ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(amounts in thousands except share and per share data or unless otherwise indicated)

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 the Company's 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, the Company 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 the Company makes 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 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:

This list of factors is not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact the Company's business. Additional information regarding these factors is contained in Item 1A of this report and may also be contained in the Company's filings with the Securities and Exchange Commission on 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

The Company is an aerospace and defense products company and supplier of products to the U.S. Government, allied nations, and prime contractors. The Company is headquartered in Dulles, VA and has operating locations throughout the United States and internationally. On February 9, 2015, the Company completed a tax-free spin-off and distribution of its Sporting Group to its stockholders (the “Distribution”) as a new public company called Vista Outdoor Inc. ("Vista Outdoor"). Immediately following the Distribution, the Company combined with Orbital Sciences Corporation ("Orbital") through the merger of a Company subsidiary with Orbital (the "Merger"). Following the Distribution and Merger, the Company changed its name from Alliant Techsystems Inc. to Orbital ATK, Inc.

As a result of the Distribution, the Sporting Group is no longer reported within the Company’s results from continuing operations but is reported as a discontinued operation for all periods presented. The Company used the acquisition method to account for the Merger; accordingly, the results of Orbital have been included in the Company's consolidated financial statements since the date of the Merger.

Following the Distribution and Merger, the Company reorganized its business groups and realigned its reporting segments. The Company’s remaining businesses, combined with the businesses of Orbital, are now reported in three segments: Flight Systems Group , Defense Systems Group and Space Systems Group . These segments are defined based on the reporting and review process used by the Company's chief executive officer and other management. All historical periods presented in this annual report on Form 10-K (the "10-K") reflect this change in the Company’s segment reporting.

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 re-supplying the ISS. This group is also a provider of spacecraft components and subsystems and specialized engineering and operations services to U.S. government agencies.

References in this report to a particular fiscal year refer to the year ended March 31 of that calendar year.   As previously announced, the Company will be changing its fiscal year to a fiscal year beginning on January 1 and ending on December 31 of each year, beginning January 1, 2016.  The Company’s 2015 fiscal year ended on March 31, 2015, and there will be a transition period of April 1, 2015 to December 31, 2015 which will be reported on a Form 10-K.

Financial Highlights and Notable Events

Certain notable events or activities affecting our fiscal 2015 financial results included the following:

Financial highlights for fiscal 2015

Notable events in fiscal 2015

Outlook

Government Funding —the Company is dependent on funding levels of the U.S. Department of Defense ("DoD") and NASA.

U.S. Government contracts are dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a government fiscal year ("GFY") basis even though contract performance may take more than one year. As a result, at the outset of a major program, the contract is usually incrementally funded, and additional monies are normally committed to the contract by the procuring agency only as Congress makes appropriations for future fiscal years. In addition, most U.S. Government contracts are subject to modification if funding is changed. Any failure by Congress to appropriate additional funds to any program in which the Company participates, or any contract modification as a result of funding changes, could materially delay or terminate the program. This could have a material adverse effect on the Company's operating results, financial condition, or cash flows.

The government budget structure remains constrained by the 2011 Budget Control Act, which initially reduced the DoD topline budget by approximately $490 billion over 10 years starting in fiscal year 2012, and subsequent amendments that continue to keep DoD spending flat or down compared to previous years. In addition, the Company is continuing to experience a period where force reductions and the wind down of overseas contingency operations, coupled with reduced training cycles and fairly healthy inventory levels for many ammunition and missile items, have resulted in less demand in some categories of products.

In GFY14, the Administration faced the threat of an additional year of sequestration and deeper cuts requiring an additional reduction of $20 billion from the defense topline budget. The Budget Control Act Amendment adopted in December 2013, and the subsequent Omnibus Appropriations Act approved in January 2014, provided some relief, however, to the deeper cuts required under sequestration in GFY14 and GFY15. For defense spending, the agreement effectively held flat the topline budget at $499 billion for both GFY14 and GFY15, providing over $30 billion in sequestration relief.

In December 2014, Congress approved, and the President signed, an omnibus spending bill for the remainder of GFY15, removing the threat of government shutdown and the difficulties of operating under a continuing resolution for GFY15. Total funding, including funding for most DoD programs, remains flat at GFY14 levels. NASA funding received a modest increase for the GFY15 budget, including an increase in the budget for the Space Launch System (“SLS”) program, for which the company is a key supplier. However, continuing concerns about deficit spending, along with ongoing economic challenges, continue to place pressure on U.S. Government budgets.

