(Dollar amounts in thousands except share and per share data and 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 ATK's current expectations or forecasts of future events. Words such as "may," "will," "expected," "intend," "estimate," "anticipate," "believe," "project," or "continue," and similar expressions are used to identify forward-looking statements. From time to time, ATK 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 ATK makes could be materially different. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Any change in the following factors may impact the achievement of results:

† reductions or changes in NASA or U.S. Government military spending and budgetary policies and sourcing strategy,

† increases in costs, which ATK may not be able to react to due to the nature of certain contracts or for other reasons,

†          the potential termination of U.S. Government contracts,

†          government laws and other rules and regulations applicable to ATK,
such as procurement and import-export control,

†          the novation of U.S. Government contracts,

†          other risks associated with U.S. Government contracts that might
expose ATK to adverse consequences,

†          changes in cost estimates and/or timing of programs,

†          costs of servicing ATK's debt, including cash requirements and
interest rate fluctuations,

†          intense competition,

†          performance of ATK's subcontractors,

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

†          development of key technologies and retention of a qualified
workforce,

†          fires or explosions at any of ATK's facilities,

†          environmental laws that govern past practices and rules and

† 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,

† capital market volatility and corresponding assumptions related to ATK's capital structure such as share count and interest rates,

†          risks associated with diversification into new markets,

†          impacts of financial market disruptions or volatility to ATK's
customers and vendors,

†          greater risk associated with international business,

†          results of acquisitions,

†          costs incurred for pursuits and proposed acquisitions that have not
yet or may not close, and

†          unanticipated changes in the tax provision or exposure to additional
tax liabilities.

This list of factors is not exhaustive and new factors may emerge or changes to the foregoing factors may occur that would impact ATK's business. ATK undertakes no obligation to update any forward-looking statements. A more detailed description of risk factors can be found in Item 1A, Risk Factors, of ATK's Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and in Item 1A of this Form 10-Q for the quarter ended July 5, 2009. Additional information regarding these factors may be contained in ATK's subsequent filings with the Securities and Exchange Commission, including Forms 8-K.

Overview

ATK is a premier aerospace and defense company and a leading supplier of products to the U.S. Government, allied nations, and prime contractors. ATK is also a major supplier of ammunition and related accessories to law enforcement agencies and commercial customers. ATK is headquartered in Minneapolis, Minnesota and has operating locations throughout the United States, Puerto Rico, and internationally.

ATK has three operating segments: ATK Armament Systems, ATK Mission Systems, and ATK Space Systems. These operating segments are defined based on the reporting and review process used by ATK's chief executive officer and other management.

† ATK Armament Systems, which generated 46% of ATK's external sales in the quarter ended July 5, 2009, develops and produces military ammunition and gun systems; commercial products; tactical accessories and equipment, and propellant and energetic materials. It also operates the U.S. Army ammunition plants in Independence, Missouri and Radford, Virginia.

† ATK Mission Systems, which generated 24% of ATK's external sales in the quarter ended July 5, 2009, operates in two business lanes, Weapon Systems and Aerospace Systems, across the following market areas: large caliber direct fires, force protection, precision guided munitions, missiles, propulsion, missile defense, fuzes and warheads, composites, special mission aircraft, electronic warfare, military aircraft structures, commercial aircraft structures and launch structures.

† ATK Space Systems, which generated 30% of ATK's external sales in the quarter ended July 5, 2009, produces rocket motor systems for human and cargo launch vehicles, conventional and strategic missiles, missile defense interceptors, small and micro-satellites, satellite components, structures and subsystems, lightweight space deployables and solar arrays, and provides engineering and technical services. Other products include ordnance, such as decoy and illuminating flares.

The majority of ATK's sales are recognized as costs are incurred. ATK's customers pay ATK cash based on costs incurred and profit earned, upon achievement of program milestones, or upon delivery of the product.

ATK is dependent on funding levels of the U.S. Department of Defense (DoD) and NASA. The U.S. defense industry has experienced significant changes over the years. ATK management believes that the key to ATK's continued success is to focus on performance, innovation, simplicity, and affordability, and that ATK's future lies in being a leading provider of advanced weapon and space systems. ATK is positioning itself where management believes there will be continued strong defense funding, even as pressures mount on procurement and research and development accounts. ATK will concentrate on developing systems that will extend the life and improve the capability of existing platforms. ATK anticipates budget pressures will increasingly drive the life extension of platforms such as ships, aircrafts, and main battle tanks. ATK's transformational weapons such as Excalibur, Advanced Anti-Radiation Guided Missiles, Precision Guidance Kit, and Mortar Guidance Kit are aimed squarely at this growing market. At the same time, ATK believes it is on the leading edge of technologies essential to "generation after next" weapons and platforms - advanced sensor/seeker integration, directed energy, weapon data links, high-speed, long-range projectiles, thermal-resistant materials, reactive materials, and scramjet engines are examples.

