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Alliant Techsystems (NYSE:ATK)

Q1 2012 Earnings Call

August 04, 2011 9:00 am ET

Executives

Jeff Huebschen -

Mark DeYoung - Chief Executive Officer, President and Director

John Shroyer - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Matthew Vittorioso - Barclays Capital

Gautam Khanna - Cowen and Company, LLC

Michael Ciarmoli - KeyBanc Capital Markets Inc.

Mayur Manmohansingh - Barclays Capital

George Shapiro - Citi

Joseph Nadol - JP Morgan Chase & Co

Herbert Hardt - Monness, Crespi, Hardt & Co., Inc.

Robert Spingarn - Crédit Suisse AG

Noah Poponak - Goldman Sachs Group Inc.

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Peter Skibitski - SunTrust Robinson Humphrey, Inc.

David Strauss - UBS Investment Bank

Operator

Good day, everyone, and welcome to this ATK First Quarter and Fiscal Year '12 Earnings Results Conference Call. Today's call is recorded. At this time, I'd like to turn the call over to ATK Director of Investor Relations, Mr. Jeff Huebschen. Please go ahead, sir.

Jeff Huebschen

Good morning. Thank you for joining us for our first quarter fiscal 2012 earnings call. With me this morning are Mark DeYoung, ATK's President and Chief Executive Officer; and John Shroyer, Chief Financial Officer. Also joining us this morning is Tom Sexton, Vice President and interim Chief Financial Officer.

Before we begin, I'd like to remind everyone that during today's call, we will make several forward-looking statements. These statements are made under the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made based on our best estimates, estimates based on our understanding of information known to us today, and they are subject to the risks and uncertainties that face any business. We encourage you to review today's press release and our SEC filings for more information on those risks and uncertainties. Please also note that we have posted charts on our website, atk.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures.

With that said, I'll turn the call over to you, Mark.

Mark DeYoung

Okay, Jeff, thank you very much. Good morning, everyone. Thanks for joining us today. Driving execution excellence across the company is one of ATK's top strategic priorities. We believe that strengthening our operating performance will improve the company's competitive position and expand our opportunities for growth, while at the same time, increasing profit margins and cash flow.

This quarter, company had several achievements that demonstrated our commitment to execution excellence, and I'd like to just touch on a few of those for you. In the Aerospace group, together with our partner Goodrich, we achieved the successful launch of the Ares I satellite. This is the first operational satellite in the Air Force's operationally responsive space program. ATK's innovative spacecraft bus system was delivered quickly and affordably in support of that program.

Also the quarter, we had another satellite built with ATK's bus system, the TacSat-3 satellite. It reached 2-year anniversary on orbit. That's outliving its design life and surpassing its mission requirements. We believe these successful launches and these successful satellite capabilities position us well in the small satellite market.

Our Missile Systems group, they continue to make good progress on the Navy's AARGM program. Navy recently conducted 2 successful and challenging live fire test of the missile, and they performed very, very well. Also during the quarter, AARGM completed its first flight test on the EA-18 Growler aircraft. These were performance milestones for us, and it moves AARGM closer to achieving operational status. As you may know, this program has over $1 billion of proposed funding in the Navy's budget, along with additional international opportunities.

Missile Products also won a contract to complete development of the Joint Allied Threat Awareness System or more commonly known as JATAS. It's a next-generation aircraft survivability system. This win builds on our execution excellence on the AAR-47 program, and it provides an important platform for growing our Defense Electronic business in the future.

In Armament Systems, the initial performance of our XM25 Weapon System has led to additional funding from the Army to keep the system in the hands of soldiers who are deployed in Afghanistan. It's a great program with great performance, getting great reviews by those that are in theater. It also provides a real opportunity for significant long-term growth potential. Also in the quarter, Armament was awarded a contract to complete development of the Army's newest 120-millimeter round for the M1 Abrams tank. This is an important win. It extends and continues ATK's position as the leading U.S. producer of tank ammunition.

And finally, ATK's Solid Rocket Motors powered the final launch of NASA's space shuttle. This launch, again, demonstrated the performance, reliability and safety of ATK's propulsion systems. I want to take a moment just to congratulate NASA on the successful launch, a very successful space exploration program over a long period of time, and also thank the thousands of ATK employees whose hard work and dedication ensured the success of this program.

Also, we look forward to leveraging the knowledge and capability from the space shuttle programs for NASA's next Space Launch System, with even higher performing, more cost-effective boosters.

Our focus on execution is also leading to significant profit margin improvements. We're implementing our Performance Enterprise System. We call it PES across the entire company. PES is a disciplined business model focused on measuring results, eliminating waste, improving quality and lead time and engaging employees to drive even better results. The progress we've made so far has helped the company achieve strong margin improvements in the first quarter, and we continue to drive towards our long-term goal sustainable 12% operating margins.

The outlook for Security and Sporting business remains of interest. I would tell you that it remains solid. The market conditions are strong. We're gearing up for the fall hunting season, which is a peak season for us. During the quarter, we implemented price actions across all of our distribution channels to help offset some of the higher cost of raw materials. Those price actions are in place and that will help us.

In the fourth quarter last year, we saw some pull ahead of orders. We mentioned that on our last call. We attributed about $15 million in sales to this pull ahead orders in advance of price increases. Given that pull ahead, first quarter results were strong. We believe the group is well-positioned to grow sales and profit for the remainder of this year.

Let me comment briefly also on Radford. During the quarter, we were informed by -- on the Army's decision, by the Army, on the Radford Army Ammunition Plant. We protested this decision to the GAO. The GAO is working through their process, and we expect a decision on the protest sometime in the next several weeks.

In the meantime, we have successfully negotiated the contract extension to continue to operate the Radford Army Ammunition Plant through February of 2012. We'll provide you with an update on Radford next quarter after the protest process has been completed.

