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 October 1, 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 October 27, 2017, there were 57,686,000 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS

		Page
PART I  Financial Information
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets as of October 1, 2017 and December 31, 2016	2
	Condensed Consolidated Statements of Income for the Quarters and Nine Months Ended October 1, 2017 and October 2, 2016	3
	Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended October 1, 2017 and October 2, 2016	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 1, 2017 and October 2, 2016	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
PART II Other Information
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
SIGNATURES		41

PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(Amounts in millions except share data)	October 1, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	119		$	200
Net receivables	1,939			1,741
Net inventories	267			215
Other current assets	90			79
Total current assets	2,415			2,235
Property, plant and equipment, net of accumulated depreciation of $1,191 at October 1, 2017 and $1,121 at December 31, 2016	858			816
Goodwill	1,832			1,832
Net intangibles	70			98
Other noncurrent assets	362			437
Total assets	$	5,537		$	5,418
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	40		$	40
Accounts payable	141			175
Contract loss reserve	160			197
Contract advances and allowances	274			233
Accrued compensation	142			120
Other current liabilities	536			577
Total current liabilities	1,293			1,342
Long-term debt	1,370			1,398
Pension and postemployment benefits	705			744
Other noncurrent liabilities	106			117
Total liabilities	3,474			3,601
Commitments and contingencies (Note 12)
Common stock—$.01 par value: authorized—180,000,000 shares; issued and outstanding—57,685,462 shares at October 1, 2017 and 57,487,466 shares at December 31, 2016	1			1
Additional paid-in-capital	2,169			2,175
Retained earnings	1,459			1,266
Accumulated other comprehensive loss	(714		)	(764		)
Common stock in treasury, at cost—11,249,562 shares held at October 1, 2017 and 11,447,558 shares held at December 31, 2016	(863		)	(872		)
Total Orbital ATK, Inc. stockholders' equity	2,052			1,806
Noncontrolling interest	11			11
Total equity	2,063			1,817
Total liabilities and equity	$	5,537		$	5,418

See Notes to the Condensed Consolidated Financial Statements.

2

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Quarters Ended						Nine Months Ended
(Amounts in millions except per share data)	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Sales	$	1,216		$	1,043		$	3,416		$	3,183
Cost of sales	941			833			2,645			2,466
Gross profit	275			210			771			717
Operating expenses:
Research and development	24			25			78			81
Selling	31			28			90			82
General and administrative	78			66			214			195
Income before interest, income taxes and noncontrolling interest	142			91			389			359
Net interest expense	(17		)	(17		)	(51		)	(51		)
Income before income taxes and noncontrolling interest	125			74			338			308
Income taxes	31			14			90			80
Income before noncontrolling interest	94			60			248			228
Less net income attributable to noncontrolling interest	—			—			—			—
Net income attributable to Orbital ATK, Inc.	$	94		$	60		$	248		$	228
Basic earnings per common share from:
Net income attributable to Orbital ATK, Inc.	$	1.65		$	1.04		$	4.33		$	3.92
Weighted-average number of common shares outstanding	57			58			57			58
Diluted earnings per common share from:
Net income attributable to Orbital ATK, Inc.	$	1.64		$	1.04		$	4.29		$	3.89
Weighted-average number of diluted common shares outstanding	58			58			58			59
Cash dividends per common share	$	0.32		$	0.30		$	0.96		$	0.90

^{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						Nine Months Ended
(Amounts in millions)	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Net income	$	94		$	60		$	248		$	228
Other comprehensive income:
Pension and other postretirement benefits:
Prior service credits for pension and postretirement benefit plans recorded to net income	(7		)	33			(21		)	20
Net actuarial loss for pension and postretirement benefit plans recorded to net income	33			29			100			92
Valuation adjustment for pension and postretirement benefit plans	—			—			—			2
Change in fair value of derivatives	4			1			1			5
Unrealized gain on available-for-sale securities	1			—			1			—
Other	—			1			—			2
Income tax expense	(12		)	(24		)	(31		)	(46		)
Other comprehensive income, net of tax	19			40			50			75
Comprehensive income	113			100			298			303
Less comprehensive income attributable to noncontrolling interest	—			—			—			—
Comprehensive income attributable to Orbital ATK, Inc.	$	113		$	100		$	298		$	303

See Notes to the Condensed Consolidated Financial Statements.

4

ORBITAL ATK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended
(Amounts in millions)	October 1, 2017			October 2, 2016
Operating Activities
Net income	$	248		$	228
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	115			120
Fixed asset impairment	3			5
Deferred income taxes	13			(12		)
Stock-based plans expense	18			18
Other	4			11
Change in assets and liabilities:
Net receivables	(168		)	(203		)
Net inventories	(25		)	(22		)
Income taxes receivable	—			50
Accounts payable	(58		)	39
Contract loss reserve	(36		)	(24		)
Contract advances and allowances	41			(18		)
Accrued compensation	22			(7		)
Pension and postemployment benefits	40			(8		)
Other assets and liabilities	(60		)	(70		)
Cash flows provided by operating activities	157			107
Investing Activities
Capital expenditures	(138		)	(106		)
Cash flows used in investing activities	(138		)	(106		)
Financing Activities
Borrowings on revolving credit facilities	450			800
Payments on revolving credit facilities	(450		)	(665		)
Payment of long-term debt	(30		)	(30		)
Purchase of treasury shares	(32		)	(95		)
Dividends paid	(55		)	(53		)
Proceeds from employee stock compensation plans	17			—
Other	—			1
Cash flows used in financing activities	(100		)	(42		)
Decrease in cash and cash equivalents	(81		)	(41		)
Cash and cash equivalents at beginning of period	200			104
Cash and cash equivalents at end of period	$	119		$	63
Supplemental Cash Flow Disclosures
Noncash investing activity:
Capital expenditures included in accounts payable	$	5		$	4
Noncash financing activity:
Treasury shares purchased included in accounts payable	$	—		$	3

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 October 1, 2017, its results of operations and comprehensive income for the quarters and nine months ended October 1, 2017 and October 2, 2016 and its cash flows for the nine months ended October 1, 2017 and October 2, 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 $45 million ($0.60 per diluted share) for the quarter ended October 1, 2017 and $6 million ($0.08 per diluted share) for the quarter ended October 2, 2016. Aggregate net changes in contract estimates recognized increased income before income taxes and noncontrolling interest by approximately $81 million ($1.03 per diluted share) for the nine months ended October 1, 2017 and $92 million ($1.16 per diluted share) for the nine months ended October 2, 2016. Estimated costs to complete on loss contracts at October 1, 2017 and December 31, 2016 were $967 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 August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). The ASU amends Accounting Standard Codification ("ASC") Topic 815, Derivatives and Hedging, in order to simplify hedge accounting by better aligning an entity’s financial reporting for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accounting guidance. ASU 2017-12 is effective for annual periods beginning after December 15, 2018, and interim periods therein. The ASU will be applied utilizing a modified retrospective approach to existing hedging relationships as of the adoption date. The Company does not expect the provisions of ASU 2017-12 to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In 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 does not expect the provisions of ASU 2017-09 to have a material 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 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

7

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

December 15, 2018. Early adoption is permitted. An entity should apply the amendments in ASU 2017-06 retrospectively to each period for which financial statements are presented. The Company does not expect the provisions of ASU 2017-06 to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

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

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

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

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

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

8

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 2 - Merger

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

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

The stockholders of the Company will vote on the approval of the Merger Agreement at a special meeting currently scheduled to be held on November 29, 2017. Closing is expected to occur during the first half of 2018, subject to customary closing conditions, including the stockholder vote and obtaining required regulatory approvals.

Note 3 - Fair Value of Financial Instruments

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

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

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

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

Level 3—Significant inputs to the valuation model are unobservable.

The following section describes the valuation methodologies used by the Company to measure its financial instruments at fair value.

Derivative financial instruments and hedging activities

In order to manage its exposure to commodity pricing, foreign currency risk and interest rate risk on debt, the Company periodically utilizes commodity, foreign currency and interest rate derivatives, which are considered Level 2 instruments. As discussed further in Note 4 - Derivative Financial Instruments, the Company has outstanding commodity forward contracts that were entered into to hedge forecasted purchases of copper and zinc, as well as outstanding foreign currency forward contracts that were entered into to hedge forecasted transactions denominated in a foreign currency. Commodity derivatives are valued based on prices of futures exchanges and recently reported transactions in the marketplace. The Company currently holds two interest rate swaps with a total notional value of $150 million. These swaps are valued based on future LIBOR rates and the established fixed rate 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

9

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

generally classifies non-financial instruments as either Level 2 or Level 3 fair value measurements. At October 1, 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):

	October 1, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed-rate debt	$	700	$	739	$	700	$	727
Variable-rate debt	$	720	$	716	$	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, as determined by the investee company, with the number of units or shares owned at the valuation date. Net asset value per share is determined by the investee company's custodian or fund administrator by deducting from the value of the assets of the investee company all of its liabilities and dividing the resulting number by the outstanding number of shares or units. Investments held by the CCT, including collateral invested for securities on loan, are valued on the basis of valuations furnished by a pricing service approved by the CCT's investment manager, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the CCT's investment manager. The fair value of these securities, not subject to leveling, is included within other noncurrent assets on the Company's consolidated balance sheet. The fair value of these securities is measured on a recurring basis and was $14 million as of October 1, 2017 and $13 million as of December 31, 2016.

Note 4 - Derivative Financial Instruments

The Company is exposed to market risks arising from adverse changes in commodity prices affecting the cost of raw materials and energy, interest rates and foreign exchange risks. In the normal course of business, these risks are managed through a variety of strategies, including the use of derivative instruments.

Cash Flow Hedges

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

The Company entered into interest rate swaps during fiscal 2014 requiring fixed rate payments on a total notional amount of $400 million, of which $150 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	$	—	1.69	%	1.24	%	August 2018
Non-amortizing swap	$	50	$	—	1.10	%	1.24	%	November 2017

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

The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at October 1, 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.

10

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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	17
Zinc	6

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	16
Euros purchased	52

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
	October 1, 2017		December 31, 2016		October 1, 2017		December 31, 2016
Commodity forward contracts(1)	$	7	$	5	$	—	$	—
Foreign currency forward contracts(1)	3		3		1		—
Foreign currency forward contracts(2)	—		1		1		—
Interest rate swap contracts(2)	—		—		—		1
Total	$	10	$	9	$	2	$	1

____________________________________________________________

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

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

11

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

The Company 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 nine months ended October 1, 2017 and October 2, 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.