Critical Accounting Policies

ATK's significant accounting policies are described in Note 1 to the consolidated financial statements included in ATK's Annual Report on Form 10-K for the year ended March 31, 2009 (fiscal 2009). The accounting policies used in preparing ATK's interim fiscal 2010 consolidated financial statements are the same as those described in ATK's Annual Report, except as described in this report in Note 2, New Accounting Pronouncements, to the unaudited condensed consolidated financial statements.

In preparing the consolidated financial statements, ATK follows accounting principles generally accepted in the United States. The preparation of these financial statements requires ATK to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosure of contingent assets and liabilities. ATK re-evaluates its estimates on an on-going basis. ATK's estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

ATK believes its critical accounting policies are those related to:

†          revenue recognition,

†          environmental remediation and compliance,

†          employee benefit plans,

†          income taxes,

†          acquisitions, and

†          accounting for goodwill.

More information on these policies can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of ATK's Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

Results of Operations

Acquisitions

There were no material acquisitions during the quarter ended July 5, 2009.

On March 31, 2009, ATK acquired Eagle Industries (Eagle), a leading manufacturer of high-quality, individual operational nylon gear and equipment for military, homeland security, and law enforcement agencies for $63,000 net of cash acquired, subject to purchase price adjustments expected to be settled in fiscal 2010. Eagle manufactures more than 5,000 products which include tactical assault vests, load-bearing equipment, weapon transporting gear, holsters, personal gear carriers, and other high quality accessories. ATK believes that the acquisition provides an opportunity to expand its position in the domestic and international tactical accessories markets serving military and law enforcement customers. Headquartered in Fenton, Missouri, Eagle employs approximately 1,650 employees and is included in ATK Armament Systems. The purchase price allocation has not yet been completed pending final valuation of certain acquired assets and liabilities. At July 5, 2009 and March 31, 2009, substantially all of the purchase price was recorded as goodwill. The final purchase price allocation could be significantly different than the estimate currently recorded. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.

ATK used the purchase method of accounting to account for this acquisition and, accordingly, the results of Eagle are included in ATK's consolidated financial statements at the date of acquisition. The purchase price for the acquisition will be allocated to the acquired assets and liabilities based on estimated fair value. Pro forma information on the results of operations for fiscal 2009 as if the acquisition had occurred at the beginning of fiscal 2009 is not being presented because the acquisition is not material to ATK for that purpose.

Sales

The military small-caliber ammunition contract, which is reported within ATK Armament Systems, contributed approximately 10% and 13% of total external sales during the quarter ended July 5, 2009 and June 29, 2008, respectively.

The following is a summary of each operating segment's external sales:

                                Quarters Ended
                        July 5, 2009     June 29, 2008    $ Change    % Change

ATK Armament Systems   $      552,415   $       441,574   $ 110,841       25.1 %
ATK Mission Systems           292,551           276,503      16,048        5.8 %
ATK Space Systems             364,168           406,788     (42,620 )    (10.0 )%
Total sales            $    1,209,134   $     1,124,865   $  84,269        7.5 %

The increase in sales was due to organic growth as well as the acquisition of Eagle late in the fourth quarter of fiscal 2009, as discussed above, which is reported within ATK Armament Systems.

ATK Armament Systems. The increase in sales was driven by:

† a $65,500 increase in commercial products due to an increase in volume of law enforcement, international, and commercial sales,

† an increase of $38,000 for the Non-Standard Ammunition Program,

† an increase of $20,400 in energetic systems at the Radford Army Ammunition Plant relating to modernization project sales and increased sales of propellant for rocket systems, and

† a $13,200 increase resulting from the March 31, 2009 acquisition of Eagle (now Tactical Systems).

These increases were partially offset by a $23,300 decrease in integrated weapon systems (formerly medium-caliber ammunition) which was driven by timing of sales on ammunitions programs.

ATK Mission Systems. The increase in sales was driven by:

† a $16,700 increase in commercial aircraft structures relating primarily to a new commercial aircraft program,

† an $11,600 increase in missiles, specifically relating to the new Multi-Stage Supersonic Target (MSST) program and initial low-rate production on the Advanced Anti-Radiation Guided Missile (AARGM) program, and

† a new composite rotor tubes program for United States Enrichment Corporation for use as part of its American Centrifuge Program which added sales of $10,400 (program suspended in July 2009).

These increases were partially offset by:

† a $13,900 decrease in defense electronics due to the timing of AAR-47 Missile Warning System sales, and

† completion of a missionization program in fiscal 2009 which resulted in $8,500 fewer sales within aircraft integration.

ATK Space Systems. The decrease in sales was driven by a $54,400 decrease in Minuteman volume as the contract nears successful completion, which was partially offset by a $16,000 increase in space structures and components due to increased volume and improved performance across numerous programs.