While ATK remains strong and remains focused on our leading positions in our core markets, we are working to tap new growth opportunities and complementary in adjacent markets. We're focusing our resources to develop innovative, affordable new products for our customers. While we continue to expand the company's commercial and international businesses, and we will make targeted investments to expand our capabilities through both deployment of internal resources and through potential acquisitions. While investments to grow the business are a priority, we will pursue a balance capital deployment strategy. We'll continue to strengthen the company's balance sheet. We'll continue to improve our financial flexibility by paying off debt. We also recognized the importance of returning cash to shareholders, and toward that end, we initiated a dividend last year. And in the quarter, we repurchased $50 million of ATK's stock.

Going forward, we'll continue to follow a disciplined process to make decisions about deploying our capital resources. We believe a combination of investments in growth, management of our debt and returning cash to shareholders will allow us to deliver long-term shareholder value despite more challenging sales environment with some of our core markets.

Looking at the rest of the year, we're maintaining our sales guidance range of $4.6 billion to $4.8 billion. However, we are increasing EPS guidance to a range of $8.50 to $9 due to continued progress on margin improvement and our lower share count. We believe the long-term strategy leads to a stronger, more capable company and will deliver solid shareholder returns. We are driving execution excellence across the business, enhancing our competitive position and expanding our opportunity set, while also increasing profitability and driving cash flow. We'll make targeted investments to strengthen our portfolio, expand our growth opportunities and pursue this balanced capital deployment strategy using all the tools available to us to deliver long-term value.

Before I turn the call over to John, I want to just say a few words about John's departure. I've known John for many, many years. He's been a vital member of ATK's leadership team, a tremendous asset to this company. I know I speak for the Board of Directors and the rest of ATK's leadership team, and I say that John will be missed, and we all wish him well in his new and exciting endeavor.

One of John's most important accomplishments, I believe, the CFO was building a strong finance team here in ATK, both at corporate and out in our operating units and groups. We're fortunate to have a capable team, and we're fortunate to have a capable finance leader like Tom Sexton to step in as our interim CFO. I'm absolutely confident that on Tom's leadership, our finance team won't miss a beat during this transaction.

So with that, John, I'll turn it over for you for more detail on the quarter.

John Shroyer

Thanks, Mark. It's been a great experience working at ATK for the past 26 years. It's been an honor to serve as the company's Chief Financial Officer. I'd like to thank my fellow employees, the Board of Directors and ATK's shareholders for all of your support.

We've assembled a strong finance team at ATK, and Tom will step in and do a terrific job as the Interim CFO. I'm proud of what ATK has achieved. Certainly, there are challenges that lie ahead, but the future is bright for this company. And I believe ATK is on the right track to achieve even stronger results.

With that, let's go into some more detail on the results for the quarter and the full-year outlook. Orders came in at $678 million, roughly in line with our expectations. For the full year, we continue to expect a book-to-bill ratio of approximately 1. Sales for the quarter were down, primarily due to lower sales from the Radford facility, lower sales on our NASA human space flight programs and weaker demand for some of our military ammunition products, particularly nonstandard ammunition.

Operating margins were strong across the company, excluding a $5.4 million gain from a land sale in the Aerospace group. Operating margins came in at 11.6%, a 50-basis-point improvement over last year. The increased margins were primarily driven by success at improving business execution, making our operations more efficient and closely managing costs. For the full year, we expect each of ATK's 4 groups to improve their margins over last year, with total company margins in the mid 11% range.

Turning to the groups. Aerospace sales were down 4% in the quarter, in line with expectations. For the full year, we expect Aerospace to post a low to mid single-digit sales decline due to lower sales on NASA human space flight programs, primarily the completion of the space shuttle program. We continue to expect full-year sales of these NASA programs in the range of $300 million to $350 million. Aerospace's margins for the quarter were 12%. Excluding the land sale I mentioned earlier, the segment's margin were 10.5% compared to 9.7% last year, with the increase driven by improved execution and efficiency.

Armament sales were down in the quarter, primarily due to decreased sales from Radford and declining demand for nonstandard ammunition and weapons. As Mark mentioned, ATK has an agreement to continue production at Radford through next February. However, our run rate there will likely be lower than in previous years. Demand for Armament's core ammunition programs remained strong, and the group has good backlog, which should translate into better sales results the rest of the year. The outlook for the group's Advanced Weapons program also continues to improve. Armament's margins improved to 13.8% due to improved execution, as well as a more favorable sales mix, with less low margin sales from modernization projects and nonstandard ammunition.

Missile Products sales were also lower in the quarter, primarily due to timing of the ramp up on several key growth programs. For the full year, we continue to expect Missile Products will achieve modest sales growth. Key drivers for the sales improvement in the rest of the year include the JATAS development program, a ramp up on the AARGM program and increased sales on Missile Defense programs. Missile Products has made significant progress in improving its business execution and efficiency, which led to margins of 11.7% in the first quarter, a more than 100-basis-point improvement from last year.

Security and Sporting group sales were down slightly, primarily due to the pull ahead in ammunition sales we saw last quarter, in advance to the new pricing strategy we implemented in May. Without this pull ahead, the group would have likely seen modest sales growth this quarter. Sales in the group's Accessories business were higher for the quarter. Marketing conditions remained solid, and we expect the group will grow up sales through the rest of the year.

Security and Sporting margins were lower in the quarter. This was primarily due to higher raw material costs. Our new pricing strategy should help us cover these higher costs during the rest of the year. Our tax rate for the quarter came in at 31%. The quarter included a one-time tax benefit from a change in a state tax law. Going forward, we expect the state change will result in a slightly higher tax rate. So we're maintaining our full-year guidance for tax rate of approximately 34%.

