UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
o
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
OR
 
 
 
ý

 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from April 1, 2015 to December 31, 2015                  
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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $.01
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
____________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý     No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o     No  ý
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  ý     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  ý     No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  ý
 
Accelerated Filer  o
 
Non-Accelerated Filer  o
  (Do not check if a
smaller reporting company)
 
Smaller reporting company  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  ý
At July 5, 2015, the aggregate market value of the registrant's voting common stock held by non-affiliates was approximately $4.235 billion (based upon the closing price of the common stock on the New York Stock Exchange on July 2, 2015).
At March 7, 2016, there were 58,641,562 shares of the registrant's voting common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement for the 2016 Annual Meeting of Stockholders are incorporated by reference into Part III.
 



TABLE OF CONTENTS
 
 
Page
 
 
 
 


Table of Contents

PART I
EXPLANATORY NOTE REGARDING THIS TRANSITION REPORT
In March 2015, we changed our fiscal year from the period beginning on April 1 and ending on March 31 to the period beginning on January 1 and ending on December 31. As a result, this report on Form 10-K (the "10-K") is a transition report and includes financial information for the transition period from April 1, 2015 through December 31, 2015. Subsequent to this report, our reports on Form 10-K will cover the calendar year, January 1 to December 31, which will be our fiscal year. We refer in this report to the period beginning on April 1, 2015 and ending on December 31, 2015 as the “2015 transition period.” We refer in this report to the period beginning on April 1, 2014 and ending on March 31, 2015 as “fiscal 2015” and the period beginning on April 1, 2013 and ending on March 31, 2014 as “fiscal 2014.”
ITEM 1.    BUSINESS
Orbital ATK, Inc. (the "Company", "we", "us" or "our") is an aerospace and defense systems company and supplier of related 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 were incorporated in Delaware in 1990.
On February 9, 2015, we completed a tax-free spin-off and distribution of our former Sporting Group to our stockholders (the “Distribution”) as a new public company called Vista Outdoor Inc. ("Vista Outdoor"). Immediately following the Distribution, we combined with Orbital Sciences Corporation ("Orbital") through the merger of a Company subsidiary with Orbital (the "Merger"). Following the Distribution and Merger, we changed our name from Alliant Techsystems Inc. ("ATK") to Orbital ATK, Inc.
In connection with the Distribution, our stockholders received two shares of Vista Outdoor for each share of our common stock held. As a result of the Distribution, the Sporting Group is reported as a discontinued operation in the consolidated financial statements for all prior periods presented.
In connection with the Merger, Orbital stockholders received 0.449 shares of our stock for each share of Orbital common stock held. Both transactions were structured to be tax-free to U.S. stockholders of Orbital and our Company for U.S. federal income tax purposes. Immediately following the Merger, Orbital stockholders owned 46.2% of our common stock and our existing stockholders owned 53.8%. We used the acquisition method to account for the Merger; accordingly, the results of Orbital are included in our consolidated financial statements since the date of the Merger.
We conduct business in three segments: Flight Systems Group , Defense Systems Group and Space Systems Group , which are described in greater detail below. These Groups are further comprised of smaller operating units that we refer to as "divisions."
Flight Systems Group is well-positioned in its markets, as follows:
leading provider of small- and medium-class space launch vehicles for civil, military and commercial missions,
major supplier of interceptor boosters and target vehicles for missile defense applications,
premier producer of solid rocket propulsion systems and specialty energetic products, and
manufacturer of composite structures for commercial and military aircraft and launch vehicles.
Defense Systems Group is also well-positioned in its markets, as follows:
leader in propulsion and controls for air-, sea- and land-based tactical missiles and missile defense interceptors as well as fuzing and warheads for tactical missiles and munitions,
supplier of advanced defense electronics for next-generation strike weapon systems, missile-warning and aircraft survivability systems, and special-mission aircraft,
leading producer of medium- and large-caliber ammunition, medium-caliber gun systems and precision munitions guidance kits, and
leading U.S. producer of small-caliber ammunition.

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Space Systems Group is also well-positioned in its markets, as follows:
leading provider of small- and medium-class commercial satellites used for global communications and high-resolution Earth imaging,
leading provider of small- and medium-class spacecraft that perform scientific research and national security missions for government customers,
provider of commercial cargo delivery services to the International Space Station and developer of advanced space systems, and
premier provider of spacecraft components and subsystems and specialized technical services.
Sales; income from continuing operations, before noncontrolling interest; and, other financial data for each segment for the nine months ended December 31, 2015 and the years ended March 31, 2015 and 2014 are set forth in Note  16 to the consolidated financial statements, included in Item 8 of this report.
Flight Systems Group
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, the Group operates in the military and commercial aircraft and launch structures markets. Other products include illuminating flares and aircraft countermeasures.
The following is a description of the operating units (“divisions”) within Flight Systems Group :
Launch Vehicles Division
The Launch Vehicles division includes both small- and medium-class rockets for government, civil and commercial payloads. Our innovative Pegasus® rocket is launched from our "Stargazer" L-1011 carrier aircraft and has proven to be the small space-launch workhorse for U.S. government customers, having conducted 45 missions from six different launch sites worldwide since 1990. Our Taurus launch vehicle combines our Pegasus upper-stage motors with a commercially-provided first stage propulsion system for increased performance. Our Minotaur I, IV and V rockets combine decommissioned Minuteman and Peacekeeper rocket motors with our proven upper stage motors, avionics and fairings to provide increased lifting capacity for government-sponsored payloads.
The division’s Antares rocket is a two-stage vehicle (with optional third stage) that provides low-Earth orbit ("LEO") launch capability for payloads weighing over 7,000 kg. The Antares rocket has been used in the execution of our Commercial Resupply Services ("CRS I") contract with NASA to deliver cargo to the International Space Station ("ISS"). The Antares design is being upgraded with newly-built RD-181 first stage engines to provide greater payload performance and increased reliability, and we currently are targeting two launches of the reconfigured Antares rocket in 2016 in connection with the CRS-I contract.
As the industry-leading provider of suborbital launch vehicles for the nation's missile defense systems, the division has conducted over 75 launches for the U.S. Missile Defense Agency, the U.S. Air Force, Army and Navy, and allied nations during the last 10 years. Additionally, the division is the sole provider of interceptor boosters for the U.S. Missile Defense Agency's Ground-based Midcourse Defense ("GMD") system designed to intercept and destroy long-range enemy missiles. We are also a primary supplier of highly-reliable target vehicles that serve as "threat simulators" to provide high-fidelity facsimiles of enemy missile threats in the testing and verification of missile defense systems.
Propulsion Systems Division
The Propulsion Systems division is the development and production center for our solid rocket motors for NASA's current and planned human spaceflight programs, including the Space Launch System ("SLS") heavy lift vehicle and the launch abort system ("LAS") motor for the Orion crew capsule that is designed to safely pull the crew capsule away from the launch vehicle in the event of an emergency during launch.
The division also produces medium-class solid rocket motors for the U.S. Navy's Trident II ("D5") Fleet Ballistic Missile program and conducts solid rocket propulsion sustainment activities for the U.S. Air Force's Minuteman III Intercontinental Ballistic Missile. These two programs provide the backbone of the United States' strategic deterrence program. Additional solid rocket motors being produced by the division include GEM 60 motors for the Delta IV, Orion® motors for our Pegasus, Taurus, and Minotaur launch vehicles and U.S. Missile Defense Agency targets, and CASTOR® motors for our Antares rocket and

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Taurus rocket. The division supplies Orion® motors for all three stages of the GMD system as well as other Orbital ATK launch vehicles. In addition, the division produces advanced flares and decoys that provide illumination for search and rescue missions and countermeasures against missile attacks.
Aerospace Structures Division
The Aerospace Structures division is a provider of advanced composite aircraft components for military and commercial aircraft manufacturers, using highly automated composite fabrication techniques, including automated fiber placement and stiffener forming processes. It provides a wide variety of composite parts for the F-35 Lightning II Joint Strike Fighter, a fifth-generation fighter aircraft for the U.S. military and its allies. It also provides composite radomes and apertures for a number of military aircraft and provides wing stiffeners for the A400M military transport aircraft. The division provides very large fiber-placed and hand lay-up structures for the Atlas and Delta launch vehicles, and filament-wound composite cases for solid rocket motors and composite overwrapped pressure vessels.
The division has a commercial aerospace composites center of excellence facility in Clearfield, Utah, to support its commercial aerospace customers, including Airbus, Rolls Royce, and Boeing. The division is under contract to produce the majority of the composite stringers and frames for the Airbus A350 XWB wide-body passenger jetliner. Additional major commercial programs include a partnership with Rolls Royce to produce the aft fan case for the Trent XWB engine, which will be used to power the Airbus A350 aircraft, and a contract to produce composite frames for the Boeing 787-9 and 787-10 commercial aircraft.
Defense Systems Group
Defense Systems Group develops and produces small-, medium-, and large-caliber ammunition, precision weapons and munitions, high-performance gun systems, and propellant and energetic materials. It operates the Lake City Army Ammunition Plant in Independence, MO ("LCAAP") and a Naval Sea Systems Command (“NAVSEA”) facility in Rocket Center, WV. Defense Systems Group is also a leader in tactical solid rocket motor development and production for a variety of air-, sea- and land-based missile systems. The Group serves a variety of domestic and international customers in the defense and security markets in a prime contractor, partner or supplier role.  Defense Systems Group also provides propulsion control systems that support Missile Defense Agency and NASA programs, airborne missile warning systems, advanced fuzes, and defense electronics.  The Group produces the U.S. Navy's Advanced Anti-Radiation Guided Missile (“AARGM”) and has developed advanced air-breathing propulsion systems and special-mission aircraft for defense applications.
The following is a description of the divisions within Defense Systems Group :
Armament Systems Division
The Armament Systems division is home to our precision weapons and medium- and large-caliber ammunition programs. The division is under contract to produce the Precision Guidance Kit ("PGK") for 155mm artillery and is the developer and producer of PGK units for 120mm mortars that are fielded as the U.S. Army's Advanced Precision Mortar Initiative. An additional program of note is the XM-25 Counter Defilade Target Engagement System under development for the U.S. Army. The division also produces the family of medium-caliber Bushmaster® chain guns and is a global systems designer and producer of medium-caliber ammunition for integrated gun systems. These gun systems are used on a variety of ground combat vehicles, helicopters and naval vessels, including the Bradley Fighting Vehicle, the Light Armored Vehicle, coastal patrol craft and Apache helicopters. New products include a link-fed variant of the Apache gun-system for ground and naval applications. Armament Systems also leads Defense Systems Group 's international co-production efforts and provides munitions support to allied nations.
Defense Electronic Division
The Defense Electronic division provides customers with advanced capabilities for offensive and defensive electronic warfare and specializes in weaponized airborne intelligence, surveillance and reconnaissance platforms and advanced anti-radiation homing missile systems, special-mission aircraft, missile warning systems, and mission support equipment. Key programs include the AARGM missile used by the U.S. Navy and NATO militaries, and AAR-47 missile warning system used by U.S. and allied fixed and rotor-wing aircraft to defeat incoming missile threats. The division also provides special-mission aircraft that integrate sensors, fire control software, gun systems and air-to-ground weapons capability for use in counterinsurgency, border/coastal surveillance and security missions.
Missile Products Division
The Missile Products division provides customers with high-performance tactical solid rocket motor propulsion for a variety of surface and air-launched missile systems including Hellfire, Maverick, Advanced Medium-Range Air-to-Air Missile and Sidewinder. The division also produces warheads, fuzing and sensors for various artillery, mortar, grenade and air-dropped

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weapons including the Hard Target Void Sensing Fuze. The division produces metal components for various medium-caliber ammunition and 120mm tank ammunition and also produces specialty composite and ceramic structures used on military platforms and in energy applications. The division provides customers with the third-stage propulsion on the Standard Missile defense interceptor.  Additional capabilities include the STAR™ family of satellite orbit insertion motors, high performance rocket boosters, and advanced air-breathing propulsion for platforms designed for Mach 3+ flight. It also continues to operate our New River Energetics facility located on the Radford Army Ammunition Plant (“RFAAP”) in Radford, VA, which provides energetics to support U.S. and allied defense initiatives.
Small Caliber Systems Division
The Small Caliber Systems division is the largest producer of small-caliber ammunition in the U.S., covering 5.56, 7.62 and .50 caliber rounds. The division provides non-NATO munitions and weapons systems to the U.S. Army for use by allied security forces. The division also provides commercial ammunition to Vista Outdoor. Since 2000, the Company has operated and modernized the LCAAP, and is currently under contract with the U.S. Army to operate the LCAAP through September 2020.
Space Systems Group
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 delivering cargo to the ISS. This Group is also a provider of spacecraft components and subsystems and specialized engineering and operations services to U.S. government agencies.
The following is a description of the divisions within Space Systems Group :
Commercial Satellites Division
The Commercial Satellites division develops and produces small- and medium-class satellites that are used to enable global and regional communications and broadcasting and to collect imagery and other remotely-sensed data about the Earth. Our GEOStar™ -2 and -3 geostationary Earth orbit ("GEO") satellites are among the industry’s best-selling small- and medium-class communications satellites for 2 to 8 kilowatt missions. The world’s leading satellite communications service providers rely on our lower-cost, highly reliable GEOStar satellites for their broadband, television broadcasting, mobile communications, business data networks and other telecommunications missions. We are also an industry pioneer in the design and production of commercial imaging satellites as well as in the incorporation of civil and military hosted payloads on our commercial spacecraft.
Government Satellites Division
The Government Satellites division develops and produces small- and medium-class satellites that conduct space-related scientific research including astrophysics, earth science/remote sensing and heliophysics, carry out interplanetary and other deep-space exploration missions, and demonstrate new space technologies. It also provides human-rated space systems for Earth-orbit and deep-space exploration. This includes cargo missions to the ISS under the CRS I program using the Cygnus spacecraft. We are currently under contract to deliver cargo to the ISS through 2018 and were recently awarded a follow-on CRS II contract to provide additional cargo missions starting in 2019. This division also designs and produces small- and medium-class satellites used for national security space programs.
Space Components Division
The Space Components division is a major supplier of satellite mechanical components and structural assemblies for a wide variety of commercial, civil, and defense spacecraft programs. It has strong market positions in spacecraft composite primary and secondary structures, satellite fuel and oxidizer tanks, precision payload structures, solar power arrays, deployable structures, and thermal control systems.
Technical Services Division
The Technical Services division provides a full spectrum of cost-effective engineering, manufacturing and program management services to NASA and other civil government and military space agencies. The division manages high-profile NASA science programs including its scientific sounding rocket and high-altitude balloon activities.
Customers
Our sales have come primarily from contracts with agencies of the U.S. Government and its prime contractors and subcontractors and from major domestic and international commercial satellite operators and aircraft manufacturers. As the

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various U.S. Government customers, including the U.S. Navy, U.S. Army, 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 by customer, as a percentage of total sales, were as follows:
 
 
Percentage of Sales
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
March 31, 2015
 
March 31, 2014
Sales to:
 
 
 
 
 
 
U.S. Army
 
15
%
 
27
%
 
33
%
U.S. Navy
 
11

 
15

 
16

NASA
 
23

 
13

 
14

U.S. Air Force
 
4

 
6

 
7

Other U.S. Government customers
 
17

 
14

 
14

Total U.S. Government customers
 
70

 
75

 
84

Commercial and foreign customers
 
30

 
25

 
16

Total
 
100
%
 
100
%
 
100
%
Sales to the U.S. Government and its prime contractors were as follows:
Period
U.S. Government
Sales
 
Percentage of
Sales
Nine Months Ended December 31, 2015
$
2,367
 million
 
70
%
Year Ended March 31, 2015
2,389
 million
 
75
%
Year Ended March 31, 2014
2,465
 million
 
84
%
Our CRS I contract with NASA, which is reported within Flight Systems Group and Space Systems Group , comprised 11% of our sales in the 2015 transition period . Our small-caliber ammunition contract with the U.S. Army, which is reported within Defense Systems Group , comprised 7% , 13% and 9% of our sales in the 2015 transition period, fiscal 2015 and fiscal 2014, respectively. No other single contract accounted for more than 10% of our sales in the 2015 transition period , fiscal 2015 , or fiscal 2014 . Our top five contracts accounted for approximately 30% of our sales in the 2015 transition period .
Sales to the U.S. Government as a prime contractor and as a subcontractor in the 2015 transition period were as follows:
Sales as a prime contractor
62
%
Sales as a subcontractor
38
%
Total
100
%
Other than the U.S. Government customers listed above, no single customer accounted for more than 10% of our sales in the 2015 transition period .
International sales were as follows:
 
International Sales
 
Percentage of
Sales
Nine months ended December 31, 2015
$
765
 million
 
22.5
%
Year ended March 31, 2015
613
 million
 
19.3
%
Year ended March 31, 2014
348
 million
 
11.9
%
Sales to foreign governments and other international customers may require approval by the U.S. Department of Defense ("DoD") and the U.S. State Department or the U.S. Commerce Department. Our products are sold to U.S. allies directly, as well as through the U.S. Government. During the 2015 transition period , approximately 18% of these sales were in Flight Systems Group , 47% were in Defense Systems Group , and 35% were in Space Systems Group . No sales to an individual country outside the United States accounted for more than 4% of our sales in the 2015 transition period .

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Backlog
Firm backlog is the estimated value of contracts for which orders have been recorded, but for which revenue has not yet been recognized. The total amount of firm backlog was approximately $8.1 billion at December 31, 2015 and $8.0 billion at March 31, 2015 . Approximately $2.2 billion of firm backlog was not yet funded at December 31, 2015 . We expect that approximately 38% of the December 31, 2015 firm backlog will be recognized as revenue in the following 12 months.
Total backlog, which includes firm backlog plus the value of unexercised options, was approximately $13.5 billion at December 31, 2015 and $12.1 billion at March 31, 2015 .
Seasonality
Our business is not seasonal.
Competition
We compete against other U.S. and foreign prime contractors and subcontractors, many of which have substantially more resources to deploy than we do in the pursuit of government and industry contracts. Our ability to compete successfully in this environment depends on a number of factors, including the creativity and effectiveness of research and development programs, our ability to offer better program performance than our competitors and/or at a lower cost, our readiness with respect to facilities, equipment, and personnel to undertake the programs for which we compete, and our past performance and demonstrated capabilities.
Additional information on the risks related to competition can be found under "Risk Factors" in Item 1A. of this report.
We generally face competition from a number of competitors in each business area, although no single competitor competes along all of our segments. Our principal competitors in each of our segments are as follows:
Flight Systems Group :     Aerojet-Rocketdyne Holdings, Inc.; Arianespace SA; Coleman Aerospace, a division of L-3 Communications Holdings, Inc.; Daher Group; GKN Aerospace Company; Harris Corporation Aerostructures; HITCO Aerostructures; Kilgore Flares Company, LLC, a subsidiary of Chemring North American; Kratos Defense & Security Solutions, Inc.; Lockheed Martin Corporation; Northrop Grumman Aerospace Systems; Space Exploration Technologies Corporation; Spirit Aerosystems Company; United Launch Alliance (a joint venture between Lockheed Martin Corporation and The Boeing Company); and Vought Aircraft, a division of Triumph Aerostructures.
Defense Systems Group :    Aerojet-Rocketdyne Holdings, Inc.; BAE Systems, Chemring Group; General Dynamics Corporation; L-3 Communications Holdings, Inc.; Lockheed Martin Corporation; Nammo AS; Northrop Grumman Corporation; Raytheon Company; and various international producers of ammunition and guns.
Space Systems Group : Airbus Defense and Space; Ball Aerospace and Technologies Corp.; Lockheed Martin Corporation; Mitsubishi Electric Corp.; Reshetnev Company - Information Satellite Systems; Sierra Nevada Corporation; Space Exploration Technologies Corp; Space Systems/Loral, a subsidiary of MacDonald, Dettwiler and Associates Ltd.; Surrey Satellite Technology Limited, a subsidiary of Airbus Group; Thales Alenia Space; and The Boeing Company.
Research and Development
We conduct extensive research and development ("R&D") activities. Company-funded R&D is primarily for the improvement of current products and for development of next-generation technology. Customer-funded R&D is comprised primarily of activities we conduct under contracts with the U.S. Government and its prime contractors. R&D expenditures were as follows:
 
Company-funded
 
Customer-funded
Nine months ended December 31, 2015
$
83.2
 million
 
$
358.6
 million
Year ended March 31, 2015
49.3
 million
 
499.0
 million
Year ended March 31, 2014
48.5
 million
 
495.1
 million
Raw Materials and Components
We use a broad range of raw materials in manufacturing our products, including aluminum, steel, copper, lead, graphite fiber, epoxy resins, zinc, and adhesives. We monitor the sources from which we purchase raw materials in an attempt to ensure there are adequate supplies to support our operations. We monitor the price of materials, particularly commodity metals like copper, which have fluctuated dramatically over the past several years.

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We also use sub-assemblies and instruments in our products and obtain parts and equipment that are used in the production of our products or in the provision of our services from domestic and foreign suppliers and the U.S. Government. Generally, we have not experienced material difficulty in obtaining product components or necessary parts and equipment and we believe that alternatives to our existing sources of supply are available in most cases.
We procure materials and components from a variety of sources. In the case of our government contracts, we are often required to purchase from sources approved by the U.S. Department of Defense. When our suppliers choose to eliminate certain materials or components we require from their product offering, we attempt to qualify other suppliers or replacement materials to ensure there are no disruptions to our operations.
We rely upon sole-source suppliers for many of our satellite and launch vehicle components, including our liquid-propellant rocket engines. The inability of our current suppliers to provide us with key components could result in significant contract delays, cost increases and loss of revenues due to the time, resources and effort that would be required to develop or adapt other engines or components for use in our products. For example, as a result of an Antares launch failure in October 2014, we discontinued use of the Aerojet-Rocketdyne AJ-26 engine and have transitioned to the RD-181 engine, which is manufactured in Russia for use in our Antares launch vehicle first stage. The transition to the RD-181 engine has required substantial testing and time and additional expense.
Additional information on the risks related to raw materials and components can be found under "Risk Factors" in Item 1A of this report.
Intellectual Property
At December 31, 2015 , we owned 425 U.S. patents and 284 foreign patents. We also had approximately 125 U.S. patent applications and approximately 156 foreign patent applications pending.
Although we manufacture various products covered by patents, we do not believe that any single existing patent, license, or group of patents is material to our success. We believe that unpatented research, development, and engineering skills also make an important contribution to our business. The U.S. Government typically receives royalty-free licenses to inventions made under U.S. Government contracts. Consistent with our policy to protect proprietary information from unauthorized disclosure, we ordinarily require employees to sign confidentiality agreements as a condition of employment.
As many of our products are complex and involve patented and other proprietary technologies, we face a risk of claims alleging that we have infringed upon third-party intellectual property rights. Such claims could result in costly and time-consuming litigation, the invalidation of our intellectual property rights, and/or increased licensing costs.
Regulatory Matters
U.S. Governmental Contracts
We are subject to the procurement policies and procedures set forth in the Federal Acquisition Regulation ("FAR"). The FAR governs all aspects of government contracting, including competition and acquisition planning; contracting methods and contract types; contractor qualifications; and acquisition procedures. Every government contract contains a list of FAR provisions that must be complied with in order for the contract to be awarded. The FAR provides for regular audits and reviews of contract procurement, performance, and administration. Failure to comply with the provisions of the FAR could result in contract termination.
The U.S. Government may terminate its contracts with its suppliers, either for convenience or in the event of a default as a result of our failure to perform under the applicable contract. If a cost-plus contract is terminated for convenience, we are entitled to reimbursement of our approved costs and payment of a total fee proportionate to the percentage of the work completed under the contract. If a fixed-price contract is terminated for convenience, we are entitled to payment for items delivered to and accepted by the U.S. Government and fair compensation for work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses, and a reasonable profit on the costs incurred or committed. If a contract termination is for default, we are paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. Government and may be liable to the U.S. Government for repayment of any advance payments and progress payments related to the terminated portions of the contract, as well as excess costs incurred by the U.S. Government in procuring undelivered items from another source. Additional information on the risks related to government contracts can be found under "Risk Factors" in Item 1A. of this report.
We also must comply with U.S. and foreign laws governing the export of munitions and other controlled products and commodities. These include regulations relating to import-export control, exchange controls, the Foreign Corrupt Practices Act, and the anti-boycott provisions of the U.S. Export Administration Act.

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Environmental
Our operations are subject to a number of federal, state and local environmental laws and regulations, as well as applicable foreign laws and regulations that govern the discharge, treatment, storage, remediation and disposal of certain materials and wastes, and restoration of damages to the environment. Compliance with these laws and regulations is a responsibility we take seriously. We believe that forward-looking, proper, and cost-effective management of air, land, and water resources is vital to the long-term success of our business. Our environmental policy identifies key objectives for implementing this commitment throughout our operations. Additional information on the risks related to environmental matters can be found under "Risk Factors" in Item 1A of this report.
Employees
At December 31, 2015 , we had approximately 12,300 employees. We have union-represented employees at five locations, comprising less than 20% of our total workforce.  One location has two separate bargaining units, each with its own collective bargaining agreement (“CBA”).  Our current CBAs expire in 2016, 2017, 2018 and 2019.
Executive Officers
The following table sets forth certain information with respect to our executive officers at December 31, 2015 :
Name
Age
 
Title
David W. Thompson
61
 
President and Chief Executive Officer
Blake E. Larson
56
 
Chief Operating Officer
Garrett E. Pierce
71
 
Chief Financial Officer
Antonio L. Elias
66
 
Executive Vice President and Chief Technical Officer
Frank L. Culbertson, Jr.
66
 
Executive Vice President and President, Space Systems Group
Michael A. Kahn
56
 
Executive Vice President and President, Defense Systems Group
Scott L. Lehr
55
 
Executive Vice President and President, Flight Systems Group
Thomas E. McCabe
61
 
Senior Vice President, General Counsel and Secretary
Christine A. Wolf
55
 
Senior Vice President, Human Resources
Each of the above individuals serves at the pleasure of the Board of Directors and is subject to reelection annually on the date of the Annual Meeting of Stockholders. No family relationship exists among any of the executive officers or among any of them and our directors. There are no outstanding loans from our company to any of these individuals. Information regarding the employment history (in each case with our Company unless otherwise indicated) of each of the executive officers is set forth below.
David W. Thompson has served in his present position since the Merger on February 9, 2015. Mr. Thompson has also been a director of our Company since the Merger. He co-founded Orbital and served as Chairman of the Board and Chief Executive Officer of Orbital from 1982 until the Merger. From 1982 until October 1999, he also served as President of Orbital, a role he resumed in mid-2011. Prior to founding Orbital, Mr. Thompson was employed by Hughes Electronics Corporation as special assistant to the President of its Missile Systems Group and by NASA at the Marshall Space Flight Center as a project manager and engineer, and also worked on the Space Shuttle’s autopilot design at the Charles Stark Draper Laboratory. Mr. Thompson is an Honorary Fellow of the American Institute of Aeronautics and Astronautics, a Fellow of the American Astronautical Society and the Royal Aeronautical Society, and is a member of the U.S. National Academy of Engineering. He also serves as a member of the Board of Trustees of the California Institute of Technology.
Blake E. Larson has served in his present position since the Merger on February 9, 2015. From April 2010 until February 9, 2015, he served as our Senior Vice President and President Aerospace Group. From 2009 to March 2010, he was Senior Vice President and President Space Systems. From 2008 to 2009, he was Executive Vice President Space Systems, and also General Manager Spacecraft Systems from August 2008 to January 2009. From 2006 to 2008, he was Executive Vice President of Mission Systems Group. Prior to that, Mr. Larson held a variety of key leadership positions in operations of several businesses within our aerospace and defense portfolio.
Garrett E. Pierce has served in his present position since the Merger on February 9, 2015. He was Vice Chairman and Chief Financial Officer of Orbital from 2002 until the Merger, and was Executive Vice President and Chief Financial Officer of Orbital from 2000 to 2002. From 1996 until 2000, he was Executive Vice President and Chief Financial Officer of Sensormatic Electronics Corp., a supplier of electronic security systems, where he was also named Chief Administrative Officer in July 1998. Prior to joining Sensormatic, Mr. Pierce was the Executive Vice President and Chief Financial Officer of California

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Microwave, Inc., a supplier of microwave, radio frequency, and satellite systems and products for communications and wireless networks. From 1980 to 1993, Mr. Pierce was employed by Materials Research Corporation, a provider of thin film equipment and high purity materials to the semiconductor, telecommunications and media storage industries, where he progressed from Chief Financial Officer to President and Chief Executive Officer. Materials Research Corporation was acquired by Sony Corporation in 1989. From 1972 to 1980, Mr. Pierce held various management positions with The Signal Companies. Mr. Pierce is a director of Kulicke and Soffa Industries, Inc.
Antonio L. Elias has served in his present position since the Merger on February 9, 2015. He was Executive Vice President and Chief Technical Officer of Orbital from September 2012 until the Merger. From October 2001 to September 2012, he served as Orbital's Executive Vice President and General Manager, Advanced Programs Group, and was Orbital's Senior Vice President and General Manager, Advanced Programs Group from 1997 to 2001. From 1996 until 1997, Dr. Elias served as Senior Vice President and Chief Technical Officer of Orbital. From 1993 through 1995, he was Orbital's Senior Vice President for Advanced Projects, and was Orbital's Senior Vice President, Space Systems Division from 1990 to 1993. He was Vice President, Engineering of Orbital from 1989 to 1990 and was Orbital's Chief Engineer from 1986 to 1989. From 1980 to 1986, Dr. Elias was an Assistant Professor of Aeronautics and Astronautics at Massachusetts Institute of Technology. He was elected to the National Academy of Engineering in 2001.
Frank L. Culbertson, Jr. has served in his present position since the Merger on February 9, 2015. He was Orbital's Executive Vice President and General Manager, Advanced Programs Group from September 2012 until the Merger. From 2008 to 2012, he served as a Senior Vice President in Orbital's Advanced Program Group, where he headed human space systems efforts. Prior to joining Orbital, Mr. Culbertson was a Senior Vice President at Science Applications International Corporation from 2002 to 2008. Before entering the private sector, Mr. Culbertson served as a NASA astronaut for 18 years, flying three Space Shuttle missions, and began his career as a pilot in the U.S. Navy.
Michael A. Kahn has served in his present position since the Merger on February 9, 2015. From April 2012 until February 9, 2015, he served as our Senior Vice President and President Defense Group. From August 2010 through March 2012, he was Senior Vice President and President Missile Products Group. From 2009 to August 2010, he was Executive Vice President Aerospace Systems. From 2008 to 2009, he was Vice President and General Manager Launch Systems and, from 2001 to 2008, he was Vice President Space Launch Systems. From 1997 to 2001 he was Vice President Operations and played a key role in the integration of Thiokol and ATK. From 1989 to 1997, he held a number of senior leadership positions across a variety of programs and operations of our company. Prior to that he was with Rockwell International, Rocketdyne Division and held a number of positions across engineering, quality and reliability assurance, launch site operations, and rocket engine testing.
Scott L. Lehr  has held his present position since July 1, 2015. From April 2015 through June 2015, he was Senior Vice President Flight Systems Group. From April 2009 through March 2015, he served as Vice President and General Manager of Defense and Commercial Systems in the Aerospace Group.  From 2007 to 2009 he was Vice President Operations, and from 2004 to 2007, he was Vice President Air Force Programs within the Launch Systems Group. Prior to that, he held a number of senior leadership positions in engineering and program management as part of our propulsion business. He joined the company in 1984 and has more than 30 years of experience in the aerospace industry. 
Thomas E. McCabe has served in his present position since the Merger on February 9, 2015. He was Senior Vice President, General Counsel and Corporate Secretary of Orbital from January 2014 until the Merger. Before joining Orbital, he served from 2010 to 2014 as Senior Vice President, General Counsel and Secretary of Alion Science and Technology Corporation, a provider of advanced engineering and technology solutions. From 2008 to 2010 he served as Executive Vice President and General Counsel, and President of the Federal business, of Braintech, Inc., which provided automated vision systems for industrial and military robots. Earlier in his career, he was Vice President and Deputy General Counsel of XM Satellite Radio from 2005 through its merger with Sirius Satellite Radio in 2008. He also served as President, CEO and a director of software provider MicroBanx Systems from 2001 to 2005, and President, CEO and a director of its parent company, COBIS Corporation, from 2004 to 2005. From 1992 to 2000, he was a senior executive at GRC International, Inc., a provider of advanced software and technology solutions, serving as Senior Vice President, General Counsel, Secretary and Director of Corporate Development through its sale to AT&T in 2000. He was an attorney in private practice from 1982 to 1991. He began his career as judicial clerk for Judge Charles R. Richey at the United States District Court for the District of Columbia from 1981 to 1982.
Christine A. Wolf has held her present position since joining the company in March 2011. She has more than 30 years of experience in the Human Resources field. Prior to joining the company, she was the Senior Vice President and Chief Human Resources Officer for Fannie Mae from 2008 to March 2011. Prior to that, she was the Chief Human Resources Officer for E*Trade from 2004 to 2008.


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Available Information
Our reports filed with the Securities and Exchange Commission ("SEC") can be found on our Internet site at www.orbitalatk.com under the "Investors" heading free of charge. These include our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make these reports available as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.
You can also obtain these reports from the SEC's Public Reference Room, which is located at 100 F Street NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by phone (1-800-SEC-0330) or on the Internet ( www.sec.gov ). This site contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The content on any website referred to in this Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.
ITEM 1A.    RISK FACTORS
We are subject to a number of risks, including those related to being a U.S. Government contractor and those related to domestic and international commercial sales. The material risks we are subject to are discussed below.
Our business could be adversely impacted by reductions or changes in NASA or U.S. Government military spending.
We depend on contracts with the U.S. Government and its prime contractors for a substantial portion of our sales. In addition, a significant portion of such sales come from a small number of contracts. Our CRS I contract with NASA, which is reported within Flight Systems Group and Space Systems Group , comprised 11% of our sales in the 2015 transition period . Our small-caliber ammunition contract with the U.S. Army, which is reported within Defense Systems Group , comprised 7% , 13% and 9% of our sales in the 2015 transition period, fiscal 2015 and fiscal 2014, respectively. Our top five contracts, all of which are contracts with the U.S. Government, accounted for approximately 30% of sales in the 2015 transition period . The loss or significant reduction of a material U.S. Government program in which we participate could have a material adverse effect on our operating results, financial condition, or cash flows.
U.S. Government contracts are dependent on the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal year 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. Key programs in which we participate must compete with other programs for consideration during the federal budgeting and appropriation process, and support and funding for any U.S. Government program may be influenced by general economic conditions, political considerations and other factors. A decline in U.S. Government support and funding for programs in which we participate could result in contract terminations, delays in contract awards, the failure to exercise contract options, the cancellation of planned procurements and fewer new business opportunities, any of which could have a material adverse effect on our operating results, financial condition or cash flows.
We have several significant U.S. government contracts or subcontracts, including those discussed below and elsewhere in this Form 10-K, which could negatively impact our financial condition and operating results if they were canceled or funded at reduced levels.
One of our major programs is as the provider of solid rocket motors for NASA’s SLS program. In the event NASA were to cancel the SLS program, we believe that we will be reimbursed for certain amounts previously incurred by us, as well as amounts to be incurred by us, as part of that termination, ( e.g. , severance, environmental liabilities, and termination administration). There can be no assurance, however, that we would be successful in collecting reimbursement of any termination liability costs.
Our CRS I contract with NASA to deliver cargo to the ISS is a significant part of our business within Flight Systems Group and Space Systems Group. On October 28, 2014, the Antares launch vehicle that was carrying our unmanned Cygnus spacecraft on a cargo delivery mission to the ISS for NASA under the CRS I contract experienced a launch failure shortly after liftoff from the Wallops Flight Facility in Virginia. We continue to fulfill our obligations to deliver all remaining cargo to the ISS under the CRS I contract, in part with the use of certain launch services purchased from another company. However, there can be no assurance that planned future Cygnus missions will occur on the contemplated timetable or will be successful. Given the right of U.S. Government customers to terminate contracts for convenience, there can be no assurance that the remaining backlog for this contract will ultimately be recognized in the Company's revenue. NASA could cancel this contract for any

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reason, including as a result of reductions in appropriations or our failure to achieve milestones due to technical issues or delays. A cancellation of the CRS I contract could have a material adverse effect on our operating results, financial condition, and cash flows.
Our small-caliber ammunition operations for the U.S. military and U.S. allies are conducted at the LCAAP in Independence, Missouri. The LCAAP is the U.S. Army's principal small-caliber ammunition production facility and is the primary supplier of the U.S. military's small-caliber ammunition needs. We took over operation of this facility in 2000 and are responsible for the operation and management, including leasing excess space to third parties in the private sector. In September 2012, we were awarded a new contract for the continued production of ammunition and continued operation and maintenance of the LCAAP. The production contract runs through September 2019 and the facility contract runs through September 2020, with an option to extend the contract to 2023. As a result of the significant competition for this contract, we have experienced a reduction in profit margin in the Small Caliber Systems division following the implementation of the contract. In addition, future levels of government spending for small-caliber ammunition cannot be predicted with certainty and thus our production under this contract cannot be predicted with certainty.
We are subject to intense competition for U.S. Government contracts and programs and therefore may not be able to compete successfully.
We encounter competition for most contracts and programs, including in particular, U.S. government contracts. Some of our competitors have substantially greater financial, technical, marketing, manufacturing, distribution, and other resources. Our ability to compete for these contracts depends to a large extent upon:
the creativity and effectiveness of our research and development programs,
our ability to offer better program performance and/or at a lower cost than our competitors,
the readiness of our facilities, equipment and personnel to undertake the programs for which we compete, and
our past performance and demonstrated capabilities.
In some instances, the U.S. Government directs a program to a single supplier. In these cases, there may be other suppliers who have the capability to compete for the programs involved, but they can only enter or reenter the market if the U.S. Government chooses to open the particular program to competition and, as such, these types of programs are subject to risk of the U.S. Government providing new awards to other suppliers. Our sole-source contracts accounted for 47% of our U.S. Government sales in the 2015 transition period .
We may not be able to react to increases in our costs due to the nature of our U.S. Government contracts.
Our U.S. Government contracts can be categorized as either "cost-plus" or "fixed-price."
Cost-Plus Contracts.     Cost-plus contracts are cost-plus-fixed-fee, cost-plus-incentive-fee, or cost-plus-award-fee contracts. Cost-plus-fixed-fee contracts allow us to recover approved costs plus a fixed fee. Cost-plus-incentive-fee contracts and cost-plus-award-fee contracts allow us to recover approved costs plus a fee that can fluctuate based on actual results as compared to contractual targets for factors such as cost, quality, schedule, and performance. The award or incentive fees that are typically associated with these programs are subject to uncertainty and may be earned over extended periods. In these cases, the associated financial risks for cost-plus contracts are primarily in lower profit rates or program cancellation if cost, schedule, or technical performance issues arise.
Fixed-Price Contracts.     Fixed-price contracts are firm-fixed-price, fixed-price-incentive, or fixed-price-level-of-effort contracts. Under firm-fixed-price contracts, we agree to perform certain work for a fixed price and absorb any cost overruns. Fixed-price-incentive contracts are fixed-price contracts under which the final contract price may be adjusted based on total final costs compared to total target cost, and may be affected by schedule and performance. Fixed-price-level-of-effort contracts allow for a fixed price per labor hour, subject to a contract cap. All fixed-price contracts present the inherent risk of unreimbursed cost overruns. If the initial estimates used to calculate the contract price and the cost to perform the work prove to be incorrect, there could be a material adverse effect on operating results, financial condition, or cash flows. In addition, some contracts have specific provisions relating to cost, schedule, and performance. If we fail to meet the terms specified in those contracts, the cost to perform the work could increase or our price could be reduced, which would adversely affect our financial condition. The U.S. Government also regulates the accounting methods under which costs are allocated to U.S. Government contracts.

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The following table identifies the amount contributed to our U.S. Government business by contract type in the 2015 transition period :
Cost-plus contracts
27
%
Fixed-price contracts
73
%
   Total
100
%
We use estimates in accounting for our programs. Changes in estimates could affect our financial results.
Contract accounting requires judgment relative to assessing risks, estimating contract revenues, including the impact of scope change negotiations, estimating program costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenues and cost at completion is complex and subject to many variables. Assumptions are made regarding the length of time to complete the contract because costs also include expected increases in wages and prices for materials. Similarly, many assumptions are made regarding the future impact of such things as the business base, efficiency initiatives, cost reduction efforts, contract changes and claim recovery. Incentives or penalties related to performance on contracts are considered in estimating revenue and profit rates, and are recorded when there is sufficient information to assess anticipated performance. Estimates of award and incentive fees are also used in estimating revenue and profit rates based on actual and anticipated awards.
Because of the significance of the judgments and estimation processes described above, it is possible that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect future period financial performance. Additional information on our accounting policies for revenue recognition can be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the section titled "Critical Accounting Policies" in Item 7 of this report.
Our U.S. Government contracts are subject to termination at any time, with or without cause.
Our direct and indirect contracts with the U.S. Government or its prime contractors may be terminated or suspended at any time, with or without cause, for the convenience of the government or in the event of a default by the contractor. If a cost-plus contract is terminated, the contractor is entitled to reimbursement of its approved costs. If the contractor would have incurred a loss had the entire contract been performed, then no profit is allowed by the U.S. Government.
If the termination is for convenience, the contractor is also entitled to receive payment of a total fee proportionate to the percentage of the work completed under the contract. If a fixed-price contract is terminated, the contractor is entitled to receive payment for items delivered to and accepted by the U.S. Government. If the termination is for convenience, the contractor is also entitled to receive fair compensation for work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses, and a reasonable profit on the costs incurred or committed. While the contractor is entitled to these claims under either type of contract, there can be no assurance that these amounts will be recovered.
If a contract termination is for default:
the contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. Government,
the U.S. Government is not liable for the contractor's costs for unaccepted items, and is entitled to repayment of any advance payments and progress payments related to the terminated portions of the contract, and
the contractor may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.
Other risks associated with U.S. Government contracts may expose us to adverse consequences.
Like all U.S. Government contractors, we are subject to possible losses on contracts due to risks associated with uncertain cost factors related to:
scarce technological skills and components,
the frequent need to bid on programs in advance of design completion, which may result in unforeseen technological difficulties and/or cost overruns,
the substantial time and effort required for design and development,

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design complexity,
rapid obsolescence, and
the potential need for design improvement.
Such factors can increase the costs associated with a program and delay performance, reducing our profitability and adversely impacting our customer relationships.
We are subject to procurement and other related laws and regulations, and non-compliance may expose us to adverse consequences.
We are subject to extensive and complex U.S. Government procurement laws and regulations, along with ongoing U.S. Government audits and reviews of contract procurement, performance, and administration. As a result, U.S. Government agencies, including the Defense Contract Audit Agency, various agency Inspectors General and the U.S. Department of Justice, routinely audit and investigate government contractors. In particular, these agencies often investigate our launch vehicle failures and other material occurrences relating to our products, including an ongoing DOJ/NASA investigation of the 2009 OCO and 2011 Glory failures involving the Taurus XL launch vehicle. These agencies review a contractor's performance under its contracts, cost structure and compliance with applicable laws, regulations and standards, including procurement integrity laws and the False Claims Act.
Charging practices relating to labor, research and development, and other costs that may be charged directly or indirectly to U.S. Government contracts are often scrutinized to determine that such costs are allowable under U.S. Government contracts and furthermore that such costs are reasonable. Any costs determined to be unallowable or unreasonable may not be reimbursed, and such costs already reimbursed may be subject to repayment. If the amount of such costs were significant, our results of operations, financial condition and cash flow could be materially adversely affected. We expect to recover a significant portion of our research and development expenses through billings under certain of our U.S. Government contracts in accordance with applicable regulations, but such billings could be reversed or rejected by the U.S. Government. Our inability to recover a significant portion of such expenses could materially adversely affect our operating results, financial condition or cash flows.
U.S. Government agencies also review the adequacy of, and a contractor's compliance with, its internal control systems and policies, including the contractor's purchasing, property, estimating, compensation, accounting and information systems. Adverse findings relating to our systems could result in the U.S. Government customer withholding a percentage of payments and also could impact our ability to win new U.S. Government contracts or exercise contract options.
Responding to government audits, inquiries or investigations may involve significant expense and divert management attention. Also, if an audit or investigation were to uncover improper or illegal activities, we could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or prohibition from doing business with the U.S. Government. In addition, we could suffer serious harm to our reputation if allegations of impropriety were to be made against us.
Decreases in demand for military and commercial ammunition could adversely affect our financial performance.
We sell military ammunition to DoD and commercial ammunition to Vista Outdoor under an ammunition supply agreement. Both the commercial and military markets for ammunition are subject to a number of risks and uncertainties that can cause demand to fluctuate unpredictably. Decreases in the demand for ammunition in either market could result in excess manufacturing capacity and increased overhead as a result, which could have a negative impact on our operating results. We experienced a continuing decrease in demand for ammunition in the 2015 transition period . Further declines could materially affect our business and results of operations. In addition, manufacturing costs for ammunition could rise as a result of a number of factors, including increases in commodity prices and increases in labor costs at our LCAAP, which could also have an adverse effect on our operating results and profit margin.
We manufacture and sell products that create exposure to potential product liability, warranty liability or personal injury claims and litigation.
Our products may expose us to potential product liability, warranty liability or personal injury claims relating to the use of those products. The resolution of such claims is not expected to have a material adverse effect on our business, and we maintain insurance coverage to mitigate a portion of these risks, which we believe to be adequate. However, our reputation may be adversely affected by such claims, whether or not successful, including potential negative publicity about its products.

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We are exposed to risks associated with expansion into new and adjacent commercial markets.
Our long-term business growth strategy includes further expansion into new and adjacent markets. Such efforts involve a number of risks, including increased capital expenditures, market uncertainties, schedule delays, performance risk, extended payment terms, diversion of management attention, additional credit risk associated with new customers, and costs incurred in competing with companies with strong brand names and market positions. An unfavorable event or trend in any one or more of these factors could adversely affect our operating results, financial condition, or cash flows.
International sales are subject to greater risks that sometimes are associated with doing business in foreign countries.
A portion of our business is derived from international markets. In the 2015 transition period , approximately 23% of our sales were to foreign customers, compared to 19% in fiscal 2015 . We also procure certain key components from non-U.S. vendors. Our international business may pose greater risks than our business in the United States due to changes in economic, legal and political environments, as well as foreign government priorities and budgets. International transactions frequently involve increased financial and legal risks arising from differing legal systems and customs in other countries. In addition, some international customers require contractors to agree to offset programs that may require in-country purchases or manufacturing or financial support arrangements as a condition to awarding contracts. The contracts may include penalties in the event a company fails to perform in accordance with the offset requirements. Furthermore, international business may create difficulties and risks with respect to the maintenance of an integrated supply chain network. An unfavorable event or trend in any one or more of these factors could adversely affect our operating results, financial condition, or cash flows. Foreign sales subject us to numerous stringent U.S. and foreign laws and regulations, including regulations relating to import-export control, exchange controls, the Foreign Corrupt Practices Act and certain other anti-corruption laws, and the anti-boycott provisions of the U.S. Export Administration Act. Failure to comply with these laws and regulations could result in material adverse consequences to us.
Our products are subject to extensive regulation.
We are required to comply with extensive regulation of our products, including those rules and regulations administered by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), the U.S. Department of Homeland Security, the U.S. Department of State and the U.S. Department of Commerce. These laws include, but are not limited to, the Foreign Corrupt Practices Act (FCPA), International Traffic in Arms Regulations (ITAR), and the Chemical Facility Anti-Terrorism Standards (CFATS). Compliance with these laws is costly and time consuming. A violation of these laws could result in significant fines and penalties and could have a material adverse effect on our business.
We are exposed to market risk from changes in foreign currency exchange rates which could negatively impact profitability.
Sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar and may adversely affect our results of operations. Currency fluctuations may affect product demand and prices we pay for materials and, as a result, our operating margins may be negatively impacted. Fluctuations in exchange rates may give rise to translation gains or losses when financial statements of our non-U.S. businesses are translated into U.S. dollars. While we monitor our exchange rate exposures and seeks to reduce the risk of volatility through hedging activities, such activities bear a financial cost and are not always available or successful in mitigating such volatility.
We have restated the unaudited consolidated financial statements included in our two most recent quarterly reports on Form 10-Q, which may lead to additional risks and uncertainties.
As described in greater detail in Note 18 to the consolidated financial statements included in this Form 10-K, we restated the unaudited condensed consolidated financial statements included in our Quarterly Reports on Forms 10-Q for the quarterly periods ended July 5, 2015 and October 4, 2015 (the “Restated Quarters”). The determination to restate the financial statements for the Restated Quarters was made by our Audit Committee and management. Our Audit Committee concluded that our previously issued financial statements for the Restated Quarters should no longer be relied upon. This Form 10-K includes the restatement of our financial statements for the Restated Quarters (the “Restatement”). The Restatement did not result in a change to total cash flows provided by (used for) operating activities, investing activities or financing activities for the quarter ended July 5, 2015 and six months ended October 4, 2015.
As a result of the Restatement, we have become subject to a number of additional costs and risks, including unanticipated costs for accounting and legal fees in connection with or related to the Restatement and the remediation of our material weaknesses in internal control over financial reporting. The Restatement and resulting material weaknesses could impair our reputation or could cause a loss of investor confidence. Each of these occurrences could have a material adverse effect on our business, operating results, financial condition and cash flows.

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Failure to maintain effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act of 2002 could negatively impact the market price of our common stock.
We have identified several material weaknesses in our internal control over financial reporting as described in greater detail in Item 9A, “Controls and Procedures,” in this Form 10-K. Because of these material weaknesses, management concluded that the we did not maintain effective internal control over financial reporting at December 31, 2015, based on criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We are in the process of remediating these weaknesses and plan to implement additional appropriate measures as part of this effort. However, there can be no assurance that we will be able to fully remediate our existing material weaknesses. In addition, there can be no assurance that we will not suffer from other material weaknesses in the future. If we fail to remediate these material weaknesses or fail to otherwise maintain effective internal controls over financial reporting in the future, such failure could have a material adverse effect on our operations or financial results.
We have a substantial amount of debt, and the cost of servicing that debt could adversely affect our business and hinder our ability to make payments on our debt.
At December 31, 2015 , we had total debt of $1,490 million . In addition, we had $146.5 million of outstanding but undrawn letters of credit and, taking into account these letters of credit, an additional $853.5 million of availability under our revolving credit facility. Additional information on our debt can be found under "Liquidity and Capital Resources" in Item 7 of this report.
We have demands on our cash resources in addition to interest and principal payments on our debt including, among others, operating expenses. These significant demands on our cash resources could:
make it more difficult for us to satisfy obligations,
require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions, share repurchases, dividends, and other general corporate purposes,
limit our flexibility in planning for, or reacting to, changes in the defense and aerospace industries,
place us at a competitive disadvantage compared to competitors that have lower debt service obligations and significantly greater operating and financing flexibility,
limit, along with the financial and other restrictive covenants applicable to our indebtedness, among other things, our ability to borrow additional funds,
increase our vulnerability to general adverse economic and industry conditions, and
result in a default event upon a failure to comply with financial covenants contained in our senior credit facilities which, if not cured or waived, could have a material adverse effect on our business, financial condition, or results of operations.
Our ability to pay interest on and repay our long-term debt and to satisfy our other liabilities will depend upon future operating performance and our ability to refinance our debt as it becomes due. Our future operating performance and ability to refinance will be affected by prevailing economic conditions at that time and financial, business and other factors, many of which are beyond our control.
If we are unable to service our indebtedness and fund operating costs, we will be forced to adopt alternative strategies that may include:
reducing or delaying expenditures for capital equipment and/or share repurchases,
seeking additional debt financing or equity capital,
foregoing attractive acquisition opportunities,
selling assets, or
restructuring or refinancing debt.
There can be no assurance that any such strategies could be implemented on satisfactory terms, if at all.

