, 2009

    32,783,496   $ 328   $ 574,675   $ 1,420,462   $ (651,652 ) $ (677,842 ) $ 8,598   $ 674,569  

Comprehensive income:

                                                 

Net income

                  278,714             230     278,944  

Other comprehensive income (see Note 1):

                                                 

Adjustments, net

                      (169,434 )           (169,434 )
                                                 

Comprehensive income

                                              109,510  

Exercise of stock options

    170,380         (4,791 )           13,172         8,381  

Restricted stock grants

    24,743         (2,437 )           2,437          

Share-based compensation

            16,664                     16,664  

Performance shares issued net of treasury stock withheld

    75,100         (8,759 )           5,422         (3,337 )

Tax benefit related to share based plans and other

            2,346                     2,346  

Employee benefit plans and other

    (6,701 )   2     348             (1,061 )       (711 )
                                   

Balance, March 31, 2010

    33,047,018     330     578,046     1,699,176     (821,086 )   (657,872 )   8,828     807,422  

Comprehensive income:

                                                 

Net income

                  313,175             536     313,711  

Other comprehensive income (see Note 1):

                                                 

Adjustments, net

                      34,009             34,009  
                                                 

Comprehensive income

                                              347,720  

Exercise of stock options

    251,401         (5,622 )           19,440         13,818  

Restricted stock grants

    88,585         (7,057 )           7,057          

Share-based compensation

            9,740                     9,740  

Performance shares issued net of treasury stock withheld

    139,342         (17,193 )           10,689         (6,504 )

Tax benefit related to share based plans and other

            1,111                     1,111  

Dividends paid

                (6,700 )               (6,700 )

Employee benefit plans and other

    (7,274 )   5     254             (744 )       (485 )
                                   

Balance, March 31, 2011

    33,519,072     335     559,279     2,005,651     (787,077 )   (621,430 )   9,364     1,166,122  

Comprehensive income:

                                                 

Net income

                  262,612             592     263,204  

Other comprehensive income (see Note 1):

                                                 

Adjustments, net

                      (123,521 )           (123,521 )
                                                 

Comprehensive income

                                              139,683  

Exercise of stock options

    107,944         (2,580 )           8,289         5,709  

Restricted stock grants

    201,429         (17,159 )           17,159          

Share-based compensation

            6,724                     6.724  

Treasury stock purchased

    (742,000 )                   (49,991 )       (49,991 )

Performance shares issued net of treasury stock withheld

    73,685         (8,752 )           5,946         (2,806 )

Tax benefit related to share based plans and other

            (1,173 )                   (1,173 )

Dividends paid

                (26,552 )               (26,552 )

Employee benefit plans and other

    (17,722 )   (3 )   1,582             (2,544 )       (965 )
                                   

Balance, March 31, 2012

    33,142,408   $ 332   $ 537,921   $ 2,241,711   $ (910,598 ) $ (642,571 ) $ 9,956   $ 1,236,751  
                                   

   

See Notes to the Consolidated Financial Statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

1. Summary of Significant Accounting Policies

        Nature of Operations.    Alliant Techsystems Inc. ("ATK" or "the Company") is an aerospace, defense, and commercial products company and leading supplier of products to the U.S. Government, allied nations, and prime contractors. ATK is also a major supplier of ammunition and related accessories to law enforcement agencies and commercial customers. ATK is headquartered in Arlington, Virginia and has operating locations throughout the United States, Puerto Rico, and internationally.

        Basis of Presentation.    The consolidated financial statements of ATK include all majority-owned affiliates. Intercompany transactions and accounts have been eliminated.

        Fiscal Year.    References in this report to a particular fiscal year refer to the year ended March 31 of that calendar year. ATK's interim quarterly periods are based on 13-week periods and end on Sundays.

        Use of Estimates.    The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates.

Revenue Recognition.

        Our sales come primarily from contracts with agencies of the U.S. Government and its prime contractors and subcontractors. As the various U.S. Government customers, including the U.S. Army, U.S. Navy, NASA, and the U.S. Air Force, make independent purchasing decisions, we do not generally regard the U.S. Government as one customer. Instead, we view each agency as a separate customer.