Looking at our balance sheet, the company retired $50 million of the convertible bonds that mature in September 2011. We still plan to pay off the remaining $250 million of these bonds when they mature next quarter. Also, late in the quarter, we repurchased $50 million of stock or 742,000 shares. With this buyback, we now expect the share count for the year of approximately $33.5 million. With this lower share count, as well as our margin improvements, we are increasing our earnings per share guidance and now expect the full-year EPS in the range of $8.50 to $9.

Cash flow for the quarter was roughly in line with the expectations. Following our normal seasonal pattern, cash from operations was negative for the quarter. Cash flow from operations included a $62 million pension contribution, as well as increased working capital, primarily due to the timing of payments and collections and increased inventory to support planned sales growth in Security and Sporting. CapEx in the quarter was $42 million, a bit higher than normal, primarily due to investments to complete the construction of our new composite manufacturing facility in Utah. We expect CapEx to trend lower during the rest of the year. The company remains on track to achieve full-year free cash flow between $225 million and $250 million.

That concludes our prepared remarks. I'd like to open it up the call for Q&A.

Jeff Huebschen

So Lauren, we're ready to begin the Q&A period, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Troy Lahr with Stifel, Nicolaus.

Troy Lahr - Stifel, Nicolaus & Co., Inc.

On Armament, can you talk about how much was Radford and how much was the nonstandard ammunition?

John Shroyer

Troy, we're not giving all that detail. They both contributed to the decline in the quarter. We do expect that to recover slightly over the balance of the year across the group and again, expect a single-digit decline in that group over the year, but no specific details.

Troy Lahr - Stifel, Nicolaus & Co., Inc.

And then why is the Radford work rolling off even though you're still kind of working, and that's just the timing on the contract? And maybe can you talk about how much of the Radford work, if you lose, can be pulled out and put into other areas in the company? Because I think, what, half with Radford is your own work not tied to that contract?

Mark DeYoung

Let me make sure -- this is Mark, Troy. Let me make sure I understand your question. So your first part of your question talks about the lower potential sales generation through the February 2012 contract period. Is that right?

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Right.

Mark DeYoung

And then second part of your question is just potential relocation of revenue streams from the plant?

Troy Lahr - Stifel, Nicolaus & Co., Inc.

Yes.

Mark DeYoung

Okay. First part of that question is, the Army has had a modernization program in place at Radford to modernize the facility. We've been working on that program for several years. During this competition period and during this contract extension period, they have slowed the allocation and the execution of modernization fund. So that's the impact that happened at Radford as a result of the competition. The other thing, as a result of the competition, is they have slowed some of the production lines where the Army has believed to have an inventory amount that allows them to cover a transitionary period on the contract. So they slowed some of the production on some of the product line. So that's the answer to your first question. The second question is, we have functions that operate at Radford on various product lines that are not part of that were not and are not part of the competition and necessarily tied to the facility. Those include medium caliber LAP, some of the commercial propellant operations, few other things that are done there that could be relocated to other ATK facilities. We're not going to get in to the value of those. We're not going to get in to what revenue streams or products they are. But your question is reasonable, and yes, we are looking at those opportunities.

Operator

Our next question comes from Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs Group Inc.

I wanted to ask you when you expect the company to have its next full year of organic top line revenue growth.

Mark DeYoung

Well, I think the sales outlook that we have for this year -- I mean, it's a challenging year, obviously, in terms of the portfolio mix and some of the things that are happening in DoD. It's a dynamic environment right now, a debt ceiling discussions and uncertainties associated with the budget. We believe the strategy we're pursuing will generate long-term growth. We really believe that we've got strength in our core markets, which will continue to be able to leverage for growth internationally, as we continue to reach into new markets. We also believe there will be some clarity brought to the NASA discussions. We believe that we'll win Lake City next year. So as we reposition the portfolio, we are anticipating the pursuit of organic growth every year. So we have not surrendered on any of those fronts. Times are challenging. We think we can deploy appropriate resources and deploy strategies, which will allow us to support and hold the top line. So I think the best way to answer your quarter is we have not planned for declining organic revenue growth in our plan. We have not surrendered that front.

Noah Poponak - Goldman Sachs Group Inc.

Okay. So do you expect the company to have top line organic revenue growth in fiscal '13?

John Shroyer

As we always do, now we'll go through our strategic plan in the fall, and we'll provide '13 guidance as we do in February time frame.

Noah Poponak - Goldman Sachs Group Inc.

Fair enough. And then if I look at the margins, obviously, very good performance in the majority of the segments relative to where you've been historically even when you strip out the land sale. Can you help us with which of those are or are not sustainable and for what reasons? And specifically, at Security and Sporting, you guys mentioned the raw mat [raw material] pressure. I think last quarter, you had said that you expected to expand to that segment's margin year-over-year for the full-year '12 despite higher raw mats. Do you still expect that one to be up year-over-year?

John Shroyer

Yes, we do. As I mentioned in my script, we still expect all 4 groups to have margin improvement for the fiscal year. We did have a month or so where we did have some higher raw material costs in the first quarter. But as we had mentioned, we put our pricing action in place, which we've had good results with. And as a result, we see those margins being sustainable and again, improvement across all 4 groups, which should guide us to that mid-11.5% range for the company for the entire year, which helped drive that EPS guidance increase to $8.50 to $9 a share.

Noah Poponak - Goldman Sachs Group Inc.

So you actually see the 3 that are not Security and Sporting kind of holding where they were in the first quarter and then Security and Sporting getting better?

John Shroyer

Again, slight improvement across all 4 groups and the 11.5% for the company, Noah.

Operator

Our next question comes from Joseph Nadol with JPMorgan.

Joseph Nadol - JP Morgan Chase & Co

First question is on the A350. Could you update us on where you are on that program? Are you tracking towards your new assumptions? Were there any changes in your assumptions in the quarter? And just a full update there, please.

