ATK Third-Quarter Earnings Rise 18 Percent to $1.25 Per Share

MINNEAPOLIS, Feb. 2 /PRNewswire-FirstCall/ -- Alliant Techsystems today reported earnings per share for the third quarter of fiscal year 2005 of $1.25, an increase of 18 percent over $1.06 a year ago.

Excluding tax benefits and restructuring items, third-quarter earnings per share were $1.18, an increase of 34 percent over 88 cents last year. (See reconciliation table at the end of this news release.)

Sales for the third quarter, which ended Jan. 2, rose 21 percent to $684 million from $564 million a year ago, driven by organic revenue growth of 10 percent. The organic growth came in a number of programs across the company, including Minuteman III strategic missile propulsion, small-caliber ammunition, precision weapons, and space structures. New revenues from the prior-year acquisitions of ATK GASL and ATK Mission Research and the FY05 acquisition of the PSI Group also contributed to the overall increase.

Other third-quarter performance measures: -- Orders more than doubled, rising to $1.1 billion from $483 million a year ago on strong bookings across all business groups. New orders for small-caliber ammunition, Minuteman III strategic missile propulsion, and the Precision Guided Mortar Munition accounted for a major portion of the growth. -- Contracted backlog, which represents the estimated value of contracts for which ATK is authorized to incur costs but for which revenue has not yet been recognized, was $3.9 billion at the end of the third quarter. Total backlog, which includes contracted backlog plus the value of unexercised options, was $5.1 billion. -- The EBIT margin (earnings before interest and income taxes as a percent of sales) was 12.0 percent versus 12.5 percent a year ago, reflecting higher pension expenses. Excluding these expenses, the third-quarter EBIT margin was 12.8 percent, compared with 12.9 percent last year. (See reconciliation table at the end of this news release.) Nine-Month Results

Earnings per share for the nine-month period were $2.76, compared with $2.83 a year ago. Earnings per share for the current period were $2.89, excluding the effect of restructuring charges, a pension-related settlement charge, and tax benefits. This represents an increase of 24 percent over $2.34 a year ago, which excludes a contract rate settlement, a curtailment gain, and tax benefits, as previously disclosed. (See reconciliation table at the end of this news release.)

Nine-month sales rose 18 percent to $2.0 billion from $1.7 billion a year ago. Free cash flow (cash provided by operating activities less capital expenditures) for the period was $57 million, compared with $89 million last year (See reconciliation table at the end of this news release).

Operations Review

ATK Thiokol third-quarter sales rose to $205 million from $184 million a year ago, driven primarily by higher volume from the Minuteman III strategic missile propulsion program. Year-to-date sales were $624 million, compared with $603 million last year.

The ATK Advanced Propulsion and Space Systems Group reported sales of $110 million in the third quarter versus $69 million last year. Current- quarter sales include $28 million in new revenues from the acquisitions of ATK GASL and the PSI Group. Organic growth in missile defense propulsion and space structure programs also contributed to the increase. For the nine-month period, the group's sales were $273 million versus $183 million a year ago.

Third-quarter sales from the ATK Precision Systems Group increased to $133 million from $127 million a year ago on higher volume from precision weapons and sensors. Sales for the nine months were $383 million, compared with $355 million last year.

Sales from the ATK Ammunition Group in the third quarter were $205 million versus $184 million last year, reflecting higher sales of military small- caliber ammunition and law enforcement ammunition. Year-to-date sales rose to $610 million from $548 million a year ago.

