Alliant Techsystems' (ATK) CEO Mark DeYoung on Q2 2015 Results - Earnings Call Transcript

Alliant Techsystems (ATK) Q2 2015 Earnings Call October 30, 2014 9:00 AM ET

Executives

Michael Pici -
Mark W. DeYoung - Chief Executive Officer, President and Director
Neal S. Cohen - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Robert Spingarn - Crédit Suisse AG, Research Division
Joseph B. Nadol - JP Morgan Chase & Co, Research Division
Steven Cahall - RBC Capital Markets, LLC, Research Division
Gautam Khanna - Cowen and Company, LLC, Research Division
Howard A. Rubel - Jefferies LLC, Research Division
Noah Poponak - Goldman Sachs Group Inc., Research Division
George D. Shapiro - Shapiro Research
Herbert A. Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division
David E. Strauss - UBS Investment Bank, Research Division

Operator

Good day, everyone, and welcome to the ATK Second Quarter Fiscal Year '15 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Michael Pici, ATK's Director of Investor Relations. Please go ahead, sir.

Michael Pici

Thank you, Danny. Good morning, and thank you for joining us for our second quarter fiscal year 2015 earnings call. With me this morning are Mark DeYoung, ATK's President and Chief Executive Officer; and Neal Cohen, Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to remind everyone that everyone that during today's call, we will be making several forward-looking statements and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face ATK and the industries in which we operate. We encourage you to review today's press release and ATK's SEC filings for more information on these risk factors and uncertainties. Please also note that we have posted presentation materials on our website at 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 W. DeYoung

Okay. Thank you, Mike. Good morning, everyone. Thanks for joining us today on our second quarter call. ATK recorded another strong quarter in Q2, with year-over-year growth in sales, operating profit and setting record level earnings per share results. We continue to deliver excellent operational performance across the company, which in turn delivers value to our shareholders and quality to our customers. Our groups continue to secure new business and reach new milestones in the second quarter. I'll take just a moment and walk through each of the highlights from the groups.

The Aerospace Group maintained its consistent performance and again delivered modest year-over-year growth. During the quarter we were awarded contracts to provide solar arrays for next-generation commercial satellites, and the Aerospace Group supported several launches and tests with our Solid Rocket Motors and composite capabilities including Delta II and Delta IV, the Atlas V and an unarmed Minuteman III. We also submitted our proposal for an American-made commercial solid rocket solution to the Air Force as a replacement for the Russian-made RD-180 engine for the Atlas V.

During the quarter, the Aerospace Group successfully completed critical design review for NASA's Space Launch System, or as we refer to it, SLS, and ATK is on the team to build the America's new crew space transportation system. NASA's award for the commercial crew transportation capability program includes the role for our thermal systems. ATK secured a contract for $10 million to design the radiators, the crew capsule that will take astronauts to the international space station. After a successful static test, ATK delivered the James Webb Space Telescope backplane for NASA's scheduled launch in 2018.

Moving to Defense Group. We captured key international wins and delivered improved execution and again achieved margins of 10% in the second quarter. We won multiple contract awards totaling $204 million to supply nonstandard ammunition for the Department of Defense in support of international allies. We also received $65 million in domestic and international orders for medium- and large-caliber ammunition, and our XM25 Weapon System received additional development funding to take it to Milestone C.

Turning to the Sporting Group. It appears calendar year '13 was the best year in the history in this industry. Last year was exceptionally strong and established challenging comps. We are seeing expected softening in the shooting sports market while we've experienced a decrease in demand and higher retail inventories for centerfire rifle ammo, rifles and legacy accessories, we continue to experience strong demand for a variety of pistol and room fire ammunition products. And even within a softening market, we delivered excellent execution, implementing our factory of the future strategy within Savage Arms and achieved double-digit Bushnell margins. I'd also like to note, this weekend marks the 1 year anniversary of our acquisition of Bushnell.

I'm pleased with the company's progress. In terms of managing a broader portfolio and our success in entering new and adjacent markets with firearms, archery products, camping, golf and sports optics. We have also made solid progress integrating our sales teams and growth strategies. A number of our innovative sporting products resonated with our customers this past quarter, receiving industry awards and recognitions. Bollé Sport Protective program won the Silmo award, one of the highest distinctions for an optical product in Europe.

Several of our products received Best of the Best awards from Field & Stream, including the Bushnell Wireless Trophy Cam, the Primos Hook Up box call and Champion Premium Shooting Rest. And the European Golf Industry survey reported that 90% of players in this year's open championship have used the Bushnell RangeFinder, a testament to the brand's identity and strength in golf.

The Sporting Group also won multiple international U.S. government and federal law enforcement ammunition contracts. Based on increased participation and new entrants in the shooting sports and outdoor recreation markets combined with our strong market position, I am confident that we will experience long-term growth in this business.

I'd like to take a moment to update you on proposed transaction to spin off the Sporting business into Vista Outdoor and to merge our A&D businesses with Orbital Sciences Corporation. During the quarter, ATK made solid progress planning for and working through the regulatory review process. We've completed many planned milestones both internally and with regulatory reviewers. Given Tuesday's Antares launch failure, ATK is conducting a thorough evaluation of any potential implications resulting from the incident.

To conclude, I'm proud of our strong financial performance in the quarter and our business execution and integration efforts. Thanks for your support and interest in our company. I'll now turn this time over to Neal so he can walk through his comments. And then following Neal's comments, we look forward to your questions. Neal?