Mark DeYoung

Sure. This is Mark, Joe. I'll talk to you about that. The A350 program actually is making very good progress. We are on track to our internal estimates, both for production prove-out, delivery of production parts and our financial estimates. So in the quarter, everything tracked to the revised plan. So we're doing very well there. And we're making very good progress on our facility expansion in Utah with our commercial composite center of excellence. We anticipate a ribbon-cutting on schedule, which is the end of this month. So that also has progressed very, very well. So I think the program is making great progress. Our delivery of parts, as I mentioned, is right on track. Financials were right on track with our revised estimate, and our new facility is right on track with our construction and opening schedules. So I think that program is executing probably better than it ever has, and we don't see anything in the near-term in our estimate that lead us to believe that won't continue.

Joseph Nadol - JP Morgan Chase & Co

So on that, Mark, you had a very significant change to your margin outlook 2 quarters ago in the program. And then the last 2 quarters, this one and the last one, you've pretty much tracked right on. I mean, I guess it was a big swing and then perfectly flat. You haven't learned anything else in the last 6 months that in one way or the other, after such a radical swing 2 quarters ago, to...

Mark DeYoung

I think one of the things we didn't want to do was take what you will call a radical swing and then turn around and take another one. So we put in place what we think is a good estimate. It gives us an opportunity to execute against that estimate, and of course, we believe that there may be opportunities along the way. We believe that as we ramp up production, there will be some efficiency. Now clearly, we put some of those in our revised estimate that we made 2 quarters ago. We're tracking to those. So I believe there is opportunity on that program. We have a long way to go until we get into full-rate production. And so we're plotting down this course very methodically, very carefully. Relationship with our customer is good. Our execution is good, and we're going to remain on track. And I think there will be opportunity in that program, but that opportunity is going to be tied into the ramp up period, which is still out in front of us.

Joseph Nadol - JP Morgan Chase & Co

Okay, fair enough. For the follow-up question, just -- if there's any more detail available in the Armament's margins, they were -- they are very, very good in the quarter. You had some significant mix shift with Radford and then the nonstandard ammo. And I'm just wondering if you could -- I understand margins are going to be up. I'm just trying to figure out by how much. Were there any other items in that 13.8% in the quarter? Or can we expect maybe margins here to be up fairly significantly versus last year?

Mark DeYoung

Well, we challenge ourself, as John mentioned, we challenge ourself across all of the groups for efficiency improvement, for implementation of our PES system to drive discipline into our manufacturing facilities, which will generate increases in profitability and higher-margins. Armament is very committed to that process. They're actually downstream a ways ahead of a couple of other groups, and I think they're seeing the benefit of that. So we see these efficiency improvements continuing across the Armament's manufacturing and support sites. We have a good mix shift in the quarter with products. Some of our lower margin products in the quarter, such as nonstandard ammunition and nonstandard weapons, this is a mixed bag. Revenue was down on those, but they were lower margin programs for us. So in the mix, that also is favorable. So we see opportunity to continue margin improvement as John described.

John Shroyer

And just to add to that, Joe, a couple of programs kicking in here in the second quarter are recently announced development wins on the tank in M829E4, and XM25, which of course, won't carry quite as high a margin. So that will put a little bit of mix on that but again, very sustainable margins for that group.

Operator

Our next question comes from George Shapiro with Access 342.

George Shapiro - Citi

Yes, I was wondering if you could update us on your thinking about NASA's plan to complete the boosters. I mean, we get conflicting reports that it's going to happen sometime down the road. So whether it's going to happen right away, so kind of what you're thinking at this point.

Mark DeYoung

Yes, George, your thinking on this, and I've had some discussions with NASA administrator recently, our belief is that it is down the road. The competition is not immediate. If a competition occurs, it will be in the future. On that front, we have no fear of competition on this front. We have great products. They are man-rated. They perform very successfully. We have continued over the course of the shuttle program to drive efficiencies into those products to make them even more affordable than they have ever been, and we have improved the performance with our 5-segment booster design. We'll be testing that design again with the static test on September 8 at our Utah test range facility. We anticipate another successful test of that capability. So I think if there is a competition on SLS, as I mentioned, it's out ahead of us and we'll be happy to compete.

George Shapiro - Citi

Okay. And then just one follow-up. It seems like your revenue guidance to get to even the low end of the $4.6 billion to $4.8 billion is going to be hard the rest of the year. I mean, you've got to have -- even get to the $4.6 billion, your revenue has got to be within about $100 million of where they were and all the last 3 quarters of last year. So I guess can you just walk through a little bit as to what gets you there?

John Shroyer

George, as you may recall in the last quarter, in our remarks, we mentioned we expected the first half of the year to be slightly lower due to the Radford competition, and certainly, that played out a little bit here as you saw. But as we mentioned in my marks there, the Missile Products, we should see some definite upticks here with the AARGM going into more full-rate production. The JATAS award that we just announced is going to be a big revenue contributor. I mentioned the M829E4 win that we had. It's kicking in, in the Armaments group, as well as some XM25 revenue. And also, we expect the Security and Sporting, we have the pull ahead in the first quarter, and we see that business is still very robust, an additional revenue for the balance of the 3 quarters. So there's a bunch of maybe some smaller programs, but all in all, pretty consistent with our expectations last quarter and consistent for the year. So we're still very confident on our sales guidance range there, $4.6 billion to $4.8 billion, and again, with the margin improvement that we saw in the quarter being sustainable to deliver the additional EPS guidance, along with our reduced share count.

Operator

Our next question comes from Herb Hardt with Monness.

Herbert Hardt - Monness, Crespi, Hardt & Co., Inc.

And my question is on M&A activity. Is the level of activity is it more now versus a year ago? Or what's the status?

