10-Q

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 July 2, 2017
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 July 27, 2017, there were 57,607,791 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 July 2, 2017 and December 31, 2016	2
	Condensed Consolidated Statements of Income for the Quarters and Six Months Ended July 2, 2017 and July 3, 2016	3
	Condensed Consolidated Statements of Comprehensive Income for the Quarters and Six Months Ended July 2, 2017 and July 3, 2016	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 2, 2017 and July 3, 2016	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
PART II Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
SIGNATURES		36

PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(Amounts in millions except share data)	July 2, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	74		$	200
Net receivables	1,872			1,741
Net inventories	281			215
Other current assets	83			79
Total current assets	2,310			2,235
Property, plant and equipment, net of accumulated depreciation of $1,166 at July 2, 2017 and $1,121 at December 31, 2016	842			816
Goodwill	1,832			1,832
Net intangibles	79			98
Other noncurrent assets	416			437
Total assets	$	5,479		$	5,418
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	40		$	40
Accounts payable	92			175
Contract loss reserve	174			197
Contract advances and allowances	286			233
Accrued compensation	98			120
Other current liabilities	533			577
Total current liabilities	1,223			1,342
Long-term debt	1,454			1,398
Pension and postemployment benefits	720			744
Other noncurrent liabilities	118			117
Total liabilities	3,515			3,601
Commitments and contingencies (Note 11)
Common stock—$.01 par value: authorized—180,000,000 shares; issued and outstanding—57,610,035 shares at July 2, 2017 and 57,487,466 shares at December 31, 2016	1			1
Additional paid-in-capital	2,170			2,175
Retained earnings	1,382			1,266
Accumulated other comprehensive loss	(733		)	(764		)
Common stock in treasury, at cost—11,324,989 shares held at July 2, 2017 and 11,447,558 shares held at December 31, 2016	(867		)	(872		)
Total Orbital ATK, Inc. stockholders' equity	1,953			1,806
Noncontrolling interest	11			11
Total equity	1,964			1,817
Total liabilities and equity	$	5,479		$	5,418

See Notes to the Condensed Consolidated Financial Statements.

2

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Quarters Ended						Six Months Ended
(Amounts in millions except per share data)	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Sales	$	1,115		$	1,084		$	2,200		$	2,140
Cost of sales	848			804			1,704			1,633
Gross profit	267			280			496			507
Operating expenses:
Research and development	32			36			54			56
Selling	31			27			59			54
General and administrative	68			69			136			129
Income before interest, income taxes and noncontrolling interest	136			148			247			268
Net interest expense	(17		)	(17		)	(34		)	(34		)
Income before income taxes and noncontrolling interest	119			131			213			234
Income taxes	31			40			59			66
Income before noncontrolling interest	88			91			154			168
Less net income attributable to noncontrolling interest	—			—			—			—
Net income attributable to Orbital ATK, Inc.	$	88		$	91		$	154		$	168
Basic earnings per common share from:
Net income attributable to Orbital ATK, Inc.	$	1.52		$	1.56		$	2.67		$	2.88
Weighted-average number of common shares outstanding	57			58			57			58
Diluted earnings per common share from:
Net income attributable to Orbital ATK, Inc.	$	1.51		$	1.55		$	2.66		$	2.86
Weighted-average number of diluted common shares outstanding	58			59			58			59
Cash dividends per common share	$	0.32		$	0.30		$	0.64		$	0.60

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

See Notes to the Condensed Consolidated Financial Statements.

3

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Quarters Ended						Six Months Ended
(Amounts in millions)	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Net income	$	88		$	91		$	154		$	168
Other comprehensive income:
Pension and other postretirement benefits:
Prior service credits for pension and postretirement benefit plans recorded to net income	(7		)	(6		)	(14		)	(13		)
Net actuarial loss for pension and postretirement benefit plans recorded to net income	35			32			67			63
Valuation adjustment for pension and postretirement benefit plans	—			2			—			2
Change in fair value of derivatives	(1		)	4			(3		)	4
Other	—			(1		)	—			1
Income tax expense	(10		)	(12		)	(19		)	(22		)
Other comprehensive income, net of tax	17			19			31			35
Comprehensive income	105			110			185			203
Less comprehensive income attributable to noncontrolling interest	—			—			—			—
Comprehensive income attributable to Orbital ATK, Inc.	$	105		$	110		$	185		$	203

See Notes to the Condensed Consolidated Financial Statements.

4

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended
(Amounts in millions)	July 2, 2017			July 3, 2016
Operating Activities
Net income	$	154		$	168
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	77			80
Fixed asset impairment	4			4
Deferred income taxes	10			7
Stock-based plans expense	12			11
Other	4			2
Change in assets and liabilities:
Net receivables	(131		)	(130		)
Net inventories	(67		)	(27		)
Accounts payable	(81		)	9
Contract loss reserve	(23		)	(28		)
Contract advances and allowances	53			(13		)
Accrued compensation	(21		)	(29		)
Pension and postemployment benefits	28			12
Other assets and liabilities	(58		)	4
Cash flows (used in) provided by operating activities	(39		)	70
Investing Activities
Capital expenditures	(94		)	(60		)
Cash flows used in investing activities	(94		)	(60		)
Financing Activities
Borrowings on revolving credit facilities	365			440
Payments on revolving credit facilities	(290		)	(390		)
Payment of long-term debt	(20		)	(20		)
Purchase of treasury shares	(22		)	(49		)
Dividends paid	(37		)	(35		)
Proceeds from employee stock compensation plans	11			—
Cash flows provided by (used in) financing activities	7			(54		)
Decrease in cash and cash equivalents	(126		)	(44		)
Cash and cash equivalents at beginning of period	200			104
Cash and cash equivalents at end of period	$	74		$	60
Supplemental Cash Flow Disclosures
Noncash investing activity:
Capital expenditures included in accounts payable	$	3		$	2
Noncash financing activity:
Treasury shares purchased included in accounts payable	$	2		$	1

See Notes to the Condensed Consolidated Financial Statements.

5

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 ("Form 10-K") filed on April 28, 2017 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 July 2, 2017, its results of operations and comprehensive income for the quarters and six months ended July 2, 2017 and July 3, 2016 and its cash flows for the six months ended July 2, 2017 and July 3, 2016. The condensed consolidated balance sheet as of December 31, 2016 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, 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, 2016.

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 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. 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

6

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 $33 million ($0.41 per diluted share) for the quarter ended July 2, 2017 and $56 million ($0.66 per diluted share) for the quarter ended July 3, 2016. Aggregate net changes in contract estimates recognized increased income before income taxes and noncontrolling interest by approximately $36 million ($0.45 per diluted share) for the six months ended July 2, 2017 and $83 million ($1.02 per diluted share) for the six months ended July 3, 2016. Estimated costs to complete on loss contracts at July 2, 2017 and December 31, 2016 were $1,196 million and $1,333 million, respectively.

Accounting Standards Updates Adopted

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-17, Consolidation (Topic 810), Interests Held through Related Parties That Are under Common Control ("ASU 2016-17"). This ASU amends the consolidation guidance issued under ASU 2015-02: Consolidation (Topic 810) Amendments to the Consolidation Analysis, for those entities that are the single decision maker of a variable interest entity ("VIE") such that a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interest in their entirety. Instead, they are required to include those interests 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, 2016, and interim periods within that reporting period. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Updates Issued But Not Yet Adopted

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 is effective for annual periods beginning after December 15, 2017 and will be applied prospectively to awards modified on or after the effective date. The Company is currently evaluating the provisions of ASU 2017-09 and its impact on the Company's consolidated financial position, results of operations and 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 Accounting Standard Codification ("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 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. Disclosures of the 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.

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

7

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 is currently evaluating the provisions of ASU 2017-04 and its 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.

In May 2014, the FASB issued ASU 2014-09, Revenue 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 approved 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 15, 2017. 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.

The Company has made significant progress on the assessment of ASU 2014-09 and the impact on the timing and method of revenue recognition, as well as on the Company's business processes, systems and internal controls. 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.

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.

The two permitted transition methods under the new standard are the full retrospective method, in 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 the standard would be recognized at the date of initial application. The company is currently assessing the potential impacts of each transition method and expects to select a transition method in the third quarter of 2017.

Other new pronouncements issued but not effective for the Company until after July 2, 2017 are not expected to have a material impact on the Company's continuing financial position, results of operations and cash flows.

Note 2 - Fair Value of Financial Instruments

The current authoritative guidance on fair value clarifies the definition of fair value, prescribes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about the use of fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The valuation techniques required by the current authoritative literature are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1—Quoted prices for identical instruments in active markets.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

8

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 3 - 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 three interest rate swaps with a total notional value of $250 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.

The carrying amounts of the Company’s financial instruments, other than derivatives, which include net receivables, inventory, accounts payable, accrued liabilities and other current assets and liabilities, are reasonable estimates of their related fair values. The fair value of the variable-rate long-term debt is calculated based on current market rates for debt of the same risk and maturities. The fair value of the fixed-rate debt is based on market quotes for each issuance. 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 generally classifies non-financial instruments as either Level 2 or Level 3 fair value measurements. At July 2, 2017 and December 31, 2016, 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):

	July 2, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed-rate debt	$	700	$	730	$	700	$	727
Variable-rate debt	$	805	$	801	$	750	$	746

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 with the number of units or shares owned at the valuation date as determined by the investee company. Net asset value per share is determined by the investee company's custodian or fund administrator by deducting from the value of the assets of the investee company all 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 July 2, 2017 and $13 million as of December 31, 2016.

9

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3 - 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 $250 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 were as follows (in millions):

	Notional		Fair Value		Pay Fixed		Receive Floating		Maturity Date
Non-amortizing swap	$	100	$	—	1.29	%	1.23	%	August 2017
Non-amortizing swap	$	100	$	—	1.69	%	1.23	%	August 2018
Non-amortizing swap	$	50	$	—	1.10	%	1.23	%	November 2017

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

The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at July 2, 2017, the outstanding swap agreements were in a net liability position which would require the Company to make the net settlement payments to 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.

Commodity 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.

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

	Number of Pounds
Copper	19
Zinc	7

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.

10

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Outstanding foreign currency forward contracts were as follows (in millions):

	Quantity Hedged
Euros sold	14
Euros purchased	72

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.

Fair values in the condensed consolidated balance sheets related to derivative instruments designated as hedging instruments were as follows (in millions):

	Asset Derivatives Fair Value				Liability Derivatives Fair Value
	July 2, 2017		December 31, 2016		July 2, 2017		December 31, 2016
Commodity forward contracts(1)	$	4	$	5	$	1	$	—
Foreign currency forward contracts(1)	3		3		1		—
Foreign currency forward contracts(2)	—		1		1		—
Interest rate swap contracts(2)	—		—		—		1
Total	$	7	$	9	$	3	$	1

____________________________________________________________

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

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

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

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

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.