        Sales by customer were as follows:

 
  Percent of Sales
For Fiscal Years Ended:
 
 
  2012   2011   2010  

Sales to:

                   

U.S. Army

    28 %   30 %   28 %

U.S. Navy

    12 %   11 %   11 %

NASA

    10 %   13 %   18 %

U.S. Air Force

    6 %   7 %   7 %

Other U.S. Government customers

    9 %   7 %   5 %
               

Total U.S. Government customers

    65 %   68 %   69 %

Commercial and foreign customers

    35 %   32 %   31 %
               

Total

    100 %   100 %   100 %

        Long-Term Contracts—The majority of ATK's sales are accounted for as long-term contracts. Sales under long-term contracts are accounted for under the percentage-of-completion method and include cost-plus and fixed-price contracts. Sales under cost-plus contracts are recognized as costs are incurred. Sales under fixed-price contracts are either recognized as the actual cost of work performed relates to the estimate at completion ("cost-to-cost") or based on results achieved, which usually coincides with customer acceptance ("units-of-delivery"). The majority of ATK's total revenue is accounted for using the cost-to-cost method of accounting.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

1. Summary of Significant Accounting Policies (Continued)

        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.

        Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates 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. Aggregate net changes in contract estimates recognized using the cumulative catch-up method of accounting increased operating income by $106,973 in 2012, $51,508 in 2011, and $44,383 in 2010. The adjustments recorded during the year ended March 31, 2012 were primarily driven by greater than expected performance at the Radford facility due to increased production volumes, changes in estimates as contracts near completion in energetic and small- caliber systems programs, the absence of a reduction in sales and profit on a commercial aerospace program recorded in fiscal 2011, and changes in expectations on an international advanced weapons program, a defense electronic systems program, and others.

        Contracts may contain provisions to earn incentive and award fees if specified targets are achieved as well as penalty provisions related to performance. Incentive and award fees and penalties that can be reasonably estimated and are probable are recorded over the performance period of the contract. Incentive and award fees that cannot be reasonably estimated are recorded when awarded.

        Other Revenue Recognition Methodology—Sales not recognized under the long-term contract method primarily relate to sales within the Security and Sporting group and are recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred, and payment is reasonably assured. Sales are reduced for allowances and price discounts.

        Fiscal 2012 sales by revenue recognition method were as follows:

 
  Percent of Sales  

Sales recorded under:

       

Long-term contracts method

    78 %

Other method

    22 %
       

Total

    100 %

        Operating Expenses.    Research and development, selling and general and administrative costs are expensed in the year incurred. Research and development costs include costs incurred for experimentation and design testing. Selling costs include bid and proposal efforts related to products

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

1. Summary of Significant Accounting Policies (Continued)

and services. Costs that are incurred pursuant to contractual arrangements are recorded over the period that revenue is recognized, consistent with ATK's contract accounting policy.

        Environmental Remediation and Compliance.    Costs associated with environmental compliance, restoration, and preventing future contamination that are estimable and probable are accrued and expensed, or capitalized as appropriate. Expected remediation, restoration, and monitoring costs relating to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are accrued and expensed in the period that such costs become estimable. Liabilities are recognized for remedial and resource restoration activities when they are probable and the cost can be reasonably estimated. ATK expects that a portion of its environmental remediation costs will be recoverable under U.S. Government contracts and has recorded a receivable equal to the present value of the amount that ATK expects to recover.

        ATK's engineering, financial, and legal specialists estimate, based on current law and existing technologies, the cost of each environmental liability. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties ("PRPs") will be able to fulfill their commitments at the sites where ATK may be jointly and severally liable. ATK's estimates for environmental obligations are dependent on, and affected by, the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, methods of remediation available, the technology that will be required, the outcome of discussions with regulatory agencies and other PRPs at multi-party sites, the number and financial viability of other PRPs, changes in environmental laws and regulations, future technological developments, and the timing of expenditures; accordingly, ATK periodically evaluates and revises such estimates based on expenditures against established reserves and the availability of additional information.