Note 5 - Accumulated Other Comprehensive Loss

The following table summarizes the components of Accumulated Other Comprehensive Loss, net of income taxes (in millions):

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

Note 6 - Net Inventories

Net inventories consisted of the following (in millions):

	October 1, 2017		December 31, 2016
Raw materials	$	149	$	93
Work / contracts in process	94		121
Finished goods	24		1
Net inventories	$	267	$	215

12

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 7 - Postretirement Plans

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

	Quarters Ended						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Service cost	$	5		$	5		$	13		$	14
Interest cost	24			25			73			76
Expected return on plan assets	(39		)	(41		)	(118		)	(122		)
Amortization of unrecognized net loss (1)	32			31			98			94
Amortization of unrecognized prior service cost (1)	(5		)	(5		)	(15		)	(16		)
Net periodic benefit cost	17			15			51			46
Special termination benefit cost / curtailment	—			—			—			2
Net periodic benefit cost	$	17		$	15		$	51		$	48

____________________________________________________________

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

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

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

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

____________________________________________________________

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

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

Employer Contributions/Payments

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

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

13

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

Note 8 - Long-term Debt

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

	October 1, 2017		December 31, 2016
Senior Credit Facility:
Term Loan A due 2020	$	720	$	750
Revolving Credit Facility due 2020	—		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,420		1,450
Unamortized debt issuance costs:
Senior Credit Facility	4		5
5.25% Senior Notes due 2021	1		2
5.50% Senior Notes due 2023	5		5
Unamortized debt issuance costs	10		12
Long-term debt less unamortized debt issuance costs	1,410		1,438
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,370	$	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 October 1, 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 October 1, 2017, the Company had no borrowings under the Revolving Credit Facility and had outstanding letters of credit of $181 million, which reduced amounts available on the Revolving Credit Facility to $819 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.

14

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

5.50% Senior Notes

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

Interest Rate Swaps

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

Rank and Guarantees

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

Scheduled Minimum Loan Payments

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

Remainder of 2017	$	10
2018	40
2019	40
2020	630
2021	300
Thereafter	400
Total	$	1,420

Covenants and Default Provisions

The Company's Senior Credit Facility and the indentures governing the 5.25% Notes and the 5.50% Notes impose restrictions on the Company, including limitations on its ability to incur additional debt, enter into capital leases, grant liens, pay dividends and make certain other payments, sell assets, or merge or consolidate with or into another entity. In addition, the Senior Credit Facility limits the Company's ability to enter into sale-and-leaseback transactions. The Senior Credit Facility also requires the Company to meet and maintain specified financial ratios, including a minimum interest coverage ratio and a maximum consolidated total leverage ratio. The Company's debt agreements contain cross-default provisions so that noncompliance with the covenants within one debt agreement that would give rise to the right to accelerate repayment of any outstanding indebtedness could cause a default under other debt agreements as well. The Company's ability to comply with these covenants and to meet and maintain the financial ratios may be affected by events beyond its control. Borrowings under the Senior Credit Facility are subject to compliance with these covenants. The Company is in compliance with its credit agreement covenants as of October 1, 2017.

15

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 9 - 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 October 1, 2017 and October 2, 2016 were 24.4% and 18.0%, respectively. The increase in the rate from the quarter ended October 2, 2016 is primarily due to the impact of the favorable true up of prior-year taxes and the settlement of the examination by the Internal Revenue Service ("IRS") of the fiscal 2013 and 2014 tax returns in the quarter ended October 2, 2016 and the decrease in benefit from domestic manufacturing deduction ("DMD") in the quarter ended October 1, 2017, partially offset by the favorable changes in uncertain tax benefits, research and development ("R&D") tax credits, and state taxes in the quarter ended October 1, 2017.

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

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

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

Note 10 - Stock-based Compensation

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

Restricted Stock Units

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

16

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 common stock as of the grant date and expense is recognized based on the number of shares expected to vest under the terms of the award under which they are granted. Of these performance shares:

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

Restricted Stock Awards

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

Stock Options

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

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

Share Repurchases

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

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

17

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 11 - 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 nine months ended October 1, 2017 and October 2, 2016, the reported earnings for each respective period were divided by the weighted-average shares outstanding, determined as follows (in millions):

	Quarters Ended		Nine Months Ended
	October 1, 2017	October 2, 2016	October 1, 2017	October 2, 2016
Basic weighted-average number of shares outstanding	57.31	57.93	57.37	58.21
Dilutive common share equivalents - share-based equity awards	0.45	0.33	0.49	0.43
Diluted weighted-average number of shares outstanding	57.76	58.26	57.86	58.64
Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares	0.15	0.15	0.22	0.15

Note 12 - Contingencies

Litigation

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

Securities Class Action

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

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

18

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 for the nine-month period ending December 31, 2015 filed on February 24, 2017. The Company is cooperating fully with the SEC in connection with these matters.

U.S. Government Investigations

The Company is also subject to U.S. Government investigations from which civil, criminal or administrative proceedings could result. Such proceedings could involve claims by the U.S. Government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. The Company believes, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on its operating results, financial condition or cash flows.

Claim Recovery

Profits expected to be realized on contracts are based on management's estimates of total contract sales value and costs at completion. Estimated amounts for contract changes and claims are included in contract sales only when realization is estimated to be probable. Unbilled receivables included $10 million and $18 million as of October 1, 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 probable and reasonably estimable costs related to known remediation obligations. The receivable represents the amount that the Company expects to recover, as discussed below.

19

ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

As of October 1, 2017, the estimated range of reasonably possible costs of environmental remediation was $37 million to $69 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 13 - 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.

• 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. This group is also a provider of spacecraft components and subsystems and specialized engineering and operations services to U.S. Government agencies.

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ORBITAL ATK, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

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

	October 1, 2017		December 31, 2016
Total assets:
Flight Systems Group	$	2,293	$	2,208
Defense Systems Group	1,358		1,228
Space Systems Group	1,276		1,280
Corporate	610		702
Total assets	$	5,537	$	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 Sciences Corporation is also recorded in Corporate. 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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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Information is Subject to Risk and Uncertainty

Some of the statements made and information contained in this report, excluding historical information, are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Words such as "may," "will," "expected," "intend," "estimate," "anticipate," "believe," "project" or "continue," and similar expressions are used to identify forward-looking statements. From time to time, we also may provide oral or written forward-looking statements in other materials released to the public. Any or all forward-looking statements in this report and in any public statements we make could be materially different. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and you should not consider the following list to be a complete statement of all potential risks and uncertainties. Any change in the following factors may impact the achievement of results:

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

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

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

• the outcome of any legal proceedings related to the Merger Agreement or the proposed transaction, and the costs and ultimate outcome of litigation matters, government investigations and other legal proceedings;

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

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

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

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

• increases in costs, which the Company may not be able to react to due to the nature of its U.S. Government contracts;

• changes in cost and revenue estimates and/or timing of programs;

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

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

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

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

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

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

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ORBITAL ATK, INC.

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

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

• federal and state regulation of defense products and ammunition;

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

• actual pension and other postretirement plan asset returns and assumptions regarding future returns, discount rates, service costs, mortality rates and health care cost trend rates;

• 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

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ORBITAL ATK, INC.

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

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

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

Financial Highlights for the Quarter Ended October 1, 2017

• Quarterly sales of $1.22 billion.

• Diluted earnings per share of $1.64.

• New firm and option contract bookings of $1.4 billion and option exercises of $0.4 billion under existing contracts.

• Total backlog of $15.7 billion, at October 1, 2017.

• Income before interest, income taxes and noncontrolling interest as a percentage of sales of 11.7%.

• Effective income tax rate of 24.4%.

• Paid quarterly dividend of $0.32 on September 21, 2017, to stockholders of record on September 6, 2017.

Agreement and Plan of Merger

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

The stockholders of the Company will vote on the approval of the Merger Agreement at a special meeting currently scheduled to be held on November 29, 2017. Closing is expected to occur during the first half of 2018, subject to customary closing conditions, including stockholder approval and obtaining required regulatory approvals. At the effective time of the Merger, each outstanding share of the Company’s common stock, other than shares owned by the Company, Northrop Grumman or Sub (which will be canceled) and appraisal shares, will be converted into the right to receive $134.50 in cash, without interest and less any applicable withholding taxes.

Critical Accounting Policies

The Company's significant accounting policies are described in the Form 10-K, Note 1- Summary of Significant Accounting Policies to the consolidated financial statements. The same accounting policies are used in preparing the Company's interim condensed consolidated financial statements.

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.

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ORBITAL ATK, INC.

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

Change in Estimates

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

Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates due to unanticipated cost growth or risks affecting contract costs and/or the resolution of contract risks at lower costs than anticipated, termination of commercial contracts in the event of a lack of end user demand, as well as changes in contract overhead costs over the performance period. Changes in estimates could have a material effect on the Company's consolidated financial position or results of operations.

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						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Gross favorable adjustments	$	79		$	106		$	212		$	251
Gross unfavorable adjustments	(34		)	(100		)	(131		)	(159		)
Net adjustments	$	45		$	6		$	81		$	92

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

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

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

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

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

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

Results of Operations

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

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

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

Sales

	Quarters Ended											Nine Months Ended
	October 1, 2017			October 2, 2016			Change			Percent Change		October 1, 2017			October 2, 2016			Change			Percent Change
Flight Systems Group	$	426		$	363		$	63		17.4	%	$	1,222		$	1,091		$	131		12.0	%
Defense Systems Group	515			456			59			12.9	%	1,390			1,341			49			3.7	%
Space Systems Group	314			248			66			26.6	%	917			813			104			12.8	%
Corporate and Eliminations	(39		)	(24		)	(15		)	(62.5	)%	(113		)	(62		)	(51		)	(82.3	)%
Total sales	$	1,216		$	1,043		$	173		16.6	%	$	3,416		$	3,183		$	233		7.3	%

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

Quarter:

Flight Systems Group

The increase was driven by higher sales of $41 million in Aerospace Structures due to increased production on composite aircraft and launch vehicles components and increased sales of $25 million in Launch Vehicles due to a new medium range ballistic missile program and increased activity on small satellite launch programs.

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Defense Systems Group

The increase was due to higher sales of $33 million in Armament Systems driven by international business, $19 million in Missile Products due to higher production levels of advanced propulsion, fuze and warhead and ammunition and $14 million in Defense Electronics driven by light attack aircraft production. These increases were partially offset by a decrease of $5 million in Small Caliber Systems primarily attributable to production delays resulting from an industrial accident that occurred in the Lake City Army Ammunition Plant.

Space Systems Group

The increase was due to higher sales of $41 million in Satellite Systems driven by strength in Government Satellites partially offset by weakness in Commercial Satellites. In addition, Advanced Programs was higher by $10 million due to increased Mission Extension Vehicle ("MEV") activity, partially offset by decreased Commercial Resupply Services ("CRS") activity. The increase was also due to higher sales of $13 million in Space Components as a result of increased activity on existing programs and $6 million in Technical Services driven by activities on our NASA and Navy contracts.

Corporate and Eliminations

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

Nine Months:

Flight Systems Group

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

Defense Systems Group

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

Space Systems Group

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

Corporate and Eliminations

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

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ORBITAL ATK, INC.