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 and six months ended July 2, 2017 and July 3, 2016; 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.

11

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 4 - Accumulated Other Comprehensive Loss

The following table summarizes the components of AOCI, net of income taxes (in millions):

	July 2, 2017			December 31, 2016
Derivatives	$	2		$	5
Pension and other postretirement benefits	(738		)	(771		)
Available-for-sale securities	3			2
Total AOCI	$	(733	)	$	(764	)

Note 5 - Net Inventories

Net inventories consisted of the following (in millions):

	July 2, 2017		December 31, 2016
Raw materials	$	145	$	93
Work / contracts in process	107		121
Finished goods	29		1
Net inventories	$	281	$	215

Note 6 - Postretirement Plans

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

	Quarters Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Service cost	$	4		$	4		$	8		$	9
Interest cost	25			26			49			51
Expected return on plan assets	(40		)	(40		)	(79		)	(81		)
Amortization of unrecognized net loss (1)	34			32			66			63
Amortization of unrecognized prior service cost (1)	(5		)	(6		)	(10		)	(11		)
Net periodic benefit cost	18			16			34			31
Special termination benefit cost / curtailment	—			—			—			2
Net periodic benefit cost	$	18		$	16		$	34		$	33

____________________________________________________________

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

During the six months ended July 3, 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						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Interest cost	$	—		$	1		$	1		$	2
Expected return on plan assets	(1		)	(1		)	(2		)	(2		)
Amortization of unrecognized net loss (1)	1			1			1			1
Amortization of unrecognized prior service cost (1)	(1		)	(2		)	(3		)	(3		)
Net periodic benefit income	$	(1	)	$	(1	)	$	(3	)	$	(2	)

____________________________________________________________

12

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

⁽¹⁾Amounts related to pension and other postretirement benefits that were reclassified from AOCI 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

During the six months ended July 2, 2017, the Company paid $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 six months ended July 2, 2017, the Company made no contributions to the pension trust or to the postretirement benefit plans.

During the remainder of 2017, the Company is required to make an additional pension benefit contribution of $24 million in order to meet the minimum required contributions for 2017. In addition, the Company anticipates making additional payments of 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 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.

Note 7 - Long-term Debt

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

	July 2, 2017		December 31, 2016
Senior Credit Facility:
Term Loan A due 2020	$	730	$	750
Revolving Credit Facility due 2020	75		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,505		1,450
Unamortized debt issuance costs:
Senior Credit Facility	5		5
5.25% Senior Notes due 2021	1		2
5.50% Senior Notes due 2023	5		5
Unamortized debt issuance costs	11		12
Long-term debt less unamortized debt issuance costs	1,494		1,438
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,454	$	1,398

Senior Credit Facility

In September 2015, the Company refinanced 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 2.54% at July 2, 2017. The Company pays a quarterly commitment fee on the unused portion of the Revolving

13

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 July 2, 2017, the Company had borrowings of $75 million under the Revolving Credit Facility and had outstanding letters of credit of $163 million, which reduced amounts available on the Revolving Credit Facility to $762 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.

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 July 2, 2017, the Company had interest rate swap agreements in order to manage interest costs and the risk associated with variable interest rates - see Note 3 - 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	$	20
2018	40
2019	40
2020	705
2021	300
Thereafter	400
Total	$	1,505

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

14

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 July 2, 2017.

Note 8 - Income Taxes

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 July 2, 2017 and July 3, 2016 were 26.4% and 31.0%, respectively. The decrease in the rate from the quarter ended July 3, 2016 is primarily due to increased benefits from the Research and Development (R&D) tax credit and the net favorable true up of prior-year taxes.

The effective income tax rates for the six months ended July 2, 2017 and July 3, 2016 were 27.7% and 28.4%, respectively. The decrease in the rate from the six months ended July 3, 2016 is primarily due to increased benefits from the Research and Development (R&D) tax credit and the net favorable true up of prior-year taxes.

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 $12 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 $10 million.

Note 9 - 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 July 2, 2017, the Company had authorized up to 3,750,000 common shares under the 2015 Stock Incentive Plan, of which 2,128,588 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 July 2, 2017, the Company had authorized up to 2,000,000 common shares, of which 1,820,477 common shares were available for purchase under the ESPP.

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 six months ended July 2, 2017, 53,449 shares were issued upon the vesting of restricted stock units for the performance period ending in 2017. As of July 2, 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 July 2, 2017, there were 45,120 restricted stock units outstanding under the legacy Orbital plan and during the six months ended July 2, 2017, there were 2,742 shares issued upon the vesting of the restricted stock units.

15

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 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:

• 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 71,074 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

• up to 79,235 will 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.

TSR Awards

There were 58,506, 71,074 and 79,235 shares reserved for TSR awards for 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 six months ended July 2, 2017.

Restricted Stock Awards

Restricted stock granted to certain key employees totaled 142,761 shares during the six months ended July 2, 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 six months ended July 2, 2017 with a weighted-average fair value of $24.47 per stock option.

Stock-based compensation expense totaled $7 million and $12 million in the quarter and six months ended July 2, 2017, respectively, and $6 million and $11 million in the quarter and six months ended July 3, 2016, respectively. The income tax benefit recognized for stock-based compensation was $2 million and $4 million in the quarter and six months ended July 2, 2017, and $2 million and $4 million in the quarter and six months ended July 3, 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 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 166,429 shares for $16 million during the six months ended July 2, 2017. There were no repurchases made during the quarter ended April 2, 2017. The Company repurchased 194,003 shares for $17 million and 528,104 shares for $44 million during the quarter and six months ended July 3, 2016, respectively.

16

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 10 - 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 and six months ended July 2, 2017 and July 3, 2016, the reported earnings for each respective period were divided by the weighted-average shares outstanding, determined as follows (in millions):

	Quarters Ended		Six Months Ended
	July 2, 2017	July 3, 2016	July 2, 2017	July 3, 2016
Basic weighted-average number of shares outstanding	57.41	58.19	57.40	58.27
Dilutive common share equivalents - share-based equity awards	0.32	0.45	0.40	0.53
Diluted weighted-average number of shares outstanding	57.73	58.64	57.80	58.80
Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares	0.40	0.15	0.34	0.15

Note 11 - 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, notwithstanding that the unfavorable resolution of any matter may have a material effect on net earnings in any particular quarter, to be material to its business or likely to result in a material adverse effect on its operating results, financial condition or cash flows.

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 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, the plaintiffs filed an amended complaint adding our Chief Operating Officer and a former Chief Executive Officer/Director as defendants and asserting claims for violations of additional sections of the Exchange Act. The amended complaint also alleges 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 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. The Company is defending this action vigorously.

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 filed on February 24, 2017. The Company is cooperating fully with the SEC in connection with these matters.

17

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 included $12 million and $18 million as of July 2, 2017 and December 31, 2016, 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 present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that the Company expects to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows, using a discount rate of 0.8% and 1.0% as of July 2, 2017 and December 31, 2016, respectively. The Company's discount rate is calculated using the 20-year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9%, rounded to the nearest quarter percent.

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

	July 2, 2017						December 31, 2016
	Liability			Receivable			Liability			Receivable
Amounts (payable) receivable	$	(41	)	$	19		$	(43	)	$	19
Unamortized discount	2			(1		)	2			(1		)
Present value amounts (payable) receivable	$	(39	)	$	18		$	(41	)	$	18

18

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Amounts expected to be paid or received in periods more than one year from the balance sheet date are classified as noncurrent. Of the $39 million discounted liability as of July 2, 2017, $3 million was recorded in other current liabilities. Of the $18 million discounted receivable as of July 2, 2017, the Company recorded $3 million in other current assets. As of July 2, 2017, the estimated discounted range of reasonably possible costs of environmental remediation was $39 million to $66 million.

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.

Note 12 - Operating Segment Information

The Company 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 and improved profitability.

• Flight Systems Group develops rockets 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. 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 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 ("ISS"). This group is also a provider of spacecraft components and subsystems and specialized engineering and operations services to U.S. Government agencies.

19

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

	Quarters Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Sales to external customers:
Flight Systems Group	$	423		$	371		$	791		$	721
Defense Systems Group	421			449			867			875
Space Systems Group	271			264			542			544
Total external sales	1,115			1,084			2,200			2,140
Intercompany sales:
Flight Systems Group	2			3			5			7
Defense Systems Group	3			6			8			10
Space Systems Group	31			15			61			21
Corporate	(36		)	(24		)	(74		)	(38		)
Total intercompany sales	—			—			—			—
Total sales	$	1,115		$	1,084		$	2,200		$	2,140
Income before interest, income taxes and noncontrolling interest:
Flight Systems Group	$	59		$	59		$	100		$	108
Defense Systems Group	43			51			85			93
Space Systems Group	31			46			58			76
Corporate	3			(8		)	4			(9		)
Total income before interest, income taxes and noncontrolling interest	$	136		$	148		$	247		$	268

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

	July 2, 2017		December 31, 2016
Total assets:
Flight Systems Group	$	2,212	$	2,208
Defense Systems Group	1,343		1,228
Space Systems Group	1,329		1,280
Corporate	595		702
Total assets	$	5,479	$	5,418

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 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 expenses such as corporate accounting, legal and treasury costs are allocated out to the business segments. The amortization expense related to purchase accounting attributed to the acquisition of Orbital is also recorded in Corporate. Environmental expenses are allocated to each segment based on the origin of the underlying environmental cost. 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.

20

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 effect of the restatement of our previously issued financial results for the first quarter 2016, the nine-month transition period ended December 31, 2015 ("2015 transition period"), fiscal year ended March 31, 2015 ("fiscal 2015"), fiscal year ended March 31, 2014 and the quarters in the 2015 transition period and fiscal 2015 (the "Restatement") and any actual or unasserted claims, investigations or proceedings as a result of the Restatement,

• our ability to remediate the material weaknesses 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,

• 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,

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• 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,

• 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,

• 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 for U.S. corporate income tax reform, 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 (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 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. 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

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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 July 2, 2017

• Quarterly sales of $1.12 billion.

• Diluted earnings per share of $1.51.

• New firm and option contract bookings of $1.4 billion and option exercises of $0.2 billion under existing contracts.

• Total backlog of $15.4 billion, at July 2, 2017.

• Income before interest, income taxes and noncontrolling interest as a percentage of sales of 12.2%.