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The level of returns on pension and postretirement plan assets, changes in interest rates and other factors could affect our earnings and cash flows.
Our earnings may be impacted by the amount of expense or income recorded for employee benefit plans, primarily pension plans and other postretirement plans. U.S. generally accepted accounting principles ("GAAP") require us to calculate income or expense for the plans using actuarial valuations. These valuations are based on assumptions made relating to financial market and other economic conditions. Changes in key economic indicators can result in changes in these assumptions. The key year-end assumptions used to estimate pension and postretirement benefit expense or income for the following year are the discount rate, the expected long-term rate of return on plan assets, the rate of increase in future compensation levels, mortality rates, and the health care cost trend rate. We are required to remeasure our plan assets and benefit obligations annually, which may result in a significant change to equity through other comprehensive income (loss). Our pension and other postretirement benefit income or expense can also be affected by legislation or other regulatory actions. Additional information on how our financial statements can be affected by pension plan accounting policies can be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the section titled "Critical Accounting Policies" in Item 7 of this report.
Our business could be negatively impacted by security threats, including cyber security and other industrial, insider and physical security threats, and other disruptions.
As a U.S. defense contractor, we face cyber security threats, threats to the physical security of our facilities and employees, and terrorist acts, as well as the potential for business disruptions associated with information technology failures, natural disasters, or public health crises. We also face the risk of economic espionage, which involves the targeting or acquisition of sensitive financial, trade, proprietary or technological information.
We routinely experience cyber security threats, threats to our information technology infrastructure and attempts to gain access to sensitive information, as do our customers, suppliers, subcontractors and joint venture partners. We may experience similar security threats at customer sites that we operate and manage.
Prior cyber-attacks directed at us have not had a material impact on our financial results, and we believe that our threat detection and mitigation processes and procedures are generally adequate. The threats we face vary from attacks common to most industries to more advanced and persistent threats from highly-organized adversaries who target us because we protect national security information. If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures and, as a result, our present and future business could be negatively impacted. Due to the evolving nature of these security threats, however, the impact of any future incident cannot be predicted.
Although we work cooperatively with our customers, suppliers, subcontractors and joint venture partners to minimize the impact of cyber threats, other security threats or business disruptions, we must rely on the safeguards put in place by these entities, which may in turn affect the security of our own information and that of other parties. The entities we work with have varying levels of cyber security expertise and safeguards and their relationships with government contractors, such as us, may increase the likelihood that they are targeted by the same cyber threats we face.
The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. Occurrence of any of these events could adversely affect our internal operations, the services we provide to customers, loss of competitive advantages derived from our research and development efforts or other intellectual property, the obsolescence of our products and services, our financial results, our reputation and our stock price.
Disruptions in the supply of key raw materials or components and difficulties in the supplier qualification process, as well as increases in prices of raw materials, could adversely impact us.
Key raw materials used in our operations include aluminum, steel, steel alloys, copper, zinc, lead, graphite fiber, prepreg, hydroxy terminated polybutadiene, epoxy resins and adhesives, ethylene propylene diene monomer rubbers, diethylether, x-ray film, plasticizers and nitrate esters, impregnated ablative materials, various natural and synthetic rubber compounds, polybutadiene, acrylonitrile, and ammonium perchlorate. We also purchase chemicals; electronic, electro-mechanical and mechanical components; subassemblies; and subsystems that are integrated with the manufactured parts for final assembly into finished products and systems.
We monitor sources of supply to attempt to assure that adequate raw materials and other supplies needed in manufacturing processes are available. As a U.S. Government contractor, we are frequently limited to procuring materials and components from sources of supply approved by the DoD. In addition, as changes occur in business conditions, the DoD budget, and Congressional allocations, suppliers of specialty chemicals and materials sometimes consider dropping low volume items from their product lines, which may require, as it has in the past, qualification of new suppliers for raw materials on key

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programs. The supply of ammonium perchlorate, a principal raw material used in our operations, is limited to a single source that supplies the entire domestic solid propellant industry. This single source, however, maintains two separate manufacturing lines a reasonable distance apart, which mitigates the likelihood of a fire, explosion, or other problem impacting all production. We may also rely on one primary supplier for other production materials. Although other suppliers of the same materials may exist, the addition of a new supplier may require us to qualify the new source for use. The qualification process may impact our profitability or ability to meet contract deliveries.
We also rely on sole source suppliers for a number of key components, including the rocket motors and engines we use on our launch vehicles. If we are unable to obtain such components in the future, due to a supplier's financial difficulties or a supplier's failure to perform as expected, we could have difficulty procuring such components in a timely or cost effective manner. A disruption in the procurement of key components could result in substantial cost increases, significant delays in the execution of certain contracts or our inability to complete certain contracts, any of which could result in a materially adverse impact on our financial results.
For example, as a result of the failure of Orbital's Antares launch vehicle in October 2014 and prior engine test failures, we have ceased using the AJ-26 rocket engine in our Antares product line. We are currently transitioning to a replacement engine, the RD-181, and the time, expense and effort associated with our recovery plan have resulted in additional costs and delays.
Certain suppliers of materials used in the manufacturing of rocket motors have discontinued the production of some materials. These materials include certain insulation and resin materials for rocket motor cases and aerospace-grade rayon for nozzles. We have qualified new replacement materials for some programs. For other programs, the we or our customers have procured sufficient inventory to cover current program requirements and are in the process of qualifying new replacement materials to be qualified in time to meet future production needs. Our profitability may be affected if unforeseen difficulties in developing and qualifying replacement materials occur.
We are also impacted by increases in the prices of raw materials used in production on commercial and fixed-price business. We have seen a significant fluctuation in the prices of commodity metals, including copper, lead, steel and zinc. The fluctuating costs of natural gas and electricity also have an impact on the cost of operating our factories.
Prolonged disruptions in the supply of any of our key raw materials or components, difficulty completing qualification of new sources of supply, implementing use of replacement materials, components or new sources of supply, or a continuing increase in the prices of raw materials, energy or components could have a material adverse effect on our operating results, financial condition, or cash flows.
Failure of our subcontractors to perform their contractual obligations could materially and adversely impact our prime contract performance and ability to obtain future business.
We rely on subcontracts with other companies to perform a portion of the services we provide our customers on many of our contracts. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed by the subcontractor, customer concerns about the subcontract, our failure to extend existing task orders or issue new task orders under a subcontract, or our hiring of personnel of a subcontractor. A failure by one or more of our subcontractors to satisfactorily provide on a timely basis the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact our ability to perform our obligations as the prime contractor. Subcontractor performance deficiencies could result in a customer limiting payments or terminating a contract for default. A default termination could expose us to liability and have a material adverse effect on the ability to compete for future contracts and orders.
Failure to successfully negotiate or renew collective bargaining agreements, or strikes, slow-downs or other labor-related disruptions, could adversely affect our operations and could result in increased costs that impair our financial performance.
 A number of our employees are covered by collective bargaining agreements, which expire on various dates. Strikes, slow-downs or other labor-related disruptions could occur if we are unable to either negotiate or renew these agreements on satisfactory terms, which could adversely impact our operating results. The terms and conditions of new or renegotiated agreements could also increase our costs or otherwise affect our ability to fully implement future operational changes to enhance our efficiency. In certain instances, we may not be able to pass increased costs from new or renegotiated agreements on to our customers due to the fixed-price nature of many of our contracts, including our small-caliber ammunition contract with the U.S. Army that is performed at the LCAAP.
Our future success and growth will depend significantly on our ability to develop new technologies and products that achieve market acceptance within acceptable margins while maintaining a qualified workforce to meet the needs of our customers.

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Virtually all of the products produced and sold by us are highly engineered and require sophisticated manufacturing and system integration techniques and capabilities. Our commercial and government businesses both operate in global markets that are characterized by rapidly changing technologies, industry standards, market trends and customer demands. The product and program needs of our government and commercial customers change and evolve regularly. Accordingly, our future performance depends on its ability to identify emerging technological trends, develop and manufacture competitive products, enhance our products by adding innovative features that differentiate our products from those of our competitors, and bring those products to market quickly at cost-effective prices.
Our ability to develop new products based on technological innovation can affect our competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings. In addition, the markets for our products may not develop or grow as we anticipate. The failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and adversely affect our competitive standing and prospects.
In addition, because of the highly specialized nature of our business, we must be able to hire and retain the skilled and appropriately qualified personnel necessary to perform the services required by our customers. Our operating results, financial condition, or cash flows may be adversely affected if we are unable to develop new products that meet customers' changing needs or successfully attract and retain qualified personnel.
There can be no assurance that our products will be successfully developed or manufactured or that they will perform as intended.
Most of the products we develop and manufacture are technologically advanced and sometimes include novel systems that must function under highly demanding operating conditions. From time to time, we experience product failures, cost overruns in developing and manufacturing our products, delays in delivery and other operational problems. We have experienced product and service failures, schedule delays and other problems in connection with certain of our launch vehicles, including the Antares launch vehicle, satellites, advanced space systems and other products. We may have similar occurrences in the future. For example, we expect that our Antares launch vehicle will return to flight in 2016 with new engines for its first-stage propulsion. Another failure of this launch vehicle could result in increased costs, delays, and potential contract termination, which could have a material adverse effect on our financial condition and results of operations.
Some of our satellite and launch services contracts impose monetary penalties on us for delays and for performance failures, which penalties could be significant. In addition to any costs resulting from product warranties or required remedial action, product failures or significant delays may result in increased costs or loss of revenues due to the postponement or cancellation of subsequently scheduled operations or product deliveries and may have a material adverse effect on our operating results, financial condition, or cash flows. Negative publicity from a product failure could damage our reputation and impair our ability to win new contracts.
Due to the volatile and flammable nature of our products, fires or explosions may disrupt our business.
Many of our products involve the manufacture and/or handling of a variety of explosive and flammable materials. From time to time, these activities have resulted in incidents which have temporarily shut down or otherwise disrupted some manufacturing processes, causing production delays and resulting in liability for workplace injuries and fatalities. We have safety and loss prevention programs which require detailed pre-construction reviews of process changes and new operations, along with routine safety audits of operations involving explosive materials, to mitigate such incidents, as well as a variety of insurance policies. However, we cannot ensure that we will not experience similar incidents in the future or that any similar incidents will not result in production delays or otherwise have a material adverse effect on our operating results, financial condition, or cash flows.
We are subject to environmental laws and regulations that govern both past practices and current compliance which may expose us to adverse consequences.
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, remediate, or provide resource restoration. 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 non-compliance with environmental permits.

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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 may be covered by various indemnification agreements.
Although we have environmental management programs in place to mitigate risks, and environmental laws and regulations have not had a material adverse effect on our operating results, financial condition, or cash flows in the past, it is difficult to predict whether they will have a material impact in the future.
Capital market volatility could adversely impact our earnings because of our capital structure.
We are exposed to the risk of fluctuation in interest rates. If interest rates increase, we may incur increased interest expense on variable interest-rate debt or short-term borrowings, which could have an adverse impact on our operating results and cash flows.
We may pursue or complete acquisitions, or other strategic transactions, which represent additional risk and could impact future financial results.
Our business strategy includes the potential for future acquisitions or other similar strategic transactions. Acquisitions involve a number of risks including negotiating an appropriate price, successfully integrating the acquired company with our operations, and unanticipated liabilities or contingencies related to the acquired company. We cannot ensure that the expected benefits of any future acquisitions or other transactions will be realized. Costs could be incurred on pursuits or proposed acquisitions that have not yet or may not close which could significantly impact our operating results, financial condition, or cash flows. Additionally, after the acquisition, unforeseen issues could arise which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from initial estimates. Furthermore, we may engage in other strategic business transactions. Such transactions could cause unanticipated costs and difficulties, may not achieve intended results, and may require significant time and attention from management which could have an adverse impact on our business, operating results, financial condition, or cash flows.
Our profitability could be impacted by unanticipated changes in our tax provisions or exposure to additional income tax liabilities.
Our business operates in many locations under government jurisdictions that impose income taxes. Changes in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, thereby affecting income tax expense and profitability. In addition, audits by income tax authorities could result in unanticipated increases in income tax expense.
We are involved in a number of legal proceedings. We cannot predict the outcome of litigation and other contingencies with certainty.
We are subject to lawsuits, investigations and disputes (some involving substantial amounts) that arise out of the conduct of our business including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employment, employee benefits plans, intellectual property, import and export matters, and environmental, health and safety matters. Resolution of these matters can be prolonged and costly, and our business may be adversely affected by the ultimate outcome of these matters that cannot be predicted with certainty. Moreover, our potential liabilities are subject to change over time due to new developments, changes in settlement strategy, or the impact of evidentiary issues, and we may become subject to or be required to pay damage awards or settlements that could have a material adverse effect on our results of operations, cash flows, and financial condition. Additional information can be found in Item 3 of this report.
We may not realize the growth opportunities and cost synergies that are anticipated from the Merger.
The success of the Merger depends, in part, on our ability to realize anticipated growth opportunities and cost synergies. Our success in realizing these growth opportunities and cost synergies, and the timing of this realization, depends on the successful integration of our business and operations. Even if we integrate our businesses and operations successfully, this integration may not result in the realization of the full benefits of the growth opportunities and cost synergies that we expect from this integration within the anticipated time frame or at all. We may be unable to eliminate duplicative costs, or the benefits from the Merger may be offset by costs incurred or delays in integrating the companies. In addition, integration expenses are difficult to estimate accurately, and may exceed current estimates.

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If the Distribution does not qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code (the "Code"), including as a result of subsequent acquisitions of our stock or Vista Outdoor, then we or our stockholders immediately prior to the Distribution may be required to pay substantial U.S. federal income taxes and we may be obligated to indemnify Vista Outdoor for such taxes imposed on Vista Outdoor.
The Distribution and the Merger are intended to qualify as tax-free to us, our stockholders, Vista Outdoor and Orbital for U.S. federal income tax purposes. However, there can be no assurance that the IRS or the courts will agree with the conclusion of the parties and their counsel regarding the tax treatment of the Distribution and Merger. If the Distribution or certain related transactions were taxable, our stockholders would recognize income on their receipt of Vista Outdoor stock in the Distribution, and we would be considered to have made a taxable sale of certain of our assets to Vista Outdoor.
The Distribution will be taxable to us pursuant to Section 355(e) of the Code if there is a 50% or more change in ownership of either us or Vista Outdoor, directly or indirectly, as part of a plan or series of related transactions that include the Distribution. Because our stockholders collectively owned more than 50% of our common stock following the Merger, the Merger alone will not cause the Distribution to be taxable to us under Section 355(e). However, Section 355(e) could apply if other acquisitions of our stock before or after the Merger, or of Vista Outdoor after the Merger, are considered to be part of a plan or series of related transactions that include the Distribution. If Section 355(e) were to apply, we would be considered to have made a taxable sale of certain assets to Vista Outdoor and could recognize a substantial taxable gain.
Under the tax matters agreement between us and Vista Outdoor (the "Tax Matters Agreement"), in certain circumstances, and subject to certain limitations, Vista Outdoor is required to indemnify us against taxes on the Distribution that arise as a result of actions or failures to act by Vista Outdoor, or as a result of Section 355(e) applying due to acquisitions of Vista Outdoor stock after the Distribution. In other cases, however, we might recognize taxable gain on the Distribution without being entitled to an indemnification payment under the Tax Matters Agreement. If such tax is imposed on Vista Outdoor, then we generally will be required to indemnify Vista Outdoor for that tax. The possibility of recognizing and not being indemnified for this gain may discourage, delay or prevent a third party from acquiring our stock during the two years after the Merger in a transaction that our stockholders might consider favorable.
We may be unable to take certain actions because such actions could jeopardize the tax-free status of the Distribution or the Merger, and such restrictions could be significant.
Pursuant to the Tax Matters Agreement between us and Vista Outdoor, we are prohibited from taking actions or omissions that could reasonably be expected to cause the Distribution to be taxable or to jeopardize the conclusions of the opinions of counsel received by us or Orbital in connection with the Merger.
In particular, for two years after the Distribution, we may not:
enter into any agreement, understanding or arrangement or engage in any substantial negotiations with respect to any transaction involving the acquisition, issuance, repurchase or change of ownership of any of our capital stock, together with options or other rights in respect of that capital stock, subject to certain limited exceptions;
cease to be engaged in the active conduct of, or sell or transfer more than 30% of the gross assets or gross consolidated assets of, certain businesses;
redeem or otherwise repurchase our capital stock, subject to certain limited exceptions; or
liquidate, whether by merger, consolidation or otherwise.
We may take any of the actions described above if we obtain an opinion of counsel that is reasonably acceptable to Vista Outdoor (or an IRS private letter ruling) to the effect that the action will not affect the tax-free status of the Distribution, the Merger or certain related transactions. Such rulings or opinions may not be obtainable, however. In addition, the receipt of any such opinion or IRS ruling in respect of an action we propose to take will not relieve us of any obligation we have to indemnify Vista Outdoor if such action causes the Distribution, Merger or certain related transactions to be taxable.
Because of these restrictions, for two years after the Merger, we are limited in the amount of capital stock we can issue to make acquisitions or to raise additional capital or in the amount of stock that we can repurchase from investors.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments at the date of this report.
ITEM 2.    PROPERTIES

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Facilities.     At December 31, 2015 , we occupied manufacturing, assembly, warehouse, test, research, development, and office facilities having a total floor space of approximately 16.7 million square feet. These facilities are either owned or leased, or are occupied under facilities-use contracts with the U.S. Government.
At December 31, 2015 , our operating segments had significant operations at the following locations (1):
Flight Systems Group
 
Brigham City/ Promontory, UT; Clearfield, UT; Magna, UT; Chandler, AZ; Dulles, VA; Iuka, MS; Dayton, OH; Vandenberg Air Force Base, CA; Wallops Island, VA; Huntsville, AL
Defense Systems Group
 
Mesa, AZ; Northridge, CA; Elkton, MD; Elk River, MN; Plymouth, MN; Independence, MO; Fort Worth, TX; Radford, VA; Rocket Center, WV
Space Systems Group
 
Dulles, VA; Beltsville, MD; Gilbert, AZ; Greenbelt, MD; Commerce, CA; Goleta, CA; San Diego, CA; Wallops Island, VA; Palestine, TX; Pasadena CA
Corporate
 
Dulles, VA; Plymouth, MN; Minnetonka, MN
_________________________________________
(1)
We occupy a number of small facilities in countries around the world, which are not included above.
The following table summarizes the floor space, in thousands of square feet, occupied by each operating segment at December 31, 2015 :
 
Owned
 
Leased
 
Government
Owned (1)
 
Total
Flight Systems Group
5,153

 
3,443

 
551

 
9,147

Defense Systems Group
647

 
889

 
4,365

 
5,901

Space Systems Group
354

 
1,241

 
14

 
1,609

Corporate

 
80

 

 
80

Total
6,154

 
5,653

 
4,930

 
16,737

Percentage of total
37
%
 
34
%
 
29
%
 
100
%
_________________________________________
(1)
These facilities are occupied under facilities contracts that generally require us to pay for all utilities, services, and maintenance costs.
Land.     We also use land that we own or lease for assembly, test, and evaluation, in Brigham City, Corrine, and Magna, UT, which is used by Flight Systems Group ; and in Elk River, MN, and Socorro, NM, which are used by Defense Systems Group .
Our personnel occupy space at the following facilities that are not owned or operated by us: Marshall Space Flight Center, Huntsville, AL; Kennedy Space Center, Cape Canaveral, FL; Vandenberg Air Force Base, Vandenberg, CA; and Picatinny Arsenal, Picatinny, NJ. The square footage of these facilities is included in the table above.
Our properties are well maintained and in good operating condition and are sufficient to meet our near-term operating requirements.
ITEM 3.    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, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any particular quarter, 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.
On July 30, 2013, Raytheon Company filed a lawsuit against us in the Superior Court of the State of Arizona. The suit concerned our longstanding production of rocket motors used in Raytheon's Advanced Medium-Range Air-to-Air Missiles (AMRAAM). Raytheon’s primary allegation was that we breached certain of the production contracts by not delivering rocket motors. Raytheon claimed damages in excess of $100 million. The parties settled this matter on March 27, 2015. We paid $25 million to Raytheon, and the litigation was voluntarily dismissed on April 21, 2015.
On November 4, 2013, we filed a lawsuit against Spirit Aerosystems Inc. in the Second District Court in Farmington, Utah. In our suit, we made various claims, including breach of contract, in relation to a contract with Spirit Aerosystems

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regarding the manufacture of aircraft parts. On September 18, 2015, the parties entered into a settlement agreement resolving all matters at issue in the litigation, and the case was dismissed.
Putative class action and derivative lawsuits challenging the merger of Orbital and our company were filed in the Court of Chancery of the State of Delaware in May 2014, naming Orbital, our company and Orbital's directors.  On November 14, 2014, the lawsuits were consolidated by the court under the caption In Re Orbital Corporation Stockholder Litigation (the “Consolidated Lawsuit”).  The plaintiffs alleged, among other things, that the directors of Orbital breached their fiduciary duties in connection with the Merger, and alleged that we aided and abetted such breaches of fiduciary duty.  On January 16, 2015, the parties entered into a memorandum of understanding (the “MOU”) regarding the settlement of this matter.  Pursuant to the terms of the MOU, we and Orbital made additional information available to Orbital's stockholders in connection with the Merger vote. On February 2, 2016, the case was dismissed.
U.S. Government Investigations.     We are also subject to U.S. Government investigations from which civil, criminal, or administrative proceedings could result. Such proceedings could involve claims by the U.S. Government for fines, penalties, compensatory and treble damages, restitution, and/or forfeitures. Under government regulations, a company, or one or more of its operating divisions or subdivisions, can also be suspended or debarred from government contracts, or lose its export privileges, based on the results of investigations. We believe, based upon all available information, that the outcome of any such pending government investigations will not have a material adverse effect on our operating results, financial condition, or cash flows.
Environmental Liabilities.     Our operations and ownership or use of real property are subject to a number of federal, state, and local laws and regulations, including those for discharge of hazardous materials, remediation of contaminated sites, and restoration of damage to the environment. Due in part to their complexity and pervasiveness, such laws and regulations have resulted in our being involved with a number of related legal proceedings, claims, and remediation obligations. We routinely assesses, based on in-depth studies, expert analyses, and legal reviews, our contingencies, obligations, and commitments for remediation of contaminated sites and past practices, including assessments of ranges and probabilities of recoveries from other responsible parties. Our policy is to accrue and charge to expense in the current period any identified exposures related to environmental liabilities based on estimates of investigation, cleanup, monitoring, and resource restoration costs to be incurred.
We have been identified as a potentially responsible party (“PRP”), along with other parties, in several regulatory agency actions associated with hazardous waste sites. As a PRP, we may be required to pay a share of the costs of the investigation and clean-up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, 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, 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 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 II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Contingencies" is incorporated herein by reference.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.

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PART II
ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed and traded on the New York Stock Exchange under the symbol "OA". Prior to the Merger, our common stock was listed and traded on the New York Stock Exchange under the symbol "ATK". The following table presents the high and low sales prices of the common stock for the periods indicated:
Period
High
 
Low
Nine months ended December 31, 2015
 
 
 
Quarter ended December 31, 2015
$
92.99

 
$
74.50

Quarter ended October 4, 2015
81.06

 
56.06

Quarter ended July 5, 2015
78.06

 
71.78

Year ended March 31, 2015
 
 
 
Quarter ended March 31, 2015
$
140.61

 
$
60.23

Quarter ended December 28, 2014
132.33

 
100.36

Quarter ended September 28, 2014
139.89

 
122.97

Quarter ended June 29, 2014
158.13

 
118.11

Sales prices for the quarter ended March 31, 2015 and subsequent quarters reflect the effect of the Distribution and Merger, including the issuance of approximately 27.4 million shares of common stock to Orbital stockholders in connection with the Merger.
The number of holders of record of our common stock at February 22, 2016 was 4,924. This does not include 964 former holders of record of Orbital Sciences Corporation common stock who had not yet exercised their right to receive our common stock pursuant to the Transaction Agreement relating to the Merger.
During the 2015 nine-month transition period, April 1, 2015 to December 31, 2015, Orbital ATK (OA) paid three quarterly dividends of $0.26 per share, totaling $46.1 million . In February 2016, our Board of Directors approved a quarterly dividend to be paid in the first quarter of 2016 of $0.30 per share, totaling $17.7 million. During fiscal year, April 1, 2014 through March 31, 2015 for legacy ATK, the Company paid four dividends of $0.32 per share totaling $41.1 million . We cannot be certain that we will continue to declare dividends in the future and, as such, the amount and timing of any future dividends are not determinable. Our dividend policy is reviewed by our Board of Directors in light of relevant factors, including our earnings, liquidity position, financial condition, capital requirements, and credit ratings, as well as the extent to which the payment of cash dividends may be restricted by covenants contained in our instruments, including our 5.25% Senior Notes due 2021, 5.50% Senior Notes due 2023 and Senior Credit Facility (as described under "Liquidity and Capital Resources" in Item 7 of this report).

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Equity Compensation Plan Information
The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under each of our existing equity compensation plans at December 31, 2015 :
Plan category
 
Number of securities to
be issued upon exercise of
outstanding options, warrants and rights (a)
 
Weighted-average exercise price of outstanding
options, warrants
and rights (b)
 
Number of securities
remaining available for
future issuance under equity
compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders:
 
 
 
 
 
 
1990 Equity Incentive Plan (1)
 
 
 
 
 
 
Deferred Compensation (2)
 
20,783

 

 

Non-Employee Director Restricted Stock Plan (1)
 
 

 
 

 


Deferred Compensation (2)
 
6,924

 

 

2005 Stock Incentive Plan (1)
 
 

 
 

 

Stock Options
 
228,790

 
$
48.16

 

Restricted Stock Units
 
96,384

 

 

Performance Awards (4)
 
156,463

 

 

Deferred Compensation (2)
 
68,414

 

 

2015 Stock Incentive Plan (3)
 
 
 
 
 
3,704,016

Stock Options
 

 

 

Performance Awards (4)
 
1,336

 

 

Deferred Compensation (2)
 
8,684

 

 

Equity compensation plans not approved by security holders:
 
 
 
 
 
 
Orbital Sciences 1997 Stock Option and Incentive Plan (1) (5)
 
 
 
 
 
 
Stock Options
 
4,490

 
$
28.91

 

Orbital Sciences Amended and Restated 2005 Stock Incentive Plan (1) (5)
 
 
 
 
 
 
Restricted Stock Units
 
202,563

 

 

Total
 
794,831

 
$
47.79

 
3,704,016

_________________________________________
(1)
No additional awards may be granted under this plan.
(2)
Shares reserved for payment of deferred stock units in accordance with the terms of the plan.
(3)
Under the 2015 Stock Incentive Plan, a total of 3,750,000 shares were authorized for awards. However, the plan includes a fungible share counting provision, under which “full-value awards" (i.e., awards other than stock options and stock appreciation rights) are counted against the reserve of shares available for issuance under the plan as 2.5 shares for every one share actually issued in connection with the award. No more than 5% of the shares available for awards under the plan may be granted to our non-employee directors in the aggregate.
(4)
Shares reserved for issuance in connection with outstanding performance awards. The amount shown assumes the maximum payout of the performance shares based on achievement of the highest level of performance. The actual number of shares to be issued depends on the performance levels achieved for the respective performance periods.
(5)
This plan was approved by the stockholders of Orbital prior to the Merger. Pursuant to the Transaction Agreement relating to the Merger, we assumed the obligation to issue shares under the terms of this plan.

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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)
 
Maximum
Number of
Additional Shares that
May Be
Purchased Under
the Program (3)
October 5 - November 1
91,407

 
$
79.03

 
87,417

 
 

November 2 - November 28
42,612

 
84.92

 
41,615

 
 

November 29 - December 31
53,427

 
85.55

 
53,427

 
 

Quarter ended December 31, 2015
187,446

 
$
82.23

 
182,459

 
1,949,909

_________________________________________
(1)
Includes shares repurchased during the quarter (see (2) below) and 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 the 2015 transition period , the Board approved a stock repurchase program that currently authorizes the repurchase of up to the lesser of $250 million or 3.25 million shares through December 31, 2016. We repurchased 1,008,445 shares for $75,795 during the 2015 transition period .
(3)
The maximum number of shares that may yet be repurchased under the program was calculated using our closing stock price of $89.34 on December 31, 2015 .
The discussion of limitations upon the payment of dividends as a result of the indentures governing our debt instruments as discussed in Part II, Item 7, "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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STOCKHOLDER RETURN PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the Company's common stock during the period from March 31, 2011 through December 31, 2015 , with the Standard & Poor's Composite 500 Index, (a broad equity market index) and the Dow Jones U.S. Aerospace and Defense Index (a published industry index) for the same period.
The comparison assumes that on April 1, 2011, $100 was invested in the Company's common stock (at the closing price on the previous trading day) and in each of the indexes. The comparison assumes that all cash dividends, were reinvested and takes into account the value of the Vista Outdoor shares distributed to stockholders in the Distribution as if it occurred prior to March 31, 2011. The graph indicates the dollar value of each hypothetical $100 investment at March 31, 2012 , 2013 , 2014 and 2015 , and at December 31, 2015 .


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ITEM 6.    SELECTED FINANCIAL DATA
Results for the nine months ended December 31, 2015 are not comparable to prior periods due to the Merger, as described in Note 4 to the accompanying consolidated financial statements.
 
Nine Months Ended
 
Years Ended March 31,
(Amounts in thousands except per share data)
December 31, 2015
 
2015
 
2014
 
2013
 
2012
 
(1)
 
(2)
 
 
 
 
 
(3)
Results of Operations:
 
 
 
 
 
 
 
 
 
Sales
$
3,399,089

 
$
3,173,967

 
$
2,925,237

 
$
3,206,096

 
$
3,610,579

Cost of sales
2,729,898

 
2,469,865

 
2,277,939

 
2,521,277

 
2,820,492

Gross profit
669,191

 
704,102

 
647,298

 
684,819

 
790,087

Operating expenses:
 

 
 

 
 

 
 

 
 

Research and development
83,209

 
49,349

 
48,536

 
55,958

 
58,906

Selling
88,177

 
89,941

 
87,554

 
90,219

 
106,065

General and administrative
225,418

 
298,559

 
209,251

 
200,568

 
234,922

Goodwill impairment

 
34,300

 

 

 

Gain on settlement
50,000

 

 

 

 

Income from continuing operations, before interest, income taxes and noncontrolling interest
322,387

 
231,953

 
301,957

 
338,074

 
390,194

Interest expense, net
(57,163
)
 
(88,676
)
 
(79,792
)
 
(65,386
)
 
(88,620
)
Loss on extinguishment of debt

 
(26,626
)
 

 
(11,773
)
 

Income from continuing operations, before income taxes and noncontrolling interest
265,224

 
116,651

 
222,165

 
260,915

 
301,574

Income taxes
83,659

 
39,117

 
62,542

 
73,746

 
107,321

Income from continuing operations, before noncontrolling interest
181,565

 
77,534

 
159,623

 
187,169

 
194,253

Less net income attributable to noncontrolling interest
143

 
99

 
171

 
436

 
592

Income from continuing operations of Orbital ATK, Inc.
$
181,422

 
$
77,435

 
$
159,452

 
$
186,733

 
$
193,661

Basic earnings per common share from continuing operations
$
3.06

 
$
2.18

 
$
5.03

 
$
5.76

 
$
5.89

Basic weighted-average number of common shares outstanding
59,358

 
35,469

 
31,671

 
32,447

 
32,874

Diluted earnings per common share from continuing operations
$
3.03

 
$
2.14

 
$
4.87

 
$
5.73

 
$
5.85

Diluted weighted-average number of diluted common shares outstanding
59,915

 
36,140

 
32,723

 
32,608

 
33,112

Other Data:
 

 
 

 
 

 
 

 
 

Depreciation and amortization of intangible assets (3)
$
123,878

 
$
85,027

 
$
72,304

 
$
80,935

 
$
84,302

Capital expenditures (3)
104,634

 
112,704

 
105,730

 
73,494

 
100,820

Cash dividends per common share
$
0.78

 
$
1.28

 
$
1.10

 
$
0.92

 
$
0.80

Gross margin (gross profit as a percentage of sales) (3)
19.7
%
 
22.2
%
 
22.1
%
 
21.4
%
 
21.9
%
(1)
In the nine months ended December 31, 2015, the Company recorded a $50.0 million gain on settlement of a dispute with a supplier pertaining to the Antares rocket used in the CRS I contract.
(2)
In fiscal 2015, we recorded $34.9 million of transaction fees for advisory, legal and accounting services in connection with the Distribution and Merger, and a $25.0 million litigation charge pertaining to a Raytheon lawsuit settlement.
(3)
In fiscal 2012, we recorded a $36.5 million litigation charge pertaining to a LUU flares lawsuit settlement.
(4)
Presented for continuing operations only.

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(Amounts in thousands except per share data)
December 31, 2015
 
March 31, 2015
 
March 31, 2014
 
March 31, 2013
 
March 31, 2012
Financial Position:
 

 
 

 
 

 
 

 
 

Net current assets (1)
$
1,273,463

 
$
1,292,122

 
$
518,679

 
$
877,572

 
$
715,917

Net property, plant and equipment (1)
806,187

 
807,057

 
508,455

 
478,716

 
486,273

Total assets (1)
5,353,556

 
5,504,402

 
3,423,521

 
3,575,256

 
3,785,219

Long-term debt (including current portion) (1)
1,490,000

 
1,588,501

 
2,092,978

 
1,073,877

 
1,302,002

Total Orbital ATK, Inc. stockholders' equity
1,937,140

 
1,776,998

 
1,911,575

 
1,502,169

 
1,226,795

(1)
Presented for continuing operations only.

28


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 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 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:
reductions or changes in NASA or 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 we 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,
the 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 us to adverse consequences,
government laws and other rules and regulations applicable to us, including procurement and import-export control,
reduction or change in demand and manufacturing costs for commercial ammunition,
the manufacture and sale of products that create exposure to potential product liability, warranty liability or personal injury claims and litigation,
risks associated with expansion into new and adjacent commercial markets,
results of the Merger or other acquisitions or 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 our 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 our subcontractors,
development of key technologies and retention of a qualified workforce,
the performance of our products,
fires or explosions at any of our facilities,

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government investigations and audits,
environmental laws that govern past practices and rules and regulations, noncompliance with which may expose us to adverse consequences,
impacts of financial market disruptions or volatility to our customers and vendors,
unanticipated changes in the tax provision or exposure to additional tax liabilities, and
the 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. Additional information regarding these factors is contained in Item 1A of this report and may also be contained in our 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
We are an aerospace and defense products 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.
On February 9, 2015, we completed a tax-free spin-off and distribution of our former Sporting Group to our stockholders (the “Distribution”) as a new public company called Vista Outdoor Inc. ("Vista Outdoor"). Immediately following the Distribution, we combined with Orbital Sciences Corporation ("Orbital") through the merger of a Company subsidiary with Orbital (the "Merger"). Following the Distribution and Merger, we changed our name from Alliant Techsystems Inc. to Orbital ATK, Inc.
We conduct business in three segments:
Flight Systems Group develops rockets that are used as small- and medium-class space launch vehicles to place satellites into Earth orbit and escape trajectories, interceptor and target vehicles for missile defense systems and suborbital launch vehicles that place payloads into a variety of high-altitude trajectories. The group also develops and produces medium- and large-class rocket propulsion systems for human and cargo launch vehicles, strategic missiles, missile defense interceptors and target vehicles. Additionally, Flight Systems Group operates in the military and commercial aircraft and launch structures markets. Other products include illuminating flares and aircraft countermeasures.
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 ISS. This group is also a provider of spacecraft components and subsystems and specialized engineering and operations services to U.S. government agencies.
Fiscal Year
We changed our fiscal year to the calendar twelve months ending December 31, effective beginning with the period ended on December 31, 2015. As a result, the current fiscal period is a nine-month transition period ended on December 31, 2015. Accordingly, the current period financial results ended December 31, 2015 are for a nine-month period. All references herein to a fiscal year prior to December 31, 2015 refer to the twelve months ended March 31 of such year.

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Outlook
U.S Government Funding — Our 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 GFY's. 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 we participate, 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 our 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 GFY 2012, and subsequent amendments that continue to limit DoD spending. However, the budget outlook for defense and space spending for GFY 2016 is generally positive. The Bipartisan Budget Act of 2015 has provided a greater level of certainty for defense spending over the next two years, with base budgets in excess of the limits that would have been imposed by the sequester caps set by the Budget Control Act. The Consolidated Appropriations Act of 2016, passed in December 2015, established federal funding for the remainder of GFY 2016 and generally abides by the adjustments to discretionary spending provided for in the Bipartisan Budget Act. Defense spending for GFY 2016 includes a $514 billion base budget with a $59 billion supplement for overseas contingency operations, in total an increase of approximately 2% from GFY 2015 levels.
Importantly, the GFY2016 defense budget includes major boosts in military procurement accounts; however, we do not expect this to translate into large immediate revenue gains. In civil government agencies, our major customer, NASA, received authorization for a $19.3 billion budget for GFY 2016, an increase of 7% from GFY 2015, maintaining the longstanding commitment to International Space Station operations and providing a significant increase in funding for the Space Launch System, two key areas in which we are involved as a prime contractor and supplier. The President's budget for GFY 2017 is consistent with the funding levels of the Bipartisan Budget Act. We continue to monitor potential impacts of the upcoming government fiscal year as the GFY17 Congressional budget review and annual appropriations process gets underway.
Commercial and International Business We continued to emphasize international growth by establishing operations in Saudi Arabia, the United Arab Emirates, and Singapore, as defense spending by U.S. allies continues to present opportunities for us. Our commercial businesses, consisting primarily of communication satellite and aircraft structure sales as well as ammunition sales to Vista Outdoor, were generally flat in the 2015 transition period. Industry-wide, new orders for geosynchronous satellites were down considerably in 2015, with approximately 17 satellites sold, down from 23 in 2014. We do not expect this area to rebound in the near term.
The U.S. aerospace and defense industry has experienced significant changes over the years. Our management believes that the key to our continued success is to focus on providing innovative, reliable and affordable space, defense and aviation systems. We are positioning ourselves where management believes there will be continued strong defense and civil government funding, even as pressures mount on research and development and procurement accounts, including an emphasis on international defense business and other potential growth areas.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. In preparing the consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an on-going basis. Our 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.
We believe the following are our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

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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. Navy, U.S. Army, 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 by customer were as follows:
 
Percentage of Sales
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
March 31, 2015
 
March 31, 2014
Sales to:
 
 
 
 
 
U.S. Army
15
%
 
27
%
 
33
%
U.S. Navy
11

 
15

 
16

NASA
23

 
13

 
14

U.S. Air Force
4

 
6

 
7

Other U.S. Government customers
17

 
14

 
14

Total U.S. Government customers
70

 
75

 
84

Commercial and foreign customers
30

 
25

 
16

Total
100
%
 
100
%
 
100
%
Long-term Contracts —The majority of our sales 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 majority of our total revenue is accounted for using the cost-to-cost method of accounting.
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, including scope and claims, are included in contract sales only when 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. The cumulative effect of a change in estimate is recognized in the period a change in estimate occurs. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception or, in the case of contracts acquired in business combinations, from the date of acquisition.
Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates due to unanticipated cost growth or risks affecting contract costs and/or the resolution of contract risks at lower costs than anticipated, as well as changes in contract overhead costs over the performance period. Changes in estimates could have a material effect on our consolidated financial position or annual results of operations. Aggregate net changes in contract estimates recognized using the cumulative catch-up method of accounting increased operating income by approximately $30,000 in the 2015 transition period , approximately $87,000 in fiscal 2015 , and approximately $83,000 in fiscal 2014 . The adjustments recorded during the 2015 transition period were primarily driven by higher profit expectations in the Propulsion Systems and Aerospace Structures divisions. The adjustments recorded during fiscal 2015 were primarily driven by higher profit expectations in the Defense Electronic , Armament Systems , Missile Products , Propulsion Systems and Small Caliber Systems divisions. The adjustments recorded during fiscal 2014 were primarily driven by higher profit expectations in the Small Caliber Systems division and for programs in the Propulsion Systems division.
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.
Other —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

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contract and sales terms are complete, customer acceptance has occurred, and payment is reasonably assured. Sales are reduced for allowances and price discounts.
Sales from continuing operations by revenue recognition method, for the 2015 transition period , were as follows:
 
Percentage of Sales
Sales recorded under:
 
Long-term contracts method
96
%
Other method
4
%
Total
100
%
Employee Benefit Plans
Defined Benefit Pension Plans.     Our 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”). We 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 provided 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. We fund the Plans in accordance with federal requirements calculated using appropriate actuarial methods. Plan assets for us 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. We fund the defined benefit pension plans in accordance with federal requirements calculated using appropriate actuarial methods. Plan assets for us 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. By resolution of the Orbital ATK Pension and Retirement Committee on July 1, 2015, the Orbital Plans were merged into the Alliant Techsystems, Inc. Pension and Retirement Plan effective December 31, 2015 and the plan name of that plan changed to the Orbital ATK, Inc. Pension and Retirement Plan.
We also sponsor 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. We implemented similar changes as those noted above to our nonqualified supplemental executive retirement plans for certain highly compensated employees.
We recorded pension expense for the Plans of $82,448 in the 2015 transition period , a decrease of $2,538 from $84,986 of pension expense recorded in fiscal 2015 . 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 our assumptions used in determining pension expense:

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Projected
 
Nine Months Ended December 31, 2015
 
Years Ended
 
2016
 
 
March 31, 2015
 
March 31, 2014
Expected long-term rate of return on plan assets
7.25
%
 
7.25
%
 
7.25
%
 
7.25
%
Discount rate
4.40
%
 
3.90
%
 
4.50
%
 
4.35
%
Rate of compensation increase:
 
 
 
 
 
 
 
Union
3.13
%
 
3.66
%
 
3.22
%
 
3.23
%
Salaried
3.62
%
 
3.14
%
 
3.47
%
 
3.49
%
In developing the expected long-term rate of return assumption, we consider input from our actuaries and other advisors, annualized returns of various major indices over a long-term time horizon and our own historical investment returns. The expected long-term rate of return of 7.25% used in the 2015 transition period 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 2016 is 7.25% . The actual return in any year will likely differ from our assumption, but we estimate the 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 the discount rate, we use 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 our 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 4.40% , 3.90% , and 4.50% at December 31, 2015 , March 31, 2015 , and March 31, 2014 , respectively. The discount rate at year end impacts the following year's pension expense.
Future actual pension expense can vary significantly depending on future investment performance, changes in future discount rates, legally required plan changes, and various other factors related to the populations participating in the Plans. If the assumptions of the discount rate, compensation increase, and/or expected rate of return for 2016 were different, the impact on 2016 expense would be as follows: each 0.25% change in the discount rate would change 2016 pension expense by approximately $5,500 ; each 0.25% change in the rate of compensation increase would change 2016 pension expense by approximately $100 ; and each 0.25% change in the expected rate of return on plan assets would change 2016 pension expense by approximately $5,600 .
We base our determination of pension expense or income on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded.
Effective January 1, 2016, we changed our estimate of the service and interest cost components of net periodic benefit cost for our pension and other postretirement benefit plans. Previously, we estimated the service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation. The new estimate utilizes a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows. The new estimate provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates. The change does not affect the measurement of our pension and postretirement benefit obligations and it is accounted for as a change in accounting estimate, which is applied prospectively. For 2016, the change in estimate is expected to reduce pension and postretirement net periodic benefit plan cost by approximately $25 million when compared to the prior estimate.
We made contributions to the qualified pension trust of $72,000 during the 2015 transition period and are required to make contribution of $37,000 in 2016 . We distributed $1,845 under our supplemental executive retirement plans during the 2015 transition period , and expect to make distributions directly to retirees of $5,400 in 2016 . A substantial portion of our Plan contributions are recoverable from the U.S. Government as allowable indirect contract costs at amounts generally equal to the pension plan contributions, although not necessarily in the same year the contribution is made. Our funded pension status was approximately 74% at December 31, 2015 .

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Other Postretirement Benefits.     We also provide postretirement health care benefits and life insurance coverage to certain employees and retirees.
The following table sets forth our assumptions used to determine net periodic benefit cost for other postretirement benefit ("PRB") plans:
 
Projected
 
Nine Months Ended December 31, 2015
 
Years Ended
 
2016
 
 
March 31, 2015
 
March 31, 2014
Expected long-term rate of return on plan assets:
 
 
 
 
 
 
 
Held solely in fixed income investments
5.00
%
 
5.00
%
 
5.00
%
 
5.00
%
Held in pension master trust and fixed income investments
6.25
%
 
6.25
%
 
6.25
%
 
6.25
%
Discount rate
3.98
%
 
3.55
%
 
3.95
%
 
3.80
%
Weighted average initial health care cost trend rate
6.10
%
 
6.10
%
 
6.10
%
 
7.60
%
Health care cost trend rates are set specifically for each benefit plan and design. Health care cost trend rates used to determine the net periodic benefit cost for employees during the 2015 transition period were as follows: under age 65 was 7.5% ; over age 65 was 6.0% ; and the prescription drug portion was 6.5% .
The health care cost ultimate trend rates are as follows:
Health care cost trend rate for employees under 65
4.5
%
Health care cost trend rate for employees over 65
4.5
%
Health care cost trend rate for prescription drugs
4.5
%
Weighted-average health care cost trend rate
4.5
%
Each category of cost declines at a varying rate. The ultimate trend rate will be reached in 2026 for employees under age 65, in 2024 for employees over age 65, and in 2027 for prescription drugs.
In developing the expected long-term rate of return assumption for other PRB plans, we consider input from actuaries, historical returns, and annualized returns of various major indices over long periods. At December 31, 2015 , approximately 44% of the assets were held in a 401(h) account held within the pension master trust and are invested in the same manner as the pension assets. The expected long-term rates of returns are based on the weighted average asset allocation between the assets held within the 401(h) and those held in fixed income investments.
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage point increase or decrease in the assumed health care cost trend rates would have the following effects:
 
One Percentage
Point Increase
 
One Percentage
Point Decrease
Effect on total service and interest cost
$
286

 
$
(253
)
Effect on postretirement benefit obligation
6,888

 
(6,118
)
We made other PRB plan contributions of $5,644 in the 2015 transition period and expect to make contributions of approximately $7,552 in 2016 . A substantial portion of our PRB plan contributions are recoverable from the U.S. Government as allowable indirect costs at amounts generally equal to the plan contributions, although not necessarily in the same year the contribution is made.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") reduced our accumulated projected benefit obligation ("APBO") measured at December 31, 2005. One of our other PRB plans is actuarially equivalent to Medicare, but we do not believe that the subsidies it will receive under the Act will be significant. Because we believe that participation levels in our other PRB plans will decline, the impact to our results of operations in any period has not been and is not expected to be significant.
Income Taxes
Provisions for federal, state, and foreign income taxes are calculated based on reported pre-tax earnings and current tax law. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are

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recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions. We periodically assess our liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information. Where it is not more likely than not that our tax position will be sustained, we record the entire resulting tax liability and when it is more likely than not of being sustained, we record our best estimate of the resulting tax liability. Any applicable interest and penalties related to these positions are also recorded in the consolidated financial statements. To the extent our assessment of the tax outcome of these matters changes, such change in estimate will impact the income tax provision in the period of the change. It is our policy to record any interest and penalties related to income taxes as part of the income tax expense for financial reporting purposes. Deferred tax assets related to carryforwards are reduced by a valuation allowance when it is not more likely than not that the amount will be realized before expiration of the carryforward period. As part of this analysis we take into account the amount and character to determine if the carryforwards will be realized. Significant estimates are required for this analysis. Changes in the amounts of valuation allowance are recorded in the tax provision in the period when the change occurs.
Mergers and Acquisitions
The results of merged or acquired businesses are included in our consolidated financial statements from the date of merger or acquisition. We allocate the purchase price to the underlying tangible and intangible acquired assets acquired and liabilities assumed based on their fair value. Estimates are used in determining the fair value and estimated remaining lives of intangible assets until the final purchase price allocation is completed. Actual fair values and remaining lives of intangible assets may vary from those estimates. The excess purchase price over the estimated fair value of the net assets acquired is recorded as goodwill.
On April 28, 2014, we entered into a Transaction Agreement (the “Transaction Agreement”) with Orbital, Vista SpinCo Inc., a wholly-owned Company subsidiary, and Vista Merger Sub Inc., a wholly-owned subsidiary of ours, providing for the Distribution of our Sporting Group as a new public company, Vista Outdoor, followed by our Merger with Orbital. The Distribution and Merger were completed on February 9, 2015, immediately following which we changed our name to Orbital ATK, Inc. Pursuant to the Distribution and Merger, our stockholders received two shares of Vista Outdoor for each share of our common stock held and Orbital stockholders received 0.449 shares of our stock for each share of Orbital common stock held. Both transactions were structured to be tax-free to our U.S. stockholders for U.S. federal income tax purposes. Immediately following the Merger, Orbital stockholders owned 46.2% of our common stock and our existing stockholders owned 53.8%. The Merger was accounted for using the purchase method of accounting with us as the accounting acquirer.
As noted, we divested the Sporting Group segment in the Distribution. Accordingly, the divested business is presented as a discontinued operation in the accompanying consolidated financial statements for all prior periods presented.
Accounting for Goodwill
We test goodwill for impairment on January 1 or upon the occurrence of events or changes in circumstances that indicate that the asset might be impaired. We determined that the reporting units for our goodwill impairment review are our operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available, and for which segment management regularly reviews the operating results. We may aggregate certain components or reporting units based upon an evaluation of the facts and circumstances, including the nature of products and services and the extent of shared assets and resources.
We identified our eleven divisions as components and we aggregated the Commercial Satellites Division, Government Satellites Division, and Technical Services Division based upon the similarities of products, production processes, personnel, and shared benefit from research and development efforts. As a result, we have nine reporting units that are subject to goodwill impairment testing.
The goodwill impairment test is performed using a two-step process. In the first step, we determine the estimated fair value of each reporting unit and compare it to the carrying value of the reporting unit, including goodwill. If the carrying amount of a reporting unit is higher than its estimated fair value, an indication of impairment exists and the second step must be performed in order to determine the amount of the impairment. In the second step, we must determine the implied fair value of the reporting unit's goodwill which is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The implied fair value is compared to the carrying amount and if the carrying amount of the reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss must be recognized for the excess.
The fair value of each reporting unit was determined using both an income and market approach. The value estimated using a discounted cash flow model was generally weighted equally against the estimated value derived from a market approach that considers the guideline company and transaction methods if recent transactions were available for one of our nine reporting units. These market approach methods estimate the price reasonably expected to be realized from the sale of the

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company based on comparable companies and recent transactional data. The fair value for each reporting exceeded its carrying amount by at least 25%.
In developing a discounted cash flow analysis, our assumptions about future revenues and expenses, capital expenditures, and changes in working capital are based on our three-year plan, as approved by our Board of Directors, and assumes a terminal growth rate thereafter. A separate discount rate is determined for each reporting unit and these cash flows are then discounted to determine the fair value of the reporting unit.
Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate. The projections also take into account several factors including current and estimated economic trends and outlook, costs of raw materials, consideration of our market capitalization in comparison to the estimated fair values of our reporting units, and other factors which are beyond our control. If the current economic conditions were to deteriorate, or if we were to lose a significant contract or business, causing a reduction in estimated discounted cash flows, it is possible that the estimated fair value of certain reporting units could fall below their carrying value resulting in the necessity to conduct additional goodwill impairment tests in future periods. We continually monitor the reporting units for impairment indicators and updates assumptions used in the most recent calculation of the estimated fair value of a reporting unit as appropriate.
Results of Operations
The following information should be read in conjunction with our consolidated financial statements. The key performance indicators that management uses in managing the business are sales, income before interest and income taxes, and cash flows.
Group Sales, Cost of Sales, and Income from Continuing Operations, Before Interest, Income Taxes and Noncontrolling Interest include intergroup sales and profit. Corporate and Eliminations includes intergroup sales and profit eliminations and corporate expenses.
As a general note, the increases in the results of Flight Systems Group and Space Systems Group discussed below for the nine months ended December 31, 2015 were primarily attributable to the inclusion of Orbital's results following the Merger. Our results for the nine months ended December 31, 2015 include Orbital; however, the results for the nine months ended December 28, 2014 do not include the results of Orbital since the Merger occurred after that period.
Nine Months Ended December 31, 2015
Sales
 
 
Nine Months Ended
 
 
 
 
 
 
December 31, 2015
 
December 28, 2014
 
$ Change
 
% Change
 
 
 
 
(unaudited)
 
 
 
 
Flight Systems Group
 
$
1,139,733

 
$
766,132

 
$
373,601

 
48.8
 %
Defense Systems Group
 
1,333,997

 
1,395,901

 
(61,904
)
 
(4.4
)
Space Systems Group
 
973,481

 
222,635

 
750,846

 
337.3

Corporate and Eliminations
 
(48,122
)
 
(180,240
)
 
132,118

 
(73.3
)
Total sales
 
$
3,399,089

 
$
2,204,428

 
$
1,194,661

 
54.2
 %
The fluctuation in sales was driven by program-related changes within the groups and the impact of the Merger as described below.
Flight Systems Group .    The increase in sales was primarily due to the inclusion of Orbital's former Launch Vehicles segment, now referred to as the Launch Vehicles division, in our sales for the nine months ended December 31, 2015, as a result of the Merger. Launch Vehicles division sales were approximately $430,000 in the nine months ended December 31, 2015. Intragroup revenue eliminations increased $48,000 primarily attributable to contract activity between the Launch Vehicles Division and the other divisions in Flight Systems Group.
Defense Systems Group .    The decrease in sales was driven primarily by reduced sales of $59,000 in Small Caliber Systems and $31,000 in Missile Products largely due to lower sales volumes, partially offset by an increase of $49,000 in Armament Systems revenues that reflected increased foreign sales.
Space Systems Group .     The increase in sales was primarily due to the inclusion of Orbital's former Advanced Space Programs and Satellite and Space Systems segments in our sales for the nine months ended December 31, 2015, as a result of

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the Merger. The legacy Orbital Advanced Space Programs and Satellite and Space Systems businesses generated sales of approximately $811,000 in the nine months ended December 31, 2015.
Corporate and Eliminations. The change in corporate and eliminations was driven primarily by lower intergroup sales from Defense Systems Group , due to the spin-off of Vista Outdoor as a result of the Distribution.
Cost of Sales
 
 
Nine Months Ended
 
 
 
 
 
 
December 31, 2015
 
December 28, 2014
 
$ Change
 
% Change
 
 
 
 
(unaudited)
 
 
 
 
Flight Systems Group
 
$
872,103

 
$
598,592

 
$
273,511

 
45.7
 %
Defense Systems Group
 
1,090,525

 
1,125,193

 
(34,668
)
 
(3.1
)
Space Systems Group
 
805,107

 
183,546

 
621,561

 
338.6

Corporate and Eliminations
 
(37,837
)
 
(194,464
)
 
156,627

 
(80.5
)
Total cost of sales
 
$
2,729,898

 
$
1,712,867

 
$
1,017,031

 
59.4
 %
The fluctuation in cost of sales was driven by program-related changes within the groups and the impact of the Merger as described below.
Flight Systems Group .     The increase in cost of sales was primarily due to the inclusion of Orbital's former Launch Vehicles segment in our cost of sales for the nine months ended December 31, 2015, as a result of the Merger.
Defense Systems Group .     The decrease in cost of sales was driven primarily by reduced cost of sales in Small Caliber Systems principally due to lower volume, partially offset by an increase in Armament Systems cost of sales that reflected increased foreign sales.
Space Systems Group .     The increase in cost of sales was primarily due to the inclusion of Orbital's former Advanced Space Programs and Satellite and Space Systems segments in our cost of sales for the nine months ended December 31, 2015, as a result of the Merger.
Corporate and Eliminations. The change in Corporate and Eliminations was driven primarily by lower intergroup sales from Defense Systems Group , due to the spin-off of Vista Outdoor as a result of the Distribution.
Operating Expenses
 
 
Nine Months Ended
 
 
 
 
December 31, 2015
 
As a % of Sales
 
December 28, 2014
 
As a % of Sales
 
Change
 
 
 
 
 
 
(unaudited)
 
 
 
 
Research and development
 
$
83,209

 
2.4
%
 
$
23,981

 
1.1
%
 
$
59,228

Selling
 
88,177

 
2.6

 
69,033

 
3.1

 
19,144

General and administrative
 
225,418

 
6.6

 
165,502

 
7.5

 
59,916

Total
 
$
396,804

 
11.6
%
 
$
258,516

 
11.7
%
 
$
138,288

Operating expenses increased by $138,300  in the nine months ended December 31, 2015 compared to the nine months ended December 28, 2014 primarily due to inclusion of Orbital's research and development costs, selling expenses and general and administrative expenses in the nine months ended December 31, 2015. Additionally, we recorded restructuring costs of $23,299 in the 2015 transition period principally in connection with the consolidation of corporate facilities.