Recent business highlights include: -- Orders worth more than $300 million for production of small-caliber ammunition at the Lake City Army Ammunition Plant in Independence, Mo., and a U.S. Army contract to continue modernization work at the plant. -- A contract worth $80 million to design, develop, and begin low-rate initial production of the U.S. Army's Precision Guided Mortar Munition. -- A $9 million contract to supply automatic cannons to the U.S. Air Force Special Operations Command. -- A contract to provide Orbus 1A rocket motors for the Ground-based Missile Defense (GMD) program, expanding ATK's role to all three propulsion stages for the GMD interceptor vehicle. -- A successful demonstration of a pulse-capable Solid Divert and Attitude Control System (SDACS) design for the Standard Missile-3, which is part of the Missile Defense Agency sea-based program to counter ballistic missile threats. -- A successful test of the NASA/ATK X-43A Supersonic Combustion Ramjet (Scramjet) aircraft, which set the world speed record for air-breathing powered flight at Mach 10 - approximately 7,000 miles per hour. -- Assembly of the Reusable Solid Rocket Motors on the Space Shuttle Discovery in preparation for Shuttle return to flight in the spring. -- Start-up of medium-caliber ammunition production at ATKs precision munitions manufacturing center of excellence at the Allegany Ballistics Laboratory (ABL) in Rocket Center, W. Va., following relocation of the manufacturing operations from Minnesota. -- A decision to move fuze production operations from Janesville, Wis. to ABL as part of ATK's continuing strategy to deliver greater value to U.S. government customers through improved manufacturing efficiencies. Move-related costs are expected to total approximately $5 million in FY05 and approximately $5 million in FY06. -- Successful launches of Delta II rockets carrying NASA spacecraft and a U.S. Air Force Global Positioning System satellite. FY05 and FY06 Guidance

ATK is narrowing its guidance range for FY05 earnings per share to between $3.95 and $4.00 from between $3.90 and $4.00. The company continues to expect FY05 sales to be more than $2.75 billion and free cash flow to be in excess of $120 million.

Looking ahead to FY06, ATK expects earnings per share to be between $4.35 and $4.50, consistent with the company's commitment to deliver annual double- digit earnings growth. This estimate includes an increase in pension expense of approximately $17 million or 30 cents per share and costs for moving fuze manufacturing operations of approximately $5 million or 9 cents per share.

The FY06 earnings per share projections do not include the impact of the adoption of SFAS 123R "Share-Based Payment" for the expensing of stock-based compensation. Based on a preliminary analysis, the FY06 full-year impact on earnings per share related to the adoption of SFAS 123R is estimated to be approximately 12 cents per share, in line with what the pro forma expense would be in FY05, stated on the same basis. The company is required to adopt SFAS 123R as of July 4, 2005, but may elect to early adopt at any point prior to that date. Final determination of the impact and timing of the company's adoption of SFAS 123R will be addressed in the FY05 year-end earnings report in May.

ATK expects FY06 sales to be in excess of $3.0 billion, reflecting organic sales growth of between 7 percent and 8 percent. Free cash flow is projected to be approximately equal to net income.

ATK is a $2.4 billion advanced weapon and space systems company employing approximately 14,000 people in 23 states. News and information can be found on the Internet at http://www.atk.com/ .

Certain information discussed in this press release regarding guidance for FY05 and FY06, including but not limited to anticipated costs for manufacturing operations relocation and FY06 pension expense, constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Although ATK believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected. Among these factors are: unforeseen delays in NASA's Space Shuttle program, changes in governmental spending, risks inherent in the development and manufacture of advanced technology, budgetary policies, product sourcing strategies, economic conditions, equity and corporate bond market returns, the availability of capital market financing, the company's competitive environment, the timing of awards and contracts, the outcome of contingencies, including litigation and environmental remediation, program performance, program terminations, changes to accounting standards, changes in cost estimates related to relocation of facilities, and financial performance projections. ATK undertakes no obligation to update any forward-looking statements. For further information on factors that could impact ATK, and statements contained herein, reference should be made to ATK's filings with the Securities and Exchange Commission, including quarterly reports on Form 10-Q, current reports on Form 8-K, and annual reports on Form 10-K.