Cost of Sales

	Quarters Ended											Nine Months Ended
	October 1, 2017			October 2, 2016			Change			Percent Change		October 1, 2017			October 2, 2016			Change			Percent Change
Flight Systems Group	$	326		$	278		$	48		17.3	%	$	931		$	813		$	118		14.5	%
Defense Systems Group	414			379			35			9.2	%	1,112			1,087			25			2.3	%
Space Systems Group	250			208			42			20.2	%	752			647			105			16.2	%
Corporate and Eliminations	(49		)	(32		)	(17		)	(53.1	)%	(150		)	(81		)	(69		)	(85.2	)%
Total cost of sales	$	941		$	833		$	108		13.0	%	$	2,645		$	2,466		$	179		7.3	%

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

Quarter:

Flight Systems Group

The increase was primarily due to higher cost of sales of $27 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 $24 million in Launch Vehicles due to a new medium range ballistic missile program and increased activity on small satellite launch programs.

Defense Systems Group

The increase was due to higher cost of sales of $18 million in Armament Systems due to increased international sales, $13 million in Missile Products due to higher production of advanced propulsion, fuze and warhead and ammunition and $13 million in Defense Electronics driven by production level in light attack aircraft. These increases were partially offset by a decrease of $9 million in Small Caliber Systems primarily attributable to production delays resulting from an industrial accident that occurred in the Lake City Army Ammunition Plant.

Space Systems Group

The increase was due to higher cost of sales of $28 million in Satellite Systems driven by increased activity in Government Satellites partially offset by weakness in Commercial Satellites. Advanced Programs was higher by $4 million due to increased MEV activity, partially offset by decreased CRS activity. In addition, Space Components increased $9 million and Technical Services increased by $4 million due to new and existing programs.

Corporate and Eliminations

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

Nine Months:

Flight Systems Group

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

Defense Systems Group

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

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ORBITAL ATK, INC.

Space Systems Group

The increase was due to higher cost of sales of $82 million in Satellite Systems driven by increased activity in Government Satellites partially offset by weakness in Commercial Satellites. Advanced Programs was higher by $8 million due to increased MEV activity. In addition, Space Components increased $10 million and Technical Services increased by $8 million due to new and existing programs.

Corporate and Eliminations

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

Operating Expenses

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

Quarter:

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

Nine Months:

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

Income Taxes

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

Quarter:

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

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Nine Months:

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

Liquidity and Capital Resources

We manage our business to maximize operating cash flows as the primary source of liquidity. In addition to cash on hand and cash generated by operations, sources of liquidity include a credit facility, long-term borrowings, and access to the public debt and equity markets. We use our cash to fund investments in our existing core businesses and for debt repayment, cash dividends, share repurchases, acquisitions and other activities.

Cash Flow Summary

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

	Nine Months Ended
	October 1, 2017			October 2, 2016
Cash provided by operating activities	$	157		$	107
Cash used in investing activities	(138		)	(106		)
Cash used in financing activities	(100		)	(42		)
Net cash flows	$	(81	)	$	(41	)

Operating Activities

Cash provided by operating activities during the nine months ended October 1, 2017 was $157 million, compared to cash provided by operating activities of $107 million during the nine months ended October 2, 2016. The increase in operating cash flows resulted primarily from the net effect of changes in working capital and other assets and liabilities and by a $20 million increase in net income. During the nine months ended October 1, 2017, changes in working capital and other assets and liabilities used$244 million of cash, comprised primarily of a $168 million increase in net receivables, a $58 million decrease in accounts payable, a $36 million decrease in contract loss reserve, a $25 million increase in net inventories and a $60 million change in other assets and liabilities, offset by a $41 million increase in contract advances and allowances, a $40 million increase in pension and postemployment benefits and a $22 million increase in accrued compensation.

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

Investing Activities

Cash used in investing activities consisted of capital expenditures and was $138 million and $106 million during the nine months ended October 1, 2017 and October 2, 2016, respectively. The increase was primarily due to capitalized costs for our self-constructed Mission Extension Vehicle asset of $66 million during the nine months ended October 1, 2017. The vehicle will provide in-orbit satellite life extension services when completed.

Financing Activities

Cash used in financing activities during the nine months ended October 1, 2017 was $100 million, compared to cash used in financing activities of $42 million for the nine months ended October 2, 2016. The increase in cash used in financing activities is due primarily to lower net borrowings of $135 million on our Senior Credit Facility, offset partially by a decrease in share repurchases and an increase in proceeds from employee stock compensation plans.

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ORBITAL ATK, INC.

Liquidity

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

During the nine months ended October 1, 2017, we paid dividends totaling $55 million. The payment and amount of any future dividends are at the discretion of our Board of Directors and will be based on a number of factors, including our earnings, liquidity position, financial condition, capital requirements, credit ratings and the availability and cost of obtaining new debt. Under the terms of the Merger Agreement with Northrop Grumman, we are permitted to, and intend to, continue paying a $0.32 per share quarterly cash dividend until the closing of the transaction. However, we are not permitted to increase the per share dividend under the terms of the Merger Agreement.

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

We do not expect our access to liquidity sources will be materially impacted in the near future. There can be no assurance, however, that the cost or availability of future borrowings, if any, will not be materially impacted by capital market conditions.

Long-term Debt and Credit Facilities

As of October 1, 2017, we had outstanding total indebtedness of $1,420 million and the potential of additional borrowings of up to $819 million on our $1 billion Revolving Credit Facility, reduced for outstanding letters of credit of $181 million.

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

	October 1, 2017		December 31, 2016
Senior Credit Facility:
Term Loan A due 2020	$	720	$	750
Revolving Credit Facility due 2020	—		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,420		1,450
Unamortized debt issuance costs:
Senior Credit Facility	4		5
5.25% Senior Notes due 2021	1		2
5.50% Senior Notes due 2023	5		5
Unamortized debt issuance costs	10		12
Long-term debt less unamortized debt issuance costs	1,410		1,438
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,370	$	1,398

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ORBITAL ATK, INC.

Covenants

As of October 1, 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 October 1, 2017	1.98	11.16

____________________________________________________________

⁽¹⁾ Not to exceed the required financial ratio

⁽²⁾ Not to be below the required financial ratio

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

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

Share Repurchases

Shares of our common stock may be purchased from time to time in the open market, subject to compliance with applicable laws and regulations and our debt covenants, depending upon market conditions and other factors. During 2016, the Board of Directors authorized an increase to the amount for repurchase of the Company's common stock to the lesser of $300 million or 4 million shares through March 31, 2017. On February 27, 2017, the Board of Directors further increased the amount authorized for repurchase to $450 million, removed the share quantity limitation and extended the repurchase period through March 31, 2018. We repurchased 64,489 shares for $7 million and 230,918 shares for $23 million during the quarter and nine months ended October 1, 2017. We repurchased 576,407shares for$44 million and 1,104,511 shares for $88 million during the quarter and nine months ended October 2, 2016. In connection with the Merger, the Company halted its share repurchase program.

Contractual Obligations and Commercial Commitments

There have been no material changes at October 1, 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.

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ORBITAL ATK, INC.

The liability for environmental remediation represents management's best estimate of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the amount that we expect to recover, as discussed below.

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 nine months ended October 1, 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 October 1, 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 weakness in internal control over financial reporting that existed as of December 31, 2016 related to:

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

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

Remediation of Material Weaknesses

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

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

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ORBITAL ATK, INC.

(i) 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”). 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 this material weakness, we have not fully tested all our remediation actions to verify the effectiveness of their design or operation.

Changes in Internal Control over Financial Reporting

During the quarter ended October 1, 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 weakness described above, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

On August 12, 2016, a putative class action complaint, naming the Company, our Chief Executive Officer and our Chief Financial Officer as defendants, was filed in the United States District Court for the Eastern District of Virginia (Steven Knurr, et al. v. Orbital ATK, Inc., 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 and October 10, 2017, the plaintiffs filed amended complaints naming additional defendants and asserting claims for violations of additional sections of the Exchange Act and alleged false and misleading statements in the Company’s Form S-4 filed with the SEC relating to the merger between the Company and Orbital Sciences Corporation. The complaint seeks an award of damages, an award of reasonable costs and expenses at trial, including counsel and expert fees, and an award of such other relief as deemed appropriate by the Court.

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

U.S. Government Investigations. We are also subject to U.S. Government investigations from which civil, criminal or administrative proceedings could result. Such proceedings could involve claims by the U.S. Government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. We believe, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on our operating results, financial condition or cash flows.

Environmental Liabilities. Our operations and ownership or use of real property are subject to a number of federal, state, and local laws and regulations, including those for discharge of hazardous materials, remediation of

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contaminated sites, and restoration of damage to the environment. Due in part to their complexity and pervasiveness, such laws and regulations have resulted in our Company being involved with a number of related legal proceedings, claims and remediation obligations. We routinely assess, based on in-depth studies, expert analyses and legal reviews, our contingencies, obligations, and commitments for remediation of contaminated sites and past practices, including assessments of ranges and probabilities of recoveries from other responsible parties. Our policy is to accrue and charge to expense in the current period any identified exposures related to environmental liabilities based on estimates of investigation, cleanup, monitoring and resource restoration costs to be incurred.

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

We could incur substantial costs, including cleanup costs, resource restoration costs, fines, and penalties or third-party property damage or personal injury claims, as a result of violations or liabilities under environmental laws or noncompliance with environmental permits. While environmental laws and regulations have not had a material adverse effect on our operating results, financial condition or cash flows in the past, and we have environmental management programs in place to mitigate these risks, it is difficult to predict whether they will have a material impact in the future.

The description of certain environmental matters contained in Part I, Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Contingencies," is incorporated herein by reference.

ITEM 1A.    RISK FACTORS

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A, "Risk Factors," of Part I of our Report on Form 10-K for the year ended December 31, 2016 ("Form 10-K"), describes 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.

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

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

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

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

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

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ORBITAL ATK, INC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total 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)
July 3 - July 30	67,187	$	102.13	49,957
July 31 - August 27	14,602	$	103.82	14,532
August 28 - October 1	109	$	132.80	—
Quarter ended October 1, 2017	81,898	$	102.48	64,489	$	227

____________________________________________________________

⁽¹⁾  The 81,898 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 64,489shares for $7 million during the quarter ended October 1, 2017. In connection with the Merger, the Company halted its share repurchase program.

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

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.   MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.       OTHER INFORMATION

None.

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ORBITAL ATK, INC.

ITEM 6.   EXHIBITS

Exhibit Number	Description of Exhibit (and document from which incorporated by reference, if applicable)
2.1	Agreement and Plan of Merger, dated as of September 17, 2017 among Northrop Grumman Corporation, Neptune Merger, Inc. and the Registrant (Exhibit 2.1 to Form 8-K dated September 17, 2017).
3(ii).1	Amended and Restated Bylaws of the Registrant, Effective August 9, 2017 (Exhibit 3.1 to Form 8-K dated August 9, 2017).
10.1	Description of Non-Employee Directors' Cash and Equity Compensation, Effective as of August 10, 2017.
10.2	Non-Employee Director Stock Program (as amended and restated August 10, 2017) under the Orbital ATK, Inc. 2015 Stock Incentive Plan.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

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ORBITAL ATK, INC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 2, 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)

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EX-10.1

Exhibit 10.1

ORBITAL ATK, INC.