Mark DeYoung

Yes, Herb, we have -- a year ago, we had a lot of other balls we were juggling. In fact, the last year, we spent a lot of time putting in place improved management processes, improved operating and control processes, putting -- installing new leadership teams with the additions of bringing Dr. Rob Mullins to help us with strategy in M&A. He's been a great add to the team. And so that has clearly ramped up over the last year and particularly, in the last 6 months, as we've got in place the other things that I wanted to make sure we had in place as a foundation for the company. And so we continue to look on a weekly basis and continue to examine what those opportunities are and what targets of opportunity are. We'll continue to do so. We believe that there are opportunities for adjacency and extension of our current portfolio through M&A, and that's our focus. I think as you would know, too, and you and I believe have chatted about this a little bit. We've said it on the call before, we're not rushing out to do something. We're not going to rush out to buy top line revenue. We're going to do strategic acquisitions that we believe strengthen the company, extend our strength for the long term and give us the sustainable competitive advantage. So we're not rushing to action to plug a top line challenge. We're being deliberate.

Operator

Our next question comes from David Strauss with UBS.

David Strauss - UBS Investment Bank

Mark, you talked about competition for heavy lift being down the road. Could you -- with that in mind, could you detail kind of over the near term, how things kind of play out from here and what upside there might be to your overall mass business from heavy lifts starting to ramp up?

Mark DeYoung

Yes, I mean, on that front, of course, NASA has been reserved in their disclosure of their architecture and their strategy, much to the frustration of some in Congress and the Senate and some in industry, frankly. But we believe that NASA's architecture will include Solid Rocket Motor propulsion for that first thrust as it has in the past. We believe that's been a successful capability for NASA, using ATK hardware and believe that will continue. In the short-term, they have sustained the development of the 5-segment booster, which I mentioned will be tested in Utah on September 8 with another static test. We've been successful on those tests. We fully anticipate a great test again on the 8th with success. I believe that the extension of the development of the 5-segment booster puts us in a strong position to have a ready now capability to address NASA's concern for the heavy lift. I think also if you look at the launch abort system, which ATK makes at our Elkton facility, now that program was stopped at Lockheed's direction from NASA. Now that the capsule design has been released, we believe that, that will be restarted. So that's an opportunity for us in the back half of the year to restart our abort system for that capsule. So I think in the near term, you'll see revenues continue to generate with the revenues we've discussed in the past on these calls in that range. I think you'll see 5-segment work continuing with good successes on test. I hope we see a restart of the launch abort system here soon from Lockheed now that, that capsule design has been approved, and we'll address the long-term as it materializes.

David Strauss - UBS Investment Bank

All right. And on Lake City, can you talk about -- have you seen any impact thus far from lower troop levels, troop drawdowns? And how do you see the outlook there over -- in the interim before you have to rebid for the facility?

Mark DeYoung

Sure. No, we have not seen any declines in the order demand that has been different than what we had expected or any kind of drastic shifts associated with product mix or quantities from 4 structure. So the answer to your first question would be no. As I've mentioned before, a large portion of ATK's ammunition is used for training. A large portion is used for readiness and then also support of combat operations, which actually represents a minority of the volume that we produce, and we haven't seen any material shifts there. Over the longer haul, as we begin to scale down operations in theater, as have been described by the President and supported by Congress, we think that, that appears to be a reasonable plan. We support DoD's plan. We do not anticipate a cliff at all in small caliber production. Our backlog remains strong. So right now, I think in terms of the business, as we can see over the foreseeable future and the current horizon, we have strong backlog and continuing reasonable orders of volumes which allow us to continue to be efficient and operate that plant. So we don't see a big issue there.

David Strauss - UBS Investment Bank

My last question, I think in the past, you've mentioned undertaking a portfolio or you have given the current operating environment. Can you update us as to where that stands and when we might hear something on that front?

Mark DeYoung

You bet. Yes, we've been working that. Rob Mullins has been leading that effort as part of our strategic view of the company and the opportunity to maximize the performance of our portfolio. We have identified potential opportunities to streamline the portfolio. I don't want to get into what those particular opportunities might be today. We still want to work through some issues associated with that, but that study has largely yielded results that will allow us now to work over the next year. So -- and reshaping the portfolio to strengthen our capability and to make sure we're focused on core capabilities with our resources. So we'll be moving in that direction here over the next several months.

Operator

Our next question comes from Robert Spingarn with Crédit Suisse.

Robert Spingarn - Crédit Suisse AG

A couple of question, actually John, let's start with you on the share buyback. The guidance reflects the buyback in the quarter. Is there any additional buyback anticipated in those numbers?

John Shroyer

At this point, as I mentioned, we're forecasting a 33.5 million shares for the full year, which reflects the $50 million that we did at the end of the quarter.

Robert Spingarn - Crédit Suisse AG

Okay. So once you get past this debt retirement, there's potentially more there, especially with the share price, where it is?

John Shroyer

Again, as Mark mentioned, we'll look at all of our capital deployment options for the company.

Robert Spingarn - Crédit Suisse AG

Okay. On Lake City, Mark, would you anticipate that to recompete the size, the run rate of the recompete will be similar to what you see today? It sounds like you were headed there on what you just said.

Mark DeYoung

Let me answer that this way, Rob. We have no indication that the run rate will be different than what we anticipated. I don't know what it will be, but there has been no indication in the draft RFP, which by the way is out. So we have the draft RFP. We have a team working through the draft RFP. The draft RFP is a reasonable RFP, and the process associated with this competition looks to be a reasonable process. And there's nothing that gives us an indication of significantly declining order volume.

Robert Spingarn - Crédit Suisse AG

Okay. And then just sticking with orders, the book-to-bill in the quarter wasn't really strong for anybody. How much of that can we attribute to the lingering CR effect? Have you seen any improvement so far in this current September quarter? And what do you expect for book-to-bill as far as you can tell for this year?

John Shroyer

Yes, for the year, we still expect it to be about 1. We did have a slip out of our annual D5 award, which was a fairly sizable $100 million program, which shifted into the end of this quarter, as well as part of the CR, some of the programs in Missile Products that put some of their revenue out did impact orders in the quarter. And we expect those to recover, as well as sales in that group, which helped us get to our guidance range there that we gave you.