Gross Profit



                                   Quarters Ended
                                 As a %                       As a %
                July 5, 2009    of Sales    June 29, 2008    of Sales    Change

Gross profit   $      259,845       21.5 % $       219,272       19.5 % $ 40,573

The increase in gross profit was consistent with the increase in sales improved performance across numerous programs over the prior year period within ATK Space Systems.

Operating Expenses



                                             Quarters Ended
                                          As a %                          As a %
                        July 5, 2009     of Sales      June 29, 2008     of Sales       Change

Research and
development            $       15,378          1.3 %  $        21,721          1.9 %  $   (6,343 )
Selling                        45,094          3.7 %           38,687          3.4 %       6,407
General and
administrative                 68,001          5.6 %           50,532          4.5 %      17,469
Total                  $      128,473         10.6 %  $       110,940          9.8 %  $   17,533

Operating expenses increased primarily due to higher general and administrative expenses resulting from several non-material items including the Eagle acquisition, an increase in the bad debt allowance, pension expense, and numerous other items. Selling expenses also increased consistent with higher sales within ATK Armament Systems. These increases were partially offset by a decrease in research and development costs which were higher in the prior year comparable period due to costs associated with space launch vehicles.

Income before Interest, Income Taxes, and Noncontrolling Interest

                                Quarters Ended
                        July 5, 2009     June 29, 2008     Change

ATK Armament Systems   $       61,215   $        44,160   $ 17,055
ATK Mission Systems            33,251            32,834        417
ATK Space Systems              41,123            36,242      4,881
Corporate                      (4,217 )          (4,904 )      687
Total                  $      131,372   $       108,332   $ 23,040

The increase in income before interest, income taxes, and noncontrolling interest was due to higher sales partially offset by increased pension expense, as well as program-related changes within the operating segments as described below.

ATK Armament Systems. The increase primarily relates to higher overall sales along with improved margins in commercial products and medium-caliber ammunition programs.

ATK Mission Systems. Results remained fairly consistent with the prior year period; however, the slight increase was primarily driven by higher sales.

ATK Space Systems. The increase was primarily driven by improved performance in space structures and components compared to the prior year. Additionally, the prior year results reflected higher research and development costs on space launch vehicles. These items were partially offset by lower sales volume.

Corporate. The net expense of Corporate primarily reflects expenses incurred for administrative functions that are performed centrally at the corporate headquarters and the elimination of intercompany profits.

Net Interest Expense

Net interest expense for the quarter ended July 5, 2009 was $20,849, a decrease of $1,334 compared to $22,183 in the comparable quarter of fiscal 2009 primarily due to a decrease in the average borrowing rate partially offset by an increase in the expense related to FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1), as discussed below.

As discussed in Note 2, New Accounting Pronouncements, to the unaudited condensed consolidated financial statements, on April 1, 2009, ATK retrospectively adopted FSP APB 14-1. The provisions of this FSP apply to ATK's $199,453 aggregate principal amount of 3.00% Convertible Notes due 2024, the $279,929 aggregate principal amount of 2.75% Convertible Notes due 2024, and the $300,000 aggregate principal amount of 2.75% Convertible Notes due 2011, discussed in Note 10, Long-Term Debt. The adoption resulted in an increase of $6,228 and $5,841 to non-cash interest expense the quarters ended July 5, 2009 and June 29, 2008, respectively. The increase to fiscal 2005 through fiscal 2009 non-cash interest expense ranged from $9,300 to $23,800 per year. The impact to fiscal 2010 non-cash interest expense is expected to be an increase of approximately $19,900 with a declining impact in future fiscal years.

Income Tax Provision



                                            Quarters Ended
                                        Effective                     Effective
                        July 5, 2009      Rate       June 29, 2008      Rate      Change

Income tax provision   $       41,040        37.1 % $        31,667        36.8 % $ 9,373

ATK's provision for income taxes includes both federal and state income taxes. Income tax provisions for interim periods are based on estimated effective annual income tax rates.

The income tax provisions for the quarters ended July 5, 2009 and June 29, 2008 represent effective tax rates of 37.1% and 36.8%, respectively. The increase in the rate for the first quarter of fiscal 2010 from the prior year quarter is primarily due to an increase in discrete items which were partially offset by an increase in the benefit of the federal research and development tax credit and a decrease in the state tax rate.

The Internal Revenue Service is currently examining fiscal 2007 and 2008. With few exceptions, ATK is no longer subject to U.S. federal, state and local, or international examinations by tax authorities prior to fiscal 2003. ATK believes adequate provisions have been made for outstanding issues for all open years in all jurisdictions.

Although the timing and outcome of audit settlements are uncertain, it is reasonably possible that an $8,877 reduction of the uncertain tax benefits will occur in the next twelve months. The settlement of these unrecognized tax benefits could result in earnings up to $7,555 based on current estimates.

