UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2017
For the quarterly period ended April 1, 2018
OR
		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

ORBITAL ATK, 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.)
45101 Warp Drive
Dulles, Virginia		20166
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (703) 406-5000

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 x 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer	x		Accelerated filer

Non-accelerated filer		(Do not check if a smaller reporting company)	Smaller reporting company

			Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 x

As of ~~October~~April 2726, ~~2017~~2018, there were 57,~~686~~827,~~000~~352 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS

		Page
PART I Financial Information
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets as of October 1, 2017 and December 31, 2016	2
	Condensed Consolidated Balance Sheets as of April 1, 2018 and December 31, 2017	2
	Condensed Consolidated Statements of Income for the Quarters and Nine Months Ended October 1, 2017 and October 2, 2016	3
	Condensed Consolidated Statements of Income for the Quarters Ended April 1, 2018 and April 2, 2017	3
	Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended October 1, 2017 and October 2, 2016	4
	Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended April 1, 2018 and April 2, 2017	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 1, 2017 and October 2, 2016	5
	Condensed Consolidated Statements of Cash Flows for the Quarters Ended April 1, 2018 and April 2, 2017	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2227
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3336
Item 4.	Controls and Procedures	3336
PART II Other Information
Item 1.	Legal Proceedings	3538
Item 1A.	Risk Factors	3639
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3840
Item 3.	Defaults Upon Senior Securities	3941
Item 4.	Mine Safety Disclosures	3941
Item 5.	Other Information	3941
Item 6.	Exhibits	4042
SIGNATURES		4143

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(Amounts in millions except share data)	October 1, 2017			December 31, 2016
(Amounts in millions, except share data)	April 1, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	~~119~~59		$	~~200~~346
Net receivables	1,939			1,741
Accounts receivable, net	338			250
Net inventories	267			215
Unbilled receivables, net	1,364			1,643
Other current assets	90			79
Net inventories	248			221
Total current assets	2,415			2,235
Other current assets	173			82
Property, plant and equipment, net of accumulated depreciation of $1,191at October 1, 2017 and $1,121 at December 31, 2016	858			816
Total current assets	2,182			2,542
Property, plant and equipment, net of accumulated depreciation of $1,247 at April 1, 2018 and $1,219 at December 31, 2017	967			934
Goodwill	1,832			1,832
Net intangibles	7054			9861
Other noncurrent assets	362			437
Deferred income taxes	222			155
Total assets	$	5,537		$	5,418
Other noncurrent assets	128			142
Total assets	$	5,385		$	5,666
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	40		$	40
Accounts payable	~~141~~173			~~175~~216
Contract loss reserve	~~160~~145			~~197~~152
Contract advances and allowances	274			233
Contract advances	271			330
Accrued compensation	~~142~~100			~~120~~137
Other current liabilities	~~536~~573			~~577~~585
Total current liabilities	1,~~293~~302			1,~~342~~460
Long-term debt	1,~~370~~411			1,~~398~~361
Pension and postemployment benefits	~~705~~678			~~744~~693
Other noncurrent liabilities	~~106~~109			~~117~~107
Total liabilities	3,~~474~~500			3,~~601~~621
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 14)
Common stock—$.01 par value: authorized—180,000,000 shares; issued and outstanding—57,685,462 shares at October 1, 2017 and 57,487,466 shares at December 31, 2016	1			1
Common stock—$.01 par value: authorized—180,000,000 shares; issued and outstanding—57,828,214 shares at April 1, 2018 and 57,686,214 shares at December 31, 2017	1			1
Additional paid-in-capital	2,~~169~~163			2,175
Retained earnings	1,~~459~~335			1,~~266~~502
Accumulated other comprehensive loss	(~~714~~768		)	(~~764~~780		)
Common stock in treasury, at cost—11,249,562 shares held at October 1, 2017 and 11,447,558 shares held at December 31, 2016	(863		)	(872		)
Common stock in treasury, at cost—11,106,810 shares held at April 1, 2018 and 11,248,810 shares held at December 31, 2017	(857		)	(864		)
Total Orbital ATK, Inc. stockholders' equity	21,~~052~~874			12,~~806~~034
Noncontrolling interest	11			11
Total equity	21,~~063~~885			12,~~817~~045
Total liabilities and equity	$	5,~~537~~385		$	5,~~418~~666

See Notes to the Condensed Consolidated Financial Statements.

Table of Contents

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Quarters Ended						~~Nine Months Ended~~
(Amounts in millions except per share data)	~~October~~April 1, ~~2017~~2018			~~October~~April 2, ~~2016~~2017			~~October 1, 2017~~			~~October 2, 2016~~
Sales	$	1,~~216~~312		$	1,~~043~~085		$	~~3,416~~		$	~~3,183~~
Cost of sales	~~941~~1,022			~~833~~846			~~2,645~~			~~2,466~~
Gross profit	~~275~~290			~~210~~239			~~771~~			~~717~~
Operating expenses:
Research and development	2434			2522			78			81
Selling	3128			28			90			82
General and administrative	7874			6668			~~214~~			~~195~~
Income before interest, income taxes and noncontrolling interest	142			91			389			359
Operating Income	154			121
Net interest expense	(17		)	(17		)	(51		)	(51		)
Other Expense:
Income before income taxes and noncontrolling interest	125			74			338			308
Net interest expense	(17		)	(17		)
Income taxes	31			14			90			80
Non-service pension and other postretirement benefit expense	(15		)	(10		)
Income before noncontrolling interest	94			60			248			228
Income before income taxes and noncontrolling interest	122			94
Less net income attributable to noncontrolling interest	—			—			—			—
Income taxes	21			28
Net income attributable to Orbital ATK, Inc.	$	94		$	60		$	248		$	228
Income before noncontrolling interest	101			66
Basic earnings per common share from:
Less net income attributable to noncontrolling interest	—			—
Net income attributable to Orbital ATK, Inc.	$	~~1.65~~101		$	~~1.04~~66		$	~~4.33~~		$	~~3.92~~
Weighted-average number of common shares outstanding	57			58			57			58
Basic earnings per common share from:
Diluted earnings per common share from:
Net income attributable to Orbital ATK, Inc.	$	1.76		$	1.16
Net income attributable to Orbital ATK, Inc.	$	1.64		$	1.04		$	4.29		$	3.89
Weighted-average number of common shares outstanding	57			57
Weighted-average number of diluted common shares outstanding	58			58			58			59
Diluted earnings per common share from:
Cash dividends per common share	$	0.32		$	0.30		$	0.96		$	0.90
Net income attributable to Orbital ATK, Inc.	$	1.74		$	1.15
Weighted-average number of diluted common shares outstanding	58			58
Cash dividends per common share	$	0.32		$	0.32

^{Note: earnings per share amounts may not recalculate due to rounding.}

See Notes to the Condensed Consolidated Financial Statements.

Table of Contents

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Quarters Ended						~~Nine Months Ended~~
(Amounts in millions)	~~October~~April 1, ~~2017~~2018			~~October~~April 2, ~~2016~~2017			~~October 1, 2017~~			~~October 2, 2016~~
Net income	$	94101		$	6066		$	~~248~~		$	~~228~~
Other comprehensive income:
Pension and other postretirement benefits:
Prior service credits for pension and postretirement benefit plans recorded to net income	(7		)	33			(21		)	20
Prior service credits for pension and postretirement benefit plans recorded to net income, net of taxes of $1 and $3, respectively	(5		)	(4		)
Net actuarial loss for pension and postretirement benefit plans recorded to net income	33			29			100			92
Net actuarial loss for pension and postretirement benefit plans recorded to net income, net of taxes of $(9) and $(12), respectively	28			20
Valuation adjustment for pension and postretirement benefit plans	—			—			—			2
Change in derivatives, net of taxes of $4 and $0, respectively	(11		)	(2		)
Change in fair value of derivatives	4			1			1			5
Other comprehensive income, net of tax	12			14
Unrealized gain on available-for-sale securities	1			—			1			—
Comprehensive income attributable to Orbital ATK, Inc.	$	113		$	80
Other	—			1			—			2
Income tax expense	(12		)	(24		)	(31		)	(46		)
Other comprehensive income, net of tax	19			40			50			75
Comprehensive income	113			100			298			303
Less comprehensive income attributable to noncontrolling interest	—			—			—			—
Comprehensive income attributable to Orbital ATK, Inc.	$	113		$	100		$	298		$	303

See Notes to the Condensed Consolidated Financial Statements.

Table of Contents

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended
	Quarters Ended
(Amounts in millions)	~~October~~April 1, ~~2017~~2018			~~October~~April 2, ~~2016~~2017
Operating Activities
Net income	$	~~248~~101		$	~~228~~66
Adjustments to reconcile net income to cash provided by operating activities:
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization	~~115~~36			~~120~~42
Fixed asset impairment	3			5—
Deferred income taxes	139			~~(12~~6		)
Stock-based plans expense	186			185
Other	4			11(2		)
Change in assets and liabilities:
Net receivables	(168		)	(203		)
Accounts receivable, net	(89		)	(45		)
Net inventories	(25		)	(22		)
Unbilled receivables, net	(203		)	(129		)
Income taxes receivable	—			50
Net inventories	12			(26		)
Accounts payable	(5837		)	3921
Contract loss reserve	(364		)	(2414		)
Contract advances and allowances	41			(18		)
Contract advances	(65		)	61
Accrued compensation	22(38		)	(731		)
Pension and postemployment benefits	4017			(812		)
Other assets and liabilities	~~(60~~11		)	(7063		)
Cash flows provided by operating activities	157			107
Cash flows used in operating activities	(237		)	(35		)
Investing Activities
Capital expenditures	(~~138~~71		)	(~~106~~43		)
Cash flows used in investing activities	(~~138~~71		)	(~~106~~43		)
Financing Activities
Borrowings on revolving credit facilities	~~450~~155			~~800~~180
Payments on revolving credit facilities	(~~450~~95		)	(~~665~~105		)
Payment of long-term debt	(3010		)	(3010		)
Purchase of treasury shares	(3211		)	(956		)
Dividends paid	(5518		)	(5318		)
Proceeds from employee stock compensation plans	17—			—4
Other	—			1
Cash flows provided by financing activities	21			45
Cash flows used in financing activities	(100		)	(42		)
Decrease in cash and cash equivalents	(287		)	(33		)
Decrease in cash and cash equivalents	(81		)	(41		)
Cash and cash equivalents at beginning of period	346			200
Cash and cash equivalents at beginning of period	200			104
Cash and cash equivalents at end of period	$	59		$	167
Cash and cash equivalents at end of period	$	119		$	63
Supplemental Cash Flow Disclosures
Noncash investing activity:
Capital expenditures included in accounts payable	$	56		$	41
Noncash financing activity:
Treasury shares purchased included in accounts payable	$	—		$	3

See Notes to the Condensed Consolidated Financial Statements.

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 - Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations and Basis of Presentation

The unaudited condensed consolidated financial statements of Orbital ATK, Inc. ("the Company" or "Orbital ATK") as set forth in this quarterly report have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States ("U.S. GAAP") can be condensed or omitted. The Company's accounting policies are described in the notes to the consolidated financial statements in its Form 10-K for the year ended December 31, ~~2016~~2017 ("Form 10-K") filed on ~~April~~February 2822, ~~2017~~2018 with the SEC.

In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature necessary for a fair presentation of the Company’s financial position as of ~~October~~April 1, ~~2017~~2018, its results of operations and comprehensive income for the quarters ~~and nine months~~ ended ~~October~~April 1, ~~2017~~2018 and ~~October~~April 2, ~~2016~~2017 and its cash flows for the ~~nine~~quarters ~~months~~ ended ~~October~~April 1, ~~2017~~2018 and ~~October~~April 2, ~~2016~~2017. The condensed consolidated balance sheet as of December 31, ~~2016~~2017 was derived from the audited financial statements included in the Form 10-K but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our condensed consolidated financial statements include, but are not limited to, accounting for sales and cost recognition, postretirement benefit plans, environmental receivables and liabilities, evaluation of goodwill and other assets for impairment, income taxes including deferred tax assets, fair value measurements and contingencies. Intercompany balances and transactions are eliminated in consolidation.

~~Sales,~~Certain ~~expenses,~~amounts ~~cash~~in ~~flows,~~the ~~assets~~prior ~~and~~year ~~liabilities~~financial ~~can~~statements ~~and~~have dobeen ~~vary~~reclassified ~~during~~to conform to the current year presentation. ~~Therefore,~~In ~~the~~connection ~~results~~with ~~and~~adopting ~~trends~~Accounting inStandards ~~these~~Codification ~~interim~~("ASC") ~~financial~~Topic ~~statements~~606, ~~may~~Revenue ~~not~~from beContracts with Customers ("ASC 606"), the ~~same~~Company asdisaggregated ~~those~~"Net ~~for~~receivables" ~~the~~into ~~full~~"Accounts ~~year.~~receivable, ~~These~~net" ~~unaudited~~and "Unbilled receivables, net" on the condensed consolidated ~~financial~~balance ~~statements~~sheets. ~~should~~On bethe ~~read~~condensed inconsolidated ~~conjunction~~statements ~~with~~of income, the ~~audited~~Company ~~consolidated~~separately ~~financial~~disclosed ~~statements~~"Non-service pension and ~~notes~~other ~~thereto~~postretirement ~~included~~benefit inexpense," which was previously aggregated within "Cost of sales," due to the ~~Company's~~adoption ~~Form~~of 10Accounting Standards Update ("ASU") 2017-K07 ~~for~~(see "Accounting Standards Updates Adopted" section below). Adopting this standard increased the ~~year~~quarter ended ~~December~~April 312, ~~2016.~~2017 "Gross profit" and "Operating Income" by $10 million with a corresponding $10 million increase to "Other Expense."

Sales, expenses, cash flows, assets and liabilities can and do vary during the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2017.

The Company's interim quarterly periods are based on 13-week periods and end on the Sunday closest to the last calendar day of each of March, June and September.

~~Change~~Summary Inof ~~Estimates~~Significant Accounting Policies

~~The~~As ~~majority~~a result of ~~our~~adopting ~~sales~~ASC ~~are from long-term contracts~~606, ~~which~~significant ~~are~~changes ~~accounted~~to ~~for using~~ the ~~percentage-of-completion~~Company's ~~method.~~revenue ~~Accounting~~recognition ~~for~~policy ~~contracts~~from ~~under~~ the ~~percentage-of-completion~~policy ~~method~~disclosed requires judgment relative to assessing risks and estimating contract revenues and costs. Profits expected to be realized on contracts are based on management’s estimates of total contract value and costs at completion. Changes in ~~estimates~~Note ~~of contract sales, costs or profits are recognized using the cumulative catch~~1-upSummary ~~method~~ of ~~accounting.~~Significant ~~The~~Accounting ~~cumulative~~Polices ~~effect of a change~~ in ~~estimate is recognized in~~ the ~~period~~Company’s aAnnual ~~change~~Report ~~in estimate occurs. The effect of the changes~~ on ~~future~~Form ~~periods~~10-K offor ~~contract performance is recognized as if~~ the ~~revised~~year ~~estimate~~ended ~~had~~December ~~been used since contract inception or~~31, in2017 ~~the~~are ~~case~~described ~~of contracts acquired in business combinations, from the date of acquisition~~below.

~~Changes~~Revenue 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, termination of commercial contracts in the event of a lack of end user demand, 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 results of operations. Generally, favorable changes in contract estimates recognized using the cumulative catch-up method of accounting represent margin improvement on programs where either estimated cost at completion was lower than previously Recognition

The unit of accounting for the Company’s contracts with customers is the performance obligation. A performance obligation reflects the distinct good(s) or service(s) that the Company must transfer to a customer. For proper

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~estimated~~revenue orrecognition, the Company must evaluate, at contract inception, if the contract should be accounted for as a ~~change~~single inperformance obligation or if the contract ~~scope~~contains onmultiple performance obligations. For a ~~program~~contract ~~caused~~to be considered as having multiple performance obligations, a ~~higher~~good ~~profit~~or ~~rate.~~service ~~Conversely~~(or a bundle of goods or services) must be both (1) capable of being distinct, that is the ~~unfavorable~~customer ~~changes~~can benefit from the good or service its own, and (2) the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. ~~estimates~~Otherwise ~~represent~~the ~~margin~~contract ~~declines~~is onconsidered ~~programs~~one ~~where~~performance ~~either~~obligation ~~estimated~~as ~~cost~~it atincludes ~~completion~~factors ~~was~~such ~~higher~~as ~~than~~the ~~previously~~Company ~~estimated~~provides or a ~~change~~service that is significantly integrated with other promises in the contract, ~~scope~~the good or service significantly modifies or customizes the other good or service or the good or service is highly interdependent or interrelated. If the contract has more than one performance obligation, the Company determines the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on atheir ~~program~~relative ~~caused~~standalone selling price, which is generally estimated using the cost plus a ~~lower~~margin ~~profit~~that ~~rate~~is appropriate for the distinct good or service.

~~Aggregate~~The ~~net~~transaction ~~changes~~price inof a contract, ~~estimates~~which ~~recognized~~typically ~~increased~~is ~~income~~comprised ~~before~~of ~~income~~fixed ~~taxes~~amounts and ~~noncontrolling~~variable ~~interest~~amounts, byis ~~approximately~~allocated ~~$45~~to ~~million~~each ~~($0.60~~performance ~~per~~obligation ~~diluted~~identified. ~~share)~~Contracts ~~for~~may ~~the~~contain ~~quarter~~types ~~ended~~of ~~October 1~~variable consideration, ~~2017~~such ~~and~~as $6provisions ~~million~~to ~~($0.08~~earn ~~per~~incentive ~~diluted~~and ~~share)~~award ~~for~~fees ~~the~~if ~~quarter~~specified ~~ended~~targets ~~October 2~~are achieved, ~~2016.~~penalty ~~Aggregate~~provisions ~~net~~related ~~changes~~to inperformance, ~~contract~~unfunded ~~estimates~~portions ~~recognized~~of ~~increased~~contracts ~~income~~and ~~before~~claims ~~income~~for ~~taxes~~amounts ~~and~~in ~~noncontrolling~~excess ~~interest~~of bythe ~~approximately~~agreed ~~$81~~upon ~~million~~contract ~~($1~~price.03 ~~per~~Variable ~~diluted~~consideration ~~share)~~that ~~for~~can ~~the~~be ~~nine~~reasonably ~~months~~estimated ~~ended~~based ~~October 1~~on relevant facts, ~~2017~~circumstances and ~~$92~~historical ~~million~~information ~~($1.16~~is ~~per~~included ~~diluted~~in ~~share)~~the ~~for~~transaction ~~the~~price ~~nine~~at ~~months~~the ~~ended~~inception ~~October 2,~~of ~~2016.~~the ~~Estimated~~contract ~~costs~~but limited to ~~complete~~the onamount ~~loss~~that ~~contracts~~is atprobable ~~October 1,~~that ~~2017~~a ~~and~~significant ~~December~~reversal ~~31,~~in ~~2016~~the ~~were~~amount ~~$967~~of ~~million~~cumulative ~~and~~revenue ~~$1,333~~recognized ~~million,~~will ~~respectively~~not occur. Variable consideration that cannot be reasonably estimated is recorded when awarded.

~~Accounting~~The ~~Standards~~majority ~~Updates~~of ~~Adopted~~the Company’s performance obligations are satisfied over time. For performance obligations satisfied over time, the objective is to measure progress in a manner which depicts the performance of transferring control to the customer. As such, the Company recognizes revenue over time using the percentage of completion cost-to-cost revenue recognition model, which includes cost-plus and fixed-price contracts, as this depicts when control of the promised goods or services are transferred to the customer. Under this revenue recognition model, sales are recognized as the ratio of actual costs of work performed to the estimated costs at completion of the performance obligation (“cost-to-cost”).