Description of Non-Employee Directors’ Cash and Equity Compensation, Effective as of August 10, 2017

Only non-employee directors receive compensation for service on the Company’s Board of Directors.

On August 10, 2017, Orbital ATK’s Board of Directors approved the following non-employee director compensation, effective immediately as of the election of directors to the Board at the annual meeting of stockholders on that date:

• an award of restricted stock valued at $110,000 at the time of grant upon initial election to the Board and upon re-election at each subsequent annual meeting of stockholders (increased from $100,000);

• an annual cash retainer of $75,000, with no additional fees paid for Board and committee meetings attended (no change to the previously-approved amount);

• an annual cash retainer of $100,000 for the independent non-executive Chairman of the Board (Ronald R. Fogleman; increased from $90,000);

• an annual cash retainer of $25,000 for the chair of the Audit Committee (increased from $18,500);

• an annual cash retainer of $15,000 for the chair of the Compensation and Human Resources Committee, $15,000 for the chair of the Governance Committee and $15,000 for the chair of the Markets and Technology Committee (each retainer increased from $12,500); and

• an annual cash retainer of $13,500 for each member of the Audit Committee, $7,500 for each member of the Compensation and Human Resources Committee, $7,500 for each member of the Governance Committee, $7,500 for each member of the Markets and Technology Committee and $2,500 for each member of the special subcommittee of the Markets and Technology Committee (no changes to the previously-approved amounts).

Cash amounts are paid annually in a lump sum upon election or re-election at the annual meeting of stockholders.

Directors who spend a significant part of a day on Company business issues beyond the normal scope of board member responsibilities receive an additional $1,000 per diem payment, plus expenses. The per diem is paid at the discretion of the Company’s Chief Executive Officer. Non-employee directors are also reimbursed for tuition and related expenses for continuing director education courses.

EX-10.2

Exhibit 10.2

Non-Employee Director

Stock Program

(As amended and restated August 10, 2017)

Section 1. The Program.

1.1 Effective Date; Duration; Administration. The Non-Employee Director Stock Program (“Program”) is being adopted under the Orbital ATK, Inc. 2015 Stock Incentive Plan (“Plan”), effective August 5, 2015. The Program is amended and restated as of August 10, 2017. No Award shall be made under this Program after the date of termination of the 2015 Stock Incentive Plan. The Program shall be subject to the provisions of the Plan and the terms and conditions set forth in this document. This Program shall be administered in accordance with the Plan.

1.2 Definitions. Capitalized terms used in this document shall have the respective meanings given to such terms in the Plan, unless otherwise defined herein.

(a) “Non-Employee Director” means a Director who is not also an employee of the Company or one of the Company’s Affiliates.

(b) “Change in Control” shall have the meaning set forth in Appendix B to this Program.

Section 2. Restricted Stock Awards.

2.1 Award Dates.

(a) As of the date of each Annual Meeting of the Company’s Stockholders beginning with the 2017 Annual Meeting, each Non-Employee Director who is elected or reelected to the Board at such Annual Meeting shall be awarded shares of Restricted Stock with a Fair Market Value of $120,000 (rounded to the nearest whole share) as determined by the closing sale price of the Shares on the date of such Annual Meeting.

(b) A Non-Employee Director who is first elected to the Board on or after August 10, 2017 at other than an Annual Meeting shall be awarded a prorated number of shares of Restricted Stock (rounded to the nearest whole share) as of the Director’s first day of service as a Non-Employee Director, with a Fair Market Value of $120,000 multiplied by the quotient of (i) the number of months remaining in the 12-month period starting on the date of the preceding Annual Meeting (rounded to the nearest whole month) divided by (ii) 12, as determined by the closing sale price of the Shares on the date of Award.

(c) A Director may elect, in writing, in accordance with the provisions of Appendix A of this Program, to waive the Director’s right to receive the Award and instead receive an equal number of deferred Restricted Stock Units.

2.2 Issuance of Stock. As promptly as practicable after the date as of which a Restricted Stock Award is made, the Company shall issue Shares to the Non-Employee Director, either by book-entry registration or issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company.

2.3 Rights of Holders of Restricted Stock. Upon issuance of the shares of Restricted Stock, the Director shall have, subject to the restrictions of this Program and the Plan, all of the rights of a

stockholder with respect to the Shares, including the right to vote the Shares and receive any cash dividends and any other distributions thereon, unless and until the Shares are forfeited.

2.4 Restricted Period. Restricted Stock shall be subject to the restrictions set forth in Sections 2.5 and 2.7 of this Program and the provisions of the Plan for a period (the “Restricted Period”) commencing on the date as of which the Restricted Stock is awarded (the “Award Date”) and ending on the earlier of:

(a)the first anniversary of the Award Date; or

(b)the first to occur of the following:

(i) the retirement of the Director from the Board in compliance with the Board’s retirement policy as then in effect;

(ii) the death of the Director;

(iii) the termination of the Director’s service on the Board because the Director has been determined to be eligible for Social Security disability benefits (“Disability”); or

(iv) the termination of the Director’s service on the Board following a Change in Control of the Company.

2.5 Forfeiture of Restricted Stock. As of the date (“Termination Date”) a Director ceases to be a member of the Board for any reason, the Director shall forfeit to the Company all shares of Restricted Stock awarded to the Director for which the Restricted Period has not ended as of or prior to the Termination Date.

2.6 Release of Restricted Stock. Restricted Stock shall be released to the Director, free and clear of all restrictions and other provisions of this Program or the Plan, on the first business day immediately following the last day of the Restricted Period. Shares will be delivered to the Director as promptly as practicable after the end of the Restricted Period.

2.7 Restrictions. Restricted Stock shall be subject to the following restrictions during the Restricted Period:

(a) The Restricted Stock shall be subject to forfeiture to the Company as provided in Section 2.5 of this Program.

(b) The Restricted Stock may not be sold, transferred, pledged or otherwise encumbered during the Restricted Period, and neither the right to receive the Shares nor any interest under this Program or the Plan may be transferred by a Director, and any attempted transfer shall be void.

(c) Any securities or property (other than cash) that may be issued with respect to the shares of Restricted Stock as a result of any stock dividend, stock split, business combination or other event shall be subject to the restrictions and other provisions of this Program and the Plan.

(d) The issuance of Restricted Stock and the delivery of the Shares shall be subject to and contingent upon the completion of any registration or qualification of the Shares under any federal or state law or governmental rule or regulation that the Company, in its sole discretion, determines to be necessary or advisable.

Appendix A

Deferral Program

Under

Non-Employee Director

Stock Program

Section 1. Purpose and Effect.

(a)This Appendix A to the Non-Employee Director Stock Program (“Program”) under the Orbital ATK, Inc. 2015 Stock Incentive Plan (“Plan”) authorizes the deferral of income that would otherwise be recognized upon the lapse of restrictions applicable to Restricted Stock Awards under the Plan.

(b)In accordance with the rules set forth in this Appendix A, Directors may waive their rights to receive Restricted Stock Awards under the Program and instead receive an equal number of deferred Restricted Stock Units in a deferred restricted stock unit account (“Deferred Restricted Stock Unit Account”) by making a timely deferral election in accordance with the provisions of this Appendix A (“Deferral Election”).

Section 2. Deferral Election.

(a)A Non-Employee Director may make a Deferral Election in accordance with this Appendix A on or before December 31 of the year preceding the date of the Annual Meeting at which the Restricted Stock Award is to be made under the Program. If a Director’s initial election to the Board does not occur at an Annual Meeting, the Director may make a Deferral Election within 30 days after the date of being elected to the Board with respect to the Restricted Stock Award that would otherwise be granted as of the date of the next Annual Meeting. Directors first elected to the Board at an Annual Meeting are not eligible to make a Deferral Election with respect to the Restricted Stock Award for the year of election to the Board. A Director whose initial election to the Board does not occur at an Annual Meeting may make a Deferral Election with respect to the Restricted Stock Award that would otherwise be granted upon initial election to the Board no later than 30 days after first being elected to the Board provided that such election occurs prior to commencement of service as a Director.

(b)A Deferral Election made pursuant to this Section 2 shall be timely made in writing and shall specify the time of payment in accordance with the rules for payment under Section 4 of this Appendix A. Any Deferral Election made pursuant to this Section 2 shall be irrevocable and shall apply to 100%, and not less than 100%, of the shares subject to the Restricted Stock Award. A Deferral Election will be applicable to all future Restricted Stock Awards unless and until the Deferral Election is rescinded in writing by the Non-Employee Director delivered to the Company (to the attention of the Corporate Secretary) by the time prescribed in Section 2(a) of this Appendix A.

(c)Deferral Elections and beneficiary designations made pursuant to this Appendix A must be made in writing on forms substantially similar to the forms set forth in Exhibits 1 and 2 to this Appendix A, and shall be subject to such other procedural rules as the Committee may establish. The election forms must be received by the Company (to the attention of the Corporate Secretary) by the time prescribed in Section 2(a) of this Appendix A.

Section 3.Deferred Restricted Stock Unit Account. A Deferred Restricted Stock Unit Account shall be established and maintained for each Director who has made a Deferral Election, subject to the following rules:

(a)For each share of Restricted Stock deferred, a Restricted Stock Unit shall be credited to the Director’s Deferred Restricted Stock Unit Account as of the date the Restricted Stock Award otherwise would have been granted. The Restricted Stock Units shall be subject to forfeiture during the Restricted Period specified in Section 2.4 of this Program and any Deferred Restricted Stock Units in the Account shall be forfeited if the vesting requirement is not satisfied prior to the Payment Date specified in Section 4 of this Appendix A. No Shares will be issued to a Director until the Payment Date, as specified in Section 4 of this Appendix A.

(b)On each payment date for any cash dividends paid on Shares of the Company, the Company shall pay to each Director an amount equal to the cash dividends that would be payable by the Company on a number Shares equal to the number of Restricted Stock Units in the Director’s Deferred Restricted Stock Unit Account as of such payment date. Such amounts shall be paid directly to each Director in cash and shall not be eligible for deferral under this Program.

(c)The number of units credited to the Director’s Deferred Restricted Stock Unit Account shall be appropriately and equitably adjusted to reflect any change in the outstanding Shares of the Company in the event of any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, or other similar corporate transaction or event affecting the Shares.

(d)Directors who elect to make a Deferral Election in accordance with this Appendix A will have no rights as stockholders of the Company with respect to Restricted Stock Units credited to their Deferred Restricted Stock Unit Accounts.

Section 4.Payment of Deferred Amounts.

