Orbital ATK to restate financial statements

Orbital ATK said today it expects to restate recent financial statements in connection with a $2.3 billion Army contract to manufacture and supply small-caliber ammunition at the Lake City Army Ammunition Plant in Missouri.

The 10-year contract was awarded to ATK in 2012; Orbital merged with ATK's aerospace and defense groups last year.

The "company believes that the Contract will result in a net loss over its 10-year term," Orbital ATK said today. "Under generally accepted accounting principles, the company is required to record the entire anticipated forward loss provision for a contract in the period in which the loss becomes evident. The company believes that a forward loss provision should have been recorded for the Contract in fiscal 2015, which was the first year of large-scale production under the Contract."

Orbital ATK said it anticipates restating its financial statements for fiscal year 2015, which ended March 31, 2015, as well as the nine-month transition period that ended Dec. 31, 2015 and the quarter that ended April 3. The company said it estimates the forward loss provision will reduce previously reported pre-tax operating income by about $400 million to $450 million and after-tax net income by about $250 million to $280 million.

"The company's evaluation of the misstatements is ongoing and, accordingly, the determination as to which fiscal period the forward loss provision and related effects should have been recorded is preliminary and could change," the contractor added.

During a morning call with analysts, David Thompson, Orbital ATK's chief executive, said he is "very concerned by this situation and absolutely determined that nothing like it will ever happen again." He said the company does not believe there were any "intentional misstatements" or "misbehavior." Other factors, he said, "obscured the actual performance of the Army contract as it ramped up, beginning in 2014."

"While the Lake City contract restatement is very distressing to me, I am very confident that accounting errors are isolated to this one program," Thompson said. "More generally, while it is certainly an unfortunate development, this single event should not overshadow an otherwise highly successful merger."

Orbital ATK's stock fell sharply today. After closing at nearly $89 per share on Tuesday, the company's stock had fallen to under $70 per share by early afternoon Wednesday.

The company also said today that sales in its most recent quarter reached $1.1 billion, down about 2 percent from the same three-month period a year earlier. Quarterly profit hit $72 million, up from $55 million the prior year. The company attributed the revenue decline to lower sales in its flight systems and space systems groups.