The President’s GFY16 budget submission includes modest increases to DoD and NASA spending. The DoD base budget of $534.3 billion reflects an increase of $38.2 billion over GFY2015. Spending for overseas contingency operations would be cut significantly, however, reflecting the continued drawdown of forces in Afghanistan, resulting in a requested combined DoD budget increase of approximately four percent. The DoD budget includes modernization investments in certain key areas including space and missile defense. Proposed NASA spending would be increased 2.9% above the GFY2015 appropriated level to $18.5 billion. Proposed funding for the SLS program would be substantially lower; however, Congress has provided funding levels higher than the Administration’s request for this program in recent years. In the event Budge Control Act caps are in effect in GFY2016 and GFY2017, overall NASA funding would remain flat at GFY2015 levels. The Company continues to monitor potential impacts as the GFY16 Congressional budget review and annual appropriations process gets underway. 

The U.S. defense industry has experienced significant changes over the years. The Company's management believes that the key to the Company's continued success is to focus on performance, innovation, simplicity and affordability. The Company is positioning itself where management believes there will be continued strong defense funding, even as pressures mount on procurement and research and development accounts. The Company is concentrating on developing systems that will extend the life and improve the capability of existing platforms. The Company anticipates budget pressures will increasingly drive the life extension of platforms such as ships, aircraft and main battle tanks.

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, the Company makes 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.

The Company believes the following are its critical accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

A substantial portion of our sales come from contracts with agencies of the U.S. Government and its prime contractors and subcontractors. As the various U.S. Government customers, including the U.S. Army, U.S. Navy, NASA, and the U.S. Air Force, make independent purchasing decisions, we do not generally regard the U.S. Government as one customer. Instead, we view each agency as a separate customer.

Sales from continuing operations by customer were as follows:

Long-term Contracts —The majority of the Company's sales to the U.S. Government and commercial and foreign customers are accounted for as long-term contracts. Sales under long-term contracts are accounted for under the percentage-of-completion method and include cost-plus and fixed-price contracts. Sales under cost-plus contracts are recognized as costs are incurred. Sales under fixed-price contracts are either recognized as the actual cost of work performed relates to the estimate at completion ("cost-to-cost") or based on results achieved, which usually coincides with customer acceptance ("units-of-delivery"). The Company predominately accounts for revenue using the cost-to-cost method of accounting.

Profits expected to be realized on contracts are based on management estimates of total contract sales value and costs at completion. Estimated amounts for contract changes, including scope and claims, are included in contract sales only when an amount is reliably estimable and realization is estimated to be probable. Assumptions used for recording sales and earnings are adjusted in the period of change to reflect revisions in contract value and estimated costs. In the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated gross margin loss is charged to cost of sales. Changes in estimates of contract sales, costs, or profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current or prior periods. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception.

Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates due to unanticipated cost growth or risks affecting contract costs and/or the resolution of contract risks at lower costs than anticipated, as well as changes in contract overhead costs over the performance period. Changes in estimates could have a material effect on our consolidated financial position or annual results of operations. In fiscal 2015 , 2014 and 2013 , we recognized favorable operating income adjustments of $144,741 , $210,920 , and $215,945 , respectively, and unfavorable operating income adjustments of $57,736 , $127,574 and $122,568 , respectively, consisting of changes in estimates on contracts accounted for under the percentage-of-completion method of accounting. The adjustments recorded during fiscal 2015 were primarily driven by higher profit expectations in Defense Electronics , Armament Systems , Missile Products, Propulsion Systems and Small Caliber Systems divisions due to contract terminations and closeouts.

The adjustments recorded during fiscal 2014 were primarily driven by higher profit expectations of $41,357 in Small Caliber Systems division due to operational efficiencies, a successful in-sourcing initiative, and reduced operational risk as a contract nears completion, and for programs in Propulsion Systems. As a result of the pension close-out settlement, the difference between pension and postretirement benefit expense calculated under Financial Accounting Standards ("FAS") and the expense calculated under U.S. Cost Accounting Standards ("CAS") for the Radford facility management contract resulted in recording income of $28,986 at Corporate which has been excluded from the increase in operating income resulting from the cumulative catch-up method of accounting noted above.

Contracts may contain provisions to earn incentive and award fees if specified targets are achieved as well as penalty provisions related to performance. Incentive and award fees and penalties that can be reasonably estimated and are probable are recorded over the performance period of the contract. Incentive and award fees that cannot be reasonably estimated are recorded when awarded.

The complexity of the estimation process and all issues related to assumptions, risks, and uncertainties inherent with the application of the cost-to-cost method of accounting affect the amounts reported in the Company's financial statements. A number of internal and external factors affect the cost of sales estimates, including labor rate and efficiency variances, overhead rate estimates, revised estimates of warranty costs, estimated future material prices, and customer specification and testing requirement changes. If business conditions were different, or if the Company had used different assumptions in the application of this and other accounting policies, it is likely that materially different amounts would be reported in the Company's financial statements. In the past, the Company's estimates and assumptions have been materially accurate.