Neal S. Cohen

Thanks, Mark, and good morning, everyone. ATK recorded strong operating results in the second quarter. Sales increased 11% to $1.3 billion compared to $1.1 billion in the prior year. Growth was driven by higher sales across all the ATK businesses, including the impact of the Bushnell acquisition. Operating profit increased 8% year-over-year to $161 million which is $12 million increase from the prior year period and included the impact of Bushnell acquisition. As we've done in previous quarters, I will also discuss our as-adjusted results. Please review the reconciliation table in our online website for more information.

Adjusted operating profit for the quarter increased 6% to $166 million compared to $156 million in the prior year. The adjusted numbers exclude transaction costs of $5 million and an inventory step-up of $8 million in the prior year period. The increase in adjusted operating profit was driven primarily by higher sales and profit in the Sporting Group driven by the Bushnell acquisition and $11 million of lower pension expense year-over-year.

Net income for the quarter was up 3% to $95 million compared to $93 million in the prior year. Adjusted net income increased 5% to $96 million from $91 million. Fully diluted earnings per share were $2.97 compared to $2.86.

As-adjusted EPS increased 6% to $3 per share. Adjusted net income and EPS increases were driven by higher operating profits, partially offset by higher interest expense due to changing debt levels.

ATK's second quarter orders were approximately $950 million, down from $1.5 billion due partly to the absence of significant prior year orders in the Aerospace and Defense Group. These orders in this quarter follow first quarter orders of $1.3 billion and we finished the quarter with backlog of $7 billion.

Interest expense in the quarter was $23 million compared to $15 million in the prior year quarter, partly reflecting higher average debt levels. The tax rate for the quarter was 30.7% compared to 30.3% in the prior year. The increase in the rate reflects the absence of a discrete impact of several tax law changes recorded in the prior year and the true-up of prior year taxes reported in the current year, partially offset by the benefit from a corporate initiative that resulted in tax basis adjustment and the settlement of the IRS audit of the company's FY '11 and FY '12 tax returns.

Free cash flow used year-to-date was $31 million, up from a use of $10 million in the prior year reflecting the timing of receivables collections, partly offset by the collection of a pension segment closeout payment related to Radford. As we reported in the first quarter, ATK completed the retirement of its convertible notes. We completed 93% in July and the remaining 7% in September.

And now turning to the groups, starting with the Aerospace Group. Second quarter sales increased 3% to $329 million compared to $319 million. This increase reflects increased sales in the Aero Structures division, partly offset by lower sales in Space Components and Space Systems operating divisions. Operating profit in the quarter was down 3% to $39 million compared to $41 million in the prior year quarter. The decrease reflects the absence of an improved profit expectation in the Aero Structures division recorded in the prior year, partially offset by increased sales.

In the Defense Group, sales in the second quarter increased 3% to $488 million compared to $472 million in the prior year quarter. This increase was driven by international sales within the Small Caliber Systems division and sales in the Missile Products division, partly offset by decreased sales in the Armament Systems division.

Operating profit for the quarter was down 9% to $50 million compared to $55 million in the prior year quarter. This decrease reflects the absence of a prior year change in profit expectations of $22 million on a program in the Small Caliber Systems division. The decrease was partially offset by increased sales and favorable international contract mix. The Defense Group achieved 10% operating margins in the quarter.

Turning to the Sporting Group. Second quarter sales increased 26% to $533 million compared to $421 million in the prior year quarter. The increased sales includes Bushnell of $154 million and is partially offset by an organic sales decline of 8%. Organic sales decreased primarily due to lower sales volume in firearms and legacy accessories, partially offset by a slight increase in ammunition.

As you'll recall, we experienced very high organic growth in FY '14. For example, Q2 FY '14 grew 28% organically and Q3 grew 31%. This was record growth for our business. To put 2Q FY '15 results in better perspective, the 2-year organic growth rate was approximately 11% per annum.

Operating profit in the second quarter increased 29% to $74 million compared to $58 million in the prior period. The increase was $9 million when compared to adjusted operating profit in the prior year quarter of $66 million. The increase was a result of Bushnell and the absence of a prior period restructuring facility rationalization cost, partially offset by lower organic sales. Adjusted organic operating profit for the group decreased 9%. Finally, operating profit for Bushnell was $15 million, including transition cost which represents a 10% operating margin.

As a result of our revised sales outlook which is trending towards the lower end of our existing range, ATK is updating its sales guidance for the year to the range of $5.15 billion to $5.20 billion. The company reaffirms its EPS guidance in the range of $11.50 to $11.90 per share, and free cash flow guidance in the range of $280 million to $305 million. It should be noted that the EPS guidance includes approximately $0.20 or $10.6 million for the previously announced unfavorable impact from a corporate facility consolidation which was recorded in the first quarter. Our FY '15 guidance is for ATK's ongoing operation in its current form and does not include any potential impact from the proposed transaction.

The effective tax rate for the year is expected to be approximately 33%, down from the previous guidance of approximately 34%. This change in rate anticipates the retroactive extension of the federal R&D tax credit and the decrease is primarily the result of the benefit of the tax basis adjustments initiative by the company and the IRS settlement.

To close, ATK had a strong second quarter. We recorded increase in sales, increase in operating profit and EPS and recorded record EPS. We retired our convertible notes and we improved our performance through our number of initiatives.

We're now ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Robert Spingarn with Crédit Suisse.