(a)Payment of the aggregate value of the Restricted Stock Units in the Director’s Account shall be made in a lump sum at the time specified by the Director in his or her Deferral Election (the “Payment Date”), but in no event later than the later of the last day of the calendar year in which the Payment Date occurs or the 15^th day of the third calendar month following the Payment Date. Notwithstanding the foregoing, in all events payment of a Director’s entire Deferred Restricted Stock Unit Account, subject to the expiration of the Restricted Period, shall be made in a lump sum as soon as administratively feasible following the termination of the Director’s service on the Board for any reason, but in no event later than the later of the last day of the calendar year in which such termination of service occurs or the ninetieth day following such termination of service. The date of retirement or termination of service of a Director shall constitute the Payment Date for purposes of this Appendix A.

(b)Payment of the aggregate value of the Restricted Stock Units in a Director’s Deferred Restricted Stock Unit Account shall be made solely in the form of Shares. As promptly as practicable following the Payment Date, the Company shall pay to the Director a number of Shares equal to the number of Restricted Stock Units in the Director’s Account on the Payment Date. The delivery of the Shares shall be subject to and contingent upon the completion of any registration or qualification of the Shares under any federal or state law or governmental rule or regulation that the Company, in its sole discretion, determines to be necessary or advisable.

Section 5.Payment in Event of Death of Non-Employee Director. A Director shall submit to the Company a written designation of the beneficiary or beneficiaries to whom payment of the aggregate value of the Director’s Deferred Restricted Stock Unit Account shall be made in the event of the Director’s death. Beneficiary designations must be in writing on forms substantially similar to the form set forth in Exhibit 2 to this Appendix A and shall be subject to such other procedural rules as the Committee may establish. Beneficiary designations shall become effective only when received by the Company. If no beneficiary designation form is on file with the Company on the date of death of the Director, or if no beneficiary is living on the Payment Date, the Director’s Account shall be distributed to the representative of the Director’s estate. Payment to the Director’s designated beneficiary shall be made in the form of Shares in accordance with the provisions of this Program.

Section 6.Unfunded and Unsecured Program. The Director’s Deferred Restricted Stock Unit Account shall be hypothetical in nature and shall be maintained for bookkeeping purposes only. The Deferred Restricted Stock Unit Account shall be unfunded for tax purposes and no provision shall be made at any time with respect to segregating assets of the Company for payment of amounts in the Deferred Restricted Stock Unit Account. The obligation of the Company to make payments pursuant to this Appendix A constitutes an unsecured but legally enforceable promise of the Company to make such payments.

Section 7. Construction. This Appendix A is intended to comply with section 409A of the Internal Revenue Code of 1986, as amended. Any Deferral Election that is inconsistent with Code section 409A shall not be effective.

Exhibit 1 to Director Deferral Program

DEFERRAL ELECTION FORM

TO: Orbital ATK, Inc.

Attn: Office of the Corporate Secretary

Pursuant to the terms and conditions of the Orbital ATK, Inc. Non-Employee Director Stock Program (the “Program”), I hereby make the following irrevocable Deferral Election with respect to my future Restricted Stock Award or Awards as indicated below.

All capitalized terms not expressly defined in this Deferral Election Form shall have the meanings set forth in the Program.

1. Deferral Election: I hereby irrevocably:

(a) elect to defer 100% of my Restricted Stock Awards that would otherwise be granted to me after the end of this calendar year (or, if newly elected to the Board, after the date of this Deferral Election) and until rescinded by me for Restricted Stock Awards in future calendar years in accordance with the Program; and

(b) agree that such Restricted Stock Awards shall be waived.

2. Time of Payment: I hereby irrevocably elect to have my Deferred Restricted Stock Unit Account paid out at the following time:

___ as soon as administratively practicable after I cease to be a Director of the Company; or

___ at such other time as here specified _________________________________

(at least one year after the Award Date and not later than my termination of service as a Director or such earlier date as the Program may require).

I understand that all payments of my Deferred Restricted Stock Unit Account will be made in the form of Shares in accordance with the terms of the Program.

This Deferral Election is made as of the date of my signature below. I understand and acknowledge that to be effective this Deferral Election Form must be fully and properly completed and received by the Company in accordance with the terms of the Program.

I understand that the foregoing elections are irrevocable and will apply to all of the Restricted Stock Awards to be granted to me after the effective date of this Deferral Election unless and until I rescind this election for future Restricted Stock Awards to be made in the following calendar year and thereafter after my rescission is delivered in accordance with the Program.

I certify that the foregoing elections are not being made in reliance upon any financial or tax advice given by the Company. I understand that I should consult my own tax advisor as to the tax consequences of my Deferral Elections.

Date: _____________________________________________________

Signature of Non-Employee Director

Name: ___________________________

Received by the Company:

Orbital ATK, Inc.

Date: ____________________

Acknowledged: __________________________________________

Name and Title

Office of the Corporate Secretary

Exhibit 2 to Director Deferral Program

DESIGNATION OF BENEFICIARY

(Please type or print)

Name of DirectorMarital Status: Single

Social Security No. Married

I hereby revoke any previous designation(s) of beneficiary made by me with respect to amounts payable by Orbital ATK, Inc. (the “Company”) under the Company’s Non-Employee Director Stock Program in the event of my death; and I hereby designate the following person(s) or entity to receive, upon my death, any such amounts:

Primary Beneficiary or Beneficiaries:

Name:Share:___% Relationship:Birth Date:

Address:SS #

Name:Share:___% Relationship:Birth Date:

Address:SS #

Contingent Beneficiary or Beneficiaries (if your Primary Beneficiary(ies) all predecease you):

Name:Share:___% Relationship:Birth Date:

Address:SS #

Name:Share:___% Relationship:Birth Date:

Address:SS #

If none of my Primary or Contingent Beneficiaries survive me, any such accounts shall be paid to my estate. If you are designating a trust as the beneficiary, please include the name of the Trust, the name, address and phone number of the Trustee, the Federal tax I.D. number of the Trust, if available (in the Social Security number box), and in the Relationship box, write “Trustee”. If you are naming a charity, provide the name of the person to whom correspondence regarding the benefit may be addressed, the name, address, phone number and the Federal tax I.D. number of the charity (if available).

Date: Director’s Signature:

Appendix B

Additional Definitions Applicable to

Non-Employee Director

Stock Program

“Change in Control” means any of the following:

• The acquisition by any “person” or group of persons (a “Person”), as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than the Company or a “Subsidiary” (as defined below) or any Company employee benefit plan (including its trustee)) of “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act) (“Beneficial Ownership”), directly or indirectly, of securities of the Company representing, directly or indirectly, more than 50% of the total number of shares of the Company’s then outstanding “Voting Securities” (as defined below);

• consummation of a reorganization, merger or consolidation of the Company, or the sale or other disposition of all or substantially all of the Company’s assets (a “Business Combination”), in each case, unless, following such Business Combination, the individuals and entities who were the beneficial owners of the total number of shares of the Company’s outstanding Voting Securities immediately prior to both (1) such Business Combination and (2) any “Change Event” (as defined below) occurring within 12 months prior to such Business Combination, beneficially own, directly or indirectly, more than 50% of the total number of shares of the outstanding Voting Securities of the resulting corporation, or the acquiring corporation, as the case may be, immediately following such Business Combination (including, without limitation, the outstanding Voting Securities of any corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the total number of shares of the Company’s outstanding Voting Securities; or

• any other circumstances (whether or not following a Change Event) which the Company’s Board of Directors (the “Board”) determines to be a Change in Control for purposes of this Plan after giving due consideration to the nature of the circumstances then represented and the purposes of this Plan. Any such determination made by the Board shall be irrevocable except by vote of a majority of the members of the Board who voted in favor of making such determination.

For purposes of this definition, a “Change in Control” shall not result from any transaction precipitated by the Company’s insolvency, appointment of a conservator, or determination by a regulatory agency that the Company is insolvent.

For purposes of this definition:

• “Change Event” means

(1) the acquisition by any Person (other than the Company or a Subsidiary or any Company employee benefit plan (including its trustee)) of Beneficial Ownership, directly or indirectly, of securities of the Company directly or indirectly representing 15% or more of the total number of shares of the Company’s then outstanding Voting Securities (excluding the sale or issuance of such securities directly by the Company, or where the acquisition of such securities is made by such Person from five or fewer stockholders in a transaction or transactions approved in advance by the Board);

(2) the public announcement by any Person of an intention to acquire the Company through a tender offer, exchange offer, or other unsolicited proposal; or

(3) the individuals who are members of the Board (the “Incumbent Board”) as of the Award Date set forth in the Program cease for any reason to constitute at least a majority of the Board; provided, however, that if the nomination for election of any new director was approved by a vote of a majority of the Incumbent Board, such new director shall, for purposes of this definition, be considered a member of the Incumbent Board.

• “Subsidiary” means a corporation as defined in Section 424(f) of the Internal Revenue Code with the Company being treated as the employer corporation for purposes of this definition.

• “Voting Securities” means any shares of the capital stock or other securities of the Company that are generally entitled to vote in elections for directors.

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.

November 2, 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.

November 2, 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 October 1, 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.

November 2, 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	9 Months Ended
	Oct. 01, 2017	Oct. 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	Oct. 01, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		57,686,000
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) $ in Millions	Oct. 01, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 119	$ 200
Net receivables	1,939	1,741
Net inventories	267	215
Other current assets	90	79
Total current assets	2,415	2,235
Property, plant and equipment, net of accumulated depreciation of $1,191 at October 1, 2017 and $1,121 at December 31, 2016	858	816
Goodwill	1,832	1,832
Net intangibles	70	98
Other noncurrent assets	362	437
Total assets	5,537	5,418
Current liabilities:
Current portion of long-term debt	40	40
Accounts payable	141	175
Contract loss reserve	160	197
Contract advances and allowances	274	233
Accrued compensation	142	120
Other current liabilities	536	577
Total current liabilities	1,293	1,342
Long-term debt	1,370	1,398
Pension and postemployment benefits	705	744
Other noncurrent liabilities	106	117
Total liabilities	3,474	3,601
Commitments and contingencies (Note 12)
Common stock—$.01 par value: authorized—180,000,000 shares; issued and outstanding—57,685,462 shares at October 1, 2017 and 57,487,466 shares at December 31, 2016	1	1
Additional paid-in-capital	2,169	2,175
Retained earnings	1,459	1,266
Accumulated other comprehensive loss	(714)	(764)
Common stock in treasury, at cost—11,249,562 shares held at October 1, 2017 and 11,447,558 shares held at December 31, 2016	(863)	(872)
Total Orbital ATK, Inc. stockholders' equity	2,052	1,806
Noncontrolling interest	11	11
Total equity	2,063	1,817
Total liabilities and equity	$ 5,537	$ 5,418

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - USD ($) $ in Millions	Oct. 01, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Accumulated depreciation	$ 1,191	$ 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	57,685,462	57,487,466
Common stock, outstanding shares	57,685,462	57,487,466
Common stock in treasury, shares	11,249,562	11,447,558