Reconciliation of Non-GAAP Financial Measures Diluted earnings per share (EPS) excluding the effect of restructuring charges, a rate settlement, a pension-related settlement charge, a curtailment gain, and tax benefits is a non-GAAP financial measure that ATK defines as diluted EPS excluding the impact of restructuring charges, a rate settlement, a pension-related settlement charge, a curtailment gain, and tax benefits. ATK management believes that the exclusion of the items shown in the table below provides a more meaningful assessment of ATK's operational performance. ATK's definition may differ from that used by other companies. Quarters Ended Nine Months Ended Jan. 2, 2005 Dec. 28, 2003 Jan. 2, 2005 Dec. 28, 2003 Diluted earnings per share (EPS) $1.25 $1.06 $2.76 $2.83 Restructuring charges, net of taxes 0.01 0.10 Rate settlement, net of taxes (0.12) Pension-related settlement charge, net of taxes 0.11 Curtailment gain, net of taxes (0.12) Tax benefits (0.08) (0.18) (0.08) (0.25) Diluted EPS excluding the effect of restructuring charges, rate settlement, pension- related settlement charge, curtailment gain, and tax benefits 1.18 0.88 2.89 2.34 The EBIT margin excluding the effect of pension expense is a non-GAAP financial measure that ATK defines as income before interest and income taxes excluding the impact of pension expense as a percent of sales. ATK management is presenting this measure so that a reader may compare EBIT margin excluding pension expense. ATK's definition may differ from that used by other companies. Quarters Ended Jan. 2, 2005 Dec. 28, 2003 Income before interest and income taxes $81,903 $70,451 Pension expense 5,744 2,550 Income before interest and income taxes excluding the effect of pension expense 87,647 73,001 Sales 684,493 563,817 Income before interest and income taxes excluding the effect of pension expense as a percent of sales 12.8% 12.9% Free cash flow is defined as cash provided by operating activities less capital expenditures. ATK management believes free cash flow provides investors with an important perspective on the cash available for debt repayment, share repurchase, and acquisitions after making the capital investments required to support ongoing business operations. ATK management uses free cash flow internally to assess both business performance and overall liquidity. Nine Months Ended Jan. 2, 2005 Dec. 28, 2003 Cash provided by operating activities $93,577 $120,236 Capital expenditures (36,533) (30,993) Free cash flow 57,044 89,243

Webcast Information: ATK will webcast its investor conference call on FY05 third-quarter results and the financial outlook at 9:00 a.m. Eastern Time today. The live audio webcast will be available on the Investor Relations page of ATK's web site at http://www.atk.com/. Information about downloading free Windows Media Player software, which is required to access the webcast, is available on the website. For those who cannot participate in the live webcast, a telephone recording of the conference call will be available for one month after the call. The telephone number is 719-457-0820, and the confirmation code is 742467.

Note to Editors: ATK will issue the text of president and chief executive officer Dan Murphy's conference call remarks on PR Newswire following the completion of the call.