        Cash Equivalents.    Cash equivalents are all highly liquid cash investments purchased with original maturities of three months or less.

        Marketable Securities.    Investments in a common collective trust that primarily invests in fixed income securities are classified as available-for-sale securities and are recorded at fair value within other current assets and deferred charges and other non-current assets on the consolidated balance sheet. Unrealized gains and losses are recorded in other comprehensive (loss) income ("OCI"). When such investments are sold, the unrealized gains or losses are reversed from OCI and recognized in the consolidated income statement.

        Inventories.    Inventories are stated at the lower of cost or market. Inventoried costs relating to contracts in progress are stated at actual production costs, including factory overhead, initial tooling, and other related costs incurred to date, reduced by amounts associated with recognized sales. Raw materials, work in process, and finished goods are generally determined using the standard costing method.

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

1. Summary of Significant Accounting Policies (Continued)

        Inventories consist of the following:

 
  March 31  
 
  2012   2011  

Raw materials

  $ 122,072   $ 97,942  

Work/Contracts in process

    53,018     53,499  

Finished goods

    83,405     90,587  
           

Net inventories

  $ 258,495   $ 242,028  
           

        Progress payments received from customers relating to the uncompleted portions of contracts are offset against unbilled receivable balances or applicable inventories. Any remaining progress payment balances are classified as contract advances.

Accounting for Goodwill and Identifiable Intangible Assets

        Goodwill—ATK tests goodwill for impairment on the first day of its fourth fiscal quarter or upon the occurrence of events or changes in circumstances that indicate that the asset might be impaired. The Company has determined that the reporting units for its goodwill impairment review are its operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available, and for which segment management regularly reviews the operating results.

        The impairment test is performed using a two-step process. In the first step, ATK determines the estimated fair value of each reporting unit and compares it to the carrying value of the reporting unit, including goodwill. If the carrying amount of a reporting unit is higher than its fair value, an indication of goodwill impairment exists and the second step must be performed in order to determine the amount of the goodwill impairment. In the second step, ATK must determine the implied fair value of the reporting unit's goodwill which is determined by allocating the estimated fair value of the reporting unit in a manner similar to a purchase price allocation. The implied fair value is compared to the carrying amount and if the carrying amount of the reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss must be recognized for the excess.

        Identifiable Intangible Assets—ATK's primary identifiable intangible assets include trademarks and trade names, non-compete agreements, patented technology, and customer relationships. Identifiable intangible assets with finite lives are amortized and evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangibles with indefinite lives are not amortized and are tested for impairment annually on the first day of ATK's fourth fiscal quarter, or more frequently if events warrant.

        ATK's identifiable intangibles with indefinite lives consist of certain trademarks and trade names. The impairment test consists of a comparison of the fair value of the specific intangible asset with its carrying value. The fair value of these assets is measured using the relief-from-royalty method which assumes that the asset has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires ATK to estimate the future revenue for the related brands and technology, the appropriate royalty rate, and the weighted average cost of

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

1. Summary of Significant Accounting Policies (Continued)

capital. ATK bases its fair values and estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain.

        Stock-Based Compensation.    ATK's stock-based employee compensation plans, which are described more fully in Note 14, provide for the grant of various types of stock-based incentive awards, including performance awards, total stockholder return performance awards ("TSR awards"), restricted stock, and options to purchase common stock. The types and mix of stock-based incentive awards are evaluated on an ongoing basis and may vary based on ATK's overall strategy regarding compensation, including consideration of the impact of expensing stock awards on ATK's results of operations.

        Performance awards 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. ATK uses an integrated Monte Carlo simulation model to determine the fair value of the TSR awards and the calculated fair value is recognized into income over the vesting period. Restricted stock issued vests over periods ranging from one to five years and is valued based on the market value of ATK stock on the grant date. The estimated grant date fair value of stock options is recognized into income on a straight-line basis over the requisite service period, generally one to three years. The estimated fair value of each option is calculated using the Black-Scholes option-pricing model. See Note 14 for further details.