Robert Spingarn - Crédit Suisse AG, Research Division

Mark, I guess the key question for us is, if we could talk a little bit about the organic growth trends in 2 segments, in Sporting and in Defense, and how you think those will continue the trend? Obviously, you've already addressed the fact that a slowdown was expected at some point. But with all the moving pieces, perhaps you can give us some color on how you're thinking for the next few quarters on those 2 segments?

Mark W. DeYoung

Yes, let me try and address that without trying to give you guidance by group which we can't and don't do. So I think I can add, as you said, some color to that. I think as you said, we've expected for some time that we would beat the market, and we have. We continue to beat the market substantially in Sporting. I've seen our competitors' public releases both on the firearms side and the ammo side, and we are way outpacing the competition. So I'm very proud of our results. I think we're doing terrific in a softening market and really performing very, very well. So I'm really happy about our Sporting performance. You can't beat the market forever, so we're beginning now to continue to beat our -- all competition substantially but the market trends are catching up with this a little bit in the second quarter and we saw some softening there. I think in our discussions of all of our key customers across the country in meetings that I've been having with them, on one-on-one meetings, that trend across the country is likely to continue for a few more quarters. I think a lot of people in the industry believe that 2013 was the record year for the shooting sports industry and 2014 will be a year of correction and softening bringing us back to pre-'13 levels. Whether that ends up being '11 or '12 levels, I don't think anyone knows. Both of those are really good years, obviously, for the shooting sports, and we believe we'll settle well above our historical levels in those years and grow out of this going forward as well. So I think we can settle in that '11 and '12 kind of range or better and continue to grow. So we'll see what happens. I think our performance against the market and competitors is so strong that we'll continue to lead this market, and this is a long-term growth industry for us. We'll see how things settle out. But I still remain very excited and very confident in our sporting portfolio. In the Defense Group, I think in the Defense Group, I'm really proud of the stability we've introduced to that group. We have had domestic pressures on the top line. I think most defense companies have talked about continuing top line pressures. We've been able to offset those pressures with our strategy of international expansion and growth. We had $200 million, as we talked about, in nonstandard ammo orders in the quarter, a total of $400 million of international orders in the quarter for Defense Group. So we're doing very, very well. I think the gunship business is catching the eye of many small countries, particularly in the Middle East that need that capability. And the nonstandard ammo win was significant for us, bolstering Lake City's challenges to offset some of domestic declines, nonstandard ammo has run out of that organization. So Defense, I think the watch word for us is stability. And sporting, I think the watch word for us is continue to beat the market and then continue to find evidence for growth.

Robert Spingarn - Crédit Suisse AG, Research Division

So just to put a finer point on that last part on Defense, have we bottomed here? Do you think organic growth is up with the international going forward? And then the other part -- the other follow-up is on the pistol and rimfire, those held up in the quarter, but would you -- based on what you just said, should we expect, at some point, some negative growth there even if it's relatively better than your competition?

Mark W. DeYoung

Okay. So I think it's always difficult to predict the bottom. I was asked this question the last 2 quarters about are we at the bottom. Based upon our performance and based upon my conversations with Mike Kahn and the leadership of our Defense Group, I believe they believe that we are and that we're going to drive the strategies we have to continue to maintain stability and future growth, so we feel good about that. We don't see anything on the horizon which is causing us to be real concerned about substantial continuing downturns or downward pressure in Defense. And in the Sporting Group, your question about rimfire and pistol. Both of those, as I mentioned, we're very strong. Rimfire in particular is very, very strong and we're doing very well in the rimfire market, simply just trying to keep up, making all that we can make and working 24/7. And pistol, I do suspect pistol will soften a little bit. It will soften, I think, before rimfire. We're beginning to see some competitors that are already mentioning pistol promotions to try and keep their volume up. So I think in addition to some future softening which is likely to occur in pistol, we may see some pricing pressures in the market from competitors, and that's just beginning to show up. It has been there on the rifle. We're beginning to see it on pistol. One clarification, when I mentioned the orders on -- for the Defense Group, I mentioned 400 million international orders. That's year-to-date. We had 200 million-plus in the quarter.

Neal S. Cohen

Right. And I think those international orders are really forming the foundation, this is Neal, around future growth. I think one question we've always gotten is around Lake City. The prior contract and the sort of transition from the prior contract to the new contract, that took place last year and that went into the third quarter of 2014. So we had some Lake City sales last year in the prior year around the old contract. We were very excited and the team's doing phenomenal in terms of the -- our new contract with Lake City. We've talked about that. But just to help everyone understand how that plays out through the balance of the year.

Operator

And our next question comes from Joe Nadol with JPMorgan.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Mark, just on the merger, I kind of appreciate that you -- there's a limited amount of things you can say right now. But my question is, can you give us any sense that -- in your view or the board's view, if you did come to conclusion there's a material adverse change here and can't come to some sort of pricing agreement with Orbital, that would you continue with the split even without a merger or not?