InRemaining ~~October~~Performance ~~2016,~~Obligations ~~the~~- ~~Financial~~as ~~Accounting~~of ~~Standards~~April ~~Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-17~~1, ~~Consolidation (Topic 810)~~2018, ~~Interests~~the ~~Held~~Company ~~through~~has ~~Related~~approximately ~~Parties That Are under Common Control ("ASU 2016-17")~~$9.4 ~~This~~billion ~~ASU~~of ~~amends~~remaining ~~the~~performance ~~consolidation guidance issued under ASU 2015-02~~obligations, ~~Consolidation~~also ~~(Topic~~referred ~~810) Amendments~~ to ~~the~~as ~~Consolidation~~firm ~~Analysis~~backlog, ~~for~~which ~~those~~excludes ~~entities~~unexercised ~~that~~contract ~~are~~options ~~the~~and ~~single~~potential ~~decision~~orders ~~maker~~under ofour aindefinite-delivery, ~~variable~~indefinite-quantity ~~interest entity~~ (~~"VIE"~~IDIQ) ~~such~~contracts. ~~that~~The aCompany ~~single~~expects ~~decision maker is not required to consider indirect interests held through related parties~~ that ~~are~~approximately ~~under~~50% ~~common~~of ~~control~~the ~~with~~April ~~the~~1, ~~single~~2018 ~~decision~~firm ~~maker~~backlog towill be ~~the~~recognized ~~equivalent~~as ofrevenue ~~direct~~over ~~interest~~the innext ~~their~~12 ~~entirety. Instead~~months, ~~they~~an ~~are~~additional ~~required~~33% toover ~~include~~the ~~those~~next ~~interests~~24 ~~on a proportionate basis consistent with indirect interests held through other related parties. The amendments in this ASU were effective for annual reporting periods beginning after December 15~~months, ~~2016,~~ and ~~interim periods within that reporting period. The adoption of this standard did not have a material impact on~~ the ~~Company’s~~balance ~~consolidated financial statements~~thereafter.

~~Accounting~~Under ~~Standards~~contracts ~~Updates~~with ~~Issued~~the ~~But~~U.S. ~~Not~~Government, ~~Yet~~the ~~Adopted~~Company is generally paid on actual costs incurred or on progress payments. For U.S. Government contracts billed on actual costs, the customer pays the Company up to 90% of the contract price based on contract performance or on the achievement of specified events or milestones. For contracts billed on progress payments, the customer pays the Company up to 80% of costs incurred as the work progresses. The remaining amounts are paid upon completion of the contract and satisfaction of all terms. The Company is paid for commercial contracts in a manner similar to contracts with the U.S. Government. Our business with U.S. commercial and international customers exposes the Company to credit risk that does not exist with U.S. Government customers.

InUnder ~~August~~contracts ~~2017,~~with the ~~FASB~~U.S. ~~issued ASU 2017-12~~Government, ~~Targeted~~if ~~Improvements~~a ~~to Accounting for Hedging Activities (“ASU 2017~~cost-~~12”).~~plus ~~The~~contract ~~ASU~~is ~~amends~~terminated ~~Accounting~~for ~~Standard Codification ("ASC") Topic 815~~convenience, ~~Derivatives~~the ~~and~~Company ~~Hedging,~~is inentitled ~~order~~ to ~~simplify~~reimbursement ~~hedge~~of ~~accounting~~our byapproved ~~better~~costs ~~aligning~~and anpayment ~~entity’s~~of ~~financial~~a ~~reporting~~total ~~for~~fee ~~hedging~~proportionate ~~relationships~~to ~~with its risk management activities. The ASU also simplifies~~ the ~~application~~percentage of the ~~hedge~~work ~~accounting~~completed ~~guidance~~under the contract. ~~ASU~~If ~~2017~~a fixed-12price contract is ~~effective~~terminated for ~~annual~~convenience, ~~periods~~the ~~beginning~~Company ~~after~~is ~~December~~entitled ~~15,~~to ~~2018,~~payment ~~and~~for ~~interim~~items ~~periods~~delivered ~~therein.~~to ~~The~~and ~~ASU~~accepted ~~will~~by bethe ~~applied~~U.S. ~~utilizing~~Government, aand ~~modified~~fair ~~retrospective~~compensation ~~approach~~for towork ~~existing~~performed ~~hedging~~plus ~~relationships~~the ascosts of ~~the~~settling ~~adoption~~and ~~date.~~paying ~~The~~claims ~~Company~~by ~~does~~terminated ~~not~~subcontractors, ~~expect~~other ~~the~~settlement ~~provisions~~expenses ofand ~~ASU 2017-12 to have~~ a ~~material~~reasonable ~~impact~~profit on the ~~Company's~~costs ~~consolidated~~incurred ~~financial~~or ~~position, results of operations and cash flows~~committed.

InThe ~~May~~Company ~~2017,~~may the FASB issued ASU 2017-09, Modification Accounting for Share-Based Payment Arrangements (“ASU 2017-09”), which identifies and provides guidance on the types of changes to share-based payment awards that an entity would be ~~required~~entitled to ~~apply~~receive ~~modification~~advance ~~accounting under ASU 2016-09, Stock Compensation (Topic 718)~~payments. ~~Specifically,~~The ancompany ~~entity~~recognizes ~~would~~a ~~not~~liability ~~apply~~for ~~modification~~these ~~accounting~~payments ifin ~~the~~excess ~~fair~~of ~~value,~~revenue ~~vesting~~recognized. ~~conditions~~The ~~and~~advance ~~classification~~payments oftypically ~~the~~do ~~awards~~not ~~are~~include ~~the~~a ~~same~~significant ~~immediately~~financing ~~before~~component ~~and~~because ~~after~~ the ~~modification.~~advance ~~ASU~~payments ~~2017-09~~are isgenerally ~~effective~~earned ~~for~~within ~~annual~~a ~~periods~~year ~~beginning after December 15, 2017~~ and ~~will~~the beintent ~~applied~~of ~~prospectively to awards modified on or after~~ the ~~effective~~payment ~~date.~~is ~~The Company does~~ not ~~expect~~to ~~the~~provide ~~provisions~~financing ~~of ASU 2017-09~~ to ~~have a material impact on~~ the ~~Company's consolidated financial position, results of operations and cash flows~~customer.

InAccounts ~~March 2017~~receivable, ~~the~~net ~~FASB issued ASU 2017~~-~~07,~~ ~~Improving~~represents ~~the~~amounts ~~Presentation~~billed ofas ~~Net~~work ~~Periodic~~progresses ~~Pension~~in ~~Cost~~accordance ~~and~~with ~~Net Periodic Postretirement Benefit Cost ("ASU 2017~~agreed-~~07").~~upon ~~The~~contractual ~~ASU amends ASC Topic 715~~terms, ~~Compensation—Retirement~~either ~~Benefits,~~at ~~to require employers that present a measure of operating income in their statement of income to include only the service cost component of net~~ periodic ~~pension~~intervals ~~costs and net periodic postretirement benefit cost in operating expenses~~(e. ~~The ASU also stipulates that only the service cost component of net benefit cost is eligible for capitalization~~g. ~~This guidance is effective for fiscal years beginning after December 15~~, ~~2017.~~biweekly ~~Early~~or ~~adoption~~monthly) ~~is permitted as of the beginning of an annual period for which financial statements have not been issued~~ or ~~made~~upon ~~available~~achievement ~~for issuance. Disclosures~~ of ~~the~~contractual nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption. The Company is currently evaluating the provisions of ASU 2017-07 and its impact on the Company's consolidated financial position, results of operations and cash flows.

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~December~~milestones. ~~15,~~The ~~2018.~~Company ~~Early~~records ~~adoption~~an isallowance ~~permitted. An~~for ~~entity~~doubtful ~~should~~accounts, ~~apply~~reducing the ~~amendments~~accounts inreceivable ~~ASU~~balance ~~2017-06 retrospectively~~ to ~~each~~an ~~period~~amount ~~for~~the ~~which~~Company ~~financial~~estimates ~~statements~~is ~~are~~collectible ~~presented~~from customers. ~~The~~Estimates ~~Company~~used ~~does~~in ~~not~~determining ~~expect~~ the ~~provisions~~allowance offor ~~ASU~~doubtful ~~2017-06~~accounts toare ~~have~~based aon ~~material~~current ~~impact~~trends, onaging ~~the~~of ~~Company's~~accounts ~~consolidated~~receivable, ~~financial~~periodic ~~position,~~credit ~~results~~evaluations of ~~operations~~customers’ financial conditions and ~~cash~~historical ~~flows~~collection experience.

Unbilled receivables, net - represents the balance of recoverable costs and accrued profit, comprised principally of revenue recognized on contracts for which billings have not been presented to the customer because the amounts were earned but not contractually billable at the balance sheet date. These amounts include expected additional billable general overhead costs, fees on flexibly-priced contracts awaiting final rate negotiations, retainage and milestone billings (see Note 5-Contract Assets and Liabilities).

Contract advances - Contract advances represent payments received in excess of revenue recognized and upfront payments received from our customers (see Note 5-Contract Assets and Liabilities).

Accounting Standards Updates Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

Effective January 1, 2018, the Company adopted the requirements of the standard using the modified retrospective method in which the cumulative effect of applying the standard was recognized at the date of initial application for active contracts as of January 1, 2018. The prior periods have not been restated and continue to be reported under the accounting standards in effect for those periods.

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 was as follows (in millions):



	Balance at December 31, 2017		Adjustments due to ASC 606 adoption			Balance at January 1, 2018
Assets
Unbilled receivables, net	$	1,643	$	(482	)	$	1,161
Net inventories	$	221	$	42		$	263
Other current assets	$	82	$	121		$	203
Deferred income taxes	$	155	$	80		$	235
Other noncurrent assets	$	142	$	(12	)	$	130
Liabilities
Contract loss reserve	$	152	$	(2	)	$	150
Equity
Retained earnings	$	1,502	$	(249	)	$	1,253

The effect of adopting ASC 606 on the Company's financial statements for the quarter ended April 1, 2018 primarily related to an increase in the number of performance obligations resulting from the terms and conditions in certain of the Company's contracts with its customers. The increase in the number of performance obligations resulted in timing differences of when revenue will be recognized under ASC 606 compared to prior guidance. The significant cumulative decrease in unbilled receivables, net and retained earnings was due to this revenue recognition timing difference. The impact of adopting ASC 606 on the Company’s condensed consolidated statement of income and the condensed consolidated balance sheet for the period ended April 1, 2018 was as follows (in millions):

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



	Quarter ended April 1, 2018
	As Reported		Balances without adoption of ASC 606		Effect of Change
	As Reported		Balances without adoption of ASC 606		Higher/(Lower)
Income statement
Sales	$	1,312	$	1,278	$	34
Cost of sales	$	1,022	$	992	$	30
Income taxes	$	21	$	20	$	1
Net income	$	101	$	98	$	3
Diluted EPS	$	1.74	$	1.68	$	0.06



	April 1, 2018
			Balances without adoption of ASC 606		Effect of Change
	As Reported		Balances without adoption of ASC 606		Higher/(Lower)
Balance Sheet
Assets
Unbilled receivables, net	$	1,364	$	1,820	$	(456	)
Net inventories	$	248	$	229	$	19
Other current assets	$	173	$	59	$	114
Deferred income taxes	$	222	$	142	$	80
Other noncurrent assets	$	128	$	139	$	(11	)
Liabilities
Contract loss reserve	$	145	$	147	$	(2	)
Other current liabilities	$	573	$	572	$	1
Equity
Retained earnings	$	1,335	$	1,588	$	(253	)

During 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) ("ASU 2016-15"), Classification of Certain Cash Receipts and Cash Payments and ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. These ASUs clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows and requires that the statement of cash flows explain the change during the period in the total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. These standards were adopted on January 1, 2018, with ASU 2016-15 being adopted retrospectively, and did not have a material impact on the Company's consolidated statement of cash flows.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). The ASU amends ASC Topic 715, Compensation—Retirement Benefits, to require employers that present a measure of operating income in their statement of income to include only the service cost component of net periodic pension costs and net periodic postretirement benefit cost in operating expenses. The ASU also stipulates that only the service cost component of net benefit cost is eligible for capitalization. This guidance was effective for fiscal years beginning after December 15, 2017. The adoption of ASU 2017-07 on January 1, 2018, using the retrospective method, did not have a material impact on the Company's results of operations.

In May 2017, the FASB issued ASU 2017-09, Modification Accounting for Share-Based Payment Arrangements (“ASU 2017-09”), which identifies and provides guidance on the types of changes to share-based payment awards that an entity would be required to apply modification accounting under ASU 2016-09, Stock Compensation (Topic 718). Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. ASU 2017-09 was effective

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

for annual periods beginning after December 15, 2017. The Company will apply this standard prospectively to awards modified on or after January 1, 2018.

Accounting Standards Updates Issued But Not Yet Adopted

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). The ASU allows entities to reclassify certain “stranded tax effects” resulting from the Tax Cuts and Jobs Act (the "Tax Act") from accumulated other comprehensive income (“AOCI”) to retained earnings. Under existing guidance in ASC 740, Income Taxes, adjustments to deferred tax assets and liabilities resulting from a change in tax laws or rates occur within the period that the enactment of these changes occur and any adjustments are included in income from continuing operations. Deferred income taxes originally recognized through other comprehensive income were initially measured at the previous income tax rate resulting in a disproportionate tax balance remaining in AOCI from recognizing the tax rate adjustments from the Tax Act in income from continuing operations (i.e., “stranded tax effects”). ASU 2018-02 is effective for all entities in fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. Entities are required to disclose in the period of adoption their accounting policy for releasing stranded tax effects from AOCI, whether they have elected to reclassify to retained earnings the stranded tax effects related to the Tax Act and describe the other income tax effects from the Tax Act that are reclassified to retained earnings other than those arising from the change in the federal corporate income tax rate. Entities have the option to record the reclassification either retrospectively to each period in which the income tax effects of tax reform are recognized, or at the beginning of the annual or interim period in which the amendments are adopted. The Company is currently evaluating the potential changes from this ASU on the Company's consolidated financial position, results of operations and cash flows.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). The ASU amends ASC Topic 815, Derivatives and Hedging, in order to simplify hedge accounting by better aligning an entity’s financial reporting for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accounting guidance. ASU 2017-12 is effective for annual periods beginning after December 15, 2018, and interim periods therein. The ASU will be applied utilizing a modified retrospective approach to existing hedging relationships as of the adoption date. The Company does not expect the provisions of ASU 2017-12 to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In February 2017, the FASB issued ASU 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965), Employee Benefit Plan Master Trust Reporting (“ASU 2017-06”). The ASU relates primarily to the reporting by an employee benefit plan for its interest in a master trust. The amendments in ASU 2017-06 are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. An entity should apply the amendments in ASU 2017-06 retrospectively to each period for which financial statements are presented. The Company does not expect the provisions of ASU 2017-06 to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment test. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, versus determining an implied fair value in Step 2 to measure the impairment loss. ASU 2017-04 is effective for annual periods beginning after December 15, 2019. The Company does not expect the provisions of ASU 2017-04 to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires recognition of lease assets and lease liabilities for those leases classified as operating leases under previous U.S. GAAP. The new standard is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company currently is evaluating the potential changes from this ASU to its future financial reporting and disclosures.

InOther ~~May~~new ~~2014,~~pronouncements ~~the FASB~~ issued ~~ASU~~but ~~2014-09,~~not ~~Revenue~~effective from Contracts with Customers (Topic 606), which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for ~~recognizing revenue from contracts with customers. In July 2015,~~ the ~~FASB~~Company ~~approved~~until ~~the deferral of the new standard's effective date by one year. The new standard will now be effective for annual reporting periods beginning~~ after ~~December~~April 151, ~~2017.~~2018 ~~The~~are ~~core~~not ~~principle~~expected ofto ~~the~~have ~~new standard is that~~ a ~~Company~~material ~~should~~impact ~~recognize~~on ~~revenue to depict~~ the ~~transfer of promised goods or services to customers in an amount that reflects the consideration to which the~~ Company's ~~expects~~continuing tofinancial ~~be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are the full retrospective method~~position, inresults ~~which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect~~ of ~~applying~~operations ~~the~~and ~~standard~~cash ~~would be recognized at the date of initial application~~flows.

The Company will adopt the standard on January 1, 2018 and apply the modified retrospective method. The Company has substantially completed its analysis of ASU 2014-09, and the associated impact on the Company's business processes, systems and internal controls. As part of this analysis, the Company compared existing policies and procedures to the requirements of the standard and is preparing modifications to ensure appropriate application of the standard. Additionally, the Company is in the process of designing and implementing specific controls over the adoption of the new standard. The Company does not expect significant changes to current controls, however it is reviewing modifications to policies and procedures to ensure all changes are incorporated consistently. The Company is continuing its assessment of the quantitative impact of adopting ASU 2014-09 and expecting to disclose the impact in its 2017 Annual Report on Form 10-K. One area of anticipated change relates to the determination of performance obligations in a contract. The determination of the number of performance obligations could alter the timing of revenue recognition for certain contracts in the Company’s portfolio. In addition, the Company anticipates expanded disclosures related to revenues and contracts with customers as required by ASU 2014-09.

Under ASU 2014-09, revenue is recognized as the Company satisfies a performance obligation by transferring control to the customer. For performance obligations satisfied over time, the objective is to measure progress in a manner which depicts the performance of transferring control to the customer. As such, the Company expects contract revenue will generally be recognized over time using a cost incurred input measure. This is consistent with the percentage of completion cost-to-cost revenue recognition model currently used for the majority of the Company’s contracts.

Other new pronouncements issued but not effective for the Company until after October 1, 2017 are not expected to have a material impact on the Company's continuing financial position, results of operations and cash flows.

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 2 - Merger

On September 17, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Northrop Grumman Corporation (“Northrop Grumman”) and Neptune Merger, Inc., a wholly owned subsidiary of Northrop Grumman (“Sub”), under which Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Northrop Grumman (the “Merger”).

Upon the closing of the Merger, each outstanding share of Company common stock, other than shares owned by the Company, Northrop Grumman or Sub (which will be canceled) and appraisal shares, will automatically be converted into the right to receive $134.50 in cash, without interest and less any applicable withholding taxes.

The stockholders of the Company ~~will~~voted ~~vote~~in onfavor ~~the approval~~ of approving the Merger Agreement at a special meeting ~~currently scheduled to be~~ held on November 29, 2017. ~~Closing~~The isCompany ~~expected~~received toa ~~occur~~request ~~during~~for additional information from the ~~first~~Federal ~~half~~Trade ofCommission ~~2018~~("FTC") on December 6, 2017. Closing remains subject to customary closing conditions, including ~~the~~obtaining ~~stockholder~~required ~~vote~~regulatory approvals and ~~obtaining~~is ~~required~~expected ~~regulatory~~to ~~approvals~~occur during the first half of 2018.

Note 3 - 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 the Company to measure its financial instruments at fair value.

Derivative financial instruments and hedging activities — In order to manage its exposure to commodity pricing, foreign currency risk and interest rate risk on debt, the Company periodically utilizes commodity, foreign currency and interest rate derivatives, which are considered Level 2 instruments. As discussed further in Note 4-Derivative Financial Instruments, the Company 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. The Company currently holds one interest rate swap with a total notional value of $100 million. These swaps are valued based on future LIBOR rates and the established fixed rate is based primarily on quotes from banks. Foreign currency derivatives are valued based on observable market transactions of spot currency rates and forward currency prices.

InLong-term ~~order~~Debt to— ~~manage~~The ~~its~~fair ~~exposure~~value toof ~~commodity pricing, foreign currency risk and interest rate risk on debt,~~ the ~~Company~~variable ~~periodically utilizes commodity, foreign currency and interest~~ rate ~~derivatives, which are considered Level 2 instruments. As discussed further in Note 4~~ long-term ~~Derivative~~debt ~~Financial~~is ~~Instruments,~~calculated ~~the~~based ~~Company~~on ~~has~~current ~~outstanding~~market ~~commodity~~rates ~~forward~~for ~~contracts~~debt ~~that were entered into to hedge forecasted purchases~~ of ~~copper~~the ~~and~~same ~~zinc,~~risk 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~~maturities. The ~~Company~~fair ~~currently holds two interest rate swaps with a total notional~~ value of ~~$150 million. These swaps are valued based on future LIBOR rates and~~ the ~~established~~ fixed rate debt is based ~~primarily~~ on market quotes ~~from~~for ~~banks~~each issuance. ~~Foreign~~The ~~currency~~Company ~~derivatives~~considers ~~are~~these ~~valued~~to ~~based~~be onLevel 2 ~~observable market transactions of spot currency rates and forward currency prices~~instruments.

The carrying amounts of the Company’s financial instruments, other than derivatives, which include accounts receivable, net, unbilled receivables, net, inventory, accounts payable, accrued liabilities and other current assets and liabilities, are reasonable estimates of their related fair values. ~~The~~due ~~fair~~to ~~value of~~ the ~~variable-rate~~short ~~long-term~~maturity ~~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. The Company considers~~ these ~~to be Level 2~~ instruments.

The Company’s non-financial instruments measured at fair value on a non-recurring basis include goodwill, indefinite-lived intangible assets and long-lived tangible assets. The valuation methods used to determine fair value require a significant degree of management judgment to determine the key assumptions. As such, the Company

911

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

generally classifies non-financial instruments as either Level 2 or Level 3 fair value measurements. At ~~October~~April 1, ~~2017~~2018 and December 31, ~~2016~~2017, the Company did not have any non-financial instruments measured at fair value on a non-recurring basis.