• Effective income tax rate of 26.4%.

• Paid quarterly dividend of $0.32 on June 22, 2017 to stockholders of record on June 7, 2017.

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.

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.

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.

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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.

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

	Quarters Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Gross favorable adjustments	$	88		$	145		$	137		$	208
Gross unfavorable adjustments	(55		)	(89		)	(101		)	(125		)
Net adjustments	$	33		$	56		$	36		$	83

The decreases in the change in estimate for the quarter and six months ended July 2, 2017 were primarily attributable to $28 million of favorable contract cumulative profit adjustments recorded in the second quarter of 2016 that normally would have been recorded in the third and fourth quarters of 2016 had we timely filed our Form 10-Q for the second quarter 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 before interest and income taxes, 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 compare our unaudited condensed consolidated results of operations for the quarter and six months ended July 2, 2017 to the quarter and six months ended July 3, 2016(in millions):

Sales

	Quarters Ended											Six Months Ended
	July 2, 2017			July 3, 2016			Change			Percent Change		July 2, 2017			July 3, 2016			Change			Percent Change
Flight Systems Group	$	425		$	374		$	51		13.6	%	$	796		$	728		$	68		9.3	%
Defense Systems Group	424			455			(31		)	(6.8	)%	875			885			(10		)	(1.1	)%
Space Systems Group	302			279			23			8.2	%	603			565			38			6.7	%
Corporate and Eliminations	(36		)	(24		)	(12		)	(50.0	)%	(74		)	(38		)	(36		)	(94.7	)%
Total sales	$	1,115		$	1,084		$	31		2.9	%	$	2,200		$	2,140		$	60		2.8	%

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

Quarter:

Flight Systems Group

The increase in sales was driven by higher sales volume of $43 million in Aerospace Structures due to increased production on composite aircraft and launch vehicles components and increased sales in Launch Vehicles of $9 million due to increased activity on our missile defense programs.

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Defense Systems Group

The decrease in sales was due to a decrease of $34 million in Small Caliber Systems primarily attributable to the industrial accident that occurred in the Lake City Army Ammunition Plant. The decrease was offset by increased sales in Armament Systems of $18 million primarily due to an increase in international business.

Space Systems Group

The increase in sales was due to higher sales volume of $49 million in Government Satellites driven by new government satellite programs, and increased activity on the Mission Extension Vehicle, partially offset by decreased activities on our Commercial Resupply Services ("CRS") programs. These increases were partially offset by a $26 million decrease in commercial satellite activity.

Corporate and Eliminations

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

Six Months:

Flight Systems Group

The increase in sales was driven by higher sales volume of $59 million in Aerospace Structures due to increased production on composite aircraft and launch vehicles components. The increase was also driven by increased sales in Launch Vehicles of $15 million primarily due to a new medium range ballistic missile program. These increases were partially offset by a decrease of $12 million in Propulsion Systems due to production delays.

Defense Systems Group

The decrease in sales was due to a decrease of $57 million in Small Caliber Systems due to lower ammunition production primarily attributable to the industrial accident that occurred in the Lake City Army Ammunition Plant. This decrease was offset by increased sales in Missile Products of $26 million due to higher volume of tactical propulsion production, in Defense Electronic of $23 million due to increased sales in strike weapons and Armament Systems increased $11 million primarily due to increased international sales.

Space Systems Group

The increase in sales was due to an increase of $96 million in Government Satellites driven by new programs, including the Mission Extension Vehicle, and higher production levels on existing programs, partially offset by decreased activities on CRS programs. The increase in sales was partially offset by a $63 million decrease in commercial satellite activity.

Corporate and Eliminations

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

Cost of Sales

	Quarters Ended											Six Months Ended
	July 2, 2017			July 3, 2016			Change			Percent Change		July 2, 2017			July 3, 2016			Change			Percent Change
Flight Systems Group	$	317		$	268		$	49		18.3	%	$	605		$	535		$	70		13.1	%
Defense Systems Group	330			356			(26		)	(7.3	)%	698			707			(9		)	(1.3	)%
Space Systems Group	248			209			39			18.7	%	501			440			61			13.9	%
Corporate and Eliminations	(47		)	(29		)	(18		)	(62.1	)%	(100		)	(49		)	(51		)	(104.1	)%
Total cost of sales	$	848		$	804		$	44		5.5	%	$	1,704		$	1,633		$	71		4.3	%

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

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Quarter:

Flight Systems Group

The increase was primarily due to higher cost of sales of $29 million in Aerospace Structures due to increased production on composite aircraft and launch vehicles components. The increase was also due to higher cost of sales of $18 million in Launch Vehicles due to a new medium range ballistic missile program and activity related to additional missions on Antares.

Defense Systems Group

The decrease was primarily due to lower cost of sales of $30 million in Small Caliber Systems attributable to the industrial accident that occurred in the Lake City Army Ammunition Plant. The decrease was partially offset by an increase of $15 million in Armament Systems due to increased international sales.

Space Systems Group

The increase was driven by higher cost of sales of $56 million in Government Satellites driven by new programs, including the Mission Extension Vehicle, and higher production levels on existing programs, partially offset by a slight decrease in activities on CRS programs. This increase was partially offset by a $20 million decrease in commercial satellite activity. 

Corporate and Eliminations

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

Six Months:

Flight Systems Group

The increase was due to higher cost of sales of $49 million in Aerospace Structures due to increased production on composite aircraft and launch vehicles components. The increase was also driven by higher cost of sales in Launch Vehicles of $27 million due to a new medium range ballistic missile program and activity related to additional missions on Antares. These increases were partially offset by a decrease of $5 million in Propulsion Systems due to production delays.

Defense Systems Group

The decrease was due to lower cost of sales of $45 million in Small Caliber Systems due to lower ammunition production primarily attributable to the industrial accident that occurred in the Lake City Army Ammunition Plant. This decrease was partially offset by higher cost of sales in Missile Products of $19 million due to higher volume of tactical propulsion production, in Defense Electronics of $16 million due to increased sales in strike weapons, and in Armament Systems of $11 million due to increased international sales.

Space Systems Group

The increase was due to higher cost of sales of $104 million in Government Satellites driven by new programs, including the Mission Extension Vehicle, and higher production levels on existing programs, partially offset by decreased activities on CRS programs. This increase was partially offset by a $46 million decrease in commercial satellite activity.

Corporate and Eliminations

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

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Operating Expenses

	Quarters Ended											Six Months Ended
	July 2, 2017		Percent of Sales		July 3, 2016		Percent of Sales		Change			July 2, 2017		Percent of Sales		July 3, 2016		Percent of Sales		Change
Research and development	$	32	2.8	%	$	36	3.3	%	$	(4	)	$	54	2.4	%	$	56	2.6	%	$	(2	)
Selling	31		2.8	%	27		2.5	%	4			59		2.7	%	54		2.5	%	5
General and administrative	68		6.1	%	69		6.4	%	(1		)	136		6.2	%	129		6.1	%	7
Total operating expenses	$	131	11.7	%	$	132	12.2	%	$	(1	)	$	249	11.3	%	$	239	11.2	%	$	10

Quarter:

Operating expenses decreased $1 million in the quarter ended July 2, 2017 compared to the quarter ended July 3, 2016.

Six Months:

Operating expenses increased$10 million in the six months ended July 2, 2017 compared to the six months ended July 3, 2016 primarily due to legal and audit fees related to the restatement of our historical financial statements.

Net Interest Expense

Net interest expense for the quarters ended July 2, 2017 and July 3, 2016 was $17 million. Net interest expense for the six months ended July 2, 2017 and July 3, 2016 was $34 million.

Income Taxes

	Quarters Ended											Six Months Ended
	July 2, 2017		Effective Rate		July 3, 2016		Effective Rate		Change			July 2, 2017		Effective Rate		July 3, 2016		Effective Rate		Change
Income taxes	$	31	26.4	%	$	40	31.0	%	$	(9	)	$	59	27.7	%	$	66	28.4	%	$	(7	)

Quarter:

The effective income tax rates for the quarters ended July 2, 2017 and July 3, 2016 were 26.4% and 31.0%, respectively. The decrease in the rate from the quarter ended July 3, 2016 is primarily due to increased benefits from the Research and Development (R&D) tax credit and the net favorable true up of prior-year taxes.

Six Months:

The effective income tax rates for the six months ended July 2, 2017 and July 3, 2016 were 27.7% and 28.4%, respectively. The decrease in the rate from the six months ended July 3, 2016 is primarily due to increased benefits from the Research and Development (R&D) tax credit and the net favorable true up of prior-year taxes.

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.

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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):

	Six Months Ended
	July 2, 2017			July 3, 2016
Cash (used in) provided by operating activities	$	(39	)	$	70
Cash used in investing activities	(94		)	(60		)
Cash provided by (used in) financing activities	7			(54		)
Net cash flows	$	(126	)	$	(44	)

Operating Activities

Cash used in operating activities during the six months ended July 2, 2017 was $39 million, compared to cash provided by operating activities of $70 million during the six months ended July 3, 2016. The decrease in operating cash flows resulted primarily from the net effect of changes in working capital and other assets and liabilities and by a $14 million decrease in net income. During the six months ended July 2, 2017, changes in working capital and other assets and liabilities used$300 million of cash, comprised primarily of a $131 million increase in net receivables, a $81 million decrease in accounts payable, a $67 million increase in net inventories, a $23 million decrease in contract loss reserve, a $21 million decrease in accrued compensation and a $58 million change in other assets and liabilities, offset by a $53 million increase in contract advances and allowances, and a $28 million source of cash from pension and postemployment benefits.

During the six months ended July 3, 2016, changes in working capital and other assets and liabilities used$202 million of cash, comprised of a $130 million increase in net receivables, a $29 million decrease in accrued compensation, a $28 million decrease in contract loss reserve, a $27 million increase in net inventories and a $13 million decrease in contract advances and allowances, offset by a $12 million increase in pension and postemployment benefits, a $9 million increase in accounts payable and a $4 million change in other assets and liabilities.

Investing Activities

Cash used in investing activities consisted of capital expenditures and was $94 million and $60 million during the six months ended July 2, 2017 and July 3, 2016, respectively. The increase was primarily due to capitalized costs for our self-constructed Mission Extension Vehicle asset of $42 million during the six months ended July 2, 2017. The vehicle will provide in-orbit satellite life extension services when completed.

Financing Activities

Cash provided by financing activities during the six months ended July 2, 2017 was $7 million, compared to cash used in financing activities of $54 million for the six months ended July 3, 2016. The increase in cash provided by financing activities is due primarily to higher net borrowings on our Senior Credit Facility, a decrease in share repurchases and an increase in proceeds from employee stock compensation plans.