Mark W. DeYoung

Yes, that would be speculation on my part. And it's a good question, it’s a fair question. It would just be speculation on my part because there are so many what-if scenarios in that question, Joe, so I can't answer that question. What I can tell you is what I said in the statement which we made public is that we are going to evaluate any potential impacts from these 2 current operations in our delivery of solid propulsion to Orbital's result of this. You remember we delivered the CASTOR 30XL motor which is the second stage under Antares vehicle. We want to look at impacts to that. And then we're just looking at long-term strategy, including potential another example to highlight the success, safety and performance of solid propulsion solutions in these vehicles, and then we'll look through any implications through the proposed merger as well. So we're going to look at all those options and we'll evaluate the transaction. The transaction is public record. We have filed that. The transaction agreement is out there. People can look at that. I don't want to get into interpreting it or what might happen. And so I think you're just going to have to hang with us for a while, Joe, until we work our way through this, and we'll let you know what we can tell you when we can tell you.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Okay, understood. My other question, a follow-up, is just on the Sporting side. And it really -- you didn't break down firearms, which are now organic, and legacy accessories. But given what you said about firearms outperforming the competition and just knowing the mix there, it seems like your legacy accessories business was down quite a bit. Could you give some color there? And is there any implication of merging -- integrating Bushnell and discontinuing some prior legacy accessories? Or is there anything else going on there?

Mark W. DeYoung

Okay. So in terms of the strategy, let me start with the back half of your question. I mentioned on previous calls that we had taken many of the legacy accessories which were in ATK's portfolio, and we enrolled them under the Bushnell leadership team and we're integrating them with Bushnell as part of our Bushnell integration. So in some ways, it was a little bit of a reverse integration on Sporting accessories because some of those classic accessories which existed within ATK were rolling under the Bushnell leadership team. We've continued that. We're making good progress on that. In terms of retirement or backing away from any of our legacy accessories and brands, we have no plans to do that and really see no reason to do that. Most of the legacy accessories we talked about are very closely aligned to firearms. They either go on a firearm or support a firearm, so that softening we saw is, in large measure, tied to the declines which you've seen in the firearm business. Now remember, we have a small position in firearms. When you look at Savage as a percentage of ATK, it's like 5% of our business. But our accessories business was also aligned, particularly to long guns. But cleaning accessories for firearms, scopes that mount onto firearms, scope mounting systems that go onto firearms, all those things are impacted as firearms decline. So that's most of the kinds of categories which we're seeing some pressure on. And Savage, we mentioned last quarter, when you looked at NICS checks for long guns, you saw a substantial reduction in year-over-year NICS checks for long guns. Last quarter, we mentioned that, that would impact Savage, and it has, but we're still very pleased with Savage performance. Both Savage and Bushnell were accreted in our second quarter, so we think we still have a great company there. We're still very confident -- I'm very confident in both Bushnell and Savage.

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Okay. I was just surprised, I guess, that Bushnell did at a much better quarter and that the organic -- that your legacy accessories didn't. But -- okay, that makes sense.

Operator

Our next question is from Steven Cahall with Royal Bank of Canada.

Steven Cahall - RBC Capital Markets, LLC, Research Division

And I joined a little late so I apologize if anything I've asked is already been addressed. I was wondering on the commercial ammo side, number one, you talked a little bit about the backlog before and in terms of forward bookings. What does the environment look like in terms of sequential volume growth from here? And then one of your competitors recently talked about some of the moving parts in the market, particularly about pistol and rimfire continuing to be strong, shot continuing to be a little bit weak. What sort of trends are you seeing at the submarket level, and how do you feel like it overall affects your margin mix?

Mark W. DeYoung

Sure. So again, as I mentioned, Steven, before I've seen all those competitor results and we are far outpacing our competition across almost every measure I can think of. So we're very pleased with that. We're not seeing nearly the declines that our competitors are and I think that speaks to the strength of our team and the strength of our portfolio. So we're in a market which is experiencing some of the softness this market is, we're doing actually really, really well relative to the competition, so I'm very familiar with what you're referencing there. We, too, are seeing some softness in shotshell, particularly some of the premium offerings that we are seeing some softening for in centerfire rifle. We're also seeing a continued softening in the Lake City product which is 5.56 and .223. But we're seeing strong demand continue in pistol products and rimfire, in particular. So we do have a mix issue similar to what they described in terms of some being up and some being down. I think this market is still going through a process of finding a stability point. As I've mentioned previously, and Steven, maybe you missed it, is it appears that last year, 2013 was the peak year for the shooting sports. So there's some correction going on. We're doing very well, I think, navigating our way through that correction. And this is a long-term growth industry. I remain completely convinced that the sporting business and outdoor recreation will be a long-term growth industry and we're anxious to participate in that long-term growth with what we think is the best portfolio on the business.

Steven Cahall - RBC Capital Markets, LLC, Research Division

And in terms of volume, is your sense that this quarter was the bottom, the quarter maybe the bottom of ammo the next couple of quarters or is it a little bit tough to call based on where we are in the market changes right now?

Mark W. DeYoung

Yes, it is too tough to call. My crystal ball isn't that clear, neither does anybody else's. So our goal is just to do everything we can do every day, every week, every month, every quarter, to maximize our opportunity to grow. I believe we're taking market share. Part of our strategy in a down market is taking hold share. I think our numbers, when you compare us to the competition, demonstrate we're doing that, and I think that'll help us accelerate our growth as the market comes out, whatever correction occurs because we'll be in a very strong position at all levels in distribution. And I think we're executing that strategy really well.

Steven Cahall - RBC Capital Markets, LLC, Research Division

And maybe finally, just a broader investor question for you, Mark. It seems like the lawyers have had you locked in the room in the last few months. Are you going to be able to meet with investors over the next quarter? Or is this also conditional on filings getting in place?