Robert Spingarn - Crédit Suisse AG

Do you see any of that evidence yet? We're hearing from some corners that it's still slow. We really haven't seen an improvement in July.

John Shroyer

We have now received all the ones for the most part that I mentioned there, Rob. So for us, I think that storm has passed for the most part, and I don't see that being an issue for us.

Operator

Our next question comes from Pete Skibitski with SunTrust.

Peter Skibitski - SunTrust Robinson Humphrey, Inc.

[indiscernible] JATAS when -- are there any other major competitive opportunities you're going after over the next 9 months or so, kind of, I guess, outside of Lake City?

Mark DeYoung

No. On the competitive front, most of those big competitive awards now are accomplished. We had some negotiations on follow-on awards. We're working through the LRIP follow-on award on AARGM, for example, which is a substantial award for us and would represent a future order on that program for continued ramp up and maturity of that technology. We have things like that, that I would categorize more in terms of follow-up that are ahead of us. The advanced precision mortar initiative which we undertook has been very successful. There will be additional order flow that will come in on that program. The program is generating some very good successes in theater and in test. It gives us much more effective mortar use with less collateral damage. It's being embraced. So there are additional orders like those that we believe will continue to come, some can be significant. But in terms of major competitive awards, frankly, we've been quite successful on nearly all of our targets and accomplished those already this year.

Peter Skibitski - SunTrust Robinson Humphrey, Inc.

Got you. And then can you talk more about what's going on in nonstandard ammo? Has the Afghanistan requirement been fulfilled largely? [indiscernible] would be through 2014. I'm just wondering if we're pulling back on our commitment there or not.

Mark DeYoung

That's -- nonstandard ammo is an interesting program. It kind of wanes and then surges and wanes and surges, and it's done that over time. So that has always been an up-down kind of a cyclical demand. I believe that in the future, there will be continued competitions and demands for support of nonstandard ammunition, but it tends to peak and low and peak and low. So we're poised to respond to the next bid, which comes out, and intend to win that.

Peter Skibitski - SunTrust Robinson Humphrey, Inc.

Got it. Got it. Okay. And then maybe one for John. Can you guys bound maybe what you expect for Q2 top line for us?

John Shroyer

Again, as I mentioned, last quarter, we still expect the first half of the year will be slightly less as it's normal for the company, from a revenue perspective, with a pickup in the back half of the year. So I think that's what I'll answer there, Pete.

Peter Skibitski - SunTrust Robinson Humphrey, Inc.

Okay. Okay. And then last one for you, Mark. Security and Sporting, it's -- I'm going from memory, but I think some of the leading indicators have been a bit negative, and obviously the economy is still kind of tenuous out there. I'm just wondering, philosophically, would you actually be willing to give up some pricing to get back volumes? Or how do you think about that there in the environment that we're in?

Mark DeYoung

If you think about ATK's role in Security and pricing -- in Security and Sporting and pricing, one thing that we have done over many years is driven margin improvement into that business. When we acquired that business, it was $230 million of revenue, losing 3%. It's now $1 billion in revenue, making 15%. I'm not -- we don't want to surrender the position that we have created in terms of generating reasonable margins on a capital-intensive business like that. So we view pricing. Clearly, it is a lever in the commercial market, but we view it as a lever that we hold off pulling if we can. So I believe right now, what you see in that market is you see strong demand, you see data across the market that suggest that inventory levels and functional wholesalers, regional chains and mass merchants are reasonable. And we, with the raw material costs we face, are not inclined to address the price lever. We're doing a great job with our marketing, our sales, our distribution. Our point of sale focus is generating significant demand from consumers who are making those decisions at the shelf. And that we don't see a need, frankly, to pull the price lever. We still have good back order positions and strong demand for our products.

Operator

Our next question comes from Carter Copeland with Barclays Capital.

Mayur Manmohansingh - Barclays Capital

This is Mayur in for Carter. Quickly on the guidance, you have kept the revenue guidance the same, but you had talked about lower Radford sales. I just wanted to get a sense as to what's making up for this? Is this mostly the JATAS or is there anything else?

John Shroyer

Yes, again, we had expected lower Radford sales even last quarter for the year. But yes, the things that will pick up here in the back half of the year will be the JATAS, the tank, E4 program, as well as our normal seasonality. And Security and Sporting will kick in, in the third quarter as well.

Mayur Manmohansingh - Barclays Capital

Okay, great. And on Sporting and Security, this is a follow-up question. You noted earlier that the down revenues were due to the advanced purchases. It was mentioned, $15 million was pulled back into Q4. If we would account for that, sales are still up about 2% to 3%, just on my quick math here. Now you had acquired BLACKHAWK! in Q1 of last year. I just wanted to get a sense in terms of how much of the revenue growth came from BLACKHAWK! or basically if you can kind of give me a sense in terms of the organic revenue growth?

John Shroyer

Yes, as I mentioned, we had BLACKHAWK! pretty much for the entire first quarter last year. So it's early in our fiscal year, and so most of that estimated 3% that you calculated, adjusting for the pull ahead, is all organic. And as I mentioned in my script, we did see overall Accessories growth for the business unit, which does include all of BLACKHAWK! and Eagle and all of our traditional Accessories business, which are now under one operating division.

Mayur Manmohansingh - Barclays Capital

Okay, great. And just as a final follow up, if you can just talk a little bit about your outlook on Sporting and Security. I mean, just kind of piggybacking on what Peter was asking earlier, I mean, you've had price increases. Have you had any changes in the demand that you're having for your products?