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 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 six months ended July 2, 2017, we paid dividends totaling $37 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. We cannot be certain that we will continue to declare dividends in the future and, as such, the amount and timing of any future dividends are not determinable.

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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 July 2, 2017, we had outstanding total indebtedness of $1,505 million and the potential of additional borrowings of up to $762 million on our $1 billion Revolving Credit Facility, reduced for outstanding borrowings of $75 million and letters of credit of $163 million.

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

	July 2, 2017		December 31, 2016
Senior Credit Facility:
Term Loan A due 2020	$	730	$	750
Revolving Credit Facility due 2020	75		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,505		1,450
Unamortized debt issuance costs:
Senior Credit Facility	5		5
5.25% Senior Notes due 2021	1		2
5.50% Senior Notes due 2023	5		5
Unamortized debt issuance costs	11		12
Long-term debt less unamortized debt issuance costs	1,494		1,438
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,454	$	1,398

Covenants

As of July 2, 2017, 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 July 2, 2017	2.30	10.26

____________________________________________________________

⁽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 EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization") (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 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 July 2, 2017.

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.

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See Note 7 - 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 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 166,429 for $16 million during the six months ended July 2, 2017. There were no repurchases made during the quarter ended April 2, 2017. We repurchased 194,003shares for$17 million and 528,104 shares for $44 million during the quarter and six months ended July 3, 2016.

Contractual Obligations and Commercial Commitments

There have been no material changes, other than outstanding borrowings on our Revolving Credit Facility at July 2, 2017, 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.

The liability for environmental remediation represents management's best estimate of the present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that we expect to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows.

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.

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 six months ended July 2, 2017. 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.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of July 2, 2017, management of the Company, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the 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 Report on Form 10-K for the fiscal year ended December 31, 2016, we previously reported the following material weaknesses in internal control over financial reporting that existed as of December 31, 2016 related to:

(i) Maintaining an effective control environment at our Defense Systems Group and its Small Caliber Systems Division.

(ii) 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.

These material weaknesses in our internal control over financial reporting were not remediated as of July 2, 2017. As a result, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of July 2, 2017.

Remediation of Material Weaknesses

During the quarter ended July 2, 2017, the Company completed the remediation actions for two previously identified material weaknesses related to establishing and maintaining accounting policies and procedures related to complex transactions and maintaining controls over the integration of accounting operations of the two merged companies and over the preparation, analysis and review of accounts of the combined business.

For the two remaining material weaknesses listed above that were not remediated as of July 2, 2017, management believes it has made meaningful progress toward improving and strengthening the affected internal controls. For each of the material weaknesses that were not remediated as of July 2, 2017, management has substantially completed the following remediation actions and is currently testing the operating effectiveness of the relevant controls:

(i) We instituted detailed finance reviews for all business segments, including our Defense Systems Group and its Small Caliber Systems Division, beginning in the quarter ended December 31, 2016. In addition, we have designed enhancements to our internal controls related to the reconciliation and analysis of unbilled accounts receivable through the company-wide balance sheet review process described above.

(ii) We completed a detailed review of the long-term contract with the U.S. Army to manufacture and supply small caliber ammunition at the Lake City Army Ammunition Plant and the underlying estimates for its percentage of completion revenue recognition accounting model and developed extensive analysis and procedures to develop our management estimates in the estimate at completion (“EAC”) which was completed during the quarter ended December 31, 2016. Furthermore, this detailed review led to the implementation of a more robust and standard EAC model where we have enhanced management controls and oversight.

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 the two remaining material weaknesses, we have not fully tested all our remediation actions to verify the effectiveness of their design or operation.

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ORBITAL ATK, INC.

Changes in Internal Control over Financial Reporting

During the quarter ended July 2, 2017, there were no changes in the Company’s internal control 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 weaknesses above, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

31

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 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 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, the plaintiffs filed an amended complaint adding our Chief Operating Officer and a former Chief Executive Officer/Director as defendants and asserting claims for violations of additional sections of the Exchange Act. The amended complaint also alleges 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 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. On May 30, 2017, the Company filed a motion to dismiss the plaintiffs' complaint, which is pending in the District 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 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 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.

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,

32

ORBITAL ATK, INC.

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, describes all known material risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results and future prospects.

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

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (2)	Amount Available for Future Share Repurchases Under the Plans or Programs (in millions)
April 3 - April 30	228	$	98.07	—
May 1 - May 28	16,118	$	98.88	—
May 29 - July 2	166,802	$	98.98	166,429
Quarter ended July 2, 2017	183,148	$	98.97	166,429	$	234

____________________________________________________________

⁽¹⁾  The 183,148 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. We purchased 166,429shares for $16 million during the quarter ended July 2, 2017.

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.

33

ORBITAL ATK, INC.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.   MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.       OTHER INFORMATION

None.

34

ORBITAL ATK, INC.

ITEM 6.   EXHIBITS

Exhibit Number	Description of Exhibit (and document from which incorporated by reference, if applicable)
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.

35

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 August 3, 2017.

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)

36

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, David W. Thompson, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Orbital ATK, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 3, 2017	By:	/s/ David W. Thompson
	Name:	David W. Thompson
	Title:	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Garrett E. Pierce, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Orbital ATK, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 3, 2017	By:	/s/ Garrett E. Pierce
	Name:	Garrett E. Pierce
	Title:	Chief Financial Officer

EX-32

Exhibit 32

Certification by 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

We, David W. Thompson, President and Chief Executive Officer, and Garrett E. Pierce, Chief Financial Officer, of Orbital ATK, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

(1) the Quarterly Report on Form 10-Q for the period ended July 2, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

August 3, 2017	By:	/s/ David W. Thompson
	Name:	David W. Thompson
	Title:	President and Chief Executive Officer
	By:	/s/ Garrett E. Pierce
	Name:	Garrett E. Pierce
	Title:	Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jul. 02, 2017	Jul. 27, 2017
Document and Entity Information
Entity Registrant Name	ORBITAL ATK, INC.
Entity Central Index Key	0000866121
Document Type	10-Q
Document Period End Date	Jul. 02, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		57,607,791
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) $ in Millions	Jul. 02, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 74	$ 200
Net receivables	1,872	1,741
Net inventories	281	215
Other current assets	83	79
Total current assets	2,310	2,235
Property, plant and equipment, net of accumulated depreciation of $1,166 at July 2, 2017 and $1,121 at December 31, 2016	842	816
Goodwill	1,832	1,832
Net intangibles	79	98
Other noncurrent assets	416	437
Total assets	5,479	5,418
Current liabilities:
Current portion of long-term debt	40	40
Accounts payable	92	175
Contract loss reserve	174	197
Contract advances and allowances	286	233
Accrued compensation	98	120
Other current liabilities	533	577
Total current liabilities	1,223	1,342
Long-term debt	1,454	1,398
Pension and postemployment benefits	720	744
Other noncurrent liabilities	118	117
Total liabilities	3,515	3,601
Commitments and contingencies (Note 11)
Common stock—$.01 par value: authorized—180,000,000 shares; issued and outstanding—57,610,035 shares at July 2, 2017 and 57,487,466 shares at December 31, 2016	1	1
Additional paid-in-capital	2,170	2,175
Retained earnings	1,382	1,266
Accumulated other comprehensive loss	(733)	(764)
Common stock in treasury, at cost—11,324,989 shares held at July 2, 2017 and 11,447,558 shares held at December 31, 2016	(867)	(872)
Total Orbital ATK, Inc. stockholders' equity	1,953	1,806
Noncontrolling interest	11	11
Total equity	1,964	1,817
Total liabilities and equity	$ 5,479	$ 5,418

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - USD ($) $ in Millions	Jul. 02, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Accumulated depreciation	$ 1,166	$ 1,121
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares	180,000,000	180,000,000
Common stock, issued shares	57,610,035	57,487,466
Common stock, outstanding shares	57,610,035	57,487,466
Common stock in treasury, shares	11,324,989	11,447,558

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) - USD ($) shares in Thousands, $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Income Statement [Abstract]
Sales	$ 1,115	$ 1,084	$ 2,200	$ 2,140
Cost of sales	848	804	1,704	1,633
Gross profit	267	280	496	507
Operating expenses:
Research and development	32	36	54	56
Selling	31	27	59	54
General and administrative	68	69	136	129
Income before interest, income taxes and noncontrolling interest	136	148	247	268
Net interest expense	(17)	(17)	(34)	(34)
Income before income taxes and noncontrolling interest	119	131	213	234
Income taxes	31	40	59	66
Income before noncontrolling interest	88	91	154	168
Less net income attributable to noncontrolling interest	0	0	0	0
Net income attributable to Orbital ATK, Inc.	$ 88	$ 91	$ 154	$ 168
Basic earnings per common share from:
Net income attributable to Orbital ATK, Inc. (in dollars per share)	$ 1.52	$ 1.56	$ 2.67	$ 2.88
Weighted-average number of common shares outstanding (in shares)	57,410	58,190	57,400	58,270
Diluted earnings per common share from:
Net income attributable to Orbital ATK, Inc. (in dollars per share)	$ 1.51	$ 1.55	$ 2.66	$ 2.86
Weighted-average number of diluted common shares outstanding (in shares)	57,730	58,640	57,800	58,800
Cash dividends per common share (in dollars per share)	$ 0.32	$ 0.3	$ 0.64	$ 0.6

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 88,000	$ 91,000	$ 154,000	$ 168,000
Pension and other postretirement benefits:
Prior service credits for pension and postretirement benefit plans recorded to net income	(7,000)	(6,000)	(14,000)	(13,000)
Net actuarial loss for pension and postretirement benefit plans recorded to net income	35,000	32,000	67,000	63,000
Valuation adjustment for pension and postretirement benefit plans	0	2,000	0	2,000
Change in fair value of derivatives	(1,000)	4,000	(3,000)	4,000
Other	0	(1,000)	0	1,000
Income tax expense	(10,000)	(12,000)	(19,000)	(22,000)
Other comprehensive income, net of tax	17,000	19,000	31,000	35,000
Comprehensive income	105,000	110,000	185,000	203,000
Less comprehensive income attributable to noncontrolling interest	0	0	0	0
Comprehensive income attributable to Orbital ATK, Inc.	$ 105,000	$ 110,000	$ 185,000	$ 203,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Millions	6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016
Operating Activities
Net income	$ 154	$ 168
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	77	80
Fixed asset impairment	4	4
Deferred income taxes	10	7
Stock-based plans expense	12	11
Other	4	2
Change in assets and liabilities:
Net receivables	(131)	(130)
Net inventories	(67)	(27)
Accounts payable	(81)	9
Contract loss reserve	(23)	(28)
Contract advances and allowances	53	(13)
Accrued compensation	(21)	(29)
Pension and postemployment benefits	28	12
Other assets and liabilities	(58)	4
Cash flows (used in) provided by operating activities	(39)	70
Investing Activities
Capital expenditures	(94)	(60)
Cash flows used in investing activities	(94)	(60)
Financing Activities
Borrowings on revolving credit facilities	365	440
Payments on revolving credit facilities	(290)	(390)
Payment of long-term debt	(20)	(20)
Purchase of treasury shares	(22)	(49)
Dividends paid	(37)	(35)
Proceeds from employee stock compensation plans	11	0
Cash flows provided by (used) in financing activities	7	(54)
Decrease in cash and cash equivalents	(126)	(44)
Cash and cash equivalents at beginning of period	200	104
Cash and cash equivalents at end of period	74	60
Noncash investing activity:
Capital expenditures included in accounts payable	3	2
Noncash financing activity:
Treasury shares purchased included in accounts payable	$ 2	$ 1

XML

Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jul. 02, 2017

Accounting Policies [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

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 ("Form 10-K") filed on April 28, 2017 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 July 2, 2017, its results of operations and comprehensive income for the quarters and six months ended July 2, 2017 and July 3, 2016 and its cash flows for the six months ended July 2, 2017 and July 3, 2016. The condensed consolidated balance sheet as of December 31, 2016 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, 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, 2016.