        Income Taxes.    Provisions for federal, state, and foreign income taxes are calculated based on reported pre-tax earnings and current tax law. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions. ATK periodically assesses its liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information. Where it is not more likely than not that ATK's tax position will be sustained, the Company records the entire resulting tax liability and when it is more likely than not of being sustained, the Company records its best estimate of the resulting tax liability. Any applicable interest and penalties related to those positions are also recorded in the consolidated financial statements. To the extent ATK's assessment of the tax outcome of these matters changes, such change in estimate will impact the income tax provision in the period of the change. It is ATK's policy to record any interest and penalties related to income taxes as part of the income tax expense for financial reporting purposes. Deferred tax assets related to carryforwards are reduced by a valuation allowance when it is not more likely than not that the amount will be realized before expiration of the carryforward period. As part of this analysis ATK takes into the account the amount and character of the income to determine if the carryforwards will be realized. Significant estimates are required for this analysis. Changes in the amounts of valuation allowance are recorded in the tax provision in the period when the change occurs.

        Derivative Instruments and Hedging Activities.    From time to time, ATK uses derivatives, consisting mainly of commodity forward contracts to hedge forecasted purchases of certain commodities and foreign currency exchange contracts to hedge forecasted transactions denominated in a foreign currency. ATK does not hold or issue derivatives for trading purposes. At the inception of each derivative instrument, ATK documents the relationship between the hedging instrument and the hedged item, as well as its risk-management objectives and strategy for undertaking the hedge transaction. ATK assesses, both at the hedge's inception and on an ongoing basis, whether the derivative instrument is

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

1. Summary of Significant Accounting Policies (Continued)

highly effective in offsetting changes in the hedged item. Derivatives are recognized on the balance sheet at fair value. ATK's current derivatives are designated as cash flow hedges and the effective portion of the change in the fair value of the derivative is recorded to accumulated OCI and recognized in earnings when the hedged item affects earnings. See Note 3 for further details.

        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 (see Note 14) and contingently issuable shares related to ATK's Convertible Senior Subordinated Notes (see Note 9) during each period presented, which, if exercised, earned, or converted, would have a dilutive effect on earnings per share. In computing EPS for the fiscal years presented, earnings, as reported for each respective period, is divided by (in thousands):

 
  Years Ended March 31  
 
  2012   2011   2010  

Basic EPS shares outstanding

    32,874     33,275     32,851  

Dilutive effect of stock-based awards

    238     340     477  

Dilutive effect of contingently issuable shares

            134  
               

Diluted EPS shares outstanding

    33,112     33,615     33,462  
               

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

    5     5      

        As discussed further in Note 9, contingently issuable shares related to ATK's various convertible senior subordinated notes are not included in diluted EPS for 2012 or 2011 because ATK's average stock price during the periods did not exceed the triggering price.

        Contingently issuable shares related to ATK's $200,000 aggregate principal amount of 3.00% Convertible Notes due 2024 and the $280,000 aggregate principal amount of 2.75% Convertible Notes due 2024, as discussed in Note 9, were included in diluted EPS in fiscal 2010 because ATK's average stock price exceeded the conversion price during that period.

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

1. Summary of Significant Accounting Policies (Continued)

        Comprehensive Income.    The components of comprehensive income for the fiscal years presented are as follows:

 
  Years Ended March 31  
 
  2012   2011   2010  

Net income

  $ 263,204   $ 313,711   $ 278,944  

Other comprehensive (loss) income (OCI):

                   

Change in fair value of derivatives, net of income taxes of $17,060, $6,078, and $(25,386), respectively

    (26,683 )   (9,607 )   39,706  

Pension and other postretirement benefit liabilities, net of income taxes of $60,296, $(26,353), and $131,654, respectively

    (96,594 )   43,940     (211,513 )

Change in fair value of available-for-sale securities, net of income taxes of $156, $205, and $(1,517), respectively

    (244 )   (324 )   2,373  
               

Total OCI

    (123,521 )   34,009     (169,434 )

Comprehensive income

    139,683     347,720     109,510  

Comprehensive income attributable to noncontrolling interest

    592     536     230  
               

Comprehensive income attributable to Alliant Techsystems Inc. 