Net Income

Net income for the quarter ended July 5, 2009 was $69,483, an increase of $15,001 compared to $54,482 in the comparable period of

fiscal 2009. This increase was due to an increase of $40,573 in gross profit and a decrease in net interest expense of $1.334, partially offset by increases in operating expenses of $17,533 and income tax expense of $9,373.

Noncontrolling Interest

The noncontrolling interest (formerly minority interest) in each period represents the noncontrolling owners' portion of the income of a joint venture in which ATK is the primary owner. This joint venture is consolidated into ATK's financial statements.

LIQUIDITY AND CAPITAL RESOURCES



Cash Flows



                                                             Quarters Ended
                                             July 5, 2009      June 29, 2008       Change

Cash flows used for operating activities    $     (150,336 )  $       (77,513 )  $   (72,823 )
Cash flows used for investing activities           (30,912 )          (38,984 )        8,072
Cash flows (used for) provided by
financing activities                                  (529 )           16,872        (17,401 )
Net cash flows                              $     (181,777 )  $       (99,625 )  $   (82,152 )

Cash used for operating activities for the quarter ended July 5, 2009 totaled $150,336, compared to $77,513 used in the first quarter of the prior year. The increase was primarily due to a $150,000 funding payment to the pension trust in fiscal 2010. This increase was partially offset by a $41,642 decrease in cash used for working capital (defined as net receivables plus net inventories less accounts payable less contract advances and allowances), primarily resulting from the timing of collections. In the current year, ATK also received a net income tax refund of $28,400 compared to a payment of $20,000 in the prior year period resulting in a benefit of $48,400, Additionally, ATK also had a $15,001 increase in net income over the prior year comparable period.

Cash used for investing activities totaled $30,912, a decrease of $8,072 compared to $38,984 used in the first quarter of the prior year primarily as a result of the a small acquisition for $7,511 during fiscal 2009 as well as additional proceeds from the sale of capital assets during the current year. This decrease was partially offset by a slight increase in capital expenditures.

Cash used for financing activities totaled $529, a decrease of $17,401 compared to cash of $16,872 provided by financing activities in the first quarter of the prior year. The decrease was driven by the absence of cash overdrafts of $10,598 due to timing of payments to vendors, payments of $3,438 on ATK's Term A Loan due 2012, and a reduction in proceeds from employee stock compensation plans resulting from a reduction in stock options exercised.

ATK's principal sources of liquidity continue to be its cash and cash equivalents on-hand, cash generated by operations and borrowings under its credit facility. Based on ATK's current financial condition, management believes that ATK's cash position, combined with anticipated generation of cash flows and the availability of funding, if needed, under ATK's revolving credit facilities, as well as future sources of funding, including, additional bank financing and debt markets, will be adequate to fund future growth as well as to service ATK's currently anticipated long-term debt and pension obligations, make capital expenditures, and fund any share repurchases over the next 12 months. As discussed further below, at July 5, 2009, the Company's $500,000 Revolving Credit Facility had no borrowings against it, and amounts available under the Facility (net of outstanding letters of credit) were $332,766. Consistent with historical trends, ATK anticipates using the revolver from time to time during the first half of fiscal 2010 but expects to have any balance paid off by March 31, 2010 given that the Company's cash flow is stronger in the second half of the year. If the $279,929 aggregate principal amount of 2.75% Convertible Senior Subordinated Notes are put to (or called by) ATK in August 2009, the Company would expect to utilize the revolver to a greater extent than in the past; however, the Company would still anticipate that the balance would be paid off by March 31, 2010.

Benefit Plan Contributions

During the quarter ended July 5, 2009, ATK contributed $150,000 to the pension trust and $980 directly to retirees. ATK also contributed $3,231 to its other postretirement benefit (PRB) plans. ATK anticipates making additional contributions of $2,157 directly to retirees and $11,526 to its other PRB plans during the remainder of fiscal 2010. ATK is not required to make any minimum contributions to the pension trust during the remainder of 2010.

Debt



Long-term debt, including the current portion, consisted of the following:



                                                          July 5, 2009      March 31, 2009
Senior Credit Facility dated March 29, 2007 (1):
Term A Loan due 2012                                     $      271,563    $        275,000
Revolving Credit Facility due 2012                                    -                   -
2.75% Convertible Senior Subordinated Notes due 2011
(2) (3)                                                         300,000             300,000
6.75% Senior Subordinated Notes due 2016                        400,000             400,000
2.75% Convertible Senior Subordinated Notes due 2024
(5)                                                             279,929             279,929
3.00% Convertible Senior Subordinated Notes due 2024
(4)                                                             199,453             199,453
Principal amount of long-term debt                            1,450,945           1,454,382
. . .