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 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. 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 $33 million ($0.41 per diluted share) for the quarter ended July 2, 2017 and $56 million ($0.66 per diluted share) for the quarter ended July 3, 2016. Aggregate net changes in contract estimates recognized increased income before income taxes and noncontrolling interest by approximately $36 million ($0.45 per diluted share) for the six months ended July 2, 2017 and $83 million ($1.02 per diluted share) for the six months ended July 3, 2016. Estimated costs to complete on loss contracts at July 2, 2017 and December 31, 2016 were $1,196 million and $1,333 million, respectively.

Accounting Standards Updates Adopted

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-17, Consolidation (Topic 810), Interests Held through Related Parties That Are under Common Control ("ASU 2016-17"). This ASU amends the consolidation guidance issued under ASU 2015-02: Consolidation (Topic 810) Amendments to the Consolidation Analysis, for those entities that are the single decision maker of a variable interest entity ("VIE") such that a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interest in their entirety. Instead, they are required to include those interests 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, 2016, and interim periods within that reporting period. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards Updates Issued But Not Yet Adopted

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 is effective for annual periods beginning after December 15, 2017 and will be applied prospectively to awards modified on or after the effective date. The Company is currently evaluating the provisions of ASU 2017-09 and its impact on the Company's consolidated financial position, results of operations and 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 Accounting Standard Codification ("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 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. Disclosures of the 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.

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 is currently evaluating the provisions of ASU 2017-04 and its 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.

In May 2014, the FASB issued ASU 2014-09, Revenue 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 approved 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 15, 2017. 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.

The Company has made significant progress on the assessment of ASU 2014-09 and the impact on the timing and method of revenue recognition, as well as on the Company's business processes, systems and internal controls. 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.

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.

The two permitted transition methods under the new standard are the full retrospective method, in 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 the standard would be recognized at the date of initial application. The company is currently assessing the potential impacts of each transition method and expects to select a transition method in the third quarter of 2017.

Other new pronouncements issued but not effective for the Company until after July 2, 2017 are not expected to have a material impact on the Company's continuing financial position, results of operations and cash flows.

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Fair Value of Financial Instruments

6 Months Ended

Jul. 02, 2017

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

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 3 - 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 three interest rate swaps with a total notional value of $250 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.

The carrying amounts of the Company’s financial instruments, other than derivatives, which include net receivables, inventory, accounts payable, accrued liabilities and other current assets and liabilities, are reasonable estimates of their related fair values. The fair value of the variable-rate long-term debt is calculated based on current market rates for debt of the same risk and maturities. The fair value of the fixed-rate debt is based on market quotes for each issuance. 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 generally classifies non-financial instruments as either Level 2 or Level 3 fair value measurements. At July 2, 2017 and December 31, 2016, 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):

	July 2, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed-rate debt	$	700	$	730	$	700	$	727
Variable-rate debt	$	805	$	801	$	750	$	746

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 with the number of units or shares owned at the valuation date as determined by the investee company. Net asset value per share is determined by the investee company's custodian or fund administrator by deducting from the value of the assets of the investee company all 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 July 2, 2017 and $13 million as of December 31, 2016.

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Derivative Financial Instruments

6 Months Ended

Jul. 02, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

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 $250 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 were as follows (in millions):

	Notional		Fair Value		Pay Fixed		Receive Floating		Maturity Date
Non-amortizing swap	$	100	$	—	1.29	%	1.23	%	August 2017
Non-amortizing swap	$	100	$	—	1.69	%	1.23	%	August 2018
Non-amortizing swap	$	50	$	—	1.10	%	1.23	%	November 2017

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

The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at July 2, 2017, the outstanding swap agreements were in a net liability position which would require the Company to make the net settlement payments to 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.

Commodity 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.

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

	Number of Pounds
Copper	19
Zinc	7

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 currency forward contracts were as follows (in millions):

	Quantity Hedged
Euros sold	14
Euros purchased	72

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.

Fair values in the condensed consolidated balance sheets related to derivative instruments designated as hedging instruments were as follows (in millions):

	Asset Derivatives Fair Value				Liability Derivatives Fair Value
	July 2, 2017		December 31, 2016		July 2, 2017		December 31, 2016
Commodity forward contracts(1)	$	4	$	5	$	1	$	—
Foreign currency forward contracts(1)	3		3		1		—
Foreign currency forward contracts(2)	—		1		1		—
Interest rate swap contracts(2)	—		—		—		1
Total	$	7	$	9	$	3	$	1

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

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

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

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

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.

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 and six months ended July 2, 2017 and July 3, 2016; 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.

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Accumulated Other Comprehensive Loss

6 Months Ended

Jul. 02, 2017

Equity [Abstract]

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

The following table summarizes the components of AOCI, net of income taxes (in millions):

	July 2, 2017			December 31, 2016
Derivatives	$	2		$	5
Pension and other postretirement benefits	(738		)	(771		)
Available-for-sale securities	3			2
Total AOCI	$	(733	)	$	(764	)

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Net Inventories

6 Months Ended

Jul. 02, 2017

Inventory Disclosure [Abstract]

Net Inventories

Net Inventories

Net inventories consisted of the following (in millions):

	July 2, 2017		December 31, 2016
Raw materials	$	145	$	93
Work / contracts in process	107		121
Finished goods	29		1
Net inventories	$	281	$	215

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Postretirement Plans

6 Months Ended

Jul. 02, 2017

Retirement Benefits [Abstract]

Postretirement Plans

Postretirement Plans

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

	Quarters Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Service cost	$	4		$	4		$	8		$	9
Interest cost	25			26			49			51
Expected return on plan assets	(40		)	(40		)	(79		)	(81		)
Amortization of unrecognized net loss (1)	34			32			66			63
Amortization of unrecognized prior service cost (1)	(5		)	(6		)	(10		)	(11		)
Net periodic benefit cost	18			16			34			31
Special termination benefit cost / curtailment	—			—			—			2
Net periodic benefit cost	$	18		$	16		$	34		$	33

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

During the six months ended July 3, 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						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Interest cost	$	—		$	1		$	1		$	2
Expected return on plan assets	(1		)	(1		)	(2		)	(2		)
Amortization of unrecognized net loss (1)	1			1			1			1
Amortization of unrecognized prior service cost (1)	(1		)	(2		)	(3		)	(3		)
Net periodic benefit income	$	(1	)	$	(1	)	$	(3	)	$	(2	)

____________________________________________________________

⁽¹⁾Amounts related to pension and other postretirement benefits that were reclassified from AOCI 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

During the six months ended July 2, 2017, the Company paid $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 six months ended July 2, 2017, the Company made no contributions to the pension trust or to the postretirement benefit plans.

During the remainder of 2017, the Company is required to make an additional pension benefit contribution of $24 million in order to meet the minimum required contributions for 2017. In addition, the Company anticipates making additional payments of 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 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.

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Long-term Debt

6 Months Ended

Jul. 02, 2017

Debt Disclosure [Abstract]

Long-term Debt

Long-term Debt

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

	July 2, 2017		December 31, 2016
Senior Credit Facility:
Term Loan A due 2020	$	730	$	750
Revolving Credit Facility due 2020	75		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,505		1,450
Unamortized debt issuance costs:
Senior Credit Facility	5		5
5.25% Senior Notes due 2021	1		2
5.50% Senior Notes due 2023	5		5
Unamortized debt issuance costs	11		12
Long-term debt less unamortized debt issuance costs	1,494		1,438
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,454	$	1,398

Senior Credit Facility

In September 2015, the Company refinanced 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 2.54% at July 2, 2017. 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 July 2, 2017, the Company had borrowings of $75 million under the Revolving Credit Facility and had outstanding letters of credit of $163 million, which reduced amounts available on the Revolving Credit Facility to $762 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.

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 July 2, 2017, the Company had interest rate swap agreements in order to manage interest costs and the risk associated with variable interest rates - see Note 3 - 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	$	20
2018	40
2019	40
2020	705
2021	300
Thereafter	400
Total	$	1,505

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 July 2, 2017.

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Income Taxes

6 Months Ended

Jul. 02, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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 July 2, 2017 and July 3, 2016 were 26.4% and 31.0%, respectively. The decrease in the rate from the quarter ended July 3, 2016 is primarily due to increased benefits from the Research and Development (R&D) tax credit and the net favorable true up of prior-year taxes.

The effective income tax rates for the six months ended July 2, 2017 and July 3, 2016 were 27.7% and 28.4%, respectively. The decrease in the rate from the six months ended July 3, 2016 is primarily due to increased benefits from the Research and Development (R&D) tax credit and the net favorable true up of prior-year taxes.

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 $12 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 $10 million.

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Stock-based Compensation

6 Months Ended

Jul. 02, 2017

Equity [Abstract]

Stock-based Compensation

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 July 2, 2017, the Company had authorized up to 3,750,000 common shares under the 2015 Stock Incentive Plan, of which 2,128,588 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 July 2, 2017, the Company had authorized up to 2,000,000 common shares, of which 1,820,477 common shares were available for purchase under the ESPP.