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Income from Continuing Operations, Before Interest, Income Taxes and Noncontrolling Interest
 
 
Nine Months Ended
 
 
 
 
December 31, 2015
 
December 28, 2014
 
Change
 
 
 
 
(unaudited)
 
 
Flight Systems Group
 
$
196,560

 
$
103,067

 
$
93,493

Defense Systems Group
 
117,035

 
144,039

 
(27,004
)
Space Systems Group
 
69,870

 
14,658

 
55,212

Corporate
 
(61,078
)
 
(28,719
)
 
(32,359
)
Total
 
$
322,387

 
$
233,045

 
$
89,342

The fluctuations in Income from continuing operations, before income taxes and noncontrolling interest are described as follows:
Flight Systems Group .     The increase in income from operations was primarily due to the inclusion of Orbital's former Launch Vehicles segment in our results for the nine months ended December 31, 2015, as a result of the Merger. In the nine months ended December 31, 2015, we recorded a $50,000 gain on settlement of a dispute with a supplier pertaining to the Antares rocket used in the CRS I contract.
Defense Systems Group .     The decrease in income from operations was driven primarily by reduced income in Small Caliber Systems principally due to lower volume.
Space Systems Group .     The increase in income from operations was primarily due to the inclusion of Orbital's former Advanced Space Programs and Satellite and Space Systems segments in our results for the nine months ended December 31, 2015, as a result of the Merger. Segment income from operations for the nine months ended December 31, 2015 included $53,127 recognized in sales in connection with a reduction in Merger-related contract fair value liabilities as progress toward completion was realized on certain contracts acquired in the Merger.
Corporate.     Results reflect unallocated expenses incurred for administrative functions that are performed centrally at the corporate headquarters, the difference between pension and postretirement benefit expense calculated under FAS and the expense calculated under CAS, merger and acquisition transaction related costs, amortization of intangible assets recorded in connection with the Merger, and the elimination of intercompany profits. The increase in corporate expenses in the nine months ended December 31, 2015 compared to the nine months ended December 28, 2014 was primarily driven by amortization expense recorded in the nine months ended December 31, 2015 related to the Merger.
Net Interest Expense
Net interest expense for the 2015 transition period was $57,163 , a decrease of $10,934 compared to the 2014 comparable period . The decrease was primarily due to the impact of a decrease in outstanding debt as a result of the repayment of certain indebtedness in connection with the Distribution and Merger, partially offset by accelerated amortization of deferred debt issuance costs related to refinancing our debt during the nine months ended December 31, 2015.
Income Taxes (from Continuing Operations)
 
 
Nine Months Ended
 
 
 
 
December 31, 2015
 
Effective Rate
 
December 28, 2014
 
Effective Rate
 
Change
 
 
 
 
 
 
(unaudited)
 
 
 
 
Income taxes
 
$
83,659

 
31.5
%
 
$
46,514

 
28.2
%
 
$
37,145

The increase in the current period tax rate is primarily due to the absence of favorable true-ups of prior year taxes in the prior-year period, partially offset by a discrete revaluation of deferred tax liabilities resulting from a change in state tax apportionment method in the current-year period.
Our provision for income taxes includes both federal and state income taxes. The effective tax rate for the 2015 transition period of 31.5% differs from the federal statutory rate of 35.0% due to the Domestic Manufacturing Deduction ("DMD"), research and development (R&D) tax credit, and true-up of prior year taxes, partially offset by the change in valuation allowance, state income taxes, and changes in prior-year contingent tax liabilities, which increased the rate.

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The effective tax rate for the 2014 comparable period of 28.2% differs from the federal statutory rate of 35.0% due to DMD, the R&D tax credit, a true-up to prior year taxes, and changes in prior year contingent tax liabilities, partially offset by the change in state income taxes, which increased the rate.
Income From Continuing Operations, Before Noncontrolling Interest
Net income before noncontrolling interest for the 2015 transition period was $181,600 , an increase of $63,200 compared to $118,400 in the 2014 comparable period . This increase was primarily driven by inclusion of Orbital results in the current year period due to the Merger.
Year Ended March 31, 2015
Sales
 
 
Years Ended
 
 
 
 
 
 
March 31, 2015
 
March 31, 2014
 
$ Change
 
% Change
Flight Systems Group
 
$
1,094,208

 
$
911,232

 
$
182,976

 
20.1
 %
Defense Systems Group
 
1,890,534

 
1,950,784

 
(60,250
)
 
(3.1
)
Space Systems Group
 
413,295

 
371,200

 
42,095

 
11.3

Corporate and Eliminations
 
(224,070
)
 
(307,979
)
 
83,909

 
(27.2
)
Total sales
 
$
3,173,967

 
$
2,925,237

 
$
248,730

 
8.5
 %
The fluctuation in sales was driven by the program-related changes within the operating segments as described below.
Flight Systems Group.    The increase in sales was driven primarily by increased sales volume in Aerospace Structures of $67,000 due to increased production on commercial aircraft programs, sales of $64,700 resulting from the inclusion of Orbital's former Launch Vehicles segment in our post-Merger fiscal 2015 results, and increased sales volume in Propulsion Systems of $41,300 driven by a termination settlement on a commercial rocket motor contract.
Defense Systems Group.    The decrease in sales was driven primarily by reduced sales of $68,700 in Small Caliber Systems largely due to lower volumes, a decrease in Missile Products of $23,600 due to the absence of a favorable Radford Army Ammunition Plant ("RFAAP") pension segment adjustment recorded in fiscal 2014, partially offset by a favorable contract adjustment in fiscal 2015, and a decrease in Defense Electronics of $19,100 as a result of completing several contracts in fiscal 2015, partially offset by increased sales in Armament Systems of $41,300 resulting from increased foreign sales.
Space Systems Group.     The increase in sales was driven by additional sales in Government Satellites of $56,100, Commercial Satellites of $42,200 and Technical Services of $21,000, resulting from the inclusion of Orbital's former Advanced Space Programs and Satellite and Space Systems segments in our post-Merger fiscal 2015 results, primarily offset by lower activity on two major proprietary programs that were completed in the Space Components division.
Cost of Sales
 
 
Years Ended
 
 
 
 
 
 
March 31, 2015
 
March 31, 2014
 
$ Change
 
% Change
Flight Systems Group
 
$
843,326

 
$
706,338

 
$
136,988

 
19.4
 %
Defense Systems Group
 
1,525,046

 
1,563,816

 
(38,770
)
 
(2.5
)
Space Systems Group
 
341,624

 
304,938

 
36,686

 
12.0

Corporate and Eliminations
 
(240,131
)
 
(297,153
)
 
57,022

 
(19.2
)
Total cost of sales
 
$
2,469,865

 
$
2,277,939

 
$
191,926

 
8.4
 %
The fluctuation in cost of sales was driven by the program-related changes within the operating segments as described below.
Flight Systems Group.     The increase in cost of sales was driven by increased cost of sales in Aerospace Structures of $54,600 resulting from increased production on commercial aircraft programs, cost of sales of $47,500 from Orbital's former Launch Vehicles segment included in our post-Merger fiscal 2015 results, and increased costs of sales in Propulsion Systems of $27,700 driven by termination costs on a commercial rocket motor contract.
Defense Systems Group.     The decrease in cost of sales was driven by lower cost of sales of $37,700 in Missile Products due primarily to a favorable RFAAP pension segment closing adjustment recorded in fiscal 2014, lower cost of sales in

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Defense Electronics of $30,000 as a result of completing several contracts in fiscal 2015, and a decrease of $12,000 in Small Caliber Systems due to lower sales volume. These decreases were partially offset by increased cost of sales of $35,700 in Armament Systems resulting from increased foreign sales.
Space Systems Group.     The increase in cost of sales was driven by additional cost of sales in Government Satellites of $42,700, Commercial Satellites of $39,700, and Technical Services of $19,300 resulting from the inclusion of Orbital's former Advanced Space Programs and Satellite and Space Systems segments in our post-Merger fiscal 2015 results, partially offset by lower activity on two major proprietary programs in Space Components.
Corporate. The change in Corporate cost of sales was driven by a reduction in sales and cost of sales eliminations resulting from lower sales from the Defense Systems Group to the Sporting Group, reported in discontinued operations. Additionally, the change in Corporate cost of sales was impacted by increased intercompany profit eliminations resulting from post-Merger sales to business units that were formerly a part of Orbital.
Operating Expenses
 
 
Years Ended
 
 
 
 
March 31, 2015
 
As a % of Sales
 
March 31, 2014
 
As a % of Sales
 
Change
Research and development
 
$
49,349

 
1.6
%
 
$
48,536

 
1.7
%
 
$
813

Selling
 
89,941

 
2.8
%
 
87,554

 
3.0
%
 
2,387

General and administrative
 
298,559

 
9.4
%
 
209,251

 
7.2
%
 
89,308

Goodwill impairment
 
$
34,300

 
1.1
%
 
$

 
%
 
$
34,300

Total
 
$
472,149

 
14.9
%
 
$
345,341

 
11.9
%
 
$
126,808

Operating expenses increased by $126,800 year-over-year primarily due to transaction costs, restructuring charges, and a fourth quarter fiscal 2015 goodwill impairment charge. During fiscal 2015 we incurred $34,900 of transaction fees for advisory, legal and accounting services in connection with the Distribution and Merger. Additionally, as a result of the Distribution and Merger we recorded restructuring costs of $25,600 in fiscal 2015 principally in connection with the consolidation of corporate facilities and personnel termination costs associated with management restructuring. The transaction costs and restructuring charges in fiscal 2015 were recorded in general and administrative expenses. During the fourth quarter of fiscal 2015, we recorded a goodwill impairment charge of $34,300 pertaining to our Space Components division in our Space Systems Group, in connection with our annual goodwill impairment analysis.
Income From Continuing Operations, Before Interest, Income Taxes and Noncontrolling Interest
 
 
Years Ended
 
 
 
 
March 31, 2015
 
March 31, 2014
 
Change
Flight Systems Group
 
$
145,753

 
$
110,882

 
$
34,871

Defense Systems Group
 
188,963

 
210,669

 
(21,706
)
Space Systems Group
 
(3,824
)
 
30,810

 
(34,634
)
Corporate
 
(98,939
)
 
(50,404
)
 
(48,535
)
Total
 
$
231,953

 
$
301,957

 
$
(70,004
)
The fluctuations in Income from continuing operations, before income taxes and noncontrolling interest are described as follows:
Flight Systems Group.      Income from operations increased due to increased sales as noted above and profit from a contract termination within Propulsion Systems.
Defense Systems Group.     Income from operations decreased due to lower sales as noted above. In addition, operating expenses decreased $7,400 in fiscal 2015 compared to fiscal 2014, due to lower research and development spending of $4,100 in Defense Electronics and $3,100 in Armament Systems.
Space Systems Group.    Operating results decreased primarily due to an increase in operating expenses of $38,900, principally due to a goodwill impairment charge of $34,300 in Space Components, partially offset by decreased research and development costs of $4,600.
Corporate.     Results reflect expenses incurred for administrative functions that are performed centrally at the corporate headquarters, the difference between pension and postretirement benefit expense calculated under FAS and the expense

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calculated under CAS, transaction-related costs, amortization of intangible assets recorded in connection with the Merger, and the elimination of intercompany profits. The change from the prior year was driven primarily by costs associated with the Distribution and Merger including transaction costs of $34,900, restructuring costs of $25,600 and litigation settlement costs. These cost increases were partially offset by lower intercompany profit eliminations and the absence of the RFAAP pension segment close-out recorded in the prior year.
Net Interest Expense
Net interest expense for fiscal 2015 was $88,700, an increase of $8,900 compared to $79,800 in fiscal 2014. The increase was primarily due to an increase in the average amount of debt outstanding, partially offset by a lower weighted-average interest rate.
Income Taxes (from Continuing Operations)
 
 
Years Ended
 
 
 
 
March 31, 2015
 
Effective Rate
 
March 31, 2014
 
Effective Rate
 
Change
Income taxes
 
$
39,117

 
33.5
%
 
$
62,542

 
28.2
%
 
$
(23,425
)
The increase in the current period tax rate was primarily due to the goodwill impairment and nondeductible transaction costs, partially offset by increased benefits from the DMD, true-up of prior-year taxes, change in valuation allowance and lower state income taxes.
Our provision for income taxes includes both federal and state income taxes. The effective tax rate for fiscal 2015 of 33.5% differs from the federal statutory rate of 35.0% due to the DMD, change in prior-year contingent tax liabilities, R&D tax credit, change in valuation allowance and true-up of prior-year taxes, partially offset by goodwill impairment and nondeductible transaction costs which increased the rate.
The effective tax rate for fiscal 2014 of 28.2% differs from the federal statutory rate of 35.0% due to the revaluation of unrecognized tax benefits due to proposed IRS regulations, DMD and R&D tax credit, partially offset by the true-up of prior year taxes and state income taxes which increased the rate.
Income From Continuing Operations, Before Noncontrolling Interest
Net income before noncontrolling interest for fiscal 2015 was $77,500, a decrease of $82,100 compared to $159,600 in fiscal 2014. This decrease was driven by a $126,800 increase in operating expenses, and an increase of $8,900 in net interest expense over the prior year, partially offset by a $56,800 increase in gross profit and a $23,400 decrease in income tax expense.

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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, and acquisition or other activities.
Cash Flows Summary
Our cash flows from continuing operations for operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows are summarized as follows:
 
 
Nine Months Ended
 
Years Ended
 
 
December 31, 2015
 
December 28, 2014
 
March 31, 2015
 
March 31, 2014
Cash provided by operating activities of continuing operations
 
$
303,402

 
$
44,451

 
$
190,855

 
$
161,961

Cash provided by (used for) investing activities of continuing operations
 
(111,094
)
 
(59,203
)
 
332,198

 
(100,242
)
Cash provided by (used for) financing activities of continuing operations
 
(227,529
)
 
(216,395
)
 
(737,317
)
 
903,254

Net cash flows from continuing operations
 
$
(35,221
)
 
$
(231,147
)
 
$
(214,264
)
 
$
964,973

Operating Activities
Net cash provided by operating activities of continuing operations increased $258,951 in the 2015 transition period compared to the 2014 comparable period . This increase was primarily driven by the inclusion of Orbital's operating activities due to the Merger.
Net cash provided by operating activities of continuing operations increased $28,894 in fiscal 2015 compared to fiscal 2014. This increase was driven by working capital improvements of $51,525 and an increase in operating cash flows adjustments for non-cash items of $59,458, partially offset by a decrease in net income of from continuing operations of $82,017.
Investing Activities
Net cash used for investing activities of continuing operations increased $51,891 in the 2015 transition period compared to the 2014 comparable period , primarily driven by the inclusion of Orbital's capital expenditure due to the Merger.
Net cash provided by investing activities of continuing operations increased $432,440 in fiscal 2015 compared to fiscal 2014. This increase was driven primarily by the receipt of cash acquired in the Merger of $253,734 and a cash dividend of $214,383 paid by Vista Outdoor to us, less cash distributed to Vista Outdoor of $25,505 in connection with the Distribution.
Financing Activities
Net cash used for financing activities increased $11,134 in the 2015 transition period compared to the 2014 comparable period . This increase was due to increased share repurchases and dividends paid, partially offset by lower payments of debt.
Net cash used for financing activities in fiscal 2015 was $737,317 compared to cash provided by financing activities in fiscal 2014 of $903,254. This decrease of $1,640,571 was due to additional debt issued to finance the acquisitions of Bushnell and Savage in fiscal 2014 and net debt reductions in fiscal 2015 of $504,477.
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 its debt.
During the 2015 transition period , we paid quarterly dividends of $0.26 per share for all three quarters totaling $46,103 . On February 2, 2016, the Board of Directors declared a quarterly cash dividend of $0.30 per share. The payment and amount

43


of any future dividends are at the discretion of the Board of Directors and will be based on a number of factors, including our earnings, liquidity position, financial condition, capital requirements, credit ratings and the availability and cost of obtaining new debt. We cannot be certain that we will continue to declare dividends in the future and, as such, the amount and timing of any future dividends are not determinable.
In September 2015, we issued $400,000 aggregate principal amount of our 5.50% Senior Notes due 2023 and we refinanced our then-existing senior credit facility (the "Former Credit Facility") with a new senior credit facility (the "Senior Credit Facility"), extending debt maturities and increasing our revolving debt capacity, which increased our liquidity. Based on our current financial condition, management believes that our cash position, combined with anticipated generation of cash flows and the availability of funding, if needed, through our revolving credit facilities, access to debt and equity markets, as well as potential future sources of funding including additional bank financing and debt markets, will be adequate to fund future growth as well as to service our currently anticipated long-term debt and pension obligations, make capital expenditures, and payment of dividends over the next 12 months. Capital expenditures for 2016 are expected to be approximately $215,000.
We do not expect that 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
At December 31, 2015 , we had actual total indebtedness of $1,490,000 , and a $1,000,000 revolving credit facility provided for the potential of additional borrowings up to $853,523 reduced for outstanding letters of credit of $146,477 . There were no outstanding borrowings under the revolving credit facility at December 31, 2015 .
Our indebtedness consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
Senior Credit Facility:
 
 
 
 
Term Loan A due 2020
 
$
790,000

 
$

Revolving Credit Facility due 2020
 

 

5.25% Senior Notes due 2021
 
300,000

 
300,000

5.50% Senior Notes due 2023
 
400,000

 

Former Senior Credit Facility:
 
 
 
 
Term A Loan due 2018
 

 
946,875

Term A Loan due 2019
 

 
144,375

Term B Loan due 2020
 

 
197,251

Carrying amount of long-term debt
 
1,490,000

 
1,588,501

Less: Current portion of long-term debt
 
40,000

 
59,997

Long-term debt
 
$
1,450,000

 
$
1,528,504

See Note 9 "Long-term Debt" to the consolidated financial statements in Part II, Item 8 for a detailed discussion of these borrowings.
Senior Credit Facility
In September 2015, we refinanced our Former Senior Credit Facility with the Senior Credit Facility, which is comprised of a term loan of $800,000 (the "Term Loan A") and a revolving credit facility of $1,000,000 (the "Revolving Credit Facility"), both of which mature in 2020. The Term Loan A is subject to quarterly principal payments of $10,000 , with the remaining balance due on September 29, 2020. Substantially all of our tangible and intangible assets and certain of our domestic subsidiaries, excluding real property, are pledged as collateral under the Senior Credit Facility. 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 our total leverage ratio. Based on our current total leverage ratio, 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 discussed below, was 2.06% at December 31, 2015 . We pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility based on its total leverage ratio. Based on our current total leverage ratio, this current fee is 0.2% . At December 31, 2015 , we had no borrowings outstanding under the Revolving Credit Facility and had outstanding letters of credit of $146,477 , which reduced amounts available on the Revolving Credit Facility to $853,523 .

44


5.25% Notes
In fiscal 2014 , we issued $300,000 aggregate principal amount of 5.25% Senior Notes (the "5.25% Notes") that mature in 2021. These notes are general unsecured obligations. Interest on these notes is payable on April 1 and October 1 of each year. We have the right to redeem some or all of these notes from time to time on or after October 1, 2016, at specified redemption prices. Prior to October 1, 2016, we may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In addition, prior to October 1, 2016, we may redeem up to 35% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 105.25% of their principal amount plus accrued and unpaid interest to the date of redemption.
5.50% Notes
In September 2015, we issued $400,000 aggregate principal amount of 5.50% Senior Notes (the "5.50% Notes") that mature in 2023. These notes are general unsecured obligations. Interest on these notes is payable on April 1 and October 1 of each year. We have the right to redeem some or all of these notes from time to time on or after October 1, 2018, at specified redemption prices. Prior to October 1, 2018, we may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In addition, prior to October 1, 2018, we may redeem up to 35% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 105.50% of their principal amount plus accrued and unpaid interest to the date of redemption.
Former Senior Credit Facility
In September 2015, we refinanced and paid off our Former Credit Facility which was comprised of a term loan of $1,160,000,000 , a term loan of $250,000,000 and a $700,000,000 revolving credit facility, all of which were to mature from 2018 to 2020.
Rank and Guarantees
The 5.50% Notes and the 5.25% Notes are our general unsecured and unsubordinated obligations and rank equally in right of payment to all of our existing and future unsecured and unsubordinated indebtedness, rank senior in right of payment to all of our 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 our domestic subsidiaries. All of these guarantor subsidiaries are 100% owned by the Registrant, Orbital ATK, Inc. which has no independent operations or material assets.
Covenants
Our Senior Credit Facility imposes restrictions on us, including limitations on our 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 our ability to enter into sale-and-leaseback transactions. The Senior Credit Facility also requires that we meet and maintain the following financial ratios:
 
 
Total Leverage
Ratio (1)
 
Interest Coverage
Ratio (2)
Requirement
 
4.00

 
3.00

Actual at December 31, 2015
 
2.47

 
9.22

_________________________________________
(1)
Not to exceed the required financial ratio
(2)
Not to be below the required financial ratio
The Total Leverage Ratio is the sum of our total debt plus financial letters of credit, net of up to $100,000 of cash, divided by Covenant EBITDA (which includes adjustments for items such as non-recurring or extraordinary non-cash items, non-cash charges related to stock-based compensation, and intangible asset impairment charges, as well as inclusion of EBITDA of acquired companies on a pro forma basis) for the past four fiscal quarters.
The Interest Coverage Ratio is Covenant EBITDA divided by interest expense (excluding noncash charges).
Our debt agreements contain cross-default provisions so that non-compliance with the covenants within one debt agreement could cause a default under other debt agreements as well. Our ability to comply with these covenants and to meet

45


and maintain the requisite financial ratios may be affected by events beyond our control. Borrowings under the Senior Credit Facility are subject to compliance with these covenants. The indentures governing the 5.25% Notes and the 5.50% Notes impose restrictions on us, including limitations on our 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.
At December 31, 2015 , we were in compliance with the covenants in all of our debt agreements.
Share Repurchases
On March 11, 2015, our Board of Directors authorized us to repurchase up to the lesser of $75 million or 1.0 million shares of our common stock through December 31, 2015. On August 4, 2015, our Board of Directors increased the amount authorized for repurchase to the lesser of $100 million or 1.4 million shares. On October 29, 2015, our Board of Directors further increased the amount authorized for repurchase to the lesser of $250 million or 3.25 million shares and extended the repurchase period to December 31, 2016. Under the authorized repurchase program, 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. We repurchased 1,008,445 shares for $75,795 during the 2015 transition period .
In accordance with the Transaction Agreement entered into on April 28, 2014, we did not repurchase any outstanding shares prior to the closing of the Distribution and Merger during fiscal 2015.
We repurchased 609,922 shares for $52,130 during fiscal 2014 under the then-existing share repurchase program.
Authorized repurchases of our shares are subject to market conditions, our compliance with our debt covenants and the limitations imposed by the tax treatment of the Distribution and the related Tax Matters Agreement between us and Vista Outdoor. Our 5.25% Notes and 5.50% Notes limit the aggregate sum of dividends, share repurchases, and other designated restricted payments to an amount based on our net income, stock issuance proceeds, and certain other items since April 1, 2001, less restricted payments made since that date. At December 31, 2015 , the Senior Credit Facility allows us to make unlimited "restricted payments" (as defined in the Credit Agreement), which, among other items, allows payments for future share repurchases, as long as we maintain a certain amount of liquidity and maintain certain senior secured debt limits. When those requirements are not met, the limit is equal to $250,000 plus proceeds of any equity issuances plus 50% of net income since October 7, 2010. The Credit Agreement also prohibits dividend payments if loan defaults exist or the financial covenants contained in the agreement are not met.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual obligations and commercial commitments at December 31, 2015 :
 
Total
 
Less than
1 Year
 
1 - 3 Years
 
3 - 5 Years
 
More than
5 Years
Contractual obligations - by payment period:
 
 
 
 
 
 
 
 
 
Long-term debt
$
1,490,000

 
$
40,000

 
$
80,000

 
$
670,000

 
$
700,000

Interest on debt (1)
337,080

 
53,734

 
104,751

 
96,845

 
81,750

Operating leases
369,830

 
76,178

 
124,219

 
103,705

 
65,728

Environmental remediation costs, net
23,588

 
2,484

 
580

 
4,196

 
16,328

Pension and other postretirement plan contributions
556,800

 
53,900

 
224,200

 
150,300

 
128,400

Total contractual obligations, net
$
2,777,298

 
$
226,296

 
$
533,750

 
$
1,025,046

 
$
992,206

Other commercial commitments - by expiration period:
 
 
 
 
 
 
 
 
 
Letters of credit
$
146,477

 
$
63,830

 
$
37,719

 
$
9,323

 
$
35,605

_________________________________________
(1)
Includes interest on variable rate debt calculated based on interest rates at December 31, 2015 . Variable rate debt was 53% of our total debt at December 31, 2015 .
The total liability for uncertain tax positions at December 31, 2015 was $91,242 (see Note  11 ), $3,015 of which could be paid within 12 months. We are not able to provide a reasonably reliable estimate of the timing of future payments relating to the noncurrent uncertain tax position obligations.

46


Pension plan contributions are an estimate of our minimum funding requirements through 2025 to provide pension benefits for employees based on expected actuarial estimated service accruals through 2025 pursuant to the Employee Retirement Income Security Act, although we may make additional discretionary contributions. These estimates may change significantly depending on the actual rate of return on plan assets, discount rates, discretionary pension contributions, and regulations. A substantial portion of our Plan contributions are recoverable from the U.S. Government as allowable indirect contract costs at amounts generally equal to the pension plan contributions, although not necessarily in the same year the contribution is made.
Contingencies
Litigation.     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, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings in any particular quarter, 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.
On July 30, 2013, Raytheon Company filed a lawsuit against us in the Superior Court of the State of Arizona.  The suit concerned the Company's longstanding production of rocket motors used in Raytheon's Advanced Medium-Range Air-to-Air Missiles (AMRAAM).  Raytheon’s primary allegation was that we breached certain of the production contracts by not delivering rocket motors.  Raytheon claimed damages in excess of $100 million. The parties settled this matter on March 27, 2015, with the Company paying $25 million to Raytheon, and the litigation was voluntarily dismissed on April 21, 2015.
Putative class action and derivative lawsuits challenging the merger of Orbital and our company were filed in the Court of Chancery of the State of Delaware in May 2014, naming Orbital, our company and Orbital’s directors.  On November 14, 2014, the lawsuits were consolidated by the court under the caption In Re Orbital Corporation Stockholder Litigation (the “Consolidated Lawsuit”).  The plaintiffs alleged, among other things, that the directors of Orbital breached their fiduciary duties in connection with the Merger and alleged that we aided and abetted such breaches of fiduciary duty.  On January 16, 2015, the parties entered into a memorandum of understanding (the “MOU”) regarding the settlement of this matter. Pursuant to the terms of the MOU, we and Orbital made additional information available to Orbital's stockholders in connection with the Merger vote. On February 2, 2016, the case was dismissed.
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 non-compliance with environmental permits.
The liability for environmental remediation represents management's best estimate of the present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that we expect to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows, using a discount rate of 0.70% and 0.50% at December 31, 2015 and March 31, 2015 , respectively. Our discount rate is calculated using the 20-year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9% , rounded to the nearest quarter percent. The following is a summary of the amounts recorded for environmental remediation:
 
December 31, 2015
 
March 31, 2015
 
Liability
 
Receivable
 
Liability
 
Receivable
Amounts (payable) receivable
$
(41,824
)
 
$
18,236

 
$
(51,749
)
 
$
26,506

Unamortized discount
1,718

 
(568
)
 
1,624

 
(750
)
Present value amounts (payable) receivable
$
(40,106
)
 
$
17,668

 
$
(50,125
)
 
$
25,756

At December 31, 2015 , the estimated discounted range of reasonably possible costs of environmental remediation was $40,106 to $78,920 .
We expect 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 may be covered by various indemnification agreements, as described below.

47


As part of our acquisition of the Hercules Aerospace Company in fiscal 1995, we generally assumed responsibility for environmental compliance at the facilities acquired from Hercules (the "Hercules Facilities"). We believe that a portion of the compliance and remediation costs associated with the Hercules Facilities will be recoverable under U.S. Government contracts. If we were unable to recover those environmental remediation costs under these contracts, we believe these costs will be covered by Hercules Incorporated, a subsidiary of Ashland Inc., ("Hercules") under environmental agreements entered into in connection with the Hercules acquisition. Under these agreements, Hercules has agreed to indemnify us for environmental conditions relating to releases or hazardous waste activities occurring prior to our purchase of the Hercules Facilities as long as they were identified in accordance with the terms of the agreement; fines relating to pre-acquisition environmental compliance; and environmental claims arising out of breaches of Hercules' representations and warranties. Hercules is not required to indemnify us for any individual claims below $50. Hercules is obligated to indemnify us for the lowest cost response of remediation required at the facility that is acceptable to the applicable regulatory agencies. We are not responsible for conducting any remedial activities with respect to the Clearwater, FL facility. In accordance with our agreement with Hercules, we notified Hercules of all known contamination on non-federal lands on or before March 31, 2000, and on federal lands on or before March 31, 2005.
We generally assumed responsibility for environmental compliance at the Thiokol Facilities acquired from Alcoa Inc. ("Alcoa") in fiscal 2002. We expect that a portion of the compliance and remediation costs associated with the acquired Thiokol Facilities will be recoverable under U.S. Government contracts, In accordance with our agreement with Alcoa, we notified Alcoa of all known environmental remediation issues at January 30, 2004. Of these known issues, we are responsible for any costs not recovered through U.S. Government contracts at Thiokol Facilities up to $14,000, we and Alcoa have agreed to split evenly any amounts between $14,000 and $34,000, and we are responsible for any payments in excess of $34,000. At this time, we believe that costs not recovered through U.S. Government contracts will be immaterial.
We cannot ensure that the U.S. Government, Hercules, Alcoa, or other third parties will reimburse us for any particular environmental costs or reimburse us in a timely manner or that any claims for indemnification will not be disputed. U.S. Government reimbursements for cleanups are financed out of a particular agency's operating budget and the ability of a particular governmental agency to make timely reimbursements for cleanup costs will be subject to national budgetary constraints. Our failure to obtain full or timely reimbursement from the U.S. Government, Hercules, Alcoa, or other third parties could have a material adverse effect on our operating results, financial condition, or cash flows. While we have environmental management programs in place to mitigate these risks, and environmental laws and regulations have not had a material adverse effect on our operating results, financial condition, or cash flows in the past, it is difficult to predict whether they will have a material impact in the future.
The following table summarizes the estimated payments for the aggregate undiscounted environmental remediation costs, net of expected recoveries:
2016
$
2,484

2017
297

2018
283

2019
2,354

2020
1,842

Thereafter
16,328

Total
$
23,588

There were no material insurance recoveries related to environmental remediation during any of the periods presented.
Factors that could significantly change the estimates described in this section on environmental liabilities include:
the adoption, implementation, and interpretation of new laws, regulations, or cleanup standards,
advances in technologies,
outcomes of negotiations or litigation with regulatory authorities and other parties,
additional information about the ultimate remedy selected at new and existing sites,
adjustment of our share of the cost of such remedies,
changes in the extent and type of site utilization,

48


the discovery of new contamination,
the number of parties found liable at each site and their ability to pay,
more current estimates of liabilities for these contingencies, or
liabilities associated with resource restoration as a result of contamination from past practices.
New Accounting Pronouncements
See Note 1 to the consolidated financial statements in Item 8 of this report for discussion of new accounting pronouncements.
Inflation
In management's opinion, inflation has not had a significant impact upon the results of our operations. The selling prices under contracts, the majority of which are long term, generally include estimated costs to be incurred in future periods. These cost projections can generally be negotiated into new buys under fixed-price government contracts, while actual cost increases are recoverable on cost-type contracts.
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposure primarily relates to changes in interest rates, foreign currency exchange rates and certain commodity prices. To mitigate the risks from interest rate exposure, we occasionally enter into hedging transactions, mainly interest rate swaps, through derivative financial instruments that have been authorized pursuant to corporate policies. We also use derivatives to hedge foreign currency exchange rates and commodity price risks but do not use derivative financial instruments for trading or other speculative purposes, and we are not a party to leveraged financial instruments. Additional information regarding financial instruments is contained in Notes  1 and 3 to the consolidated financial statements.
Currently, our primary interest rate exposures relate to variable rate debt. We measure market risk related to changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair values, cash flows, and earnings based on a hypothetical change (increase and decrease) in interest rates. We use current market rates on our debt portfolio to perform the sensitivity analysis. The potential change in fair values is based on an assumed immediate change in the net present values of interest rate-sensitive exposures resulting from a 100 basis point change in interest rates. The potential change in cash flows and earnings is based on the change in the net interest income/expense over a one-year period due to the change in rates. Based on our analysis, a 100 basis point change in interest rates would not have a material impact on the fair values or our results of operations or cash flows.
With respect to our ammunition business, we have a strategic sourcing and price strategy to mitigate risk from commodity price fluctuation. We will continue to evaluate the need for future price changes in light of these trends, our competitive landscape, and our financial results. If commodity costs increase, and if we are unable to offset these increases with ongoing manufacturing efficiencies and price increases, our future results from operations and cash flows would be materially impacted.
Significant increases in commodities prices can negatively impact operating results with respect to our firm fixed-price contract to supply the DoD's small-caliber ammunition needs and our sales within commercial ammunition. Accordingly, we have entered into futures contracts in order to reduce the impact of metal price fluctuations. The majority of the impact has been mitigated on the seven-year contract with the U.S. Army by the terms within that contract, which is expected to continue through 2019. We have entered into futures contracts and purchase orders for the current expected production requirements for both the small-caliber ammunition supply contract and the production of commercial ammunition, thereby mitigating near term market risk; however, if metal prices exceed pre-determined levels, Defense Systems Group 's operating results could be adversely impacted.

49

Table of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Orbital ATK, Inc.
In our opinion, the accompanying consolidated balance sheet as of December 31, 2015 and the related consolidated statements of comprehensive income (loss), of equity, and of cash flows for the nine months then ended present fairly, in all material respects, the financial position of Orbital ATK, Inc. and its subsidiaries at December 31, 2015, and the results of their operations and their cash flows for the nine months then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because material weaknesses in internal control over financial reporting existed as of that date related to (i) an ineffective control environment, as the Company did not establish and maintain accounting policies and procedures related to complex transactions, (ii) not maintaining a sufficient complement of personnel with appropriate levels of accounting and controls knowledge, experience, and training, (iii) not designing and maintaining appropriate controls to ensure completeness and accuracy of purchase accounting, specifically related to the percentage of completion used to recognize revenue, and (iv) not maintaining controls over the integration of accounting operations of combined businesses including the preparation, analysis and review of accounts. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2015 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies deferred income taxes in 2015.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
March 15, 2016

50


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Orbital ATK, Inc.:
We have audited the accompanying consolidated balance sheets of Orbital ATK, Inc. and subsidiaries (the "Company") at March 31, 2015, and the related consolidated statements of comprehensive income (loss), equity, and cash flows for each of the two years in the period ended March 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Orbital ATK, Inc. and subsidiaries at March 31, 2015, and the results of their operations and their cash flows for each of the two years in the period ended March 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
May 29, 2015


51


ORBITAL ATK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
Nine Months Ended
 
Years Ended
(Amounts in thousands except per share data)
 
December 31, 2015
 
March 31, 2015
 
March 31, 2014
 
 
 
 
 
 
 
Sales
 
$
3,399,089

 
$
3,173,967

 
$
2,925,237

Cost of sales
 
2,729,898

 
2,469,865

 
2,277,939

Gross profit
 
669,191

 
704,102

 
647,298

Operating expenses:
 
 
 
 
 
 
Research and development
 
83,209

 
49,349

 
48,536

Selling
 
88,177

 
89,941

 
87,554

General and administrative
 
225,418

 
298,559

 
209,251

Goodwill impairment
 

 
34,300

 

Gain on settlement
 
50,000

 

 

Income from continuing operations, before interest, income taxes and noncontrolling interest
 
322,387

 
231,953

 
301,957

Interest expense, net
 
(57,163
)
 
(88,676
)
 
(79,792
)
Loss on extinguishment of debt
 

 
(26,626
)
 

Income from continuing operations, before income taxes and noncontrolling interest
 
265,224

 
116,651

 
222,165

Income taxes
 
83,659

 
39,117

 
62,542

Income from continuing operations, before noncontrolling interest
 
181,565

 
77,534

 
159,623

Less net income attributable to noncontrolling interest
 
143

 
99

 
171

Income from continuing operations of Orbital ATK, Inc.
 
181,422

 
77,435

 
159,452

Discontinued operations:
 
 
 
 
 
 
Income from discontinued operations, before income taxes
 

 
205,463

 
288,349

Income taxes
 
(1,008
)
 
80,414

 
106,886

Income from discontinued operations
 
1,008

 
125,049

 
181,463

Net income attributable to Orbital ATK, Inc.
 
$
182,430

 
$
202,484

 
$
340,915

 
 
 
 
 
 
 
Basic earnings per common share from:
 
 
 
 
 
 
Continuing operations
 
$
3.06

 
$
2.18

 
$
5.03

Discontinued operations
 
0.02

 
3.53

 
5.73

Net income attributable to Orbital ATK, Inc.
 
$
3.07

 
$
5.71

 
$
10.76

Weighted-average number of common shares outstanding
 
59,358

 
35,469

 
31,671

Diluted earnings per common share from:
 
 
 
 
 
 
Continuing operations
 
$
3.03

 
$
2.14

 
$
4.87

Discontinued operations
 
0.02

 
3.46

 
5.55

Net income attributable to Orbital ATK, Inc.
 
$
3.04

 
$
5.60

 
$
10.42

Weighted-average number of diluted common shares outstanding
 
59,915

 
36,140

 
32,723

Cash dividends paid per common share
 
$
0.78

 
$
1.28

 
$
1.10

Comprehensive income:
 
 
 
 
 
 
Net income attributable to: Orbital ATK, Inc. and noncontrolling interest (from above)
 
$
182,573

 
$
202,583

 
$
341,086

Other comprehensive income (loss), net of tax (expense) benefit:
 
 
 
 
 
 
Pension and other postretirement benefits:
 
 
 
 
 
 
Prior service credits for pension and postretirement benefit plans recorded to net income, net of taxes of $8,073, $11,740 and $11,240, respectively
 
(13,004
)
 
(18,906
)
 
(18,125
)
Net actuarial loss for pension and postretirement benefit plans recorded to net income, net of taxes of $(43,887), $(8,186) and $(56,791), respectively
 
70,550

 
13,841

 
91,387

Valuation adjustment for pension and postretirement benefit plans, net of taxes of $(2,924), $139,583, and $(48,772), respectively
 
4,805

 
(224,389
)
 
78,522

Change in fair value of derivatives, net of taxes of $624, $(1,866) and $1,771, respectively
 
(986
)
 
2,949

 
(2,830
)
Other, net of taxes of $(231), $(151) and $(29), respectively
 
376

 
238

 
46

Change in cumulative translation adjustment, net of taxes of $0, $0 and $942, respectively
 

 
(36,796
)
 
(1,505
)
Total other comprehensive income (loss)
 
61,741

 
(263,063
)
 
147,495

Comprehensive income (loss)
 
244,314

 
(60,480
)
 
488,581

Less comprehensive income attributable to noncontrolling interest
 
143

 
99

 
171

Comprehensive income (loss) attributable to Orbital ATK, Inc.
 
$
244,171

 
$
(60,579
)
 
$
488,410

Note: earnings per share amounts may not recalculate due to rounding.
See Notes to the Consolidated Financial Statements.

52


ORBITAL ATK, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share data)
 
December 31, 2015
 
March 31, 2015
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
104,032

 
$
139,253

Net receivables
 
1,784,434

 
1,793,556

Net inventories
 
211,712

 
196,114

Income taxes receivable
 
50,769

 
31,415

Deferred income taxes
 

 
107,484

Other current assets
 
89,495

 
121,084

Total current assets
 
2,240,442

 
2,388,906

Net property, plant, and equipment
 
806,187

 
807,057

Goodwill
 
1,832,066

 
1,875,269

Net intangibles
 
147,156

 
165,207

Deferred income taxes
 
209,861

 
140,321

Other noncurrent assets
 
117,844

 
127,642

Total assets
 
$
5,353,556

 
$
5,504,402

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
40,000

 
$
59,997

Accounts payable
 
129,312

 
158,137

Contract-related liabilities
 
340,888

 
357,296

Contract advances and allowances
 
172,046

 
173,198

Accrued compensation
 
125,278

 
135,528

Other current liabilities
 
159,455

 
212,628

Total current liabilities
 
966,979

 
1,096,784

Long-term debt
 
1,450,000

 
1,528,504

Postretirement and postemployment benefits
 
59,202

 
74,658

Pension
 
761,632

 
851,001

Other noncurrent liabilities
 
167,798

 
165,795

Total liabilities
 
3,405,611

 
3,716,742

Commitments and contingencies (Notes 10, 12 and 13)
 

 

Common stock—$.01 par value: authorized—180,000,000 shares; issued and outstanding— 58,729,995 shares held December 31, 2015 and 59,427,942 shares at March 31, 2015
 
587

 
594

Additional paid-in-capital
 
2,187,940

 
2,182,814

Retained earnings
 
1,305,550

 
1,160,272

Accumulated other comprehensive loss
 
(785,908
)
 
(847,648
)
Common stock in treasury, at cost— 10,205,029 shares held at December 31, 2015 and 9,507,082 shares held at March 31, 2015
 
(771,029
)
 
(719,034
)
Total Orbital ATK, Inc. stockholders' equity
 
1,937,140

 
1,776,998

Noncontrolling interest
 
10,805

 
10,662

Total equity
 
1,947,945

 
1,787,660

Total liabilities and equity
 
$
5,353,556

 
$
5,504,402

See Notes to the Consolidated Financial Statements.

53

Table of Contents

ORBITAL ATK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Nine Months Ended
Years Ended
(Amounts in thousands)
 
December 31, 2015
 
March 31, 2015
 
March 31, 2014
Operating Activities
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
Net income
 
$
182,573

 
$
202,583

 
$
341,086

Net income from discontinued operations
 
(1,008
)
 
(125,049
)
 
(181,463
)
Income from continuing operations
 
181,565

 
77,534

 
159,623

Adjustments to reconcile income from continuing operations to cash provided by operating activities of continuing operations:
 
 
 
 
 
 
Depreciation
 
90,507

 
75,764

 
69,192

Amortization of intangible assets
 
33,371

 
9,263

 
3,112

Amortization of debt discount
 

 
3,212

 
7,364

Amortization and write-off of deferred financing costs
 
12,666

 
5,157

 
10,222

Goodwill impairment
 

 
34,300

 

Loss on the extinguishment of debt
 

 
26,626

 

Deferred income taxes
 
51,295

 
(6,119
)
 
6,828

Loss on disposal of property
 
11,197

 
2,114

 
594

Share-based plans expense
 
19,589

 
25,325

 
12,701

Excess tax benefits from share-based plans
 
(4,997
)
 
(7,004
)
 
(833
)
Changes in assets and liabilities:
 
 
 
 
 
 
Net receivables
 
5,122

 
(55,243
)
 
5,533

Net inventories
 
(15,598
)
 
13,570

 
(63,437
)
Accounts payable
 
(29,276
)
 
55,710

 
(71,314
)
Contract advances and allowances
 
(1,152
)
 
27,123

 
(39,465
)
Accrued compensation
 
(10,243
)
 
(39,950
)
 
(16,362
)
Contract-related liabilities
 
(16,408
)
 
93,298

 
(13,725
)
Pension and other postretirement benefits
 
(3,736
)
 
(41,569
)
 
70,750

Other assets and liabilities
 
(20,500
)
 
(108,256
)
 
21,178

 Cash provided by operating activities of continuing operations
 
303,402

 
190,855

 
161,961

 Cash provided by operating activities of discontinued operations
 

 
120,476

 
226,060

 Cash provided by operating activities
 
303,402

 
311,331

 
388,021

Investing Activities
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
Capital expenditures
 
(104,634
)
 
(112,704
)
 
(105,730
)
Cash acquired in Merger with Orbital
 

 
253,734

 

Cash dividend (refunded to) received from Vista Outdoor, net of cash transferred to Vista Outdoor in conjunction with the Distribution of Sporting Group
 
(6,500
)
 
188,878

 

Proceeds from the disposition of property plant and equipment
 
40

 
2,290

 
5,488

 Cash provided by (used for) investing activities of continuing operations
 
(111,094
)
 
332,198

 
(100,242
)
 Cash used for investing activities of discontinued operations
 

 
(30,585
)
 
(1,341,747
)
 Cash provided by (used for) investing activities
 
(111,094
)
 
301,613

 
(1,441,989
)
Financing Activities
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
Credit facility borrowings
 
1,040,000

 
798,000

 
280,000

Credit facility payments
 
(1,040,000
)
 
(798,000
)
 
(280,000
)
Payments made on bank debt
 
(24,999
)
 
(58,249
)
 
(38,263
)
Payments made to extinguish debt
 
(1,273,502
)
 
(777,220
)
 
(510,000
)
Proceeds from issuance of long-term debt
 
1,200,000

 
150,000

 
1,560,000

Payments made for debt issue costs
 
(10,262
)
 
(1,008
)
 
(21,641
)
Purchase of treasury shares
 
(81,344
)
 
(16,788
)
 
(53,270
)
Dividends paid
 
(46,103
)
 
(41,056
)
 
(35,134
)

54

Table of Contents

Proceeds from employee stock compensation plans
 
3,684

 

 
729

Excess tax benefits from share-based plans
 
4,997

 
7,004

 
833

Cash provided by (used for) financing activities of continuing operations
 
(227,529
)
 
(737,317
)
 
903,254

Effect of foreign currency exchange rate fluctuations on cash
 

 
(3,006
)
 
58

Decrease in cash and cash equivalents
 
(35,221
)
 
(127,379
)
 
(150,656
)
Cash and cash equivalents at beginning of period
 
139,253

 
266,632

 
417,288

Cash and cash equivalents at end of period
 
$
104,032

 
$
139,253

 
$
266,632

 
 
 
 
 
 
 
Supplemental Cash Flow Disclosures
 
 
 
 
 
 
Cash paid for interest, net
 
$
40,900

 
$
77,630

 
$
54,426

Cash paid for income taxes, net
 
26,458

 
143,108

 
136,295

Noncash financing activity:
 
 
 
 
 
 
Issuance of shares for noncash assets and liabilities of Orbital
 
$

 
$
1,504,243

 
$

Noncash investing activity:
 
 
 
 
 
 
Capital expenditures included in accounts payable of continuing operations
 
$
4,515

 
$
2,567

 
$
8,645

   See Notes to the Consolidated Financial Statements.

55

Table of Contents

ORBITAL ATK, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Amounts in thousands except share data)
 
Common Stock $.01 Par Value
 
Additional
Paid-in-capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Loss
 
Treasury
Stock
 
Noncontrolling
Interest
 
Total
Equity
 
Shares
 
Amount
 
 
 
 
 
 
Balance, March 31, 2013
 
32,318,295

 
$
323

 
$
534,137

 
$
2,483,483

 
$
(828,304
)
 
$
(687,470
)
 
$
10,392

 
$
1,512,561

Comprehensive income
 

 

 

 
340,915

 
147,495

 

 
171

 
488,581

Exercise of stock options
 
13,173

 

 
(252
)
 

 

 
981

 

 
729

Restricted stock grants
 
116,533

 

 
(9,517
)
 

 

 
9,517

 

 

Share-based compensation
 

 

 
12,701

 

 

 

 

 
12,701

Treasury stock purchased
 
(609,922
)
 

 

 

 

 
(52,130
)
 

 
(52,130
)
Performance shares issued net of treasury stock withheld
 
34,138

 

 
(3,856
)
 

 

 
2,450

 

 
(1,406
)
Tax benefit related to share based plans and other
 

 

 
94

 

 

 

 

 
94

Dividends
 

 

 

 
(35,134
)
 

 

 

 
(35,134
)
Employee benefit plans and other
 
(29,575
)
 
(5
)
 
708

 

 

 
(4,561
)
 

 
(3,858
)
Balance, March 31, 2014
 
31,842,642

 
318

 
534,015

 
2,789,264

 
(680,809
)
 
(731,213
)
 
10,563

 
1,922,138

Comprehensive income (loss)
 

 

 

 
202,484

 
(263,063
)
 

 
99

 
(60,480
)
Restricted stock grants
 
128,316

 

 
(10,850
)
 

 

 
10,850

 

 

Share-based compensation
 

 

 
25,325

 

 

 

 

 
25,325

Shares issued net of treasury stock withheld
 
150,658

 

 
(19,381
)
 

 

 
8,766

 

 
(10,615
)
Tax benefit related to share based plans and other
 

 

 
6,445

 

 

 

 

 
6,445

Dividends
 

 

 

 
(56,507
)
 

 

 

 
(56,507
)
Employee benefit plans and other
 
(73,179
)
 
2

 
1,264

 

 

 
(7,437
)
 

 
(6,171
)
Convertible debt premium, net of tax of $43,170
 
20,678

 

 
(111,707
)
 

 

 

 

 
(111,707
)
Distribution of Sporting Group
 

 

 

 
(1,774,969
)
 
96,224

 

 

 
(1,678,745
)
Merger with Orbital
 
27,358,827

 
274

 
1,757,703

 

 

 

 

 
1,757,977

Balance, March 31, 2015
 
59,427,942

 
594

 
2,182,814

 
1,160,272

 
(847,648
)
 
(719,034
)
 
10,662

 
1,787,660

Comprehensive income
 

 

 

 
182,430

 
61,741

 

 
143

 
244,314

Exercise of stock options
 
121,477

 

 
(5,502
)
 

 

 
9,186

 

 
3,684

Restricted stock grants
 
67,529

 

 
(6,510
)
 

 

 
6,510

 

 

Share-based compensation
 

 

 
19,589

 

 

 

 

 
19,589

Treasury stock purchased
 
(1,008,445
)
 

 

 

 

 
(75,795
)
 

 
(75,795
)
Shares issued net of treasury stock withheld
 
125,717

 

 
(15,127
)
 

 

 
9,904

 

 
(5,223
)
Tax benefit related to share based plans and other
 

 

 
11,188

 

 

 

 

 
11,188

Distribution of Sporting Group
 

 

 

 
(6,500
)
 

 

 

 
(6,500
)
Dividends
 

 

 

 
(30,652
)
 

 

 

 
(30,652
)
Employee benefit plans and other
 
(4,225
)
 
(7
)
 
1,486

 

 

 
(1,799
)
 

 
(320
)
Balance, December 31, 2015
 
58,729,995

 
$
587

 
$
2,187,938

 
$
1,305,550

 
$
(785,907
)
 
$
(771,028
)
 
$
10,805

 
$
1,947,945

See Notes to the Consolidated Financial Statements.