Mark DeYoung

No, I mean, the market shifts all the time. There's always product mix shifts in demand, always, every quarter between shotshell or rimfire or large rifle or small rifle or pistol ammo. So those things are always changing. It's always a very fluid demand cycle. So I have to answer that question in aggregate. So if you look in aggregate, what we are continuing to see is solid demand for our products. We are continuing strong relationships with our customers. Wal-Mart has announced the expansion of shooting and hunting products in several hundred more stores as they continue to reintroduce these products and ship their strategy. We have a great relationship with them, and that will benefit us as they put more BLACKHAWK! type products, accessory products and ammunition into more of their stores. So we're very in tune with that, working closely with them. And I think that gives us actually some new opportunities for expansion and shelf space, which we haven't had actually in the last 2 years. So in the main, we don't see anything in terms of any significant macro shifts in that space.

Operator

Our next question comes from Michael Ciarmoli with KeyBanc Capital Markets.

Michael Ciarmoli - KeyBanc Capital Markets Inc.

Mark, I guess just a follow-up. I think Rob was asking about Lake City. The recompete, the new contract, you guys, I guess, have been producing 1.4 billion rounds. If we do see a change in 4 structure, we do see a slowdown in up-tempo. Is it reasonable to think that annual production goes back down to 800 million rounds or so? And if that happens, does that dramatically change the margin profile of those revenues coming out of Lake City?

Mark DeYoung

It's possible. I don't know that it would be reasonable to assume that. I don't know that, that's the case, but it's possible that you could see the 4 structure adjustment, some requirement shift, some product mix shift and an overall potential reduction in orders to that laying of our business in terms of military small count. However, there are other things going on there as well. The Army has now fielded, and we have produced over 150 million rounds of the M855A1 round, which is the new combat round for the M16, M4 platform, due to the design in nature of that round. It's a more expensive round. So it's not a one-for-one mix like it used to be. So reductions in 556 quantities won't necessarily drive the same correlations to reductions in revenue, because they are frankly buying a more expensive combat and training round now than they bought in the past. So there are several variables in there which leads us to believe that in the near term, and certainly as long as we can see into the planning, that those revenues and those demands in the whole appear to be fairly stable.

Michael Ciarmoli - KeyBanc Capital Markets Inc.

And do you think the margins -- obviously, some of those products are more mature versus the newer rounds you mentioned. Would there be some margin pressure you think as you seek to sort of balance the mix shift there?

Mark DeYoung

Well, of course, when they compete the plant, well, we'll be going through a process of evaluating all of our pricing as part of the price that we will submit or the product portfolio that they put into the RFP. So we'll evaluate that, we'll evaluate obviously kind of the competitive pressures that may exist as we pursue that plant. And it's possible, again, that there may be some margin impacts as we compete to rewin that plant. However, our goal and our strategy is to offset margin impact associated with price and the competition climate by driving these efficiency improvement initiatives into the plant. And we're seeing great -- as you saw and as John mentioned, we're seeing great performance in the Armament Systems group on the margin side as they continue to mature their performance enterprise system and focus on efficiency. So our goal would be to offset margin declines that may be required or may come through contract actions with efficiency improvement.

Michael Ciarmoli - KeyBanc Capital Markets Inc.

Okay, fair enough. And then just on the commercial Aerospace side, can you -- would you be willing to disclose the amount of revenues in the quarter or what's sort of the percentage you're thinking for the full year is going to come from that group?

Mark DeYoung

No. We don't want to give the kind of program revenue and margin information, but I will tell you that, that business, as we execute against Airbus, as we execute our GE engine work, as we execute our Pratt & Whitney engine work, all of that is commercial work for us. We are on track with our growth plan for that work, and we're on track with our uptime throughput estimates for ramp up on that work. So I guess I would tell you, we're doing what we plan to do, and we're executing better than we have ever executed on that work. But I wouldn't want to break out the financials.

Michael Ciarmoli - KeyBanc Capital Markets Inc.

Okay. And then I think you got -- what do you have, a 615,000 square-foot facility with the capability to do 10,000 parts per month. I mean, even if you start ramping up on the GE, the Pratt, the A350, it seems like you're going to still have a lot of capacity in that facility. I mean, I think from a strategic standpoint, is commercial Aerospace, knowing that you have this facility, knowing that Joint Strike Fighter is not even running through there, is there a bigger push to expand your capabilities in that market?

Mark DeYoung

Yes, there is. We've mentioned that I think over the past couple of quarters. I believe last quarter, I took a question and answer that we're very focused in that space. And we believe that space provides an opportunity for continued growth for us and adjacency for us to our composite technology. So you're absolutely right. And that the 615,000 square-foot facility is designed, and it is intended to provide additional capacity for us. So the way we have laid out this greenfield opportunity is in very efficient manufacturing to support Airbus commercial, very efficient manufacturing lean sell, manufacturing layout designs for our engine work, and we have left a significant footprint and capability for expansion.

Michael Ciarmoli - KeyBanc Capital Markets Inc.

Okay, perfect. And last question, just on the guidance for the year. Have you guys baked in the impact of another continuing resolution for fiscal '12?

Mark DeYoung

No, we have not.

Michael Ciarmoli - KeyBanc Capital Markets Inc.

Would that meaningfully change the outlook if we do get a...

Mark DeYoung

No, we don't think so. If you look at the impact of the continuing resolution this year on ATK, it's negligible. If you look at what our continuing resolution would do, basically, it would flat line for the most part a continuing resolution. At today's spending rates, it basically would flat line our NASA work, and it would be consistent with most of the sales we're generating now. Really, the only issue is timing. I mean, there's some timing issues and some timing risks associated with that, perhaps.

Michael Ciarmoli - KeyBanc Capital Markets Inc.

Okay. But there would be like the JATAS, the XM, there wouldn't be problems there?

John Shroyer

Right. We've already got those awards, as Mark mentioned earlier in the year, and there's no other big awards coming that would get held up in a process.