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 six months ended July 2, 2017, 53,449 shares were issued upon the vesting of restricted stock units for the performance period ending in 2017. As of July 2, 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 July 2, 2017, there were 45,120 restricted stock units outstanding under the legacy Orbital plan and during the six months ended July 2, 2017, there were 2,742 shares issued upon the vesting of the restricted stock units.

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 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:

• 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 71,074 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

• up to 79,235 will 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.

TSR Awards

There were 58,506, 71,074 and 79,235 shares reserved for TSR awards for 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 six months ended July 2, 2017.

Restricted Stock Awards

Restricted stock granted to certain key employees totaled 142,761 shares during the six months ended July 2, 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 six months ended July 2, 2017 with a weighted-average fair value of $24.47 per stock option.

Stock-based compensation expense totaled $7 million and $12 million in the quarter and six months ended July 2, 2017, respectively, and $6 million and $11 million in the quarter and six months ended July 3, 2016, respectively. The income tax benefit recognized for stock-based compensation was $2 million and $4 million in the quarter and six months ended July 2, 2017, and $2 million and $4 million in the quarter and six months ended July 3, 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 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 166,429 shares for $16 million during the six months ended July 2, 2017. There were no repurchases made during the quarter ended April 2, 2017. The Company repurchased 194,003 shares for $17 million and 528,104 shares for $44 million during the quarter and six months ended July 3, 2016, respectively.

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Earnings Per Share Data

6 Months Ended

Jul. 02, 2017

Earnings Per Share [Abstract]

Earnings Per Share Data

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 and six months ended July 2, 2017 and July 3, 2016, the reported earnings for each respective period were divided by the weighted-average shares outstanding, determined as follows (in millions):

	Quarters Ended		Six Months Ended
	July 2, 2017	July 3, 2016	July 2, 2017	July 3, 2016
Basic weighted-average number of shares outstanding	57.41	58.19	57.40	58.27
Dilutive common share equivalents - share-based equity awards	0.32	0.45	0.40	0.53
Diluted weighted-average number of shares outstanding	57.73	58.64	57.80	58.80
Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares	0.40	0.15	0.34	0.15

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Contingencies

6 Months Ended

Jul. 02, 2017

Commitments and Contingencies Disclosure [Abstract]

Contingencies

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, notwithstanding that the unfavorable resolution of any matter may have a material effect on net earnings in any particular quarter, to be material to its business or likely to result in a material adverse effect on its operating results, financial condition or cash flows.

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 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, the plaintiffs filed an amended complaint adding our Chief Operating Officer and a former Chief Executive Officer/Director as defendants and asserting claims for violations of additional sections of the Exchange Act. The amended complaint also alleges 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 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. The Company is defending this action vigorously.

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 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 included $12 million and $18 million as of July 2, 2017 and December 31, 2016, 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 present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that the Company expects to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows, using a discount rate of 0.8% and 1.0% as of July 2, 2017 and December 31, 2016, respectively. The Company's discount rate is calculated using the 20-year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9%, rounded to the nearest quarter percent.

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

	July 2, 2017						December 31, 2016
	Liability			Receivable			Liability			Receivable
Amounts (payable) receivable	$	(41	)	$	19		$	(43	)	$	19
Unamortized discount	2			(1		)	2			(1		)
Present value amounts (payable) receivable	$	(39	)	$	18		$	(41	)	$	18

Amounts expected to be paid or received in periods more than one year from the balance sheet date are classified as noncurrent. Of the $39 million discounted liability as of July 2, 2017, $3 million was recorded in other current liabilities. Of the $18 million discounted receivable as of July 2, 2017, the Company recorded $3 million in other current assets. As of July 2, 2017, the estimated discounted range of reasonably possible costs of environmental remediation was $39 million to $66 million.

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.

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Operating Segment Information

6 Months Ended

Jul. 02, 2017

Segment Reporting [Abstract]

Operating Segment Information

Operating Segment Information

The Company 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 and improved profitability.

• Flight Systems Group develops rockets 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. 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 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 ("ISS"). This group is also a provider of spacecraft components and subsystems and specialized engineering and operations services to U.S. Government agencies.

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

	Quarters Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Sales to external customers:
Flight Systems Group	$	423		$	371		$	791		$	721
Defense Systems Group	421			449			867			875
Space Systems Group	271			264			542			544
Total external sales	1,115			1,084			2,200			2,140
Intercompany sales:
Flight Systems Group	2			3			5			7
Defense Systems Group	3			6			8			10
Space Systems Group	31			15			61			21
Corporate	(36		)	(24		)	(74		)	(38		)
Total intercompany sales	—			—			—			—
Total sales	$	1,115		$	1,084		$	2,200		$	2,140
Income before interest, income taxes and noncontrolling interest:
Flight Systems Group	$	59		$	59		$	100		$	108
Defense Systems Group	43			51			85			93
Space Systems Group	31			46			58			76
Corporate	3			(8		)	4			(9		)
Total income before interest, income taxes and noncontrolling interest	$	136		$	148		$	247		$	268

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

	July 2, 2017		December 31, 2016
Total assets:
Flight Systems Group	$	2,212	$	2,208
Defense Systems Group	1,343		1,228
Space Systems Group	1,329		1,280
Corporate	595		702
Total assets	$	5,479	$	5,418

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 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 expenses such as corporate accounting, legal and treasury costs are allocated out to the business segments. The amortization expense related to purchase accounting attributed to the acquisition of Orbital is also recorded in Corporate. Environmental expenses are allocated to each segment based on the origin of the underlying environmental cost. 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.

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jul. 02, 2017

Accounting Policies [Abstract]

Nature of Operations and Basis of Presentation

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 ("Form 10-K") filed on April 28, 2017 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 July 2, 2017, its results of operations and comprehensive income for the quarters and six months ended July 2, 2017 and July 3, 2016 and its cash flows for the six months ended July 2, 2017 and July 3, 2016. The condensed consolidated balance sheet as of December 31, 2016 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, 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, 2016.

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 In Estimates

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. 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.

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 3 - 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 three interest rate swaps with a total notional value of $250 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.

The carrying amounts of the Company’s financial instruments, other than derivatives, which include net receivables, inventory, accounts payable, accrued liabilities and other current assets and liabilities, are reasonable estimates of their related fair values. The fair value of the variable-rate long-term debt is calculated based on current market rates for debt of the same risk and maturities. The fair value of the fixed-rate debt is based on market quotes for each issuance. 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 generally classifies non-financial instruments as either Level 2 or Level 3 fair value measurements.

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jul. 02, 2017

Fair Value Disclosures [Abstract]

Schedule of carrying values and estimated fair values of assets and liabilities that are not measured on a recurring basis

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

	July 2, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed-rate debt	$	700	$	730	$	700	$	727
Variable-rate debt	$	805	$	801	$	750	$	746

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Derivative Financial Instruments (Tables)

6 Months Ended

Jul. 02, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of notional amounts of outstanding derivatives

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

	Notional		Fair Value		Pay Fixed		Receive Floating		Maturity Date
Non-amortizing swap	$	100	$	—	1.29	%	1.23	%	August 2017
Non-amortizing swap	$	100	$	—	1.69	%	1.23	%	August 2018
Non-amortizing swap	$	50	$	—	1.10	%	1.23	%	November 2017

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

The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at July 2, 2017, the outstanding swap agreements were in a net liability position which would require the Company to make the net settlement payments to 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.

Commodity 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.

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

	Number of Pounds
Copper	19
Zinc	7

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 currency forward contracts were as follows (in millions):

	Quantity Hedged
Euros sold	14
Euros purchased	72

Schedule of fair value and location of derivative instruments designated as hedging instruments in the consolidated balance sheet

Fair values in the condensed consolidated balance sheets related to derivative instruments designated as hedging instruments were as follows (in millions):

	Asset Derivatives Fair Value				Liability Derivatives Fair Value
	July 2, 2017		December 31, 2016		July 2, 2017		December 31, 2016
Commodity forward contracts(1)	$	4	$	5	$	1	$	—
Foreign currency forward contracts(1)	3		3		1		—
Foreign currency forward contracts(2)	—		1		1		—
Interest rate swap contracts(2)	—		—		—		1
Total	$	7	$	9	$	3	$	1

____________________________________________________________

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

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

Schedule of derivative gains and losses in the consolidated income statements related to commodity forward contracts and foreign currency forward contracts

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

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

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Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jul. 02, 2017

Equity [Abstract]

Schedule of components of accumulated OCI, net of income taxes

The following table summarizes the components of AOCI, net of income taxes (in millions):

	July 2, 2017			December 31, 2016
Derivatives	$	2		$	5
Pension and other postretirement benefits	(738		)	(771		)
Available-for-sale securities	3			2
Total AOCI	$	(733	)	$	(764	)

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Net Inventories (Tables)

6 Months Ended

Jul. 02, 2017

Inventory Disclosure [Abstract]

Schedule of net inventories

Net inventories consisted of the following (in millions):

	July 2, 2017		December 31, 2016
Raw materials	$	145	$	93
Work / contracts in process	107		121
Finished goods	29		1
Net inventories	$	281	$	215

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Postretirement Plans (Tables)

6 Months Ended

Jul. 02, 2017

Retirement Benefits [Abstract]

Schedule of components of net periodic benefit cost and income

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

	Quarters Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Service cost	$	4		$	4		$	8		$	9
Interest cost	25			26			49			51
Expected return on plan assets	(40		)	(40		)	(79		)	(81		)
Amortization of unrecognized net loss (1)	34			32			66			63
Amortization of unrecognized prior service cost (1)	(5		)	(6		)	(10		)	(11		)
Net periodic benefit cost	18			16			34			31
Special termination benefit cost / curtailment	—			—			—			2
Net periodic benefit cost	$	18		$	16		$	34		$	33

____________________________________________________________

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

During the six months ended July 3, 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						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Interest cost	$	—		$	1		$	1		$	2
Expected return on plan assets	(1		)	(1		)	(2		)	(2		)
Amortization of unrecognized net loss (1)	1			1			1			1
Amortization of unrecognized prior service cost (1)	(1		)	(2		)	(3		)	(3		)
Net periodic benefit income	$	(1	)	$	(1	)	$	(3	)	$	(2	)

____________________________________________________________

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

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Long-term Debt (Tables)

6 Months Ended

Jul. 02, 2017

Debt Disclosure [Abstract]

Schedule of long-term debt, including the current portion

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

	July 2, 2017		December 31, 2016
Senior Credit Facility:
Term Loan A due 2020	$	730	$	750
Revolving Credit Facility due 2020	75		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,505		1,450
Unamortized debt issuance costs:
Senior Credit Facility	5		5
5.25% Senior Notes due 2021	1		2
5.50% Senior Notes due 2023	5		5
Unamortized debt issuance costs	11		12
Long-term debt less unamortized debt issuance costs	1,494		1,438
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,454	$	1,398