Other Revenue Recognition Methodology —Sales not recognized under the long-term contract method are recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred, and payment is reasonably assured. Sales are reduced for allowances and price discounts. Fiscal 2015 sales from continuing operations by revenue recognition method were as follows:

Employee Benefit Plans

Defined Benefit Pension Plans.     The Company's noncontributory defined benefit pension plans include the following legacy Alliant Techsystems, Inc. plans: "Alliant Techsystems, Inc. Pension and Retirement Plan" and "Thiokol Propulsion Pension Plan" (the “ATK Plans”). The Company acquired the following two pension plans applicable to legacy Orbital employees in connection with the Merger: "Fairchild Bargained Plan" and "Fairchild Space and Defense Plan" (the “Orbital Plans” and together with the ATK Plans, the “Plans”).

ATK Plans - The ATK Plans noncontributory defined benefit pension plans (the "Plans") cover substantially all Alliant Techsystems, Inc. employees hired prior to January 1, 2007. Eligible non-union employees hired on or after January 1, 2007 and certain union employees are not covered by a defined benefit plan but substantially all receive an employer contribution through a defined contribution plan. On January 31, 2013, the ATK Plans were amended to freeze the current pension formula benefits effective June 30, 2013 and to implement a new cash balance formula applicable to pay and service starting July 1, 2013. The cash balance formula provides each affected employee with pay credits based on the sum of that employee's age plus years of pension service as of December 31 of each calendar year, plus 4% annual interest credits. Prior to the effective date of the amendment, the Plans provide either pension benefits based on employee annual pay levels and years of credited service or

based on stated amounts for each year of credited service. The Company funds the Plans in accordance with federal requirements calculated using appropriate actuarial methods. Plan assets for the Company are held in a trust and are invested in a diversified portfolio of equity investments, fixed income investments, real estate, timber, energy investments, hedge funds, private equity, and cash. For certain Plan assets where the fair market value is not readily determinable, estimates of the fair value are determined using the best available information including the most recent audited financial statements.

Orbital Plans - The Orbital Plans were acquired by Orbital in connection with a 1994 business acquisition and were frozen at that time. These plans currently are overfunded. The Company funds the defined benefit pension plans in accordance with federal requirements calculated using appropriate actuarial methods. Plan assets for the Company are held in trusts and are invested in a diversified portfolio of equity investments, fixed income investments, real estate, timber, energy investments, hedge funds, private equity, and cash. For certain plan assets where the fair market value is not readily determinable, estimates of the fair value are determined using the best available information including the most recent audited financial statements.

The Company also sponsors nonqualified supplemental executive retirement plans which provide certain executives and highly compensated employees the opportunity to receive pension benefits in excess of those payable through tax-qualified pension plans. The Company implemented similar changes as those noted above to the Company's nonqualified supplemental executive retirement plans for certain highly compensated employees.

The Company recorded pension expense for the Plans of $84,986 in fiscal 2015 , a decrease of $43,826 from $128,812 of pension expense recorded in fiscal 2014 . The expense related to these Plans is calculated based upon a number of actuarial assumptions, including the expected long-term rate of return on plan assets, the discount rate, and the rate of compensation increase. The following table sets forth the Company's assumptions used in determining pension expense for fiscal 2015 , 2014 , and 2013 , and projections for fiscal 2016 :

In developing the expected long-term rate of return assumption, the Company considers input from its actuaries and other advisors, annualized returns of various major indices over a long-term time horizon and the Company's own historical investment returns. The expected long-term rate of return of 7.25% used in fiscal 2015 for the Plans was based on an asset allocation range of 20 - 45% in equity investments, 35 - 50% in fixed income investments, 0 - 10% in real estate/real asset investments, 15 - 30% collectively in hedge fund and private equity investments, and 0 - 6% in cash investments. The expected long-term rate of return assumed for fiscal 2016 is 7.25% . The actual return in any fiscal year will likely differ from the Company's assumption, but the Company estimates its return based on long-term projections and historical results. Therefore, any variance in a given year does not necessarily indicate that the assumption should be changed.

In determining its discount rate, the Company uses the current investment yields on high-quality corporate bonds (rated AA or better) that coincide with the cash flows of the estimated benefit payouts from the Company's plans. The model uses a yield curve approach to discount each cash flow of the liability stream at an interest rate specifically applicable to the timing of the respective cash flow. The model totals the present values of all cash flows and calculates the equivalent weighted average discount rate by imputing the singular interest rate that equates the total present value with the stream of future cash flows. This resulting weighted average discount rate is then used in evaluating the final discount rate. The discount rate was 3.90% , 4.50% , and 4.35% at March 31, 2015 , March 31, 2014 , and March 31, 2013 , respectively. The discount rate as of March 31 impacts the following fiscal year's pension expense.