Mark W. DeYoung

Yes, I would love to. I would love to meet in these quarters. We have intended to do some of that as you described and we had to cancel participation in some of those because of the blackout periods and being in the transaction period. So I have a great attorney, Scott Chaplin, and he does a tremendous job, so I trust him and his guidance. And he, too, would like to allow us to have as much conversation as possible with investors. We're just going to have to monitor that and work our way through any regulatory requirements that we have to satisfy. But I'm anxious to get back out there and meet at those conferences and speak to you all again. And when we can do that, I guarantee you, I will.

Operator

Our next question is from Gautam Khanna with Cowen & Company.

Gautam Khanna - Cowen and Company, LLC, Research Division

Mark, I think last quarter, you had provided some segment guidance anywhere for Sporting mid to high single digit, and I just wondered if you could update us given the decline we saw in Q2, what you're expecting for this year at Sporting?

Mark W. DeYoung

Yes. I think, Gautam, the key for us there is we've been outpacing the market. And as you know, we had a very strong first quarter where everybody else was already starting to see declines and that led us to be bullish that we could buck that trend a little further. I think we are bucking that trend. But as I said previously, you can't beat a market forever. So I think we will see more modest kind of numbers going forward in the rest of the year, as this market determines where it's going to settle out. Part of the challenge is the inventory build which has occurred both in wholesale and retail distribution, inventories have been building. And as we come to the end of the calendar year, a lot of the wholesalers, small retailers and mass merchants and regional chains will begin to manage their last quarter, the year from a cash perspective and an inventory perspective. So this could be a challenging quarter as they try to hold back on buying product and reduce their inventories and improve their cash positions to wrap up their fiscal years which most of them are on a calendar year. So there's all kinds of variables like that which could impact us. So I need to be cautious going forward because I'm not sure exactly how this is going to settle out. What I am sure of is we're going to beat all the competition and position ourselves for continued long-term growth, and we'll just have to keep you updated as we go forward on that.

Gautam Khanna - Cowen and Company, LLC, Research Division

May I follow up with -- you alluded to some potential that pricing feels pressure as your competitors seek to backfill whatever volume shortfalls are seen. Have you seen any evidence of that? And if you could just comment on outside of the 5.56, .223, which you've talked about. And if you could comment on how the Sporting orders kind of fared during the quarter. Did you see any increase in cancellations and -- or -- and/or repricing of existing orders that run backlog?

Mark W. DeYoung

Okay, all right. All right, Gautam, let me take a shot at those. So in terms of pricing pressure, what typically happens and we're beginning to see this in the sporting market which is the area you're asking about, what typically happens is your weakest competitor begins to pull the only level they have, and that is price. And our weakest major competitor is doing that now. They're beginning to offer discounts, they're beginning to increase rebate programs, they're beginning to increase longer terms in terms of their payments for their product. So our weakest competitor, in my opinion, is showing their weakness and they're beginning to do some of those actions. We are avoiding that. We are avoiding any significant price declines which would erode the profitability of this business in this industry. So we are not responding in kind. We believe we have great products, great brands, great consumer awareness, great value. So we have not made substantial wholesale pricing adjustments, as you said, with the exception of what I've already previously disclosed with some pricing reductions we took on the Lake City product. So we will continue to monitor that. We obviously have to compete, but we don't believe we have to follow others who, frankly, are not leaders. And then in terms of Sporting orders, we did not see any substantial cancellations in the quarter. I think most of that truing-up of orders is behind us. I mentioned that in the fourth quarter and the first quarter, so it's a fair question for you to ask about the second quarter. I'm happy to tell you the second quarter did not see that, so I think we've got that behind us in the fourth and in the first quarter of this year. And we continue to see reasonable order flow. We have a strong backlog position still in Sporting. Although we don't break out backlog by group, we have a $7 billion backlog at the company level which we have maintained, and a solid backlog position still in Sporting across the portfolio of products. So all in all, I think we're doing very well managing and maneuvering through the variability in the market.

Gautam Khanna - Cowen and Company, LLC, Research Division

Okay. May I stick one in strictly on nonstandard ammo? Historically, that's been lower margins because you don't actually make it, if I recall. How should we think about the nonstandard ammo margins, if you will? Is it comparable to your overall defense margin, or how should we think about that?

Mark W. DeYoung

No, it's typically -- it typically is softer and I won't get into what that margin is. But your premise is correct. Nonstandard ammo is a sourcing contract. We source that for the U.S. government under an Army contract, we source it from a variety of countries which make non-U.S. specification ammo which is then provided to allies in Afghanistan or Iraq for other weapon system, so your memory is good. And it typically does have a lower margin because we don't have all the capital investment, we don't make the product, we simply source it and so we negotiate that contract and it's a competitively awarded contract with lower margins than the Defense Group margins.

Operator

Our next question comes from Howard Rubel with Jefferies.

Howard A. Rubel - Jefferies LLC, Research Division

Actually, I do want to follow up a little bit on Gautam's question. I mean, this is a bit of a nice drop in for you. Do you see some additional nonstandard ammo mark that's coming down the pike? I mean, has, in fact, the environment changed in a few cases where, not only nonstandard, but maybe even volumes at Lake City have changed?