Schedule of minimum payments on outstanding long-term debt

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

Remainder of 2017	$	20
2018	40
2019	40
2020	705
2021	300
Thereafter	400
Total	$	1,505

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Earnings Per Share Data (Tables)

6 Months Ended

Jul. 02, 2017

Earnings Per Share [Abstract]

Schedule of weighted average number of shares

In computing basic and diluted EPS for both the quarters and six months ended July 2, 2017 and July 3, 2016, the reported earnings for each respective period were divided by the weighted-average shares outstanding, determined as follows (in millions):

	Quarters Ended		Six Months Ended
	July 2, 2017	July 3, 2016	July 2, 2017	July 3, 2016
Basic weighted-average number of shares outstanding	57.41	58.19	57.40	58.27
Dilutive common share equivalents - share-based equity awards	0.32	0.45	0.40	0.53
Diluted weighted-average number of shares outstanding	57.73	58.64	57.80	58.80
Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares	0.40	0.15	0.34	0.15

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Contingencies (Tables)

6 Months Ended

Jul. 02, 2017

Commitments and Contingencies Disclosure [Abstract]

Summary of the amounts recorded for environmental remediation

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

	July 2, 2017						December 31, 2016
	Liability			Receivable			Liability			Receivable
Amounts (payable) receivable	$	(41	)	$	19		$	(43	)	$	19
Unamortized discount	2			(1		)	2			(1		)
Present value amounts (payable) receivable	$	(39	)	$	18		$	(41	)	$	18

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Operating Segment Information (Tables)

6 Months Ended

Jul. 02, 2017

Segment Reporting [Abstract]

Schedule of segment reporting information, by segment

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

	Quarters Ended						Six Months Ended
	July 2, 2017			July 3, 2016			July 2, 2017			July 3, 2016
Sales to external customers:
Flight Systems Group	$	423		$	371		$	791		$	721
Defense Systems Group	421			449			867			875
Space Systems Group	271			264			542			544
Total external sales	1,115			1,084			2,200			2,140
Intercompany sales:
Flight Systems Group	2			3			5			7
Defense Systems Group	3			6			8			10
Space Systems Group	31			15			61			21
Corporate	(36		)	(24		)	(74		)	(38		)
Total intercompany sales	—			—			—			—
Total sales	$	1,115		$	1,084		$	2,200		$	2,140
Income before interest, income taxes and noncontrolling interest:
Flight Systems Group	$	59		$	59		$	100		$	108
Defense Systems Group	43			51			85			93
Space Systems Group	31			46			58			76
Corporate	3			(8		)	4			(9		)
Total income before interest, income taxes and noncontrolling interest	$	136		$	148		$	247		$	268

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

	July 2, 2017		December 31, 2016
Total assets:
Flight Systems Group	$	2,212	$	2,208
Defense Systems Group	1,343		1,228
Space Systems Group	1,329		1,280
Corporate	595		702
Total assets	$	5,479	$	5,418

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Basis of Presentation and Summary of Significant Accounting Policies (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016	Dec. 31, 2016
Accounting Policies [Abstract]
Operating income adjustments under percentage of completion method	$ 33	$ 56	$ 36	$ 83
Operating income adjustments under percentage of completion method, per diluted share (in dollars per share)	$ 0.41	$ 0.66	$ 0.45	$ 1.02
Estimated costs to complete on loss contracts	$ 1,196		$ 1,196		$ 1,333

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Fair Value of Financial Instruments - Fair value of assets and liabilities measured on a recurring basis (Details)	Jul. 02, 2017 USD ($) derivative	Dec. 31, 2016 USD ($)	Dec. 31, 2014 USD ($)
Fair value of assets and liabilities measured on a recurring basis
Number of interest rate derivatives held | derivative	3
Fair value of assets and liabilities that are measured on a recurring basis
Fair value of assets and liabilities measured on a recurring basis
Marketable securities	$ 14,000,000	$ 13,000,000
Interest Rate Swap
Fair value of assets and liabilities measured on a recurring basis
Notional amount	$ 250,000,000		$ 400,000,000

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Fair Value of Financial Instruments - Carrying values and estimated fair values of assets and liabilities not measured on a recurring basis (Details) - USD ($) $ in Millions	Jul. 02, 2017	Dec. 31, 2016
Carrying Amount
Assets and liabilities that are not measured on a recurring basis
Fixed-rate debt	$ 700	$ 700
Variable-rate debt	805	750
Fair Value
Assets and liabilities that are not measured on a recurring basis
Fixed-rate debt	730	727
Variable-rate debt	$ 801	$ 746

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Derivative Financial Instruments - Floating to fixed rate (Details) - USD ($)	Jul. 02, 2017	Dec. 31, 2014
Interest Rate Swap
Derivative [Line Items]
Notional	$ 250,000,000	$ 400,000,000
Interest Rate Swap, Maturing August 2017
Derivative [Line Items]
Notional	100,000,000
Fair Value	$ 0
Pay Fixed	1.29%
Receive Floating	1.23%
Interest Rate Swap, Maturing August 2018
Derivative [Line Items]
Notional	$ 100,000,000
Fair Value	$ 0
Pay Fixed	1.69%
Receive Floating	1.23%
Interest Rate Swap, Maturing November 2017
Derivative [Line Items]
Notional	$ 50,000,000
Fair Value	$ 0
Pay Fixed	1.10%
Receive Floating	1.23%

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Derivative Financial Instruments (Details) € in Millions, lb in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017 USD ($)	Jul. 03, 2016 USD ($)	Jul. 02, 2017 USD ($) lb	Jul. 03, 2016 USD ($)	Jul. 02, 2017 EUR (€)	Dec. 31, 2016 USD ($)
Designated as Hedging Instrument
Asset Derivatives Fair Value
Fair value of derivative assets	$ 7		$ 7			$ 9
Liability Derivatives Fair Value
Fair value of derivative liabilities	3		$ 3			1
Copper
Derivative [Line Items]
Notional amount, mass (in pounds) | lb			19
Zinc
Derivative [Line Items]
Notional amount, mass (in pounds) | lb			7
Commodity forward contracts | Cost of sales
Pretax amount of gain (loss) reclassified from Accumulated Other Comprehensive Income (Loss)
Commodity forward contracts, gain/(loss) reclassified from accumulated other comprehensive income (loss)	(1)	$ (2)	$ (3)	$ (4)
Commodity forward contracts | Designated as Hedging Instrument | Other Current Assets
Asset Derivatives Fair Value
Commodity forward contracts, fair value of assets	4		4			5
Commodity forward contracts | Designated as Hedging Instrument | Other Current Liabilities
Liability Derivatives Fair Value
Commodity forward contracts, fair value of liabilities	1		1			0
Foreign currency forward contracts | Designated as Hedging Instrument | Other Current Assets
Asset Derivatives Fair Value
Foreign currency forward contracts, fair value of assets	3		3			3
Foreign currency forward contracts | Designated as Hedging Instrument | Other Current Liabilities
Liability Derivatives Fair Value
Foreign currency forward contracts, fair value of liabilities	1		1			0
Foreign currency forward contracts | Designated as Hedging Instrument | Other Noncurrent Assets
Asset Derivatives Fair Value
Foreign currency forward contracts, fair value of assets	0		0			1
Foreign currency forward contracts | Designated as Hedging Instrument | Other Noncurrent Liabilities
Liability Derivatives Fair Value
Foreign currency forward contracts, fair value of liabilities	1		1			0
Interest rate swap contracts | Interest expense
Pretax amount of gain (loss) reclassified from Accumulated Other Comprehensive Income (Loss)
Interest rate contracts, gain/(loss) reclassified from accumulated other comprehensive income (loss)	0	$ (1)	1	$ (2)
Interest rate swap contracts | Designated as Hedging Instrument | Other Noncurrent Assets
Asset Derivatives Fair Value
Interest rate contracts, fair value of assets	0		0			0
Interest rate swap contracts | Designated as Hedging Instrument | Other Noncurrent Liabilities
Liability Derivatives Fair Value
Interest rate contracts, fair value of liabilities	$ 0		$ 0			$ 1
Euros sold | Foreign currency forward contracts
Derivative [Line Items]
Notional amount (in euros) | €					€ 14
Euros purchased | Foreign currency forward contracts
Derivative [Line Items]
Notional amount (in euros) | €					€ 72

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions	Jul. 02, 2017	Dec. 31, 2016
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss)	$ (733)	$ (764)
Derivatives
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss)	2	5
Pension and other postretirement benefits
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss)	(738)	(771)
Available-for-sale Securities
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss)	$ 3	$ 2

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Net Inventories (Details) - USD ($) $ in Millions	Jul. 02, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 145	$ 93
Work / contracts in process	107	121
Finished goods	29	1
Net inventories	$ 281	$ 215

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Postretirement Plans - Components of Net Periodic Benefit Cost (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Pension Benefits
Change in benefit obligation
Service cost	$ 4	$ 4	$ 8	$ 9
Interest cost	25	26	49	51
Expected return on plan assets	(40)	(40)	(79)	(81)
Amortization of unrecognized net loss	34	32	66	63
Amortization of unrecognized prior service cost	(5)	(6)	(10)	(11)
Net periodic benefit cost	18	16	34	31
Special termination benefit cost / curtailment	0	0	0	2
Net periodic benefit cost (income)	18	16	34	33
Other Postretirement Benefits
Change in benefit obligation
Interest cost	0	1	1	2
Expected return on plan assets	(1)	(1)	(2)	(2)
Amortization of unrecognized net loss	1	1	1	1
Amortization of unrecognized prior service cost	(1)	(2)	(3)	(3)
Net periodic benefit cost (income)	$ (1)	$ (1)	$ (3)	$ (2)

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Postretirement Plans - Narrative (Details)	6 Months Ended
	Jul. 02, 2017 USD ($)
Supplemental (nonqualified) executive retirement plan
Defined Benefit Plans
Employer's contribution to retirees during the period	$ 2,000,000
Estimated future employer contributions in current fiscal year	1,000,000
Other Postretirement Benefits
Defined Benefit Plans
Employer contributions directly to the pension trust for the period	1,000,000
Estimated future employer contributions in current fiscal year	2,000,000
Pension Benefits
Defined Benefit Plans
Contributions by employer	0
Estimated future employer contributions in current fiscal year	$ 24,000,000