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) - USD ($) shares in Thousands, $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2017	Oct. 02, 2016	Oct. 01, 2017	Oct. 02, 2016
Income Statement [Abstract]
Sales	$ 1,216	$ 1,043	$ 3,416	$ 3,183
Cost of sales	941	833	2,645	2,466
Gross profit	275	210	771	717
Operating expenses:
Research and development	24	25	78	81
Selling	31	28	90	82
General and administrative	78	66	214	195
Income before interest, income taxes and noncontrolling interest	142	91	389	359
Net interest expense	(17)	(17)	(51)	(51)
Income before income taxes and noncontrolling interest	125	74	338	308
Income taxes	31	14	90	80
Income before noncontrolling interest	94	60	248	228
Less net income attributable to noncontrolling interest	0	0	0	0
Net income attributable to Orbital ATK, Inc.	$ 94	$ 60	$ 248	$ 228
Basic earnings per common share from:
Net income attributable to Orbital ATK, Inc. (in dollars per share)	$ 1.65	$ 1.04	$ 4.33	$ 3.92
Weighted-average number of common shares outstanding (in shares)	57,310	57,930	57,370	58,210
Diluted earnings per common share from:
Net income attributable to Orbital ATK, Inc. (in dollars per share)	$ 1.64	$ 1.04	$ 4.29	$ 3.89
Weighted-average number of diluted common shares outstanding (in shares)	57,760	58,260	57,860	58,640
Cash dividends per common share (in dollars per share)	$ 0.32	$ 0.3	$ 0.96	$ 0.90

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2017	Oct. 02, 2016	Oct. 01, 2017	Oct. 02, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 94	$ 60	$ 248	$ 228
Pension and other postretirement benefits:
Prior service credits for pension and postretirement benefit plans recorded to net income	(7)	33	(21)	20
Net actuarial loss for pension and postretirement benefit plans recorded to net income	33	29	100	92
Valuation adjustment for pension and postretirement benefit plans	0	0	0	2
Change in fair value of derivatives	4	1	1	5
Unrealized gain on available-for-sale securities	1	0	1	0
Other	0	1	0	2
Income tax expense	(12)	(24)	(31)	(46)
Other comprehensive income, net of tax	19	40	50	75
Comprehensive income	113	100	298	303
Less comprehensive income attributable to noncontrolling interest	0	0	0	0
Comprehensive income attributable to Orbital ATK, Inc.	$ 113	$ 100	$ 298	$ 303

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Millions	9 Months Ended
	Oct. 01, 2017	Oct. 02, 2016
Operating Activities
Net income	$ 248	$ 228
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	115	120
Fixed asset impairment	3	5
Deferred income taxes	13	(12)
Stock-based plans expense	18	18
Other	4	11
Change in assets and liabilities:
Net receivables	(168)	(203)
Net inventories	(25)	(22)
Income taxes receivable	0	50
Accounts payable	(58)	39
Contract loss reserve	(36)	(24)
Contract advances and allowances	41	(18)
Accrued compensation	22	(7)
Pension and postemployment benefits	40	(8)
Other assets and liabilities	(60)	(70)
Cash flows provided by operating activities	157	107
Investing Activities
Capital expenditures	(138)	(106)
Cash flows used in investing activities	(138)	(106)
Financing Activities
Borrowings on revolving credit facilities	450	800
Payments on revolving credit facilities	(450)	(665)
Payment of long-term debt	(30)	(30)
Purchase of treasury shares	(32)	(95)
Dividends paid	(55)	(53)
Proceeds from employee stock compensation plans	17	0
Other	0	1
Cash flows used in financing activities	(100)	(42)
Decrease in cash and cash equivalents	(81)	(41)
Cash and cash equivalents at beginning of period	200	104
Cash and cash equivalents at end of period	119	63
Noncash investing activity:
Capital expenditures included in accounts payable	5	4
Noncash financing activity:
Treasury shares purchased included in accounts payable	$ 0	$ 3

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Basis of Presentation and Summary of Significant Accounting Policies

9 Months Ended

Oct. 01, 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 October 1, 2017, its results of operations and comprehensive income for the quarters and nine months ended October 1, 2017 and October 2, 2016 and its cash flows for the nine months ended October 1, 2017 and October 2, 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 $45 million ($0.60 per diluted share) for the quarter ended October 1, 2017 and $6 million ($0.08 per diluted share) for the quarter ended October 2, 2016. Aggregate net changes in contract estimates recognized increased income before income taxes and noncontrolling interest by approximately $81 million ($1.03 per diluted share) for the nine months ended October 1, 2017 and $92 million ($1.16 per diluted share) for the nine months ended October 2, 2016. Estimated costs to complete on loss contracts at October 1, 2017 and December 31, 2016 were $967 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 August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). The ASU amends Accounting Standard Codification ("ASC") Topic 815, Derivatives and Hedging, in order to simplify hedge accounting by better aligning an entity’s financial reporting for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accounting guidance. ASU 2017-12 is effective for annual periods beginning after December 15, 2018, and interim periods therein. The ASU will be applied utilizing a modified retrospective approach to existing hedging relationships as of the adoption date. The Company does not expect the provisions of ASU 2017-12 to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

In 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 does not expect the provisions of ASU 2017-09 to have a material 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 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 does not expect the provisions of ASU 2017-04 to have a material impact on the Company's consolidated financial position, results of operations and cash flows.

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

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

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

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

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Merger

9 Months Ended

Oct. 01, 2017

Business Combinations [Abstract]

Merger

Merger

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

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

The stockholders of the Company will vote on the approval of the Merger Agreement at a special meeting currently scheduled to be held on November 29, 2017. Closing is expected to occur during the first half of 2018, subject to customary closing conditions, including the stockholder vote and obtaining required regulatory approvals.

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Fair Value of Financial Instruments

9 Months Ended

Oct. 01, 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 4 - Derivative Financial Instruments, the Company has outstanding commodity forward contracts that were entered into to hedge forecasted purchases of copper and zinc, as well as outstanding foreign currency forward contracts that were entered into to hedge forecasted transactions denominated in a foreign currency. Commodity derivatives are valued based on prices of futures exchanges and recently reported transactions in the marketplace. The Company currently holds two interest rate swaps with a total notional value of $150 million. These swaps are valued based on future LIBOR rates and the established fixed rate 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 October 1, 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):

	October 1, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed-rate debt	$	700	$	739	$	700	$	727
Variable-rate debt	$	720	$	716	$	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, as determined by the investee company, with the number of units or shares owned at the valuation date. Net asset value per share is determined by the investee company's custodian or fund administrator by deducting from the value of the assets of the investee company all of its liabilities and dividing the resulting number by the outstanding number of shares or units. Investments held by the CCT, including collateral invested for securities on loan, are valued on the basis of valuations furnished by a pricing service approved by the CCT's investment manager, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the CCT's investment manager. The fair value of these securities, not subject to leveling, is included within other noncurrent assets on the Company's consolidated balance sheet. The fair value of these securities is measured on a recurring basis and was $14 million as of October 1, 2017 and $13 million as of December 31, 2016.

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Derivative Financial Instruments

9 Months Ended

Oct. 01, 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 $150 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	$	—	1.69	%	1.24	%	August 2018
Non-amortizing swap	$	50	$	—	1.10	%	1.24	%	November 2017

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

The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at October 1, 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	17
Zinc	6

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	16
Euros purchased	52

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
	October 1, 2017		December 31, 2016		October 1, 2017		December 31, 2016
Commodity forward contracts(1)	$	7	$	5	$	—	$	—
Foreign currency forward contracts(1)	3		3		1		—
Foreign currency forward contracts(2)	—		1		1		—
Interest rate swap contracts(2)	—		—		—		1
Total	$	10	$	9	$	2	$	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 to the condensed consolidated statements of comprehensive income related to derivative instruments were as follows (in millions):

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

The Company 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 nine months ended October 1, 2017 and October 2, 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

9 Months Ended

Oct. 01, 2017

Equity [Abstract]

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

The following table summarizes the components of Accumulated Other Comprehensive Loss, net of income taxes (in millions):

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

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Net Inventories

9 Months Ended

Oct. 01, 2017

Inventory Disclosure [Abstract]

Net Inventories

Net Inventories

Net inventories consisted of the following (in millions):

	October 1, 2017		December 31, 2016
Raw materials	$	149	$	93
Work / contracts in process	94		121
Finished goods	24		1
Net inventories	$	267	$	215

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Postretirement Plans

9 Months Ended

Oct. 01, 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						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Service cost	$	5		$	5		$	13		$	14
Interest cost	24			25			73			76
Expected return on plan assets	(39		)	(41		)	(118		)	(122		)
Amortization of unrecognized net loss (1)	32			31			98			94
Amortization of unrecognized prior service cost (1)	(5		)	(5		)	(15		)	(16		)
Net periodic benefit cost	17			15			51			46
Special termination benefit cost / curtailment	—			—			—			2
Net periodic benefit cost	$	17		$	15		$	51		$	48

____________________________________________________________

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

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

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

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

____________________________________________________________

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

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

Employer Contributions/Payments

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

During the remainder of 2017, the Company is required to make an additional pension benefit contribution of $22 million in order to meet the minimum required contributions for 2017. The Company anticipates making no contributions to the postretirement benefit plans. In addition, the Company anticipates making benefit payments of approximately $1 million to retirees under the nonqualified plan and $2 million to retirees in connection with its other postretirement benefit plans during the remainder of 2017.

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

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Long-term Debt

9 Months Ended

Oct. 01, 2017

Debt Disclosure [Abstract]

Long-term Debt

Long-term Debt

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

	October 1, 2017		December 31, 2016
Senior Credit Facility:
Term Loan A due 2020	$	720	$	750
Revolving Credit Facility due 2020	—		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,420		1,450
Unamortized debt issuance costs:
Senior Credit Facility	4		5
5.25% Senior Notes due 2021	1		2
5.50% Senior Notes due 2023	5		5
Unamortized debt issuance costs	10		12
Long-term debt less unamortized debt issuance costs	1,410		1,438
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,370	$	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 October 1, 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 October 1, 2017, the Company had no borrowings under the Revolving Credit Facility and had outstanding letters of credit of $181 million, which reduced amounts available on the Revolving Credit Facility to $819 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 October 1, 2017, the Company had interest rate swap agreements in order to manage interest costs and the risk associated with variable interest rates - see Note 4 - Derivative Financial Instruments.

Rank and Guarantees

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

Scheduled Minimum Loan Payments

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

Remainder of 2017	$	10
2018	40
2019	40
2020	630
2021	300
Thereafter	400
Total	$	1,420

Covenants and Default Provisions

The Company's Senior Credit Facility and the indentures governing the 5.25% Notes and the 5.50% Notes impose restrictions on the Company, including limitations on its ability to incur additional debt, enter into capital leases, grant liens, pay dividends and make certain other payments, sell assets, or merge or consolidate with or into another entity. In addition, the Senior Credit Facility limits the Company's ability to enter into sale-and-leaseback transactions. The Senior Credit Facility also requires the Company to meet and maintain specified financial ratios, including a minimum interest coverage ratio and a maximum consolidated total leverage ratio. The Company's debt agreements contain cross-default provisions so that noncompliance with the covenants within one debt agreement that would give rise to the right to accelerate repayment of any outstanding indebtedness could cause a default under other debt agreements as well. The Company's ability to comply with these covenants and to meet and maintain the financial ratios may be affected by events beyond its control. Borrowings under the Senior Credit Facility are subject to compliance with these covenants. The Company is in compliance with its credit agreement covenants as of October 1, 2017.

