Fitch: Orbital ATK's Restatement of Operating Results Credit Neutral
August 11 2016 - 12:21PM
Business Wire
Orbital ATK Inc.'s (OA) announcement yesterday of an expected
restatement of operating results for fiscal year 2015 (ending in
March) and a delay of its 10Q filing by approximately 45 days due
to an accounting error is credit neutral for the company's current
ratings and Outlook, according to Fitch Ratings. Fitch does not
expect the announced restatement and the internal review of the
accounting practices to have a material impact on the company's
projected credit metrics. However, the internal investigation is
ongoing with potential for future charges.
The company preliminarily estimates that its revenues were
overstated by $100 million to $150 million, primarily in fiscal
2015 and expects the accounting error-related forward loss
provision will reduce its fiscal 2015 after-tax net income by
approximately $250 million to $280 million. OA does not expect the
restatement will have a material impact on future operating
results, cash balances, and backlog. The underperformance on the
Lake City contract has an annual negative impact on FCF in the
range of $25 million to $30 million, but it was already
incorporated in the company's performance expectations and
guidance. Fitch expects OA's future performance will be mostly in
line with previous projections.
Fitch's rating concerns include a possibility that the company
may find the accounting error to be spread wider than initially
believed. Fitch's concern is mitigated by the results of the
ongoing accounting investigation which has revealed that the error
was limited only to one contract out of the company's largest 30
contracts. OA is in the process of reviewing approximately 150
smaller contracts. In addition, Fitch is concerned by a possible
litigation by shareholders who may seek compensation for the losses
incurred in connection to share price declines immediately
following the announcement of the restatement.
Fitch also remains concerned with rising competition in some
space sectors, weakness in the commercial satellites business, and
significant exposure to the U.S. Government, which accounted for
approximately 70% of total revenues in 2015.
Key factors that support the ratings include OA's solid margins
and strong cash flows, good product/program diversification, OA's
role as a sole source provider for many of its products, adequate
financial metrics for the ratings, and adequate financial
flexibility.
On April 14, 2016, Fitch affirmed OA's Issuer Default Rating at
'BB+', senior secured facilities at 'BBB-/RR1' and senior unsecured
notes at 'BB+/RR4'. The ratings currently cover approximately $1.5
billion of long-term debt. The Rating Outlook is Stable.
Additional information is available at
'www.fitchratings.com'.
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Fitch RatingsDavid Petu, CFADirector+1-212-908-0280Fitch
Ratings, Inc.33 Whitehall StreetNew York, NY 10004orCraig
FraserManaging Director+1-212-908-0310orMedia Relations:Alyssa
Castelli, New York, +1 212-908-0540Email:
alyssa.castelli@fitchratings.com