Media Contact: Investor Contact: Bryce Hallowell Steve Wold Phone: 952-351-3087 Phone: 952-351-3056 E-mail: bryce.hallowell@atk.com E-mail: steve_wold@atk.com ALLIANT TECHSYSTEMS INC. CONSOLIDATED INCOME STATEMENTS (In thousands except per share data) QUARTERS ENDED NINE MONTHS ENDED January December January December 2, 28, 2, 28, 2005 2003 2005 2003 Sales $684,493 $563,817 $2,001,938 $1,689,506 Cost of sales 546,683 440,106 1,630,712 1,325,096 Gross profit 137,810 123,711 371,226 364,410 Operating expenses: Research and development 10,203 5,814 23,685 22,189 Selling 16,454 15,629 50,598 46,365 General and administrative 29,250 31,817 95,255 87,713 Total operating expenses 55,907 53,260 169,538 156,267 Income before interest, income taxes, and minority interest 81,903 70,451 201,688 208,143 Interest expense (17,492) (14,302) (48,024) (44,480) Interest income 162 112 645 480 Income before income taxes and minority interest 64,573 56,261 154,309 164,143 Income tax provision 16,621 14,256 48,741 52,332 Income before minority interest 47,952 42,005 105,568 111,811 Minority interest, net of income taxes 104 148 248 403 Net income $47,848 $41,857 $105,320 $111,408 Earnings per share: Basic $1.27 $1.08 $2.80 $2.89 Diluted 1.25 1.06 2.76 2.83 Average number of common shares 37,718 38,624 37,576 38,589 Average number of common and dilutive shares 38,242 39,333 38,132 39,304 ALLIANT TECHSYSTEMS INC. CONSOLIDATED BALANCE SHEETS (In thousands except share data) January 2, 2005 March 31, 2004 Assets Current assets: Cash and cash equivalents $47,121 $56,891 Net receivables 575,742 528,848 Net inventory 144,872 134,676 Deferred income tax asset 56,991 53,105 Other current assets 27,703 32,165 Total current assets 852,429 805,685 Net property, plant, and equipment 453,457 465,786 Goodwill 1,158,080 1,063,711 Prepaid and intangible pension assets 342,056 331,860 Deferred income tax asset 6,972 38,940 Deferred charges and other non-current assets 216,748 127,347 Total assets $3,029,742 $2,833,329 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $3,096 $4,000 Accounts payable 95,245 142,941 Contract advances and allowances 39,234 46,221 Accrued compensation 95,194 117,333 Accrued income taxes 64,404 10,278 Other accrued liabilities 124,586 107,618 Total current liabilities 421,759 428,391 Long-term debt 1,184,130 1,076,000 Post-retirement and post-employment benefits liability 212,750 218,755 Additional minimum pension liability 401,314 401,314 Other long-term liabilities 139,506 144,669 Total liabilities 2,359,459 2,269,129 Commitments and contingencies Common stock - $.01 par value Authorized - 90,000,000 shares Issued and outstanding 37,793,898 shares at January 2, 2005 and 37,439,972 at March 31, 2004 416 416 Additional paid-in-capital 442,590 468,044 Retained earnings 726,419 621,099 Unearned compensation (1,869) (1,015) Accumulated other comprehensive income (259,267) (263,687) Common stock in treasury, at cost, 3,763,200 shares held at January 2, 2005 and 4,117,126 at March 31, 2004 (238,006) (260,657) Total stockholders' equity 670,283 564,200 Total liabilities and stockholders' equity $3,029,742 $2,833,329 ALLIANT TECHSYSTEMS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) NINE MONTHS ENDED January 2, 2005 December 28, 2003 Operating activities Net income $105,320 $111,408 Adjustments to net income to arrive at cash provided by operating activities: Depreciation 50,613 46,447 Amortization of intangible assets and unearned compensation 8,117 3,637 Deferred income tax - (6,713) Loss (gain) on disposal of property 2,386 (498) Minority interest, net of income taxes 248 403 Changes in assets and liabilities: Net receivables (28,853) 24,369 Net inventory (4,745) 8,784 Accounts payable (51,052) (29,155) Contract advances and allowances (8,444) (3,782) Accrued compensation (25,102) (16,294) Accrued income taxes 56,284 52,325 Accrued environmental 454 (796) Pension and post-retirement benefits (16,201) (61,781) Other assets and liabilities 4,552 (8,118) Cash provided by operating activities 93,577 120,236 Investing activities Capital expenditures (36,533) (30,993) Acquisition of businesses (164,198) (43,312) Proceeds from sale of property, plant, and equipment 305 1,646 Cash used for investing activities (200,426) (72,659) Financing activities Payments made on bank debt (92,774) (26,590) Proceeds from issuance of long- term debt 200,000 - Payments made for debt issue costs (6,144) - Net purchase of treasury shares (26,085) (2,526) Proceeds from employee stock compensation plans 22,082 9,320 Cash provided by (used for) financing activities 97,079 (19,796) (Decrease) increase in cash and cash equivalents (9,770) 27,781 Cash and cash equivalents - beginning of period 56,891 14,383 Cash and cash equivalents - end of period $47,121 $42,164