56

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)
1. Summary of Significant Accounting Policies
Nature of Operations.   Orbital ATK, Inc. (the "Company") is an aerospace and defense systems company and supplier of related products to the U.S. Government, allied nations and prime contractors. The Company is headquartered in Dulles, Virginia and has operating locations throughout the United States. The Company was incorporated in Delaware in 1990.
On February 9, 2015, the Company completed a tax-free spin-off of and distribution of its former 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"). These transactions are discussed in greater detail in Note 4. 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 reported as a discontinued operation for all prior periods presented. The Company used the acquisition method to account for the Merger; accordingly, the results of Orbital are included in the Company's consolidated financial statements since the date of the Merger.
Basis of Presentation.   The consolidated financial statements of the Company include all majority-owned affiliates. Intercompany transactions and accounts have been eliminated. The business formerly comprising Sporting Group is presented as discontinued operations - See Note 4.
Fiscal Year.   The Company changed its fiscal year from the period beginning on April 1 and ending on March 31 to the period beginning on January 1 and ending on December 31, beginning January 1, 2016. As a result, the current fiscal period is a nine-month transition period ended on December 31, 2015. In these consolidated statements, including the notes thereto, the current period financial results ended December 31, 2015 are for a nine-month period. Audited results for the twelve months ended March 31, 2015 and 2014 are both for twelve-month periods. In addition, the Company's consolidated statements of comprehensive income (loss) and consolidated statements of cash flows include unaudited comparative amounts for the nine-month period ended December 31, 2014. All references herein to a fiscal year prior to December 31, 2015 refer to the twelve months ended March 31 of such year.
Use of Estimates.   The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates.
Revenue Recognition. The Company's sales come primarily from contracts with agencies of the U.S. Government and its prime contractors and subcontractors. The various U.S. Government customers, including the U.S. Navy, U.S. Army, NASA, and the U.S. Air Force, make independent purchasing decisions. Consequently, each agency is regarded as a separate customer.
Sales by customer were as follows:
 
 
Percentage of Sales
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
March 31, 2015
 
March 31, 2014
Sales to:
 
 
 
 
 
 
U.S. Army
 
15
%
 
27
%
 
33
%
U.S. Navy
 
11

 
15

 
16

NASA
 
23

 
13

 
14

U.S. Air Force
 
4

 
6

 
7

Other U.S. Government customers
 
17

 
14

 
14

Total U.S. Government customers
 
70

 
75

 
84

Commercial and foreign customers
 
30

 
25

 
16

Total
 
100
%
 
100
%
 
100
%
Long-term Contracts —The majority of the Company's sales 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

57

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

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 majority of the Company's total revenue is accounted for using the cost-to-cost method of accounting.
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, including scope and claims, are included in contract sales only when 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. The cumulative effect of a change in estimate is recognized in the period a change in estimate occurs. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been used since contract inception or, in the case of contracts acquired in business combinations, from the date of acquisition.
Changes in contract estimates occur for a variety of reasons including changes in contract scope, unforeseen changes in contract cost estimates due to unanticipated cost growth or risks affecting contract costs and/or the resolution of contract risks at lower costs than anticipated, as well as changes in contract overhead costs over the performance period. Changes in estimates could have a material effect on the Company's consolidated financial position or annual results of operations. Aggregate net changes in contract estimates recognized using the cumulative catch-up method of accounting increased operating income by approximately $30,000 in the 2015 transition period , approximately $87,000 in fiscal 2015 , and approximately $83,000 in fiscal 2014 . The adjustments recorded during the 2015 transition period were primarily driven by higher profit expectations in the Propulsion Systems and Aerospace Structures divisions. The adjustments recorded during fiscal 2015 were primarily driven by higher profit expectations in the Defense Electronic , Armament Systems , Missile Products , Propulsion Systems and Small Caliber Systems divisions. The adjustments recorded during fiscal 2014 were primarily driven by higher profit expectations in the Small Caliber Systems division and for programs in the Propulsion Systems division.
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.
Other —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.
Sales during the 2015 transition period by revenue recognition method were as follows:
 
Percentage of Sales
Long-term contracts
96
%
Other
4

Total
100
%
Operating Expenses.     Research and development, selling and general and administrative costs are expensed in the year incurred. Research and development costs include costs incurred for experimentation and design testing. Selling costs include bid and proposal efforts related to products and services. Costs that are incurred pursuant to contractual arrangements are recorded over the period that revenue is recognized, consistent with the Company's contract accounting policy.
Environmental Remediation and Compliance.     Costs associated with environmental compliance, restoration, and preventing future contamination that are estimable and probable are accrued and expensed, or capitalized as appropriate. Expected remediation, restoration, and monitoring costs relating to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are accrued and expensed in the period that such costs become estimable. Liabilities are recognized for remedial and resource restoration activities when they are probable and the cost can be reasonably estimated. The Company expects that a portion of its environmental remediation costs will be recoverable under U.S. Government contracts and has recorded a receivable equal to the present value of the amounts the Company expects to recover.

58

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The Company's engineering, financial, and legal specialists estimate, based on current law and existing technologies, the cost of each environmental liability. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties ("PRPs") will be able to fulfill their commitments at the sites where the Company may be jointly and severally liable. The Company's estimates for environmental obligations are dependent on, and affected by, the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, methods of remediation available, the technology that will be required, the outcome of discussions with regulatory agencies and other PRPs at multi-party sites, the number and financial viability of other PRPs, changes in environmental laws and regulations, future technological developments, and the timing of expenditures; accordingly, the Company periodically evaluates and revises such estimates based on expenditures against established reserves and the availability of additional information.
Cash Equivalents.     Cash equivalents are all highly liquid cash investments purchased with original maturities of 3 months or less.
Marketable Securities.     Investments in a common collective trust that primarily invests in fixed income securities are classified as available-for-sale securities and are recorded at fair value within other current assets and deferred charges and other noncurrent assets on the consolidated balance sheet. Unrealized gains and losses are recorded in other comprehensive (loss) income ("OCI"). When such investments are sold, the unrealized gains or losses are reversed from OCI and recognized in the consolidated income statement.
Net Inventories.     Inventories are stated at the lower of cost or market. Inventoried costs relating to contracts in progress are stated at actual production costs, including factory overhead, initial tooling, and other related costs incurred to date, reduced by amounts associated with recognized sales. Recorded amounts for raw materials, work in process and finished goods are generally determined using the standard costing method.
Net inventories consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
Raw materials
 
$
86,865

 
$
69,112

Work/contracts in process
 
124,315

 
126,038

Finished goods
 
532

 
964

Net inventories
 
$
211,712

 
$
196,114

Progress payments received from customers relating to the uncompleted portions of contracts are offset against unbilled receivable balances or applicable inventories. Any remaining progress payment balances are classified as contract advances.
Changes in excess and obsolete inventory were as follows:
Balance, March 31, 2014
 
$
13,257

Expense
 
993

Write-offs
 
652

Other adjustments
 
2,110

Balance, March 31, 2015
 
17,012

Expense
 
3,082

Other adjustments
 
367

Balance, December 31, 2015
 
$
20,461

Accounting for Goodwill and Identifiable Intangible Assets.
Goodwill —The Company tests goodwill for impairment on January 1 or upon the occurrence of events or changes in circumstances that indicate that the asset might be impaired. The Company determined that the reporting units for its goodwill impairment review are its operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available, and for which segment management regularly reviews the operating results.
The impairment test is performed using a two -step process. In the first step, the Company estimates the fair value of each reporting unit and compares it to the carrying value of the reporting unit, including goodwill. If the carrying amount of a

59

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

reporting unit is higher than its fair value, an indication of goodwill impairment exists and the second step is performed in order to determine the amount of the goodwill impairment. In the second step, the Company determines the implied fair value of the reporting unit's goodwill which it determines by allocating the estimated fair value of the reporting unit in a manner similar to a purchase price allocation. The implied fair value is compared to the carrying amount and if the carrying amount of the reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized for the excess.
Identifiable Intangible Assets —The Company's primary identifiable intangible assets consist of contract backlog intangible assets recorded as part of the Orbital merger transaction, discussed in Note 4. Identifiable intangible assets with finite lives are amortized and evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangibles with indefinite lives are not amortized and are tested for impairment annually on January 1, or more frequently if events warrant.
Dividends Payable. On February 2, 2016, the Board of Directors declared a quarterly cash dividend of $0.30 per share. The dividend will be paid March 24, 2016 to stockholders of record at March 7, 2016.
Treasury Stock. Under the Company’s share repurchase program, the Company can repurchase common stock to be held in treasury. Treasury stock is accounted for using the cost method. Shares held in treasury may be reissued to satisfy (i) the payment of performance awards, total stockholder return performance awards ("TSR awards") awards and restricted stock units, (ii) the grant of restricted stock and (iii) the exercise of stock options. When treasury stock is reissued, the value is determined using a weighted-average basis.
Stock-based Compensation.     The Company's stock-based compensation plans, which are described more fully in Note  14 , provide for the grant of various types of stock-based incentive awards, including performance awards, total stockholder return performance awards ("TSR awards"), restricted stock, and options to purchase common stock. The types and mix of stock-based incentive awards are evaluated on an ongoing basis and may vary based on the Company's overall strategy regarding compensation, including consideration of the impact of expensing stock awards on the Company's results of operations.
Performance awards are valued at the fair value of the Company stock at 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. The Company uses an integrated Monte Carlo simulation model to determine the fair value of the TSR awards and the calculated fair value is recognized in income over the vesting period. Restricted stock issued vests over periods ranging from 1 to 3 years and is valued based on the market value of the Company stock on the grant date. The estimated grant date fair value of stock options is recognized in income on a straight-line basis over the requisite service period, generally one to three years. The estimated fair value of each option is calculated using the Black-Scholes option-pricing model. See Note  14 for further details.
Income Taxes.     Provisions for federal, state and foreign income taxes are calculated based on reported pre-tax earnings and current tax law. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income taxes and evaluating tax positions. The Company periodically assesses its liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information. Where it is not more likely than not that the Company's tax position will be sustained, the Company records the entire resulting tax liability and when it is more likely than not of being sustained, the Company records its best estimate of the resulting tax liability. Any applicable interest and penalties related to those positions are also recorded in the consolidated financial statements. To the extent the Company's assessment of the tax outcome of these matters changes, such change in estimate will impact income taxes in the period of the change. It is the Company's policy to record any interest and penalties related to income taxes as part of the income taxes for financial reporting purposes. Deferred tax assets related to carryforwards are reduced by a valuation allowance when it is not more likely than not that the amount will be realized before expiration of the carryforward period. As part of this analysis the Company takes into the account the amount and character of the income to determine if the carryforwards will be realized. Significant estimates and judgments are required for this analysis. Changes in the amounts of valuation allowance are recorded in tax expense in the period when the change occurs.
Derivative Instruments and Hedging Activities.     From time to time, the Company uses derivative instruments, consisting mainly of commodity forward contracts to hedge forecasted purchases of certain commodities, foreign currency exchange contracts to hedge forecasted transactions denominated in a foreign currency and interest rate swaps to manage interest rate risk on debt. The Company does not hold or issue derivatives for trading purposes. At the inception of each derivative instrument, the Company documents the relationship between the derivative instrument and the hedged item, as well as its risk-management objectives and strategy for undertaking the hedge transaction. The Company assesses, both at the

60

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

derivative's inception and on an ongoing basis, whether the derivative instrument is highly effective in offsetting changes in the fair value of the hedged item. Derivatives are recognized on the balance sheet at fair value. The effective portion of changes in fair value of derivatives designated as cash flow hedges are recorded to accumulated OCI and recognized in earnings in the same account in which the hedged item is recognized when the hedged item impacts earnings, and the cash flows from the effective portion of cash flow hedges are classified in the same section of the cash flows as the hedged item. The ineffective portion of derivatives designated as cash flow hedges and changes in fair value of derivative instruments not designated in a qualifying hedging relationship are reflected in current earnings, and the cash flows from the ineffective portion of cash flow hedges are classified as investing activities. The Company's current derivatives are designated as cash flow hedges. See Note  3 for further details.
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 and common equivalent shares outstanding for each period. Common equivalent shares represent the effect of stock-based awards (see Note  14 ) and contingently issuable shares related to the Company's Convertible Senior Subordinated Notes (see Note  9 ) during each period presented, which, if exercised, earned, or converted, would have a dilutive effect on earnings per share.
Weighted-average shares outstanding were determined as follows:
 
 
Nine Months Ended December 31, 2015
 
Years Ended
In thousands
 
 
March 31, 2015
 
March 31, 2014
Basic
 
59,358

 
35,469

 
31,671

Dilutive effect of stock-based awards
 
557

 
377

 
376

Dilutive effect of contingently issuable shares
 

 
294

 
676

Diluted
 
59,915

 
36,140

 
32,723

Anti-dilutive stock options excluded from the calculation of diluted earnings per share
 
91

 
73

 
45


61

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Accumulated Other Comprehensive Income (Loss) ("AOCI").     Changes in AOCI, net of income taxes, were as follows:
 
 
Nine Months Ended December 31, 2015
 
Year Ended March 31, 2015
 
 
Derivatives
 
Pension and Other Post-
retirement Benefits
 
Available-for-sale Securities
 
Total
 
Derivatives
 
Pension and Other Post-
retirement Benefits
 
Available-for-sale Securities
 
Cumulative Translation Adjustment
 
Total
Beginning of period unrealized gain (loss) in AOCI
 
$
(2,073
)
 
$
(846,645
)
 
$
1,070

 
$
(847,648
)
 
$
(5,022
)
 
$
(675,114
)
 
$
832

 
$
(1,505
)
 
$
(680,809
)
Net decrease in fair value of derivatives
 
(5,654
)
 

 

 
(5,654
)
 
(8,097
)
 

 

 

 
(8,097
)
Net losses reclassified from AOCI, offsetting the price paid to suppliers (1)
 
4,668

 

 

 
4,668

 
11,046

 

 

 

 
11,046

Net losses reclassified from AOCI, due to ineffectiveness (1)
 

 

 

 

 

 

 

 

 

Net actuarial losses reclassified from AOCI (2)
 

 
70,550

 

 
70,550

 

 
13,841

 

 

 
13,841

Prior service costs reclassified from AOCI (2)
 

 
(13,004
)
 

 
(13,004
)
 

 
(18,906
)
 

 

 
(18,906
)
Valuation adjustment for pension and postretirement benefit plans (2)
 

 
4,805

 

 
4,805

 

 
(224,389
)
 

 

 
(224,389
)
Net change in cumulative translation adjustment
 

 

 

 

 

 

 

 
(36,796
)
 
(36,796
)
Other
 

 

 
375

 
375

 

 

 
238

 

 
238

Distribution of Sporting (3)
 

 

 

 

 

 
57,923

 

 
38,301

 
96,224

End of period unrealized gain (loss) in AOCI
 
$
(3,059
)
 
$
(784,294
)
 
$
1,445

 
$
(785,908
)
 
$
(2,073
)
 
$
(846,645
)
 
$
1,070

 
$

 
$
(847,648
)
_________________________________________
(1)
Amounts related to derivative instruments that were reclassified from AOCI and recorded as a component of cost of sales or interest expense for each period presented.
(2)
Amounts related to pension and other postretirement benefits that were reclassified from AOCI and recorded as a component of net periodic benefit cost for each period presented (Note 10).
(3)
Amounts related to Sporting Group prior the Distribution (Note 4).
There was no ineffectiveness recognized in earnings for these contracts during any fiscal year presented. The Company expects that any unrealized gains and losses will be realized and reported in cost of sales as the cost of the commodities is included in cost of sales. Estimated and actual gains or losses will change as market prices change.
Fair Value of Non-financial Instruments.     The carrying amounts of receivables, inventory, accounts payable, accrued liabilities and other current assets and liabilities, approximate fair values due to the short maturity of these instruments. See Note  2 for additional disclosure regarding fair value of financial instruments.
New Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-02, Leases (Topic 842), which requires leasees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous generally accepted accounting principles in the United States ("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 November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires all deferred income tax assets and liabilities to be classified as noncurrent on the balance sheet. The new standard is effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. The Company has elected to early adopt this requirement prospectively in the current period, and accordingly, prior periods were not retrospectively adjusted.

62

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement period adjustments in purchase accounting. The new standard requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. This new standard is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company has elected to early adopt this new standard as of December 31, 2015. See Note 4.
In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Such investments should be disclosed separate from the fair value hierarchy. This ASU will be effective retrospectively for the Company for interim and annual periods beginning after December 15, 2015. The adoption of this new standard is not expected to have an impact on the Company's consolidated financial statements but will impact certain disclosures.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. and in August 2015, the FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.” These ASUs more closely align the treatment of debt issuance costs with debt discounts and premiums and requires debt issuance costs related to be presented as a direct deduction from the carrying amount of the related debt. The amendments in these ASUs are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The adoption of these new standards will impact the presentation of the net debt issuance costs included in Note 7.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which simplifies the consolidation evaluation process by placing more emphasis on risk of loss when determining a controlling financial interest. This new standard is effective for interim and annual periods beginning after December 15, 2015. The adoption of this new standard is not expected to have a material impact on the Company's consolidated financial statements.

63

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

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. 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. Under the new standard, the Company expects to continue using the cost-to-cost percentage of completion method to recognize revenue for most of its long-term contracts. 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 has not yet selected a transition method. The Company currently is evaluating the potential changes from this ASU to its future financial reporting and disclosures. In July 2015, the FASB approved the deferral of the new standard's effective date by one year. The new standard now will be effective for annual reporting periods beginning after December 15, 2017. The FASB will permit companies to adopt the new standard early, but not before the original effective date of annual reporting periods beginning after December 15, 2016.
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The ASU changed the criteria for reporting discontinued operations to be a disposal of a component of an entity that represents a strategic shift with major effects on operations and financial results. The ASU also requires additional disclosures about discontinued operations and disposals of components of an entity that do not qualify for discontinued operations. The Company adopted this standard for the 2015 transition period, and it did not have a material impact on the Company’s consolidated financial statements.
Other new pronouncements issued but not effective for the Company until after December 31, 2015 are not expected to have a material impact on the Company's continuing financial position, results of operations or liquidity.
Restatement of Quarters Ended July 5, 2015 and October 4, 2015. Presented in Note 18, "Quarterly Financial Data (Unaudited)," is the restatement of certain financial information for the quarters ended July 5, 2015 and October 4, 2015. The restated quarterly financial information did not have a material impact on the Company's consolidated financial statements for any previously filed audited period. See Note 18.
2. Fair Value of Financial Instruments
The current authoritative guidance on fair value clarifies the definition of fair value, prescribes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about the use of fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The valuation techniques required by the current authoritative literature are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
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.
Investments in marketable securities —The Company's investments in marketable securities represent investments held in a common collective trust ("CCT") that primarily invests in fixed income securities which are used to pay benefits under a nonqualified supplemental executive retirement plan for certain executives and highly compensated employees. Investments in a collective investment vehicle are valued by multiplying the investee company's net asset value per share with the number of units or shares owned at the valuation date as determined by the investee company. Net asset value per share is determined by the investee company's custodian or fund administrator by deducting from the value of the assets of the investee company all its liabilities and the resulting number is divided by the outstanding number of shares or units. Investments held by the CCT,

64

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

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 is included within other current assets and deferred charges and other noncurrent assets on the consolidated balance sheet.
Derivative financial instruments and hedging activities —In order to manage its exposure to commodity pricing and foreign currency risk, the Company periodically utilizes commodity and foreign currency derivatives, which are considered Level 2 instruments. As discussed further in Note  3 , 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. During fiscal 2014, the Company entered into five interest rate swaps. These swaps are valued based on future LIBOR, 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.
Long-term Debt —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.
Fair value of financial assets and liabilities that are measured at fair value on a recurring basis were as follows:
 
 
December 31, 2015
 
 
Fair Value Measurements
Using Inputs Considered as
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Marketable securities
 
$

 
$
12,065

 
$

Derivatives
 

 
3,979

 

Liabilities:
 
 
 
 
 
 
Derivatives
 

 
8,353

 

 
 
March 31, 2015
 
 
Fair Value Measurements
Using Inputs Considered as
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Marketable securities
 
$

 
$
10,327

 
$

Derivatives
 

 
7,823

 

Liabilities:
 
 
 
 
 
 
Derivatives
 

 
11,137

 

Carrying amount and fair value of financial assets and liabilities that are not measured at fair value on a recurring basis were as follows:
 
 
December 31, 2015
 
March 31, 2015
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Fixed rate debt
 
$
700,000

 
$
712,500

 
$
300,000

 
$
306,000

Variable rate debt
 
790,000

 
787,697

 
1,288,501

 
1,283,539

3 . Derivative Financial Instruments
The Company is exposed to market risks arising from adverse changes in commodity prices affecting the cost of raw materials and energy; interest rates and foreign exchange risks. In the normal course of business, these risks are managed

65

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

through a variety of strategies, including the use of derivative instruments. Commodity forward contracts are periodically used to hedge forecasted purchases of certain commodities, foreign currency exchange contracts are used to hedge forecasted transactions denominated in a foreign currency, and 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 forward contracts for copper and zinc during the 2015 transition period , and the years ended March 31, 2015 and March 31, 2014 . 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.
The Company entered into interest rate swaps during fiscal 2014 requiring fixed rate payments on a total notional amount of $400,000 and receive 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. The Company performs assessments of the effectiveness of hedge instruments on a quarterly basis and during the 2015 transition period determined the hedges to be highly effective. The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at December 31, 2015 , four of the outstanding swap agreements were in a net liability position which would require the Company to make the net settlement payments to the counterparties. The Company does not anticipate nonperformance by counterparties and does not hold or issue derivative financial instruments for trading purposes.
The Company entered into foreign currency forward contracts during fiscal 2015 to hedge forecasted cash receipts from a customer and forecasted inventory purchases and subsequent payments. The Company did not enter into any foreign currency forward contracts during fiscal 2014 or 2013. Contracts entered into prior to fiscal 2013 were used to hedge forecasted customer receivables and inventory purchases and subsequent payments, denominated in foreign currencies. These transactions were designated and qualified as effective cash flow hedges. Ineffectiveness with respect to forecasted inventory purchases or customer cash receipts was calculated based on changes in the forward rate until the anticipated purchase or cash receipt occurs; ineffectiveness of the hedge of the accounts payable was evaluated based on the change in fair value of its anticipated settlement.
The fair value of the commodity and foreign currency forward contracts is recorded within other assets or liabilities, as appropriate, and the effective portion is reflected in accumulated other comprehensive income (loss) in the financial statements. 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.
Commodity forward contracts outstanding that hedge forecasted commodity purchases were as follows:
(Amounts in thousands of pounds)
 
December 31, 2015
 
March 31, 2015
Copper
 
7,750

 
16,475

Zinc
 
1,750

 
4,840

At December 31, 2015 , the Company had three outstanding interest rate swap contracts with notional amounts of $100,000 each with maturity dates in August 2016, 2017 and 2018, as well as two interest rate swap contracts with notional amounts of $50,000 each with maturity dates in November 2016 and 2017 as follows (See Note 9 for additional information):
 
 
Notional
 
Fair Value
 
Pay Fixed
 
Receive Floating
 
Maturity Date
Non-amortizing swap
 
$
100,000

 
$
(200
)
 
0.87
%
 
0.42
%
 
August 2016
Non-amortizing swap
 
100,000

 
(668
)
 
1.29
%
 
0.42
%
 
August 2017
Non-amortizing swap
 
100,000

 
(1,441
)
 
1.69
%
 
0.42
%
 
August 2018
Non-amortizing swap
 
50,000

 
9

 
0.65
%
 
0.42
%
 
November 2016
Non-amortizing swap
 
50,000

 
(139
)
 
1.10
%
 
0.42
%
 
November 2017
The amount to be paid or received under these swaps is recorded as an adjustment to interest expense.

66

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

As of December 31, 2015, the Company had the following outstanding Euro currency forward contracts in place:
(Amounts in thousands)
 
December 31, 2015
 
March 31, 2015
Euros Sold
 
67,780

 
98,580

Euros Purchased
 
12,589

 
33,354

Derivative instruments designated as hedging instruments in the consolidated balance sheets were as follows:
 
 
 
 
Asset Derivatives
Fair Value
 
Liability Derivatives
Fair Value
 
 
Location
 
December 31, 2015
 
March 31, 2015
 
December 31, 2015
 
March 31, 2015
Commodity forward contracts
 
Other current assets /
Other current liabilities
 
$

 
$
1,054

 
$
4,445

 
$
899

Commodity forward contracts
 
Other noncurrent assets /
Other noncurrent liabilities
 

 
271

 

 
2

Foreign currency forward contracts
 
Other current assets /
Other current liabilities
 
2,875

 
2,664

 
1,442

 
5,101

Foreign currency forward contracts
 
Other noncurrent assets /
Other noncurrent liabilities
 
1,095

 
3,834

 
18

 
897

Interest rate swap contracts
 
Other current assets /
Other current liabilities
 
9

 

 

 

Interest rate swap contracts
 
Other noncurrent assets /
Other noncurrent liabilities
 

 

 
2,448

 
4,238

Total
 
 
 
$
3,979

 
$
7,823

 
$
8,353

 
$
11,137

Due to the nature of the Company's business, the benefits associated with the commodity contracts may be passed on to the customer and not realized by the Company.
Derivative gains and losses in the consolidated statements of comprehensive income (loss) were as follows:
 
 
Gain (Loss) Reclassified from AOCI
 
Gain (Loss) Recognized in Income
(ineffective portion and amount excluded from effectiveness testing)
 
 
Location
 
Amount
 
Location
 
Amount
Nine months ended December 31, 2015
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of sales
 
$
2,825

 
Cost of sales
 
$

Interest rate swap contracts
 
Interest expense
 
(3,028
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of sales
 
(1,768
)
 
Cost of sales
 

Year ended March 31, 2015
 
 
 
 
 
 
 
 
Commodity forward contracts
 
Cost of sales
 
(5,515
)
 
Cost of sales
 

Interest rate swap contracts
 
Interest expense
 
(4,020
)
 
Interest expense
 

Foreign currency forward contracts
 
Cost of sales
 
(9,182
)
 
Cost of sales
 

All derivatives used by the Company during the periods presented were designated as hedging instruments.
The Company expects that any unrealized losses will be realized and reported in cost of sales when the cost of the commodities is included in cost of sales. Estimated and actual gains or losses will change as market prices change.
4. Merger and Divestiture
On February 9, 2015, the Company completed the spin-off and Distribution of its former Sporting Group to its stockholders and Merged with Orbital pursuant to a transaction agreement, dated April 28, 2014 (the "Transaction Agreement"). The Company completed the Merger with Orbital in order to create a global aerospace and defense Company with greater technical and industrial capabilities and increased financial resources. Both the Distribution and Merger were structured to be

67

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

tax-free to U.S. stockholders for U.S. federal income tax purposes. Under the Transaction Agreement, a subsidiary of the Company merged with and into Orbital, with Orbital continuing as a wholly-owned subsidiary of the Company.
Pursuant to the Distribution, Company stockholders received 2 shares of Vista Outdoor for each share of Company common stock held. The Company distributed a total of approximately 63.9 million shares of Vista Outdoor common stock to its stockholders of record at the close of business on February 2, 2015 the record date for the Distribution. As a result of the Distribution, the Sporting Group is reported as a discontinued operation for all prior periods presented. Sales from discontinued operations totaled $1,595,589 , $1,781,437 and $1,849,891 in the nine months ended December 28, 2014 and the years ended March 31, 2015 and March 31, 2014 , respectively.
In connection with the Merger, each outstanding share of Orbital common stock was converted into the right to receive 0.449 shares of Company common stock. The Company issued approximately 27.4 million shares of common stock to Orbital stockholders. Immediately following the Merger, Orbital stockholders owned 46.2% of the common stock of the Company and existing stockholders owned 53.8% . Based on the closing price of the Company common stock following the Distribution on February 9, 2015 as reported on the New York Stock Exchange, the aggregate value of the consideration paid or payable to former holders of Orbital common stock was approximately $1.8 billion. 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. Orbital's sales and pre-tax income included in the Company's financial statements for the post-Merger period of February 9, 2015 through March 31, 2015 were approximately $191 million and $16 million, respectively. Transaction costs of $34,900 related to the Distribution and Merger were recorded as incurred in general and administrative expenses during fiscal 2015.
Valuation of Net Assets Acquired
The following amounts represent the preliminary determination (as of the Merger date) of the fair value of identifiable assets acquired and liabilities assumed in the Merger, including adjustments made to date during the one year measurement period from the date of the Merger:
Purchase Price:
 
 
Value of common shares issued to Orbital shareholders (1)
 
$
1,749,323

Value of replacement equity-based awards to holders of Orbital equity-based awards (2)
 
8,654

Total purchase price
 
$
1,757,977

 
 
 
Value of assets acquired and liabilities assumed:
 


Cash
 
$
253,734

Net receivables
 
558,639

Net inventories
 
75,294

Intangibles
 
179,000

Property, plant and equipment
 
277,438

Deferred tax assets, net
 
62,466

Other assets
 
36,878

Goodwill
 
822,903

Accounts payable
 
(52,028
)
Contract fair value liabilities
 
(130,888
)
Other liabilities
 
(325,459
)
Total purchase price
 
$
1,757,977

_________________________________________
(1)
Equals 27.4 million Orbital ATK shares issued to Orbital shareholders multiplied by the Company's Merger-date share price of $63.94 .
(2)
The fair value of replacement equity-based awards attributable to pre-Merger service was recorded as part of the consideration transferred in the Merger.

68

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Estimated fair value for intangibles is not final and is subject to change. The final determination will be completed within the first quarter of 2016, which is the quarter in which the one year measurement period from the date of the Merger ends. Due to the significance of the Merger, the Company will use all of this measurement period to adequately analyze and assess the fair value the intangibles. This assessment includes the evaluation of the significant contractual and operational factors and assumptions associated with the fair values of the intangibles.
The consideration paid for Orbital's assets and liabilities was determined using the fair market value of the Company stock issued at the date of the Merger along with restricted stock awards granted to certain employees of Orbital.
Goodwill recognized from the Merger primarily relates to the expanded market opportunities, expected synergies and benefits of increased scale and scope of combined human, physical and financial resources attributable to merging the operations of the two companies. As stated above, the Merger was a tax-free transaction and as such, there is no goodwill that is deductible for tax purposes.
In determining the fair value of identifiable assets acquired and liabilities assumed, a review was conducted for any significant contingent assets or liabilities existing at the Merger date. There were no significant contingencies identified related to any legal or government action.
Measurement Period Adjustments
In accordance with the Company's adoption of ASU 2015-16 (see Note 1), measurement period adjustments pertaining to the Merger were recorded during the 2015 transition period and were not retroactively reclassified to prior periods. In addition, income statement amounts that would have been recorded in previous periods had the measurement period adjustments been recorded at the date of the Merger were recorded in the last quarter of the 2015 transition period . Such income statement amounts that were included in the results for the 2015 transition period totaled $16,674 recorded as additional sales, and $6,470 and $356 recorded as a reduction to cost of sales and general and administrative expenses, respectively.
Supplemental Pro Forma Data
The following unaudited supplemental pro forma data for the years ended March 31, 2015 and March 31, 2014 present consolidated information as if the Merger had been completed on April 1, 2013. The pro forma results were calculated by combining the results from continuing operations of the Company with the stand-alone results of Orbital for the pre-Merger periods, which were adjusted to eliminate historical sales between the companies and to account for certain costs which would have been incurred during this pre-Merger period:
 
 
Year Ended March 31, 2015
 
Year Ended March 31, 2014
Sales
 
$
4,229,036

 
$
4,200,154

Income from continuing operations
 
162,452

 
167,034

Basic earnings per common share from continuing operations
 
$
2.59

 
$
2.83

Diluted earnings per common share from continuing operations
 
2.55

 
2.77

The unaudited supplemental pro forma data above includes the following significant adjustments made to account for certain costs which would have been incurred if the Merger had been completed on April 1, 2013, as adjusted for the applicable income tax impact:

69

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)


 
Year Ended March 31, 2015
 
Year Ended March 31, 2014
Amortization of acquired Orbital intangible assets (1)
 
$
27,215

 
$
31,116

Interest expense adjustment (2)
 
(25,678
)
 
(19,237
)
Transaction fees for advisory, legal and accounting services (3)
 
(37,119
)
 
37,119

_________________________________________
(1) Added the amortization of acquired Orbital intangible assets recognized at fair value in purchase accounting and eliminated historical Orbital intangible asset amortization expense.
(2) Reduced interest expense for the net reduction in debt of the Company and Orbital.
(3) Added transaction fees for advisory, legal and accounting services to the first quarter of fiscal 2014. Costs were recorded in general and administrative expense.
The unaudited supplemental pro forma data above does not reflect the potential realization of cost savings related to the integration of the two companies. Further, the pro forma data should not be considered indicative of the results that would have occurred if the Merger had been completed on April 1, 2013, nor are they indicative of future results.
Ongoing Business with Vista Outdoor
In conjunction with the Distribution , the Company entered into two supply agreements and one transition services agreement ("TSA") with Vista Outdoor. The supply agreements call for Vista Outdoor to purchase certain minimum quantities of ammunition and gun powder from the Company through 2017 or 2018, as applicable. The supply agreements expire in 2017 (powder) and 2018 (ammunition) and may be extended in one -to- three year increments and are priced at arms-length. Under the terms of the TSA, the Company provides various administrative services to Vista Outdoor for up to 12 months following the Distribution and tax assistance services for 18 months following the Distribution, extendable to 30 months. Fees for services under the TSA are charged to Vista Outdoor.
Sales to Vista Outdoor under the two supply agreements were $143,260 for the 2015 transition period and $18,928 for the period from the date of the Distribution to March 31, 2015. Sales to Sporting Group, previously reported as intercompany sales and eliminated in consolidation (see Operating Segment Information Note 16) were $170,818 for the period April 1, 2014 through February 8, 2015 and $273,246 for fiscal 2014 .
5. Net Receivables
Net receivables, including amounts due under long-term contracts consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
Billed receivables
 
 
 
 
U.S. Government contracts
 
$
121,756

 
$
186,430

Commercial and other
 
95,766

 
91,601

Unbilled receivables
 
 
 
 
U.S. Government contracts
 
914,675

 
960,185

Commercial and other
 
653,265

 
560,032

Less allowance for doubtful accounts
 
(1,028
)
 
(4,692
)
Net receivables
 
$
1,784,434

 
$
1,793,556

Receivable balances are shown net of customer progress payments received of $584,325 at December 31, 2015 and $585,932 at March 31, 2015 .
Unbilled receivables represent the balance of recoverable costs and accrued profit, comprised principally of revenue recognized on contracts for which billings have not been presented to the customer because the amounts were earned but not contractually billable at the balance sheet date. These amounts include expected additional billable general overhead costs and fees on flexibly priced contracts awaiting final rate negotiations.
At December 31, 2015 and March 31, 2015 , the aggregate amount of contract-related unbilled receivables the Company does not expect to collect within the next 12 months was $311,600 and $298,900 , respectively.
The Company records an allowance for doubtful accounts, reducing the receivables balance to an amount the Company estimates is collectible from customers. Estimates used in determining the allowance for doubtful accounts are based on current trends, aging of accounts receivable, periodic credit evaluations of customers’ financial condition and historical collection experience.

70

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Changes in the allowance for doubtful accounts were as follows:
Balance, March 31, 2013
 
$
4,801

Expense
 
609

Write-offs
 
(626
)
Other adjustments
 
107

Balance, March 31, 2014
 
4,891

Expense
 
599

Write-offs
 
(17
)
Other adjustments
 
(781
)
Balance, March 31, 2015
 
4,692

Expense
 
12

Write-offs
 
(3,737
)
Other adjustments
 
61

Balance, December 31, 2015
 
$
1,028

6. Net Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated over estimated useful lives. Machinery and equipment is depreciated using the double declining balance method at most of the Company's facilities, and using the straight-line method at other Company facilities. Other depreciable property is depreciated using the straight-line method. Machinery and equipment is depreciated over 1 to 30  years and buildings and improvements is depreciated over 1 to 45  years. Depreciation expense was $90,507 in the 2015 transition period , $75,764 in fiscal 2015 and $69,192 in fiscal 2014 .
Property, plant and equipment is reviewed for impairment when indicators of potential impairment are present. When such impairment is identified, it is recorded as a loss in that period. Maintenance and repairs are charged to expense as incurred. Major improvements that extend useful lives are capitalized and depreciated. The cost and accumulated depreciation of property, plant and equipment retired or otherwise disposed of are removed from the related accounts, and any residual values are charged or credited to income.
Net property, plant and equipment consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
Land
 
$
47,907

 
$
41,597

Buildings and improvements
 
360,400

 
344,140

Machinery and equipment
 
1,393,137

 
1,312,073

Property not yet in service
 
26,104

 
58,346

Gross property, plant and equipment
 
1,827,548

 
1,756,156

Less accumulated depreciation
 
(1,021,361
)
 
(949,099
)
Net property, plant and equipment
 
$
806,187

 
$
807,057


71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

7. Goodwill, Net Intangibles and Other Noncurrent Assets
Changes in goodwill by segment were as follows:
 
 
Flight Systems Group
 
Defense Systems Group
 
Space Systems Group
 
Total
Balance, March 31, 2014
 
$
530,869

 
$
366,947

 
$
145,647

 
$
1,043,463

Merger
 
268,493

 

 
597,613

 
866,106

Impairment
 

 

 
(34,300
)
 
(34,300
)
Balance, March 31, 2015
 
$
799,362

 
$
366,947

 
$
708,960

 
$
1,875,269

Measurement period adjustments
 
123,629

 

 
(166,832
)
 
(43,203
)
Balance, December 31, 2015
 
$
922,991

 
$
366,947

 
$
542,128

 
$
1,832,066

The results of the Company's annual goodwill impairment test in fiscal 2015 indicated that the net book value of Space Systems Group 's, Space Components division exceeded the implied fair market value. The fair value of the reporting unit was determined using both an income and market approach. The value estimated using a discounted cash flow model was weighted against the estimated value derived from the guideline company market approach method. This market approach method estimated the price reasonably expected to be realized from the sale of the business based on comparable companies. As the net book value of the division exceeded fair market value, the second step analysis was performed and the fair value of goodwill was determined based on the allocation of the reporting unit's assets, in a manner similar to purchase price allocation. As a result of this second step, the Company recorded an impairment of $34,300 in the fourth quarter of fiscal 2015 . The impairment was primarily driven by a reduction in near-term estimated cash flows compared to the prior year forecast, resulting from, among other things, government budget constraints and increased competitive pressures in the satellite and spacecraft manufacturing market. Goodwill recorded within Space Systems Group is presented net of accumulated impairment losses totaling $142,800 .
Other noncurrent assets consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
Gross debt issuance costs
 
$
17,375

 
$
22,280

Less accumulated amortization
 
(3,211
)
 
(5,712
)
Net debt issuance costs
 
14,164

 
16,568

Parts inventory
 
10,303

 
9,973

Environmental remediation receivable
 
15,145

 
23,771

Derivative contracts
 
1,105

 
4,105

Other noncurrent assets
 
77,127

 
73,225

Total other noncurrent assets
 
$
117,844

 
$
127,642

Net intangibles consisted of the following amortizing intangibles:
 
 
December 31, 2015
 
March 31, 2015
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Total
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Total
Contract Backlog
 
$
179,000

 
$
(36,696
)
 
$
142,304

 
$
164,000

 
$
(6,167
)
 
$
157,833

Patented technology
 
11,018

 
(6,206
)
 
4,812

 
10,700

 
(5,350
)
 
5,350

Customer relationships and other
 
24,294

 
(24,254
)
 
40

 
24,294

 
(22,270
)
 
2,024

Net intangibles
 
$
214,312

 
$
(67,156
)
 
$
147,156

 
$
198,994

 
$
(33,787
)
 
$
165,207


72

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The contract backlog asset in the table above is being amortized as underlying costs are recognized under the contract. The other assets in the table above are being amortized using a straight-line method. The weighted-average remaining period of amortization of total net intangibles above is 2.9 years . Amortization expense related to these assets was $33,371 in the 2015 transition period , $9,263 in fiscal 2015 and $3,112 in fiscal 2014 .
Scheduled amortization is as follows:
 
 
Contract Backlog
 
Patents and Customer Relationships
 
Total
2016
 
$
42,495

 
$
1,220

 
$
43,715

2017
 
41,005

 
1,180

 
42,185

2018
 
33,045

 
1,120

 
34,165

2019
 
19,184

 
1,072

 
20,256

2020
 
6,575

 
260

 
6,835

Total
 
$
142,304

 
$
4,852

 
$
147,156

8. Other Current and Noncurrent Liabilities
Other current liabilities consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
Employee benefits, insurance, pension and other postretirement benefits
 
$
62,034

 
$
53,588

Deferred lease obligation
 
12,222

 
30,857

Product warranties
 
5,320

 
9,555

Interest
 
10,300

 
7,801

Other
 
69,579

 
110,827

Total other current liabilities
 
159,455

 
212,628

Other noncurrent liabilities consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
Environmental remediation
 
$
35,100

 
$
43,326

Income taxes
 
19,594

 
34,415

Deferred lease obligation
 
13,795

 
21,036

Management nonqualified deferred compensation plan
 
16,664

 
14,853

Other
 
82,645

 
52,165

Total other noncurrent liabilities
 
167,798

 
165,795

The Company provides product warranties, which entail repair or replacement of non-conforming items, in conjunction with sales of certain products. Estimated costs related to warranties are recorded in the period in which the related product sales occur. The warranty liability recorded at each balance sheet date reflects the estimated liability for warranty coverage for products delivered based on historical information and current trends.

73

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Changes in product warranties were as follows:
Balance, March 31, 2014
 
$
11,866

Payments
 
73

Warranties issued
 
414

Changes related to preexisting warranties
 
(2,798
)
Balance, March 31, 2015
 
9,555

Payments
 
(426
)
Warranties issued
 
147

Changes related to preexisting warranties
 
(3,956
)
Balance, December 31, 2015
 
$
5,320

During the 2015 transition period , the Company recorded a $54,077 reduction in Merger-related contract fair value liabilities in connection with the recognition of this amount in sales as progress toward completion was realized on certain contracts acquired in the Merger.
9. Long-term Debt
Long-term debt, including the current portion, consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
Senior Credit Facility:
 
 
 
 
Term Loan A due 2020
 
$
790,000

 
$

Revolving Credit Facility due 2020
 

 

5.25% Senior Notes due 2021
 
300,000

 
300,000

5.50% Senior Notes due 2023
 
400,000

 

Former Senior Credit Facility:
 
 
 
 
Term A Loan due 2018
 

 
946,875

Term A Loan due 2019
 

 
144,375

Term B Loan due 2020
 

 
197,251

Carrying amount of long-term debt
 
1,490,000

 
1,588,501

Less: Current portion of long-term debt
 
40,000

 
59,997

Long-term debt
 
$
1,450,000

 
$
1,528,504

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 $800,000 (the "Term Loan A") and a revolving credit facility of $1,000,000 (the "Revolving Credit Facility"), both of which mature in 2020. The Term Loan A is subject to quarterly principal payments of $10,000 , with the remaining balance due on September 29, 2020. Substantially all tangible and intangible assets of the Company and certain domestic subsidiaries, excluding real property, are pledged as collateral under the Senior Credit Facility. 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. Based on the Company's current total leverage ratio, 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 discussed below, was 2.06% at December 31, 2015 . 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 current fee is 0.2% . At December 31, 2015 , the Company had no borrowings outstanding on the Revolving Credit Facility and had outstanding letters of credit of $146,477 , which reduced amounts available on the Revolving Credit Facility to $853,523 . As a result of this refinancing, the Company recorded a charge of $10,301 , reported in net interest expense, to write off a portion of the unamortized debt issuance costs associated with the Former Senior Credit Facility. The remaining unamortized debt issuance

74

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

costs associated with the Former Senior Credit Facility of $3,361 are being amortized to interest expense along with $3,306 of debt issuance costs incurred related to the Senior Credit Facility over five years , the term of the Senior Credit Facility.
5.25% Notes
In fiscal 2014 , the Company issued $300,000 aggregate principal amount of 5.25% Senior Notes (the "5.25% Notes") that mature on October 1, 2021. These notes are general unsecured obligations. 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. Prior to October 1, 2016, the Company may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In addition, prior to October 1, 2016, the Company may redeem up to 35% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 105.25% of their principal amount plus accrued and unpaid interest to the date of redemption. Debt issuance costs of $2,625 related to these notes are being amortized to interest expense over eight years , the term of the notes.
5.50% Notes
In September 2015, the Company issued $400,000 aggregate principal amount of 5.50% Senior Notes (the "5.50% Notes") that mature on October 1, 2023. These notes are general unsecured obligations. 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. Prior to October 1, 2018, the Company may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In addition, prior to October 1, 2018, the Company may redeem up to 35% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 105.50% of their principal amount plus accrued and unpaid interest to the date of redemption. Debt issuance costs of $5,994 related to these notes are being amortized to interest expense over eight years , the term of the notes.
Former Senior Credit Facility
As noted above, in September 2015 the Company refinanced and paid off its former senior credit facility (the "Former Senior Credit Facility") which was comprised of a term loan of $1,160,000 (the "Former Term A Loan"), a term loan of $250,000 (the "Former Term B Loan") and a $700,000 revolving credit facility (the "Former Revolving Credit Facility"), all of which were to mature from 2018 to 2020. The Former Term A Loan and the Former Term B loan were subject to quarterly principal payments of $14,500 and $499 , respectively. Substantially all domestic tangible and intangible assets of the Company and its subsidiaries were pledged as collateral under the Former Senior Credit Facility. Borrowings under the Former Senior Credit Facility were charged interest at a rate equal to either the sum of a base rate plus a margin or the sum of a Eurodollar rate plus a margin. Each margin was based on the Company's senior secured credit ratings. The Company paid an annual commitment fee on the unused portion of the Former Revolving Credit Facility based on its senior secured credit ratings.

75

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Loss on Extinguishment of Debt
In fiscal 2015 the Company recorded a $26,626 loss on extinguishment of debt pertaining to the redemption of its former 6.875% senior subordinated notes in connection with the Distribution and Merger.
Interest Rate Swaps
In fiscal 2014 the Company entered into floating-to-fixed interest rate swap agreements in order to hedge the Company’s forecasted interest payments on its outstanding variable rate debt, which has included the term loans associated with the Senior Credit Facility and Former Senior Credit Facility.
At December 31, 2015 , the Company had the following cash flow hedge interest rate swaps in place:
 
 
Notional
 
Fair Value
 
Pay Fixed
 
Receive Floating
 
Maturity Date
Non-amortizing swap
 
$
100,000

 
$
(200
)
 
0.87
%
 
0.42
%
 
August 2016
Non-amortizing swap
 
100,000

 
(668
)
 
1.29
%
 
0.42
%
 
August 2017
Non-amortizing swap
 
100,000

 
(1,441
)
 
1.69
%
 
0.42
%
 
August 2018
Non-amortizing swap
 
50,000

 
9

 
0.65
%
 
0.42
%
 
November 2016
Non-amortizing swap
 
50,000

 
(139
)
 
1.10
%
 
0.42
%
 
November 2017
The amount to be paid or received under these swaps is recorded as an adjustment to interest expense.
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. The guarantee by any Subsidiary Guarantor of the Company's obligations in respect of the 5.25% Notes and the 5.50% Notes will be released in each of the following circumstances:
if, as a result of the sale of its capital stock, such Subsidiary Guarantor ceases to be a Restricted Subsidiary;
if such Subsidiary Guarantor is designated as an "Unrestricted Subsidiary" with respect to the 5.25% Notes and the 5.50% Notes;
upon defeasance or satisfaction and discharge of the 5.25% Notes and the 5.50% Notes, as applicable; and
if such Subsidiary Guarantor has been released from its guarantees of indebtedness under the credit agreement governing the Senior Credit Facility (the "Credit Agreement") and all capital markets debt securities.

76

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Scheduled Minimum Loan Payments
Scheduled minimum loan payments are as follows:
2016
$
40,000

2017
40,000

2018
40,000

2019
40,000

2020
40,000

Thereafter
1,290,000

Total
$
1,490,000

The Company's total debt (current portion of debt and long-term debt) as a percentage of total capitalization (total debt and stockholders' equity) was 43% and 47% at December 31, 2015 and March 31, 2015 , respectively.
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 5.25% Notes and 5.50% Notes limit the aggregate sum of dividends, share repurchases, and other designated restricted payments to an amount based on the Company’s net income, stock issuance proceeds, and certain other items since April 1, 2001, less restricted payments made since that date. The Senior Credit Facility allows the Company to make unlimited "restricted payments" (as defined in the Credit Agreement), which, among other items, would allow payments for future stock repurchases, as long as the Company maintains a certain amount of liquidity and maintains certain senior secured debt limits, with a limit, when those senior secured debt limits are not met, of $250,000 plus proceeds of any equity issuances plus 50% of net income since October 7, 2010. 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 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. As of December 31, 2015 , the Company was in compliance with the financial covenants.
10. Employee Benefit Plans
The Company provides defined benefit pension plans and defined contribution plans for the majority of its employees. The Company has tax-qualified defined benefit plans, a supplemental (nonqualified) defined benefit pension plan, a defined contribution plan and a supplemental (non-qualified) defined contribution plan. A qualified plan meets the requirements of certain sections of the Internal Revenue Code and, generally, contributions to qualified plans are tax deductible. A qualified plan typically provides benefits to a broad group of employees and may not discriminate in favor of highly compensated employees in coverage, benefits or contributions. In addition, the Company provides medical and life insurance benefits to certain retirees and their eligible dependents through its postretirement plans.
In connection with the Distribution, the Company transferred its obligation for pension benefits and other postretirement ("PRB") plans for all current and former employees of Sporting Group to Vista Outdoor. The transfer of this obligation reduced the Company's pension liabilities by $223,790 , pension assets by $163,034 and accumulated other comprehensive loss for pension benefits by $97,764 . The transfer of this obligation also reduced the Company's PRB liabilities by $1,963 and accumulated other comprehensive gain for PRB benefits by $1,727 .

77

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Defined Benefit 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”). The Orbital Plans were merged into the Alliant Techsystems, Inc. Pension and Retirement Plan on December 31, 2015 and the combined plan's name was changed to the Orbital ATK, Inc. Pension and Retirement Plan.
The Company is required to reflect the funded status of the pension and PRB plans on the consolidated balance sheet. The funded status of the Plans is measured as the difference between the plan assets at fair value and the projected benefit obligation. The Company has recognized the aggregate of all underfunded plans within the accrued pension liability and postretirement and postemployment benefits liabilities. The Company has recognized the aggregate of all overfunded plans within other noncurrent assets. The portion of the amount by which the actuarial present value of benefits included in the projected benefit obligation exceeds the fair value of plan assets, payable in the next 12 months , is reflected in other accrued liabilities.
Previously unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in accumulated other comprehensive loss in the consolidated balance sheet and the difference between actual amounts and estimates based on actuarial assumptions has been recognized in other comprehensive income in the period in which they occur.
The Company's measurement date for remeasuring its plan assets and benefit obligations is December 31.
Pension Plans.     The ATK Plans are qualified noncontributory defined benefit pension plans that cover substantially all legacy ATK employees hired prior to January 1, 2007. Eligible legacy ATK 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 do receive an employer contribution through a defined contribution plan, discussed below. Effective with certain collective bargaining agreements on April 1, 2016, additional union pension benefits were frozen and the new cash balance formula applicable to pay and service was implemented. As a result of this plan amendments the projected benefit obligation was reduced by $2,295 . The ATK Plan is a cash balance formula that provides each affected employee with pay credits based on the sum of that employee's age plus years of pension service at December 31 of each calendar year, plus 4% annual interest credits. Prior to July 1, 2013 (January 1, 2014 and April 1, 2016 for certain union groups), the ATK Plans provided either pension benefits based on employee annual pay levels and years of credited service or stated amounts for each year of credited service. The Company funds the ATK Plans in accordance with federal requirements calculated using appropriate actuarial methods. Depending on the plan they are covered by, employees generally vest after three or five years. The Orbital Plans are frozen and no benefits are being accrued by employees. These plans currently are overfunded.
The Company also sponsors a nonqualified supplemental executive retirement plan which provides certain executives and highly compensated employees the opportunity to receive pension benefits in excess of those payable through tax-qualified pension plans. The benefit obligation of these plans is included in the pension information below.
Other Postretirement Benefit Plans.     Generally, employees who terminated employment from the Company on or before January 1, 2004 and were at least age 50 or 55 with at least five or ten years of service, depending on the provisions of the pension plan they are eligible for, are entitled to a pre- and/or post-65 health care company subsidy and retiree life insurance coverage. Employees who terminated employment after January 1, 2004, but before January 1, 2006, are eligible only for a pre-65 company subsidy. The portion of the health care premium cost borne by the Company for such benefits is based on the pension plan the employees are eligible for, years of service and age at termination.

78

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The following table shows changes in the benefit obligation, plan assets and funded status of the Company's qualified and non-qualified pension plans and other PRB plans, including Orbital Plans. Benefit obligation balances presented below reflect the projected benefit obligation ("PBO") for pension plans and accumulated PRB obligations ("APBO") or other PRB plans.
 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
Nine Months Ended December 31, 2015
 
Year Ended March 31, 2015
 
Nine Months Ended December 31, 2015
 
Year Ended March 31, 2015
Change in benefit obligation:
 
 
 
 
 
 
 
 
Benefit obligation at beginning of period
 
$
3,199,221

 
$
2,988,288

 
$
131,620

 
$
128,065

Service cost
 
14,445

 
23,182

 
1

 
3

Interest cost
 
91,044

 
129,236

 
3,378

 
4,803

Plan Amendments
 
(2,295
)
 

 

 

Actuarial loss (gain) (1)
 
(211,581
)
 
465,524

 
(13,106
)
 
12,255

Retiree contributions
 

 

 
3,302

 
4,729

Benefits paid
 
(138,166
)
 
(192,756
)
 
(10,858
)
 
(16,272
)
Impact of Distribution
 

 
(223,790
)
 

 
(1,963
)
Merger with Orbital Sciences
 

 
9,537

 

 

Benefit obligation at end of period
 
2,952,668

 
3,199,221

 
114,337

 
131,620

Change in plan assets:
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of period
 
2,348,795

 
2,426,013

 
63,678

 
61,055

Actual return on plan assets
 
(94,573
)
 
177,776

 
(1,716
)
 
4,397

Retiree contributions
 

 

 
3,302

 
4,729

Employer contributions
 
73,844

 
87,150

 
5,644

 
9,769

Benefits paid
 
(138,166
)
 
(192,756
)
 
(10,858
)
 
(16,272
)
Fair value of assets at February 9, 2015, transferred to Vista Outdoor (2)
 

 
(163,034
)
 

 

Merger with Orbital Sciences
 

 
13,646

 

 

Fair value of plan assets at end of period
 
2,189,900

 
2,348,795

 
60,050

 
63,678

Funded status
 
$
(762,768
)
 
$
(850,426
)
 
$
(54,287
)
 
$
(67,942
)
_________________________________________
(1)
The mortality projection scale was updated from MP-2014 to MP-2015 at December 31, 2015. This change resulted in an actuarial gain of $50,000 and $4,000 for the Pension Benefits and Other Postretirement Benefits, respectively. The mortality table assumption was changed to the RP-2014 Aggregate table (employee and annuitant) with generational projection using Scale MP-2014 at March 31, 2015 resulting in actuarial losses of $189,000 and $13,000 for the Pension Benefits and Other Postretirement Benefits, respectively.
(2)
The actual amount transferred to Vista Outdoor on February 9, 2015 was determined to be $158,514 . The difference between this amount and $163,034 was treated as gain/loss on plan assets.