Mark W. DeYoung

Yes -- no, Howard, that's really an interesting question. And your thought, I think, is absolutely correct. So it was a major -- that nonstandard ammo award is a major award. It was substantial dollars and we competed against other companies for it and won it. So it is an uptick, you're right about that. It is an uptick and there are more nonstandard ammo contracts in the pipeline and discussions I've had with our army customer which we will compete for. So that could give us some headroom here through the Lake City small caliber organization. And then also, if you look at our orders at Lake City now, our orders on DO3 have crept up between $250 million and $300 million now. So that's a little higher than we have predicted. So also in the FY '16 budget, if you look at the Defense budget, you'll see that there are some additional dollars being set aside for ammunition procurement accounts from what we otherwise might have previously expected. So there is a little bit of a rise coming back into some of that small caliber ammo volume both internationally and domestically.

Howard A. Rubel - Jefferies LLC, Research Division

And then to broaden the question a little bit and kind of talk about the 2 other small businesses, Aerospace and Defense, that you operate. One is, it looks like you've been able to open the aperture on some of your opportunities in NASA. And then just related, talk for a moment about what's going on in your supply chain for commercial aircraft. It looks like that was also a very nice uptick in the quarter.

Mark W. DeYoung

Yes. So let's start with your comment there, Howard, about NASA. I think we're doing very well in terms of our space programs. The execution is excellent. Blake Larson, of course, leads that group and has a great team of professionals with him. The SLS program is a major future program for us. We completed the Booster's critical design review as -- which you know is a big milestone. The qualification test firing for that should occur in early '15. So we're on track there. I think continuing on our solid rocket motor propulsion things, we're delivering lots of products for lots of flights. You heard some of that in my script. So that business, in terms of our propulsion business and our space business and NASA customer, in particular, I think is very healthy and doing well and certainly is stable. In terms of the Aero Structures business, that business, too, is doing very well. I couldn't be happier, frankly, with how that team is doing. The A350, A400, the Rolls-Royce, the Boeing 787, all of those are creating long-term revenue and income streams for our company out of our strategy and investments in commercial aerostructures. If you look at the A350, we've delivered now about 40 equivalent ship sets. The M400 (sic) [A400M], we've delivered 20 equivalent ship sets, so we're well on our way and understand how to make those parts. We recently ramped up the A350 to 3 equivalent units, 3 rate per month, 3 flight sets per month, so that was a significant ramp-up. We're going to ramp up again at around the first of the year to 4, so that's another significant ramp-up for Airbus A350. The 787 is a great win for us to be a partner with Boeing on their commercial side. As you know, we've worked with Boeing on the Defense side for years. So being able to do that composite work for them on 787 is exciting for us. We've officially been listed now as a fully qualified Boeing supplier on 787. So we continue, I think, to, frankly, do very well in commercial aero. Joint Strike Fighter is on schedule and on budget, so it's also doing very well out of that same facility. We've delivered almost 200 aircraft ship sets now on Joint Strike Fighter. So that business continues to grow and we have some very long-term programs which are all poised for growth. So our commercial aerostructures business is really performing well.

Operator

Our next question comes from Noah Poponak with Goldman Sachs.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Mark, on the -- going back to the topic of how much Sporting needs to reset organically, I think you made a comment about it potentially going back to '11 or '12 levels on an organic basis. And if I look at those numbers, the company did basically exactly $1 billion in fiscal '12. And if I add Savage and Bushnell to that, call it, $1.8 billion, to take the current run rate of $2.1 billion back to $1.8 billion, you're talking a 15% peak to trough organically and you would need to have a low double-digit organic revenue decline each of the next 4 or 5 quarters to have that happen. Is that kind of what we should all be thinking? Or was that comment much more of kind of a ballpark thought process?

Mark W. DeYoung

I would not ascribe -- I certainly would not ascribe -- I wouldn't model that. There's no way I would model that and use that as a predictive model because that was -- that's something that I'm hearing. I mentioned in my comments, I'm hearing that from others about their businesses. I'm not sure that's indicative of our business. I shared that with you to add color to that. I would not ascribe accuracy to that. I certainly would not use it as a predictive model for ATK's results, so I would caution you on that. Now we've done all the math you just did. I don't believe that's where we're headed, I don't believe that's what's going to happen. So I just want to make sure you understand that. We are seeing, if you look in the last couple of years, if you just go back and look at the 2-year trend, even through this correction which has been going on, we're basically at 11% kind of growth rate. This industry and ATK, in particular, has grown, as you know, tremendously over the last few years. I'm talking about stabilizing this industry into an ongoing, more reasonable growth rate and I think we will participate in that. So yes, I do not see us going to the levels you're calculating and we are not planning modeling those kinds of levels either. Competition may do that; we won't do that.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Okay, good. I guess the missing piece in what I've said would be the market share you've gained over that period of time. And so that would include that and you have a softer peak to trough?

Neal S. Cohen

Well, I think you're missing 2 things. You're missing the market share, but you're also missing the -- I think back to Mark's comments, even if you sort of re-center around a sort of a prior year, I think what Mark was talking about in this context -- in the context of sort of a long-term growth rate. So what I think you're also missing in your math is the long-term normalized growth rate that you would see the industry experience. And as Mark referenced that we talked about a little bit, we certainly know that we experienced exceptional growth in FY '14 where we saw 30% organic growth and which is why we shared that if you went back to FY '13, even in the softer conditions that Mark talked about in the second quarter, we still experienced double-digit organic growth per annum on a 2-year basis. So I think that's the other thing you're missing in your math.

Noah Poponak - Goldman Sachs Group Inc., Research Division

Right. But if I were just thinking about an organic reset and you were saying from today back to a certain year, the industry growth wouldn't be applicable in that thought process, right? That would just be after you've produced [ph] that?