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Long-term Debt - Summary Of Debt (Details) - USD ($) $ in Millions	Jul. 02, 2017	Dec. 31, 2016	Sep. 30, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Long-term debt, gross	$ 1,505	$ 1,450
Unamortized debt issuance costs	11	12
Long-term debt less unamortized debt issuance costs	1,494	1,438
Current portion of long-term debt	40	40
Long-term debt	1,454	1,398
Senior Notes | 5.25% Senior Notes due 2021
Debt Instrument [Line Items]
Long-term debt, gross	300	300
Unamortized debt issuance costs	$ 1	2
Interest rate	5.25%			5.25%
Senior Notes | 5.50% Senior Notes due 2023
Debt Instrument [Line Items]
Long-term debt, gross	$ 400	400
Unamortized debt issuance costs	$ 5	5
Interest rate	5.50%		5.50%
Senior Credit Facility
Debt Instrument [Line Items]
Unamortized debt issuance costs	$ 5	5
Senior Credit Facility | Term Loan | Term Loan A due 2020
Debt Instrument [Line Items]
Long-term debt, gross	730	750
Senior Credit Facility | Line of Credit | Revolving Credit Facility due 2020
Debt Instrument [Line Items]
Long-term debt, gross	$ 75	$ 0

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Long-term Debt - Senior Credit Facility (Details) - USD ($)	1 Months Ended	6 Months Ended
	Sep. 30, 2015	Jul. 02, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Long-term debt		$ 1,505,000,000	$ 1,450,000,000
Senior Credit Facility | Line of Credit
Debt Instrument [Line Items]
Outstanding letters of credit		$ 163,000,000
Senior Credit Facility | Line of Credit | Base Rate
Debt Instrument [Line Items]
Basis spread on variable rate	0.25%
Senior Credit Facility | Line of Credit | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate	1.25%
Senior Credit Facility | Line of Credit | Term Loan A due 2020
Debt Instrument [Line Items]
Debt instrument, face amount	$ 800,000,000
Periodic principal payments	10,000,000
Weighted average interest rate		2.54%
Senior Credit Facility | Line of Credit | Revolving Credit Facility due 2020
Debt Instrument [Line Items]
Revolving credit facility, maximum borrowing capacity	$ 1,000,000,000
Annual commitment fee on the unused portion (as a percent)		0.20%
Long-term debt		$ 75,000,000	$ 0
Line of credit facility, remaining borrowing capacity		$ 762,000,000

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Long-term Debt - Senior Notes (Details) - USD ($)	Jul. 02, 2017	Sep. 30, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Subsidiary guarantors percentage owned	100.00%
Senior Notes | 5.50% Senior Notes due 2023
Debt Instrument [Line Items]
Debt instrument, face amount		$ 400,000,000
Interest rate	5.50%	5.50%
Senior Notes | 5.25% Senior Notes due 2021
Debt Instrument [Line Items]
Debt instrument, face amount			$ 300,000,000
Interest rate	5.25%		5.25%

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Long-term Debt - Minimum loan payments (Details) - USD ($) $ in Millions	Jul. 02, 2017	Dec. 31, 2016
Minimum payments on outstanding long-term debt
Remainder of 2017	$ 20
2018	40
2019	40
2020	705
2021	300
Thereafter	400
Total	$ 1,505	$ 1,450

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Income Tax Disclosure [Abstract]
Effective income tax rate (as a percent)	26.40%	31.00%	27.70%	28.40%
Potential reduction of uncertain tax benefits over the next 12 months from audit settlements	$ 12		$ 12
Maximum increase in earnings from settlement of unrecognized tax benefits based on current estimates			$ 10

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Stock-based Compensation (Details)	3 Months Ended		6 Months Ended
	Jul. 02, 2017 USD ($) plan shares	Jul. 03, 2016 USD ($) shares	Jul. 02, 2017 USD ($) plan $ / shares shares	Jul. 03, 2016 USD ($) shares	Feb. 27, 2017 USD ($)	Dec. 31, 2016 USD ($) shares
Stock-Based Compensation
Number of stock-based incentive plans | plan	5		5
Number of plans under which no new grants are being made | plan	4		4
Total pre-tax stock-based compensation expense | $	$ 7,000,000	$ 6,000,000	$ 12,000,000	$ 11,000,000
Total income tax benefit recognized in the income statement for share-based compensation | $	$ 2,000,000	$ 2,000,000	$ 4,000,000	$ 4,000,000
Stock repurchase program, authorized amount | $					$ 450,000,000	$ 300,000,000
Stock repurchase program, number of shares authorized to be repurchased (in shares)						4,000,000
Treasury stock purchased (in shares)		194,003	166,429	528,104
Treasury stock purchased | $		$ 17,000,000	$ 16,000,000	$ 44,000,000
Employee Stock Purchase Plan
Stock-Based Compensation
Number of authorized common shares	2,000,000		2,000,000
Number of available shares to be granted	1,820,477		1,820,477
Restricted stock | Minimum
Stock-Based Compensation
Vesting period			1 year
Restricted stock | Maximum
Stock-Based Compensation
Vesting period			3 years
Stock options
Stock-Based Compensation
Minimum terms of options			7 years
Maximum terms of options			10 years
Stock options granted			58,434
Weighted average fair value (in dollars per share) | $ / shares			$ 24.47
Stock options | Minimum
Stock-Based Compensation
Vesting period			1 year
Stock options | Maximum
Stock-Based Compensation
Vesting period			3 years
Legacy ATK Plans
Stock-Based Compensation
Number of stock-based incentive plans | plan	3		3
Legacy Orbital Plans
Stock-Based Compensation
Number of stock-based incentive plans | plan	1		1
Legacy Orbital Plans | Restricted stock
Stock-Based Compensation
Shares issued upon vesting (in shares)			2,742
Units outstanding (in shares)	45,120		45,120
2005 Stock Incentive Plan
Stock-Based Compensation
Number of authorized common shares	3,750,000		3,750,000
Number of available shares to be granted	2,128,588		2,128,588
2005 Stock Incentive Plan | Restricted stock
Stock-Based Compensation
Shares issued upon vesting (in shares)	53,449
Executive Officers and Key Employees | TSR Awards
Stock-Based Compensation
Restricted stock granted to non-employee directors and certain key employees (in shares)			59,393
Weighted average grant date fair value (in dollars per share) | $ / shares			$ 115.26
Executive Officers and Key Employees | Tranche One | Performance Shares
Stock-Based Compensation
Number of shares payable only upon the achievement of certain financial performance goals	58,506		58,506
Executive Officers and Key Employees | Tranche One | TSR Awards
Stock-Based Compensation
Number of shares payable only upon the achievement of certain financial performance goals	58,506		58,506
Executive Officers and Key Employees | Tranche Two | Performance Shares
Stock-Based Compensation
Number of shares payable only upon the achievement of certain financial performance goals	71,074		71,074
Executive Officers and Key Employees | Tranche Two | TSR Awards
Stock-Based Compensation
Number of shares payable only upon the achievement of certain financial performance goals	71,074		71,074
Executive Officers and Key Employees | Tranche Three | Performance Shares
Stock-Based Compensation
Number of shares payable only upon the achievement of certain financial performance goals	79,235		79,235
Executive Officers and Key Employees | Tranche Three | TSR Awards
Stock-Based Compensation
Number of shares payable only upon the achievement of certain financial performance goals	79,235		79,235
Certain Key Employees | Restricted stock
Stock-Based Compensation
Restricted stock granted to non-employee directors and certain key employees (in shares)			142,761

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Earnings Per Share Data (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2017	Jul. 03, 2016	Jul. 02, 2017	Jul. 03, 2016
Earnings Per Share [Abstract]
Basic weighted-average number of shares outstanding (in shares)	57,410	58,190	57,400	58,270
Dilutive common share equivalents - share-based equity awards (in shares)	320	450	400	530
Diluted weighted-average number of shares outstanding (in shares)	57,730	58,640	57,800	58,800
Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares (in shares)	400	150	340	150

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Contingencies (Details) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jul. 02, 2017	Dec. 31, 2016
Business Acquisition [Line Items]
Unbilled receivables for contract claims	$ 12	$ 18
Discount rate	0.80%	1.00%
Treasury constant maturities rate used to estimate discount rate (in years)	20 years
Estimated inflationary factor (as a percent)	1.90%
Environmental remediation
Amounts (payable)	$ (41)	$ (43)
Unamortized discount on liability	2	2
Present value amounts (payable)	(39)	(41)
Amounts receivable	19	19
Unamortized discount on receivable	(1)	(1)
Present value amounts receivable	18	$ 18
Discounted liability recorded in other current liabilities	3
Discounted receivable recorded in other current assets	$ 3
Minimum
Environmental remediation
Period beyond balance sheet date for classifying the environmental remediation as non-current (in years)	1 year
Estimated discounted reasonably possible costs of environmental remediation	$ 39
Maximum
Environmental remediation
Estimated discounted reasonably possible costs of environmental remediation	$ 66

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Operating Segment Information (Details) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2017 USD ($)	Jul. 03, 2016 USD ($)	Jul. 02, 2017 USD ($) segment	Jul. 03, 2016 USD ($)	Dec. 31, 2016 USD ($)
Segment Reporting [Abstract]
Number of operating segments | segment			3
Results by operating segment
Sales	$ 1,115	$ 1,084	$ 2,200	$ 2,140
Income before interest, income taxes and noncontrolling interest	136	148	247	268
Total assets	5,479		5,479		$ 5,418
Operating segments
Results by operating segment
Sales	1,115	1,084	2,200	2,140
Operating segments | Flight Systems Group
Results by operating segment
Sales	423	371	791	721
Income before interest, income taxes and noncontrolling interest	59	59	100	108
Total assets	2,212		2,212		2,208
Operating segments | Defense Systems Group
Results by operating segment
Sales	421	449	867	875
Income before interest, income taxes and noncontrolling interest	43	51	85	93
Total assets	1,343		1,343		1,228
Operating segments | Space Systems Group
Results by operating segment
Sales	271	264	542	544
Income before interest, income taxes and noncontrolling interest	31	46	58	76
Total assets	1,329		1,329		1,280
Intercompany Sales
Results by operating segment
Revenues	0	0	0	0
Intercompany Sales | Flight Systems Group
Results by operating segment
Sales	2	3	5	7
Intercompany Sales | Defense Systems Group
Results by operating segment
Sales	3	6	8	10
Intercompany Sales | Space Systems Group
Results by operating segment
Sales	31	15	61	21
Corporate
Results by operating segment
Sales	(36)	(24)	(74)	(38)
Income before interest, income taxes and noncontrolling interest	3	$ (8)	4	$ (9)
Total assets	$ 595		$ 595		$ 702