79

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
December 31, 2015
 
March 31, 2015
 
December 31, 2015
 
March 31, 2015
Noncurrent assets
 
$
4,264

 
$
4,318

 
$

 
$

Other current liabilities
 
(5,400
)
 
(3,743
)
 
(3,381
)
 
(3,436
)
Postretirement and postemployment benefits
 

 

 
(50,906
)
 
(64,506
)
Pension
 
(761,632
)
 
(851,001
)
 

 

Net amount recognized
 
$
(762,768
)
 
$
(850,426
)
 
$
(54,287
)
 
$
(67,942
)
Accumulated other comprehensive loss (income) related to:
 
 
 
 
 
 
 
 
Unrecognized net actuarial losses
 
$
1,407,947

 
$
1,520,459

 
$
15,795

 
$
25,906

Unrecognized prior service benefits
 
(131,068
)
 
(144,410
)
 
(9,724
)
 
(15,163
)
Accumulated other comprehensive loss (income)
 
$
1,276,879

 
$
1,376,049

 
$
6,071

 
$
10,743

The estimated amount that will be amortized from AOCI into net periodic benefit cost in 2016 is as follows:
 
 
Pension
 
Other
Postretirement
Benefits
Recognized net actuarial losses
 
$
123,195

 
$
1,589

Amortization of prior service benefits
 
(20,605
)
 
(5,162
)
Total
 
$
102,590

 
$
(3,573
)
The accumulated benefit obligation for all defined benefit pension plans was $2,952,599 at December 31, 2015 and $3,197,143 at March 31, 2015 .
 
 
December 31, 2015
 
March 31, 2015
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
 
 
 
 
Projected benefit obligation
 
$
2,952,668

 
$
3,189,805

Accumulated benefit obligation
 
2,952,599

 
3,187,727

Fair value of plan assets
 
2,189,900

 
2,335,060


80

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Components of net periodic benefit cost were as follows:
 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
March 31, 2015
 
March 31, 2014
 
 
March 31, 2015
 
March 31, 2014
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
14,445

 
$
23,182

 
$
34,763

 
$
1

 
$
3

 
$
9

Interest cost
 
91,044

 
129,236

 
130,253

 
3,378

 
4,803

 
5,207

Expected return on plan assets
 
(120,352
)
 
(165,780
)
 
(161,111
)
 
(2,767
)
 
(3,553
)
 
(3,419
)
Amortization of unrecognized net loss
 
112,949

 
118,163

 
145,891

 
1,488

 
1,629

 
2,288

Amortization of unrecognized prior service cost
 
(15,638
)
 
(22,284
)
 
(20,984
)
 
(5,439
)
 
(8,362
)
 
(8,381
)
Net periodic benefit cost before special termination benefits cost / curtailment
 
82,448

 
82,517

 
128,812

 
(3,339
)
 
(5,480
)
 
(4,296
)
Special termination benefits cost / curtailment
 

 
2,469

 

 

 

 

Net periodic benefit cost
 
$
82,448

 
$
84,986

 
$
128,812

 
$
(3,339
)
 
$
(5,480
)
 
$
(4,296
)
Amounts reported in:
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
82,448

 
$
81,038

 
$
120,812

 
$
(3,339
)
 
$
(5,496
)
 
$
(4,340
)
Discontinued operations
 

 
3,948

 
8,000

 

 
16

 
44

Net periodic benefit cost
 
$
82,448

 
$
84,986

 
$
128,812

 
$
(3,339
)
 
$
(5,480
)
 
$
(4,296
)
During fiscal 2015, the Company recorded a settlement expense of $2,469 to recognize the impact of lump sum benefit payments made in the non-qualified supplemental executive retirement plan.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") reduced the Company's APBO measured at December 31, 2005. One of the Company's other PRB plans is actuarially equivalent to Medicare, but the Company does not believe that the subsidies it will receive under the Act will be significant. Because the Company believes that participation levels in its other PRB plans will decline, the impact to the Company's results of operations in any period has not been and is not expected to be significant.
At the end of the 2015 transition period , the Company changed the approach used to measure service and interest costs for pension and other postretirement benefits. For the 2015 transition period , 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. For 2016, the Company elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. The Company believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. The Company has accounted for this change as a change in accounting estimate and, accordingly, has accounted for it on a prospective basis.

81

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Assumptions
 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
March 31, 2015
 
March 31, 2014
 
 
March 31, 2015
 
March 31, 2014
Weighted-average assumptions used to determine benefit obligations at the end of each period
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
 
4.40
%
 
3.90
%
 
4.50
%
 
3.98
%
 
3.55
%
 
3.95
%
Rate of compensation increase:
 
 
 
 
 
 
 
 
 
 
 
 
Union
 
3.13
%
 
3.66
%
 
3.22
%
 
 

 
 
 
 
Salaried
 
3.62

 
3.14

 
3.47

 
 

 
 
 
 

 
 
Pension Benefits
 
Other Postretirement Benefits
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
March 31, 2015
 
March 31, 2014
 
 
March 31, 2015
 
March 31, 2014
Weighted-average assumptions used to determine net periodic benefit cost for each period
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
 
3.90
%
 
4.50
%
 
4.35
%
 
3.55
%
 
3.95
%
 
3.80
%
Expected long-term rate of return on plan assets
 
7.25

 
7.25

 
7.25

 
5.00

 
5.00

 
5.00

 
 
 

 
 

 
 

 
6.25

 
6.25

 
6.25

Rate of compensation increase:
 
 
 
 
 
 
 
 
 
 
 
 
Union
 
3.66
%
 
3.22
%
 
3.23
%
 
 

 
 
 
 
Salaried
 
3.14

 
3.47

 
3.49

 
 

 
 
 
 
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 5 -year and 10 -year compounded investment returns. The expected long-term rate of return of 7.25% used in the 2015 transition period 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 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 developing the expected long-term rate of return assumption for other PRB plans, the Company considers input from actuaries, historical returns and annualized returns of various major indices over long periods. The expected long-term rates of returns are based on the weighted average asset allocation between the assets held within the 401(h) and those held in fixed income investments.
Assumed Health Care Cost Trend Rates Used to Measure Expected Cost of Benefits
 
 
2016
 
December 31, 2015
Weighted average health care cost trend rate
 
6.10
%
 
6.10
%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
 
4.50

 
4.50

Fiscal year that the rate reaches the ultimate trend rate
 
2027

 
2027


82

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Since fiscal 2006, health care cost trend rates have been set specifically for each benefit plan and design. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage point increase or decrease in the assumed health care cost trend rates would have the following effects:
 
 
One Percentage
Point Increase
 
One Percentage
Point Decrease
Effect on total of service and interest cost
 
$
286

 
$
(253
)
Effect on postretirement benefit obligation
 
6,888

 
(6,118
)
Plan Assets
Pension.     Pension plan weighted-average asset allocations:
 
 
Anticipated 2016
 
Actual
 
 
Low
 
High
 
December 31, 2015
 
March 31, 2015
Asset Category:
 
 
 
 
 
 
 
 
Domestic equity
 
10
%
 
25
%
 
19.9
%
 
20.7
%
International equity
 
10

 
20

 
13.1

 
13.7

Fixed income
 
35

 
50

 
40.5

 
42.5

Real estate
 

 
10

 
5.0

 
4.8

Hedge funds/private equity
 
15

 
30

 
16.8

 
14.8

Other investments/cash
 

 
6

 
4.7

 
3.5

Total
 
100%
 
100
%
 
100
%
The Company has a committee which, assisted by outside consultants, evaluates the objectives and investment policies concerning its long-term investment goals and asset allocation strategies. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. The investment goals are (1) to meet or exceed the assumed actuarial rate of return over the long term within reasonable and prudent levels of risk, and (2) to preserve the real purchasing power of assets to meet future obligations. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. Pension plan assets for the Company's qualified pension plans are held in a trust for the benefit of the plan participants and are invested in a diversified portfolio of equity investments, fixed income investments, real asset investments, hedge funds, private equity and cash. Risk targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the plans' investments are in compliance with the Employee Retirement Income Security Act. Guidelines are established defining permitted investments within each asset class.
During the 2015 transition period , the Company implemented an investment strategy derived from the asset-liability study conducted during fiscal 2013. The results of the asset-liability study reinforced the emphasis on managing the volatility of pension assets relative to pension liabilities while still achieving a competitive investment return, achieving diversification between and within various asset classes and managing other risks. In order to manage the volatility between the value of pension assets and liabilities, the Company has maintained an allocation to long-duration fixed income investments. The Company regularly reviews its actual asset allocation and periodically rebalances its investments to the targeted allocation when considered appropriate. Target allocation ranges are guidelines, not limitations, and occasionally due to market conditions and other factors actual asset allocation may vary above or below a target.

83

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The implementation of the investment strategy discussed above is executed through a variety of investment structures such as: direct share or bond ownership, common/collective trusts, or registered investment companies. Valuation methodologies differ for each of these structures. The valuation methodologies used for these investments structures are as follows:
U.S. Government Securities, Corporate Debt, Common and Preferred Stock, Other Investments and Registered Investment Companies:     Investments are valued at the closing price reported on the active market on which the individual securities are traded.
Common/Collective Trusts:     Investments in a collective investment vehicle are valued by multiplying the investee company's net asset value per share with the number of units or shares owned at the valuation date as determined by the investee company. Net asset value per share is determined by the investee company's custodian or fund administrator by deducting from the value of the assets of the investee company all of its liabilities and the resulting number is divided 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.
Partnership/Joint Venture Interests:     Given the inherent illiquidity of many partnership/joint venture investments, these investments are generally valued based on unobservable inputs that reflect the reporting entity's own assumptions about the assumptions that market participants would use pricing the asset. While the valuation methodologies may differ among each entity, the method for valuing these assets is primarily net asset values; other methods may include, but are not limited to, discounted cash flow analysis and comparable trading data for similar investments.
Funds in Insurance Company Accounts:     These investments are valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Fair Value: Pension plan investments using the fair value hierarchy discussed in Note  2 at December 31, 2015 consisted of the following:
 
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Interest-bearing cash
 
$

 
$
33,271

 
$

 
$
33,271

U.S. Government securities
 
62,428

 
5,939

 

 
68,367

Corporate debt
 

 
405,898

 
95

 
405,993

Common stock
 
88,928

 
6,842

 

 
95,770

Partnership/joint venture interest
 

 

 
709,251

 
709,251

Other investments
 
156

 
1,940

 

 
2,096

Common/collective trusts
 

 
609,852

 

 
609,852

Registered investment companies
 
59,366

 
164,696

 

 
224,062

Value of funds in insurance company accounts
 

 
40,195

 
1,043

 
41,238

Total
 
210,878

 
1,268,633

 
710,389

 
2,189,900



84

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Pension plan investments using the fair value hierarchy discussed in Note  2 at March 31, 2015 consisted of the following:
 
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Interest-bearing cash
 
$

 
$
3,279

 
$

 
$
3,279

U.S. Government securities
 
158,938

 
11,546

 

 
170,484

Corporate debt
 

 
410,035

 
187

 
410,222

Common stock
 
110,932

 
5,289

 

 
116,221

Partnership/joint venture interest
 

 

 
746,305

 
746,305

Other investments
 
5

 
3,121

 

 
3,126

Common/collective trusts
 

 
743,960

 

 
743,960

Registered investment companies
 
131,251

 
145,649

 

 
276,900

Value of funds in insurance company accounts
 

 
42,190

 
1,076

 
43,266

Total
 
$
401,126

 
$
1,365,069

 
$
747,568

 
$
2,513,763

Fair value of assets at March 31, 2015 transferred to Vista Outdoor
 
$
(26,324
)
 
$
(89,584
)
 
$
(49,060
)
 
$
(164,968
)
Fair value of plan assets at end of year
 
$
374,802

 
$
1,275,485

 
$
698,508

 
$
2,348,795

Changes in Level 3 assets consisted of the following:
 
 
Corporate Debt
 
Insurance
Contracts
 
Partnerships/
Joint Ventures
Balance, March 31, 2014
 
$
199

 
$
1,131

 
$
689,073

Realized (losses) gains
 

 
6

 
38,614

Net unrealized (losses) gains
 
1

 
(2
)
 
(5,558
)
Net purchases, issuances, and settlements
 
(13
)
 
(59
)
 
24,176

Net transfers into (out of) Level 3
 

 

 

Balance, March 31, 2015
 
$
187

 
$
1,076

 
$
746,305

Realized (losses) gains
 
1

 
16

 
24,088

Net unrealized (losses) gains
 
1

 
(7
)
 
(37,868
)
Net purchases, issuances and settlements
 
(94
)
 
(42
)
 
(23,274
)
Net transfers into (out of) Level 3
 

 

 

Balance, December 31, 2015
 
$
95

 
$
1,043

 
$
709,251

There was no direct ownership of the Company common stock included in plan assets at any of the periods presented.
Other Postretirement Benefits.     The Company's other PRB obligations were 52.5% and 48.4% pre-funded at December 31, 2015 and March 31, 2015 , respectively.
Portions of the assets are held in a 401(h) account held within the pension master trust and are invested in the same manner as the pension assets. Approximately 44% and 44.0% of the assets were held in the 401(h) account at December 31, 2015 and March 31, 2015 , respectively. The remaining assets are in fixed income investments. The Company's investment objective for the other PRB plan assets is the preservation and safety of capital.
Contributions
During the 2015 transition period , the Company contributed $72,000 directly to the ATK Plans' pension trust and $1,845 directly to retirees under its supplemental (nonqualified) executive retirement plan. The Company also contributed $5,644 to its other PRB plans. The Company is required to make contributions of $37,000 to meet its legally required minimum

85

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

contributions for 2016 . The Company also expects to distribute approximately $5,400 directly to retirees under its supplemental executive retirement plans and to contribute approximately $7,552 to its other postretirement benefit plans in 2016 .
Expected Future Benefit Payments
The following benefit payments, which reflect expected future service, are expected to be paid in the years ending December 31. The pension benefits will be paid primarily out of the pension trust. The postretirement benefit payments are shown net of the expected subsidy for the Medicare prescription drug benefit under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 which are not material to be presented separately.
 
 
Pension
Benefits
 
Other
Postretirement
Benefits
2016
 
$
189,200

 
$
10,547

2017
 
191,900

 
10,359

2018
 
195,800

 
10,106

2019
 
200,800

 
9,801

2020
 
204,400

 
9,482

2021 through 2025
 
1,043,300

 
41,164

Termination
In the event the Company terminates any of the plans under conditions in which the plan's assets exceed that plan's obligations, U.S. Government regulations require that a fair allocation of any of the plan's assets based on plan contributions that were reimbursed under U.S. Government contracts will be returned to the U.S. Government.
Defined Contribution Plan
Through December 31, 2015, the Company also sponsored two defined contribution plans - the Alliant Techsystems Inc. 401(k) Plan and the Deferred Salary and Profit Sharing Plan for Employees of Orbital Sciences Corporation (the "Orbital Sciences 401(k) Plan"). Participation in these plans was available to substantially all U.S. employees. Effective January 1, 2016, the Orbital Sciences 401(k) Plan merged into the Alliant Techsystems Inc. 401(k) Plan, and the Alliant Techsystems Inc. 401(k) Plan was renamed the Orbital ATK, Inc. 401(k) Plan.
The Orbital ATK, Inc. 401(k) Plan (formerly named the Alliant Techsystems Inc. 401(k) Plan) is a 401(k) plan, with an employee stock ownership ("ESOP") feature, to which employees may contribute up to 50% of their pay (highly compensated employees are subject to limitations). Employee contributions are invested, at the employees' direction, among a variety of investment alternatives including a Company common stock fund. Participants may transfer amounts into and out of the investment alternatives at any time, except for the Company common stock fund. Any dividends declared on the Company common stock can be either reinvested within the Company common stock fund or provided as a cash payment. Effective January 1, 2013 employees no longer had the option to invest in the Company common stock fund, other than for the reinvestment of dividends paid on the Company common stock in participants' accounts. Balances in the fund prior to January 1, 2013 remain in the fund unless distributed or transferred. Effective January 1, 2004, the Company matching contribution and non-elective contribution to this plan depends on a participant's years of service, pension plan participation and certain other factors. Participants may receive:
a matching contribution of 100% of the first 3% of the participant's contributed pay plus 50% of the next 2% of the participant's contributed pay, or
a matching contribution of 50% of the first 6% of the participant's contributed pay, or
a matching contribution of 100% of the first 3% of the participant's contributed pay plus 50% of the next 3% of the participant's contributed pay (subject to one -year vesting) and a non-elective contribution based on recognized compensation, age and service (subject to three -year vesting), or
an automatic enrollment of a 6% pre-tax contribution rate (of which the participant can either change or opt out) along with a matching contribution of 100% of the first 3% of the participant's contributed pay plus 50% of the next 3% of the participant's contributed pay (subject to one -year vesting) and a non-elective contribution based on recognized compensation, age and service (subject to three -year vesting), or

86

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

a non-elective contribution based on the recognized compensation, age and service (subject to three-year vesting), or
no matching contribution
The Company's contributions to the plan were $41,028 in the 2015 transition period , $51,205 in fiscal 2015 and $48,379 in fiscal 2014 .
At December 31, 2015 , the Company had approximately 9,000 U.S. employees eligible under the plan. The Company has union-represented employees at five locations, comprising less than 20% of its total workforce. One location has two separate bargaining units, each with its own collective bargaining agreement (“CBA”). One location is currently negotiating its initial CBA with the Company.  The Company’s current CBAs expire in 2016 and 2017.
The Deferred Salary and Profit Sharing Plan for Employees of Orbital Sciences Corporation, which merged with the Orbital ATK, Inc. 401(k) Plan effective January 1, 2016, was a 401(k) plan to which legacy Orbital employees could contribute up to 30% of their pay (highly compensated employees were subject to limitations). Employee contributions were invested, at the employees' direction, among a variety of investment alternatives including the Company common stock fund. Participants could transfer amounts into and out of the investment alternatives at any time, except for the Company common stock fund. Any dividends declared on the Company common stock could be reinvested within the Company common stock fund. Effective February 9, 2015, employees no longer had the option to invest in the Company common stock fund, other than for the reinvestment of dividends paid on the Company common stock in participants' accounts. Balances in the fund prior to February 9, 2015 remained in the fund unless distributed or transferred. Participants received a matching contribution of 100% of the first 5% of the participant's contributed pay. The Company could also make an annual discretionary profit sharing contribution based on the participant’s compensation. The Company's contributions to the plan were $2,778 in fiscal 2015 .
11. Income Taxes
Income taxes consisted of the following:
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
March 31, 2015
 
March 31, 2014
Current:
 
 
 
 
 
 
Federal
 
$
31,297

 
$
42,625

 
$
60,674

State
 
1,067

 
2,518

 
1,378

Deferred:
 
 
 
 
 
 
Federal
 
48,276

 
(2,599
)
 
(3,433
)
State
 
3,019

 
(3,427
)
 
3,923

Income taxes
 
$
83,659

 
$
39,117

 
$
62,542

Differences between the federal statutory rate and the Company's effective rate related to the following:
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
March 31, 2015
 
March 31, 2014
Statutory federal income tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal impact
 
1.6

 
(0.5
)
 
1.1

Domestic manufacturing deduction
 
(1.7
)
 
(6.9
)
 
(3.2
)
Goodwill impairment
 

 
10.3

 

Research and development tax credit
 
(5.3
)
 
(2.9
)
 
(1.7
)
Change in prior year contingent tax liabilities
 
1.0

 
(3.3
)
 
(4.4
)
Nondeductible transaction costs
 

 
6.6

 

Other
 
(0.7
)
 
(2.3
)
 
1.2

Change in valuation allowance
 
1.6

 
(2.5
)
 
0.2

Income tax provision
 
31.5
 %
 
33.5
 %
 
28.2
 %

87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Deferred Income Taxes
Deferred income taxes arise because of temporary differences in the timing of the recognition of income and expense items for financial statement reporting and income tax purposes. As discussed in Note 1, as of December 31, 2015 the Company prospectively adopted a new accounting standard which requires all deferred income tax assets and liabilities to be classified as noncurrent on the balance sheet. Accordingly, net deferred income taxes are classified as noncurrent assets at December 31, 2015. Net deferred income taxes at March 31, 2015 are classified as current or noncurrent assets based upon the classification of the related assets and liabilities, or, if there is no corresponding balance on the balance sheet, the expected period of reversal, and were not retrospectively adjusted.
In December 2015, the Protecting Americans from Tax Hikes (PATH) Act was enacted to permanently reinstate the Research & Development tax credit (R&D tax credit) which had expired on December 31, 2014. The impact of this extension was included in the tax rate for the period ended December 31, 2015. In addition, we recorded additional R&D tax credit during the acquisition accounting measurement period.
Deferred income tax assets and liabilities resulting from temporary differences related to the following:
 
 
Years Ended
 
 
December 31, 2015
 
March 31, 2015
Deferred income tax assets:
 
 
 
 
Retirement benefits
 
$
306,008

 
$
344,674

  Federal Carryforwards
 
35,957

 
10,269

Other
 
35,864

 
44,098

Other reserves
 
23,871

 
27,358

Accruals for employee benefits
 
41,719

 
46,691

Inventory
 
14,206

 
10,893

Contract method of revenue recognition
 
15,521

 
31,305

Total deferred income tax assets before valuation allowance
 
473,146

 
515,288

Valuation allowance
 
(13,190
)
 
(8,836
)
Total deferred income tax assets
 
459,956

 
506,452

Deferred income tax liabilities:
 
 
 
 
Intangible assets
 
(99,810
)
 
(110,014
)
Property, plant and equipment
 
(134,689
)
 
(127,343
)
Debt-related
 
(15,596
)
 
(21,290
)
Total deferred income tax liabilities
 
(250,095
)
 
(258,647
)
Net deferred income tax assets
 
$
209,861

 
$
247,805

The Company believes it is more likely than not that the recorded deferred benefits will be realized through the reduction of future taxable income. The Company's recorded valuation allowance of $13,190 at December 31, 2015 relates to certain capital loss, tax credits and net operating losses that are not expected to be realized before their expiration.
Included in the net deferred tax asset are net operating loss and credit carryovers of $30,562 , net of valuation allowances, which expire in years ending from December 31, 2016 through December 31, 2036, and $8,799 that may be carried over indefinitely.
The following summarizes activity related to valuation allowances for deferred tax assets:

88

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
 March 31, 2015
 
 March 31, 2014
Beginning Balance
 
$
8,836

 
$
2,771

 
$
3,849

Additions, charged to expense
 
4,655

 
84

 
123

Additions, due to the Merger
 

 
6,974

 

Deductions
 
(301
)
 
(993
)
 
(1,201
)
Ending Balance
 
$
13,190

 
$
8,836

 
$
2,771

The Company has significant deferred tax assets in the U.S. against which valuation allowances have been established to reduce such deferred tax assets to an amount that is more likely than not to be realized. The establishment of valuation allowances requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. While the Company believes positive evidence exists with regard to the realizability of these deferred tax assets, it is not considered sufficient to outweigh the objectively verifiable negative evidence.
Unrecognized Tax Benefits
Unrecognized tax benefits consist of the carrying value of the Company's recorded uncertain tax positions as well as the potential tax benefits that could result from other tax positions that have not been recognized in the financial statements under current authoritative guidance. At December 31, 2015 and March 31, 2015 , unrecognized tax benefits that have not been recognized in the financial statements amounted to $91,242 and $44,290 , respectively, of which $86,999 and $40,407 , respectively, would affect the effective tax rate, if recognized. The remaining balance is related to deferred tax items which only impact the timing of tax payments. Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that a $3,015 reduction of the uncertain tax benefits will occur in the next 12 months . The settlement of these unrecognized tax benefits could result in earnings from $0 to $2,599 .
Changes in unrecognized tax benefits, excluding interest and penalties, were as follows:
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 
 
 
March 31, 2015
 
March 31, 2014
Unrecognized tax benefits, beginning of period
 
$
42,499

 
$
32,317

 
$
25,657

Gross increases—tax positions in prior periods
 
42,032

 
21,369

 
15,412

Gross decreases—tax positions in prior periods
 
(1,147
)
 
(8,193
)
 
(13,172
)
Gross increases—current-period tax positions
 
5,837

 
1,571

 
4,573

Settlements
 

 
(2,786
)
 

Lapse of statute of limitations
 
(74
)
 
(1,779
)
 
(153
)
Unrecognized tax benefits, end of period
 
$
89,147

 
$
42,499

 
$
32,317

The Company reports income tax-related interest income within income taxes. Penalties and tax-related interest expense are also reported as a component of income taxes. At December 31, 2015 and March 31, 2015 , $1,787 and $1,503 of income tax-related interest and $307 and $289 of penalties were included in accrued income taxes, respectively.
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 2008. The IRS has completed the audits of the Company through fiscal 2012 and is currently auditing the Company's tax returns for fiscal 2013 and 2014. The Company believes appropriate provisions for all outstanding issues have been made for all remaining open years in all jurisdictions.
12. Commitments
The Company leases land, buildings and equipment under various operating leases, which generally have renewal options of one to five years. Rent expense was $68,839 in the 2015 transition period , $72,826 in fiscal 2015 and $67,972 in fiscal 2014 .

89

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Scheduled operating lease payments are as follows:
2016
$
76,178

2017
64,897

2018
59,322

2019
53,955

2020
49,750

Thereafter
65,728

Total
$
369,830

The Company currently leases its facility in Magna, Utah from a private party. This facility is used in the production and testing of some of the Company's rocket motors. The current lease extends through September 2022. The lease requires the Company to surrender the property back to its owner in its original condition. While the Company currently anticipates operating this facility indefinitely, the Company could incur significant costs if the Company were to terminate this lease.
The Company has known conditional asset retirement obligations, such as contractual lease restoration obligations, to be performed in the future, that are not reasonably estimable due to insufficient information about the timing and method of settlement of the obligation. Accordingly, these obligations have not been recorded in the consolidated financial statements. A liability for these obligations will be recorded in the period when sufficient information regarding timing and method of settlement becomes available to make a reasonable estimate of the liability's fair value.
13. Contingencies
Litigation.     From time to time, the Company is subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company's business. The Company does not consider any of such proceedings that are currently pending, individually or in the aggregate, notwithstanding that the unfavorable resolution of any matter may have a material effect on net earnings in any particular quarter, to be material to its business or likely to result in a material adverse effect on its operating results, financial condition, or cash flows.
On July 30, 2013, Raytheon Company filed a lawsuit against the Company in the Superior Court of the State of Arizona.  The suit concerned the Company's longstanding production of rocket motors used in Raytheon's Advanced Medium-Range Air-to-Air Missiles (AMRAAM).  Raytheon's primary allegation was that the Company breached certain of the production contracts by not delivering rocket motors.  Raytheon claimed damages in excess of $100,000 . The parties settled this matter on March 27, 2015. The Company paid $25,000 to Raytheon, and the litigation was voluntarily dismissed on April 21, 2015.
On November 4, 2013, the Company filed a lawsuit against Spirit Aerosystems Inc. in the Second District Court in Farmington, Utah. In the lawsuit, the Company made various claims, including breach of contract, in relation to a contract with Spirit Aerosystems regarding the manufacture of aircraft parts. On September 18, 2015, the parties entered into a settlement agreement resolving all matters at issue in the litigation, and the case was dismissed.
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. At December 31, 2015 and March 31, 2015 , based on progress to date on certain contracts, there is $25,042 and $42,055 included in unbilled receivables 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,

90

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

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, fines and penalties or third-party property damage or personal injury claims, as a result of violations or liabilities under environmental laws or non-compliance with environmental permits. While environmental laws and regulations have not had a material adverse effect on the Company's operating results, financial condition, or cash flows in the past and the Company has environmental management programs in place to mitigate these risks, it is difficult to predict whether they will have a material impact in the future.
The liability for environmental remediation represents management's best estimate of the present value of the probable and reasonably estimable costs related to known remediation obligations. The receivable represents the present value of the amount that the Company expects to recover, as discussed below. Both the liability and receivable have been discounted to reflect the present value of the expected future cash flows, using a discount rate of 0.7% and 0.5% at December 31, 2015 and March 31, 2015 , respectively. The Company's discount rate is calculated using the 20 -year Treasury constant maturities rate, net of an estimated inflationary factor of 1.9% , rounded to the nearest quarter percent.
Environmental remediation consisted of the following:
 
 
December 31, 2015
 
March 31, 2015
 
 
Liability
 
Receivable
 
Liability
 
Receivable
Amounts (payable) receivable
 
$
(41,824
)
 
$
18,236

 
$
(51,749
)
 
$
26,506

Unamortized discount
 
1,718

 
(568
)
 
1,624

 
(750
)
Present value amounts (payable) receivable
 
$
(40,106
)
 
$
17,668

 
$
(50,125
)
 
$
25,756

Amounts expected to be paid or received in periods more than one year from the balance sheet date are classified as noncurrent. Of the total discounted liability at December 31, 2015 , $5,006 was recorded within other current liabilities and $35,100 was recorded within other long-term liabilities. Of the total discounted receivable, the Company recorded $2,523 within other current assets and $15,145 within other noncurrent assets. At December 31, 2015 , the estimated discounted range of reasonably possible costs of environmental remediation was $40,106 to $78,920 .
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 may be covered by various indemnification agreements, as described below.
As part of its acquisition of the Hercules Aerospace Company in fiscal 1995, the Company generally assumed responsibility for environmental compliance at the facilities acquired from Hercules ("the Hercules Facilities"). The Company believes that a portion of the compliance and remediation costs associated with the Hercules Facilities will be recoverable under U.S. Government contracts. If the Company were unable to recover those environmental remediation costs under these contracts, the Company believes that these costs will be covered by Hercules Incorporated, a subsidiary of Ashland Inc., ("Hercules") under environmental agreements entered into in connection with the Hercules acquisition. Under these agreements, Hercules has agreed to indemnify the Company for environmental conditions relating to releases or hazardous waste activities occurring prior to the Company's purchase of the Hercules Facilities as long as they were identified in accordance with the terms of the agreement; fines relating to pre-acquisition environmental compliance; and environmental claims arising out of breaches of Hercules' representations and warranties. Hercules is not required to indemnify the Company for any individual claims below $50 . Hercules is obligated to indemnify the Company for the lowest cost response of remediation required at the facility that is acceptable to the applicable regulatory agencies. The Company is not responsible for conducting any remedial activities with respect to the Clearwater, FL facility. In accordance with its agreement with

91

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Hercules, the Company notified Hercules of all known contamination on non-federal lands on or before March 31, 2000, and on federal lands on or before March 31, 2005.
The Company generally assumed responsibility for environmental compliance at the Thiokol Facilities acquired from Alcoa Inc. ("Alcoa") in fiscal 2002. The Company expects that a portion of the compliance and remediation costs associated with the acquired Thiokol Facilities will be recoverable under U.S. Government contracts. In accordance with its agreement with Alcoa, the Company notified Alcoa of all known environmental remediation issues at January 30, 2004. Of these known issues, the Company is responsible for any costs not recovered through U.S. Government contracts at Thiokol Facilities up to $14,000 , the Company and Alcoa have agreed to split evenly any amounts between $14,000 and $34,000 , and the Company is responsible for any payments in excess of $34,000 . At this time, the Company believes that costs not recovered through U.S. Government contracts will be immaterial.
The Company cannot ensure that the U.S. Government, Hercules, Alcoa, or other third parties will reimburse it for any particular environmental costs or reimburse the Company in a timely manner or that any claims for indemnification will not be disputed. U.S. Government reimbursements for cleanups are financed out of a particular agency's operating budget and the ability of a particular governmental agency to make timely reimbursements for cleanup costs will be subject to national budgetary constraints. The Company's failure to obtain full or timely reimbursement from the U.S. Government, Hercules, Alcoa, or other third parties could have a material adverse effect on its operating results, financial condition, or cash flows. While the Company has environmental management programs in place to mitigate these risks, and 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, it is difficult to predict whether they will have a material impact in the future.
In December 2001, the Company received notice from the State of Utah of a potential claim against the Company under Section 107(f) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") for natural resource damages at Bacchus, one of the Hercules Facilities, in Magna, Utah. The notice letter, which was issued to preserve the State's rights under CERCLA, also expressly acknowledged the State's willingness to allow the Company to go forward with its currently-planned monitoring and remediation program. The State's preliminary estimate of damages contained in this claim was $139  million, which is based on known and alleged groundwater contamination at and near Bacchus and is related to Hercules' manufacturing operations at the site. The Company entered into a tolling agreement with the State in fiscal 2002 (the “Bacchus Tolling Agreement”). In fiscal 2003, the Company entered into a similar tolling agreement with the State regarding the Promontory facility that was acquired from Alcoa in the acquisition of Thiokol (the “Promontory Tolling Agreement”). Also in fiscal 2003, the Company and Kennecott Utah Copper LLC (Kennecott) entered into a tolling agreement due the presence of perchlorate in Kennecott’s Section 21 Well Field. Both parties continue to monitor the quality of the water in the Section 21 Well Field and the Company has agreed to continue to supply bottled water to Kennecott for the areas potentially affected by the Section 21 Well Field. These agreements allow the Company time to continue to identify and address the contamination by the normal and planned regulatory remediation processes in Utah. The Bacchus Tolling Agreement expires in January 2016 and the Promontory Tolling Agreement has been extended to September 2017. The Kennecott tolling agreement was extended in fiscal 2014 and expires in September 2018. Although the Company has previously made accruals for its best estimate of the probable and reasonably estimable costs related to the remediation obligations known to the Company with respect to the affected areas, the Company cannot yet predict if or when a suit may be filed against it, nor can the Company determine any additional costs that may be incurred in connection with this matter.
Expected aggregate undiscounted environmental remediation payments, net of expected recoveries, are as follows:
2016
$
2,484

2017
297

2018
283

2019
2,354

2020
1,842

Thereafter
16,328

Total
$
23,588

There were no material insurance recoveries related to environmental remediation during any of the periods presented.
14. Stockholders' Equity
The Company has authorized 5,000,000 shares of preferred stock, par value $1.00 , none of which has been issued.

92

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The Company sponsors six stock-based incentive plans, including: 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 two legacy Orbital plans, under which the Company assumed the obligation to issue Company common stock pursuant to the terms of the Transaction Agreement relating to the Merger (the Orbital Sciences Corporation 2005 Amended and Restated Stock Incentive Plan and the Orbital Sciences Corporation 1997 Stock Option and Incentive Plan). At December 31, 2015 , the Company has authorized up to 3,750,000 common shares under the ATK 2015 Stock Incentive Plan, of which 3,704,016 common shares are available to be granted. No new grants will be made out of the other five plans.
There are five types of awards outstanding under the Company's stock incentive plans: performance awards, TSR awards, restricted stock units, restricted stock and stock options. The Company issues treasury shares upon (i) the payment of performance awards, TSR awards and restricted stock units, (ii) the grant of restricted stock, and (iii) the exercise of stock options.
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 TSR awards outstanding at February 9, 2015 were converted into time-vesting restricted stock units in connection with the Distribution, with vesting periods corresponding to the respective performance periods. At December 31, 2015 , there were 40,707 shares reserved for the vesting of restricted stock units for the fiscal 2014-2016 performance period on March 31, 2016 and 55,677 shares reserved for the vesting of restricted stock units for the fiscal 2015-2017 performance period on March 31, 2017.
At December 31, 2015 , there were up to 78,900 shares reserved for performance awards for executive officers and key employees. Performance shares are valued at the fair value of the Company stock at 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 shares:
up to 50% will become payable only upon achievement of a financial performance goal relating to absolute earnings per share growth for the performance period beginning April 1, 2015 and ending December 31, 2017;
up to 50% will become payable only upon achievement of a performance goal relating to absolute sales growth for the performance period beginning April 1, 2015 and ending December 31, 2017.
The weighted average fair value of TSR awards granted was $94.93 during the nine months ended December 31, 2015 and fiscal 2015. The Company used an integrated Monte Carlo simulation model to determine the fair value of these 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 as well as the assumptions of other variables, including the risk-free interest rate and expected volatility of the Company's stock price in future periods. The risk-free rate is based on the U.S. dollar-denominated U.S. Treasury strip rate with a remaining term that approximates the life assumed at the date of grant.
Weighted-average assumptions used in estimating the value of the TSR award were as follows:
 
 
Nine Months Ended December 31, 2015
 
Year Ended March 31, 2015
Risk-free rate
 
1.02
%
 
1.02
%
Expected volatility
 
22.81
%
 
22.81
%
Expected dividend yield
 
1.78
%
 
1.78
%
Expected award life
 
3

 
3

Restricted stock granted to non-employee directors and certain key employees totaled 86,108 shares in the 2015 transition period , 139,093 shares in fiscal 2015 , and 127,425 shares in fiscal 2014 . 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 at the grant date.
Stock options may be granted periodically, 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.

93

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The weighted-average fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and represents the difference between fair market value on the date of grant and the estimated market value on the expected exercise date. The option pricing model requires the Company to make assumptions. The risk-free rate is based on U.S. Treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of grant. Expected volatility is based on the historical volatility of the Company's stock over the past seven years. The expected option life is based on the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. The weighted average fair value of options granted was $20.80 , $39.81 and $35.34 during the 2015 transition period and the years ended March 31, 2015 and March 31, 2014 , respectively.
Weighted-average assumptions used in estimating the value of the grants were as follows:
 
 
Nine Months Ended December 31, 2015
 
Years Ended
 

 
March 31, 2015
 
March 31, 2014
Risk-free rate

1.99%
 
1.82%
 
1.86%-2.07%
Expected volatility

27.91%
 
27.67%
 
25.95%-26.71%
Expected dividend yield

1.17%
 
0.99%
 
1.27%-1.58%
Expected option life

7 years
 
7 years
 
7 years
Total pre-tax stock-based compensation expense of $19,521 , $25,325 and $12,701 was recognized during the 2015 transition period , fiscal 2015 and fiscal 2014 , respectively. The total income tax benefit recognized in the statement of comprehensive income for share-based compensation was $7,544 , $8,761 and $4,874 during the 2015 transition period , fiscal 2015 and fiscal 2014 , respectively.
The Company's stock option activity was as follows:
 
 
Shares
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining
Contractual Life
(in years)
 
Aggregate Intrinsic
Value
(per option)
Outstanding, March 31, 2013
 
262,248

 
$
61.72

 
2.7
 
$

Granted
 
47,490

 
130.86

 
 
 
 
Exercised
 
(13,173
)
 
55.32

 
 
 
 
Forfeited/expired
 
(26,160
)
 
62.34

 
 
 
 
Outstanding, March 31, 2014
 
270,405

 
74.11

 
8.3
 
$
68.04

Granted
 
73,100

 
72.06

 
 
 
 
Converted in conjunction with the Merger
 
11,225

 
27.45

 
 
 
 
Outstanding, March 31, 2015
 
354,730

 
41.83

 
7.8
 
$
34.80

Granted
 
1,443

 
73.13

 
 
 
 

Exercised
 
(122,893
)
 
30.90

 
 
 
 

Outstanding, December 31, 2015
 
233,280

 
$
47.79

 
7.7
 
$
41.55

Options exercisable at:
 
 
 
 
 
 
 
 
December 31, 2015
 
109,509

 
$
32.43

 
6.6
 
$
56.91

March 31, 2015
 
230,715

 
$
64.32

 
7.0
 
$
44.99

March 31, 2014
 
114,083

 
$
61.63

 
8.0
 
$
80.52

The total intrinsic value of options exercised was $5,963 and $295 during the 2015 transition period and fiscal 2014 , respectively. There were no options exercised in fiscal 2015. Total cash received from options exercised during the 2015 transition period and fiscal 2014 was $3,684 and $729 , respectively.

94

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The Company's nonvested stock-based compensation awards activity was as follows:
 
 
Performance Share
and
TSR Awards
 
Restricted Stock
Units
 
Restricted Stock
Awards
 
Combined
Weighted Average
Grant Date
Fair Value
Nonvested, March 31, 2013
 
491,016

 

 
267,426

 
$
65.42

Granted
 
113,212

 

 
127,451

 
114.65

Canceled/forfeited
 
(200,557
)
 

 
(13,526
)
 
68.65

Vested
 
(95,579
)
 

 
(98,407
)
 
66.60

Nonvested, March 31, 2014
 
308,092

 

 
282,944

 
83.91

Granted
 
161,661

 

 
139,094

 
81.88

Converted in conjunction with the Merger
 

 
647,436

 

 
71.29

Canceled/forfeited
 
(309,223
)
 

 
(13,521
)
 
87.05

Vested
 

 
(146,497
)
 
(195,882
)
 
72.50

Nonvested, March 31, 2015
 
160,530

 
500,939

 
212,635

 
77.02

Granted
 
2,976

 

 
86,108

 
74.88

Canceled/forfeited
 
(5,374
)
 
(10,908
)
 
(9,914
)
 
80.88

Vested
 
(333
)
 
(191,084
)
 
(17,806
)
 
43.87

Nonvested, December 31, 2015
 
157,799

 
298,947

 
271,023

 
75.57

At December 31, 2015 , the total unrecognized compensation cost related to nonvested stock-based compensation awards was $29,320 and is expected to be realized over a weighted average period of 2.2  years.
Share Repurchases
On March 11, 2015, the Company's Board of Directors authorized the Company to repurchase up to the lesser of $75 million or one million shares of its common stock through December 31, 2015. On August 4, 2015, the Board of Directors increased the amount authorized for repurchase to the lesser of $100 million or 1.4 million shares of the Company's common stock. On October 29, 2015, the Board of Directors increased the amount authorized for repurchase to the lesser of $250 million or 3.25 million shares. Under the authorized repurchase program, shares of the Company common stock may be purchased from time to time 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. The Company repurchased 1,008,445 shares for $75,795 in the 2015 transition period , $0 during fiscal 2015 and 609,922 shares for $52,130 during fiscal 2014.
In accordance with the Transaction Agreement entered into on April 28, 2014, the Company did not repurchase any outstanding shares prior to the closing of the Distribution and Merger during fiscal 2015.
15. Restructuring Costs
During fiscal 2015 and the 2015 transition period , the Company executed business restructuring initiatives aimed at reducing the Company's fixed cost structure.
In May 2014, the Company consolidated a portion of its Eden Prairie, Minnesota corporate facility. In conjunction with that consolidation, the Company incurred restructuring charges in the first quarter of fiscal 2015 related primarily to the fair value of the remaining lease rentals, asset impairment charges, and costs associated with facility reconfiguration. In the fourth quarter of fiscal 2015 , the Company incurred termination costs for management restructuring. Additionally, in the fourth quarter of fiscal 2015 the Company consolidated a portion of its Arlington, Virginia corporate facility, incurring charges related primarily to the fair value of the remaining lease rentals and asset impairment charges.
In the last quarter of the 2015 transition period , the Company consolidated the remaining portion of its Eden Prairie, Minnesota corporate facility and a further portion of its Arlington, Virginia corporate facility, incurring charges related primarily to the fair value of the remaining lease rentals and asset impairment charges. In addition, in the last quarter of the 2015 transition period the Company incurred termination costs for management restructuring.
The Company had no restructuring liability at March 31, 2014 .

95

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Changes in restructuring liabilities were as follows:
 
 
Termination
Benefits
 
Remaining Lease Rentals
 
Asset
Impairment
 
Facility Closure and Other Costs
 
Total
Balance, March 31, 2014
 
$

 
$

 
$

 
$

 
$

Expense
 
9,595

 
11,473

 
3,166

 
1,385

 
25,619

Payments
 
(1,263
)
 
(1,046
)
 

 
(1,385
)
 
(3,694
)
Noncash settlements
 

 

 
(3,166
)
 

 
(3,166
)
Balance, March 31, 2015
 
8,332

 
10,427

 

 

 
18,759

Expense
 
3,798

 
13,288

 
6,213

 

 
23,299

Payments
 
(8,541
)
 
(1,860
)
 

 

 
(10,401
)
Noncash settlements
 

 

 
(6,213
)
 

 
(6,213
)
Balance, December 31, 2015
 
$
3,589

 
$
21,855

 
$

 
$

 
$
25,444

16. Operating Segment Information
The Company operates its business structure within three operating groups. 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. At December 31, 2015 , the Company's three operating groups were:
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. Other products include illuminating flares and aircraft countermeasures.
Defense Systems Group develops and produces military small-, medium-, and large-caliber ammunition, small-caliber commercial 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 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.
The Company derives the majority of its sales from contracts with, and prime contractors to, the U.S. Government. Sales to the U.S. Government and U.S. Government prime contractors were as follows:
 
 
U.S. Government Sales
 
Percentage of sales
Nine months ended December 31, 2015
 
$
2,366,628

 
70
%
Year ended March 31, 2015
 
2,388,816

 
75
%
Year ended March 31, 2014
 
2,465,436

 
84
%
The CRS I contract with NASA, which is reported within Flight Systems Group and Space Systems Group , comprised 11% of total sales in the 2015 transition period . The Company's small-caliber ammunition contract with the U.S. Army, which is reported within Defense Systems Group , comprised 7% , 13% and 9% of total sales in the 2015 transition period, fiscal 2015 and fiscal 2014, respectively. No other single contract accounted for more than 10% of the Company's sales in the 2015 transition period , fiscal 2015 or fiscal 2014 .

96

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

No single commercial customer accounted for 10% or more of the Company's sales in the 2015 transition period , fiscal 2015 , or fiscal 2014 .
The Company's international sales were $764,543 in the 2015 transition period , $612,934 in fiscal 2015 and $348,297 in fiscal 2014 . During the 2015 transition period , 47% of these sales were in Defense Systems Group , 35% were in Space Systems Group and 18% of these sales were in Flight Systems Group . Sales to no individual country outside the United States accounted for more than 4% , 6% , or 3% of the Company's sales in the 2015 transition period , fiscal 2015 and fiscal 2014, respectively. Substantially all of the Company's assets are held in the United States.
Operating results and total assets by segment were as follows:
 
 
Nine Months Ended December 31, 2015
 
 
Flight Systems Group
 
Defense Systems Group
 
Space Systems Group
 
Corporate
 
Total
Sales:
 
 
 
 
 
 
 
 
 
 
External customers
 
$
1,112,762

 
$
1,327,509

 
$
958,818

 
$

 
$
3,399,089

Intercompany
 
26,971

 
6,488

 
14,663

 
(48,122
)
 

Total
 
1,139,733

 
1,333,997

 
973,481

 
(48,122
)
 
3,399,089

Income from continuing operations, before interest, income taxes and noncontrolling interest
 
196,560

 
117,035

 
69,870

 
(61,078
)
 
322,387

Capital expenditures
 
48,342

 
22,443

 
31,217

 
2,632

 
104,634

Depreciation
 
39,183

 
19,567

 
23,825

 
7,932

 
90,507

Amortization of intangibles
 
13,037

 
514

 
17,956

 
1,864

 
33,371

Total assets
 
2,252,031

 
1,346,463

 
1,247,546

 
507,516

 
5,353,556


 
 
Year Ended March 31, 2015
 
 
Flight Systems Group
 
Defense Systems Group
 
Space Systems Group
 
Corporate
 
Total
Sales:
 
 
 
 
 
 
 
 
 
 
External customers
 
$
1,065,058

 
$
1,712,300

 
$
396,609

 
$

 
$
3,173,967

Intercompany
 
29,150

 
178,234

 
16,686

 
(224,070
)
 

Total
 
1,094,208

 
1,890,534

 
413,295

 
(224,070
)
 
3,173,967

Income from continuing operations, before interest, income taxes and noncontrolling interest
 
145,753

 
188,963

 
(3,824
)
 
(98,939
)
 
231,953

Capital expenditures
 
48,861

 
44,243

 
5,718

 
13,882

 
112,704

Depreciation
 
34,930

 
23,067

 
11,029

 
6,738

 
75,764

Amortization of intangibles
 
1,232

 
1,864

 

 
6,167

 
9,263

Total assets
 
2,047,966

 
1,320,425

 
1,467,948

 
668,063

 
5,504,402


97

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

 
 
Year Ended March 31, 2014
 
 
Flight Systems Group
 
Defense Systems Group
 
Space Systems Group
 
Corporate
 
Total
Sales:
 
 
 
 
 
 
 
 
 
 
External customers
 
$
902,683

 
$
1,667,707

 
$
354,847

 
$

 
$
2,925,237

Intercompany
 
8,549

 
283,077

 
16,353

 
(307,979
)
 

Total
 
911,232

 
1,950,784

 
371,200

 
(307,979
)
 
2,925,237

Income from continuing operations, before interest, income taxes and noncontrolling interest
 
110,882

 
210,669

 
30,810

 
(50,404
)
 
301,957

Capital expenditures
 
54,660

 
42,061

 
6,760

 
2,249

 
105,730

Depreciation
 
34,490

 
20,110

 
8,173

 
6,419

 
69,192

Amortization of intangibles
 
1,248

 
1,864

 

 

 
3,112

Total assets
 
1,361,544

 
1,209,150

 
285,019

 
567,808

 
3,423,521

During fiscal 2015 , the Company recognized a goodwill impairment charge in Space Systems Group of $34,300 . Defense Systems Group had sales to Vista Outdoor for the 2015 transition period of $143,260 and for the period from Distribution to March 31, 2015 of $18,928 , in conjunction with two supply agreements. Sales to Sporting Group were previously reported as intercompany sales and eliminated in consolidation and totaled $170,818 for the period April 1, 2014 through February 8, 2015 and $273,246 for fiscal 2014 .
During fiscal 2014 , the Company's Defense Systems Group recorded sales and EBIT of $27,400 in the fourth quarter for a pension segment close out associated with the Radford facility contract.
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 and treasury. Significant assets and liabilities managed at Corporate include those associated with debt, restructuring, pension and postretirement benefits, environmental liabilities, litigation liabilities, strategic growth costs and income taxes.
Costs related to the administrative functions managed by Corporate are either recorded at Corporate or allocated to the business units based on the nature of the expense. The difference between pension and postretirement benefit expense calculated under Financial Accounting Standards 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. Environmental expenses are allocated to each segment based on the origin of the underlying environmental cost. Transactions between segments are recorded at the segment level, consistent with the Company's financial accounting policies. Intercompany balances and transactions involving different segments are eliminated at the Company's consolidated financial statements level and are shown above in Corporate. The amortization expense related to purchase accounting attributed to the acquisition of Orbital is also recorded in Corporate.

98

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

17. Transition Period Comparative Data
The following table presents certain financial information for the nine months ended December 31, 2015 and 2014 respectively:
 
Nine Months Ended
(Amounts in thousands except per share data)
December 31, 2015
 
December 28, 2014
 
 
 
(unaudited)
Revenues
3,399,089

 
2,204,428

Gross profit
669,191

 
491,561

Income from continuing operations
181,422

 
118,143

Income from discontinued operations
1,008

 
108,210

Net income attributable to Orbital ATK, Inc.
182,430

 
226,353

Basic earnings per common share
 
 
 
Income from continuing operations
3.06

 
3.73

Income from discontinued operations
0.02

 
3.42

Net income attributable to Orbital ATK, Inc.
3.07

 
7.15

Diluted per common share
 
 
 
Income from continuing operations
3.03

 
3.64

Income from discontinued operations
0.02

 
3.34

Net income attributable to Orbital ATK, Inc.
3.04

 
6.98

Note: earnings per share amounts may not recalculate due to rounding.
18. Quarterly Financial Data (unaudited)
Restatement of Quarters Ended July 5, 2015 and October 4, 2015 (Unaudited). As discussed in Note 1, the Company restated certain financial information for the quarters ended July 5, 2015 and October 4, 2015. The restated quarterly financial information did not have a material impact on the Company's consolidated financial statements for any previously filed audited period.
The restated financial information related to the following errors: (i) Acquisition Adjustments - corrections resulting from the application of purchase accounting with respect to certain long-term contracts, which are accounted for under the percentage-of-completion method that should be based on the estimate of remaining effort on such contracts at the acquisition date instead of the inception-to-date progress of each contract.  These errors further resulted in reporting the settlement gain on the CRS1 contract as a discrete component of income from continuing operations. (ii) Accounting Review and Analysis Adjustments - corrections resulting from the reconciliation and analysis of certain accounts.
A summary of the impact of these matters on income from continuing operations, before income taxes and noncontrolling interest, by quarter is presented below:
 
 
Increase / (Decrease) to Previously Reported Income from Continuing Operations, Before Income Taxes and Noncontrolling Interest
 
 
Quarter Ended July 5, 2015
 
Quarter Ended October 4, 2015
 
Six Months Ended October 4, 2015
Purchase Accounting Adjustments
 
$
(24,405
)
 
$
24,171

 
$
(234
)
Account Review and Analysis Adjustments
 
(7,652
)
 
(10,011
)
 
(17,663
)
Total Adjustments
 
$
(32,057
)
 
$
14,160

 
$
(17,897
)

99

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)


The tables that follow present the effects of the restatement on the condensed consolidated statements of comprehensive income and condensed consolidated balance sheets previously filed on Form 10-Q for the quarters ended July 5, 2105 and October 4, 2015. The restated financial information did not result in a change on the statement of cash flows to the total amounts previously reported related to cash provided by (used for) operating activities, cash provided by (used for) investing activities or cash provided by (used for) financing activities for the quarter ended July 5, 2015 and six months ended October 4, 2015.
The effect of the restatement on the condensed consolidated statement of comprehensive income for the quarter ended July 5, 2015 was as follows:
 
 
Quarter Ended July 5, 2015
 
 
As Reported
 
Adjustments
 
As Restated
Sales
 
$
1,129,957

 
$
(22,723
)
 
$
1,107,234

Cost of sales
 
875,532

 
10,841

 
886,373

Gross profit
 
254,425

 
(33,564
)
 
220,861

Operating expenses:
 
  
 
  
 
  
Research and development
 
24,664

 

 
24,664

Selling
 
32,504

 

 
32,504

General and administrative
 
71,463

 
(2,102
)
 
69,361

Income from continuing operations, before interest, income taxes and noncontrolling interest
 
125,794

 
(31,462
)
 
94,332

Net interest expense
 
(15,361
)
 
(595
)
 
(15,956
)
Income from continuing operations, before income taxes and noncontrolling interest
 
110,433

 
(32,057
)
 
78,376

Income taxes
 
37,563

 
(12,422
)
 
25,141

Income from continuing operations, before noncontrolling interest
 
72,870

 
(19,635
)
 
53,235

Less net income attributable to noncontrolling interest
 
117

 

 
117

Net income attributable to Orbital ATK, Inc.
 