Recorded carrying amount and fair value of debt was as follows (in millions):

October 1, 2017

December 31, 2016

April 1, 2018

December 31, 2017

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Fixed-rate debt

700

~~739~~727

700

~~727~~732

Variable-rate debt

~~720~~760

~~716~~756

~~750~~710

~~746~~706

Investments in marketable securities

The Company has investments in marketable securities held in a common collective trust ("CCT") that are primarily fixed income securities 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, as determined by the investee company, with the number of units or shares owned at the valuation date. 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 of its liabilities and dividing the resulting number 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, not subject to leveling, is included within other noncurrent assets on the Company's consolidated balance sheet. The fair value of these securities is measured on a recurring basis and was $14 million as of ~~October~~April 1, ~~2017~~2018 and $1315 million as of December 31, ~~2016~~2017.

Note 4 - Derivative Financial Instruments

The Company 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.

Cash Flow Hedges

The Company periodically uses interest rate swaps to hedge forecasted interest payments and the risk associated with variable interest rates on long-term debt.

The Company entered into interest rate swaps during fiscal 2014 requiring fixed rate payments on a total notional amount of $400 million, of which $~~150~~100 million remains outstanding, and receives one-month LIBOR. The fair value of interest rate swap agreements approximates the amount at which they could be settled, based on future LIBOR, and the established fixed rate is based primarily on quotes from banks.

Interest rate swap agreements entered into to manage interest costs and risk associated with variable interest rates outstanding at April 1, 2018 were as follows (in millions):

	Notional		Fair Value		Pay Fixed		Receive Floating		Maturity Date
Non-amortizing swap	$	100	$	—	1.69	%	1.2488	%	August 2018
Non-amortizing swap	$	50	$	—	1.10	%	1.24	%	November 2017

The amount to be paid or received under these swaps is recorded as an adjustment to interest expense.

~~The~~At ~~counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at October~~April 1, ~~2017~~2018, the outstanding swap agreements were in a net ~~liability~~asset position which would ~~require~~have the Company toreceive ~~make~~a ~~the~~ net settlement ~~payments~~receipt tofrom the counterparties if the agreements were settled as of that date. ~~The Company does not anticipate nonperformance by the Company's counterparties and does not hold or issue derivative financial instruments for trading purposes.~~

10Commodity forward contracts are periodically used to hedge forecasted purchases of certain commodities. 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.

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Commodity forward contracts ~~are~~outstanding ~~periodically~~that ~~used to~~ hedge forecasted ~~purchases of certain commodities. The contracts essentially establish a fixed price for the underlying~~ commodity ~~and are designated and qualify as effective cash flow hedges of~~ purchases ofwere ~~the commodity. Ineffectiveness is calculated~~ as ~~the~~follows ~~amount by which the change~~ (in ~~the fair value of the derivatives exceeds the change in the fair value of the anticipated commodity purchases.~~millions):

Outstanding commodity forward contracts that hedge forecasted commodity purchases were as follows (in millions):



		Number of Pounds
Copper		22
Zinc		8

		Number of Pounds
Copper		17
Zinc		6

The gains or losses on the commodity forward contracts are recorded in inventory as the commodities are purchased and in cost of sales when the related inventory is sold.

Due to the customer contract requirements, the benefits associated with the commodity contracts may be passed on to the customer and not realized by the Company.

The Company enters into foreign currency forward contracts to hedge forecasted transactions, denominated in foreign currencies. These transactions qualify as effective cash flow hedges and are designated as such.

Ineffectiveness with respect to forecasted transactions is calculated based on changes in the forward rate until the anticipated purchase or cash receipt occurs; ineffectiveness of the hedge of the accounts payable is evaluated based on the change in fair value of its anticipated settlement.

~~Outstanding~~Foreign ~~foreign~~ currency forward contracts outstanding were as follows (in millions of Euros):

	Quantity Hedged
Euros sold	16€	2
Euros purchased	5225

The gains or losses on the ~~commodity forward contracts are recorded in inventory as the commodities are purchased and in cost of sales when the related inventory is sold. The gains or losses on the~~ foreign currency forward contracts are recorded in earnings when the related inventory is sold or customer cash receipts are received. The fair values of the commodity and foreign currency forward contracts are recorded in other assets or liabilities, as appropriate, and the effective portion is reflected in accumulated other comprehensive income (loss) in the financial statements.

The fair values of the commodity and foreign currency forward contracts are recorded in other assets or liabilities, as appropriate, and the effective portion is reflected in accumulated other comprehensive income (loss) in the financial statements. Fair values in the condensed consolidated balance sheets related to derivative instruments designated as hedging instruments were as follows (in millions):

	Asset DerivativesFair Value				Liability DerivativesFair Value
	October 1, 2017		December 31, 2016		October 1, 2017		December 31, 2016
	April 1, 2018		December 31, 2017		April 1, 2018		December 31, 2017
Commodity forward contracts(1)	$	72	$	511	$	—2	$	—
Foreign currency forward contracts(1)	31		32		12		—2
Foreign currency forward contracts(2)	—		1		1		—
Commodity forward contracts(2)	—		—		2		—
Interest rate swap contracts(2)	—		—		—		1
Total	$	3	$	13	$	6	$	2
Total	$	10	$	9	$	2	$	1

____________________________________________________________

⁽¹⁾ Location - Other current assets/Other current liabilities

⁽²⁾Location - Other noncurrent assets/Other noncurrent liabilities

11Gains and (losses) reclassified from Accumulated Other Comprehensive Loss to the condensed consolidated statements of comprehensive income related to derivative instruments were as follows (in millions):



		Quarters Ended
	Location	April 1, 2018		April 2, 2017
Commodity forward contracts	Cost of sales	$	4	$	(2	)
Foreign currency contracts	Cost of sales	$	1	$	—

The Company expects the remaining unrealized losses will be realized and reported in cost of sales or interest expense depending on the type of contract consistent with realized gains and losses noted in the table above. Estimated and actual gains or losses will change as market prices change.

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Gains and (losses) reclassified from Accumulated Other Comprehensive Loss to the condensed consolidated statements of comprehensive income related to derivative instruments were as follows (in millions):

		Quarters Ended
	Location	October 1, 2017			October 2, 2016
Commodity forward contracts	Cost of sales	$	—		$	—
Interest rate contracts	Interest expense	$	—		$	(1	)
Foreign currency contracts	Cost of sales	$	(2	)	$	—
		Nine Months Ended
	Location	October 1, 2017			October 2, 2016
Commodity forward contracts	Cost of sales	$	(3	)	$	(4	)
Interest rate contracts	Interest expense	$	1		$	(2	)
Foreign currency contracts	Cost of sales	$	(2	)	$	—

The Company performs assessments of the effectiveness of hedge instruments on a quarterly basis and determined the hedges to be highly effective.

There was no ineffective portion of derivative instruments and no derivatives were excluded from effectiveness testing during the ~~quarter~~quarters ~~and nine months~~ ended ~~October~~April 1, ~~2017~~2018 and ~~October~~April 2, ~~2016~~2017; accordingly, the Company did not recognize any related gains or losses in the income statement.

All derivatives used by the Company during the periods presented were designated as hedging instruments for accounting purposes. The Company does not anticipate nonperformance by the Company's counterparties and does not hold or issue derivative financial instruments for trading purposes. However, the counterparties to the derivative agreements expose the Company to credit risk in the event of nonperformance.

Note 5 - ~~Accumulated~~Contract ~~Other~~Assets ~~Comprehensive~~and ~~Loss~~Contract Liabilities

~~The~~Contract ~~following~~assets ~~table~~consist ~~summarizes~~of unbilled receivables, net, which represent the ~~components~~balance of ~~Accumulated~~recoverable ~~Other~~costs ~~Comprehensive~~and ~~Loss~~accrued profit, ~~net~~comprised principally of ~~income~~revenue ~~taxes~~recognized (on contracts for which billings have not been presented to the customer. Progress payments received from customers relating to the uncompleted portions of contracts are offset at the contract level against unbilled receivable balances or applicable inventories. Any remaining progress payment balances in ~~millions):~~excess of revenue recognized, as well as advance payments received from customers, are classified as contract liabilities on the consolidated balance sheet in the financial statement line item titled "Contract advances."

	October 1, 2017			December 31, 2016
Derivatives	$	5		$	5
Pension and other postretirement benefits	(721		)	(771		)
Available-for-sale securities	2			2
Total Accumulated Other Comprehensive Loss	$	(714	)	$	(764	)

Contract assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Contract assets and liabilities consisted of the following (in millions):



	April 1, 2018			December 31, 2017			$ Change			% Change
Unbilled receivables, net	$	1,364		$	1,643		$	(279	)	(17	)%
Contract advances	(271		)	(330		)	59			(18	)%
Net contract assets (liabilities)	$	1,093		$	1,313		$	(220	)	(17	)%

Revenue recognized during the quarter ended April 1, 2018 on contract advances from the prior year was $137 million.

As discussed in Note 1, the balance of unbilled receivables, net was reduced by $482 million on January 1, 2018 due to the adoption of ASC 606. The remaining change in the balance of unbilled receivables, net as well as the change in contract advances during the quarter ended April 1, 2018 was due to the Company's performance under its contracts coupled with the timing of achieving milestones and related billings on our contracts.

Note 6 - Net Inventories

Net inventories consisted of the following (in millions):

	October 1, 2017		December 31, 2016
	April 1, 2018		December 31, 2017
Raw materials	$	~~149~~144	$	9389
Work / contracts in process	9479		~~121~~113
Finished goods	2425		119
Net inventories	$	~~267~~248	$	~~215~~221

1214

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 7 - ~~Postretirement~~Accumulated ~~Plans~~Other Comprehensive Loss

The ~~components~~following oftable ~~net~~summarizes ~~periodic~~the ~~benefit~~components ~~cost~~of ~~for~~Accumulated ~~pension~~Other ~~benefits~~Comprehensive ~~were~~Loss, asnet ~~follows~~of income taxes (in millions):

	Quarters Ended						Nine Months Ended
	April 1, 2018			December 31, 2017
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Derivatives	$	(4	)	$	7
Service cost	$	5		$	5		$	13		$	14
Pension and other postretirement benefits	(766		)	(789		)
Interest cost	24			25			73			76
Available-for-sale securities	2			2
Expected return on plan assets	(39		)	(41		)	(118		)	(122		)
Total Accumulated Other Comprehensive Loss	$	(768	)	$	(780	)
Amortization of unrecognized net loss (1)	32			31			98			94
Amortization of unrecognized prior service cost (1)	(5		)	(5		)	(15		)	(16		)
Net periodic benefit cost	17			15			51			46
Special termination benefit cost / curtailment	—			—			—			2
Net periodic benefit cost	$	17		$	15		$	51		$	48

____________________________________________________________

(1) Amounts related to pension and other postemployment benefits that were reclassified from Accumulated Other Comprehensive Loss and recorded as a component of net periodic benefit cost for each period presented

During the nine months ended October 2, 2016, the Company recorded a settlement expense of $2 million to recognize the impact of lump sum benefit payments made in the nonqualified supplemental executive retirement plan.

The components of net periodic benefit income for other postretirement benefits were as follows (in millions):

	Quarters Ended						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Interest cost	$	—		$	1		$	1		$	3
Expected return on plan assets	—			(1		)	(2		)	(3		)
Amortization of unrecognized net loss (1)	—			—			1			1
Amortization of unrecognized prior service cost (1)	(2		)	(1		)	(5		)	(4		)
Net periodic benefit income	$	(2	)	$	(1	)	$	(5	)	$	(3	)

____________________________________________________________

(1) Amounts related to pension and other postretirement benefits that were reclassified from Accumulated Other Comprehensive Loss and recorded as a component of net periodic benefit cost for each period presented

Effective January 1, 2016, the Company changed the approach used to measure service and interest costs for pension and other postretirement benefits. Prior to January 1, 2016, the Company measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Beginning January 1, 2016, the Company has elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans' liability cash flows.

Employer Contributions/Payments

During the nine months ended October 1, 2017, the Company made benefit payments of $3 million to retirees in connection with its nonqualified supplemental executive retirement plan and $2 million to retirees in connection with its other postretirement benefit plans. During the nine months ended October 1, 2017, the Company made $3 million of contributions to the pension trust and no contributions to the postretirement benefit plans.

During the remainder of 2017, the Company is required to make an additional pension benefit contribution of $22 million in order to meet the minimum required contributions for 2017. The Company anticipates making no contributions to the postretirement benefit plans. In addition, the Company anticipates making benefit payments of

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

approximately $1 million to retirees under the nonqualified plan and $2 million to retirees in connection with its other postretirement benefit plans during the remainder of 2017.

During the quarter ended October 2, 2016, the Company amended its retiree health care plan to provide coverage through a private exchange effective January 1, 2017. The exchange offers the retiree a broad choice of health care plans from which to choose. The Company contributes fixed payments to a Health Retirement Account ("HRA"), when applicable, for those retirees who previously had subsidized health care coverage through the Company. The Company's contributions to the HRAs are retirees' funds to be spent on qualified health care premiums and eligible out-of-pocket expenses. The plan amendment caused a remeasurement that increased the Company's funded status as of October 2, 2016 by $37 million and will reduce expenses recorded in future periods.

Note 8 - Long-term Debt

Long-term debt consisted of the following (in millions):

	October 1, 2017		December 31, 2016
	April 1, 2018		December 31, 2017
Senior Credit Facility:
Term Loan A due 2020	$	~~720~~700	$	~~750~~710
Revolving Credit Facility due 2020	—60		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,~~420~~460		1,~~450~~410
Unamortized debt issuance costs:
Senior Credit Facility	4		54
5.25% Senior Notes due 2021	1		21
5.50% Senior Notes due 2023	54		54
Unamortized debt issuance costs	109		129
Long-term debt less unamortized debt issuance costs	1,~~410~~451		1,~~438~~401
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,~~370~~411	$	1,~~398~~361

Senior Credit Facility

InThe ~~September 2015, the~~ Company ~~refinanced~~has ~~its former senior credit facility with~~ a ~~new~~ senior credit facility (the "Senior Credit Facility"), which is comprised of a term loan of $800 million (the "Term Loan A") and a revolving credit facility of $1 billion (the "Revolving Credit Facility"), both of which mature in September 2020. The Term Loan A is subject to quarterly principal payments of $10 million, with the remaining balance due at maturity. Borrowings under the Senior Credit Facility bear interest at a per annum rate equal to either the sum of a base rate plus a margin or the sum of a LIBOR rate plus a margin. Each margin is based on the Company's total leverage ratio. In compliance with the terms of the Senior Credit Facility, the current base rate margin is 0.25% and the current LIBOR margin is 1.25%. The weighted-average interest rate for the Term Loan A, after taking into account the interest rate swaps, was 23.5410% at ~~October~~April 1, ~~2017~~2018. The Company pays a quarterly commitment fee on the unused portion of the Revolving Credit Facility based on its total leverage ratio. Based on the Company's current total leverage ratio, this fee is currently 0.20%. As of ~~October~~April 1, ~~2017~~2018, the Company had no$60 million in borrowings under the Revolving Credit Facility and had outstanding letters of credit of $~~181~~248 million, which reduced amounts available on the Revolving Credit Facility to $~~819~~692 million.

5.25% Senior Notes

In fiscal 2014, the Company issued $300 million aggregate principal amount of 5.25% Senior Notes (the "5.25% Notes") that mature on October 1, 2021. Interest on these notes is payable on April 1 and October 1 of each year. The Company has the right to redeem some or all of these notes from time to time on or after October 1, 2016, at specified redemption prices.

1415

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

5.50% Senior Notes

In September 2015, the Company issued $400 million aggregate principal amount of 5.50% Senior Notes (the "5.50% Notes") that mature on October 1, 2023. Interest on these notes is payable on April 1 and October 1 of each year. The Company has the right to redeem some or all of these notes from time to time on or after October 1, 2018, at specified redemption prices.

Interest Rate Swaps

As of ~~October~~April 1, ~~2017~~2018, the Company had interest rate swap agreements in order to manage interest costs and the risk associated with variable interest rates - see Note 4 - Derivative Financial Instruments.

Rank and Guarantees

The 5.25% Notes and the 5.50% Notes are the Company's general unsecured and unsubordinated obligations and rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness, rank senior in right of payment to all of the Company's existing and future subordinated indebtedness and are effectively subordinated to all existing and future senior secured indebtedness, including the Senior Credit Facility, to the extent of the collateral. The 5.25% Notes and the 5.50% Notes are guaranteed on an unsecured basis, jointly and severally and fully and unconditionally, by substantially all of the Company's domestic subsidiaries. The Senior Credit Facility obligations are guaranteed on a secured basis, jointly and severally and fully and unconditionally, by substantially all of the Company's domestic subsidiaries. All of these guarantor subsidiaries are 100% owned by the Company. The Company, exclusive of these guarantor subsidiaries, has no independent operations or material assets.

Scheduled Minimum Loan Payments

The scheduled minimum loan payments on outstanding long-term debt are as follows (in millions):

Remainder of 2017	$	10
Remainder of 2018	$	30
2018	40
2019	40
2020	~~630~~690
2021	300
2022	—
Thereafter	400
Total	$	1,~~420~~460

Covenants and Default Provisions

The Company's Senior Credit Facility and the indentures governing the 5.25% Notes and the 5.50% Notes impose restrictions on the Company, 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 the Company's ability to enter into sale-and-leaseback transactions. The Senior Credit Facility also requires the Company to meet and maintain specified financial ratios, including a minimum interest coverage ratio and a maximum consolidated total leverage ratio. The Company's debt agreements contain cross-default provisions so that noncompliance with the covenants within one debt agreement that would give rise to the right to accelerate repayment of any outstanding indebtedness could cause a default under other debt agreements as well. The Company'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 Company is in compliance with its credit agreement covenants as of ~~October~~April 1, ~~2017~~2018.

1516

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 9 - ~~Income Taxes~~Revenue

Orbital ATK is an aerospace and defense systems company and supplier of related products to the U.S. Government, allied nations, prime contractors and subcontractors, and other customers. Our main products include launch vehicles and related propulsion systems; satellites and associated components and services; composite aerospace structures; tactical missiles, subsystems and defense electronics; and precision weapons, armament systems and ammunition. See Note 15-Operating Segment Information for further information on the Company’s operating segments and their nature of operations. Substantially all of the Company’s sales are accounted for as long-term contracts.

The following series of tables presents the Company’s sales from contracts with customers disaggregated by several categories which best represents how the nature, amount and timing and uncertainty of sales are affected by economic factors.

Sales by customer was as follows (in millions):



	Quarter Ended April 1, 2018
	Flight Systems Group		Defense Systems Group		Space Systems Group		Total		Percent of Sales
U.S. Government:
DoD ⁽¹⁾	$	245	$	357	$	139	$	741	56	%
NASA ⁽¹⁾	135		7		101		243		19	%
U.S. Government Total	380		364		240		984		75	%
International	61		125		28		214		16	%
U.S. Commercial and Other	38		66		10		114		9	%
Total	$	479	$	555	$	278	$	1,312	100	%

⁽¹⁾The U.S. Department of Defense is defined as "DoD" and the National Aeronautics and Space Administration is defined as "NASA"



	Quarter Ended April 2, 2017
	Flight Systems Group		Defense Systems Group		Space Systems Group		Total		Percent of Sales
U.S. Government:
DoD	$	189	$	280	$	94	$	563	52	%
NASA	124		6		136		266		25	%
U.S. Government Total	313		286		230		829		77	%
International	28		107		30		165		15	%
U.S. Commercial and Other	27		53		11		91		8	%
Total	$	368	$	446	$	271	$	1,085	100	%

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Sales by region was as follows (in millions):



	Quarter Ended April 1, 2018
	Flight Systems Group		Defense Systems Group		Space Systems Group		Total
United States	$	418	$	430	$	250	$	1,098
Europe	61		14		26		101
Middle East	—		66		—		66
Asia/Pacific	—		45		1		46
Other	—		—		1		1
Total	$	479	$	555	$	278	$	1,312



	Quarter Ended April 2, 2017
	Flight Systems Group		Defense Systems Group		Space Systems Group		Total
United States	$	340	$	339	$	241	$	920
Europe	28		13		24		65
Middle East	—		72		4		76
Asia/Pacific	—		19		1		20
Other	—		3		1		4
Total	$	368	$	446	$	271	$	1,085

Sales by contract type was as follows (in millions):



	Quarter Ended April 1, 2018
		Flight Systems Group		Defense Systems Group		Space Systems Group		Total
Fixed-priced Contracts		$	254	$	493	$	161	$	908
Cost-plus Contracts		225		62		117		404
Total		$	479	$	555	$	278	$	1,312



	Quarter Ended April 2, 2017
		Flight Systems Group		Defense Systems Group		Space Systems Group		Total
Fixed-priced Contracts		$	202	$	396	$	186	$	784
Cost-plus Contracts		166		50		85		301
Total		$	368	$	446	$	271	$	1,085

Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. Estimated amounts for contract changes, including scope and claims, are included in transaction price only when realization is estimated to be probable. The effect of a contract modification on the transaction price and the Company’s measure of progress for the

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

Profits expected to be realized on contracts are based on management's estimates of total transaction price and costs at completion. 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 loss, based on gross profit along with general and administrative costs, 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. The cumulative effect of a change in estimate is recognized in the period a change in estimate occurs. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception or, in the case of contracts acquired in business combinations, from the date of acquisition.