Mark DeYoung

And I mean, this is one of the favorable things for us. And the reason I answered that question that way is so that we could help everyone understand that our exposure to risk on awards and funding from a continuing resolution are some other congressional action in the fall as minimal impact. We have most of those things behind us now, and they are funded.

Operator

Our next question comes from Gautam Khanna with Cowen And Company.

Gautam Khanna - Cowen and Company, LLC

If you could fill down in the Armaments margin a little bit, I'd appreciate it. I think you mentioned that there will be improvement throughout the year. And I wonder: a, is that kind of year-on-year? Is that what you were talking about or from the Q1 line?

John Shroyer

Yes, that's year-on-year. They did have, again, a very strong first quarter with some lower modernization in Radford sales. But again, their development programs will be kicking up here in the second quarter and the balance of the year E4 tank round and the XM25 program and the APMI program. And those do not carry quite that high a margin. So we'll see a little bit of mix shift there. But again, their overall margins, we should see a modest improvement over last year for the Armament's group for the entire year.

Gautam Khanna - Cowen and Company, LLC

Can you break down -- I mean, the margins were up 250 basis. It looks like year-on-year. And how much of that was kind of the PES initiative versus mix?

John Shroyer

We're not -- it was a combination of both, and we keep -- as Mark mentioned, the PES initiative has really just recently been kicked off and in earnest across the entire company. And we expect to see continued improvement opportunities from that as we go forward.

Gautam Khanna - Cowen and Company, LLC

And in your prepared remarks, I think there was some reference to AARGM milestones perhaps in the quarter. Was there any sort of award fee one-time set by them?

John Shroyer

No. There was no one-time award fee that impacted margins across the company, really.

Gautam Khanna - Cowen and Company, LLC

Few other ones quickly. Interest expense assumption for the year and if you could just update us on BLACKHAWK!. I know an earlier question came on BLACKHAWK!, but how was it tracking to your original plan? I remember you missed last year's product cycle, but how are you doing this year?

John Shroyer

Yes, the interest expense, we still expect in the $90 million range for the company. It did give a slight benefit, only pulled those $50 million converts in for the quarter, but that was not significant.

Mark DeYoung

On the BLACKHAWK! front, in answering that question, we've fully integrated BLACKHAWK! and Eagle now with ATK's legacy Accessories businesses for shooting sports. Operating as a single business unit now with a single manager, that's a shift we made at the start of this fiscal year, getting those accessory-type products combined under one leadership team. Accessories sales, as John mentioned earlier, they did grow in the quarter. They grew consistent with our expectations. BLACKHAWK!'s growth plan that we put together for this year is clearly on track, and we're continuing to drive the BLACKHAWK! brand into our common product multiple market strategy. It's beginning to take hold. And the volume that we're beginning to place additional BLACKHAWK!-type products and branded products into retail, which is something the BLACKHAWK! had done a little bit of but hadn't really had the sales marketing and distribution to fully support. That's beginning to gain momentum. And in fact, we have placed sub-branded BLACKHAWK!-type products into Wal-Mart for the first time and sold out the entire BLACKHAWK! line in Wal-Mart, which exceeded expectations. So we're beginning to generate some of the returns from the strategy that we had expected. Lauren, we have time for one more question, please.

Operator

Our final question comes from Matt Vittorioso with Barclays Capital.

Matthew Vittorioso - Barclays Capital

Just a quick question on your balance sheet and your appetite for acquisitions. I think we all appreciate the fact that valuation multiples in the Defense space are low, and this might be a good time to find some value. At the same time, I think your bondholders are happy to see such a strong balance sheet in uncertain times. What's your appetite for taking on leverage to make these acquisitions that you've talked about? I know you said you weren't going to run out and just buy top line, but maybe just to give us a sense for what impact it might have on the balance sheet or what you're willing to do for acquisitions.

Mark DeYoung

Sure. Let me answer that and John can certainly chime in and share his view on it. As I mentioned, we're being quite deliberate and strategic in our pursuit of acquisitions. Were looking for complimentary capabilities and capabilities that expand our current portfolio and current core capabilities. In terms of leverage, we clearly are attune and aware of the need to maintain flexibility and liquidity in our balance sheet. So we're very much focused on making sure that we get the right kind of strategic M&A target, the right kind of multiples, that they're accretive. It's very important to us, obviously. And that we understand the cash flows and can generate a debt pay-down strategy consistent with ATK's historical pay-down strategies, which have allowed us to deleverage quickly off of acquisitions to strengthen that balance sheet. John, anything you'd like to add to that?

John Shroyer

No, I think you covered it, Mark.

Matthew Vittorioso - Barclays Capital

And just a quick follow-up. I know you talked about potentially streamlining the portfolio as opposed to any proceeds generated from that sort of activity would follow your normal capital deployment plans but out across sort of the 3 main buckets.

Mark DeYoung

Yes, I mean, that would exactly be our plan. The cash generated from those would go in obviously into the balance sheet, and we would look at that resource like we always look at cash and try and ensure that we make conscious reasonable decisions on how to deploy those proceeds.

Operator

This concludes today's question-and-answer session. I'd like to turn the conference back over to ATK President and CEO, Mr. Mark DeYoung, for closing remarks.

Mark DeYoung

Thank you very much. I just want to express my appreciation for all of you joining us. I appreciated your interest in the company and the questions that you asked. Hopefully, the answers that we gave are sufficient for you to understand where we're headed and understand the results from Q1. I want to also just wrap up the call with my thanks and appreciation to John. I've enjoyed, John, working with you over these many years, and we've crossed paths in different states and different conditions. And I think I've enjoyed the last 18 months with you as much as I have any other stint that we've crossed and shared. And I appreciate all the good wishes which were expressed to John by those of you on the call as well.

John Shroyer

Thanks, Mark, and thanks, everybody.

Mark DeYoung

All right. Thanks.

Operator

This concludes today's conference. Thank you for your participation.

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