$
72,753

 
$
(19,635
)
 
$
53,118

 
 
 
 
 
 
 
Basic earnings per common share from:
 
 
 
 
 
 
Net income attributable to Orbital ATK, Inc.
 
$
1.23

 
$
(0.33
)
 
$
0.90

Basic shares
 
59,144

 
 
 
59,144

 
 
 
 
 
 
 
Diluted earnings per common share from:
 
 
 
 
 
 
Net income attributable to Orbital ATK, Inc.
 
$
1.22

 
$
(0.33
)
 
$
0.89

Diluted shares
 
59,749

 
 
 
59,749

 
 
 
 
 
 
 
Comprehensive income attributable to Orbital ATK, Inc.
 
$
91,356

 
$
(19,635
)
 
$
71,721


100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The effect of the restatement on the condensed consolidated balance sheet as of July 5, 2015 was as follows:
 
 
July 5, 2015
 
 
As Reported
 
Adjustments
 
As Restated
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
49,595

 
$

 
$
49,595

Net receivables
 
1,891,338

 
(13,719
)
 
1,877,619

Net inventories
 
182,276

 

 
182,276

Deferred income taxes
 
107,466

 

 
107,466

Prepaid expenses and other current assets
 
130,922

 

 
130,922

Total current assets
 
2,361,597

 
(13,719
)
 
2,347,878

Net property, plant and equipment
 
802,134

 
(2,100
)
 
800,034

Goodwill
 
1,875,269

 
(9,314
)
 
1,865,955

Net intangibles
 
152,184

 

 
152,184

Deferred income taxes
 
129,220

 
3,286

 
132,506

Deferred charges and other noncurrent assets
 
122,509

 

 
122,509

Total assets
 
$
5,442,913

 
$
(21,847
)
 
$
5,421,066

LIABILITIES AND EQUITY
 
  
 
  
 
  
Current liabilities:
 
  
 
  
 
  
Current portion of long-term debt
 
59,997

 

 
$
59,997

Accounts payable
 
168,827

 

 
168,827

Contract-related liabilities
 
314,642

 
(27,783
)
 
286,859

Contract advances and allowances
 
178,182

 

 
178,182

Accrued compensation
 
99,458

 

 
99,458

Other current liabilities
 
167,847

 
15,616

 
183,463

Total current liabilities
 
988,953

 
(12,167
)
 
976,786

Long-term debt
 
1,513,505

 

 
1,513,505

Postretirement and postemployment benefits
 
72,353

 

 
72,353

Pension
 
845,562

 

 
845,562

Other noncurrent liabilities
 
149,797

 
9,955

 
159,752

Total liabilities
 
3,570,170

 
(2,212
)
 
3,567,958

 
 
 
 
 
 
 
Common stock
 
593

 

 
593

Additional paid-in-capital
 
2,187,768

 

 
2,187,768

Retained earnings
 
1,233,006

 
(19,635
)
 
1,213,371

Accumulated other comprehensive loss
 
(829,045
)
 

 
(829,045
)
Common stock in treasury, at cost
 
(730,358
)
 

 
(730,358
)
Total Orbital ATK, Inc. stockholders' equity
 
1,861,964

 
(19,635
)
 
1,842,329

Noncontrolling interest
 
10,779

 

 
10,779

Total equity
 
1,872,743

 
(19,635
)
 
1,853,108

Total liabilities and equity
 
$
5,442,913

 
$
(21,847
)
 
$
5,421,066


101

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The effect of the restatement on the condensed consolidated statement of comprehensive income for the quarter and six months ended October 4, 2015 was as follows:
 
 
Quarter Ended October 4, 2015
 
Six Months Ended October 4, 2015
 
 
As Reported
 
Adjustments
 
As Restated
 
As Reported
 
Adjustments
 
As Restated
Sales
 
$
1,134,886

 
$
18,731

 
$
1,153,617

 
$
2,264,842

 
$
(3,992
)
 
$
2,260,850

Cost of sales
 
884,734

 
58,408

 
943,142

 
1,760,265

 
69,249

 
1,829,514

Gross profit
 
250,152

 
(39,677
)
 
210,475

 
504,577

 
(73,241
)
 
431,336

Operating expenses:
 
  
 
  
 
  
 
  
 
  
 
  
Research and development
 
28,666

 

 
28,666

 
53,330

 

 
53,330

Selling
 
28,137

 

 
28,137

 
60,641

 

 
60,641

General and administrative
 
69,384

 
(4,180
)
 
65,204

 
140,847

 
(6,282
)
 
134,565

Gain on settlement
 

 
50,000

 
50,000

 

 
50,000

 
50,000

Income from continuing operations, before interest, income taxes and noncontrolling interest
 
123,965

 
14,503

 
138,468

 
249,759

 
(16,959
)
 
232,800

Net interest expense
 
(24,293
)
 
(343
)
 
(24,636
)
 
(39,655
)
 
(938
)
 
(40,593
)
Income from continuing operations, before income taxes and noncontrolling interest
 
99,672

 
14,160

 
113,832

 
210,104

 
(17,897
)
 
192,207

Income taxes
 
33,123

 
5,487

 
38,610

 
70,685

 
(6,935
)
 
63,750

Income from continuing operations, before noncontrolling interest
 
66,549

 
8,673

 
75,222

 
139,419

 
(10,962
)
 
128,457

Less net income attributable to noncontrolling interest
 
147

 

 
147

 
264

 

 
264

Net income attributable to Orbital ATK, Inc.
 
$
66,402

 
$
8,673

 
$
75,075

 
$
139,155

 
$
(10,962
)
 
$
128,193

 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share from:
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Orbital ATK, Inc.
 
$
1.13

 
$
0.15

 
$
1.28

 
$
2.36

 
$
(0.19
)
 
$
2.17

Basic shares
 
58,746

 
 
 
58,746

 
58,944

 
 
 
58,944

 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share from:
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Orbital ATK, Inc.
 
$
1.12

 
$
0.15

 
$
1.27

 
$
2.34

 
$
(0.18
)
 
$
2.15

Diluted shares
 
59,304

 
 
 
59,304

 
59,526

 
 
 
59,526

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Orbital ATK, Inc.
 
$
81,853

 
$
8,673

 
$
90,526

 
$
173,209

 
$
(10,962
)
 
$
162,247


102

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

The effect of the restatement on the condensed consolidated balance sheet as of October 4, 2015 was as follows:
 
 
October 4, 2015
 
 
As Reported
 
Adjustments
 
As Restated
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
65,087

 
$

 
$
65,087

Net receivables
 
1,882,675

 
15,986

 
1,898,661

Net inventories
 
175,317

 

 
175,317

Deferred income taxes
 
107,466

 

 
107,466

Prepaid expenses and other current assets
 
129,427

 

 
129,427

Total current assets
 
2,359,972

 
15,986

 
2,375,958

Net property, plant and equipment
 
797,524

 
(4,200
)
 
793,324

Goodwill
 
1,875,269

 
(9,314
)
 
1,865,955

Net intangibles
 
139,284

 

 
139,284

Deferred income taxes
 
121,319

 
(4,579
)
 
116,740

Deferred charges and other noncurrent assets
 
117,280

 

 
117,280

Total assets
 
$
5,410,648

 
$
(2,107
)
 
$
5,408,541

LIABILITIES AND EQUITY
 
  
 
  
 
  
Current liabilities:
 
  
 
  
 
  
Current portion of long-term debt
 
$
40,000

 
$

 
$
40,000

Accounts payable
 
227,051

 

 
227,051

Contract-related liabilities
 
268,129

 
(13,274
)
 
254,855

Contract advances and allowances
 
154,845

 

 
154,845

Accrued compensation
 
140,800

 

 
140,800

Other current liabilities
 
144,192

 
15,875

 
160,067

Total current liabilities
 
975,017

 
2,601

 
977,618

Long-term debt
 
1,497,000

 

 
1,497,000

Postretirement and postemployment benefits
 
70,342

 

 
70,342

Pension
 
811,459

 

 
811,459

Other noncurrent liabilities
 
150,619

 
6,254

 
156,873

Total liabilities
 
3,504,437

 
8,855

 
3,513,292

 
 
 
 
 
 
 
Common stock
 
589

 

 
589

Additional paid-in-capital
 
2,181,288

 

 
2,181,288

Retained earnings
 
1,284,063

 
(10,962
)
 
1,273,101

Accumulated other comprehensive loss
 
(813,594
)
 

 
(813,594
)
Common stock in treasury, at cost
 
(757,061
)
 

 
(757,061
)
Total Orbital ATK, Inc. stockholders' equity
 
1,895,285

 
(10,962
)
 
1,884,323

Noncontrolling interest
 
10,926

 

 
10,926

Total equity
 
1,906,211

 
(10,962
)
 
1,895,249

Total liabilities and equity
 
$
5,410,648

 
$
(2,107
)
 
$
5,408,541



103

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)

Quarterly Financial Data (Unaudited). The following tables summarize unaudited quarterly financial data for the nine months ended December 31, 2015 and the fiscal year ended March 31, 2015:
 
 
Nine Months Ended December 31, 2015
 
 
Quarter Ended
 
 
July 5
 
October 4
 
December 31
 
 
(restated)
 
(restated)
 
 
Sales
 
$
1,107,234

 
$
1,153,617

 
$
1,138,238

Gross profit
 
220,861

 
210,475

 
237,855

Income from continuing operations
 
53,118

 
75,075

 
53,229

Income from discontinued operations
 

 

 
1,008

Net income attributable to Orbital ATK, Inc.
 
53,118

 
75,075

 
54,237

Basic earnings per common share from: (1)
 
 
 
 
 
 
Continuing operations
 
$
0.90

 
$
1.28

 
$
0.90

Discontinued operations
 

 

 
0.02

Net income attributable to Orbital ATK, Inc.
 
$
0.90

 
$
1.28

 
$
0.92

Diluted earnings per common share from: (1)
 
 
 
 
 
 
Continuing operations
 
$
0.89

 
$
1.27

 
$
0.89

Discontinued operations
 

 

 
0.02

Net income attributable to Orbital ATK, Inc.
 
$
0.89

 
$
1.27

 
$
0.91

Cash dividends per common share:
 
 
 
 
 
 
Declared
 
$

 
$
0.26

 
$
0.26

Paid
 
0.26

 
0.26

 
0.26

 
 
Year Ended March 31, 2015
 
 
Quarter Ended
 
 
June 29
 
September 28
 
December 28
 
March 31
Sales
 
$
714,360

 
$
743,202

 
$
746,866

 
$
969,539

Gross profit
 
162,650

 
163,384

 
165,527

 
212,541

Income from continuing operations
 
31,773

 
41,214

 
45,155

 
(40,707
)
Income from discontinued operations
 
53,825

 
53,895

 
492

 
16,837

Net income attributable to Orbital ATK, Inc.
 
85,598

 
95,109

 
45,647

 
(23,870
)
Basic earnings per common share from: (1)
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.01

 
$
1.30

 
$
1.42

 
$
(0.87
)
Discontinued operations
 
1.70

 
1.70

 
0.02

 
0.36

Net income attributable to Orbital ATK, Inc.
 
$
2.71

 
$
3.00

 
$
1.44

 
$
(0.51
)
Diluted earnings per common share from: (1)
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.96

 
$
1.29

 
$
1.41

 
$
(0.87
)
Discontinued operations
 
1.63

 
1.68

 
0.02

 
0.36

Net income attributable to Orbital ATK, Inc.
 
$
2.59

 
$
2.97

 
$
1.43

 
$
(0.51
)
Cash dividends per common share:
 
 
 
 
 
 
 
 
Declared
 
$
0.32

 
$
0.32

 
$
0.32

 
$
0.58

Paid
 
0.32

 
0.32

 
0.32

 
0.32

_________________________________________
(1)
Quarterly earnings (loss) per common share amounts may not total to annual earnings per common share amounts because quarterly and annual earnings per share are calculated separately based on earnings and basic and diluted weighted-average common shares outstanding during the respective periods.

104

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)


In the fourth quarter of fiscal 2015 , the Company completed the Distribution and Merger. Accordingly, the results of continuing operations include the results of Orbital from the date of the Merger. In addition, the Company recorded $34,900 of transaction fees for advisory, legal and accounting services in connection with the Distribution and Merger.
In the fourth quarter of fiscal 2015 , the Company also recorded a $25,000 litigation charge pertaining to a Raytheon lawsuit settlement, a $34,300 goodwill impairment charge and a $26,626 loss on extinguishment of debt.
In the quarter ended October 4, 2015, the Company recorded a $50,000 gain on settlement of a dispute with a supplier pertaining to the Antares rocket used in the CRS I contract.

19. Subsequent Events

None.

105


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A.    CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company has established disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) to ensure that information required to be disclosed by the Company in reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports the Company files or submits is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2015. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2015 because of the material weaknesses in our internal control over reporting described below.
The Chief Executive Officer and Chief Financial Officer originally concluded the Company's disclosure controls and procedures were effective for the quarterly periods ended July 5, 2015 and October 4, 2015. In light of the material weaknesses in our internal control over financial reporting described below, the Chief Executive Officer and Chief Financial Officer re-evaluated their conclusions regarding the Company’s disclosure controls and procedures for the quarterly periods ended July 5, 2015 and October 4, 2015 and concluded that the Company’s disclosure controls and procedures were also not effective as of July 5, 2015 and October 4, 2015 because of the material weaknesses in our internal control over financial reporting described below that existed at that time.
Changes in Internal Control over Financial Reporting
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) that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the quarter ended December 31, 2015.
Management's Report on Internal Control over Financial Reporting
The management of the Company prepared and is responsible for the consolidated financial statements and all related financial information contained in this Form 10-K. This responsibility includes establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The assessment of the effectiveness of the Company's internal control over financial reporting was based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 and concluded that, due to the material weaknesses discussed below, the Company’s internal control over financial reporting was not effective as of December 31, 2015.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. During the assessment process, we identified material weaknesses in our control environment related to establishing and maintaining accounting policies and procedures related to complex transactions. Additionally, we did not maintain a sufficient complement of personnel with appropriate levels of accounting and controls knowledge, experience and training commensurate with the nature and complexity of our business and contract activity.
These material weaknesses in our control environment contributed to material weaknesses at the control-activity level where we did not design appropriate controls to ensure completeness and accuracy of purchase accounting. Specifically, we did not maintain controls over measurement period adjustments and controls over the calculation of acquired contracts’ percentage of completion used to recognize revenue. In addition, we did not maintain controls over

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the integration of accounting operations of the two merged companies and over the preparation, analysis and review of accounts of the combined business.
These material weaknesses resulted in errors in sales, cost of sales, general and administrative expenses, net receivables, goodwill, contract-related accruals, current liabilities and retained earnings in the unaudited quarterly financial information for the quarters ended July 5, 2015 and October 4, 2015 and the six months ended October 4, 2015. These errors were corrected through restatement of those periods. Additionally, these material weaknesses could have resulted in a material misstatement of account balances or disclosures that would have resulted in a misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Our internal control over financial reporting at December 31, 2015, was audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Remediation Efforts to Address Material Weaknesses
We are currently evaluating the internal controls related to business combinations and certain business processes. Specific to purchase accounting, we will ensure the percent complete on contracts in prospective acquisitions will be reset to zero in accordance with the accounting literature. In addition, we plan to augment our corporate accounting and controls oversight functions with additional resources and professionals to provide increased oversight, appropriate maintenance of policies and procedures related to complex transactions, integration of accounting operations and analysis of accounts of the combined business.

        
/s/ David W. Thompson
President and Chief Executive Officer
 
/s/ Garrett E. Pierce
Chief Financial Officer
March 15, 2016

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ITEM 9B.    OTHER INFORMATION
None.
PART III
The information required by Item 10, other than the information presented below, as well as the information required by Items 11 through 14 is incorporated by reference from the Company's definitive Proxy Statement pursuant to General Instruction G(3) to Form 10-K. The Company will file its definitive Proxy Statement pursuant to Regulation 14A by April 29, 2016.
ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding the Company's directors is incorporated by reference from the section entitled Proposal 1—Election of Directors in the Company's Proxy Statement for the 2016 Annual Meeting of Stockholders. Information regarding the Company's executive officers is set forth under the heading Executive Officers in Item 1 of Part I of this Form 10-K and is incorporated by reference in this Item 10.
Information about compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference from the section entitled Section 16(a) Beneficial Ownership Reporting Compliance in the 2016 Proxy Statement.
Information regarding the Company's code of ethics (the Company's Code of Ethics and Business Conduct ), which the Company has adopted for all directors, officers and employees, is incorporated by reference from the section entitled Corporate Governance—Code of Ethics and Business Conduct in the 2016 Proxy Statement. The Company's Code of Ethics and Business Conduct is available on our website at www.orbitalatk.com by selecting Investors and then Corporate Governance .
Information regarding the Company's Audit Committee, including the Audit Committee's financial experts, is incorporated by reference from the section entitled Corporate Governance—Meetings of the Board and Board Committees—Audit Committee in the 2016 Proxy Statement.
ITEM 11.    EXECUTIVE COMPENSATION
Information about compensation of the Company's named executive officers is incorporated by reference from the section entitled Executive Compensation in the December 31, 2015 Proxy Statement. Information about compensation of the Company's directors is incorporated by reference from the section entitled Director Compensation in the December 31, 2015 Proxy Statement. Information about compensation committee interlocks is incorporated by reference from the section entitled Corporate Governance—Compensation Committee Interlocks and Insider Participation in the December 31, 2015 Proxy Statement.
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information about security ownership of certain beneficial owners and management is incorporated by reference from the section entitled Security Ownership of Certain Beneficial Owners and Management in the 2016 Proxy Statement. Information regarding securities authorized for issuance under equity compensation plans is set forth under the heading Equity Compensation Plan Information in Item 5 of Part II of this Form 10-K and is incorporated by reference in this Item 12.
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding transactions with related persons is incorporated by reference from the section entitled Certain Relationships and Related Transactions in the 2016 Proxy Statement.
Information about director independence is incorporated by reference from the section entitled Corporate Governance—Director Independence in the 2016 Proxy Statement.

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Table of Contents

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information about principal accountant fees and services as well as related pre-approval policies and procedures is incorporated by reference from the section entitled Fees Paid to Independent Registered Public Accounting Firm in the 2016 Proxy Statement.

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PART IV
ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)   Documents filed as part of this Report
1.     Financial Statements
The following is a list of all of the Consolidated Financial Statements included in Item 8 of Part II.
 
Page
2.     Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because of the absence of the conditions under which they are required or because the information required is shown in the financial statements or notes thereto.
3.     Exhibits
See Exhibit Index at the end of this Report.

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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.
 
 
ORBITAL ATK, INC.
Date: March 15, 2016
 
By:
 
/s/ David W. Thompson
 
 
 
 
Name:
 
David W. Thompson
 
 
 
 
Title:
 
President and Chief Executive Officer
 
 
 
 
 
 
( duly authorized and principal executive officer)





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Table of Contents

Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
 
Title
 
 
 
/s/ David W. Thompson
 
 
David W. Thompson
 
President and Chief Executive Officer, Director (Principal Executive Officer)
 
 
 
/s/ Garrett E. Pierce
 
 
Garrett E. Pierce
 
Chief Financial Officer (Principal Financial Officer)
 
 
 
/s/ Hollis M. Thompson
 
 
Hollis M. Thompson
 
Vice President, Financial Reporting (Principal Accounting Officer)
 
 
 
/s/ Kevin P. Chilton
 
 
Kevin P. Chilton
 
Director
 
 
 
/s/ Roxanne J. Decyk
 
 
Roxanne J. Decyk
 
Director
 
 
 
/s/ Mark W. DeYoung
 
 
Mark W. DeYoung
 
Director
 
 
 
/s/ Martin C. Faga
 
 
Martin C. Faga
 
Director
 
 
 
/s/ Lennard A. Fisk
 
 
Lennard A. Fisk
 
Director
 
 
 
/s/ Ronald R. Fogleman
 
 
Ronald R. Fogleman
 
Chairman of the Board
 
 
 
/s/ Robert M. Hanisee
 
 
Robert M. Hanisee
 
Director
 
 
 
/s/ Ronald T. Kadish
 
 
Ronald T. Kadish
 
Director
 
 
 
/s/ Tig H. Krekel
 
 
Tig H. Krekel
 
Director
 
 
 
/s/ Douglas L. Maine
 
 
Douglas L. Maine
 
Director
 
 
 
/s/ Roman Martinez IV
 
 
Roman Martinez IV
 
Director
 
 
 
/s/ Janice I. Obuchowski
 
 
Janice I. Obuchowski
 
Director
 
 
 
/s/ James G. Roche
 
 
James G. Roche
 
Director
 
 
 
/s/ Harrison H. Schmitt
 
 
Harrison H. Schmitt
 
Director
 
 
 
/s/ Scott L. Webster
 
 
Scott L. Webster
 
Director


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Table of Contents

ORBITAL ATK, INC.
FORM 10-K FOR THE NINE-MONTH TRANSITION PERIOD ENDED DECEMBER 31, 2015
EXHIBIT INDEX
The following exhibits are filed electronically with this report unless the exhibit number is followed by an asterisk (*), in which case the exhibit is incorporated by reference from the document listed. The applicable Securities and Exchange Commission File Number is 1-10582 unless otherwise indicated. Exhibit numbers followed by a pound sign (#) identify exhibits that are either a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. Excluded from this list of exhibits, pursuant to Paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K, may be one or more instruments defining the rights of holders of long-term debt of the Registrant. The Registrant hereby agrees that it will, upon request of the Securities and Exchange Commission, furnish to the Commission a copy of any such instrument.
Exhibit
Number
 
Description of Exhibit (and document from which incorporated by reference, if applicable)
2.1*
 
Transaction Agreement, dated at April 28, 2014 among ATK, Vista SpinCo Inc., Vista Merger Sub Inc. and Orbital Sciences (Exhibit 2.1 to Form 8-K dated April 28, 2014).
 
 
 
3(i).1*
 
Restated Certificate of Incorporation of the Registrant, effective July 20, 1990, including Certificate of Correction effective September 21, 1990 (Exhibit 3(i).1 to Form 10-Q for the quarter ended September 28, 2008).
 
 
 
3(i).2*
 
Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant, effective September 28, 1990 (Exhibit 3(i).2 to Form 10-Q for the quarter ended September 28, 2008).
 
 
 
3(i).3*
 
Certificate of Amendment of Restated Certificate of Incorporation, effective August 8, 2001 (Exhibit 3(i).3 to Form 10-Q for the quarter ended September 28, 2008).
 
 
 
3 (i).4*
 
Certificate of Amendment of Restated Certificate of Incorporation, effective August 7, 2002 (Exhibit 3(i).4 to Form 10-Q for the quarter ended September 28, 2008).
 
 
 
3 (i).5*
 
Certificate of Amendment of Restated Certificate of Incorporation, effective August 5, 2008 (Exhibit 3(i).5 to Form 10-Q for the quarter ended September 28, 2008).
 
 
 
3 (i).6*
 
Certificate of Amendment of Restated Certificate of Incorporation, effective February 9, 2015 (Exhibit 3.1 to Form 8-K dated February 9, 2015).
 
 
 
3(ii).1*
 
Bylaws of the Registrant, as Amended and Restated Effective March 10, 2015 (Exhibit 3.1 to Form 8-K dated March 10, 2015).
 
 
 
4.1.1*
 
Indenture, dated at November 1, 2013, among the Registrant, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (Exhibit 4.1 to Form 8-K dated November 1, 2013).
 
 
 
4.1.2*
 
Supplemental Indenture, dated at November 1, 2013, among the Registrant, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (Exhibit 4.2 to Form 8-K dated November 1, 2013).
 
 
 
4.1.3*
 
Second Supplemental Indenture, dated at February 20, 2015, among the Registrant, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (Exhibit 4.1.3 to the Form 10-K for the year ended March 31, 2015 (the "Fiscal 2015 Form 10-K")).
 
 
 
4.1.4*
 
Form of 5.25% Senior Notes due 2021 (Exhibit A to Exhibit 4.1 to Form 8-K dated November 1, 2013).
 
 
 
4.1.5*
 
Registration Rights Agreement, dated November 1, 2013, by and among the Registrant, the subsidiaries of the Registrant party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers named therein (Exhibit 4.4 to Form 8-K dated November 1, 2013).
 
 
 
4.2.1*
 
Indenture, dated as of September 29, 2015, among the Registrant, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee (Exhibit 4.1 to Form 8-K dated September 29, 2015).
 
 
 
4.2.2*
 
Form of 5.50% Senior Notes due 2023 (Exhibit A to Exhibit 4.1 to Form 8-K dated September 29, 2015).
 
 
 
4.2.3*
 
Registration Rights Agreement, dated September 29, 2015, by and among the Registrant, the subsidiaries of the Registrant party thereto and Wells Fargo Securities, LLC, as representative of the several initial purchasers named therein (Exhibit 4.3 to Form 8-K dated September 29, 2015).
 
 
 

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Exhibit
Number
 
Description of Exhibit (and document from which incorporated by reference, if applicable)
10.1*
 
Credit Agreement, dated as of September 29, 2015, by and among the Registrant, as Borrower, the subsidiaries of the Borrower party thereto as Guarantors, the Lenders party thereto, Wells Fargo Bank, National Association, as Administrative Agent, Wells Fargo Bank, National Association, Citibank, N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A., U.S. Bank, National Association and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Issuing Lenders, Wells Fargo Bank, National Association and U.S. Bank, National Association, as Swingline Lenders, Wells Fargo Securities, LLC, CitiGroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, U.S. Bank, National Association, The Bank of Tokyo-Mitsubishi UFJ, Ltd., and SunTrust Robinson Humphrey, Inc., as Joint Lead Arrangers and Joint Bookrunners, CitiGroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as Co-Syndication Agents, and U.S. Bank, National Association, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and SunTrust Bank, as Co-Documentation Agents (Exhibit 10.1 to Form 8-K dated September 29, 2015).
 
 
 
10.2*
 
Security and Pledge Agreement, dated as of September 29, 2015, among the Registrant, the other Obligors party thereto and Wells Fargo Bank, National Association, as Administrative Agent (Exhibit 10.2 to Form 8-K dated September 29, 2015).
 
 
 
10.3*
 
Tax Matters Agreement, dated at February 9, 2015, between the Registrant and Vista Outdoor Inc (Exhibit 10.1 to Form 8-K dated February 9, 2015).
 
 
 
10.4.1*
 
Purchase and Sale Agreement, dated at October 28, 1994, between the Registrant and Hercules Incorporated (the "Purchase Agreement"), including certain exhibits and certain schedules and a list of schedules and exhibits omitted (Exhibit 2 to Form 8-K dated October 28, 1994).
 
 
 
10.4.2*
 
Master Amendment to Purchase Agreement, dated at March 15, 1995, between the Registrant and Hercules Incorporated, including exhibits (Exhibit 2.2 to Form 8-K dated March 15, 1995).
 
 
 
10.5.1*
 
Environmental Agreement, dated at October 28, 1994, between the Registrant and Hercules Incorporated (Exhibit 10.2.1 to the Form 10-K for the year ended March 31, 2003 (the "Fiscal 2003 Form 10-K")).
 
 
 
10.5.2*
 
Amendment to Environmental Agreement, dated March 15, 1995 (Exhibit 10.2.2 to the Fiscal 2003 Form 10-K).
 
 
 
10.6*#
 
Form of Indemnification Agreement between the Registrant and its directors and officers (Exhibit 10.5 to the Fiscal 2015 Form 10-K).
 
 
 
10.7*#
 
Description of non-employee Directors' cash and equity compensation ("Director Compensation—Summary Compensation Information" on pages 22-23 of Schedule 14A filed on June 24, 2015).
 
 
 
10.8*#
 
Non-Employee Director Stock Program under the Orbital ATK, Inc. 2015 Stock Incentive Plan (Exhibit 10.4 to Form 10-Q for the quarter ended October 4, 2015).
 
 
 
10.9.1*#
 
Non-Employee Director Restricted Stock Award and Stock Deferral Program (as amended and restated October 30, 2007) Under the Alliant Techsystems Inc. 2005 Stock Incentive Plan (Exhibit 10.1 to Form 8-K dated October 29, 2007).
10.9.2*#
 
Amendment No. 1 (effective July 31, 2013) to Non-Employee Director Restricted Stock Award and Stock Deferral Program (as amended and restated October 30, 2007) Under the Alliant Techsystems Inc. 2005 Stock Incentive Plan (Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2013).
 
 
 
10.10*#
 
Amended and Restated Non-Employee Director Restricted Stock Plan, Amended and Restated at October 30, 2007 (Exhibit 10.3 to Form 8-K dated October 29, 2007).
 
 
 
10.11*#
 
Deferred Fee Plan for Non-Employee Directors, as amended and restated October 30, 2007 (Exhibit 10.2 to Form 8-K dated October 29, 2007).
 
 
 
10.12*#
 
Description of compensation arrangement for Blake E. Larson, the Registrant's Chief Operating Officer, (Item 5.02 of Form 8-K dated September 11, 2014).

 
 
 
10.13*#
 
Alliant Techsystems Inc. Executive Officer Incentive Plan (As Amended and Restated Effective August 2, 2011) (Exhibit 10.1 to Form 8-K dated August 1, 2011).
 
 
 
10.14.1*#
 
Orbital ATK, Inc. 2015 Stock Incentive Plan (Exhibit 4.2 to the Registration Statement on Form S-8 (File No. 333-206123 filed August 6, 2015).
 
 
 

115

Table of Contents

10.14.2#
 
Form of Non-Qualified Stock Option Award Agreement (Installment Vesting) under the Orbital ATK, Inc. 2015 Stock Incentive Plan.
 
 
 
Exhibit
Number
 
Description of Exhibit (and document from which incorporated by reference, if applicable)
10.14.3#
 
Form of Performance Share Award Agreement under the Orbital ATK, Inc. 2015 Stock Incentive Plan for the three-fiscal-year period beginning January 1, 2016.
 
 
 
10.14.4#
 
Form of Restricted Stock Award Agreement (Installment Vesting) under the Orbital ATK, Inc. 2015 Stock Incentive Plan.
 
 
 
10.15.1*#
 
Alliant Techsystems Inc. 2005 Stock Incentive Plan (As Amended and Restated Effective August 7, 2012) (Exhibit 10.1 to Form 8-K dated August 7, 2012).
 
 
 
10.15.2*#
 
Form of Non-Qualified Stock Option Award Agreement (Installment Vesting) under the Alliant Techsystems Inc. 2005 Stock Incentive Plan, for option grants in the years ended March 31, 2012 and March 31, 2013 (Exhibit 10.13.3 to the Form 10-K for the year ended March 31, 2012).
 
 
 
10.15.3*#
 
Form of Non-Qualified Stock Option Award Agreement (Installment Vesting) under the Alliant Techsystems Inc. 2005 Stock Incentive Plan, for option grants in the year ended March 31, 2014 (Exhibit 10.12.4 to the Form 10-K for the year ended March 31, 2014 (the "Fiscal 2014 Form 10-K")).
 
 
 
10.15.4*#
 
Amendment to ATK Non-Qualified Stock Option Award Agreement (applicable to options outstanding at February 9, 2015) (Exhibit 10.13.5 to the Fiscal 2015 Form 10-K).
 
 
 
10.15.5*#
 
Form of Non-Qualified Stock Option Award Agreement (Installment Vesting) under the Alliant Techsystems Inc. 2005 Stock Incentive Plan, for option grants in the year ended March 31, 2015 (Exhibit 10.13.6 to the Fiscal 2015 Form 10-K).
 
 
 
10.15.6*#
 
Form of Performance Growth Award Agreement under the Alliant Techsystems Inc. 2005 Stock Incentive Plan for the Fiscal Year 2014-2016 Performance Period (Exhibit 10.12.7 to the Form 10-K for the year ended March 31, 2013).
 
 
 
10.15.7*#
 
Form of Performance Growth Award Agreement under the Alliant Techsystems Inc. 2005 Stock Incentive Plan for the Fiscal Year 2015-2017 Performance Period (Exhibit 10.12.8 to the Fiscal 2014 Form 10-K).
 
 
 
10.15.8*#
 
Amendment to ATK Performance Growth Award Agreement (for certain corporate officers remaining with Orbital ATK, Inc.) (Exhibit 10.13.9 to the Fiscal 2015 Form 10-K).
 
 
 
10.15.9*#
 
Amendment to ATK Performance Growth Award Agreement (for Michael A. Kahn and Blake E. Larson) (Exhibit 10.13.10 to the Fiscal 2015 Form 10-K).
 
 
 
10.15.10*#
 
Form of Performance Growth Award Agreement under the Alliant Techsystems Inc. 2005 Stock Incentive Plan for the three-fiscal-year period beginning April 1, 2015 (Exhibit 10.13.11 to the Fiscal 2015 Form 10-K).
 
 
 
10.15.11*#
 
Form of Restricted Stock Award Agreement under the Alliant Techsystems Inc. 2005 Stock Incentive Plan (Exhibit 10.1 to Form 8-K dated January 30, 2012).
 
 
 
10.15.12*#
 
Form of Restricted Stock Award Agreement (Installment Vesting) under the Alliant Techsystems Inc. 2005 Stock Incentive Plan, for restricted stock grants in the year ended March 31, 2014 (Exhibit 10.12.11 to the Fiscal 2014 Form 10-K).
 
 
 
10.15.13*#
 
Amendment to ATK Restricted Stock Award Agreement (for restricted stock awards outstanding as of February 9, 2015) (Exhibit 10.13.14 to the Fiscal 2015 Form 10-K).
 
 
 
10.15.14*#
 
Form of Restricted Stock Award Agreement (Installment Vesting) under the Alliant Techsystems Inc. 2005 Stock Incentive Plan, for restricted stock grants in the year ended March 31, 2015 (Exhibit 10.13.15 to the Fiscal 2015 Form 10-K).
 
 
 
10.16.1*#
 
Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan (Exhibit 10.16.1 to the Form 10-K for the year ended March 31, 2007).
 
 
 
10.16.2*#
 
Amendment No. 1 to Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan effective May 8, 2001 (Exhibit 10.7.2 to the Form 10-K for the year ended March 31, 2002 (the "Fiscal 2002 Form 10-K")).
 
 
 

116

Table of Contents

10.16.3*#
 
Amendment No. 2 to Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan effective March 19, 2002 (Exhibit 10.7.3 to the Fiscal 2002 Form 10-K).
 
 
 
Exhibit
Number
 
Description of Exhibit (and document from which incorporated by reference, if applicable)
10.16.4*#
 
Amendment No. 3 to Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan effective October 29, 2002 (Exhibit 10.6.4 to the Form 10-K for the year ended March 31, 2004).
 
 
 
10.16.5*#
 
Amendment No. 4 to Amended and Restated Alliant Techsystems Inc. 1990 Equity Incentive Plan effective October 29, 2002 (Exhibit 10.3 to Form 8-K dated January 30, 2007).
 
 
 
10.17.1#
 
Orbital ATK, Inc. Nonqualified Deferred Compensation Plan, as Amended and Restated February 16, 2016.
 
 
 
10.17.2*#
 
Trust Agreement for Nonqualified Deferred Compensation Plan effective January 1, 2003 (Exhibit 10.9.2 to the Fiscal 2003 Form 10-K).
 
 
 
10.18*#
 
Alliant Techsystems Inc. Executive Severance Plan as amended effective October 29, 2007 (Exhibit 10.7 to Form 8-K dated October 29, 2007).
 
 
 
10.19*#
 
Alliant Techsystems Inc. Defined Benefit Supplemental Executive Retirement Plan, as Amended and Restated effective February 9, 2015 (Exhibit 10.17 to the Fiscal 2015 Form 10-K).
 
 
 
10.20.1*#
 
Alliant Techsystems Inc. Defined Contribution Supplemental Executive Retirement Plan, as Amended and Restated effective July 1, 2013 (Exhibit 10.2 to Form 8-K dated January 31, 2013).
 
 
 
10.20.2*#
 
First Amendment, effective at February 9, 2015, to the Alliant Techsystems Inc. Defined Contribution Supplemental Executive Retirement Plan, as Amended and Restated effective July 1, 2013 (Exhibit 10.18.2 to the Fiscal 2015 Form 10-K).
 
 
 
10.21#
 
Orbital ATK, Inc. Income Security Plan Effective May 5, 2015.
 
 
 
10.22*#
 
Alliant Techsystems Inc. Income Security Plan, As Amended and Restated, Effective July 1, 2013 (Exhibit 10.1 to Form 8-K dated July 30, 2013).
 
 
 
10.23.1*#
 
Trust Under Income Security Plan dated May 4, 1998 (effective March 2, 1998), by and between the Registrant and U.S. Bank National Association (Exhibit 10.20.1 to the Form 10-K for the fiscal year ended March 31, 1998).
 
 
 
10.23.2*#
 
First Amendment to the Trust Under the Income Security Plan effective December 4, 2001, by and between the Registrant and U.S. Bank National Association (Exhibit 10.17.2 to the Fiscal 2002 Form 10-K).
 
 
 
10.24*#
 
Executive Severance Agreement, dated November 30, 2007, between Orbital Sciences Corporation and Garrett E. Pierce (Exhibit 10.5 to Form 8-K dated February 9, 2015).
 
 
 
10.25.1*#
 
Orbital Sciences Corporation Amended and Restated 2005 Stock Incentive Plan, assumed by the Registrant in the Merger (Exhibit 99.2 to the Registrant's Registration Statement on Form S-8 dated February 9, 2015).
 
 
 
10.25.2*#
 
2012 Form of Restricted Stock Unit Agreement of Orbital Sciences Corporation under the Orbital Sciences Corporation Amended and Restated 2005 Stock Incentive Plan, assumed by the Registrant in the Merger (Exhibit 10.22.2 to the Fiscal 2015 Form 10-K).
 
 
 
10.25.3*#
 
2014 Form of Restricted Stock Unit Agreement of Orbital Sciences Corporation under the Orbital Sciences Corporation Amended and Restated 2005 Stock Incentive Plan, assumed by the Registrant in the Merger (Exhibit 10.22.3 to the Fiscal 2015 Form 10-K).
 
 
 
10.26.1*#
 
Orbital Sciences Corporation Nonqualified Management Deferred Compensation Plan, assumed by the Registrant in the Merger (Exhibit 10.13 to Orbital Sciences Corporation's Annual Report on Form 10-K for the year ended December 31, 2006).
 
 
 
10.26.2#
 
Amendment Number One to the Orbital Sciences Corporation Nonqualified Management Deferred Compensation Plan, effective January 1, 2011.
12
 
Computation of Ratio of Earnings to Fixed Charges.
 
 
 
14*
 
The Registrant's Code of Ethics and Business Conduct is available on the Corporate Governance  page of the Registrant's website at http://phx.corporate-ir.net/phoenix.zhtml?c=81036&p=irol-govHighlights by selecting the Code of Conduct link.
 
 
 

117

Table of Contents

21
 
Subsidiaries of the Registrant as of December 31, 2015.
 
 
 
Exhibit
Number
 
Description of Exhibit (and document from which incorporated by reference, if applicable)
 
 
 
23.1
 
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
 
 
 
23.2
 
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
 
 
 
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.


118











ORBITAL ATK, INC.
INCOME SECURITY PLAN


Effective May 5, 2015





CONTENTS
SECTION 1.
PURPOSE AND TERM     1
1.1    Purpose    1
1.2    Type of Plan    1
1.3    Term; Effect of Change in Control    1
SECTION 2.
DEFINITIONS     2
2.1    Definitions    2
SECTION 3.
UNPAID COMPENSATION AND SEVERANCE BENEFITS     9
3.1    Right to Unpaid Compensation and Severance Benefits    9
3.2    Severance Benefits for Participants    9
3.3    Termination Due to Disability or Death    10
3.4    Termination for Cause or by the Participant Without Good Reason    11
3.5    Notice of Termination    11
3.6    Payment of Severance Benefits    11
SECTION 4.
RELEASE AND RESTRICTIVE COVENANTS    11
4.1    Release    11
4.2    Restrictive Covenants    11
4.3    Services of Participant    12
SECTION 5.
EXCISE TAXES    12
5.1    Limitation for Excess Parachute Payments    12
SECTION 6.
CLAIMS PROCEDURE    13
6.1    Original Claim    13
6.2    Review of Denied Claim    13
6.3    General Rules    13
SECTION 7.
RIGHTS TO SEVERANCE BENEFITS AND LEGAL FEES     14
7.1    Severance Benefits Payments    14
7.2    Legal Fees and Expenses    15
SECTION 8.
SUCCESSORS                 15
8.1    Successors to the Company    15
8.2    Assignment by the Participant    15


- i -





SECTION 9.
MISCELLANEOUS     15
9.1    Administration and Committee Powers    15
9.2    Employment Status    15
9.3    Entire Plan and Other Change in Control Plans    15
9.4    Notices    16
9.5    Includable Compensation    16
9.6    Tax Withholding    16
9.7    Severability    16
9.8    Amendment and Waiver    16
9.9    Applicable Law    16
9.10    Rules of Construction    17
9.11    Section 409A    17



- ii -




OBITAL ATK, INC.
INCOME SECURITY PLAN
Effective May 5, 2015
Section 1. PURPOSE AND TERM
1.1      Purpose . The purpose of this Income Security Plan (this “Plan”) is to provide income security protection to certain executives of Orbital ATK, Inc. (the “Company”) in order to (a) ensure that such executives make good corporate decisions with respect to a possible Change in Control (as defined in Section 2.1) of the Company, even if such a Change in Control may have adverse personal consequences (such as the loss of the executive’s employment with the Company), (b) maximize stockholder value by keeping such executives engaged during periods of uncertainty relating to a possible Change in Control, and (c) provide such executives with the ability to transition to new employment if their employment with the Company is terminated as a result of a Change in Control.
1.2      Type of Plan . This Plan is a severance pay plan maintained primarily for the benefit of a select group of management or highly compensated individuals within the meaning of ERISA (as defined in Section 2.1). This Plan will be administered and interpreted (i) in a manner consistent with such intent and (ii) in accordance with Section 409A of the Code (as defined in Section 2.1) and other applicable Tax (as defined in Section 2.1) laws and regulations, including, without limitation, any regulations promulgated pursuant to Section 409A of the Code. Notwithstanding the foregoing, neither the Company nor any of its officers, directors, agents or affiliates will be obligated, directly or indirectly, to any Participant (as defined in Section 2.1) for any Taxes that may be imposed on such Participant (a) on account of any amounts due or paid under this Plan or (b) on account of any failure to comply with any provision of the Code.
1.3      Term; Effect of Change in Control .
(a)
This Plan is effective on May 5, 2015 (the “Effective Date”), and will continue in effect until this Plan is terminated by the Committee (as defined in Section 2.1). The Committee may terminate this Plan at any time. If a notice terminating this Plan is properly delivered by the Committee or the Company to Participants, this Plan, along with all corresponding rights, duties and covenants, will immediately terminate; provided , however , that in the event a Change in Control occurs within twelve (12) months after receipt of such notice, such termination of the Plan will be deemed null and void, and the participation of the Participants in this Plan will not be affected by such notice (unless such termination of this Plan or participation by any Participant herein is required by the terms of any final order or a federal or state court or regulatory agency of competent jurisdiction).

1




(b)
Notwithstanding Section 1.3(a), in the event that a Change in Control occurs during the term of the Plan, the Committee may not terminate the Plan during the period beginning on the date of such Change in Control through the second anniversary date of the Change in Control. This Plan will automatically terminate with respect to any Participant who has not experienced a Qualifying Termination (as defined in Section 2.1) on or prior to the second anniversary of the first Change in Control that occurs during the term of the Plan .
Section 2. DEFINITIONS
2.1      Definitions . The following capitalized terms used in this Plan will have the meanings set forth below:
(a)
Annual Base Salary ” means, at any time, the then regular annual rate of cash compensation that a Participant is receiving as annual salary, excluding all other kinds of compensation.
(b)
Annual Incentive Plan ” means any incentive compensation plan of the Company with a performance period of one year or less (other than an Equity Incentive Plan) in which a Participant participates on the date of any Qualifying Termination of such Participant, unless the Committee otherwise determines that such plan is a Long-Term Cash Incentive Plan.
(c)
Beneficial Owner ” or “ Beneficial Ownership ” will have the meaning given to such term in Rule 13d‑3 under the Exchange Act.
(d)
Board ” or “ Board of Directors ” means the Board of Directors of the Company.
(e)
Cause ” means the occurrence of any of the following:
(i)
Participant willfully and repeatedly fails to substantially perform Participant's duties with the Company in accordance with the instructions of the Board or the executive officers to whom Participant reports (other than any such failure resulting from Participant's incapacity due to physical or mental illness), which failure continues for 30 days unabated after a demand for substantial performance is delivered to Participant by the Board that specifically identifies the manner in which the Board believes that Participant has not substantially performed Participant's duties,
(ii)
Participant willfully engages in gross misconduct materially and demonstrably injurious to the Company, monetarily or otherwise,

- 2 -




(iii)
Participant engages in fraud, misappropriation or embezzlement of funds or property of the Company,
(iv)      Participant’s conviction of a felony or entrance of a plea of guilty     or nolo contendere to a felony, or
(v)      Participant’s conviction of any crime involving fraud,     embezzlement, or moral turpitude or the entrance of a plea of     guilty or nolo contendere to such a crime.
For purposes of this Section 2.1(e), an act or failure to act on Participant’s part shall be considered “willful” if done or omitted to be done by Participant other than in good faith and without reasonable belief that Participant's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Participant shall not be deemed to have been terminated by the Company for Cause unless and until the Company shall have delivered to Participant a copy of a resolution titled Notice of Termination duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board, at a meeting of the Board called and held for the purpose (after reasonable notice to Participant and an opportunity for Participant, together with Participant's counsel, to be heard before the Board), finding that in the good-faith opinion of the Board Participant was guilty of conduct constituting Cause hereunder and specifying the particulars thereof in reasonable detail.
(f)      Change in Control ” means the occurrence of any of the following:
(i)
the acquisition by any Person of Beneficial Ownership of 40% or more of the outstanding shares of the Company’s Voting Securities;
(ii)
the consummation of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”), unless such Corporate Transaction is a transaction pursuant to which all or substantially all of the Persons who are the Beneficial Owners of the Company immediately prior to the Corporate Transaction will beneficially own, directly or indirectly, 60% or more of the outstanding shares of Voting Securities of the resulting or combined entity;
(iii)
individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided , however , that (A) any individual who becomes a member of the Board subsequent to the Effective Date, whose election (or nomination for election by the Company’s stockholders) was approved by the vote of at least a majority of the

- 3 -




directors then comprising the Incumbent Board, will be deemed a member of the Incumbent Board and (B) any individual who is initially elected as a member of the Board as a result of any actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board will not be deemed a member of the Incumbent Board;
(iv)
approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or
(v)
any other circumstances (whether or not following a Change Event) which 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 presented and the purposes of this Plan. Any such determination made by the Board will 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 Section  2.1(f), a “Change in Control” will 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.
(g)
Change Event ” means either of the following:
(i)
the acquisition by any Person (other than the Company or a subsidiary or an employee benefit plan (including its trustee) of the Company) of Beneficial Ownership, directly or indirectly, of shares of Voting Securities of the Company directly or indirectly representing 15% or more of the total number of the then outstanding shares of the Company’s Voting Securities (excluding the sale or issuance of any Voting Securities directly by the Company, or any transaction in which the acquisition of such Voting Securities is made by such Person from five or fewer stockholders in a transaction or transactions approved in advance by the Board); or
(ii)
the agreement, or the public announcement of an intention, by any Person or Persons, to take any action, which if completed, would constitute a Change in Control.
(h)
Code ” means the U.S. Internal Revenue Code of 1986, as amended from time to time.
(i)
Committee ” means the Personnel and Compensation Committee of the Board, or, if no Personnel and Compensation Committee exists, then a

- 4 -




committee of independent Board members appointed by the Board to administer this Plan.
(j)
Common Stock ” means the common stock, par value $.01 per share, of the Company.
(k)
Disability ” or “ Disabled ” will have the meaning given to such term in the Company’s governing long-term disability plan or, if no such plan exists, such term will mean a determination that a person is “totally disabled” under the rules of the Social Security Administration.
(l)
ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
(m)
Equity Incentive Plan ” means any incentive compensation plan of the Company providing for the grant of Stock Awards in which a Participant participates on the date of any Qualifying Termination of such Participant.
(n)
Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.
(o)
Executive Officer ” means any “executive officer” of the Company as determined pursuant to Rule 3b-7 under the Exchange Act.
(p)
Group Health Plan ” means any group health plan generally available to all employees of the Company in which a Participant participates on the date of any Qualifying Termination of such Participant.
(q)
Good Reason ” means, without a Participant’s express written consent, the occurrence after a Change Event or a Change in Control, as the case may be, of any one or more of the following:
(i)
a material reduction of such Participant’s authorities, duties or responsibilities as an executive and/or officer of the Company from those in effect immediately prior to such Change Event or Change in Control, other than (A) an insubstantial reduction or (B) a substantial reduction that is remedied by the Company within 30 days after receipt of written notice thereof given by the Participant to the Committee within 90 days after such circumstances first arise;
(ii)
the Company’s requiring the Participant to be based at a location in excess of 50 miles from the Participant’s principal job location immediately prior to such Change Event or Change in Control, unless such requirement is withdrawn by the Company within 30 days after receipt of written notice thereof given by the Participant to the Committee within 90 days after such circumstances first arise;

- 5 -




(iii)
a material reduction by the Company of the Participant’s Annual Base Salary in effect immediately prior to such Change Event or Change in Control, or as such Annual Base Salary has been increased thereafter, unless such reduction is remedied by the Company within 30 days after receipt of written notice thereof given by the Participant to the Committee within 90 days after such circumstances first arise;
(iv)
t he failure of the Company to continue in effect, or the failure to continue the Participant’s participation on substantially the same basis in, any Annual Incentive Plan, Long-Term Cash Incentive Plan or Equity Compensation Plan in which the Participant participates immediately prior to such Change Event or Change in Control, where the result is a material reduction in the Participant’s total compensation, unless such failure is remedied by the Company within 30 days after receipt of written notice thereof given by the Participant to the Committee within 90 days after such circumstances first arise; or
(v)
i f such Change in Control results in a successor to the Company, the failure of the Company to obtain a satisfactory agreement from such successor to assume and agree to perform the Company’s obligations under this Plan, as contemplated by Section 8.1, unless such failure is remedied within 30 days after receipt of written notice thereof given by the Participant to the Committee within 90 days after such circumstances first arise.
Unless the Participant becomes Disabled, the Participant’s right to terminate employment for Good Reason will not be affected by the Participant’s incapacity due to physical or mental illness. If a Participant provides written notice of Good Reason to the Committee and the Company does not cure the circumstances giving rise to such notice within 30 days, then a Participant must submit a written Notice of Termination to the Committee within 90 days of the expiration of the Company’s cure period in order to validly invoke Good Reason. Failure to follow the timelines stated in this Section 2.1(q) will result in a waiver of rights by Participant or Committee, as applicable, with respect to any action or circumstance constituting Good Reason.
(r)
Long-Term Cash Incentive Plan ” means (i) any cash incentive compensation plan of the Company with a performance period of more than one year (other than an Equity Incentive Plan) or (ii) or any other cash incentive compensation plan the Committee determines is a Long-Term Cash Incentive Plan (other than an Equity Incentive Plan), in each case in which a Participant participates on the date of any Qualifying Termination of such Participant.

- 6 -




(s)
Notice of Termination ” means a written notice indicating the specific provision in this Plan relied upon for the termination of employment of any Participant. Such notice will set forth in reasonable detail the facts and circumstances claimed to provide the basis for such termination pursuant to such provision.
(t)
Participant ” means (i) any Executive Officer, and (ii) any employee selected by the Committee as a covered employee eligible under this Plan (employees selected by the Committee will be referred to as “Selected Participants”). The Committee will select Selected Participants, if any, annually at the meeting in which it sets executive compensation for the next fiscal year. Selected Participants will remain eligible as Participants under this Plan for the fiscal year for which the Committee approved eligibility. During the fiscal year, the Committee may add Selected Participants to the Plan or remove Selected Participants from the Plan because of a change in employment status. For example, the Committee may remove a Participant from eligibility because of a demotion or add a Participant to the Plan because of a promotion. Notwithstanding the foregoing, a Selected Participant will not lose covered employee status as a Selected Participant by the Committee, if he or she was a Participant at the time of or within six (6) months prior to a Change in Control, or at the time of a Change Event that precedes a Change in Control by six (6) months or less. Further, any Participant under the Alliant Techsystems Inc. Income Security Plan, as Amended and Restated Effective July 1, 2013 (the “Legacy Plan”), is specifically excluded from being a Participant in this Plan until such time as such Legacy Plan expires by its terms and such participant satifies the criteria for being a Participant under this Plan. For the avoidance of doubt, if a participant under the Legacy Plan ceases participation in such plan as a result of its expiration, such participant will become a Participant in this Plan if he or she meets the criteria for eligibility at such time.
(u)
Performance Vesting Stock Award ” means any Stock Award the vesting and payment of which is based on achievement of performance goals rather than solely on the continued employment of a Participant.
(v)
Person ” will have the meaning given to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof (including a “group” as defined in Section 13(d)).
(w)
Pre-Change in Control Qualifying Termination ” means a termination of a Participant’s employment that entitles the Participant to Severance Benefits pursuant to Section 3.1(b).
(x)
Post-Change in Control Qualifying Termination ” means a termination of a Participant’s employment that entitles the Participant to Severance Benefits pursuant to Section 3.1(a).