Neal S. Cohen

No, I think what we're thinking is the industry growth would be applicable but at a long-term sustainable level. So I think we're just trying to sort of -- I don't think anyone knows the exact answer here, so we're all speculating. But we're thinking about, if you look back at all the numbers we've shared, we've had a double-digit organic growth rate in this company now for a decade. And we know that -- we'd certainly know that FY '14 well exceeded that, so we're trying to triangulate and just share back what those long-term double-digit growth rates would look like versus, perhaps, FY '13.

Mark W. DeYoung

And I think our portfolio now, I mean, there's another element here. Yes, we're taking market share every single quarter for the last couple of years. That continues to grow, and we've also significantly bolstered our offering, our product offering. We have more to offer, we have more to share in terms of our ability to support key customers both in wholesale and retail. We're a more important supplier than we were in the past. If you go back to those years, we're not that portfolio anymore, we're not that company anymore. So I think we've positioned ourselves to be much, much stronger going forward. So yes, I would definitely caution you not to model that thing back as a baseline. As Neal said, I don't think any of us know where it is, but the industry may continue to correct. We are going to continue to outpace that industry, and this will be long-term growth for us as we work our way through getting to the point where things settle out. So I'm very excited about the portfolio we put together, I'm very excited about the recent acquisitions of Bushnell and Savage. I'm really excited about the leadership team we've crafted through the integration with Bushnell and Savage. We've got some great leaders there. They're doing tremendous work. This is going to be a long-term growth business for us.

Noah Poponak - Goldman Sachs Group Inc., Research Division

No, no, it's very helpful. And I think taking the 15%-ish kind of peak to trough as definitively as you answered that kind of off the table, I think, is helpful in our ability to triangulate it. So one other thing I wanted to ask about totally separately is, you had the margin reset from the Lake City renewal. Can you talk about the opportunity to now improve productivity there and actually start to march that higher versus just -- should we be assuming that, that margin stays pretty flat for a while?

Mark W. DeYoung

Yes, we have a long history in the company. I think everywhere I've been in my career and I think this company, in general, has a long history of delivering exactly what you just supposed, and that is, over time, we find ways to make proper capital investments; we find ways to improve efficiency through our PES disciplines; we find ways to better manage our suppliers; we find ways to reduce scrap and waste in our factories. That will happen again at Lake City. I'm confident margins will improve over the long term at Lake City. It's a 7-year contract. We're early in that 7-year contract. We have a good leadership team there. The manager running Lake City is Kent Holiday. He worked for me 4 years. He and I were at Lake City together when I was running Lake City, and I have confidence in him. So although the margins are lower coming out of that competition, we will try to drive incremental margin improvement. I'm confident we'll find ways to do that. Part of that, of course, as some of you may have seen, is we're rightsizing the plant. We've taken cost cuts, we've reduced some staffing and the workforce there has been reduced to a more efficient and appropriate size for the volumes. We continue to work closely between Lake City and Sporting to offer commercial ammunition out of the Lake City capacity, which is available, and that helps the prime contract by absorbing overhead and adding efficiency and skilled workforce to the plant. So it was a great competition for us to win. It was a critical win. We're profitable there, and Kent and his team are continuing every single day to find ways to improve profitability and I'm confident that those rates will edge up.

Operator

Our next question is from George Shapiro with Shapiro Research.

George D. Shapiro - Shapiro Research

A couple of these and if you answered them before, I apologize. But did you give the -- how much Savage was down organically? I mean, I had last year, it was like $57 million in revenues, I don't know. Did you provide what it was this year?

Mark W. DeYoung

No. The only thing I said on Savage, George, that you missed was that we reported last quarter that NICS checks on long guns were down. And that as a result of that general market trend, Savage was also down. That business is really competitive, so I don't want to get into details about that business. But the other thing I said is I've looked at what our competitors are doing, I've seen our competitors' numbers and we don't look anything like what they look like. So in terms of our pressures, we are substantially better than what the competitors are reporting, and the Savage acquisition was, again, accretive in the quarter.

George D. Shapiro - Shapiro Research

Okay. And when you first bought Bushnell, you had stated that you thought it would be accretive by $1 a share out in fiscal '16. I mean, would you care to update what your thinking might be today?

Mark W. DeYoung

No, I'm not going to guide on any new accretive number for '16. I think the one thing we are doing is we're driving the integration plan. We are driving the synergies which we identified as part of that plan, and the team is doing a very good job managing those synergies and driving the integration to improve Bushnell's performance. You also, I'm sure, noticed that Bushnell's margin was double digit in quarter 2 at 10% which I'm really happy about. That's a significant margin improvement from the prior quarter so it shows we're making good progress and we're making and implementing good decisions. And the Bushnell acquisition was accretive in Q2 as well.

George D. Shapiro - Shapiro Research

Yes, on that 10% margin, is it correct if I would guess that the transition costs in there where somewhere around $4 million so you really did somewhat better than that?

Mark W. DeYoung

We don't disclose transition costs. I know, George, that's a little frustrating because I remember last quarter, you were trying to parse that out. And I know it would be helpful if we did, but we don't. So we can't do that for you. But the 10% margins are consistent with what I predicted we would get to and I'm happy we were able to deliver that.

George D. Shapiro - Shapiro Research

Okay. And then one simple one for Neal. If you could just provide what the cume adjustments were in the quarter?

Mark W. DeYoung

Please don't give Neal the simple ones. Give me the simple ones.