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 results of operations.

Generally, favorable changes in contract estimates recognized using the cumulative catch-up method of accounting represent margin improvement on programs where either estimated cost at completion was lower than previously estimated or a change in contract scope on a program caused a higher profit rate. Conversely, the unfavorable changes in contract estimates represent margin declines on programs where either estimated cost at completion was higher than previously estimated or a change in contract scope on a program caused a lower profit rate.

Aggregate net changes in contract estimates recognized increased income before income taxes and noncontrolling interest by approximately $17 million ($0.24 per diluted share) for the quarter ended April 1, 2018 and $9 million ($0.11 per diluted share) for the quarter ended April 2, 2017. Estimated costs to complete on loss contracts at April 1, 2018 and December 31, 2017 were $974 million and $1,108 million, respectively. Revenue recognized from performance obligations satisfied in previous periods was $34 million for the quarter ended April 1, 2018.

Contract costs are costs incurred to fulfill a contract before goods or services are transferred to the customer. The Company capitalizes contract costs that relate directly to a contract if they are expected to be recovered and generate resources that will be used in satisfying the contract. Contract costs, which were primarily comprised of tooling costs, of $114 million are included in "Other current assets," due to the implementation of ASC 606, at April 1, 2018 and $121 million included in "Unbilled receivables, net" at December 31, 2017. Capitalized contract costs are amortized on a systematic basis consistent with the pattern of the transfer of the goods to which the asset relates. Contract costs amortized were $7 million during the quarter ended April 1, 2018.

Note 10 - Postretirement Plans

The components of net periodic benefit cost for pension benefits were as follows (in millions):



	Quarters Ended
	April 1, 2018			April 2, 2017
Service cost	$	4		$	4
Interest cost	24			24
Expected return on plan assets	(40		)	(39		)
Amortization of unrecognized net loss ⁽¹⁾	37			32
Amortization of unrecognized prior service cost ⁽¹⁾	(5		)	(5		)
Net periodic benefit cost	$	20		$	16

____________________________________________________________

⁽¹⁾ Amounts related to pension and other postretirement benefits that were reclassified from Accumulated Other Comprehensive Loss and recorded as a component of net periodic benefit cost for each period presented

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The components of net periodic benefit income for other postretirement benefits were as follows (in millions):



	Quarters Ended
	April 1, 2018			April 2, 2017
Interest cost	$	—		$	1
Expected return on plan assets	—			(1		)
Amortization of unrecognized net loss ⁽¹⁾	—			—
Amortization of unrecognized prior service cost ⁽¹⁾	(1		)	(2		)
Net periodic benefit income	$	(1	)	$	(2	)

____________________________________________________________

Employer Contributions/Payments

During the quarter ended April 1, 2018, the Company made benefit payments of $2 million to retirees in connection with its nonqualified supplemental executive retirement plan and $1 million to retirees in connection with its other postretirement benefit plans. During the quarter ended April 1, 2018, the Company made no contributions to the pension trust and no contributions to the postretirement benefit plans.

During the remainder of 2018, the Company is not required to make any additional pension benefit contributions in order to meet the minimum required contributions for 2018. The Company does not anticipate making any contributions to the postretirement benefit plans. In addition, the Company anticipates making benefit payments of approximately $2 million to retirees under the nonqualified plan and $5 million to retirees in connection with its other postretirement benefit plans during the remainder of 2018.

Note 11 - Income Taxes

On December 22, 2017, the Tax Act was signed into law. The Tax Act changes existing United States tax law and includes numerous provisions that will impact the Company, including reducing the corporate tax rate to 21% from 35% for years beginning after December 31, 2017. The Tax Act also introduces prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction ("DMD"), acceleration of tax revenue recognition, a deduction for foreign derived intangible income ("FDII"), and additional limitations on executive compensation. The Company is continuing to evaluate the impact of the Tax Act on its business and results of operations.

In accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the Tax Act was signed into law, the Company recognized the income tax effects of the Tax Act in its financial statements for the year ended December 31, 2017. The income tax effects of the Tax Act that have been accounted for in the prior year were based on reasonable estimates. If the Company was able to make reasonable estimates for the effects of the Tax Act for which the Company's analysis was still in progress, the Company recorded provisional adjustments in accordance with SAB 118.

As of April 1, 2018, the Company is still performing its analysis of the income tax effects of the Tax Act. At December 31, 2017, however, the Company was able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with (1) cost recovery, (2) limitation on the deductibility of certain executive compensation, (3) recovery of Alternative Minimum Tax credits and (4) valuation allowances against state tax attribute carryforwards.

Income Tax Expense

The Company's income taxes include federal, foreign and state income taxes. Income taxes for interim periods are based on estimated effective annual income tax rates.

The effective income tax rates for the quarters ended ~~October~~April 1, ~~2017~~2018 and ~~October~~April 2, ~~2016~~2017 were 2417.4% and 1829.03%, respectively. The ~~increase~~decrease in the ~~rate~~effective ~~from~~tax rates for the quarter ended ~~October~~April 21, ~~2016~~2018, iscompared ~~primarily due~~ to the ~~impact~~same ofperiod ~~the favorable true up of prior-year taxes and the settlement of the examination by the Internal Revenue Service ("IRS") of the fiscal 2013 and 2014 tax returns~~ in ~~the quarter ended October 2~~2017, ~~2016~~was ~~and~~primarily ~~the~~affected ~~decrease~~by ~~in benefit from domestic manufacturing deduction ("DMD") in~~ the ~~quarter~~Tax ~~ended October 1~~Act, ~~2017,~~which ~~partially~~reduced ~~offset by~~ the ~~favorable~~U.S. ~~changes~~federal incorporate ~~uncertain~~income tax ~~benefits,~~rate ~~research~~from ~~and development ("R&D") tax credits, and state taxes in the quarter ended October 1, 2017.~~

The effective income tax rates for the nine months ended October 1, 2017 and October 2, 2016 were 26.5% and 25.9%, respectively. The increase in the rate from the nine months ended October 2, 2016 is primarily due to the impact of the favorable true up of prior-year taxes and the settlement of the examination by the IRS of the fiscal 2013 and 2014 tax returns in the nine months ended October 2, 2016, partially offset by favorable changes in uncertain tax benefits and R&D tax credits in the nine months ended October 1, 2017.20

The Company or one of its subsidiaries files income tax returns in the U.S. federal, various U.S. state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2011. The IRS has completed the audits of the Company through fiscal 2014 and is currently auditing the Company's income tax returns for fiscal year 2015 and calendar year 2015. The Company believes appropriate provisions for all outstanding issues have been made for all remaining open years in all jurisdictions.

Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $6 million reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in an increase in net income up to $6 million. During the quarter ended October 1, 2017, the company recognized an $11 million reduction of the uncertain tax benefits associated with the lapse of statute of limitations. This reduction has resulted in an increase in net income of $10 million in the quarter ended October 1, 2017.

Note 10 - Stock-based Compensation

The Company sponsors five stock-based incentive plans: the Orbital ATK, Inc. 2015 Stock Incentive Plan (the "2015 Stock Incentive Plan"); three legacy ATK plans (the Alliant Techsystems Inc. 2005 Stock Incentive Plan, the Non-Employee Director Restricted Stock Plan and the 1990 Equity Incentive Plan); and one legacy Orbital plan (the Orbital Sciences Corporation 2005 Amended and Restated Stock Incentive Plan), under which the Company assumed the obligation to issue Company common stock pursuant to the terms of the transaction agreement ("the Transaction Agreement") relating to the merger of the Company with Orbital Sciences Corporation and distribution of its former Sporting Group. At October 1, 2017, the Company had authorized up to 3,750,000 common shares under the 2015 Stock Incentive Plan, of which 2,083,777 common shares were available to be granted. No new grants will be made out of the other four plans. The Company adopted an Employee Stock Purchase Plan ("ESPP") during the year ended December 31, 2016. As of October 1, 2017, the Company had authorized up to 2,000,000 common shares, of which 1,781,318 common shares were available for purchase under the ESPP. In connection with the Merger, the ESPP has been suspended as of October 1, 2017.

Restricted Stock Units

Pursuant to the terms of the Transaction Agreement and under the terms of the ATK 2005 Stock Incentive Plan, all of the performance awards and Total Stockholder Return ("TSR") awards outstanding as of February 9, 2015 were converted into time-vesting restricted stock units with vesting periods corresponding to the respective performance periods. During the nine months ended October 1, 2017, 53,449 shares of restricted stock units vested for the performance period ending in 2017. As of October 1, 2017, no restricted stock units remained outstanding under the ATK 2005 Stock Incentive Plan. Pursuant to the terms of the Transaction Agreement, the Company also assumed the obligation to issue Company common stock under the legacy Orbital plan. As of October 1, 2017, there were no restricted stock units outstanding under the legacy Orbital plan as the remaining 45,120 shares of restricted stock units outstanding vested during the nine months ended October 1, 2017.

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

35% to 21% effective January 1, 2018, repealed the DMD, and provided for a deduction for FDII. In addition to the effect of the Tax Act, the decrease in effective tax rates was due to an increase in benefit from share-based compensation in the quarter ended April 1, 2018, partially offset by the impact of foreign taxes in the quarter ended April 1, 2018.

The Company or one of its subsidiaries files income tax returns in the U.S. federal, various U.S. state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2012. The IRS has completed the audits of the Company through fiscal 2014 and is currently auditing the Company's income tax returns for fiscal year 2015 and calendar year 2015. The Company believes appropriate provisions for all outstanding issues have been made for all remaining open years in all jurisdictions.

Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $32 million reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in an increase in net income of up to $29 million.

Note 12 - Stock-based Compensation

The Company sponsors four stock-based incentive plans: the Orbital ATK, Inc. 2015 Stock Incentive Plan (the "2015 Stock Incentive Plan") and three legacy ATK plans (the Alliant Techsystems Inc. 2005 Stock Incentive Plan, the Non-Employee Director Restricted Stock Plan and the 1990 Equity Incentive Plan). At April 1, 2018, the Company had authorized up to 3,750,000 common shares under the 2015 Stock Incentive Plan, of which 1,629,505 common shares were available to be granted. No new grants will be made out of the other three plans. The Company adopted an Employee Stock Purchase Plan ("ESPP") during the year ended December 31, 2016. As of April 1, 2018, the Company had authorized up to 2,000,000 common shares, of which 1,781,318 common shares were available for purchase under the ESPP. In connection with the Merger, the ESPP has been suspended as of October 1, 2017.

Performance Awards

There are performance shares reserved for executive officers and key employees. Performance shares are valued at the fair value of the Company's common 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. Of these performance shares that are nonvested as of April 1, 2018:


•	up to 41,597 will become payable upon achievement of financial performance goals relating to absolute sales growth and return on investment of capital for the performance period beginning January 1, 2018 and ending December 31, 2020; and


•	up to 58,506 will become payable upon achievement of financial performance goals relating to absolute sales growth and return on investment of capital for the performance period beginning January 1, 2017 and ending December 31, 2019; and

• up to 7170,~~074~~864 will become payable upon achievement of financial performance goals relating to absolute sales growth and return on investment of capital for the performance period beginning January 1, 2016 and ending December 31, 2018~~; and~~.

•Total upStockholder toReturn ~~79,235~~("TSR") ~~will~~Performance become payable upon achievement of financial performance goals relating to absolute earnings per share growth and absolute sales growth for the performance period beginning April 1, 2015 and ending December 31, 2017.Awards

There were 170,967 nonvested shares reserved as of April 1, 2018 for TSR ~~Awards~~awards for executive officers and key employees for the calendar year 2018-2020, 2017-2019 and 2016-2018 performance periods, respectively. The Company used an integrated Monte Carlo simulation model to determine the fair value of the TSR awards. The Monte Carlo model calculates the probability of satisfying the market conditions stipulated in the award. This probability is an input into the trinomial lattice model used to determine the fair value of the awards. There were 41,597 TSR awards granted with a weighted-average fair value of $148.05 per share during the quarter ended April 1, 2018.

There were 58,506, 71,074 and 79,235 shares reserved for TSR awards for executive officers and key employees for the fiscal year 2017-2019, 2016-2018 and 2015-2017 performance periods, respectively. The Company used an integrated Monte Carlo simulation model to determine the fair value of the TSR awards. The Monte Carlo model calculates the probability of satisfying the market conditions stipulated in the award. This probability is an input into the trinomial lattice model used to determine the fair value of the awards. There were 59,393 TSR awards granted with a weighted-average fair value of $115.26 per share during the nine months ended October 1, 2017. 21

Restricted Stock Awards

Restricted stock granted to certain key employees totaled 160,907 shares with a weighted-average fair value of $95.89 during the nine months ended October 1, 2017. Restricted shares vest over periods generally ranging from one to three years from the date of award and are valued at the fair value of the Company's common stock as of the grant date.

Stock Options

Stock options are granted with an exercise price equal to the fair market value of the Company's common stock on the date of grant, and generally vest from one to three years from the date of grant. Options are generally granted with seven-year or ten-year terms. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were 58,434 stock options granted during the nine months ended October 1, 2017 with a weighted-average fair value of $24.47 per stock option.

Stock-based compensation expense totaled $6 million and $18 million in the quarter and nine months ended October 1, 2017 and October 2, 2016, respectively. The income tax benefit recognized for stock-based compensation was $2 million and $6 million in the quarter and nine months ended October 1, 2017 and October 2, 2016, respectively.

Share Repurchases

Shares of the Company's common stock may be purchased in the open market, subject to compliance with applicable laws and regulations and the Company’s debt covenants, depending upon market conditions and other factors. During 2016, the Board of Directors authorized an increase to the amount for repurchase of the Company's common stock to the lesser of $300 million or 4 million shares through March 2017. In February 2017, the Board of Directors further increased the amount authorized for repurchase to $450 million, removed the share quantity limitation and extended the repurchase period through March 31, 2018.

The Company repurchased 64,489 shares for $7 million and 230,918 shares for $23 million during the quarter and nine months ended October 1, 2017, respectively. The Company repurchased 576,407 shares for $44 million and 1,104,511 shares for $88 million during the quarter and nine months ended October 2, 2016, respectively. In connection with the Merger, the Company halted its share repurchase program.

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~Note~~Restricted 11Stock ~~- Earnings Per Share Data~~ Awards

Restricted stock granted to certain key employees totaled 102,192 shares with a weighted-average fair value of $131.86 during the quarter ended April 1, 2018. Restricted shares vest over periods generally ranging from one to three years from the date of award and are valued at the fair value of the Company's common stock as of the grant date.

Stock Options

Stock options are granted with an exercise price equal to the fair market value of the Company's common stock on the date of grant, and generally vest from one to three years from the date of grant. Options are generally granted with seven-year or ten-year terms. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted during the quarter ended April 1, 2018.

Stock-based compensation expense totaled $6 million and $5 million in the quarters ended April 1, 2018 and April 2, 2017, respectively. The income tax benefit recognized for stock-based compensation was $1 million and $2 million in the quarters ended April 1, 2018 and April 2, 2017, respectively.

Share Repurchases

Shares of the Company's common stock may be purchased in the open market, subject to compliance with applicable laws and regulations and the Company’s debt covenants, depending upon market conditions and other factors. During 2016, the Board of Directors authorized an increase to the amount for repurchase of the Company's common stock to the lesser of $300 million or 4 million shares and extended the repurchase period through March 31, 2017. In February 2017, the Board of Directors further increased the amount authorized for repurchase to $450 million, removed the share quantity limitation and extended the repurchase period through March 31, 2018. In connection with the Merger, the Company halted its share repurchase program. The Company made no share repurchases during the quarters ended April 1, 2018 and April 2, 2017.

Note 13 - 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 outstanding and increased to include the dilutive effect of outstanding stock-based equity awards for each period.

In computing basic and diluted EPS for both the quarters ended April 1, 2018 and April 2, 2017, the reported earnings for each respective period were divided by the weighted-average shares outstanding, determined as follows (in millions):

Quarters Ended

~~Nine Months Ended~~

October 1, 2017

October 2, 2016

October 1, 2017

October 2, 2016

April 1, 2018

April 2, 2017

Basic weighted-average number of shares outstanding

57.3153

57.9333

~~57.37~~

~~58.21~~

Dilutive common share equivalents - share-based equity awards

0.4556

0.3345

~~0.49~~

~~0.43~~

Diluted weighted-average number of shares outstanding

5758.7609

5857.2678

~~57.86~~

~~58.64~~

Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares

0.1508

0.1538

~~0.22~~

~~0.15~~

Note 1214 - Contingencies

Litigation

From time to time, the Company is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company's business. The Company does not consider any of such proceedings that are currently pending, individually or in the aggregate to be material to its business or likely to result in a material adverse effect on its operating results, financial condition or cash flows, notwithstanding that the unfavorable resolution of any matter may have a material effect on net earnings in any particular quarter.

~~Securities Class Action~~22

At least six purported class actions challenging the Merger have been filed in the United States District Court for the Eastern District of Virginia, captioned Lickteig v. Orbital ATK, Inc., et al., filed October 11, 2017 (the “Lickteig Action”), Ayzin v. Orbital ATK, Inc. et al., filed October 13, 2017 (the “Ayzin Action”), Sedon v. Orbital ATK, Inc., et al., filed October 16, 2017 (the “Sedon Action”), Berg v. Orbital ATK, Inc., et al., filed October 16, 2017 (the "Berg Action"), Simnowitz v. Orbital ATK, Inc. et al., filed October 18, 2017 (the "Simnowitz Action"), and Cramer v. Orbital ATK, Inc. et al, filed October 25, 2017 (the "Cramer Action" and collectively with the Lickteig Action, Ayzin Action, Sedon Action and Berg Action, the “Actions”). The Lickteig Action and Berg Action name as defendants the Company, the Company’s directors, Northrop Grumman and Sub. The Ayzin Action, the Sedon Action, the Simnowitz Action and the Cramer Action name as defendants the Company and the Company’s directors. The Actions allege certain violations of the Securities and Exchange Act of 1934, as amended, and seek, among other things, damages, attorneys’ fees and injunctive relief to prevent the Merger from closing. The Company believes that the Actions lack merit and intend to defend against them vigorously. The outcome of the Actions is uncertain. If the Actions are not resolved on a timely basis, the Actions could delay consummation of the Merger and result in substantial costs to the Company, including any costs associated with the indemnification of directors. Additional plaintiffs may file additional lawsuits against the Company and/or the directors and officers of the Company in connection with the Merger.

On August 12, 2016, a putative class action complaint, naming the Company, our Chief Executive Officer and our Chief Financial Officer as defendants, was filed in the United States District Court for the Eastern District of Virginia (Steven Knurr, et al. v. Orbital ATK, Inc., (TSE-MSN)). The class action complaint asserts claims on behalf of purchasers of Orbital ATK securities for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder, arising out of allegedly false and misleading statements and the failure to disclose that: (i) the Company lacked effective control over financial reporting; and (ii) as a result, the Company failed to record an anticipated loss on its long-term contract with the U.S. Army to manufacture and supply small caliber ammunition at the U.S. Army's Lake City Army Ammunition Plant. On April 24, 2017 and October 10, 2017, the plaintiffs filed amended complaints naming additional defendants and asserting claims for violations of additional sections of the Exchange Act and alleged false and misleading statements in the Company’s Form S-4 filed with the SEC relating to the merger between the Company and Orbital Sciences Corporation. The

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

~~complaint~~US ~~seeks~~Space anLitigation award of damages, an award of reasonable costs and expenses at trial, including counsel and expert fees, and an award of such other relief as deemed appropriate by the Court. The Company is defending this action vigorously.