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Income Taxes

9 Months Ended

Oct. 01, 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 October 1, 2017 and October 2, 2016 were 24.4% and 18.0%, respectively. The increase in the rate from the quarter ended October 2, 2016 is primarily due to the impact of the favorable true up of prior-year taxes and the settlement of the examination by the Internal Revenue Service ("IRS") of the fiscal 2013 and 2014 tax returns in the quarter ended October 2, 2016 and the decrease in benefit from domestic manufacturing deduction ("DMD") in the quarter ended October 1, 2017, partially offset by the favorable changes in uncertain tax benefits, research and development ("R&D") tax credits, and state taxes in the quarter ended October 1, 2017.

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

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

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

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Stock-based Compensation

9 Months Ended

Oct. 01, 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 October 1, 2017, the Company had authorized up to 3,750,000 common shares under the 2015 Stock Incentive Plan, of which 2,083,777 common shares were available to be granted. No new grants will be made out of the other four plans. The Company adopted an Employee Stock Purchase Plan ("ESPP") during the year ended December 31, 2016. As of October 1, 2017, the Company had authorized up to 2,000,000 common shares, of which 1,781,318 common shares were available for purchase under the ESPP. In connection with the Merger, the ESPP has been suspended as of October 1, 2017.

Restricted Stock Units

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

Performance Awards

There are performance shares reserved for executive officers and key employees. Performance shares are valued at the fair value of the Company's common stock as of the grant date and expense is recognized based on the number of shares expected to vest under the terms of the award under which they are granted. Of these performance shares:

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

Restricted Stock Awards

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

Stock Options

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

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

Share Repurchases

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

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

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Earnings Per Share Data

9 Months Ended

Oct. 01, 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 nine months ended October 1, 2017 and October 2, 2016, the reported earnings for each respective period were divided by the weighted-average shares outstanding, determined as follows (in millions):

	Quarters Ended		Nine Months Ended
	October 1, 2017	October 2, 2016	October 1, 2017	October 2, 2016
Basic weighted-average number of shares outstanding	57.31	57.93	57.37	58.21
Dilutive common share equivalents - share-based equity awards	0.45	0.33	0.49	0.43
Diluted weighted-average number of shares outstanding	57.76	58.26	57.86	58.64
Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares	0.15	0.15	0.22	0.15

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Contingencies

9 Months Ended

Oct. 01, 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 to be material to its business or likely to result in a material adverse effect on its operating results, financial condition or cash flows, notwithstanding that the unfavorable resolution of any matter may have a material effect on net earnings in any particular quarter.

Securities Class Action

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

On August 12, 2016, a putative class action complaint, naming the Company, our Chief Executive Officer and our Chief Financial Officer as defendants, was filed in the United States District Court for the Eastern District of Virginia (Steven Knurr, et al. v. Orbital ATK, Inc., (TSE-MSN)). The class action complaint asserts claims on behalf of purchasers of Orbital ATK securities for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder, arising out of allegedly false and misleading statements and the failure to disclose that: (i) the Company lacked effective control over financial reporting; and (ii) as a result, the Company failed to record an anticipated loss on its long-term contract with the U.S. Army to manufacture and supply small caliber ammunition at the U.S. Army's Lake City Army Ammunition Plant. On April 24, 2017 and October 10, 2017, the plaintiffs filed amended complaints naming additional defendants and asserting claims for violations of additional sections of the Exchange Act and alleged false and misleading statements in the Company’s Form S-4 filed with the SEC relating to the merger between the Company and Orbital Sciences Corporation. The 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 for the nine-month period ending December 31, 2015 filed on February 24, 2017. The Company is cooperating fully with the SEC in connection with these matters.

U.S. Government Investigations

The Company is also subject to U.S. Government investigations from which civil, criminal or administrative proceedings could result. Such proceedings could involve claims by the U.S. Government for fines, penalties, compensatory and treble damages, restitution and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. The Company believes, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on its operating results, financial condition or cash flows.

Claim Recovery

Profits expected to be realized on contracts are based on management's estimates of total contract sales value and costs at completion. Estimated amounts for contract changes and claims are included in contract sales only when realization is estimated to be probable. Unbilled receivables included $10 million and $18 million as of October 1, 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 probable and reasonably estimable costs related to known remediation obligations. The receivable represents the amount that the Company expects to recover, as discussed below.

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

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

As of October 1, 2017, the estimated range of reasonably possible costs of environmental remediation was $37 million to $69 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

9 Months Ended

Oct. 01, 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.

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

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

	October 1, 2017		December 31, 2016
Total assets:
Flight Systems Group	$	2,293	$	2,208
Defense Systems Group	1,358		1,228
Space Systems Group	1,276		1,280
Corporate	610		702
Total assets	$	5,537	$	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 Sciences Corporation is also recorded in Corporate. 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)

9 Months Ended

Oct. 01, 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 October 1, 2017, its results of operations and comprehensive income for the quarters and nine months ended October 1, 2017 and October 2, 2016 and its cash flows for the nine months ended October 1, 2017 and October 2, 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 4 - Derivative Financial Instruments, the Company has outstanding commodity forward contracts that were entered into to hedge forecasted purchases of copper and zinc, as well as outstanding foreign currency forward contracts that were entered into to hedge forecasted transactions denominated in a foreign currency. Commodity derivatives are valued based on prices of futures exchanges and recently reported transactions in the marketplace. The Company currently holds two interest rate swaps with a total notional value of $150 million. These swaps are valued based on future LIBOR rates and the established fixed rate 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)

9 Months Ended

Oct. 01, 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):

	October 1, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed-rate debt	$	700	$	739	$	700	$	727
Variable-rate debt	$	720	$	716	$	750	$	746

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Derivative Financial Instruments (Tables)

9 Months Ended

Oct. 01, 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	$	—	1.69	%	1.24	%	August 2018
Non-amortizing swap	$	50	$	—	1.10	%	1.24	%	November 2017

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

The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at October 1, 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	17
Zinc	6

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	16
Euros purchased	52

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
	October 1, 2017		December 31, 2016		October 1, 2017		December 31, 2016
Commodity forward contracts(1)	$	7	$	5	$	—	$	—
Foreign currency forward contracts(1)	3		3		1		—
Foreign currency forward contracts(2)	—		1		1		—
Interest rate swap contracts(2)	—		—		—		1
Total	$	10	$	9	$	2	$	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 to the condensed consolidated statements of comprehensive income related to derivative instruments were as follows (in millions):

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

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Oct. 01, 2017

Equity [Abstract]

Schedule of components of accumulated OCI, net of income taxes

The following table summarizes the components of Accumulated Other Comprehensive Loss, net of income taxes (in millions):

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

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Net Inventories (Tables)

9 Months Ended

Oct. 01, 2017

Inventory Disclosure [Abstract]

Schedule of net inventories

Net inventories consisted of the following (in millions):

	October 1, 2017		December 31, 2016
Raw materials	$	149	$	93
Work / contracts in process	94		121
Finished goods	24		1
Net inventories	$	267	$	215

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Postretirement Plans (Tables)

9 Months Ended

Oct. 01, 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						Nine Months Ended
	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Service cost	$	5		$	5		$	13		$	14
Interest cost	24			25			73			76
Expected return on plan assets	(39		)	(41		)	(118		)	(122		)
Amortization of unrecognized net loss (1)	32			31			98			94
Amortization of unrecognized prior service cost (1)	(5		)	(5		)	(15		)	(16		)
Net periodic benefit cost	17			15			51			46
Special termination benefit cost / curtailment	—			—			—			2
Net periodic benefit cost	$	17		$	15		$	51		$	48

____________________________________________________________

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

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

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

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

____________________________________________________________

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

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Long-term Debt (Tables)

9 Months Ended

Oct. 01, 2017

Debt Disclosure [Abstract]

Schedule of long-term debt, including the current portion

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

	October 1, 2017		December 31, 2016
Senior Credit Facility:
Term Loan A due 2020	$	720	$	750
Revolving Credit Facility due 2020	—		—
5.25% Senior Notes due 2021	300		300
5.50% Senior Notes due 2023	400		400
Principal amount of long-term debt	1,420		1,450
Unamortized debt issuance costs:
Senior Credit Facility	4		5
5.25% Senior Notes due 2021	1		2
5.50% Senior Notes due 2023	5		5
Unamortized debt issuance costs	10		12
Long-term debt less unamortized debt issuance costs	1,410		1,438
Less: Current portion of long-term debt	40		40
Long-term debt	$	1,370	$	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	$	10
2018	40
2019	40
2020	630
2021	300
Thereafter	400
Total	$	1,420

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Earnings Per Share Data (Tables)

9 Months Ended

Oct. 01, 2017

Earnings Per Share [Abstract]

Schedule of weighted average number of shares

In computing basic and diluted EPS for both the quarters and nine months ended October 1, 2017 and October 2, 2016, the reported earnings for each respective period were divided by the weighted-average shares outstanding, determined as follows (in millions):

	Quarters Ended		Nine Months Ended
	October 1, 2017	October 2, 2016	October 1, 2017	October 2, 2016
Basic weighted-average number of shares outstanding	57.31	57.93	57.37	58.21
Dilutive common share equivalents - share-based equity awards	0.45	0.33	0.49	0.43
Diluted weighted-average number of shares outstanding	57.76	58.26	57.86	58.64
Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares	0.15	0.15	0.22	0.15

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Contingencies (Tables)

9 Months Ended

Oct. 01, 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):

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

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Operating Segment Information (Tables)

9 Months Ended

Oct. 01, 2017

Segment Reporting [Abstract]

Schedule of segment reporting information, by segment

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

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

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

	October 1, 2017		December 31, 2016
Total assets:
Flight Systems Group	$	2,293	$	2,208
Defense Systems Group	1,358		1,228
Space Systems Group	1,276		1,280
Corporate	610		702
Total assets	$	5,537	$	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		9 Months Ended
	Oct. 01, 2017	Oct. 02, 2016	Oct. 01, 2017	Oct. 02, 2016	Dec. 31, 2016
Accounting Policies [Abstract]
Operating income adjustments under percentage of completion method	$ 45	$ 6	$ 81	$ 92
Operating income adjustments under percentage of completion method, per diluted share (in dollars per share)	$ 0.60	$ 0.08	$ 1.03	$ 1.16
Estimated costs to complete on loss contracts	$ 967		$ 967		$ 1,333