  $ 139,091   $ 347,184   $ 109,280  
               

        The components of accumulated OCI, net of income taxes, are as follows:

 
  March 31  
 
  2012   2011  

Derivatives

  $ 3,416   $ 30,099  

Pension and other postretirement benefit liabilities

    (915,010 )   (818,416 )

Available-for-sale securities

    996     1,240  
           

Total accumulated other comprehensive loss

  $ (910,598 ) $ (787,077 )
           

        The following table summarizes the pre-tax activity in OCI related to these derivatives:

 
  Years Ended March 31  
 
  2012   2011   2010  

Beginning of period unrealized gain in accumulated OCI

  $ 49,407   $ 65,582   $  

Net (decrease) increase in fair value of derivatives

    (24,424 )   26,491     79,431  

Net gains reclassified from OCI, offsetting the price paid to suppliers

    (19,319 )   (42,666 )   (13,849 )
               

End of period unrealized gain in accumulated OCI

  $ 5,664   $ 49,407   $ 65,582  
               

        There was no ineffectiveness recognized in earnings for these contracts during any of the fiscal years presented. ATK expects that any 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.

        Fair Value of Nonfinancial Instruments.    The carrying amount of receivables, inventory, accounts payable and accrued liabilities approximates fair value because of the short maturity of these instruments. See Note 2 for additional disclosure regarding fair value of financial instruments.

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

1. Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncements.

        On May 12, 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-04"). ASU 2011-04 clarifies the application of existing fair value measurement requirements including: (1) the application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity's shareholders' equity, and (3) quantitative information required for fair value measurements categorized within Level 3. ASU 2011-04 also provides guidance on measuring the fair value of financial instruments managed within a portfolio, and application of premiums and discounts in a fair value measurement. In addition, ASU 2011-04 requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The amendments in this guidance are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of this ASU did not have a material impact on ATK's financial statements.

        On June 16, 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, ("ASU 2011-05"). This update revises the manner in which entities must present comprehensive income in their financial statements. ASU 2011-05 gives entities the option to present total comprehensive income, the components of net income, and the components of other comprehensive income in either of the following ways: (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011 and interim periods within those years (ATK's fiscal 2013). ATK does not believe the adoption of this ASU will have a material impact on its financial statements.

        On September 15, 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment ("ASU 2011-08). Under the revised guidance, entities testing goodwill for impairment will have the option to perform a qualitative assessment before calculating the fair value of their reporting units (i.e., step 1 of the goodwill impairment test under the historical rules). If entities determine, on the basis of qualitative factors, that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The new guidance does not change how goodwill is calculated or assigned to reporting units, nor does it amend the requirement to test goodwill annually or between annual tests if circumstances warrant. ASU No. 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (ATK's fiscal 2013). ATK does not believe the adoption of this ASU will have a material impact on its financial statements.

        On December 16, 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 360), Disclosures about Offsetting Assets and Liabilities ("ASU 2011-11"). The amendments in this update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in this guidance are to be retrospectively applied for all comparative periods presented for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, beginning in fiscal 2014 for ATK. ATK does not believe the adoption of this ASU will have a material impact on its financial statements.

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

2. 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 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 and foreign currency risk, ATK periodically utilizes commodity and foreign currency derivatives, which are considered Level 2 instruments. As discussed further in Note 3, ATK has outstanding commodity forward contracts that were entered into to hedge forecasted purchases of copper and zinc, as well as outstanding foreign currency forward contracts that were entered into to hedge forecasted transactions denominated in a foreign currency. Commodity derivatives are valued based on prices of futures exchanges and recently reported transactions in the marketplace. Foreign currency derivatives are valued based on observable market transactions of spot currency rates and forward currency prices.