On April 29, 2016, US Space LLC filed a complaint against the Company and its subsidiary, ATK Space Systems Inc. in New York Supreme Court, alleging breach of contract and various other claims, and seeking unspecified damages, all related to ViviSat LLC ("ViviSat"), a former joint venture between the parties. The Company believes US Space’s claims are without merit. On May 27, 2016, the Company filed a countersuit in Loudoun County Circuit Court in the Commonwealth of Virginia (ATK Space Systems, Inc. and Orbital ATK, Inc. v. U.S. Space LLC, Case No. CL-101847) asserting claims for declaratory and injunctive relief against US Space LLC relating to ViviSat. The Company’s Virginia complaint alleged a failure of US Space to perform contractual obligations relating to obtaining financing for ViviSat, triggering certain rights of the Company that led to the dissolution of the venture. On November 11, 2016, the New York Supreme Court dismissed US Space’s New York case in its entirety. On January 6, 2017, US Space filed counterclaims against the Company, similar to its previous claims in its now-dismissed New York lawsuit. US Space’s initial counterclaims in the Virginia case sought damages of at least $125 million, but increased its damages demand to $385 million in the fourth quarter of 2017. On February 22, 2018, following a trial on the matter, a jury found in favor of the Company and awarded zero damages to US Space.

Merger Class Actions

Seven purported class actions challenging the Merger were filed in the United States District Court for the Eastern District of Virginia, captioned Lickteig v. Orbital ATK, Inc., et al., filed October 11, 2017 (the "Lickteig Action"), Ayzin v. Orbital ATK, Inc., et al., filed October 13, 2017 (the "Ayzin Action"), Sedon v. Orbital ATK, Inc., et al., filed October 16, 2017 (the "Sedon Action"), Berg v. Orbital ATK, Inc., et al., filed October 16, 2017 (the "Berg Action"), Simnowitz v. Orbital ATK, Inc., et al., filed October 18, 2017 (the "Simnowitz Action"), Cramer v. Orbital ATK, Inc., et al., filed October 25, 2017 (the "Cramer Action"), and Donato v. Orbital ATK, Inc., et al., filed on November 7, 2017 (the "Donato Action" and collectively with the Lickteig Action, Ayzin Action, Sedon Action, Berg Action, Simnowitz Action and Cramer Action, the "Actions"). The Actions alleged certain violations of the Securities and Exchange Act of 1934 (the "Exchange Act"), as amended, and sought, among other things, damages, attorneys' fees and injunctive relief to prevent the Merger from closing. While the Company believed that the Actions lacked merit and that the disclosures set forth in the proxy statement complied fully with applicable law, in order to moot plaintiffs' unmeritorious disclosure claims, avoid nuisance and possible expense and provide additional information to our stockholders, the Company determined to voluntarily supplement the proxy statement, as set forth in the Company's Schedule 14A filed with the SEC on November 20, 2017. On November 20, 2017, the Ayzin Action, Sedon Action, Berg Action, Cramer Action and Donato Action were each voluntarily dismissed with prejudice as to the plaintiffs. On December 8, 2017, the Simnowitz Action was voluntarily dismissed with prejudice as to the plaintiff and on January 12, 2018, the Lickteig Action was voluntarily dismissed with prejudice as to the plaintiff. While each of the Actions have been voluntarily dismissed with prejudice as to the plaintiffs, additional plaintiffs may file lawsuits against the Company and/or its directors and officers in connection with the Merger.

Securities Class Action

On August 12, 2016, a putative class action complaint, naming the Company, our Chief Executive Officer and our Chief Financial Officer as defendants, was filed in the United States District Court for the Eastern District of Virginia (Steven Knurr, et al. v. Orbital ATK, Inc., No. 16-cv-01031 (TSE-MSN)). The class action complaint asserts claims on behalf of purchasers of Orbital ATK securities for violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder, arising out of allegedly false and misleading statements and the failure to disclose that: (i) the Company lacked effective control over financial reporting; and (ii) as a result, the Company failed to record an anticipated loss on its long-term contract with the U.S. Army to manufacture and supply small caliber ammunition at the U.S. Army's Lake City Army Ammunition Plant. On April 24, 2017 and October 10, 2017, the plaintiffs filed amended complaints naming additional defendants and asserting claims for violations of additional sections of the Exchange Act and alleged false and misleading statements in the Company's Form S-4 filed with the SEC relating to the Orbital-ATK Merger. The complaint seeks an award of damages, an award of reasonable costs and expenses at trial, including counsel and expert fees, and an award of such other relief as deemed appropriate by the Court.

SEC Investigation

The SEC is conducting a non-public investigation relating to our historical accounting practices as a result of the prior restatement of the Company's unaudited condensed consolidated financial statements for the quarterly periods ended July 5, 2015 and October 4, 2015 described in the Transition Report on Form 10-K for the nine-month period ending December 31, 2015 previously filed on March 15, 2016, and the Company also has voluntarily self-reported to the SEC regarding matters pertaining to the restatement described in the Form 10-K/A for the nine-month period ending December 31, 2015 filed on February 24, 2017. The Company is cooperating fully with the SEC in connection with these matters.

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

ending December 31, 2015 previously filed on March 15, 2016, and the Company also has voluntarily self-reported to the SEC regarding matters pertaining to the restatement described in the Form 10-K/A for the nine-month period ending December 31, 2015 filed on February 24, 2017. The Company is cooperating fully with the SEC in connection with these matters.

U.S. Government Investigations

The Company 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. The Company 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.

Claim Recovery

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 and claims are included in contract sales only when realization is estimated to be probable. Unbilled receivables, net included $1019 million and $1817 million as of ~~October~~April 1, ~~2017~~2018 and December 31, ~~2016~~2017, respectively, for contract claims.

Environmental Liabilities

The Company's operations and ownership or use of real property are subject to a number of federal, state and local environmental laws and regulations, as well as applicable foreign 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 the Company owns or operates or formerly owned or operated, there is known or potential contamination that the Company is required to investigate or remediate. The Company 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 Company has been identified as a potentially responsible party (“PRP”), along with other parties, in several regulatory agency actions associated with hazardous waste sites. As a PRP, the Company may be required to pay a share of the costs of the investigation and clean-up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, the Company has concluded that these matters, individually or in the aggregate, will not have a material adverse effect on operating results, financial condition or cash flows.

The Company could incur substantial costs, including cleanup costs, resource restoration costs, 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 the Company's operating results, financial condition or cash flows in the past, and the Company 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 liability for environmental remediation represents management's best estimate of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the amount that the Company expects to recover, as discussed below.

The following is a summary of the amounts recorded for environmental remediation (in millions):



	April 1, 2018				December 31, 2017
	Liability		Receivable		Liability		Receivable
Current	$	3	$	3	$	5	$	3
Noncurrent	27		10		28		10
Total	$	30	$	13	$	33	$	13

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

	October 1, 2017				December 31, 2016
	Liability		Receivable		Liability		Receivable
Current	$	5	$	3	$	6	$	3
Noncurrent	32		14		35		15
Total	$	37	$	17	$	41	$	18

As of April 1, 2018, the estimated range of reasonably possible costs of environmental remediation was $30 million to $59 million.

AsThe ofCompany ~~October 1,~~expects ~~2017,~~that ~~the~~a ~~estimated~~portion ~~range~~ of ~~reasonably~~its ~~possible~~environmental compliance and remediation costs will be recoverable under U.S. Government contracts. Some of ~~environmental~~the remediation ~~was~~costs ~~$37~~that ~~million~~are not recoverable from the U.S. Government that are associated with facilities purchased in a business acquisition are covered by various indemnification agreements, as described in Note 16-Contingencies, to ~~$69~~the ~~million~~audited consolidated financial statements included in the Company's Form 10-K.

The Company 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 are covered by various indemnification agreements, as described in Note 16 - Contingencies, to the audited consolidated financial statements included in the Company's Form 10-K.Warranties

~~Note~~The 13Company assesses warranties promised in contracts with customers to determine if the warranty represents a performance obligation separate from the rest of the contract. “Assurance-type” ~~Operating~~(or ~~Segment~~“standard”) ~~Information~~warranties, which provide assurance of a good/service to the customer, typically are not considered separate performance obligations. Separately-priced warranties or any warranties that provide assurance of the good/service beyond the agreed-upon specifications are considered “service-type” (or “non-standard”) warranties, and likely represent a separate performance obligation. The Company’s warranties typically do not represent separate performance obligations and do not represent a material obligation to the Company.

~~The~~Note ~~Company~~15 operates its business within three operating segments. These operating segments ("groups") are defined based on the reporting and review process used by the Company's Chief Executive Officer and other management. The operating structure aligns the Company's capabilities and resources with its customers and markets and positions the Company for long-~~term~~ ~~growth~~Operating ~~and~~Segment ~~improved profitability.~~Information

•The ~~Flight~~Company ~~Systems~~operates ~~Group~~its ~~develops~~business ~~rockets~~within ~~that~~three ~~are~~operating ~~used~~segments. asThese ~~small-~~operating ~~and~~segments ~~medium-class~~("Groups") ~~space~~are ~~launch~~defined ~~vehicles~~based toon ~~place~~the ~~satellites~~reporting ~~into Earth orbit~~ and ~~escape~~review ~~trajectories,~~process ~~interceptor~~used ~~and~~by ~~target~~the ~~vehicles~~Company's ~~for~~Chief ~~missile~~Executive ~~defense~~Officer ~~systems~~ and ~~suborbital~~other ~~launch vehicles that place payloads into a variety of high-altitude trajectories~~management. The ~~group~~operating ~~also~~structure ~~develops~~aligns ~~and~~the ~~produces~~Company's ~~medium-~~capabilities and ~~large-class~~resources ~~rocket~~with ~~propulsion~~its ~~systems~~customers ~~for~~and ~~human~~markets and ~~cargo~~positions ~~launch~~the ~~vehicles,~~Company ~~strategic~~for ~~missiles,~~long-term ~~missile~~growth ~~defense interceptors~~ and ~~target~~improved ~~vehicles~~profitability. ~~Additionally,~~At ~~Flight~~April ~~Systems~~1, ~~Group~~2018, ~~operates in~~ the ~~military~~Company's ~~and~~three ~~commercial~~operating ~~aircraft~~Groups ~~and launch structures markets.~~were:

•

Flight Systems Group develops launch vehicles that are used as small- and medium-class space launch vehicles to place satellites into earth orbit and escape trajectories, interceptor and target vehicles for missile defense systems and suborbital launch vehicles that place payloads into a variety of high-altitude trajectories. The group also develops and produces medium- and large-class rocket propulsion systems for human and cargo launch vehicles, strategic missiles, missile defense interceptors and target vehicles. Additionally, Flight Systems Group operates in the military and commercial aircraft and launch structures markets.


•	Defense Systems Group develops and produces small-, medium- and large-caliber ammunition, propulsion systems for tactical missiles and missile defense applications, strike weapons, precision weapons and munitions, high-performance gun systems, aircraft survivability systems, fuzes and warheads, energetic materials and special mission aircraft.

• Space Systems Group develops and produces small- and medium-class satellites that are used to enable global and regional communications and broadcasting, conduct space-related scientific research and perform other activities related to national security. In addition, Space Systems Group develops and produces human-rated space systems for ~~Earth-~~earth orbit and deep-space exploration, including cargo delivery to the International Space Station. This group is also a provider of spacecraft components and subsystems and specialized engineering and operations services to U.S. Government agencies.

20The following summarizes the Company's results by segment (in millions):



	Quarters Ended
	April 1, 2018			April 2, 2017
Sales to external customers:
Flight Systems Group	$	479		$	368
Defense Systems Group	555			446
Space Systems Group	278			271
Total external sales	1,312			1,085
Intercompany sales:
Flight Systems Group	3			3
Defense Systems Group	4			5
Space Systems Group	38			30
Corporate	(45		)	(38		)
Total intercompany sales	—			—
Total sales	$	1,312		$	1,085

Operating Income:
Flight Systems Group	$	61		$	41
Defense Systems Group	54			42
Space Systems Group	22			27
Corporate	17			11
Total Operating Income	$	154		$	121

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following summarizes the Company's results by segment (in millions):

	Quarters Ended						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Sales to external customers:
Flight Systems Group	$	423		$	360		$	1,214		$	1,081
Defense Systems Group	511			451			1,378			1,326
Space Systems Group	282			232			824			776
Total external sales	1,216			1,043			3,416			3,183
Intercompany sales:
Flight Systems Group	3			3			8			10
Defense Systems Group	4			5			12			15
Space Systems Group	32			16			93			37
Corporate	(39		)	(24		)	(113		)	(62		)
Total intercompany sales	—			—			—			—
Total sales	$	1,216		$	1,043		$	3,416		$	3,183
Income before interest, income taxes and noncontrolling interest:
Flight Systems Group	$	61		$	44		$	161		$	152
Defense Systems Group	48			33			133			126
Space Systems Group	40			20			98			96
Corporate	(7		)	(6		)	(3		)	(15		)
Total income before interest, income taxes and noncontrolling interest	$	142		$	91		$	389		$	359

The following summarizes the Company's total assets by segment (in millions):

	October 1, 2017		December 31, 2016
	April 1, 2018		December 31, 2017
Total assets:
Flight Systems Group	$	21,~~293~~962	$	2,~~208~~262
Defense Systems Group	1,~~358~~480		1,~~228~~337
Space Systems Group	1,~~276~~341		1,~~280~~256
Corporate	~~610~~602		~~702~~811
Total assets	$	5,~~537~~385	$	5,~~418~~666

Certain administrative functions are primarily managed by the Company at the corporate headquarters ("Corporate"). Some examples of such functions are human resources, pension and postretirement benefits, corporate accounting, legal, tax, treasury and certain strategic growth initiatives. Significant assets and liabilities managed at Corporate include those associated with debt, restructuring, pension and postretirement benefits, environmental liabilities, litigation liabilities, strategic growth assets and income taxes.

Costs related to the administrative functions managed by Corporate are either recorded at Corporate or allocated to the segments based on the nature of the expense. The difference between pension and other postretirement benefit expense calculated under U.S. GAAP and the expense calculated under U.S. Cost Accounting Standards is recorded at the corporate level which provides for greater clarity on the operating results of the business segments. ~~Administrative~~The ~~expenses~~pension ~~such~~and asother ~~corporate~~postretirement ~~accounting,~~benefit ~~legal~~expense ~~and~~calculated ~~treasury~~under ~~costs~~U.S. ~~are~~GAAP ~~allocated~~in ~~out~~total tooperating income represents the ~~business~~service ~~segments~~cost component only as a result of adopting ASU 2017-07, see Note 1. The ~~amortization~~non-service component of pension and other postretirement benefit expense ~~related~~is toincluded ~~purchase~~in ~~accounting~~"Other ~~attributed~~expense" toon the ~~acquisition~~condensed consolidated statements of ~~Orbital~~income. ~~Sciences~~Administrative ~~Corporation~~expenses issuch ~~also~~as ~~recorded~~corporate inaccounting, ~~Corporate~~legal and treasury costs are allocated out to the business segments. Transactions between segments are recorded at the segment level, consistent with the Company's financial accounting policies. Intercompany balances and transactions involving different segments are eliminated at the Company's consolidated financial statements level and are shown above in Corporate. The amortization expense related to purchase accounting attributed to the acquisition of Orbital Sciences Corporation is also recorded in Corporate.

2126

ORBITAL ATK, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 our 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, we 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 we make 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 you 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:

• the risk that the ~~proposed~~pending ~~transaction~~acquisition ~~with~~by Northrop Grumman may not be completed in a timely manner or at all, which may adversely affect our business and the price of our common stock;

• the failure to satisfy any of the conditions to the consummation of the ~~proposed~~pending ~~transaction~~acquisition, including the receipt of certain governmental and regulatory approvals;


•	the occurrence of any circumstance that could give rise to the termination of the Merger Agreement;

• ~~the~~reductions ~~outcome~~or ofchanges ~~any~~in ~~legal~~programs ~~proceedings~~administered ~~related~~by to the ~~Merger~~National ~~Agreement~~Aeronautics orand ~~the~~Space ~~proposed~~Administration ~~transaction,~~("NASA") ~~and~~or ~~the~~in ~~costs~~U.S. ~~and~~Government ~~ultimate~~military ~~outcome~~spending, timing of ~~litigation~~payments ~~matters,~~and ~~government~~budgetary ~~investigations~~policies, and ~~other~~sourcing ~~legal proceedings~~strategies;

• the effect of the recent restatement of our previously issued financial results (the "Restatement") and any claims, investigations or proceedings as a result of the Restatement;

• our ability to remediate the material weakness in our internal control over financial reporting described in Part I, Item 4, "Controls and Procedures," of this Form 10-Q;

• reductions or changes in programs administered by the National Aeronautics and Space Administration ("NASA") or in U.S. Government military spending, timing of payments and budgetary policies, including impacts of sequestration under the Budget Control Act of 2011, and sourcing strategies;


•	intense competition for U.S. Government contracts and programs;


•	increases in costs, which the Company 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;


•	potential termination of U.S. Government contracts and the potential inability to recover termination costs;


•	other risks associated with U.S. Government contracts that might expose the Company to adverse consequences;


•	government laws and other rules and regulations applicable to the Company, including procurement and import-export control;


•	reduction or change in demand and manufacturing costs for military and commercial ammunition;


•	the manufacture and sale of products that create exposure to potential product liability, warranty liability or personal injury claims and litigation;


•	risks associated with expansion into new and adjacent commercial markets;

ORBITAL ATK, INC.

• results of acquisitions or other transactions, including our ability to successfully integrate acquired businesses and realize anticipated synergies, cost savings and other benefits, and costs incurred for pursuits and proposed acquisitions;


•	greater risk associated with international business, including foreign currency exchange rates and fluctuations in those rates;


•	federal and state regulation of defense products and ammunition;


•	costs of servicing the Company's debt, including cash requirements and interest rate fluctuations;


•	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;

ORBITAL ATK, INC.


•	security threats, including cyber-security and other industrial and physical security threats, and other disruptions;


•	supply, availability and costs of raw materials and components, including commodity price fluctuations;


•	performance of the Company's subcontractors;


•	development of key technologies and retention of a qualified workforce;


•	performance of our products;


•	fires or explosions at any of the Company's facilities;


•	government investigations and audits;


•	environmental laws that govern current and past practices and rules and regulations, noncompliance with which may expose the Company to adverse consequences;


•	the financial condition of the Company's commercial customers and vendors;


•	impacts of financial market disruptions or volatility to the Company's customers and vendors;

• unanticipated changes in income taxes or exposure to additional tax liabilities, including as a result of recent ~~proposals~~tax ~~for~~legislation, ~~U.S.~~the ~~corporate~~Tax ~~income~~Cuts ~~tax~~and ~~reform,~~Job Acts (the "Tax Act") signed into law in December 2017 and


•	costs and ultimate outcome of litigation matters, government investigations 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 our business. We undertake no obligation to update any forward-looking statements, except as required by law. A more detailed description of risk factors can be found in Part 1, Item 1A, "Risk Factors," of the Company's Form 10-K for the year ended December 31, ~~2016~~2017 (the "Form 10-K"). Additional information regarding these factors may be contained in the Company's subsequent filings with the Securities and Exchange Commission, including 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

We are an aerospace and defense systems company and supplier of products to the U.S. Government, allied nations, prime contractors and other customers. Our main products include launch vehicles and related propulsion systems, satellites and associated components and services, composite aerospace structures, tactical missiles, subsystems and defense electronics and precision weapons, armament systems and ammunition. We are headquartered in Dulles, Virginia and have operating locations throughout the United States.

We conduct business in three segments:

• Flight Systems Group develops ~~rockets~~launch vehicles that are used as small- and medium-class space launch vehicles to place satellites into ~~Earth~~earth orbit and escape trajectories, interceptor and target vehicles for missile defense systems and suborbital launch vehicles that place payloads into a variety of high-altitude trajectories. The group also develops and produces medium- and large-class rocket propulsion systems for human and cargo launch vehicles, strategic missiles, missile defense interceptors and target vehicles. Additionally, Flight Systems Group operates in the military and commercial aircraft and launch structures markets.

ORBITAL ATK, INC.

launch vehicles, strategic missiles, missile defense interceptors and target vehicles. Additionally, Flight Systems Group operates in the military and commercial aircraft and launch structures markets. The group also produces advanced flares and decoys that provide illumination for search and rescue missions and countermeasures against missile attacks.


•	Defense Systems Group develops and produces small-, medium- and large-caliber military ammunition, propulsion systems for tactical missiles and missile defense applications, strike weapons, precision weapons and munitions, high-performance gun systems, aircraft survivability systems, fuzes and warheads, energetic materials and special mission aircraft.

• Space Systems Group develops and produces small- and medium-class satellites that are used to enable global and regional communications and broadcasting, conduct space-related scientific research and perform other activities related to national security. In addition, Space Systems Group develops and produces human-rated space systems for Earth-orbit and deep-space exploration, including cargo delivery to the International Space Station. This group is also a provider of spacecraft components and subsystems and specialized engineering and operations services to U.S. government agencies.