Neal S. Cohen

We don't have -- we're not going to provide that on the call. That will eventually be in the Q.

Operator

Our next question is from Herb Hardt with Monness, Crespi, Hardt.

Herbert A. Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division

In the past, this company has been very astute in terms of buybacks. You've done it at the right time over history. First question I have was, what's the authorization at the moment? Then the second question is, do you have any other components on the Antares other than the CASTOR?

Mark W. DeYoung

Okay. Let me start with your last question first. So our primary support of the Antares rocket is the CASTOR 30XL motor, so that is our contribution. And that motor, as you know, was qualified and tested. We were looking forward to seeing it fly, and of course, the launch didn't get that far. We never got to an ATK product in the launch because the first-stage issues appear to be the problem. So that is our key component on that. It's just the XL30 (sic) [30XL] motor. And then the other question you asked was about buyback, and we are still in a period of transaction discussion and so we can't talk about any of that. And I don't want to reference an authorization or any of those things now because we're in a period where we are locked up with this transaction that we're still in the middle of.

Operator

Next question is from David Strauss with UBS.

David E. Strauss - UBS Investment Bank, Research Division

Most of my questions have been asked, but on pension, you have the pension slide in the back. Obviously, you had the HATFA and it looks like you've taken on your CAS recovery expectations slightly for '15, but you lobbed off what you expected for '16 where I think you've previously guided to a big increase in CAS. Can you just talk about the impact of HATFA on your CAS recovery?

Neal S. Cohen

Yes, it's a good question. Yes, so we updated, you're correct, and the Highway Bill will, in fact, have a very small modest impact on the balance of '15 and it's built into our guidance. And -- but as far as going out to '16, there are variety of factors that are going to impact our final pension numbers, whether it's market performance, discount rates, whether or whether or not the new actuarial tables are adopted as well as HATFA. Clearly, as other parties had talked about, if HATFA were the only factor that would tend to lower recovery rates in FY '16, but there are number of other factors. And as we get a little closer to FY '16, we'll build in better information on that on the environment, on our returns, on interest rates as well as HATFA. And we'll update you guys -- we'll update the market on what we -- our best estimate when we give FY '16 guidance.

David E. Strauss - UBS Investment Bank, Research Division

Okay. My second question, on -- looking at your receivables balance, what exactly is going on there, the big bump-up year-to-date? And specifically, what went on with the A350 receivable in terms of timing on starting to broaden [ph] that down?

Neal S. Cohen

Yes, it's a good question. Receivables are up versus the start of the year now. They normally always go up during this time frame. This is a peak part of the year for us, so that's a normal trend. I think there are a couple of things I'd draw your attention to. We are, obviously, building the Sporting business out and now you have Bushnell and the numbers that you didn't have last year. And this is a peak period for the Sporting business getting ready for the fall market period, so that's partly driving the increase. We're building -- although we don't give specifics on each program, we're certainly building. Mark talked about, we've had lots of opportunity to build new opportunities in the Aero Structures business, including more work on the A350, so that does have a modest impact on receivables. We're working very, very hard to make sure that we are always being very focused on minimizing that impact, but that's sort of a good news story around sales and margin side and the opportunity for growth in the Aero Structures business. And we also had a little bit of timing primarily in the Defense Group on receivables. But at the same time, we're able to successfully collect a very important receivable with regard to the closeout of our pension liability at Radford. So that was a very important deliverable, and that was a very important accomplishment in the quarter.

David E. Strauss - UBS Investment Bank, Research Division

So Neal, when would we start to see the A350 receivable come down? Is that a fiscal '16 event, or is that more of '17, '18?

Neal S. Cohen

It's a fiscal -- and importantly, we wanted it to come down for the right reason, too. We're winning more business while also harvesting the investments we've made. And so we think that's a fiscal '17 phenomena.

Operator

We have a follow-up question from Steven Cahall with Royal Bank of Canada.

Steven Cahall - RBC Capital Markets, LLC, Research Division

Just a quick one on Bushnell. Since we don't have great historicals on this, I was wondering if you could just walk us through what the seasonality is. I think I've got it at $132 million in sales in the March quarter, that stepped down to $125 million in June and then up to $145 million in September. So just as I think about the December quarter, what is the seasonality impact there?

Mark W. DeYoung

There is some seasonality in that business. As most businesses are participating in the shooting sports, the third and fourth quarter -- our third and fourth quarter tend to be the strongest in those businesses as fall goods, we call it fall goods, season launches. Because of the rifle scope business that is within Bushnell, the RangeFinder business which is in Bushnell, the Primos business which is very much focused on hunting, the Gold Tip Arrow business is really a late summer, early fall business. So there are some peaks and cyclicality within the year associated around seasons and use of those products. So I'm not sure -- actually if you look at Bushnell's recent history, I'm not sure it's indicative of the future, so I want to be a little more general in my answer. But I do think that you'll see the fall good season be some of the stronger performing periods. Now golf, of course, is -- golf, of course, is a spring and summer. So the portfolio is very diverse. But I think in general, it's loaded a little more toward fall goods.

Operator

Ladies and gentlemen, at this time, this does conclude our question-and-answer session. I'd like to turn it back over to our speakers for any closing and additional remarks.

Mark W. DeYoung

Okay. Well, thank you all. We appreciate your interest in the company, we appreciate your great questions on the call today. I look forward to talking to you again in another quarter. Thank you.

Operator

This does conclude today's presentation. We appreciate everyone's participation.