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(y)
Qualifying Termination ” means a Post-Change in Control Qualifying Termination or a Pre-Change in Control Qualifying Termination, as the case may be; provided , however , that a Qualifying Termination will not occur unless the Participant’s termination of employment qualifies as a “separation from service” (within the meaning of Section 409A of the Code).
(z)
Severance Benefits ” mean the severance benefits provided for in Section 3.2.
(aa)
Stock Award ” means any equity-based incentive award (including any award, without limitation, of stock options, stock appreciation rights, restricted stock or restricted stock units, or any Performance Vesting Stock Awards).
(bb)
Target Level ” means the “target” performance level (or other reasonably expected median performance goal) established for purposes of any Annual Incentive Plan, Long-Term Cash Incentive Plan or Performance Vesting Stock Award.
(cc)
Tax ” or “ Taxes ” means all taxes, charges, fees, levies or other assessments and impositions of any kind, payable to any governmental entity, including, without limitation, all net income, profits, gross income, alternative minimum, payroll, employment, social security, Medicare, unemployment, withholding, disability, workers’ compensation, excise, or other taxes or fees, assessments or charges of any kind whatsoever, including, without limitation, all interest and penalties thereon, and additions to tax or additional amounts imposed by any taxing authority.
(dd)
Unpaid Compensation ” means any of the following:
(i)
any unpaid Annual Base Salary, accrued vacation pay and unreimbursed business expenses owed to any Participant through the date of the Qualifying Termination of such Participant;
(ii)
any amount payable to such Participant as of the date of such Participant’s Qualifying Termination under any Annual Incentive Plan in effect for the most recently completed fiscal year, to the extent not previously paid; and
(iii)
any amount payable to such Participant as of the date of such Participant’s Qualifying Termination under any Long-Term Cash Incentive Plan in effect for any completed performance period, to the extent not previously paid.
(ee)
Voting Securities ” means any shares of capital stock of any entity that are generally entitled to vote in elections for members of the board of directors.

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Section 3. UNPAID COMPENSATION AND SEVERANCE BENEFITS
3.1      Right to Unpaid Compensation and Severance Benefits .
(c)
Subject to the terms and conditions of this Plan, a Participant will be entitled to receive from the Company any Unpaid Compensation and the Severance Benefits described in Section 3.2 if (i) during the term of this Plan, a Change in Control occurs and (ii) within twenty-four (24) months thereafter, the Participant’s employment with the Company is terminated by the Company without Cause or voluntarily by the Participant for Good Reason. The termination of a Participant’s employment that entitles the Participant to Severance Benefits pursuant to this Section 3.1(a) is referred to in this Plan as a “Post-Change in Control Qualifying Termination.” A “Post-Change in Control Qualifying Termination” will not include a termination of a Participant’s employment by reason of death or Disability, the Company’s termination of a Participant’s employment for Cause or a Participant’s voluntary termination without Good Reason.
(d)
Subject to the terms and conditions of this Plan, a Participant will be entitled to receive from the Company any Unpaid Compensation and the Severance Benefits described in Section 3.2 if (i) during the term of this Plan, a Change Event and a Change in Control occur and (ii) within six (6) months after such Change Event and no more than six (6) months prior to such Change in Control, such Participant’s employment with the Company is terminated by the Company without Cause or voluntarily by the Participant for Good Reason; provided , however , that the Participant will only be entitled to receive such Severance Benefits if the Participant can demonstrate that such termination by the Company or event constituting Good Reason (A) occurred at the specific request of a third party with which the Company had entered into negotiations or an agreement regarding a subsequent Change in Control or (B) otherwise occurred in connection with (or in anticipation of) such Change in Control. The termination of a Participant’s employment that entitles the Participant to Severance Benefits pursuant to this Section 3.1(b) is referred to in this Plan as a “Pre-Change in Control Qualifying Termination.” A “Pre-Change in Control Qualifying Termination” will not include a termination of a Participant’s employment by reason of death or Disability, the Company’s termination of a Participant’s employment for Cause or a Participant’s voluntary termination without Good Reason.
(e)
Any Unpaid Compensation will be paid in cash to a Participant in a single lump sum within 30 days after the date of the Qualifying Termination of such Participant.
3.2      Severance Benefits for Participants . In the event the Company is obligated to provide Severance Benefits to any Participant pursuant to Section 3.1, such Participant will receive the following payment as provided in this Section 3 unless the Participant has validly and effectively

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elected deferral of any such payment or award under another plan (in which case the payment or award would be made under the terms of the other plan):
(a)
A cash amount equal to the sum of: (i) two times the Participant’s Annual Base Salary in effect on the date of his or her Qualifying Termination or, if higher, in effect immediately prior to the Change in Control, plus (ii) two times the Participant’s Target Level bonus under any Annual Incentive Plan in which Participant is eligible on the date of Participant’s Qualifying Termination or, if higher, the Target Level bonus that was in effect immediately prior to the Change in Control.
(b)
The cash amount such Participant would receive under the Annual Incentive Plan in effect for the fiscal year in which such Participant’s Qualifying Termination occurs. The cash amount will be determined based on the assumption that the Target Level of performance under such Annual Incentive Plan had been achieved. The cash amount will be adjusted on a pro rata basis to reflect the number of days the Participant was actually employed during such fiscal year.
(c)
The cash amount such Participant would receive under any Long-Term Cash Incentive Plan in effect for any performance period during which the Participant’s Qualifying Termination occurs. The cash amount will be determined based on the assumption that the Target Level of performance under such Long-Term Cash Incentive Plan had been achieved.
(d)
Any Stock Awards of the Participant (other than Performance Vesting Stock Awards) will become immediately vested and payable in full in the form of stock on the date of a Qualifying Termination of the Participant and will be paid, distributed or transferred to the Participant in accordance with their terms.
(e)
Any Performance Vesting Stock Awards of the Participant, for any performance period during which the Participant's Qualifying Termination occurs, will become immediately vested and payable in the form of stock on the date of a Qualifying Termination of such Participant, assuming the Target Level of performance under such Performance Vesting Stock Awards had been achieved and will be paid, distributed or transferred to the Participant in accordance with their terms.
(f)
A cash amount equal to the Company’s portion of the cost of the benefits that would have been provided to the Participant under the Company’s Group Health and Dental Plan for a period of two (2) years after the date of such Participant’s Qualifying Termination.
3.3      Termination Due to Disability or Death . Following a Change in Control, if a Participant’s employment with the Company is terminated due to Disability or death, the Company

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will pay any Unpaid Compensation through the date of such termination to the Participant or his or her designated beneficiaries (or, if there are no such designated beneficiaries, to the Participant’s estate), respectively. The payment of any other amounts or benefits to the Participant or his or her beneficiaries or estate will be determined in accordance with any Annual Incentive Plan, Long-Term Cash Incentive Plan, Equity Incentive Plan, the Company’s retirement, disability, insurance and survivors’ benefits plans and programs and other applicable plans and programs of the Company then in effect.
3.4      Termination for Cause or by the Participant Without Good Reason . Following a Change in Control, if a Participant’s employment with the Company is terminated either by the Company for Cause or voluntarily by such Participant without Good Reason, the Company will pay the Participant (a) any Unpaid Compensation through the date of such termination, plus (b) all other amounts to which the Participant is entitled under any compensation plans of the Company, at the time such payments are due. The Company will have no further obligations to such Participant under this Plan.
3.5      Notice of Termination . Any termination of a Participant’s employment by the Company for Cause or by the Participant for Good Reason will be communicated by Notice of Termination to such Participant or the Committee, as the case may be.
3.6      Payment of Severance Benefits . Subject to any provision to the contrary in the following Subsections of this Plan, directly or indirectly specifying a different time or form of payment, the Severance Benefits described in Sections 3.2(a), (b) and (c), and (f) will be paid in cash to a Participant in a single lump sum not later than sixty (60) days following the date of the Qualifying Termination of such Participant (or, if such Participant dies before payment is made, to the Participant’s designated beneficiaries or estate not later than sixty (60) days after the date of such Participant’s Qualifying Termination); provided , however , that if the Qualifying Termination is a Pre-Change in Control Qualifying Termination, payment will be paid not later than sixty (60) days after the Change in Control, provided further , that no payment shall be made, and the Participant shall not be entitled to any Severance Benefits, unless the Participant has executed and not revoked the Separation Agreement and General Release of Claims described in Section 4.1, and the period for such revocation has expired, before such payment is made or would otherwise be required and if such sixty (60) day period crosses two calendar years, payment will be made in the second calendar year.
Section 4. RELEASE AND RESTRICTIVE COVENANTS
4.1      Release . The Severance Benefits are in consideration of a Participant’s release of all claims against the Company pursuant to an agreement with terms substantially similar to the terms of the Separation Agreement and General Release of Claims set forth as Exhibit A to this Plan (the “Release”). If a Participant does not execute the Release or if he or she effectively revokes it, the Participant will not be entitled to any Severance Benefits.
4.2      Restrictive Covenants . The Company’s obligation to provide the Severance Benefits to a Participant will be conditioned on the Participant’s continuing compliance with the

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confidentiality and non-disparagement, non-competition and non-solicitation covenants set forth in the Release.
4.3      Services of Participant . The Company’s obligation to provide the Severance Benefits to a Participant will be conditioned upon the Participant’s continuing compliance with the covenants to provide services to the Company set forth in the Release.
Section 5. EXCISE TAXES
5.1      Limitation for Excess Parachute Payments .
(a)
In the event a Participant becomes entitled to receive payments of Severance Benefits under the Plan, the Company will cause an independent accounting or other qualified firm (the “Tax Advisor”) promptly to review, at the Company’s sole expense, the applicability of Section 4999 of the Code to those payments. The Tax Advisor will determine whether the payment of Severance Benefits or any other amounts by the Company to a Participant or for a Participant’s benefit (whether paid or payable pursuant to the terms of this Plan or otherwise) (the “Total Payments”), would be subject to the excise Tax imposed by Section 4999 of the Code, and any interest or penalties with respect to such excise Tax (the excise Tax, together with any such interest and penalties, are collectively referred to herein as the “Excise Tax”).
(b)
If the Tax Advisor determines that the Total Payments to any Participant would be subject to the Excise Tax, then the aggregate present value of Severance Benefits under the Plan shall be reduced to the extent necessary so that the aggregate present value of the Total Payments (determined in each case pursuant to Section 280G of the Code and applicable regulations promulgated thereunder) does not exceed the greatest amount that could be paid to the Participant such that the receipt of payments under this Plan would not give rise to any Excise Tax; provided , that, the reduction shall only be made w hen the Participant would be in a better after-tax position receiving reduced Total Payments rather than receiving full Total Payments and paying the Excise Tax. In the event that a cutback described in this Section 5.1( b ) is required, amounts payable to the Participant in cash shall be reduced first, followed by a reduction of other benefits, as determined by the Tax Advisor. If and to the extent any reduction to cash amounts or other benefits is required by this Section 5.1(b), such reduction shall be made in the order in which such payments and benefits reduce the potential Excise Taxes by the greatest degree, as determined by the Tax Advisor. The Tax Advisor shall make a final determination as to whether a reduction in the aggregate present value of the Total Payments to the Participant is required pursuant to this Section 5.1( b) not later than the latest date provided in Section 3.6 of this Plan for payment of Severance Benefits .

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(c)
A Participant will in good faith cooperate with the Tax Advisor in making the determination of whether a r eduction to Severance Benefits is required (including, without limitation, providing the Tax Advisor with information or documentation as reasonably requested by the Tax Advisor).
(d)
Any determination by the Tax Advisor regarding whether a reduction to Severance Benefits is required will be conclusive and binding upon the Participant and the Company for all purposes.
Section 6. CLAIMS PROCEDURE
6.1      Original Claim . Any Participant, former Participant, or beneficiary of such Participant or former Participant, if he or she so desires, may file with the Committee a written claim for Severance Benefits under this Plan. Within 90 days after the filing of such a claim, the Committee will notify the claimant in writing whether the claim is upheld or denied (in whole or in part), or will furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than 180 days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Committee will state in writing:
(a)
the specific reasons for the denial;
(b)
the pertinent provisions of this Plan on which the denial is based; and
(c)
any additional material or information necessary for the claimant to perfect the claim, and an explanation of why such material or information is necessary.
6.2     Review of Denied Claim . Within 60 days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Committee a written request for a review and may, in conjunction therewith, submit written issues and comments. Within 60 days after the filing of such a request for review, the Committee shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than 120 days from the date the request for review was filed) to reach a decision on the request for review.
6 .3     General Rules . The following general rules will apply to all claims for Severance Benefits:
(a)
No inquiry or question from a Participant regarding Severance Benefits will be deemed to be a claim or request for review of a denied claim , unless made in accordance with the procedures described in Section 6.1. The Committee may require that any claim for benefits be filed on forms to be furnished to the claimant upon request;

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(b)
All decisions on claims and requests for review of denied claims will be made by the Committee;
(c)
The Committee may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim;
(d)
A claimant may be represented by a lawyer or other representative (at the claimant’s own expense), but the Committee reserves the right to require the claimant to furnish written notice that such lawyer or other representative is authorized to represent the claimant;
(e)
The decision of the Committee on a claim or request for review of a denied claim will be provided to the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim will be deemed to have been denied; and
(f)
Prior to filing a claim or request for review of a denied claim, the claimant or his or her lawyer or other representative will have a reasonable opportunity to review a copy of this Plan and all other pertinent documents in the possession of the Company.
Section 7. RIGHTS TO SEVERANCE BENEFITS AND LEGAL FEES
7.1      Severance Benefits Payments .
(a)
This Plan establishes in a Participant a right to the Severance Benefits to which such Participant is entitled hereunder, subject to the conditions of Section 4 and to the Committee’s right to terminate or amend this Plan in accordance with Sections 1.3 and 9.8. The Company’s obligation to make the payments or distributions with respect to Severance Benefits will not be affected by any circumstances (including, without limitation, any offset, counterclaim, recoupment, defense or other right which the Company may have against the Participant). Notwithstanding the foregoing sentence, the Company will have no obligation to make any payment to any Participant under this Plan to the extent (but only to the extent) that such payment is prohibited by the terms of any final order of a federal or state court or regulatory agency of competent jurisdiction. Such final order will not affect, impair or invalidate any provision of this Plan not expressly subject to such order.
(b)
A Participant will not be obligated to seek other employment in mitigation of the Severance Benefits the Company is required to provide under this Plan, and the obtaining of any such other employment will in no event effect any reduction of the Company’s obligations to provide Severance Benefits under this Plan.

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7.2      Legal Fees and Expenses . The Company will pay all reasonable legal fees, costs of litigation, prejudgment interest and other expenses that are incurred in good faith by a Participant as a result of (a) the Company’s refusal to provide the Severance Benefits to which the Participant becomes entitled under this Plan, (b) the Company (or any third party) contesting the validity, enforceability or interpretation of this Plan or (c) any conflict between the Participant and the Company pertaining to this Plan; provided , however , that if a court determines that the Participant’s claims were brought without a reasonable belief in the merits of such claims, the Company will have no obligations under this Section 7.2.
Section 8. SUCCESSORS
8.1      Successors to the Company . The Company will require any successor to the Company (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation or otherwise) to expressly assume and agree to perform this Plan in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such an agreement to such express assumption is obtained, this Plan will be binding upon any successor in accordance with the operation of law, and such successor will be deemed to be the “Company” for purposes of this Plan.
8.2      Assignment by the Participant . This Plan will inure to the benefit of and be enforceable by the Participant’s personal or legal representatives or designated beneficiaries. If the Participant dies while any amount would still be payable to such Participant had he or she continued to live, all such amounts will be paid in accordance with the terms of this Plan to such Participant’s designated beneficiaries (or, if there are no such designated beneficiaries, to the Participant’s estate).
Section 9. MISCELLANEOUS
9.1      Administration and Committee Powers . This Plan will be administered by the Committee. The Committee will have full power, discretion and authority to interpret and construe this Plan, and the Committee’s interpretation and construction of this Plan will be conclusive and binding on the Participants, the Company and all other Persons.
9.2      Employment Status . This Plan is not, and nothing herein will be deemed to create, an employment contract between the Participant and the Company. The Company may at any time change any Participant’s compensation, title, employment responsibilities, job location and any other aspect of the Company’s employment relationship with such Participant, or terminate such Participant’s employment prior to a Change in Control (subject to such termination being determined to be a Pre-Change in Control Qualifying Termination pursuant to Section 3.1(b)).
9.3      Entire Plan and Other Change in Control Plans .
(a)
This Plan contains the entire understanding of the Company and the Participant with respect to the subject matter hereof. In addition, the payment of any Severance Benefits in the event of a Participant’s termination of employment will be in lieu of any severance benefits payable under any other

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severance plan, program or policy of the Company to which the Participant might otherwise be entitled.
(b)
This Plan completely supersedes any and all prior change in control severance agreements, understandings or plans oral or written, entered into between the Company and a Participant.
9.4      Notices . All notices, requests, demands, and other communications hereunder will be sufficient if in writing and will be deemed to have been duly given if delivered by hand or if sent by registered or certified mail to the Participant at the last address he or she has filed in writing with the Company, or, in the case of the Company, at its principal executive offices.
9.5      Includable Compensation . Severance Benefits provided hereunder will not be considered “includable compensation,” “recognized compensation,” “recognized earnings” or “final average earnings” for purposes of determining the Participant’s benefits under any other plan or program of the Company, unless otherwise expressly provided in such other plan or program.
9.6      Tax Withholding . The Company will withhold from any amounts payable under this Plan all federal, state or other Taxes legally required to be withheld.
9.7      Severability . In the event any provision of this Plan is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of this Plan, and this Plan will be construed and enforced as if the illegal or invalid provision had not been included.
9.8      Amendment and Waiver .
(a)
Any provision of this Plan may be amended or modified (which modification may include the termination of any Participant’s participation in this Plan) by the Committee at any time; provided , however , that (i) during the period beginning on the date of a Change in Control and ending on the second anniversary date of such Change in Control, no provision of this Plan may be amended or modified (unless such modification or waiver is agreed to in writing by any affected Participant) and (ii) if a Change Event and a Change in Control occur, then any amendment or modification to this Plan within six (6) months after such Change Event and within six (6) months prior to such Change in Control will be deemed null and void (unless such modification or amendment is agreed to in writing by any affected Participant).
(b)
Any provisions of this Agreement may be waived in writing by the Company or the Participant, as the case may be.
9.9      Applicable Law . The laws of the State of Delaware will be the controlling law in all matters relating to this Plan without giving effect to principles of conflicts of laws.

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9.10      Rules of Construction . Captions are provided in this Plan for convenience only, and such captions will not serve as a basis for interpretation or construction hereof. Unless otherwise expressly provided or unless the context otherwise requires, the terms defined in this Plan include the plural and the singular.
9.11     Section 409A . The Committee intends to comply with Section 409A of the Code, or an exemption to Section 409A of the Code, with regard to payments made under this Plan. It is intended that each installment of the payments provided under the Plan is a separate “payment” for purposes of Treas. Reg. Section 1.409A-2(b)(2)(i). To the extent that the Committee determines that a Participant would be subject to the additional twenty percent (20%) tax imposed on certain nonqualified deferred compensation plans pursuant to Section 409A of the Code as a result of any provision of any payments under this Plan, such provision shall be deemed amended to the minimum extent necessary to avoid application of such additional tax. The nature of any such amendment shall be determined by the Committee. Notwithstanding any other provision of this Plan to the contrary, if at the time of the Participant’s separation from service, (i) the Participant is a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time), and (ii) the Company makes a good faith determination that an amount payable on account of such separation from service to the Participant constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six (6) month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company will not pay such amount on the otherwise scheduled payment date but will instead pay it in a lump sum on the first business day after such six (6) month period (or upon the Participant’s death, if earlier).




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Exhibit A

Separation Agreement and General Release of Claims

18





SEPARATION AGREEMENT
AND
GENERAL RELEASE OF CLAIMS
This Separation Agreement and General Release of Claims (“General Release”) is made and entered into by and between [EMPLOYEE NAME], for himself and on behalf of his agents, assigns, heirs, executors, administrators, attorneys and representatives (“Employee”), and Orbital ATK, Inc., a Delaware corporation, any related corporations or affiliates, subsidiaries, predecessors, successors and assigns, present or former officers, directors, stockholders, board members, agents, employees, and attorneys, whether in their individual or official capacities, delegates, benefit plans and plan administrators, and insurers (“Company” or “Orbital ATK”).
WHEREAS, [DESCRIPTION OF THE CHANGE IN CONTROL (the “CIC”)].
WHEREAS, [The CIC constitutes a “Change in Control” within the meaning of the [ORBITAL ATK, INC. INCOME SECURITY PLAN] (the “ISP”).
WHEREAS, Employee’s employment shall end as provided in this General Release. In consideration of Employee’s signing and complying with this General Release, Orbital ATK agrees to provide Employee with certain payments and other valuable consideration described below. Further, Orbital ATK and Employee desire to resolve and settle any and all potential disputes or claims related to his employment or termination of employment with Orbital ATK.
WHEREAS, Orbital ATK has expended significant time and resources on promotion, advertising, and the development of goodwill and a sound business reputation through which it has developed a list of customers and prospective customers and identified those customers’ and prospective customers’ needs for Orbital ATK’s services and products. This information and goodwill are valuable, special and unique assets of Orbital ATK’s business, which Employee acknowledges constitute confidential, proprietary and trade secret information belonging to Orbital ATK.
WHEREAS, Orbital ATK has expended significant time and resources on technology, research, and development through which it has developed products, processes, technologies and services that are valuable, special and unique assets of Orbital ATK’s businesses, which Employee acknowledges constitute confidential, proprietary and trade secret information belonging to Orbital ATK.
WHEREAS, the disclosure to or use by third parties of any of Orbital ATK’s confidential, proprietary and/or trade secret information, or Employee’s unauthorized use of such information, would seriously harm Orbital ATK’s business and cause monetary loss that would be difficult, if not impossible, to measure.
THEREFORE, Orbital ATK and Employee (the “Parties”) mutually agree to the following terms and conditions:

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1.     Qualifying Termination. In connection with the CIC, Employee’s employment with Orbital ATK and his officer and director positions with Orbital ATK’s subsidiaries are terminated effective [DATE] (“Date of Termination”). This termination from employment is without “Cause” as defined under the ISP, and is a Qualifying Termination under Section 3.1(a) of the ISP.
a.
Unpaid Compensation. Orbital ATK will pay Employee any Unpaid Compensation in a single lump sum cash payment within 30 days of the Date of Termination in accordance with Section 3.1 (c) of the ISP.
2.    Severance Benefits. Employee shall also be entitled to all such Severance Benefits, within the meaning of Section 2.1(z) of the ISP, as are due, payable, accrue and/or vest in accordance with the provisions of Section 3.2 of the ISP.
a.
Independent Consideration. In accordance with Section 4 of the ISP, Employee acknowledges that he is only eligible for Severance Benefits because he has signed and not revoked this General Release. Employee agrees that the Severance Benefits are adequate consideration for the promises herein.
b.
Delivery of Severance Benefits. Severance Benefits shall be paid in accordance with Section 3.6 of the ISP.
3.    Schedule. Each item and amount of Unpaid Compensation and Severance Benefits that is due, payable, accrues and/or vests to the benefit of Employee under the ISP is itemized and included within a Schedule of Benefits spreadsheet provided by the Company to Employee and attached hereto as Schedule “A”.
4.    Deferred Compensation. Any compensation Employee deferred under the [DEFERRED COMPENSATION PLAN] (or predecessor plan) shall be paid in accordance with his pre-selected distribution options and the terms of that plan.
5.    Outplacement Services. Employee will be entitled to participate in executive level outplacement services through [NAME OF SERVICE PROVIDER].
6.    Post-Employment Restrictions.
a.
Confidentiality and Nondisparagement. Employee acknowledges that in the course of his employment with Orbital ATK, he has had access to Orbital ATK’s confidential, proprietary and trade secret information. Employee agrees to maintain the confidentiality of Orbital ATK’s confidential, proprietary and trade secret information, and will not disclose or otherwise make such information available to any person, company, or other party, or use such information for Employee’s own benefit; provided, however, such non-disclosure covenants will not apply to: (i) confidential information that is disclosed or becomes public through another source

20



that is not bound by a confidentiality agreement with the Company; and (ii) confidential information which Employee is required to disclose pursuant to court order, subpoena or applicable law (provided that Employee will use reasonable efforts to provide the Company with prompt notice of any such requests or requirement so that it may seek an appropriate protective order). Employee understands that his obligations under this Paragraph (6)(a) do not prohibit him from participating in an investigation or proceeding conducted by an enforcement agency and/or sharing information with an enforcement agency regulating the Company’s business. Further, Employee agrees not to make any disparaging or defamatory comments about any Orbital ATK employee, director, or officer, the Company, or any aspect of his employment or termination from employment with Orbital ATK.
b.
Non-Competition/Non-Solicitation.  Employee hereby agrees that for one (1) year following any termination of employment (the “Restricted Period”), regardless of how or why such employment ends, Employee shall not, directly or indirectly, (i) employ, solicit or retain, induce or encourage any other person or entity to employ or retain, any person who is, or who at any time in the 12-month period prior to such time had been, employed or retained by the Company or any of its subsidiaries or affiliates, or solicit, induce or encourage any such person to leave employment with the Company or its affiliates, (ii) solicit any person or entity that is, or that at any time in the 12-month period prior to such time had been, a customer, supplier, dealer, or distributor or prospective customer, supplier, dealer or, distributor of the Company or encourage any such person or entity to cease being a customer, supplier, dealer, or distributor of the Company or (iii) provide services, whether as principal, agent, director, officer, employee, consultant, advisor, shareholder, partner, member or otherwise, alone or in association with any other person, corporation, partnership, limited liability company, sole proprietorship or unincorporated business or any non-U.S. business entity (whether or not for profit) (any such entity, a “Business”), to any Competing Business (as defined below) in any geographic area in the world in which the Company or any of its affiliates is engaged in the Business Area (as defined below).  The term “Competing Business” shall mean any Business engaged in the Business Area.  The term “Business Area” shall mean developing, manufacturing, sourcing or supplying [LIST OF COMPETITIVE PRODUCTS] , but in each case, only with respect to products that are the same as or similar to products developed, manufactured, sourced or supplied by the Company or any of its subsidiaries or affiliates, or any other Contemplated Business, whether directly to or to wholesale customers for resale to, law enforcement, U.S. Government (including the U.S. Department of Defense), foreign government, or consumer markets.  The term “Contemplated Business” shall mean any Business: (I) with

21



which the Company or any of its subsidiaries or affiliates engaged in substantive discussions or entered into any contract, agreement, agreement in principle, arrangement or other similar document (including, for the avoidance of doubt, any nondisclosure or confidentiality agreement), in each case, during the Employee’s employment and in either case with respect to a merger, joint venture, acquisition or other similar extraordinary corporate transaction between the Company or any of its subsidiaries or affiliates on the one hand and such Business or any of its subsidiaries or affiliates on the other hand; and (II) with respect to which such merger, joint venture, acquisition or similar extraordinary corporate transaction actually occurs not later than six months following Employee’s termination from employment.
Notwithstanding the above, Employee will not be deemed to have breached the restriction upon competition under the following limited circumstances: (x) if his only interest in a potentially competitive business is limited solely to the passive ownership of three percent (3%) or less of any class of the equity or debt securities of a publicly-held entity whose shares are listed for trading on a securities exchange or traded in the over the counter market; or (y) he becomes a stockholder, director, officer, employee, partner or manager with an investment fund or asset manager that owns and/or manages a widely-held portfolio of business interests, if any of the business interests held by such investment fund and/or asset manager could otherwise be deemed competitive with the business of Orbital ATK, provided Employee’s primary areas of responsibility do not include managing, or providing financial advice or direction to such potentially competitive business.
If during the Restricted Period, Employee wishes to obtain other employment that would arguably violate this Paragraph 6(b), then prior to accepting such employment Employee agrees to meet and confer in good faith with Orbital ATK regarding the scope of his responsibilities in the contemplated new employment and discuss any proposals regarding his performance in the contemplated new employment that could limit the applicability of this Paragraph 6(b) to such employment. Orbital ATK agrees that it will not unreasonably withhold its consent to such proposals and will provide a written response to Employee within a reasonable period of time.
The limitations on solicitation of Orbital ATK employees during the Restricted Period shall not apply to restrict the hiring of any persons otherwise covered by this Paragraph 6(b) if the hiring is in response to a general solicitation of employment made by means of periodical, newspaper, written posted materials or by electronic means.

22



c.
Breach of Post-Employment Restrictions. If Employee breaches any of his obligations under this Paragraph 6, then he will not be entitled to, and shall return, 25 percent of the Severance Benefits. Orbital ATK will be entitled to attorneys’ fees and costs incurred in seeking injunctive relief and damages including collecting the repayment of applicable consideration. Such action on the part of Orbital ATK will not in any way affect the enforceability of the General Release of Claims provided in Paragraph 8, which is adequately supported by the remaining Severance Benefits.
7.    Return of Orbital ATK Property. Before his last day of employment, Employee agrees to return all Orbital ATK property in his possession or control including, but not limited to, confidential or proprietary information, credit card, computer, documents, records, correspondence, identification badge, files, keys, software, and equipment. Further, Employee agrees to repay to Orbital ATK any amounts that he owes for personal credit card expenses, wage advances, employee store purchases, and used, but unaccrued, PTO time. These amounts, if any, may be withheld from Employee’s Severance Benefits.
8.    General Release of Claims. Except as stated in Paragraph 10, Employee hereby releases and forever discharges Orbital ATK from all claims and causes of action, whether or not Employee currently has knowledge of such claims and causes of action, arising, or which may have arisen, prior to Employee’s execution of this Agreement and out of or in connection with his employment, the terms and conditions of his employment or termination of employment with Orbital ATK. This General Release includes, but is not limited to, claims, demands or actions arising under any federal or state law such as the Age Discrimination in Employment Act (“ADEA”), the Older Workers Benefit Protection Act (“OWBPA”), Title VII of the Civil Rights Act of 1964 (“Title VII”), the Civil Rights Act of 1991, the Americans with Disabilities Act (“ADA”), the Equal Pay Act, 42 U.S.C. §§ 1981, 1983 and 1985, the Family Medical Leave Act (“FMLA”), the Employee Retirement Income Security Act of 1978 (“ERISA”), the Worker Adjustment Retraining and Notification Act (“WARN”), the National Labor Relations Act (“NLRA”), the Occupational Safety and Health Act (“OSHA”), the Sarbanes-Oxley Act, and the Rehabilitation Act, all as amended. This General Release specifically includes any rights or claims arising under the Virginia Human Rights Act (Va. Code Ann. § 2.2-3900 et seq.), the Virginia Equal Pay Act (Va. Code Ann. § 40.1-28.6); the Virginia Disability Discrimination Law (Va. Code Ann. § 51.5-3 et seq.), the Virginia Fraud Against Taxpayers Act (Va. Code Ann. § 8.01-216.1 et seq.), and any other statutes and common law of the State of Virginia, all as amended.
This General Release includes any rights or claims arising under any state human rights or fair employment practices act, or any other federal, state or local statute, ordinance, regulation or order regarding conditions of employment, compensation for employment, termination of employment, or discrimination or harassment in employment on the basis of age, gender, race, religion, disability, national origin, sexual orientation, or any other protected characteristic, and the common law of any state.

23



Employee agrees that this General Release extends to all claims, demands or causes of action which he had, has or may have against Orbital ATK which arose prior to Employee’s execution of this Agreement based upon statutory or common law claims for breach of express or implied contract, breach of employee handbooks or other policies, breach of promises, fraud, wrongful discharge, defamation, emotional distress, whistleblower claims, negligence, assault, battery, or any other theory, whether legal or equitable.
Employee agrees that this General Release includes all damages available under any theory of recovery, including, without limitation, any compensatory damages (including all forms of back-pay or front-pay), attorneys’ fees, liquidated damages, punitive damages, treble damages, emotional distress damages, pain and suffering damages, consequential damages, incidental damages, statutory fines or penalties, and/or costs or disbursements. Except as stated in Paragraph 11, Employee is completely and fully waiving any rights under the above stated statutes, regulations, laws, common law, or legal or equitable theories.
9.    Breach of General Release of Claims. If Employee breaches any provision of the General Release of Claims provided in Paragraph 8, then he will not be entitled to, and shall return, 75 percent of the Severance Benefits. Orbital ATK will be entitled to attorneys' fees and costs incurred in its defense including collecting the repayment of applicable consideration. Such action on the part of Orbital ATK will not in any way affect the enforceability of the Post-Employment Restrictions provided in Paragraph 6, which are adequately supported by the remaining Severance Benefits.
10.    Exclusions from General Release. Employee is not waiving his rights to any vested retirement benefits. Employee also is not waiving his right to enforce the terms of this General Release or to challenge the knowing and voluntary nature of this General Release under the ADEA as amended; or his right to assert claims, demands or causes of action, including but not limited to claims under the ADEA, that arise after Employee executes this General Release. Employee agrees that Orbital ATK reserves any and all defenses, which it has or might have against any claims, demands or causes of action brought by Employee. This includes, but is not limited to, Orbital ATK’s right to seek available costs and attorneys’ fees, and to have any money or other damages that might be awarded to Employee, reduced by the amount of money paid to him under this General Release. Nothing in this General Release interferes with Employee’s right to file a charge with the Equal Employment Opportunity Commission (“EEOC”), or to participate in an EEOC investigation or proceeding. Nevertheless, Employee understands that he has waived his right to recover any individual relief or money damages, which may be awarded on such a charge.
11.    Right to Revoke. This General Release does not become effective for a period of seven (7) days after Employee signs it and Employee has the right to cancel it during that time. Any decision to revoke this General Release must be made in writing and hand-delivered to Orbital ATK or, if sent by mail, postmarked within the seven (7) day time period and addressed to [NAME, TITLE, ADDRESS]. Employee understands that if he decides to revoke this General Release, he will not be entitled to any Severance Benefits.

24



12.    Cooperation. Upon reasonable notice, and subject to his availability given future employment responsibilities after the date hereof, Employee will cooperate and provide assistance in all situations where Orbital ATK is currently a party or subsequently becomes a party to civil or administrative litigation that arises or involves his prior duties and responsibilities with Orbital ATK. Without limiting the foregoing, Employee agrees (a) to meet with Orbital ATK’s representatives, its legal counsel or other designees, at mutually convenient times and places, with respect to any items within the scope of this provision; (b) to provide truthful testimony regarding same to any court, agency or other adjudicatory body. If Employee is ordered to appear for deposition or trial by a court order or subpoena with respect to any matter relating to his employment with Orbital ATK, Employee shall give prompt notice to Orbital ATK.
13.    Unemployment Compensation Benefits. If Employee applies for unemployment compensation, Orbital ATK will not challenge his entitlement to such benefits. Employee understands that Orbital ATK does not decide whether a person is eligible for unemployment compensation benefits, or the amount of the benefit.
14.    No Wrongdoing. By entering into this General Release, Orbital ATK does not admit that it has acted wrongfully with respect to Employee’s employment or that he has any rights or claims against it.
15.    No Adequate Remedy at Law. Employee acknowledges and agrees that his breach of the Post-Employment Restrictions provided in Paragraph 6 would cause irreparable harm to Orbital ATK and the remedy at law would be inadequate. Accordingly, if Employee violates such Paragraph 6, Orbital ATK is entitled to injunctive relief in addition to any other legal or equitable remedies without the necessity of posting a bond.
16.    Choice of Law and Venue. The terms of this General Release will be governed by the laws of Virginia (without regard to conflict of laws principles). Any legal action to enforce this General Release shall be brought in a competent court of law in the Commonwealth of Virginia, and the parties agree to the personal jurisdiction of those courts.
17.    Severability. If any of the terms of this General Release are deemed to be invalid or unenforceable by a court of law, the validity and enforceability of the remaining provisions of this General Release will not in any way be affected or impaired. In the event that any court having jurisdiction of the Parties should determine that any of the Post-Employment Restrictions set forth in Paragraph 6 of this General Release are overbroad or otherwise invalid in any respect, the Parties acknowledge and agree that the court so holding shall construe those provisions to cover only that scope, duration or extent of those activities which may validly and enforceably be restricted, and shall enforce the restrictions as so construed. The Parties acknowledge the uncertainty of the law in this respect and expressly stipulate that this Agreement shall be construed in a manner which renders its provisions valid and enforceable to the maximum extent (not exceeding its express terms) possible under applicable law.
18.    No Assignment. This General Release is personal to Employee and cannot be assigned to any other person or entity.

25



19.    Attorneys’ Fees. Employee understands that he is responsible to pay his own costs and attorneys’ fees, if any, which are incurred in consulting with an attorney about this General Release.
20.    Third Party Beneficiary. [CIRCUMSTANCES OF THE CIC MAY REQUIRE THAT A THIRD-PARTY BE COVERED UNDER THIS GENERAL RELEASE OR CERTAIN PROVISIONS HEREOF].
21.    Entire Agreement. This General Release constitutes the entire agreement between Orbital ATK and Employee regarding the subject matter included in this document. Employee agrees that there are no promises or understandings outside of this General Release, except with respect to his continuing obligations pursuant to his executed Confidentiality and Invention Assignment Agreement. This General Release supercedes and replaces all prior or contemporaneous discussions, negotiations or General Releases, whether written or oral, except as set forth herein.
22.    Eligibility and Opportunity to Review.
a.
All employees who are eligible to participate in the ISP must execute a general release of all employment-related claims in order to receive Severance Benefits. Attached to this General Release is a list of employees by position and age who were and were not impacted by this reduction in the workforce and eligible to receive additional and valuable consideration in exchange for executing a general release of claims.
b.
Employee certifies that he is signing this General Release voluntarily and with full knowledge of its consequences. Employee understands that he has forty-five (45) days from the date he received this General Release to consider it, and that he does not have to sign it before the end of the forty-five (45) day period. Employee is hereby advised to use this time to consult with an attorney prior to executing this General Release. Employee agrees that if he signs this General Release prior to the forty-fifth day, he is doing so because he has had sufficient time to review and consider the General Release and to consult with an attorney if he wished to do so.
c.
Changes to this General Release, whether material or immaterial, do not restart the fort-five (45) day period.
23.    Understanding and Voluntary Execution. Employee understands all of the terms of this General Release and has not relied on any oral statements or explanation by Orbital ATK. Employee has had adequate time to consult with legal counsel and to consider whether to sign this General Release, and Employee is signing this General Release knowingly and voluntarily.

26




Employee executes this General Release by his signature below.




Date:                   
[EMPLOYEE NAME]



                  
Employee’s Signature
 






Date:                   
ORBITAL ATK, Inc.



                  
By:
Its:



27



SCHEDULE A

SCHEDULE OF BENEFITS




A-1



NON-QUALIFIED STOCK OPTION AWARD AGREEMENT
(Installment Vesting)

1.
The Grant. Orbital ATK, Inc., a Delaware corporation (the “Company”), hereby grants to you, on the terms and conditions set forth in this Non-Qualified Stock Option Award Agreement (this “Agreement”) and in the Orbital ATK, Inc. 2015 Stock Incentive Plan (the “Plan”), an option (the “Option”) (a) as of the date (the “Grant Date”), (b) for the purchase of the number of shares of common stock of the Company (the “Shares”), (c) at an option price per Share and (d) with the expiration date (the “Expiration Date”), which the Company or its agent provided to you separately in writing through an electronic notice and on-line grant acceptance web page (the “Electronic Notice and On-Line Grant Acceptance”).
2.
Exercise of Option. The exercise of the Option is subject to the following terms and conditions:
(a)
The Option may be exercised only by you (or by your appropriate representatives in the event of your death), in whole or in part from time to time as provided in Paragraph 2(b) below, during the period commencing on the date set forth in Paragraph 2(b) below and ending on the earlier of (i) the Expiration Date or (ii) the expiration of the applicable period following the date of your termination of employment with the Company or one of its Affiliates (as defined in the Plan), as provided in Paragraph 4 below. In no event, however, may you exercise the Option to any extent after the Expiration Date.
(b)
The Option shall become exercisable to the extent of one third of the Shares on each of the first, second, and third anniversaries of the Grant Date . Once the Option has become exercisable, you may exercise it to the extent set forth in the preceding sentence at any time thereafter, subject to the provisions of this Agreement.
(c)
The Option shall become immediately exercisable in full after a Change in Control (as defined in Appendix A to this Agreement). However, if you are or become a participant in the Company’s applicable Income Security Plan or any successor or substitute plan (the “ISP”), the terms relating to the exercisability of the Option, including whether a Change in Control has occurred, shall be governed by the provisions of the ISP.
3.
Manner of Exercise. The Option shall be exercised by the delivery of written notice of exercise (the “Notice”) to the Company or its agent. The Notice shall be in electronic form or such other form as the Company may prescribe and shall specify the number of Shares as to which you are exercising the Option, and shall be accompanied by payment of the purchase price of the Shares either in cash (certified or cashier’s check payable to the Company or by wire transfer to the Company) or by the delivery of Shares, or the Company’s retention of Shares otherwise issuable upon exercise, or any combination of the foregoing. The Notice shall also be accompanied by such other information and documents as the Company, in its discretion, may request.
4.
Termination of Employment. Subject to the provisions of Paragraph 2 above, the Option may be exercised as provided in the Plan and this Agreement to the following extent for the following periods after your termination of employment, but in no event on or after the Expiration Date:
(a)    For three years if your termination of employment is a result of your death, to the extent exercisable on the date of death;
(b)    For three years if your termination of employment is a result of your Retirement or Disability (as each of those terms is defined in Appendix A to this Agreement) or involuntary termination without cause, to the extent exercisable on the date of such termination of employment, provided, however, that if you die less than six months before the end of such three-year period, your appropriate representatives may exercise the Option at any time within six months after your death, even if such exercise occurs more than three years after your termination of employment; or
(c)    For 90 days after your termination of employment for any other reason, other than for cause, to the extent exercisable on the date of such termination of employment.
The Option may not be exercised following your termination of employment for cause.
5.
Recoupment . If you are or become an “Executive Officer” as defined in the Company’s Executive Compensation Recoupment Policy (the “Recoupment Policy”), you will be subject to the Recoupment Policy.
6.
Holding Requirement. At the time of exercise of the Option and any subsequent sales, you will be required to comply with the Company’s Stock Holding Policy for Executive Officers and Certain Members of Senior Management.
7.
Income Taxes. You are liable for any federal, state and local income or other taxes applicable upon the grant or exercise of the Option or the disposition of the Shares. Upon exercise of the Option, you shall promptly pay to the Company the minimum statutory withholding taxes required to be withheld or collected by the Company in connection with the exercise of the Option. You may pay all or a portion of the minimum statutory withholding taxes by (a) having the Company withhold Shares otherwise to be delivered upon the exercise of the Option with a Fair Market Value (as defined in the Plan) equal to the amount of such taxes, (b) delivering to the Company Shares other than Shares issuable upon the exercise of the Option with a Fair Market Value equal to the amount of such taxes or (c) paying cash. For federal income tax purposes, the Option shall not be eligible for treatment as a qualified or incentive stock option.
8.
Acknowledgment. This Option shall not be effective until you agree to the terms and conditions of this Agreement and the Plan, and acknowledge receipt of a copy of the Prospectus relating to the Plan, by accepting this Option in writing or electronically as specified by the Company or its agent in the Electronic Notice and On-Line Grant Acceptance.

ORBITAL ATK, INC.

David W. Thompson
President & Chief Executive Officer





Orbital ATK, Inc. 2015 Stock Incentive Plan

Appendix A to Award Agreement

“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 Grant Date set forth in the Award Agreement 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.

*        *        *        *

“Disability” means that you have been determined to have a total and permanent disability either by

being eligible for disability for Social Security purposes, or

being totally and permanently disabled under the Company’s long-term disability plan.

“Retirement” means

if you are a current participant in a Company defined benefit plan, then “Retirement” is defined by that defined benefit plan, or

if you are not a current participant in a Company defined benefit plan, then “Retirement” means that you have reached age 55 and have at least five years of “vesting service” as defined in the Company’s 401(k) Plan.
















A-2




                
PERFORMANCE SHARE AWARD AGREEMENT

1.
The Grant. Orbital ATK, Inc., a Delaware corporation (the “Company”), hereby grants to you, on the terms and conditions set forth in this Performance Award Agreement (this “Agreement”) and in the Orbital ATK, Inc. 2015 Stock Incentive Plan (the “Plan”), a Performance Award as of the date, and for the number of Shares (the “Performance Shares”), which the Company or its agent provided to you separately in writing through an electronic notice and on-line award acceptance web page (the “Electronic Notice and On-Line Award Acceptance”).
2.
Measuring Period. The Measuring Period for purposes of determining whether the Company will pay you the Performance Shares shall be the three-fiscal-year period beginning January 1, 2016 .
3.
Performance Goals. The Performance Goals for purposes of determining whether the Company will pay you the Performance Shares are set forth in the Performance Accountability Chart, which the Company provided to you separately in writing.
4.
Payment . The Company will pay you the Performance Shares if and to the extent that the Performance Goals are achieved, as set forth in the Performance Accountability Chart and as determined by the Compensation and Human Resources Committee of the Company’s Board of Directors (the “Committee”) in its sole discretion. Notwithstanding the foregoing, the Committee has the discretion to adjust the payment level downward from the level of performance actually achieved.
5.
Form and Timing of Payment. The Company will pay you any shares payable pursuant to this Agreement in shares of common stock of the Company (the “Shares”), with one Share issued for each Performance Share earned. The Company will pay you the Performance Shares as soon as practicable after the Committee determines, in its sole discretion, after the end of the Measuring Period, whether, and the extent to which, the Performance Goals have been achieved, but in no event later than 2 ½ months after the end of the Measuring Period.
6.
Change in Control. After a Change in Control (as defined in Appendix A to this Agreement), the Performance Shares shall immediately be payable at the threshold performance level, but prorated for your active service time with the Company during the Measuring Period. However, if you are or become a participant in the Company’s applicable Income Security Plan or any successor or substitute plan (the “ISP”), the terms of payment of the Performance Shares shall be governed by the provisions of the ISP.
7.
Forfeiture. In the event of your termination of employment prior to the end of the Measuring Period, other than by reason of death, Disability (as defined in Appendix A to this Agreement), Retirement (as defined in Appendix A to this Agreement), or involuntary termination without cause, all of your Performance Shares and rights to payment of any Shares shall be immediately and irrevocably forfeited. In the event of your termination of employment prior to the end of the Measuring Period by reason of Disability, Retirement, or involuntary termination without cause, you shall be entitled to receive, after the end of the Measuring Period, the number of Shares determined by the Committee pursuant to this Agreement, but prorated for your active service time with the Company during the Measuring Period. In the event of your death prior to the end of the Measuring Period, your estate shall be entitled to receive, within a practicable time after your death, payment of the Performance Shares at the threshold performance level, but prorated for your active service time with the Company during the Measuring Period. If you are or become an “Executive Officer” as defined in the Company’s Executive Compensation Recoupment Policy (the “Recoupment Policy”), you will be subject to the Recoupment Policy.
8.
Holding Requirement. As a recipient of the Performance Award, you are required to comply with the Company’s Stock Holding Policy for Executive Officers and Certain Members of Senior Management.
9.
Rights. Nothing herein shall be deemed to grant you any rights as a holder of Shares unless and until the Company actually issues the Shares to you as provided herein.
10.
Income Taxes. You are liable for any federal, state and local income or other taxes applicable upon the grant of the Performance Shares, the receipt of the Shares, or subsequent disposition of the Shares, and you acknowledge that you should consult with your own tax advisor regarding the applicable tax consequences. Upon payment of the Performance Shares and/or issuance of the Shares to you, the Company will pay your required minimum statutory withholding taxes by withholding Shares otherwise to be delivered upon the payment of the Performance Shares with a Fair Market Value (as defined in the Plan) equal to the amount of such taxes. Alternatively, if you notify the Company prior to the end of the Measuring Period, you may elect to pay all or a portion of the minimum statutory withholding taxes by (a) delivering to the Company Shares other than Shares issuable upon the payment of the Performance Shares with a Fair Market Value equal to the amount of such taxes or (b) paying cash, provided that if you do not deliver such Shares or cash to the Company by the second business day after the payment date of the Performance Shares, the Company will pay your required minimum statutory withholding taxes by withholding Shares otherwise to be delivered upon the payment of the Performance Shares with a Fair Market Value equal to the amount of such taxes.
11.
Acknowledgment. This Award of Performance Shares shall not be effective until you agree to the terms and conditions of this Agreement and the Plan, and acknowledge receipt of a copy of the Prospectus relating to the Plan, by accepting this Award in writing or electronically as specified by the Company or its agent in the Electronic Notice and On-Line Award Acceptance.

ORBITAL ATK, INC.  

David W. Thompson
President & Chief Executive Officer











Orbital ATK, Inc. 2015 Stock Incentive Plan

Appendix A to Award Agreement

“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 Grant Date set forth in the Award Agreement 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.

*        *        *        *

“Disability” means that you have been determined to have a total and permanent disability either by

being eligible for disability for Social Security purposes, or

being totally and permanently disabled under the Company’s long-term disability plan.

“Retirement” means

if you are a current participant in a Company defined benefit plan, then “Retirement” is defined by that defined benefit plan, or

if you are not a current participant in a Company defined benefit plan, then “Retirement” means that you have reached age 55 and have at least five years of “vesting service” as defined in the Company’s 401(k) Plan.
















A-2






RESTRICTED STOCK AWARD AGREEMENT

1. The Grant. Orbital ATK, Inc., a Delaware corporation (the “Company”), hereby grants to you, on the terms and conditions set forth in this Restricted Stock Award Agreement (this “Agreement”) and in the Orbital ATK, Inc. 2015 Stock Incentive Plan (the “Plan”), an Award as of the date (the “Award Date”), and for the number of shares of common stock of the Company (the “Shares”), which the Company or its agent provided to you separately in writing through an electronic notice and on-line award acceptance web page (the “Electronic Notice and On-Line Award Acceptance”).
2.
Restricted Period. The Shares are subject to the restrictions contained in this Agreement and the Plan for a period (the “Restricted Period”) commencing on the Award Date and vesting in three equal annual installments commencing on the first anniversary of the Award Date or, if earlier, upon (a) a Change in Control, as provided in Paragraph 4 below, or (b) your death, Disability (as defined in Appendix A to this Agreement), or involuntary termination without cause, as provided in Paragraph 5 below.
3.
Restrictions. The Shares shall be subject to the following restrictions during the Restricted Period:
(a)
The Shares shall be subject to forfeiture to the Company as provided in this Agreement and the Plan.
(b)
You may not sell, transfer, pledge or otherwise encumber the Shares during the Restricted Period. Neither the right to receive the Shares nor any interest under the Plan may be transferred by you, and any attempted transfer shall be void.
(c)
The Company will issue the Shares in your name, either by book-entry registration or issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company. The Shares shall be restricted from transfer and shall be subject to an appropriate stop- transfer order. If any certificate is issued, the certificate shall bear an appropriate legend referring to the restrictions applicable to the Shares. If any certificate is issued, you shall be required to execute and deliver to the Company a stock power relating to the Shares as a condition to the receipt of this Award of Restricted Stock (as defined in the Plan).
(d)
Any securities or property (other than cash) that may be issued with respect to the Shares as a result of any stock dividend, stock split, business combination or other event shall be subject to the restrictions and other terms and conditions contained in this Agreement.
(e)
You shall not be entitled to receive any Shares prior to 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.
4.
Change in Control. After a Change in Control (as defined in Appendix A to this Agreement), the Shares shall immediately vest. However, if you are or become a participant in the Company’s applicable Income Security Plan or any successor or substitute plan (the “ISP”), the terms of the vesting of the Shares shall be governed by the provisions of the ISP.
5.
Forfeiture. In the event of your termination of employment, other than by reason of death, Disability or involuntary termination without cause prior to the end of the Restricted Period, your rights to all of the Shares shall be immediately and irrevocably forfeited. In the event of your termination of employment by reason of death, Disability or involuntary termination without cause prior to the end of the Restricted Period, the restrictions with respect to all of the Shares shall lapse and the Shares shall vest as of the date of such termination of employment. If you are or become an “Executive Officer” as defined in the Company’s Executive Compensation Recoupment Policy (the “Recoupment Policy”), you will be subject to the Recoupment Policy.
6.
Holding Requirement. If you are or become an officer of the Company subject to the Stock Holding Policy for Executive Officers and Certain Members of Senior Management (the “Stock Holding Policy”), you will be required to comply with the Stockholding Policy.
7.
Rights. Upon issuance of the Shares, you shall, subject to the restrictions of this Agreement and the Plan, have 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 you forfeit the Shares.
8.
Income Taxes. You are liable for any federal, state and local income or other taxes applicable upon the grant of the Restricted Stock, the vesting of the Shares, or subsequent disposition of the Shares, and you acknowledge that you should consult with your own tax advisor regarding the applicable tax consequences. Upon the vesting of the Shares, the Company will pay your required minimum statutory withholding taxes by withholding Shares otherwise to be delivered upon the vesting of the Shares with a Fair Market Value (as defined in the Plan) equal to the amount of such taxes. Alternatively, if you notify the Company prior to the vesting date of the Shares, you may elect to pay all or a portion of the minimum statutory withholding taxes by (a) delivering to the Company Shares other than the Shares vesting pursuant to this Agreement with a Fair Market Value equal to the amount of such taxes or (b) paying cash, provided that if you do not deliver such Shares or cash to the Company by the second business day after the vesting date of the Shares, the Company will pay your required minimum statutory withholding taxes by withholding Shares otherwise to be delivered upon the vesting of the Shares with a Fair Market Value equal to the amount of such taxes.
9.
Acknowledgment. This Award of Restricted Stock shall not be effective until you (a) agree to the terms and conditions of this Agreement and the Plan, and acknowledge receipt of a copy of the Prospectus relating to the Plan, by accepting this Award in writing or electronically as specified by the Company or its agent in the Electronic Notice and On-Line Award Acceptance, and (b) if the Company requests it, execute and deliver the stock power required by Paragraph 3 above.

ORBITAL ATK, INC.