~~Financial Highlights for the Quarter Ended October 1, 2017~~28

•ORBITAL ~~Quarterly~~ATK, ~~sales of $1~~INC.~~22 billion.~~

•produces ~~Diluted~~human-rated ~~earnings~~space ~~per~~systems ~~share~~for earth orbit and deep-space exploration, including cargo delivery to the International Space Station. This group is also a provider of $1spacecraft components and subsystems and specialized engineering and operations services to U.64S. government agencies.

•Financial ~~New~~Highlights ~~firm~~for ~~and~~the ~~option~~Quarter ~~contract~~Ended ~~bookings of $~~April 1.4, ~~billion and option exercises of $0.4 billion under existing contracts.~~2018

• ~~Total~~Quarterly ~~backlog~~sales of $151.731 billion~~, at October 1, 2017~~.

• ~~Income~~Diluted ~~before~~earnings ~~interest,~~per ~~income~~share ~~taxes and noncontrolling interest as a percentage~~ of ~~sales of 11~~$1.7%74.

• ~~Effective~~New ~~income~~firm ~~tax~~and ~~rate~~option contract bookings of 24$2.4%0 billion and option exercises of $1.1 billion under existing contracts.

• ~~Paid~~Total ~~quarterly~~firm ~~dividend~~and option backlog of $016.326 ~~on September 21~~billion, ~~2017,~~at toApril ~~stockholders of record on September 6~~1, ~~2017~~2018.


•	Operating income as a percentage of sales of 11.7%.


•	Effective income tax rate of 17.4%.


•	Paid quarterly dividend of $0.32 on March 1, 2018, to stockholders of record on February 12, 2018.

Agreement and Plan of Merger

On September 17, 2017, ~~Orbital~~we ~~ATK, Inc. (“Orbital ATK” or the “Company”)~~ entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Northrop Grumman Corporation (“Northrop Grumman”) and Neptune Merger, Inc., a wholly owned subsidiary of Northrop Grumman (“Sub”), pursuant to which Northrop Grumman will acquire ~~Orbital~~the ~~ATK~~Company for a purchase price of $134.50 per share in cash (the “"Merger”").

~~The~~Closing ~~stockholders~~ of the ~~Company will vote on the approval of the~~ Merger ~~Agreement at a special meeting currently scheduled to be held on November 29, 2017. Closing~~ is expected to occur during the first half of 2018, subject to customary closing conditions, ~~including stockholder approval~~ and obtaining required regulatory approvals. AtThe stockholders of the ~~effective~~Company ~~time~~voted in favor of approving the Merger, ~~each~~Agreement ~~outstanding~~at ~~share~~a ofspecial ~~the~~meeting ~~Company’s~~held ~~common~~on ~~stock~~November 29, ~~other~~2017. ~~than~~In ~~shares~~February ~~owned~~2018, by the ~~Company,~~European ~~Northrop~~Commission ~~Grumman~~informed orthe ~~Sub~~parties ~~(which~~that ~~will~~it bewould ~~canceled)~~not ~~and~~oppose ~~appraisal~~the ~~shares,~~Merger ~~will~~and bedeclared ~~converted~~it ~~into~~compatible with the ~~right~~European toUnion ~~receive~~internal ~~$134.50~~market inunder ~~cash,~~the ~~without~~applicable ~~interest~~regulation. ~~and~~This ~~less~~is ~~any~~one ~~applicable~~of ~~withholding~~two ~~taxes~~required regulatory approvals.

The other required regulatory approval is the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act"). On December 6, 2017, the Company received a request for additional information (the "second request") from the Federal Trade Commission ("FTC"). The effect of the second request is to extend the waiting period imposed by the HSR Act until 30 days after both the Company and Northrop Grumman have substantially complied with the request, unless that period is extended voluntarily by the parties or terminated sooner by the FTC.

At the effective time of the Merger, each outstanding share of the Company's common stock, other than shares owned by the Company, Northrop Grumman or Sub (which will be canceled) and appraisal shares, will be converted into the right to receive $134.50 in cash, without interest and less any applicable withholding taxes.

Critical Accounting Policies

The Company's significant accounting policies are described in the Form 10-K, Note 1- Summary of Significant Accounting Policies to the consolidated financial statements. The same accounting policies are used in preparing the Company's interim condensed consolidated financial statements. As a result of adopting ASC 606, there were significant changes to the Company's revenue recognition policy from the policy disclosed in the Form 10-K, see Note 1 to the unaudited condensed consolidated financial statements in Item 1 of Part I, "Financial Statements," of this Form 10-Q for a description of the revisions to our revenue recognition policy.

In preparing the condensed consolidated financial statements, the Company follows accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, expenses and related disclosure of contingent assets and liabilities. The Company re-evaluates its estimates on an on-going basis. The Company’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.

2429

ORBITAL ATK, INC.

More information on these policies can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Form 10-K.

Change in Estimates

The majority of our sales are from long-term contracts, which are accounted for using the percentage-of-completion method. Accounting for contracts under the percentage-of-completion method requires judgment relative to assessing risks and estimating contract revenues and costs. Profits expected to be realized on contracts are based on management’s estimates of total contract value and costs at completion. Changes in estimates of contract sales, costs or profits are recognized using the cumulative catch-up method of accounting. The cumulative effect of a change in estimate is recognized in the period a change in estimate occurs. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception or, in the case of contracts acquired in business combinations, from the date of acquisition.

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, termination of commercial contracts in the event of a lack of end user demand, 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 results of operations.

The favorable and unfavorable changes in contract estimates recognized using the cumulative catch-up method of accounting are as follows (in millions):

	Quarters Ended						~~Nine Months Ended~~
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
	April 1, 2018			April 2, 2017
Gross favorable adjustments	$	7970		$	~~106~~76		$	~~212~~		$	~~251~~
Gross unfavorable adjustments	(3453		)	(~~100~~67		)	~~(131~~		)	~~(159~~		)
Net adjustments	$	4517		$	69		$	81		$	92

For the quarter ended ~~October~~April 1, ~~2017~~2018, the Company recognized favorable cumulative catch-up adjustments due to higher profit expectations on programs in the Aerospace Structures division, within our Flight Systems Group, and the ~~Satellite~~Missile ~~Systems~~Products division, within our ~~Space~~Defense Systems Group, due to better performance resulting from risk retirement and lower cost than had previously been estimated. The Company recognized unfavorable cumulative catch-up adjustments in the Launch Vehicles division, within our Flight Systems Group; and the Satellite Systems division, within our Space Systems Group~~; and in the Missile Products division~~, ~~within our Defense Systems Group,~~ due to higher costs than had previously been estimated.

For the ~~nine~~quarter ~~months~~ ended ~~October~~April 12, 2017, the Company recognized favorable cumulative catch-up adjustments due to higher profit expectations on programs in the ~~Aerospace Structures division, the~~ Propulsion Systems division ~~and the Launch Vehicles division~~, within our Flight Systems Group;, the ~~Satellite~~Space ~~Systems~~Components division, within our Space Systems Group;, and the Missile Products division, within our Defense Systems Group, due to better performance resulting from risk retirement and lower cost than had previously been estimated. The Company recognized unfavorable cumulative catch-up adjustments primarily due to the Aerospace Structures division, ~~within~~and ~~our Flight Systems Group;~~ the ~~Satellite~~Propulsion Systems division, within our ~~Space~~Flight Systems Group;, and in the Armament Systems division, within our Defense Systems Group, ~~primarily~~ due to higher costs than had previously been estimated.

For the quarter ended October 2, 2016, the Company recognized favorable cumulative catch-up adjustments due to higher profit expectations on programs in the Aerospace Structures division, within our Flight Systems Group, and the Missile Products division, within our Defense Systems Group, due to better performance resulting from risk retirement and lower cost than had previously been estimated. The Company recognized unfavorable cumulative 30

ORBITAL ATK, INC.

catch-up adjustments primarily due to (i) in the Aerospace Structures division, within our Flight Systems Group, higher costs than had previously been estimated, (ii) in the Satellite Systems division, within our Space Systems Group, higher costs than had previously been estimated, as well as a reduction in estimated revenue on certain programs, and (iii) in the Defense Electronics division, within our Defense Systems Group, a reduction in estimated revenue on certain programs.

For the nine months ended October 2, 2016, the Company recognized favorable cumulative catch-up adjustments due to higher profit expectations on programs in the Aerospace Structures division, the Propulsion Systems division and the Launch Vehicles division, within our Flight Systems Group; the Satellite Systems division and the Advanced Programs division, within our Space Systems Group; and the Missile Products division and the Armament Systems division, within our Defense Systems Group, due to better performance resulting from risk retirement and lower cost than had previously been estimated. The Company recognized unfavorable cumulative catch-up adjustments primarily due to (i) in the Aerospace Structures division and the Propulsion Systems division, within our Flight Systems Group, higher costs than had previously been estimated, (ii) in the Satellite Systems division, within our Space Systems Group, higher costs than had previously been estimated, as well as a reduction in estimated revenue on certain programs, and (iii) in the Defense Electronics division, within our Defense Systems Group, a reduction in estimated revenue on certain programs.

The increase in the change in estimate for the quarter ended October 1, 2017 was primarily attributable to $21 million of favorable contract cumulative profit adjustments recorded in the second quarter of 2016 that normally would have been recorded in the third quarter of 2016 had we timely filed our Form 10-Q for the third quarter 2016. Additionally, overall performance on existing contracts remained strong. The decrease in the change in estimate for the nine months ended October 1, 2017 was primarily attributable to $9 million of favorable contract cumulative profit adjustments recorded in the second and third quarters of 2016 that normally would have been recorded in the fourth quarter of 2016 had we timely filed our Form 10-Q for the second and third quarters of 2016.

Results of Operations

The following information should be read in conjunction with our consolidated financial statements. The key performance indicators that management uses in managing the business are sales, ~~income~~operating ~~before interest,~~ income ~~taxes and noncontrolling interest~~, and cash flows.

Sales and Cost of Sales include intergroup sales and profit. Corporate and Eliminations include intergroup sales and profit eliminations and corporate expenses.

The following ~~tables~~table ~~compare~~compares our unaudited condensed consolidated results of operations for the quarter ~~and nine months~~ ended ~~October~~April 1, ~~2017~~2018 to the quarter ~~and nine months~~ ended ~~October~~April 2, ~~2016~~2017 (in millions):

Sales

	Quarters Ended											~~Nine Months Ended~~
	October 1, 2017			October 2, 2016			Change			Percent Change		October 1, 2017			October 2, 2016			Change			Percent Change
	April 1, 2018			April 2, 2017			Change			Percent Change
Flight Systems Group	$	~~426~~482		$	~~363~~371		$	63111		1729.49	%	$	~~1,222~~		$	~~1,091~~		$	~~131~~		~~12.0~~	%
Defense Systems Group	~~515~~559			~~456~~451			59108			1223.9	%	~~1,390~~			~~1,341~~			49			~~3.7~~	%
Space Systems Group	~~314~~316			~~248~~301			6615			265.60	%	~~917~~			~~813~~			~~104~~			~~12.8~~	%
Corporate and Eliminations	(3945		)	(2438		)	(157		)	(6218.54	)%	~~(113~~		)	~~(62~~		)	~~(51~~		)	~~(82.3~~	)%
Total sales	$	1,~~216~~312		$	1,~~043~~085		$	~~173~~227		1620.69	%	$	~~3,416~~		$	~~3,183~~		$	~~233~~		~~7.3~~	%

Fluctuations in sales were driven by program-related changes within the operating segments as described below.

Quarter:

Flight Systems Group

The increase was driven by higher sales of $4160 million in Aerospace Structures primarily due to increased ~~production~~demand onand ~~composite~~new ~~aircraft~~business ~~and~~scope ~~launch~~in ~~vehicles~~commercial ~~components~~ and ~~increased~~military structures, higher sales of $2535 million in ~~Launch~~Propulsion ~~Vehicles~~Systems due to aincreased ~~new~~production ~~medium~~of ~~range~~SLS ~~ballistic~~boosters ~~missile~~and ~~program~~Trident D5 missiles and increased ~~activity~~sales onof ~~small~~$14 ~~satellite~~million ~~launch~~in ~~programs.~~Launch Vehicles due to increased medium and intermediate range missile volume.

ORBITAL ATK, INC.

Defense Systems Group

The increase was due to higher sales of $3350 million in Armament Systems driven by international business, $1937 million in ~~Missile~~Small ~~Products~~Caliber Systems due to ~~higher~~increased ~~production~~ammunition ~~levels of advanced propulsion~~production, ~~fuze~~ and ~~warhead and ammunition and~~ $14 million in ~~Defense~~Missile ~~Electronics~~Products driven by ~~light~~higher ~~attack aircraft~~ production. ~~These~~levels ~~increases were partially offset by a decrease~~ of $5tactical ~~million in Small Caliber Systems primarily attributable to production delays resulting from an industrial accident that occurred in the Lake City Army Ammunition Plant~~propulsion.

Space Systems Group

The increase was due to higher sales of $4125 million in Satellite Systems driven by ~~strength~~an inincrease ~~Government~~of ~~Satellites~~$34 ~~partially~~million ~~offset~~on bynew ~~weakness~~and inexisting ~~Commercial~~programs ~~Satellites.~~in Indefense ~~addition,~~satellites ~~Advanced~~partially ~~Programs~~offset ~~was~~by ~~higher~~a bydecrease of $1011 million ~~due~~in tosales ~~increased~~for ~~Mission~~scientific, ~~Extension Vehicle ("MEV") activity~~environmental, ~~partially~~and ~~offset~~commercial ~~by decreased Commercial Resupply Services ("CRS") activity~~satellites. The increase was also due to higher sales ~~of $13 million~~ in Space Components asof a$11 ~~result~~million ofdue to increased activity on existing programs. ~~and~~Advanced Programs had lower sales of $613 million indriven ~~Technical~~by a decrease of $24 million for Commercial Resupply Services ~~driven~~("CRS") activity partially offset by ~~activities~~an on$8 ~~our~~million ~~NASA~~increase ~~and~~in ~~Navy~~Mission ~~contracts~~Extension Vehicles ("MEV") activity.

Corporate and Eliminations

The change in Corporate and Eliminations was primarily due to an increase in intercompany activity, which is eliminated in consolidation.

~~Nine Months:~~31

Flight Systems Group

The increase in sales was driven by higher sales of $98 million in Aerospace Structures due to increased production on composite aircraft. The increase was also driven by higher sales in Launch Vehicles of $40 million due to a new medium range ballistic missile program and increased activity on small satellite launch programs, offset by reduced production on existing missile defense programs. These increases were partially offset by a decrease of $5 million in Propulsion Systems due to the near completion of a commercial rocket motor program.

Defense Systems Group

The increase in sales was due to an increase of $44 million in Armament Systems driven by international sales, $33 million in Missile Products due to higher production level on tactical propulsion and $32 million in Defense Electronics due to higher light attack aircraft production. These increases were partially offset by a decrease of $65 million in Small Caliber Systems primarily attributable to production delays resulting from an industrial accident that occurred in the Lake City Army Ammunition Plant.

Space Systems Group

The increase was due to higher sales of $92 million in Satellite Systems driven by strength in Government Satellites partially offset by weakness in Commercial Satellites. In addition, Advanced Programs decreased by $9 million due to lower CRS activity, partially offset by increased MEV activity. The increase was also driven by higher sales of $15 million in Space Components as a result of increased activity on existing programs and $9 million in Technical Services driven by activities on our Navy contracts.

Corporate and Eliminations

The change in Corporate and Eliminations was primarily due to an increase in intercompany activity, which is eliminated in consolidation.

ORBITAL ATK, INC.

Cost of Sales

	Quarters Ended											~~Nine Months Ended~~
	October 1, 2017			October 2, 2016			Change			Percent Change		October 1, 2017			October 2, 2016			Change			Percent Change
	April 1, 2018			April 2, 2017			Change			Percent Change
Flight Systems Group	$	~~326~~368		$	~~278~~288		$	4880		1727.38	%	$	~~931~~		$	~~813~~		$	~~118~~		~~14.5~~	%
Defense Systems Group	~~414~~458			~~379~~368			3590			924.25	%	~~1,112~~			~~1,087~~			25			~~2.3~~	%
Space Systems Group	~~250~~269			~~208~~253			4216			206.23	%	~~752~~			~~647~~			~~105~~			~~16.2~~	%
Corporate and Eliminations	(4973		)	(3253		)	(1720		)	(5337.17	)%	~~(150~~		)	~~(81~~		)	~~(69~~		)	~~(85.2~~	)%
Total cost of sales	$	~~941~~1,022		$	~~833~~856		$	~~108~~166		1319.04	%	$	~~2,645~~		$	~~2,466~~		$	~~179~~		~~7.3~~	%

The fluctuation in cost of sales was due to program-related changes within the operating segments as described below.

Quarter:

Flight Systems Group

The increase was primarily due to higher cost of sales of $2741 million in Aerospace Structures due to increased demand and new business scope in commercial and military structures and higher cost of sales of $26 million in Propulsion Systems due to increased production onof ~~composite~~SLS ~~aircraft~~boosters and ~~launch~~Trident ~~vehicles~~D5 ~~components~~missiles. The increase was also due to higher cost of sales of $2417 million in Launch Vehicles due to aincreased ~~new~~ medium ~~range ballistic missile program~~ and ~~increased~~intermediate ~~activity~~range onmissile ~~small satellite launch programs~~volume.

Defense Systems Group

The increase was due to higher cost of sales of $1842 million in Armament Systems ~~due~~driven toby ~~increased~~ international ~~sales~~business, $1332 million in ~~Missile~~Small ~~Products~~Caliber Systems due to ~~higher~~increased ~~production~~ammunition ~~of advanced propulsion~~production, ~~fuze~~ and ~~warhead and ammunition and~~ $139 million in ~~Defense~~Missile ~~Electronics~~Products driven by higher production ~~level~~levels ~~in light attack aircraft. These increases were partially offset by a decrease~~ of $9tactical ~~million in Small Caliber Systems primarily attributable to production delays resulting from an industrial accident that occurred in the Lake City Army Ammunition Plant~~propulsion.

Space Systems Group

The increase was due to higher cost of sales of $2818 million in Satellite Systems driven by increased activity in ~~Government~~defense ~~Satellites~~satellites, partially offset by ~~weakness~~decreases in ~~Commercial~~scientific, ~~Satellites~~environmental, and commercial satellites. ~~Advanced~~In ~~Programs~~addition, ~~was~~Space ~~higher~~Components byincreased $48 million due to increased ~~MEV~~ activity, ~~partially~~on ~~offset~~existing byprograms. Advanced Programs decreased ~~CRS~~$9 ~~activity.~~million Indriven ~~addition,~~by ~~Space~~a ~~Components~~decrease ~~increased~~of $918 million ~~and~~for ~~Technical~~CRS ~~Services~~activity ~~increased~~partially offset by a $47 million ~~due~~increase toin ~~new~~MEV ~~and existing programs~~costs.

Corporate and Eliminations

The change in Corporate and Eliminations was primarily due to an increase in intercompany activity, which is eliminated in consolidation.

Operating Expenses

Nine Months:



	Quarters Ended
	April 1, 2018		Percent of Sales		April 2, 2017		Percent of Sales		Change
Research and development	$	34	2.6	%	$	22	2.0	%	$	12
Selling	28		2.1	%	28		2.6	%	—
General and administrative	74		5.7	%	68		6.3	%	6
Total operating expenses	$	136	10.4	%	$	118	10.9	%	$	18

Operating expenses increased $18 million in the quarter ended April 1, 2018 compared to the quarter ended April 2, 2017 primarily due to increased research and development in our Flight Systems Group for the Next Generation Launch System for the U.S. Air Force. Additionally, expenses increased due to increased general and administrative costs to support higher volumes as well as our growth initiatives.

The increase was due to higher cost of sales of $76 million in Aerospace Structures due to increased production on composite aircraft. The increase was also driven by higher cost of sales in Launch Vehicles of $49 million due to a new medium range ballistic missile program and activity related to additional missions on Antares, offset by reduced production on existing missile defense programs. 32

Defense Systems Group

The increase was due to higher cost of sales of $29 million in Defense Electronics due to higher light attack aircraft production, $27 million in Missile Products due to increased tactical propulsion production and $23 million in Armament Systems due to international sales. These increases were partially offset by a decrease of $54 million in Small Caliber Systems primarily attributable to production delays resulting from an industrial accident that occurred in the Lake City Army Ammunition Plant.