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Merger (Details)	Sep. 17, 2017 $ / shares
Merger Agreement With Northrop Grumman And Neptune Merger | Common Stock
Business Acquisition [Line Items]
Conversion of stock, amount issued per share (in dollars per share)	$ 134.50

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Fair Value of Financial Instruments - Fair value of assets and liabilities measured on a recurring basis (Details)	Oct. 01, 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	2
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	$ 150,000,000		$ 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	Oct. 01, 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	720	750
Fair Value
Assets and liabilities that are not measured on a recurring basis
Fixed-rate debt	739	727
Variable-rate debt	$ 716	$ 746

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Derivative Financial Instruments - Floating to fixed rate (Details) - USD ($)	Oct. 01, 2017	Dec. 31, 2014
Interest Rate Swap
Derivative [Line Items]
Notional	$ 150,000,000	$ 400,000,000
Interest Rate Swap, Maturing August 2018
Derivative [Line Items]
Notional	100,000,000
Fair Value	$ 0
Pay Fixed	1.69%
Receive Floating	1.24%
Interest Rate Swap, Maturing November 2017
Derivative [Line Items]
Notional	$ 50,000,000
Fair Value	$ 0
Pay Fixed	1.10%
Receive Floating	1.24%

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Derivative Financial Instruments (Details) € in Millions, lb in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2017 USD ($)	Oct. 02, 2016 USD ($)	Oct. 01, 2017 USD ($) lb	Oct. 02, 2016 USD ($)	Oct. 01, 2017 EUR (€)	Dec. 31, 2016 USD ($)
Designated as Hedging Instrument
Asset Derivatives Fair Value
Fair value of derivative assets	$ 10		$ 10			$ 9
Liability Derivatives Fair Value
Fair value of derivative liabilities	2		$ 2			1
Copper
Derivative [Line Items]
Notional amount, mass (in pounds) | lb			17
Zinc
Derivative [Line Items]
Notional amount, mass (in pounds) | lb			6
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)	0	$ 0	$ (3)	$ (4)
Commodity forward contracts | Designated as Hedging Instrument | Other Current Assets
Asset Derivatives Fair Value
Commodity forward contracts, fair value of assets	7		7			5
Commodity forward contracts | Designated as Hedging Instrument | Other Current Liabilities
Liability Derivatives Fair Value
Commodity forward contracts, fair value of liabilities	0		0			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
Interest rate contracts | Cost of sales
Pretax amount of gain (loss) reclassified from Accumulated Other Comprehensive Income (Loss)
Foreign currency contracts, gain/(loss) reclassified from accumulated other comprehensive income (loss)	$ (2)	$ 0	$ (2)	$ 0
Euros sold | Foreign currency forward contracts
Derivative [Line Items]
Notional amount (in euros) | €					€ 16
Euros purchased | Foreign currency forward contracts
Derivative [Line Items]
Notional amount (in euros) | €					€ 52

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions	Oct. 01, 2017	Dec. 31, 2016
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss)	$ (714)	$ (764)
Derivatives
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss)	5	5
Pension and other postretirement benefits
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss)	(721)	(771)
Available-for-sale Securities
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss)	$ 2	$ 2

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Net Inventories (Details) - USD ($) $ in Millions	Oct. 01, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 149	$ 93
Work / contracts in process	94	121
Finished goods	24	1
Net inventories	$ 267	$ 215

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Postretirement Plans - Components of Net Periodic Benefit Cost (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2017	Oct. 02, 2016	Oct. 01, 2017	Oct. 02, 2016
Pension Benefits
Change in benefit obligation
Service cost	$ 5	$ 5	$ 13	$ 14
Interest cost	24	25	73	76
Expected return on plan assets	(39)	(41)	(118)	(122)
Amortization of unrecognized net loss	32	31	98	94
Amortization of unrecognized prior service cost	(5)	(5)	(15)	(16)
Net periodic benefit cost	17	15	51	46
Special termination benefit cost / curtailment	0	0	0	2
Net periodic benefit cost (income)	17	15	51	48
Other Postretirement Benefits
Change in benefit obligation
Interest cost	0	1	1	3
Expected return on plan assets	0	(1)	(2)	(3)
Amortization of unrecognized net loss	0	0	1	1
Amortization of unrecognized prior service cost	(2)	(1)	(5)	(4)
Net periodic benefit cost (income)	$ (2)	$ (1)	$ (5)	$ (3)

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Postretirement Plans - Narrative (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Oct. 02, 2016	Oct. 01, 2017
Defined Benefit Plans
Increase in funded status	$ 37
Supplemental (nonqualified) executive retirement plan
Defined Benefit Plans
Employer's contribution to retirees during the period		$ 3
Estimated future employer contributions in current fiscal year		1
Other Postretirement Benefits
Defined Benefit Plans
Employer contributions directly to the pension trust for the period		2
Estimated future employer contributions in current fiscal year		2
Pension Benefits
Defined Benefit Plans
Contributions by employer		3
Estimated future employer contributions in current fiscal year		$ 22

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Long-term Debt - Summary Of Debt (Details) - USD ($) $ in Millions	Oct. 01, 2017	Dec. 31, 2016	Sep. 30, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Long-term debt, gross	$ 1,420	$ 1,450
Unamortized debt issuance costs	10	12
Long-term debt less unamortized debt issuance costs	1,410	1,438
Current portion of long-term debt	40	40
Long-term debt	1,370	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	$ 4	5
Senior Credit Facility | Term Loan | Term Loan A due 2020
Debt Instrument [Line Items]
Long-term debt, gross	720	750
Senior Credit Facility | Line of Credit | Revolving Credit Facility due 2020
Debt Instrument [Line Items]
Long-term debt, gross	$ 0	$ 0

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Long-term Debt - Senior Credit Facility (Details) - USD ($)	1 Months Ended	9 Months Ended
	Sep. 30, 2015	Oct. 01, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Long-term debt		$ 1,420,000,000	$ 1,450,000,000
Senior Credit Facility | Line of Credit
Debt Instrument [Line Items]
Outstanding letters of credit		$ 181,000,000
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		$ 0	$ 0
Line of credit facility, remaining borrowing capacity		$ 819,000,000

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Long-term Debt - Senior Notes (Details) - USD ($)	Oct. 01, 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	Oct. 01, 2017	Dec. 31, 2016
Minimum payments on outstanding long-term debt
Remainder of 2017	$ 10
2018	40
2019	40
2020	630
2021	300
Thereafter	400
Total	$ 1,420	$ 1,450

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2017	Oct. 02, 2016	Oct. 01, 2017	Oct. 02, 2016
Income Tax Disclosure [Abstract]
Effective income tax rate (as a percent)	24.40%	18.00%	26.50%	25.90%
Potential reduction of uncertain tax benefits over the next 12 months from audit settlements	$ 6		$ 6
Maximum increase in earnings from settlement of unrecognized tax benefits based on current estimates			$ 6
Uncertain tax benefits reduction resulting from lapse of applicable statute of limitations	11
Increase in net income	$ 10

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Stock-based Compensation (Details)	3 Months Ended		9 Months Ended
	Oct. 01, 2017 USD ($) plan shares	Oct. 02, 2016 USD ($) shares	Oct. 01, 2017 USD ($) plan $ / shares shares	Oct. 02, 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 | $	$ 6,000,000		$ 18,000,000
Total income tax benefit recognized in the income statement for share-based compensation | $	$ 2,000,000		$ 6,000,000
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)	64,489	576,407	230,918	1,104,511
Treasury stock purchased | $	$ 7,000,000	$ 44,000,000	$ 23,000,000	$ 88,000,000
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	1,781,318		1,781,318
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)			45,120
Units outstanding (in shares)	0		0
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	2,083,777		2,083,777
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)			160,907
Weighted average grant date fair value (in dollars per share) | $ / shares			$ 95.89

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Earnings Per Share Data (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Oct. 01, 2017	Oct. 02, 2016	Oct. 01, 2017	Oct. 02, 2016
Earnings Per Share [Abstract]
Basic weighted-average number of shares outstanding (in shares)	57,310	57,930	57,370	58,210
Dilutive common share equivalents - share-based equity awards (in shares)	450	330	490	430
Diluted weighted-average number of shares outstanding (in shares)	57,760	58,260	57,860	58,640
Anti-dilutive stock options and other stock awards excluded from the calculation of diluted shares (in shares)	150	150	220	150

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Contingencies (Details) $ in Millions	Oct. 16, 2017 action	Oct. 01, 2017 USD ($)	Dec. 31, 2016 USD ($)
Business Acquisition [Line Items]
Unbilled receivables for contract claims		$ 10	$ 18
Environmental remediation
Liability recorded in other current liabilities		5	6
Environmental remediation, noncurrent		32	35
Liability		37	41
Receivable recorded in other current assets		3	3
Environmental recoveries, noncurrent		14	15
Receivable		17	$ 18
Minimum
Environmental remediation
Estimated reasonably possible costs of environmental remediation		37
Maximum
Environmental remediation
Estimated reasonably possible costs of environmental remediation		$ 69
Lickteig, Ayzin, Sedon And Berg Actions | Subsequent Event
Business Acquisition [Line Items]
Number of purported class actions filed | action	6

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Operating Segment Information (Details) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2017 USD ($)	Oct. 02, 2016 USD ($)	Oct. 01, 2017 USD ($) segment	Oct. 02, 2016 USD ($)	Dec. 31, 2016 USD ($)
Segment Reporting [Abstract]
Number of operating segments | segment			3
Results by operating segment
Sales	$ 1,216	$ 1,043	$ 3,416	$ 3,183
Income before interest, income taxes and noncontrolling interest	142	91	389	359
Total assets	5,537		5,537		$ 5,418
Operating segments
Results by operating segment
Sales	1,216	1,043	3,416	3,183
Operating segments | Flight Systems Group
Results by operating segment
Sales	423	360	1,214	1,081
Income before interest, income taxes and noncontrolling interest	61	44	161	152
Total assets	2,293		2,293		2,208
Operating segments | Defense Systems Group
Results by operating segment
Sales	511	451	1,378	1,326
Income before interest, income taxes and noncontrolling interest	48	33	133	126
Total assets	1,358		1,358		1,228
Operating segments | Space Systems Group
Results by operating segment
Sales	282	232	824	776
Income before interest, income taxes and noncontrolling interest	40	20	98	96
Total assets	1,276		1,276		1,280
Intercompany Sales
Results by operating segment
Revenues	0	0	0	0
Intercompany Sales | Flight Systems Group
Results by operating segment
Sales	3	3	8	10
Intercompany Sales | Defense Systems Group
Results by operating segment
Sales	4	5	12	15
Intercompany Sales | Space Systems Group
Results by operating segment
Sales	32	16	93	37
Corporate
Results by operating segment
Sales	(39)	(24)	(113)	(62)
Income before interest, income taxes and noncontrolling interest	(7)	$ (6)	(3)	$ (15)
Total assets	$ 610		$ 610		$ 702