David W. Thompson
President & Chief Executive Officer





Orbital ATK, Inc. 2015 Stock Incentive Plan
Appendix A to Award Agreement

“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 Grant Date set forth in the Award Agreement 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.

*    *        *        *

“Disability” means that you have been determined to have a total and permanent disability either by

being eligible for disability for Social Security purposes, or

being totally and permanently disabled under the Company’s long-term disability plan.























A-2



Orbital ATK, Inc.

Nonqualified Deferred Compensation Plan




As Amended and Restated

Effective February 16, 2016




TABLE OF CONTENTS
Page
ARTICLE 1
Definitions    1
ARTICLE 2
Selection, Enrollment, Eligibility    6
2.1
Selection    6
2.2
Enrollment and Eligibility Requirements; Commencement of Participation    6
2.3
Termination of a Participant’s Eligibility    7
ARTICLE 3
Deferral Commitments; Company Contribution Amounts; Company Restoration Matching Amounts; Vesting; Crediting; Taxes    7
3.1
Minimum Deferrals    7
3.2
Maximum Deferral    8
3.3
Election to Defer; Effect of Election Form    8
3.4
Withholding and Crediting of Annual Deferral Amounts    9
3.5
Company Contribution Amount    10
3.6
Company Restoration Matching Amount    10
3.7
Crediting of Amounts after Benefit Distribution    10
3.8
Vesting    10
3.9
Crediting and Debiting of Account Balances    10
3.10
FICA and Other Taxes    12
ARTICLE 4
Scheduled Distribution; Unforeseeable Financial Emergencies    13
4.1
Scheduled Distribution    13
4.2
Postponing Scheduled Distributions    13
4.3
Certain Benefits Take Precedence Over Scheduled Distributions    13
4.4
Withdrawal Payout; Suspensions for Unforeseeable Financial Emergencies    14
ARTICLE 5
Retirement Benefit    15
5.1
Retirement Benefit    15
5.2
Payment of Retirement Benefit    15
ARTICLE 6
Termination Benefit    16
6.1
Termination Benefit    16
6.2
Payment of Termination Benefit    16
ARTICLE 7
Disability Benefit    16
7.1
Disability Benefit    16
7.2
Payment of Disability Benefit    16
ARTICLE 8
Death Benefit    16
8.1
Death Benefit    16
8.2
Payment of Death Benefit    16
ARTICLE 9
Form of Payment    16



9.1
Payment in Cash or Common Stock    16
9.2
Relation to Stock Incentive Plan    17
ARTICLE 10
Beneficiary Designation    17
10.1
Beneficiary    17
10.2
Beneficiary Designation; Change; Spousal Consent    17
10.3
Acknowledgement    17
10.4
No Beneficiary Designation    17
10.5
Doubt as to Beneficiary    17
10.6
Discharge of Obligations    17
ARTICLE 11
Leave of Absence    18
11.1
Paid Leave of Absence    18
ARTICLE 12
Termination of Plan, Amendment or Modification    18
12.1
Termination of Plan    18
12.2
Amendment    19
12.3
Effect of Payment    19
ARTICLE 13
Administration    19
13.1
Committee Duties    19
13.2
Agents    19
13.3
Binding Effect of Decisions    19
13.4
Indemnity    19
13.5
Employer Information    19
ARTICLE 14
Other Benefits and Agreements    20
14.1
Coordination with Other Benefits    20
ARTICLE 15
Claims Procedures    20
15.1
Presentation of Claim    20
15.2
Notification of Decision    20
15.3
Review of a Denied Claim    21
15.4
Decision on Review    21
15.5
Legal Action    22
15.6
Determinations    22
ARTICLE 16
Trust    22
16.1
Establishment of the Trust    22
16.2
Interrelationship of the Plan and the Trust    22
16.3
Distributions From the Trust    22
ARTICLE 17
Miscellaneous    22
17.1
Status of Plan    22
17.2
Unsecured General Creditor    23



17.3
Employer’s Liability    23
17.4
Nonassignability    23
17.5
Not a Contract of Employment    23
17.6
Furnishing Information    23
17.7
Terms    23
17.8
Captions    23
17.9
Governing Law    23
17.10
Notice    24
17.11
Successors    24
17.12
Spouse’s Interest    24
17.13
Validity    24
17.14
Incompetent    24
17.15
Deduction Limitation on Benefit Payments    25
17.16
Insurance    25

APPENDIX A - PRIOR PLAN STATEMENT    A-1






ORBITAL ATK, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
Amended and Restated Effective February 16, 2016

History and Purpose
Effective January 1, 2003, ALLIANT TECHSYSTEMS INC., now named ORBITAL ATK, INC., a Delaware corporation (hereinafter, the “Company”), established a nonqualified, unfunded deferred compensation plan (the “Plan”) which is currently embodied in a document titled “ALLIANT TECHSYSTEMS INC. NONQUALIFIED DEFERRED COMPENSATION PLAN (As amended and Restated March 18, 2003)” as amended (the “Prior Plan Statement”). Deferred compensation credited under the Plan which relates entirely to services performed on or before December 31, 2004 shall continue to be governed by the terms of the Prior Plan Statement, attached hereto as Appendix A. Deferred compensation credited under the Plan which relates all or in part to services performed on or after January 1, 2005 shall be governed by the terms of this Plan restatement, the terms of which are intended to comply with the deferred compensation provisions in the American Jobs Creation Act of 2004. Clarifying amendments were made on September 6, 2007 to comply with the American Jobs Creation Act of 2004. Additional clarifying changes were made on October 29, 2007. Changes were made effective November 1, 2014 to exclude benefits for former Participants who became employees of Vista Outdoor Inc. as of that date. Additional clarifying amendments and administrative changes were made effective February 16, 2016.
The purpose of this Plan is to provide specified benefits to a select group of management or highly compensated Employees who contribute materially to the continued growth, development and future business success of the Company and its subsidiaries. This Plan is nonqualified and unfunded for tax purposes and for purposes of Title I of ERISA.
ARTICLE 1
Definitions
For the purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:
1.1
“Account Balance” shall mean, with respect to a Participant, an entry on the records of the Employer equal to the sum of the Participant’s Annual Accounts. The Account Balance shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.
1.2
“Annual Account” shall mean, with respect to a Participant, an entry on the records of the Employer equal to the following amount: (i) the sum of the Participant’s Annual Deferral Amount, Company Contribution Amount and Company Restoration Matching Amount for any one Plan Year, plus (ii) amounts credited or debited to such amounts pursuant to this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Annual Account for such Plan Year. The Annual Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.



1.3
“Annual Deferral Amount” shall mean that portion of a Participant's Base Salary, Performance Cash and Performance Shares that a Participant defers in accordance with Article 3 for any one Plan Year, without regard to whether such amounts are withheld and credited during such Plan Year. In the event of a Participant's Retirement, Disability, death or Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event.
1.4
“Annual Installment Method” shall be an annual installment payment over the number of years selected by the Participant in accordance with this Plan, calculated as follows: (i) for the first annual installment, the Participant’s vested portion of each Annual Account shall be calculated as of the close of business on the Participant’s Benefit Distribution Date, and (ii) for remaining annual installments, the vested portion of each applicable Annual Account shall be calculated on each anniversary of the Benefit Distribution Date (or if such calculation date is not a business day, the preceding business day). Each annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if the Participant elects a 10-year Annual Installment Method as the form of Retirement Benefit for an Annual Account, the first payment shall be 1/10 of the vested balance of such Annual Account, calculated as described in this definition. The following year, the payment shall be 1/9 of the vested balance of such Annual Account, calculated as described in this definition.
1.5
“Annual Performance Share Amount” shall mean the portion of the Participant’s Annual Deferral Amount, if any, representing Performance Shares deferred in accordance with Article 3 of the Plan. Annual Performance Share Amounts shall be credited to the Performance Share Accounts of Participants, determined by the number of performance shares that would otherwise be paid based upon the achievement of the performance goals and the other requirements for the payment of performance shares, but for the election to defer.
1.6
“Base Salary” shall mean the annual cash compensation relating to services performed during any calendar year, excluding distributions from nonqualified deferred compensation plans, bonuses, commissions, overtime, fringe benefits, profit sharing contributions, stock options, relocation expenses, incentive payments, non-monetary awards, and automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Employee. In no event shall Base Salary include any amounts payable to the Participant prior to the commencement of his or her participation in this Plan.
1.7
“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 10, that are entitled to receive benefits under this Plan upon the death of a Participant.



1.8
“Beneficiary Designation Form” shall mean the form established from time to time by the Senior Vice President of Human Resources that a Participant completes, signs and returns to the Company to designate one or more Beneficiaries.
1.9
“Benefit Distribution Date” shall mean the date that triggers distribution of a Participant’s vested Account Balance. A Participant’s Benefit Distribution Date shall be the earliest to occur of any one of the following:
(a)
If the Participant Retires, his or her Benefit Distribution Date shall be the last day of the six-month period immediately following the date on which the Participant Retires; provided, however, in the event the Participant changes his or her Retirement Benefit election for one or more Annual Accounts in accordance with Section 5.2(a), his or her Benefit Distribution Date for such Annual Account(s) shall be postponed in accordance with such Section 5.2(a); or
(b)
If the Participant experiences a Termination of Employment, his or her Benefit Distribution Date shall be the last day of the six-month period immediately following the date on which the Participant experiences a Termination of Employment; provided, however, in the event the Participant elects to receive one or more Annual Accounts as of the first anniversary of his or her Termination of Employment in accordance with Section 6.2, his or her Benefit Distribution Date shall be postponed in accordance with such Section 6.2; or
(c)
The date on which the Company is provided with proof that is satisfactory to the Senior Vice President of Human Resources of the Participant’s death, if the Participant dies prior to the complete distribution of his or her vested Account Balance; or
(d)
The date on which the PRC (or the Committee in the case of a Section 16 Officer or as otherwise required by Section 15.4 of this Plan) determines the Participant is Disabled.
1.10
“Board” shall mean the board of directors of the Company.
1.11
“CEO” shall mean the Chief Executive Officer of the Company.
1.12
“Claimant” shall have the meaning set forth in Section 15.1.
1.13
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
1.14
“Committee” shall mean the Compensation and Human Resources Committee the Board of Directors of the Company.
1.15
“Company” shall mean Orbital ATK, Inc., a Delaware corporation, and any successor to all or substantially all of the Company’s assets or business.
1.16
“Company Contribution Account” shall mean (i) the sum of the Participant’s Company Contribution Amounts, plus (ii) amounts credited or debited to the Participant’s Company Contribution Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Contribution Account.
1.17
“Company Contribution Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.5.
1.18
“Company Restoration Matching Account” shall mean (i) the sum of all of a Participant's Company Restoration Matching Amounts, plus (ii) amounts credited or debited to the Participant’s Company



Restoration Matching Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Restoration Matching Account.
1.19
“Company Restoration Matching Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.6.
1.20
“Death Benefit” shall mean the benefit set forth in Article 8.
1.21
“Deduction Limitation” shall mean the limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan, as set forth in Section 17.15.
1.22
“Deferral Account” shall mean (i) the sum of all of a Participant's Annual Deferral Amounts, plus (ii) amounts credited or debited to the Participant’s Deferral Account in accordance with this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account.
1.23
“Disability” or “Disabled” shall mean that a Participant is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident or health plan covering employees of the Participant’s Employer.
1.24
“Disability Benefit” shall mean the benefit set forth in Article 7.
1.25
“Election Form” shall mean the form, which may be in electronic format, established from time to time by the Committee that a Participant completes, signs and returns to the Company to make an election under the Plan.
1.26
“Employee” shall mean a person who is an employee of any Employer.
1.27
“Employer(s)” shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have employees who participate in the Plan.
1.28
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.
1.29
“401(k) Plan” shall mean a plan adopted by the Employer that is qualified under Code Section 401(a) that contains a cash or deferral arrangement described in Code Section 401(k), as amended from time to time.
1.30
“Participant” shall mean any Employee (i) who is selected to participate in the Plan and (ii) who submits an executed Election Form and Beneficiary Designation Form, which are accepted by the Company.
1.31
“Performance Cash” shall mean any performance-based cash compensation, in addition to Base Salary, earned by a Participant under any Employer's annual or long-term bonus and incentive plans for services rendered during a performance period of at least 12 months, as further specified on an Election Form approved by the Committee in its sole discretion.



1.32
“Performance Shares” shall mean any performance-based stock compensation earned by a Participant under any Employer performance award plan for services rendered during a performance period of at least 12 months, as further specified on an Election Form approved by the Committee in its sole discretion.
1.33
“Performance Share Account” shall mean the portion of the Deferral Account equal to (i) the sum of all of a Participant's Annual Performance Share Amounts, plus (ii) the value of the number of additional share units credited as a result of stock dividends or deemed reinvestment of cash dividends, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Performance Share Account.
1.1
“PIC” shall mean the Orbital ATK Pension Investment Committee.
1.2
“Plan” shall mean the Orbital ATK, Inc. Nonqualified Deferred Compensation Plan (formerly named the Alliant Techsystems Inc. Nonqualified Deferred Compensation Plan), which shall be evidenced by this instrument, as it may be amended from time to time.
1.3
“Plan Year” shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year.
1.4
“Prior Plan Statement” shall mean the document, attached hereto as Appendix A and which is a part of the Plan, titled “ALLIANT TECHSYSTEMS INC. NONQUALIFIED DEFERRED COMPENSATION PLAN (As amended and Restated March 18, 2003)” as amended.
1.5
“PRC” shall mean the Orbital ATK Pension and Retirement Committee.
1.6
“Retirement”, “Retire(s)” or “Retired” shall mean, with respect to an Employee, separation from service with all Employers and all entities treated as members of the same controlled group with any Employer under Code Section 414(b) or (c), for any reason other than a leave of absence, death or Disability on or after the attainment of age 55 with two Years of Service. Controlled group membership shall be determined by substituting “at least 50 percent” for “at least 80 percent” each place it appears in Code Section 1563(a)(1), (2) and (3), and by substituting “at least 50 percent” for “at least 80 percent” each place it appears in Treas. Reg. §1.414(c)-2.
1.7
“Retirement Benefit” shall mean the benefit set forth in Article 5.
1.8
“Scheduled Distribution” shall mean the distribution set forth in Section 4.1.
1.9
“Section 16 Officer” shall mean an “officer” of the Company as defined in the rules promulgated under Section 16 of the Securities Exchange Act of 1934, as amended.
1.10
“Senior Vice President of Human Resources” shall mean the most senior officer of the Company in charge of the human resources function at the time the action is taken with respect to the Plan.
1.11
“Terminate the Plan” or “Termination of the Plan” shall mean a determination by the Committee that (i) all Participants shall no longer be eligible to participate in the Plan, (ii) all deferral elections for such Participants shall terminate, and (iii) such Participants shall no longer be eligible to receive Company contributions under this Plan.
1.12
“Termination Benefit” shall mean the benefit set forth in Article 6.
1.13
“Termination of Employment” shall mean the separation from service with all Employers and all entities treated as members of the same controlled group with any Employer under Code Section



414(b) or (c), voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. Controlled group membership shall be determined by substituting “at least 50 percent” for “at least 80 percent” each place it appears in Code Section 1563(a)(1), (2) and (3), and by substituting “at least 50 percent” for “at least 80 percent” each place it appears in Treas. Reg. §1.414(c)-2.
1.14
“Trust” shall mean one or more trusts established by the Company in accordance with Article 16.
1.15
“Unforeseeable Financial Emergency” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant, the Participant’s spouse, or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Senior Vice President of Human Resources or, in the case of a Section 16 Officer, the Committee.
1.16
“Years of Service” shall mean an Employee’s period of service with Orbital ATK, Inc. or a related Employer measured in full years. A Participant shall receive credit for one full year of “Service” for each Plan Year in which the Participant had at least 1,000 hours of service for a participating Employer or related Employer.
ARTICLE 2
Selection, Enrollment, Eligibility
2.1
Selection . Participation in the Plan shall be limited to a select group of management or highly compensated Employees, as determined by the CEO in his or her sole discretion; provided, however, that all Section 16 Officers shall be eligible to participate in the Plan (while employed as a Section 16 Officer) and need not be selected by the CEO in order to be eligible to participate in the Plan.
2.2
Enrollment and Eligibility Requirements; Commencement of Participation . As a condition to participation, each selected Employee who is eligible to participate in the Plan effective as of the first day of a Plan Year shall complete, execute and return to the Company an Election Form and a Beneficiary Designation Form prior to the first day of such Plan Year, or such other earlier deadline as may be established by the Senior Vice President of Human Resources in his or her sole discretion. In addition, the Committee may establish from time to time such other enrollment requirements as it determines, in its sole discretion, are necessary.
(a)
A selected Employee who first becomes eligible to participate in this Plan after the first day of a Plan Year must complete these requirements within 30 days after he or she first becomes eligible to participate in the Plan, or within such other earlier deadline as may be established by the Senior Vice President of Human Resources, in his or her sole discretion, in order to participate for that Plan Year. In such event, such person’s participation in this Plan shall not commence earlier than 30 days after he or she first becomes eligible to participate in the Plan or, in the case of an Employee who is not a Section 16 Officer, on the date determined by the Senior Vice President of Human Resources, and such person shall not be permitted to defer under this Plan any portion of his or her Base Salary, Performance Cash and/or Performance Shares that are paid with respect to services performed prior to his or her



participation commencement date, except to the extent permissible under Code Section 409A and related Treasury guidance or Regulations.
(b)
Each selected Employee who is eligible to participate in the Plan shall commence participation in the Plan only after the Employee has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Company within the specified time period. Notwithstanding the foregoing, the Company shall process such Participant’s deferral election as soon as administratively practicable after such deferral election is submitted to the Company.
(c)
If an Employee fails to meet all requirements contained in this Section 2.2 within the period required, that Employee shall not be eligible to participate in the Plan during such Plan Year.
2.3
Termination of a Participant’s Eligibility . The CEO (or in the case of a Section 16 Officer, the Committee) shall have the right, in his or her sole discretion, to (i) prevent the Participant from making future deferral elections, and/or (ii) take further action that the CEO or the Committee deems appropriate. Notwithstanding the foregoing, in the event of a Termination of the Plan in accordance with Section 1.43, the termination of the affected Participants’ eligibility for participation in the Plan shall not be governed by this Section 2.3, but rather shall be governed by Section 1.43 and Section 12.1. In the event that a Participant is no longer eligible to defer compensation under this Plan, the Participant’s Account Balance shall continue to be governed by the terms of this Plan until such time as the Participant’s Account Balance is paid in accordance with the terms of this Plan. Notwithstanding any provision of this Plan to the contrary, no former Employee who becomes an employee of Vista Outdoor Inc. on or about November 1, 2014 shall thereafter be a Participant or be entitled to any benefit under this Plan.
ARTICLE 3
Deferral Commitments; Company Contribution Amounts;
Company Restoration Matching Amounts; Vesting; Crediting; Taxes
3.1
Minimum Deferrals .
(a) Annual Deferral Amount . For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Salary, Performance Cash and/or Performance Shares in the following minimum amounts for each deferral elected:

Cash Compensation
Minimum Amount
Base Salary
1%
Performance Cash
1%





Equity Compensation
Deferral Amount
Performance Shares
1%
If, prior to the beginning of a Plan Year, a Participant has made an election for less than the stated minimum amounts, or if no election is made, the amount deferred shall be zero. If, at any time after the beginning of a Plan Year, a Participant has deferred less than the stated minimum amounts for that Plan Year, any amount credited to the Participant’s Account Balance as the Annual Deferral Amount for that Plan Year shall be distributed to the Participant within 60 days after the last day of the Plan Year.
(b)
Short Plan Year . Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year the minimum Annual Deferral Amount shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12.
3.2
Maximum Deferral .
(a)
Annual Deferral Amount . For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Salary, Performance Cash and/or Performance Shares up to the following maximum percentages for each deferral elected:
Deferral
Maximum Percentage
Base Salary
70%
Performance Cash
100%
Performance Shares
100%
(b)
Short Plan Year . Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, the maximum Annual Deferral Amount shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits an Election Form to the Company for acceptance.
3.3
Election to Defer; Effect of Election Form .
(a)
First Plan Year . In connection with a Participant's commencement of participation in the Plan, the Participant shall make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other elections as the Senior Vice President of Human Resources (or in the case of a Section 16 Officer, the Committee) deems necessary or desirable under the Plan. For these elections to be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Company (in accordance with Section 2.2 above) and accepted by the Company.
(b)
Subsequent Plan Years . For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Senior Vice President of Human Resources (or in the case of a Section 16 Officer, the Committee) deems necessary or desirable under the Plan, shall be made by timely delivering a new Election Form to the Company, in accordance with the terms of the Plan, before the end of the Plan Year preceding the Plan



Year for which the election is made. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year.
(c)
Performance-Based Compensation . Notwithstanding the foregoing, an irrevocable deferral election pertaining to Performance Cash or Performance Shares may be made by timely delivering an Election Form to the Company, in accordance with the terms of the Plan, no later than the earlier of (i) six months before the end of the performance period or (ii) such earlier date as the Senior Vice President of Human Resources may determine, in his or her sole discretion, for the Plan Year. For any Plan Year the Committee may determine, in its sole discretion, that any such election shall be limited to the portion of Performance Cash and/or Performance Shares designated by the Committee. “Performance‑based compensation” shall be compensation based on services performed over a period of at least 12 months, in accordance with Code Section 409A and related guidance.
(d)
Restricted Stock Amounts . Effective January 1, 2005, deferrals of restricted stock (which do not otherwise qualify as Performance Shares) shall not be permitted under this Plan. Notwithstanding the foregoing, a Participant’s election to defer restricted stock which was made on or prior to December 31, 2004 under the terms of the Prior Plan Statement with respect to restricted stock which vests on or after January 1, 2005 shall be treated as an Annual Performance Share Amount under this Plan restatement. As of the date on which such restricted stock amounts vest, such Participant’s Performance Share Account shall be credited with the number of units equal to the number of shares of Orbital ATK common stock that would have otherwise been delivered to the Participant. Such units shall become payable in accordance with the terms of this Plan statement (and not the Prior Plan Statement). Restricted stock deferrals which vested and were credited to this Plan on or prior to December 31, 2004 shall be governed exclusively under the terms of the Prior Plan Statement.
3.4
Withholding and Crediting of Annual Deferral Amounts . For each Plan Year, the Base Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Salary. The Performance Cash and/or Performance Shares portion of the Annual Deferral Amount shall be withheld at the time the Performance Cash and/or Performance Shares are or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself. Annual Deferral Amounts shall be credited to a Participant’s Deferral Account as soon as reasonably practicable following the time such amounts would otherwise have been paid to the Participant.



3.5
Company Contribution Amount . For each Plan Year, the CEO (or in the case of a Section 16 Officer, the Committee) may, in his or her sole discretion, credit any amount to any Participant’s Annual Account under this Plan, which amount shall be part of the Participant’s Company Contribution Amount for that Plan Year. The amount so credited to a Participant may be smaller or larger than the amount credited to any other Participant, and the amount credited to any Participant for a Plan Year may be zero, even though one or more other Participants receive a Company Contribution Amount for that Plan Year. The Company Contribution Amount described in this Section 3.5, if any, shall be credited to the Participant’s Annual Account for the applicable Plan Year on a date or dates to be determined by the CEO (or the Committee as applicable), in his or her sole discretion.
3.6
Company Restoration Matching Amount . A Participant's Company Restoration Matching Amount for any Plan Year shall be the amount necessary to make up for the lost share, if any, of matching contributions (but not elective deferred contributions) under the 401(k) Plan attributable to the Participant’s deferrals under this Plan that would have otherwise been allocated to the account of the Participant under the 401(k) Plan for such Plan Year. The amount so credited to a Participant under this Plan for any Plan Year (i) may be smaller or larger than the amount credited to any other Participant and (ii) may differ from the amount credited to such Participant in the preceding Plan Year. The Participant’s Company Restoration Matching Amount, if any, shall be credited to the Participant’s Annual Account for the applicable Plan Year as soon as administratively practicable after the amount can be determined for the applicable Plan Year.
3.7
Crediting of Amounts after Benefit Distribution . Notwithstanding any provision in this Plan to the contrary, if the complete distribution of a Participant’s vested Account Balance occurs prior to the date on which any portion of (i) the Annual Deferral Amount that a Participant has elected to defer in accordance with Section 3.3, (ii) the Company Contribution Amount, or (iii) the Company Restoration Matching Amount, would otherwise be credited to the Participant’s Account Balance, such amounts shall not be credited to the Participant’s Account Balance, but shall be paid to the Participant in a single lump sum as soon as administratively practicable after the amount can be determined.
3.8
Vesting . A Participant shall at all times be 100% vested in his or her Account Balance; provided, however, that a Participant shall be vested in any Company Contribution Amount credited to his or her Company Contribution Account in accordance with the vesting schedule(s) set forth in his or her employment agreement or any other agreement entered into between the Participant and his or her Employer, or as declared by the CEO (or, in the case of a Section 16 Officer, the Committee). A different vesting schedule may apply to each Company Contribution Amount credited to the Participant’s Company Contribution Account. If no vesting schedule is specified in such agreements or declared by the CEO or Committee, as applicable, a Company Contribution Amount shall be 100% vested.
3.9
Crediting and Debiting of Account Balances . In accordance with, and subject to, the rules and procedures that are established from time to time by the PIC, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules:
(a)
Measurement Funds . The Participant may elect one or more of the measurement funds selected by the PIC, in its sole discretion, which are based on certain mutual funds or other



collective investment vehicles (the “Measurement Funds”), for the purpose of crediting or debiting additional amounts to his or her Account Balance (other than the Performance Share Account). As necessary, the PIC may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the first calendar quarter that begins at least 30 days after the day on which the PIC gives Participants advance written notice of such change.
(b)
Election of Measurement Funds . A Participant, in connection with his or her initial deferral election in accordance with Section 3.3(a) above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.9(a) above) to be used to determine the amounts to be credited or debited to his or her Account Balance (other than the Performance Share Account). If a Participant does not elect any of the Measurement Funds as described in the previous sentence, the Participant’s Account Balance (other than the Performance Share Account) shall automatically be allocated into the target date Measurement Fund most closely aligned with Plan participants who are age 65 and older, or a substantially similar Measurement Fund among the Plan’s available Measurement Funds, as determined by the PIC from time to time, in its sole discretion. The Participant may (but is not required to) elect, by submitting an Election Form to the Company that is accepted by the Company, to add or delete one or more Measurement Fund(s) to be used to determine the amounts to be credited or debited to his or her Account Balance (other than the Performance Share Account), or to change the portion of his or her Account Balance (other than the Performance Share Account) allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply as of the first business day that is administratively practicable, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence.
(c)
Proportionate Allocation . In making any election described in Section 3.9(b) above, the Participant shall specify on the Election Form, in increments of 1%, the percentage of his or her Account Balance or Measurement Fund, as applicable, to be allocated/reallocated.
(d)
Annual Performance Share Amounts . Annual Performance Shares Amounts shall be allocated to the Orbital ATK common stock Measuring Fund as of the date on which such performance shares would otherwise have been paid under the applicable Company stock incentive plan, and the Participant’s Performance Share Account shall be credited with the number of units equal to the number of shares of Orbital ATK common stock that would have otherwise been delivered to the Participant.
(i)
Cash Dividends . An amount shall be credited on any cash dividend payment date in that number of units equal to the number of shares that could have been purchased on the dividend payment date, based upon the closing price of Orbital ATK common stock as reported on the New York Stock Exchange for such date, with the value of the cash dividends paid on shares of stock equal to the number of units credited to the Performance Share Account as of the record date for such dividend.
(ii)
Changes in Orbital ATK Common Stock . In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares,



other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares of the Company’s common stock or other securities of the Company, issuance of warrants or other rights to purchase shares of the Company’s common stock or other securities of the Company or other similar corporate transaction or event affects the Company’s common stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust the number, value and/or type of units that are credited to the Participants’ Performance Share Account.
(iii)
Voting . No Participant or Beneficiary shall be entitled to any voting rights with respect to any units credited to the Performance Share Account.
(e)
Crediting or Debiting Method . The performance of each Measurement Fund (either positive or negative) will be determined on a daily basis based on the manner in which such Participant’s Account Balance has been hypothetically allocated among the Measurement Funds by the Participant.
(f)
No Actual Investment . Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation of his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance shall not be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the investments on which the Measurement Funds are based, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company.
3.10     FICA and Other Taxes      .
(a)
Annual Deferral Amounts . For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant’s Employer(s) shall withhold, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Company may reduce the Annual Deferral Amount in order to comply with this Section 3.10.
(b)
Company Restoration Matching Account and Company Contribution Account . When a Participant’s Annual Account is credited with a Company Restoration Matching Amount and/or Company Contribution Amount (or, if such amount is subject to a vesting schedule, when such Participant is vested in such amount), the Participant’s Employer(s) shall withhold, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such Company Restoration Matching Amount and/or Company



Contribution Amount. If necessary, the Company may reduce the vested portion of the Participant’s Company Restoration Matching Account or Company Contribution Account, as applicable, in order to comply with this Section 3.10.
(c)
Distributions . The Participant’s Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust.
ARTICLE 4
Scheduled Distribution; Unforeseeable Financial Emergencies
4.1
Scheduled Distribution . In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive a Scheduled Distribution, in the form of a lump sum payment, from the Plan with respect to all or a portion of the Annual Account (excluding Annual Performance Share Amounts and Company Contribution Amounts). The Scheduled Distribution shall be a lump sum payment in an amount that is equal to the portion of the Annual Account the Participant elected to have distributed as a Scheduled Distribution, plus amounts credited or debited in the manner provided in Section 3.9 above on that amount, calculated as of the close of business on the date on which the Scheduled Distribution becomes payable (or on the immediately preceding business day if such date is not a business day). Subject to the other terms and conditions of this Plan, each Scheduled Distribution elected shall be paid out during a 60-day period commencing immediately after the first day of any Plan Year designated by the Participant. The Plan Year designated by the Participant must be at least three Plan Years after the end of the Plan Year to which the Participant’s deferral election described in Section 3.3 relates. By way of example, if a Scheduled Distribution is elected for Annual Accounts that are earned in the Plan Year commencing January 1, 2005, the Scheduled Distribution would become payable during a 60-day period commencing January 1, 2009.
4.2
Postponing Scheduled Distributions . A Participant may elect to postpone a Scheduled Distribution described in Section 4.1 above, and have such amount paid out during a 60-day period commencing immediately after an allowable alternative distribution date designated by the Participant in accordance with this Section 4.2. In order to make this election, the Participant must submit a new Scheduled Distribution Election Form to the Company in accordance with the following criteria:
(a)
Such Scheduled Distribution Election Form must be submitted to and accepted by the Company at least 12 months prior to the Participant's previously designated Scheduled Distribution Date;
(b)
The new Scheduled Distribution Date selected by the Participant must be the first day of a Plan Year, and must be at least five years after the previously designated Scheduled Distribution Date; and
(c)
The election of the new Scheduled Distribution Date shall have no effect until at least 12 months after the date on which the election is made;



Provided, however, a Participant may elect to postpone each Scheduled Distribution no more than one time.
4.3
Certain Benefits Take Precedence Over Scheduled Distributions . If a Benefit Distribution Date occurs that triggers a benefit under Articles 5, 6, 7 or 8, any Annual Account that is subject to a Scheduled Distribution election under Section 4.1 shall not be paid in accordance with Section 4.1, but shall be paid in accordance with the other applicable Article. Notwithstanding the foregoing, the Committee shall interpret this Section 4.3 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.
4.4
Withdrawal Payout; Suspensions for Unforeseeable Financial Emergencies .
(a)
If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Senior Vice President of Human Resources (or in the case of a Section 16 Officer, the Committee) to receive a partial or full payout from the Plan. The Participant shall only receive a payout from the Plan to the extent such payout is deemed necessary by the Senior Vice President of Human Resources or the Committee, as applicable, to satisfy the Participant’s Unforeseeable Financial Emergency, plus amounts reasonably necessary to pay taxes reasonably anticipated as a result of the distribution. If a Participant receives a payout due to an Unforeseeable Financial Emergency, such Participant’s deferrals under this Plan shall cease. The Participant may not again elect to defer compensation until the enrollment period for the Plan Year that begins at least 12 months after such payout (or such later enrollment period, if required by Code Section 409A and other applicable tax law).
(b)
The payout shall not exceed the lesser of (i) the Participant's vested Account Balance, calculated as of the close of business on the date on which the amount becomes payable, as determined by the Senior Vice President of Human Resources or Committee, as applicable, or (ii) the amount necessary to satisfy the Unforeseeable Financial Emergency, plus amounts reasonably necessary to pay taxes reasonably anticipated as a result of the distribution. Notwithstanding the foregoing, a Participant may not receive a payout from the Plan to the extent that the Unforeseeable Financial Emergency is or may be relieved (A) through reimbursement or compensation by insurance or otherwise, (B) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship or (C) by suspension of deferrals under this Plan, if the Senior Vice President of Human Resources or the Committee, as applicable, determines that suspension is required by Code Section 409A and other applicable tax law.
(c)
If the Senior Vice President of Human Resources or the Committee, as applicable, approves a Participant’s petition for payout, the Participant’s deferrals under this Plan shall be suspended as of the date of such approval and the Participant shall receive a payout from the Plan within 60 days of the date of such approval.
(d)
Notwithstanding the foregoing, the Senior Vice President of Human Resources or the Committee, as applicable, shall interpret all provisions relating to suspension and/or payout under this Section 4.4 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.



ARTICLE 5
Retirement Benefit
5.1
Retirement Benefit . A Participant who Retires shall receive, as a Retirement Benefit, his or her vested Account Balance, calculated as of the close of business on the Participant’s Benefit Distribution Date.
5.2
Payment of Retirement Benefit .         
(a)
In connection with a Participant’s election to defer an Annual Deferral Amount, the Participant shall elect the form in which his or her Annual Account for such Plan Year will be paid. The Participant may elect to receive each Annual Account in the form of a lump sum or pursuant to an Annual Installment Method of up to 15 years. The Participant may change this election one time by submitting an Election Form to the Company in accordance with the following criteria:
(i)
The election to modify the form of payment for such Annual Account shall have no effect until at least 12 months after the date on which the election is made;
(ii)
The first payment related to such Annual Account shall be delayed at least five years from the originally scheduled Benefit Distribution Date for such Annual Account, as described in Section 1.9(a);
(i)
Notwithstanding the foregoing, the Company, the Committee and the Senior Vice President of Human Resources, as applicable, shall interpret all provisions relating to changing the Annual Account election under this Article 5 in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.
The Election Form most recently accepted by the Company shall govern the payout of the Annual Account. If a Participant does not make any election with respect to the payment of the Annual Account, then such Participant shall be deemed to have elected to receive the Annual Account in a lump sum.
(b)
The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the Benefit Distribution Date. Remaining installments, if any, shall continue in accordance with the Participant’s election for each Annual Account and shall be paid no later than 60 days after each anniversary of the Benefit Distribution Date.
(c)
Notwithstanding a Participant’s election to receive payment of an Annual Account in installments, if the Participant’s vested Account Balance, calculated as of the close of business on the Participant’s Benefit Distribution Date (or on the immediately preceding business day if such date is not a business day) is determined to have a value of $25,000 or less, the Participant’s entire Account Balance shall be paid in a single lump sum no later than 60 days after the Benefit Distribution Date.



ARTICLE 6
Termination Benefit
6.1
Termination Benefit .     A Participant who experiences a Termination of Employment shall receive, as a Termination Benefit, his or her vested Account Balance, calculated as of the close of business on the Participant’s Benefit Distribution Date (or the first anniversary thereof, in accordance with the Participant’s election below). If the calculation date is not a business day, then such calculation shall be made on the immediately preceding business day.
6.2
Payment of Termination Benefit .      In connection with a Participant’s election to defer an Annual Deferral Amount, the Participant shall elect to receive each Annual Account in a lump sum payment: (i) no later than 60 days after the last day of the six-month period immediately following the date on which the Participant experiences a Termination of Employment or (ii) no later than 60 days after the first anniversary of such Termination of Employment. If a Participant does not make any election with respect to the payment of the Annual Account, the Annual Account shall be paid to the Participant no later than 60 days after the last day of the six-month period immediately following the date on which the Participant experiences a Termination of Employment.
ARTICLE 7
Disability Benefit
7.1
Disability Benefit .     Upon a Participant’s Disability, the Participant shall receive a Disability Benefit, which shall be equal to the Participant's vested Account Balance, calculated as of the close of business on the Participant’s Benefit Distribution Date (or on the immediately preceding business day if such date is not a business day).
7.2
Payment of Disability Benefit .      The Disability Benefit shall be paid to the Participant in a lump sum payment no later than 60 days after the Participant’s Benefit Distribution Date.
ARTICLE 8
Death Benefit
8.1
Death Benefit .     The Participant's Beneficiary(ies) shall receive a Death Benefit upon the Participant's death which will be equal to the Participant's vested Account Balance, calculated as of the close of business on the Participant’s Benefit Distribution Date (or on the immediately preceding business day if such date is not a business day).
8.2
Payment of Death Benefit .      The Death Benefit shall be paid to the Participant’s Beneficiary(ies) in a lump sum payment no later than 60 days after the Participant’s Benefit Distribution Date. In no event, however, shall the Death Benefit be paid later than the later of (i) 90 days after the date of the Participant’s death or (ii) the last day of the calendar year in which the Participant’s death occurs.
ARTICLE 9
Form of Payment
9.1
Payment in Cash or Common Stock .     Payment of a Participant’s Annual Account shall be made in cash; provided, however, that payment of the portion of the Participant’s Account Balance



attributable to the Participant’s Performance Share Account, if any, shall be made, net of withholding taxes, exclusively in shares of the Company’s common stock.
9.2
Relation to Stock Incentive Plan .     Benefits attributable to Performance Share Accounts which are paid in shares of the Company’s common stock are subject to any applicable terms, conditions and restrictions required by the applicable Company stock incentive plan.
ARTICLE 10
Beneficiary Designation
10.1
Beneficiary .     Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates.
10.2
Beneficiary Designation; Change; Spousal Consent .     A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Company. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Company's rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, the Senior Vice President of Human Resources may, in his or her sole discretion, determine that spousal consent is required to be provided in a form designated by the Senior Vice President of Human Resources, executed by such Participant's spouse and returned to the Company. Upon the acceptance by the Company of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Company shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Company prior to his or her death.
10.3
Acknowledgment .     No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Company.
10.4
No Beneficiary Designation .      If a Participant fails to designate a Beneficiary as provided in Sections 10.1, 10.2 and 10.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate.
10.5
Doubt as to Beneficiary .      If the Senior Vice President of Human Resources has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, he or she shall have the right, exercisable in his or her discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to his or her satisfaction.
10.6
Discharge of Obligations .     The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge the Company, the Employer, the Committee and the Vice President of Human Resources from all further obligations under this Plan with respect to the Participant.



ARTICLE 11
Leave of Absence
11.1
Paid Leave of Absence .     If a Participant is authorized by the Participant's Employer to take a paid leave of absence from the employment of the Employer, (i) the Participant shall continue to be considered eligible for the benefits provided in Articles 4, 5, 6, 7 or 8 in accordance with the provisions of those Articles, and (ii) the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.3.
ARTICLE 12
Termination of Plan, Amendment or Modification
12.1
Termination of Plan .     Although the Company anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that the Company will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, the Company reserves the right to Terminate the Plan (as defined in Section 1.43). In the event of a Termination of the Plan, the Measurement Funds available to Participants following the Termination of the Plan shall be comparable in number and type to those Measurement Funds available to Participants in the Plan Year preceding the Plan Year in which the Termination of the Plan is effective. Following a Termination of the Plan, Participant Account Balances shall remain in the Plan until the Participant becomes eligible for the benefits provided in Articles 4, 5, 6, 7 or 8 in accordance with the provisions of those Articles. The Termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided, however, the Company shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to immediately pay all benefits in a lump sum following such Termination of the Plan, if (i)(A) Termination is not proximate to a downturn in the financial health of the Company, (B) the Company terminates all arrangements required to be aggregated with the Plan pursuant to Code Section 409A, (C) lump sum payments are made between 12 and 24 months following Termination of the Plan, and (D) the Company does not establish a new plan that would have been aggregated with the Plan for purposes of Code Section 409A within three years following Termination of the Plan, or (ii) Termination is in connection with dissolution or change in control of the Company, or such other circumstances permitted by applicable guidance, and in accordance with such other corresponding conditions required by Code Section 409A and regulations or other guidance issued thereunder.
12.2
Amendment .    
(a)
The Committee may, at any time, amend or modify the Plan in whole or in part. Notwithstanding the foregoing, no amendment shall be effective to decrease the value of a Participant's vested Account Balance in existence at the time the amendment is made . In no event shall the Company, the Employer or the Committee be responsible for any decline in a Participant’s Account Balance as a result of the selection, discontinuation, addition, substitution, crediting or debiting of the Measurement Funds pursuant to Section 3.9.
(b)
Notwithstanding any provision of the Plan to the contrary, in the event that the Committee determines that any provision of the Plan may cause amounts deferred under the Plan to become immediately taxable to any Participant under Code Section 409A, and related



guidance, the Committee may (i) adopt such amendments to the Plan and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the intended tax treatment of the Plan benefits provided by the Plan and/or (ii) take such other actions as the Committee determines necessary or appropriate to comply with the requirements of Code Section 409A, and related guidance.
12.3
Effect of Payment .     The full payment of the Participant’s vested Account Balance under Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan.
ARTICLE 13
Administration
13.1
Committee Duties .     Except as otherwise provided in this Plan, this Plan shall be administered by the Committee. The Committee shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. When making a determination or calculation, the Company, Committee and the Senior Vice President of Human Resources, as applicable, shall be entitled to rely on information furnished by a Participant.
13.2
Agents .     In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer.
13.3
Binding Effect of Decisions .      The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.
13.4
Indemnity .     All Employers shall indemnify and hold harmless the members of the Committee, the PIC, the PRC, the CEO, the Senior Vice President of Human Resources, any Employee to whom duties have been or may be delegated under this Plan, and the Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of an individual’s willful misconduct.
13.5
Employer Information .     To enable the Committee and/or Administrator to perform its functions, the Company and each Employer shall supply full and timely information to the Committee and/or Administrator, as the case may be, on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee or Administrator may reasonably require.



ARTICLE 14
Other Benefits and Agreements
14.1
Coordination with Other Benefits .     The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.
ARTICLE 15
Claims Procedures
15.1
Presentation of Claim .      Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the PRC (or in the case of a Section 16 Officer, the Committee) a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.
15.2
Notification of Decision .      The PRC (or in the case of a Section 16 Officer, the Committee) shall consider a Claimant's claim within a reasonable time, but no later than 90 days (45 days in the case of a determination of Disability) after receiving the claim. If the PRC or the Committee, as applicable, determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90-day period (45-day period in the case of a determination of Disability, or initial 30-day extension of such 45-day period). In no event shall such extension exceed a period of 90 days from the end of the initial period (in the case of a determination of Disability, an initial extension of 30 days, or an additional subsequent extension of an additional 30 days). The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the PRC or the Committee expects to render the benefit determination. The PRC or the Committee, as applicable, shall notify the Claimant in writing:
(a)
that the Claimant's requested determination has been made, and that the claim has been allowed in full; or
(b)
that the PRC or the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:
(i)
the specific reason(s) for the denial of the claim, or any part of it;
(ii)
specific reference(s) to pertinent provisions of the Plan upon which such denial was based;



(iii)
a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary;
(iv)
an explanation of the claim review procedure set forth in Section 15.3 below; and
(v)
a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
15.3
Review of a Denied Claim .      On or before 60 days (180 days in the case of a determination of Disability) after receiving a notice from the PRC (or in the case of a Section 16 Officer, the Committee) that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the PRC or the Committee, as applicable, a written request for a review of the denial of the claim. The Claimant (or the Claimant's duly authorized representative):
(a)
may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits;
(b)
may submit written comments or other documents; and/or
(c)
may request a hearing, which the PRC or the Committee (as applicable), in its sole discretion, may grant.
15.4
Decision on Review .      The PRC (or in the case of a Section 16 Officer, the Committee) shall render its decision on review promptly, and no later than 60 days (45 days in the case of a determination of Disability) after the receipt of the Claimant’s written request for a review of the denial of the claim. If the PRC or the Committee, as applicable, determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 60-day period (45-day period in the case of a determination of Disability). In no event shall such extension exceed a period of 60 days (45 days in the case of a determination of Disability) from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the PRC or the Committee, as applicable, expects to render the benefit determination. In rendering its decision, the PRC or the Committee, as applicable, shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. Notwithstanding any provisions of this Section 15.4 to the contrary, all decisions on review of a determination of Disability shall be made by the Committee (or the Board in the case of a Section 16 Officer). The decision must be written in a manner calculated to be understood by the Claimant, and it must contain:
(a)
specific reasons for the decision;
(b)
specific reference(s) to the pertinent Plan provisions upon which the decision was based;
(c)
a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits; and
(d)
a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a).



15.5
Legal Action .      A Claimant's compliance with the foregoing provisions of this Article 15 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. Any legal action must be brought within two years after the Claimant knew or should have known of the principal facts on which the claim is based or, if earlier, 90 days after the procedure under this Article 15 is completed.
15.6
Determinations .      Benefits under the Plan will be paid only if the PRC (or in the case of a Section 16 Officer, the Committee) decides in its discretion that the applicant is entitled to them. The PRC or the Committee, as applicable, has discretionary authority to grant or deny benefits under the Plan. The PRC shall have the sole discretion, authority and responsibility to interpret and construe this Plan Statement and all relevant documents and information, and to determine all factual and legal questions under the Plan, in relation to a person’s (other than a Section 16 Officer) claim for benefits. The Committee shall have the sole discretion, authority and responsibility to interpret and construe this Plan Statement and all relevant documents and information, and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of all persons to benefits and the amounts of their benefits. The Committee’s discretionary authority shall include all matters arising under the Plan.
ARTICLE 16 Trust
16.1
Establishment of the Trust .     In order to provide assets from which to fulfill the obligations of the Participants and their beneficiaries under the Plan, the Company may establish a trust by a trust agreement with a third party, the trustee, to which each Employer may, in its discretion, contribute cash or other property to provide for the benefit payments under the Plan, (the “Trust”).
16.2
Interrelationship of the Plan and the Trust .     The provisions of the Plan shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Company to the assets transferred to the Trust. The Company shall at all times remain liable to carry out its obligations under the Plan.
16.3
Distributions From the Trust .     The Company’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Company’s obligations under this Plan.
ARTICLE 17
Miscellaneous
17.1
Status of Plan     . The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that “is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted (i) to the extent possible in a manner consistent with that intent and (ii) in accordance with Code Section 409A and other applicable tax law, including but not limited to Treasury Regulations promulgated pursuant to Code Section 409A.



17.2
Unsecured General Creditor .     Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Company. For purposes of the payment of benefits under this Plan, any and all of the Company’s assets shall be, and remain, the general, unpledged unrestricted assets of the Company. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.
17.3
Employer's Liability .     The Company's liability for the payment of benefits shall be defined only by the Plan. The Company shall have no obligation to a Participant under the Plan except as expressly provided in the Plan.
17.4
Nonassignability .     Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise (including without limitation any domestic relations order, whether or not a “qualified domestic relations order” under section 414(p) of the Code and section 206(d) of ERISA) before the Account Balance is distributed to the Participant or Beneficiary.
17.5
Not a Contract of Employment .     The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company or any Employer and the Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or any Employer or to interfere with the right of the Company or any Employer to discipline or discharge the Participant at any time.
17.6
Furnishing Information .      A Participant or his or her Beneficiary will cooperate with the Company by furnishing any and all information requested by the Company and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Company may deem necessary.
17.7
Terms .     Whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.
17.8
Captions .     The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
17.9
Governing Law .     Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Minnesota without regard to its conflicts of laws principles.



17.10
Notice .     Any notice or filing required or permitted to be given to the Company under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:
Orbital ATK, Inc.
Attn: Orbital ATK Executive Compensation Department
45101 Warp Drive
Dulles, VA 20166
Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.
17.11
Successors .     The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns and the Participant and the Participant's designated Beneficiaries.
17.12
Spouse's Interest . The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession.
17.13
Validity .     In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.
17.14
Incompetent .     If the Senior Vice President of Human Resources determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, he or she may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Senior Vice President of Human Resources may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.



17.15
Deduction Limitation on Benefit Payments . The Company may determine that as a result of the application of the limitation under Code Section 162(m), a distribution payable to a Participant pursuant to this Plan would not be deductible if such distribution were made at the time required by the Plan. If the Company makes such a determination, then the distribution shall not be paid to the Participant until such time as the distribution first becomes deductible. The amount of the distribution shall continue to be adjusted in accordance with Section 3.9 above until it is distributed to the Participant. The amount of the distribution, plus amounts credited or debited thereon, shall be paid to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date, as determined by the Company, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Company during which the distribution is made will not be limited by Section 162(m). Notwithstanding the foregoing, the Committee shall interpret this provision in a manner that is consistent with Code Section 409A and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.
17.16
     Insurance . The Company, on its own behalf or on behalf of the trustee of the Trust, and, in its sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Company or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Company shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Company has applied for insurance.



AMENDMENT NUMBER ONE
TO THE
ORBITAL SCIENCES CORPORATION NONQUALIFIED MANAGEMENT
DEFERRED COMPENSATION PLAN



Pursuant to the powers of amendment reserved in Section 10.05 of the Orbital Sciences Corporation Nonqualified Management Deferred Compensation Plan, as amended and restated effective January 1, 2005 (the “Plan”), the Plan is amended as set forth herein. This amendment shall supersede the provisions of the Plan document to the extent those provisions are inconsistent with the provisions of this amendment.

1.

Section 2.01 of the Plan is amended by deleting the number "$125,000" in the sole sentence thereof and by replacing it with the number "$150,000."

2.

This Amendment Number One shall be effective for all Plan Years, as that term is defined in the Plan, commencing on and after January 1, 2011.





Exhibit 12
Orbital ATK, Inc.    
Computation of Earnings to Fixed Charges

 
 
Nine Months Ended December 31, 2015
 
Years Ended March 31
(dollars in thousands)
 
 
2015
 
2014
 
2013
 
2012
Earnings:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations, before income taxes and noncontrolling interest
 
$
265,224

 
$
116,651

 
$
222,165

 
$
260,915

 
$
301,574

Plus fixed charges
 
68,177

 
100,328

 
90,668

 
77,261

 
99,774

Earnings
 
$
333,401

 
$
216,979

 
$
312,833

 
$
338,176

 
$
401,348

 
 
 
 
 
 
 
 
 
 
 
Fixed Charges:
 
 
 
 
 
 
 
 
 
 
Interest expense, including amortization of debt issuance costs
 
$
57,163

 
$
88,676

 
$
79,792

 
$
65,386

 
$
87,313

Estimated interest factor of rental expense
 
11,014

 
11,652

 
10,876

 
11,875

 
12,461

Fixed charges
 
$
68,177

 
$
100,328

 
$
90,668

 
$
77,261

 
$
99,774

 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges (1)
 
4.89

 
2.16

 
3.45

 
4.38

 
4.02

 
 
 
 
 
 
 
 
 
 
 
Rent expense
 
$
69

 
$
73

 
$
68

 
$
74

 
$
78

Percentage of rent expense that represents interest
 
16
%
 
16
%
 
16
%
 
16
%
 
16
%
_________________________________________
(1)
For purposes of calculating the ratio of earnings to fixed charges, "earnings" represents income from continuing operations before income taxes, plus fixed charges. "Fixed charges" consist of interest expense, including amortization of debt issuance costs and that portion of rental expense considered to be a reasonable approximation of interest.





Subsidiaries of Orbital ATK, Inc.
as of December 31 , 2015
 
 
All subsidiaries listed below are 100% owned except joint ventures.
 
 
Subsidiaries  
State or Other Jurisdiction of Incorporation or Organization
Alliant Techsystems Operations LLC
Delaware
Alliant Techsystems Operations Saudi Arabia Ltd. (joint venture)
Saudi Arabia
ATK Launch Systems Inc.
Delaware
ATK Space Systems Inc.
Delaware
COI Ceramics, Inc. (joint venture)
California
Magna Uranium Services LLC (joint venture)
Delaware
Orbital ATK Pte. Ltd.
Singapore
Orbital International LLC
Delaware
Orbital Sciences Corporation
Delaware
ViviSat LLC (joint venture)
Delaware




Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-191077) and the Registration Statements on Form S-8 (No. 33-36981, 33-91196, 333-60665, 333-60942, 333-128363, 333-128364, 333-148502, 333-184202, 333-201977, and 333-206123) of Orbital ATK, Inc. of our report dated March 14, 2016 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
March 15, 2016







Exhibit 23.2



CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 33-36981, No. 33-91196, No. 333-60665, No. 333-69042, No. 333-128363, No. 333-128364, No. 333-148502, No. 333-184202, No. 333-191077, No. 333-201997 and No. 333-206123 of our report dated May 29, 2015, relating to the financial statements of Orbital ATK, Inc., appearing in this Annual Report on Form 10-K of Orbital ATK, Inc. for the period ended December 31, 2015.
 

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota
March 15, 2016















































Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, David W. Thompson, certify that:

1.     I have reviewed this annual report on Form 10-K 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.

Date: March 15, 2016
By:
 
/s/ David W. Thompson
 
Name:
 
David W. Thompson
 
Title:
 
President and Chief Executive Officer





Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Garrett E. Pierce, certify that:

1.                I have reviewed this annual report on Form 10-K 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.

Date: March 15, 2016
By:
 
/s/ Garrett E. Pierce
 
Name:
 
Garrett E. Pierce
 
Title:
 
Executive Vice President and Chief Financial Officer





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, 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 Annual Report on Form 10-K for nine-month transition period ended December 31, 2015 , 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.

Date: March 15, 2016
 
 
 
 
 
 
 
 
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:
 
Executive Vice President and Chief Financial Officer