ORBITAL ATK, INC.

Income Taxes

Space Systems Group



	Quarters Ended
	April 1, 2018		Effective Rate		April 2, 2017		Effective Rate		Change
Income taxes	$	21	17.4	%	$	28	29.3	%	$	(7	)

The ~~increase~~effective ~~was~~income ~~due~~tax torates ~~higher~~for ~~cost~~the ofquarters ~~sales~~ended ofApril 1, ~~$82~~2018 ~~million~~and inApril 2, ~~Satellite~~2017 ~~Systems~~were ~~driven~~17.4% byand ~~increased~~29.3%, ~~activity~~respectively. The decrease in ~~Government~~the ~~Satellites~~effective ~~partially~~tax ~~offset~~rates byfor ~~weakness~~the inquarter ~~Commercial~~ended ~~Satellites.~~April 1, ~~Advanced~~2018, ~~Programs~~compared ~~was~~with ~~higher~~the bysame $8period ~~million~~in 2017, was primarily due to ~~increased~~the ~~MEV~~Tax ~~activity~~Act, which reduced the U.S. Infederal ~~addition~~corporate income tax rate from 35% to 21% effective January 1, ~~Space~~2018, ~~Components~~repealed ~~increased~~the ~~$10~~domestic ~~million~~manufacturing deduction and ~~Technical~~provided ~~Services~~for ~~increased~~a bydeduction $8for ~~million~~foreign derived intangible income. In addition to the effect of the Tax Act, the decrease in effective tax rates was also due to ~~new~~an ~~and~~increase ~~existing~~in ~~programs~~benefit from share-based compensation partially offset by the impact of foreign taxes in the quarter ended April 1, 2018.

Corporate and Eliminations

The change in Corporate and Eliminations was primarily due to an increase in intercompany activity, which is eliminated in consolidation.

	Quarters Ended											Nine Months Ended
	October 1, 2017		Percent of Sales		October 2, 2016		Percent of Sales		Change			October 1, 2017		Percent of Sales		October 2, 2016		Percent of Sales		Change
Research and development	$	24	2.0	%	$	25	2.4	%	$	(1	)	$	78	2.3	%	$	81	2.5	%	$	(3	)
Selling	31		2.5	%	28		2.7	%	3			90		2.6	%	82		2.6	%	8
General and administrative	78		6.4	%	66		6.3	%	12			214		6.3	%	195		6.1	%	19
Total operating expenses	$	133	10.9	%	$	119	11.4	%	$	14		$	382	11.2	%	$	358	11.2	%	$	24

Quarter:

Operating expenses increased $14 million in the quarter ended October 1, 2017 compared to the quarter ended October 2, 2016 primarily due to transaction expenses related to the proposed acquisition by Northrop Grumman, which we refer to as acquisition transaction expenses as well as legal fees related to the restatement of our historical financial statements.

Nine Months:

Operating expenses increased $24 million in the nine months ended October 1, 2017 compared to the nine months ended October 2, 2016 primarily due to acquisition transaction expenses and legal and audit fees related to the restatement of our historical financial statements. Additionally, selling expenses increased due to higher bid and proposal expenses in Flight Systems Group and Defense Systems Group.

	Quarters Ended										Nine Months Ended
	October 1, 2017		Effective Rate		October 2, 2016		Effective Rate		Change		October 1, 2017		Effective Rate		October 2, 2016		Effective Rate		Change
Income taxes	$	31	24.4	%	$	14	18.0	%	$	17	$	90	26.5	%	$	80	25.9	%	$	10

Quarter:

The effective income tax rates for the quarters ended October 1, 2017 and October 2, 2016 were 24.4% and 18.0%, respectively. The increase in the rate from the quarter ended October 2, 2016 is primarily due to the impact of the favorable true up of prior-year taxes and the settlement of the examination by the Internal Revenue Service ("IRS") of the fiscal 2013 and 2014 tax returns in the quarter ended October 2, 2016 and the decrease in benefit from domestic manufacturing deduction ("DMD") in the quarter ended October 1, 2017, partially offset by the favorable changes in uncertain tax benefits, research and development ("R&D") tax credits, and state taxes in the quarter ended October 1, 2017.

ORBITAL ATK, INC.

Nine Months:

Liquidity and Capital Resources

We manage our 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 credit facility, long-term borrowings, and access to the public debt and equity markets. We use our cash to fund investments in our existing core businesses and for debt repayment, cash dividends, share repurchases, ~~acquisitions~~ and other activities.

Cash Flow Summary

Our cash flows for operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows are summarized as follows (in millions):

	Nine Months Ended
	Quarters Ended
	October 1, 2017			October 2, 2016
	April 1, 2018			April 2, 2017
Cash provided by operating activities	$	157		$	107
Cash used in operating activities	$	(237	)	$	(35	)
Cash used in investing activities	(~~138~~71		)	(~~106~~43		)
Cash used in financing activities	(100		)	(42		)
Cash provided by financing activities	21			45
Net cash flows	$	(81287	)	$	(4133	)

Operating Activities

~~Cash~~Net ~~provided~~cash byused in operating activities of continuing operations during the ~~nine~~quarter ~~months~~ ended ~~October~~April 1, ~~2017~~2018 was $~~157~~237 million, ~~compared~~a todecrease ~~cash provided by operating activities~~ of $~~107~~202 million ~~during the nine months ended October 2, 2016. The increase in operating cash flows resulted primarily~~ from ~~the~~$35 ~~net~~million ~~effect~~ of ~~changes~~cash inused ~~working capital and other assets and liabilities and by a $20 million increase~~ in ~~net~~operating ~~income.~~activities ~~During~~for the ~~nine~~quarter ~~months~~ ended ~~October~~April 12, 2017,. ~~changes~~The inchange ~~working~~was ~~capital and other assets and liabilities used $244 million of cash, comprised~~ primarily ofdue ato ~~$168~~an ~~million~~ increase in ~~net~~working ~~receivables,~~capital aof $58239 million ~~decrease in accounts payable~~, ~~a $36 million decrease in contract loss reserve, a $25 million increase in net inventories and a $60 million change in other assets and liabilities,~~ offset by aan ~~$41 million~~ increase in ~~contract~~net ~~advances~~income ~~and~~of ~~allowances, a~~ $4035 million ~~increase in pension and postemployment benefits and a $22 million increase in accrued compensation~~.

During the nine months ended October 2, 2016, changes in working capital and other assets and liabilities used $263 million of cash, comprised primarily of a $203 million increase in net receivables, a $22 million increase in net inventories, a $24 million decrease in contract loss reserve, a $7 million decrease in accrued compensation, an $8 million decrease in pension and postemployment benefits, an $18 million decrease in contract advances and allowances and a $70 million change in other assets and liabilities, offset by a $50 million decrease in income taxes receivable and a $39 million increase in accounts payable.

Investing Activities

Cash used in investing activities consisted primarily of capital expenditures and was $~~138~~71 million and $~~106~~43 million during the ~~nine~~quarters ~~months~~ ended ~~October~~April 1, ~~2017~~2018 and ~~October~~April 2, ~~2016~~2017, respectively. The increase was primarily due to higher capitalized costs ~~for~~during ~~our~~the ~~self-constructed~~quarter ~~Mission~~ended ~~Extension~~April ~~Vehicle~~1, ~~asset~~2018 ofrelated ~~$66~~to ~~million~~expenditures ~~during~~for the ~~nine~~Next ~~months~~Generation ~~ended~~Launch ~~October~~System 1,for ~~2017~~the U.S. ~~The~~Air ~~vehicle~~Force ~~will~~of ~~provide~~$9 ~~in-orbit~~million ~~satellite~~and ~~life~~approximately ~~extension~~$5 ~~services~~million ~~when~~for ~~completed~~our self-constructed Mission Extension Vehicle assets.

Financing Activities

Cash ~~used~~provided inby financing activities during the ~~nine~~quarter ~~months~~ ended ~~October~~April 1, ~~2017~~2018 was $~~100~~21 million, compared to ~~cash used in financing activities of~~ $4245 million for the ~~nine~~quarter ~~months~~ ended ~~October~~April 2, ~~2016~~2017. The ~~increase~~decrease in cash ~~used~~provided inby financing activities is due primarily to lower net borrowings of $~~135~~15 million on our Senior Credit Facility, ~~offset~~a ~~partially~~$5 bymillion aincrease ~~decrease~~ in share repurchases and ana ~~increase~~decrease in proceeds from employee stock compensation plans.

3033

ORBITAL ATK, INC.

Liquidity

In addition to our normal operating cash requirements, our principal future cash requirements will be to fund capital expenditures, repay debt, satisfy employee benefit obligations, ~~repurchase~~and ~~shares,~~ pay dividends ~~and complete any strategic acquisitions~~. Our short-term cash requirements for operations are expected to consist mainly of capital expenditures to maintain and expand production facilities and working capital requirements. Our debt service requirements over the next two years consist of principal payments due under the Senior Credit Facility, as discussed further below. Our other debt service requirements consist of interest expense on our debt.

During the ~~nine~~quarter ~~months~~ ended ~~October~~April 1, ~~2017~~2018, we paid dividends totaling $5518 million. The payment and amount of any future dividends are at the discretion of our 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. Under the terms of the Merger Agreement with Northrop Grumman, we are permitted to, and intend to, continue paying a $0.32 per share quarterly cash dividend until the closing of the transaction. However, we are not permitted to increase the per share dividend under the terms of the Merger Agreement. On May 2, 2018, the Board of Directors declared a quarterly cash dividend of $0.32 per share to shareholders of record on May 11, 2018 to be paid on May 17, 2018.

Based on our current financial condition, we believe our cash position, combined with anticipated generation of cash flows, as well as the availability of funding, if needed, through our Senior Credit Facility, access to debt and equity markets, and potential future sources of funding such as additional bank financing and debt markets, will be adequate to fund future growth as well as service our anticipated long-term debt and pension obligations, make capital expenditures and pay dividends over the next 12 months.

We do not expect our access to liquidity sources 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 ~~October~~April 1, ~~2017~~2018, we had outstanding total indebtedness of $1,~~420~~460 million and the potential of additional borrowings of up to $~~819~~692 million on our $1 billion Revolving Credit Facility, reduced for outstanding letters of credit of $~~181~~248 million.

Our outstanding indebtedness consisted of the following (in millions):

	October 1, 2017		December 31, 2016
	April 1, 2018		December 31, 2017
Senior Credit Facility:
Term Loan A due 2020	$	~~720~~700	$	~~750~~710
Revolving Credit Facility due 2020	—60		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,~~420~~460		1,~~450~~410
Unamortized debt issuance costs:
Senior Credit Facility	4		54
5.25% Senior Notes due 2021	1		21
5.50% Senior Notes due 2023	54		54
Unamortized debt issuance costs	109		129
Long-term debt less unamortized debt issuance costs	1,~~410~~451		1,~~438~~401
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,~~370~~411	$	1,~~398~~361

3134

ORBITAL ATK, INC.

Covenants

As of ~~October~~April 1, ~~2017~~2018, our specified financial ratios that our Credit Agreement requires us to meet are as follows:

	Total Leverage Ratio (1)	Interest Coverage Ratio (2)
Requirement	4.00	3.00
Actual at October 1, 2017	1.98	11.16
Actual at April 1, 2018	1.92	12.36

____________________________________________________________

⁽¹⁾ Not to exceed the required financial ratio

⁽²⁾ Not to be below the required financial ratio

Total Leverage Ratio is the sum of our total debt plus financial letters of credit, net of up to $100 million of cash, divided by Covenant Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") (which includes adjustments for items such as nonrecurring or extraordinary noncash items, noncash charges related to stock-based compensation and intangible asset impairment charges, as well as the inclusion of EBITDA of acquired companies on a pro forma basis) for the past four fiscal quarters. Interest Coverage Ratio is Covenant EBITDA divided by cash payments for interest expense. The Company is in compliance with its credit agreement covenants as of ~~October~~April 1, ~~2017~~2018.

Our debt agreements contain cross-default provisions so that noncompliance with the covenants within one debt agreement that would give rise to the right to accelerate repayment of any outstanding indebtedness could cause a default under other debt agreements as well. Our ability to comply with these covenants in the future and to meet and maintain the requisite financial ratios may be affected by events beyond our control.

See Note 8 - Long-term Debt to the condensed consolidated financial statements in Part I, Item 1, "Financial Statements," for a detailed discussion of our borrowings and the associated covenants in our debt agreements.

Share Repurchases

Shares of our common stock may be purchased from time to time in the open market, subject to compliance with applicable laws and regulations and our debt covenants, depending upon market conditions and other factors. During 2016, the Board of Directors authorized an increase to the amount for repurchase of the Company's common stock to the lesser of $300 million or 4 million shares through March 31, 2017. On February 27, 2017, the Board of Directors further increased the amount authorized for repurchase to $450 million, removed the share quantity limitation and extended the repurchase period through March 31, 2018. We ~~repurchased~~made ~~64,489~~no ~~shares~~repurchases ~~for $7 million and 230,918 shares for $23 million~~ during the ~~quarter~~quarters ~~and nine months~~ ended ~~October~~April 1, ~~2017.~~2018 ~~We repurchased 576,407 shares for $44 million~~ and ~~1,104,511~~April ~~shares for $88 million during the quarter and nine months ended October~~ 2, ~~2016~~2017. In connection with the Merger, the Company halted its share repurchase program.

Contractual Obligations and Commercial Commitments

There have been no material changes at ~~October~~April 1, ~~2017~~2018 with respect to the contractual obligations and commitments or off-balance sheet arrangements described in the Form 10-K.

Contingencies

Environmental Liabilities

Our operations and ownership or use of real property are subject to a number of federal, state, and local environmental laws and regulations, as well as applicable foreign 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 we own or operate or formerly owned or operated, there is known or potential contamination that we are required to investigate or remediate. We 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 noncompliance with environmental permits.

ORBITAL ATK, INC.

We expect that a portion of our 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 are covered by various indemnification agreements, as described in Note 16 - Contingencies to the audited consolidated financial statements included in our Form 10-K for the year ended December 31, 2016.35

ORBITAL ATK, INC.

We expect that a portion of our 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 are covered by various indemnification agreements, as described in Note 16-Contingencies to the audited consolidated financial statements included in our Form 10-K for the year ended December 31, 2017.

We have been identified as a potentially responsible party ("PRP"), along with other parties, in several regulatory agency actions associated with hazardous waste sites. As a PRP, we may be required to pay a share of the costs of the investigation and clean-up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our operating results, financial condition or cash flows.

Other Contingencies

We are also subject to a number of other potential risks and contingencies. These risks and contingencies are described in Item 1A, "Risk Factors," of Part I of the Form 10-K.

New Accounting Pronouncements

See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements in Item 1 of Part I, "Financial Statements," of this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in our market risk during the ~~nine~~quarter ~~months~~ ended ~~October~~April 1, ~~2017~~2018. For additional information, refer to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of Part II of our Form 10-K for the year ended December 31, ~~2016~~2017.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

AsOur ~~of October 1, 2017,~~ management ~~of the Company~~, with the participation of our ~~Chief~~principal ~~Executive~~executive ~~Officer~~officer ~~and~~(President, Chief ~~Financial~~Executive Officer,) ~~evaluated the effectiveness of the design~~ and ~~operation~~principal offinancial ~~our~~officer ~~disclosure controls and procedures~~ (asChief ~~defined~~Financial ~~in Rule 13a-15(e~~Officer) ~~under~~have ~~the~~evaluated ~~Securities Exchange Act of 1934). As described in Management’s Report on Internal Control over Financial Reporting in Item 9A of~~ the Company’s ~~Annual~~disclosure ~~Report~~controls onand ~~Form~~procedures ~~10-K for the fiscal year ended December 31, 2016, we previously reported the following material weakness in internal control over financial reporting that existed as of December 31, 2016 related to:~~

~~(i) Designing and maintaining controls related to the preparation, review and approval of costs incurred and contract estimates used to determine revenue at the Small Caliber Systems Division.~~36

This material weakness in our internal control over financial reporting was not remediated as of October 1, 2017. As a result, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of October 1, 2017.

Remediation of Material Weaknesses

During the quarter ended October 1, 2017, the Company completed the remediation actions for one previously identified material weakness related to maintaining an effective control environment at our Defense Systems Group and its Small Caliber Systems Division.

For the material weakness listed above that was not remediated as of October 1, 2017, management believes it has made meaningful progress toward improving and strengthening the affected internal controls. Management has substantially completed the following remediation actions and is currently testing the operating effectiveness of the relevant controls:

ORBITAL ATK, INC.

(~~i) We~~as ~~completed~~defined ain ~~detailed~~Rule ~~review~~13a-15(e) and Rule 15d-15(e) of the ~~long-term~~Securities ~~contract~~Exchange ~~with~~Act of 1934 (the ~~U.S.~~"Exchange ~~Army~~Act")) toas ~~manufacture~~of April 1, 2018, and ~~supply~~have ~~small~~concluded ~~caliber~~that ~~ammunition~~these atcontrols and procedures are effective to ensure that information required to be disclosed by us in the ~~Lake~~reports ~~City~~that ~~Army~~we ~~Ammunition~~file ~~Plant~~or submit under the Exchange Act is recorded, processed, summarized and reported within the ~~underlying~~time ~~estimates~~periods ~~for~~specified ~~its~~in ~~percentage~~the ofSEC’s ~~completion~~rules ~~revenue~~and ~~recognition~~forms. ~~accounting~~These ~~model~~disclosure controls and ~~developed~~procedures ~~extensive~~include, ~~analysis~~without limitation, controls and procedures designed to ~~develop~~ensure ~~our~~that ~~management~~information ~~estimates~~required to be disclosed in the ~~estimate~~reports atthat ~~completion~~we ~~(“EAC”).~~file ~~Furthermore,~~or ~~this~~submit ~~detailed~~is ~~review~~accumulated ~~led~~and communicated to ~~the~~management, ~~implementation~~including ofthe aprincipal ~~more~~executive ~~robust~~officer and ~~standard~~the ~~EAC~~principal ~~model~~financial ~~where~~officer, weas ~~have~~appropriate ~~enhanced~~to ~~management~~allow ~~controls~~timely ~~and~~decisions ~~oversight~~regarding required disclosure.

We continue to monitor and enhance our control environment and will make further changes as appropriate. We believe the remediation steps outlined above have improved and will continue to improve the effectiveness of our internal control over financial reporting. While we have made meaningful progress on strengthening our internal controls relative to this material weakness, we have not fully tested all our remediation actions to verify the effectiveness of their design or operation.

Changes in Internal Control over Financial Reporting

During the quarter ended ~~October~~April 1, ~~2017~~2018, ~~there were~~ no ~~changes~~change occurred in ~~the~~our ~~Company’s~~ internal ~~control~~controls over financial reporting ~~(as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) other than changes related to the remediation of the material weakness described above,~~ that ~~have~~ materially affected, or ~~are~~is reasonably likely to materially affect, ~~the~~our ~~Company’s~~ internal ~~control~~controls over financial reporting.

3437

ORBITAL ATK, INC.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of our business. We do not consider any of such proceedings that are currently pending, individually or in the aggregate to be material to our business or likely to result in a material adverse effect on our future operating results, financial condition or cash flows, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any particular quarter.