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

2. Fair Value of Financial Instruments (Continued)

        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 March 31, 2012  
 
  Fair Value Measurements
Using Inputs Considered as
 
 
  Level 1   Level 2   Level 3  

Assets

                   

Marketable securities

  $   $ 8,546   $  

Derivatives

        12,182      

Liabilities

                   

Derivatives

  $   $ 6,518   $  

 

 
  As of March 31, 2011  
 
  Fair Value Measurements
Using Inputs Considered as
 
 
  Level 1   Level 2   Level 3  

Assets

                   

Marketable securities

  $   $ 9,470   $  

Derivatives

        49,407      

Liabilities

                   

Derivatives

  $   $   $  

        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 March 31, 2012   As of March 31, 2011  
 
  Carrying
Amount
  Fair
Value
  Carrying
Amount
  Fair
Value
 

Fixed rate debt

  $ 932,002   $ 986,394   $ 1,219,709   $ 1,303,466  

Variable rate debt

    370,000     370,000     390,000     386,100  

3. 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

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

3. Derivative Financial Instruments (Continued)

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 2012, 2011 and 2010. 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 also entered into foreign currency forward contracts during fiscal 2011 and fiscal 2010. These contracts 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 and foreign currency forward contracts is 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.

        As of March 31, 2012, ATK had the following outstanding commodity forward contracts that were entered into to hedge forecasted purchases:

 
  Number of
Pounds
 

Copper

    22,350,000  

Zinc

    6,245,000  

        As of March 31, 2012, ATK had no outstanding foreign currency forward contracts in place.

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

3. 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   March 31, 2012   March 31, 2011   March 31, 2012   March 31, 2011  

Commodity forward contracts

  Other current assets /
other accrued liabilities
  $ 12,182   $ 36,398   $ 6,518   $  

Commodity forward contracts

  Deferred charges and
other non-current
assets / other long
term liabilities
        12,619          

Foreign currency forward contracts

  Other current assets/
accrued liabilities
        390          
                       

Total

      $ 12,182   $ 49,407   $ 6,518   $  
                       

        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 and foreign currency forward contracts were as follows:

 
  Pretax amount of
gain (loss)
recognized in Other
Comprehensive
Income (Loss)
  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)
 
 
  Amount   Location   Amount   Location   Amount  

Fiscal year ended March 31, 2012

                           

Commodity forward contracts

  $ 5,664   Cost of Sales   $ 24,424   Cost of Sales   $  

Fiscal year ended March 31, 2011

                           

Commodity forward contracts

  $ 49,017   Cost of Sales   $ 26,491   Cost of Sales   $  

Foreign currency forward contracts

    390   Cost of Sales       Cost of Sales      

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

        There was no ineffectiveness recognized in earnings for these contracts during any of the periods presented. ATK expects that any 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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(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. The purchase price for each acquisition 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 April 9, 2010, ATK acquired Blackhawk Industries Products Group Unlimited, LLC ("Blackhawk") for a purchase price of $172,251. Blackhawk is a manufacturer of high quality tactical gear. ATK believes that the acquisition provides ATK with a strong tactical systems brand, an expanded portfolio of quality products, and additional design and development expertise for innovative tactical accessories which will strengthen ATK's position in tactical accessories and equipment for domestic and international military, law enforcement, security, and sport enthusiast markets. Blackhawk employs approximately 300 employees and is included in the Security and Sporting group. The purchase price allocation was completed in fiscal 2011. Most of the goodwill generated in this acquisition will be deductible for tax purposes.

        ATK used the acquisition method of accounting to account for this acquisition and, accordingly, the Blackhawk's results are included in ATK's consolidated financial statements at the date of acquisition. The purchase price for the acquisition was allocated to the acquired assets and liabilities based on estimated fair value. Pro forma information on the results of operations for fiscal 2011 and 2010 as if the acquisitions had occurred at the beginning of fiscal 2010 is not being presented because the acquisition is not material to ATK for that purpose.

        ATK made no acquisitions during fiscal 2012 or 2010.

5. Receivables

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

 
  March 31  
 
  2012   2011  

Billed receivables

             

U.S. Government contracts

  $ 241,701   $ 189,471