~~Securities~~US ~~Class~~Space ~~Action~~Litigation. AtApril ~~least~~29, ~~six~~2016, ~~purported~~US ~~class~~Space ~~actions~~LLC ~~challenging the Merger have been~~ filed ina ~~the~~complaint ~~United~~against ~~States District Court for~~ the ~~Eastern~~Company ~~District~~and ofits ~~Virginia~~subsidiary, ~~captioned~~ATK ~~Lickteig~~Space v.Systems ~~Orbital ATK,~~ Inc., etin ~~al.,~~New ~~filed~~York ~~October~~Supreme 11Court, ~~2017~~alleging ~~(the~~breach ~~“Lickteig~~of ~~Action”),~~contract ~~Ayzin~~and v.various ~~Orbital~~other ~~ATK~~claims, ~~Inc.~~and etseeking ~~al.~~unspecified damages, ~~filed~~all ~~October~~related ~~13,~~to ~~2017~~ViviSat ~~(the~~LLC ~~“Ayzin Action”~~("ViviSat"), ~~Sedon~~a v.former ~~Orbital~~joint ~~ATK,~~venture ~~Inc.,~~between etthe alparties., ~~filed~~The ~~October~~Company ~~16,~~believes ~~2017~~US ~~(the~~Space’s ~~“Sedon~~claims ~~Action”),~~are ~~Berg~~without vmerit. ~~Orbital~~On ~~ATK,~~May ~~Inc.~~27, ~~et al.~~2016, ~~filed October 16, 2017 (~~the ~~"Berg~~Company ~~Action"),~~filed ~~Simnowitz~~a v.countersuit ~~Orbital~~in ~~ATK,~~Loudoun ~~Inc.~~County etCircuit ~~al.,~~Court ~~filed~~in ~~October~~the ~~18,~~Commonwealth ~~2017~~of Virginia (~~the~~ATK ~~"Simnowitz~~Space ~~Action")~~Systems, ~~and Cramer v~~Inc. and Orbital ATK, Inc. etv. ~~al,~~U.S. ~~filed~~Space ~~October 25~~LLC, ~~2017~~Case ~~(the~~No. ~~"Cramer~~CL-101847) ~~Action"~~asserting ~~and~~claims ~~collectively,~~for ~~with~~declaratory ~~the~~and ~~Lickteig~~injunctive ~~Action,~~relief ~~Ayzin~~against ~~Action,~~US ~~Sedon~~Space ~~Action,~~LLC ~~Berg~~relating ~~Action,~~to ~~and Simnowitz, the “Actions”)~~ViviSat. The ~~Lickteig~~Company’s ~~Action~~Virginia ~~and~~complaint ~~the~~alleged ~~Berg~~a ~~Action~~failure ~~name~~of asUS ~~defendants~~Space ~~the~~to ~~Company,~~perform ~~the~~contractual ~~Company’s~~obligations ~~directors,~~relating ~~Northrop~~to ~~Grumman~~obtaining ~~and~~financing ~~Sub.~~for ~~The Ayzin Action~~ViviSat, ~~the~~triggering ~~Sedon~~certain ~~Action,~~rights ~~the~~of ~~Simnowitz Action and~~ the ~~Cramer~~Company ~~Action~~that ~~name~~led asto ~~defendants~~ the ~~Company~~dissolution ~~and~~of the ~~Company’s directors~~venture. On ~~The~~November ~~Actions~~11, ~~allege~~2016, ~~certain~~the ~~violations~~New ofYork ~~the~~Supreme ~~Securities~~Court ~~and~~dismissed ~~Exchange~~US ~~Act~~Space’s ofNew ~~1934,~~York ascase ~~amended,~~in ~~and~~its ~~seek,~~entirety. ~~among~~On ~~other~~January ~~things~~6, ~~damages~~2017, ~~attorneys’~~US ~~fees~~Space ~~and~~filed ~~injunctive~~counterclaims ~~relief~~against tothe ~~prevent~~Company, ~~the~~similar ~~Merger~~to ~~from~~its ~~closing.~~previous ~~The~~claims ~~Company~~in ~~believes~~its ~~that~~now-dismissed ~~the~~New ~~Actions~~York ~~lack~~lawsuit. ~~merit~~US ~~and~~Space’s ~~intend~~initial tocounterclaims ~~defend~~in ~~against~~the ~~them~~Virginia ~~vigorously.~~case Ifsought ~~the~~damages ~~Actions~~of ~~are~~at ~~not~~least ~~resolved~~$125 onmillion, abut ~~timely~~increased ~~basis,~~its ~~the~~damages ~~Actions~~demand ~~could~~to ~~delay~~$385 ~~consummation~~million ofin the ~~Merger~~fourth ~~and~~quarter ~~result~~of in2017. ~~additional~~On ~~costs~~February to22, ~~the Company~~2018, ~~including~~following ~~costs~~a ~~associated~~trial ~~with~~on the ~~indemnification~~matter, ofa ~~directors.~~jury ~~Additional~~found ~~plaintiffs~~in ~~may~~favor ~~file~~of ~~lawsuits against~~ the Company and~~/or~~ ~~its~~awarded ~~directors~~zero ~~and~~damages ~~officers~~to inUS ~~connection with the Merger~~Space.

OnMerger ~~August~~Class ~~12,~~Actions. ~~2016,~~Seven apurported ~~putative~~ class ~~action~~actions ~~complaint,~~challenging ~~naming~~the Merger were filed in the ~~Company,~~United ~~our~~States ~~Chief~~District ~~Executive~~Court ~~Officer~~for ~~and~~the ~~our~~Eastern ~~Chief~~District ~~Financial~~of ~~Officer~~Virginia, ascaptioned ~~defendants~~Lickteig v. Orbital ATK, ~~was~~Inc., et al., filed inOctober 11, 2017 (the ~~United~~"Lickteig ~~States~~Action"), ~~District~~Ayzin ~~Court~~v. ~~for~~Orbital ~~the~~ATK, ~~Eastern~~Inc., ~~District~~et ofal., ~~Virginia~~filed October 13, 2017 (~~Steven~~the ~~Knurr~~"Ayzin Action"), Sedon v. Orbital ATK, Inc., et al., filed October 16, 2017 (the "Sedon Action"), Berg v. Orbital ATK, Inc., Noet al., filed October 16~~-cv-01031~~, 2017 (~~TSE-MSN~~the "Berg Action")), Simnowitz v. ~~The~~Orbital ~~class~~ATK, ~~action~~Inc., ~~complaint~~et ~~asserts~~al., ~~claims~~filed onOctober ~~behalf~~18, of2017 ~~purchasers~~(the of"Simnowitz Action"), Cramer v. Orbital ATK, ~~securities~~Inc., ~~for~~et ~~violations~~al., offiled ~~Sections~~October 1025, 2017 (bthe "Cramer Action"), and 20Donato v. Orbital ATK, Inc., et al., filed on November 7, 2017 (athe "Donato Action" and collectively with the Lickteig Action, Ayzin Action, Sedon Action, Berg Action, Simnowitz Action and Cramer Action, the "Actions"). The Actions alleged certain violations of the Securities and Exchange Act of 1934 (the "Exchange Act"), ~~and~~as ~~Rule~~amended, ~~10b-5~~and ~~thereunder~~sought, ~~arising~~among ~~out~~other ofthings, ~~allegedly~~damages, ~~false~~attorneys' fees and ~~misleading~~injunctive ~~statements~~relief ~~and~~to prevent the ~~failure~~Merger tofrom ~~disclose~~closing. ~~that:~~While ~~(i)~~ the Company ~~lacked~~believed ~~effective~~that ~~control~~the ~~over~~Actions ~~financial~~lacked ~~reporting;~~merit and ~~(ii)~~that asthe adisclosures ~~result,~~set forth in the ~~Company~~proxy ~~failed~~statement complied fully with applicable law, in order to ~~record~~moot anplaintiffs' ~~anticipated~~unmeritorious ~~loss~~disclosure onclaims, ~~its~~avoid ~~long-term~~nuisance ~~contract~~and ~~with~~possible ~~the~~expense ~~U.S.~~and ~~Army~~provide additional information to ~~manufacture~~our ~~and~~stockholders, ~~supply~~the ~~small~~Company ~~caliber~~determined ~~ammunition~~to atvoluntarily supplement the ~~U.S.~~proxy ~~Army~~statement, as set forth in the Company's ~~Lake~~Schedule ~~City~~14A ~~Army~~filed ~~Ammunition~~with ~~Plant.~~the OnSEC ~~April~~on 24November 20, 2017. ~~and~~On ~~October~~November 1020, 2017, the ~~plaintiffs~~Ayzin ~~filed~~Action, ~~amended~~Sedon ~~complaints~~Action, ~~naming~~Berg ~~additional~~Action, ~~defendants~~Cramer Action and ~~asserting~~Donato ~~claims~~Action ~~for~~were ~~violations~~each ofvoluntarily ~~additional~~dismissed ~~sections~~with ofprejudice as to the ~~Exchange~~plaintiffs. ~~Act~~On ~~and~~December ~~alleged~~8, ~~false~~2017, ~~and~~the ~~misleading~~Simnowitz ~~statements~~Action inwas ~~the~~voluntarily ~~Company’s~~dismissed ~~Form~~with ~~S-4~~prejudice ~~filed~~as ~~with~~to the ~~SEC~~plaintiff ~~relating~~and toon ~~the~~January ~~merger~~12, ~~between~~2018, the ~~Company~~Lickteig ~~and~~Action ~~Orbital~~was ~~Sciences~~voluntarily ~~Corporation.~~dismissed ~~The~~with ~~complaint~~prejudice ~~seeks~~as anto ~~award~~the plaintiff. While each of ~~damages,~~the anActions ~~award~~have ofbeen ~~reasonable~~voluntarily ~~costs~~dismissed ~~and~~with ~~expenses~~prejudice atas ~~trial~~to the plaintiffs, ~~including~~additional ~~counsel~~plaintiffs ~~and~~may ~~expert~~file ~~fees,~~lawsuits ~~and~~against anthe ~~award~~Company ofand/or ~~such~~its ~~other~~directors ~~relief~~and asofficers ~~deemed~~in ~~appropriate~~connection bywith the ~~Court~~Merger.

Securities Class Action. On August 12, 2016, a putative class action complaint, naming the Company, our Chief Executive Officer and our Chief Financial Officer as defendants, was filed in the United States District Court for the Eastern District of Virginia (Steven Knurr, et al. v. Orbital ATK, Inc., No. 16-cv-01031 (TSE-MSN)). The class action complaint asserts claims on behalf of purchasers of Orbital ATK securities for violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder, arising out of allegedly false and misleading statements and the failure to disclose that: (i) the Company lacked effective control over financial reporting; and (ii) as a result, the Company failed to record an anticipated loss on its long-term contract with the U.S. Army to manufacture and supply small caliber ammunition at the U.S. Army's Lake City Army Ammunition Plant. On April 24, 2017 and October 10, 2017, the plaintiffs filed amended complaints naming additional defendants and asserting claims for violations of additional sections of the Exchange Act and alleged false and misleading statements in the Company's Form S-4 filed with the SEC relating to the Orbital-ATK Merger. The complaint seeks an award of damages, an award of reasonable costs and expenses at trial, including counsel and expert fees, and an award of such other relief as deemed appropriate by the Court.

ORBITAL ATK, INC.

SEC Investigation. The SEC is conducting a non-public investigation relating to our historical accounting practices as a result of the prior restatement of the Company’s unaudited condensed consolidated financial statements for the quarterly periods ended July 5, 2015 and October 4, 2015 as described in the Company's Amendment to the Transition Report on Form 10-K for the nine-month transition period ending December 31, 2015 filed on March 15, 2016. The Company has also voluntarily self-reported to the SEC regarding matters pertaining to the Restatement described in the Company's Amendment to the Transition Report on Form 10-K for the nine-month transition period ending December 31, 2015 filed on February 24, 2017. The Company is cooperating fully with the SEC in connection with these matters.

U.S. Government Investigations. We are 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. We believe, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on our operating results, financial condition or cash flows.

Environmental Liabilities. Our 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 our Company being involved with a number of related legal proceedings, claims and remediation obligations. We routinely assess, based on in-depth studies, expert analyses and legal reviews, our contingencies, obligations, and commitments for remediation of contaminated sites and past practices, including assessments of ranges and probabilities of recoveries from other responsible parties. Our 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.

ORBITAL ATK, INC.

contaminated sites, and restoration of damage to the environment. Due in part to their complexity and pervasiveness, such laws and regulations have resulted in our Company being involved with a number of related legal proceedings, claims and remediation obligations. We routinely assess, based on in-depth studies, expert analyses and legal reviews, our contingencies, obligations, and commitments for remediation of contaminated sites and past practices, including assessments of ranges and probabilities of recoveries from other responsible parties. Our 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.

We have been identified as a PRP, along with other parties, in several regulatory agency actions associated with hazardous waste sites. As a PRP, we may be required to pay a share of the costs of the investigation and clean-up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our operating results, financial condition or cash flows.

We could incur substantial costs, including cleanup costs, resource restoration costs, fines, and penalties or third-party property damage or personal injury claims, as a result of violations or liabilities under environmental laws or noncompliance with environmental permits. While environmental laws and regulations have not had a material adverse effect on our operating results, financial condition or cash flows in the past, and we have 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 I, Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Contingencies," is incorporated herein by reference.

ITEM 1A. RISK FACTORS

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A, "Risk Factors," of Part I of our Report on Form 10-K for the year ended December 31, ~~2016~~2017 ("Form 10-K"), describes material risks and uncertainties associated with our business. There were no material changes to these risk factors. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results and future prospects.

On September 17, 2017, we entered into an Agreement and Plan of Merger with Northrop Grumman and Neptune Merger, Inc., a wholly owned subsidiary of Northrop Grumman, to acquire Orbital ATK (the "Merger"). See Part 1, Item 2 of this report. For additional information regarding the Merger, please see our Current Report on Form 8-K filed on September 18, 2017. In addition to the risks we identified in our Form 10-K, we have identified the following risks related to the Merger: 39

Failure to complete the Merger could negatively impact the price of our common stock, as well as our future business and financial results.

The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Merger. We cannot assure you that all of the conditions to the Merger will be so satisfied or waived. If the conditions to the Merger are not satisfied or waived, we may be unable to complete the Merger.

If the Merger is not completed, our ongoing business may be adversely affected as follows: (i) we may experience negative reactions from the financial markets, including negative impacts on the market price of our common stock; (ii) some of management's attention will have been directed to the Merger instead of being directed to our own operations and the pursuit of other opportunities that could have been beneficial to us; (iii) the manner in which customers, suppliers and other third parties perceive us may be negatively impacted, which in turn could affect our ability to compete for business; (iv) we may experience negative reactions from employees; (v) we will have expended time and resources that could otherwise have been spent on our existing business; and (vi) we may be required, in certain circumstances, to pay a termination fee of $275 million, as provided in the Merger Agreement.

Additionally, in approving the Merger Agreement, the Board of Directors considered a number of factors and potential benefits, including the fact that the Merger consideration to be received by holders of our common stock

ORBITAL ATK, INC.

represented a 22.2% premium to the closing price of our common stock on September 15, 2017. If the Merger is not completed, neither the Company nor the holders of our common stock will realize this benefit of the Merger. Moreover, we would also have nevertheless incurred substantial transaction-related fees and costs and the loss of management time and resources.

The Merger is conditioned on, among other things, the approval of our stockholders. The special meeting of our stockholders to consider and vote upon the Merger and related matters is currently scheduled to be held on November 29, 2017.

A significant delay in consummating or a failure to consummate the Merger could have a material adverse effect on the price of our common stock and our operating results.

Because the Merger is subject to certain closing conditions, it is possible that the Merger may not be completed or may not be completed as quickly as expected. If the Merger is not completed, it could have a material adverse effect on the price of our common stock. In addition, any significant delay in consummating the Merger could have a material adverse effect on our operating results and adversely affect our relationships with customers and suppliers and would likely lead to a significant diversion of management and employee attention.

Expenses related to the proposed Merger are significant and will adversely affect our operating results.

We have incurred and expect to continue to incur significant expenses in connection with the proposed Merger, including legal and investment banking fees. We expect these costs to have an adverse effect on our operating results. If the Merger is not consummated, we may under certain circumstances be required to pay to Northrop Grumman a termination fee of $275 million. Our financial position and results of operations would be adversely affected if we were required to pay the termination fee to Northrop Grumman.

We are subject to business uncertainties and contractual restrictions while the Merger is pending, which could adversely affect our business.

The Merger Agreement requires us to act in the ordinary course of business and restricts us, without the consent of Northrop Grumman, from taking certain specified actions until the proposed Merger occurs or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Merger or, if the Merger is not completed, termination of the Merger Agreement.

Uncertainties associated with the Merger may cause a loss of management and other key employees and disrupt our business relationships, which could adversely affect our business.

Uncertainty about the effect of the Merger on our employees, customers and suppliers may have an adverse effect on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter. Employee retention may be particularly challenging during the pendency of the Merger. If key employees depart and as we face additional uncertainties relating to the Merger, our business relationships may be subject to disruption as customers, suppliers and other third parties attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company. If key employees depart or if our existing business relationships suffer, our results of operations may be adversely affected. The adverse effects of such disruptions could be further exacerbated by any delay in the completion of the Merger.

The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us for greater consideration than what Northrop Grumman has agreed to pay.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a company other than Northrop Grumman. These provisions include a general prohibition on us soliciting any acquisition proposal or offer for a competing transaction. If we or Northrop Grumman terminate the Merger Agreement and we agree to be or are subsequently acquired by another company, we may in some circumstances be required to pay to Northrop

ORBITAL ATK, INC.

Grumman a termination fee of $275 million. Further, our Board of Directors has agreed in the Merger Agreement, subject to limited exceptions, that it will not withdraw or modify in a manner adverse to Northrop Grumman its recommendation that our stockholders approve the Merger.

These provisions might discourage a third party that has an interest in acquiring all or a significant part of the Company from considering or proposing an acquisition, even if the party were prepared to pay consideration with a higher per share cash or market value than the cash value proposed to be received in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Numberof SharesPurchased (1)	AveragePrice Paidper Share		Total Numberof SharesPurchasedas Part ofPubliclyAnnouncedProgram (2)	AmountAvailable forFuture ShareRepurchasesUnder the Plansor Programs(in millions)
July 3 - July 30	67,187	$	102.13	49,957
January 1 - January 28	755	$	132.54	—
July 31 - August 27	14,602	$	103.82	14,532
January 29 - February 25	41,009	$	131.81	—
August 28 - October 1	109	$	132.80	—
February 26 - April 1	42,692	$	131.92	—
Quarter ended October 1, 2017	81,898	$	102.48	64,489	$	227
Quarter ended April 1, 2018	84,456	$	131.87	—	$	227

____________________________________________________________

(1) The 8184,~~898~~456 shares purchased include shares withheld to pay taxes upon vesting of shares of restricted stock ~~and restricted stock units~~ or payment of performance shares that were granted under our incentive compensation plans.

(2) During 2015, the Board of Directors approved a stock repurchase program that authorized the repurchase of up to the lesser of $250 million or 3.25 million shares through December 31, 2016, which was subsequently increased during 2016 to the lesser of $300 million or 4 million shares through March 2017. In February 2017, the Board of Directors further increased the amount authorized for repurchase to $450 million, removed the share quantity limitation and extended the repurchase period through March 31, 2018. WeThe ~~purchased~~Company ~~64,489~~did not repurchase shares ~~for~~under $7its ~~million~~share repurchase program during the ~~quarter~~quarters ended ~~October~~April 1, 2018 and April 2, 2017. In connection with the Merger, the Company halted its share repurchase program.

The discussion of limitations upon the payment of dividends as a result of the indentures governing our debt instruments as discussed in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Long-term Debt and Credit Facilities," is incorporated herein by reference.

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ORBITAL ATK, INC.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ORBITAL ATK, INC.

ITEM 6. EXHIBITS

ExhibitNumber		Description of Exhibit (and document from which incorporated by reference, if applicable)
2.1		Agreement and Plan of Merger, dated as of September 17, 2017 among Northrop Grumman Corporation, Neptune Merger, Inc. and the Registrant (Exhibit 2.1 to Form 8-K dated September 17, 2017).
10.1		Environmental Agreement, dated at October 28, 1994, between the Registrant and Hercules Incorporated (Exhibit 10.2.1 to the Form 10-K for the year ended March 31, 2003) (filed pursuant to Instruction 2 to Rule 105(d) of Regulation S-T, to correct the hyperlink to Exhibit 10.5.1 to the Registrant's Form 10-K for the year ended December 31, 2017).
3(ii).1		Amended and Restated Bylaws of the Registrant, Effective August 9, 2017 (Exhibit 3.1 to Form 8-K dated August 9, 2017).
10.2		Form of Performance Growth Award Agreement under the Alliant Techsystems Inc. 2005 Stock Incentive Plan for the three-fiscal-year period beginning April 1, 2015 (Exhibit 10.13.11 to the Form 10-K for the year ended March 31, 2015) (filed pursuant to Instruction 2 to Rule 105(d) of Regulation S-T, to correct the hyperlink to Exhibit 10.14.6 to the Registrant's Form 10-K for the year ended December 31, 2017).
10.1		Description of Non-Employee Directors' Cash and Equity Compensation, Effective as of August 10, 2017.
10.2		Non-Employee Director Stock Program (as amended and restated August 10, 2017) under the Orbital ATK, Inc. 2015 Stock Incentive Plan.
31.1		Certification of Chief Executive Officer.
31.2		Certification of Chief Financial Officer.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

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ORBITAL ATK, INC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on ~~November~~May 23, ~~2017~~2018.



	ORBITAL ATK, INC.
	By:		/s/ David W. Thompson
	Name:		David W. Thompson
	Title:		President and Chief Executive Officer
			(duly authorized and principal executive officer)



	By:		/s/ Garrett E. Pierce
	Name:		Garrett E. Pierce
	Title:		Chief Financial Officer
			(principal financial officer)

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Filing Compare · Northrop Grumman Innovation Systems, Inc.