SACRAMENTO, Calif., Oct. 13, 2015 (GLOBE NEWSWIRE) -- Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) today reported results for the third quarter ended August 31, 2015.
Financial Overview
Third quarter of fiscal 2015 compared to third quarter of fiscal 2014
- Net sales for the third quarter of fiscal 2015 totaled $440.5 million compared to $421.2 million for the third quarter of fiscal 2014.
- Net loss for the third quarter of fiscal 2015 was $(38.1) million, or $(0.62) loss per share, compared to a net loss of $(9.9) million, or $(0.18) loss per share, for the third quarter of fiscal 2014. Net loss for the third quarter of fiscal 2015 included (i) a pre-tax expense of $50.0 million associated with a legal settlement and (ii) a pre-tax expense of $29.5 million associated with higher environmental remediation reserve requirements primarily at the Baldwin Park Operable Unit ("BPOU") site. Net loss for the third quarter of fiscal 2014 included (i) a pre-tax contract loss of $17.5 million on the Antares AJ-26 program and (ii) a pre-tax charge of $9.8 million related to the repurchase of $9.4 million of principal of the Company's 4.0625% Convertible Subordinated Debentures ("4 1/16% Debentures").
- Adjusted EBITDAP (Non-GAAP measure*) for the third quarter of fiscal 2015 was $34.8 million, or 7.9% of net sales, compared to $37.5 million, or 8.9% of net sales, for the third quarter of fiscal 2014.
- Segment performance (Non-GAAP measure*) before environmental remediation provision adjustments, retirement benefit plan expense, and unusual items was $54.9 million for the third quarter of fiscal 2015, compared to $33.7 million for the third quarter of fiscal 2014.
- Cash provided by operating activities in the third quarter of fiscal 2015 totaled $42.1 million, compared to $56.4 million in the third quarter of fiscal 2014.
- Free cash flow (Non-GAAP measure*) in the third quarter of fiscal 2015 totaled $33.6 million, compared to $43.0 million in the third quarter of fiscal 2014.
- As of August 31, 2015, the Company had $417.9 million in net debt (Non-GAAP measure*) compared to $516.3 million as of November 30, 2014.
- As of August 31, 2015, the Company had $2.6 billion of funded backlog compared to $2.2 billion as of November 30, 2014.
First nine months of fiscal 2015 compared to first nine months of fiscal 2014
- Net sales for the first nine months of fiscal 2015 totaled $1,216.0 million compared to $1,157.8 million for the first nine months of fiscal 2014. Sales for the first nine months of fiscal 2015 included $42.0 million related to the sale of 550 acres of land.
- Net loss for the first nine months of fiscal 2015 was $(23.6) million, or $(0.39) loss per share, compared to a net loss of $(63.1) million, or $(1.08) loss per share, for the first nine months of fiscal 2014. Net loss for the first nine months of fiscal 2015 included: (i) a pre-tax expense of $50.0 million associated with a legal settlement; (ii) an after-tax gain of $17.9 million related to the sale of 550 acres of land; and (iii) a pre-tax expense of $33.2 million associated with higher environmental remediation reserve requirements primarily at the BPOU site. Net loss for the first nine months of fiscal 2014 included (i) a pre-tax contract loss of $31.4 million on the Antares AJ-26 program and (ii) a pre-tax charge of $60.6 million related to the repurchase of $59.6 million of principal of the Company's 4 1/16% Debentures.
- Adjusted EBITDAP (Non-GAAP measure*) for the first nine months of fiscal 2015 was $155.8 million, or 12.8% of net sales, compared to $110.8 million, or 9.6% of net sales, for the first nine months of fiscal 2014.
- Segment performance (Non-GAAP measure*) before environmental remediation provision adjustments, retirement benefit expense, and unusual items was $166.1 million for the first nine months of fiscal 2015, compared to $91.0 million for the first nine months of fiscal 2014.
- Cash provided by operating activities in the first nine months of fiscal 2015 totaled $70.5 million, compared to $34.1 million in the first nine months of fiscal 2014. Cash provided by operating activities in the first nine months of fiscal 2015 included $40.0 million of proceeds related to the sale of 550 acres of land.
- Free cash flow (Non-GAAP measure*) in the first nine months of fiscal 2015 totaled $52.6 million, compared to $2.2 million in the first nine months of fiscal 2014.
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* The Company provides Non-GAAP measures as a supplement to financial results based on accounting principles generally accepted in the United States ("GAAP"). A reconciliation of the Non-GAAP measures to the most directly comparable GAAP measures is included at the end of the release.
"We are pleased with these third quarter results which reflect the continued focus on delivering program performance to our customers," said Eileen Drake, CEO and President of Aerojet Rocketdyne Holdings, Inc. "During the quarter, our ongoing efforts associated with our Competitive Improvement Program progressed with a focus on realizing the efficiency and reductions required to meet our affordability goals. Further, we recently reached a $50.0 million settlement on the Antares AJ-26 program with Orbital Sciences Corporation which definitizes future costs and eliminates the uncertainty associated with the Antares ORB-3 launch failure and the AJ-26 supply contract."
Operations Review
Aerospace and Defense Segment
| Three months ended August 31, | Nine months ended August 31, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (In millions, except percentage amounts) | ||||
| Net sales | $438.9 | $419.7 | $1,169.3 | $1,153.2 |
| Segment performance (Non-GAAP measure) | (37.8) | 22.0 | 13.5 | 63.3 |
| Segment margin (Non-GAAP measure) | (8.6)% | 5.2% | 1.2% | 5.5% |
| Segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items (Non-GAAP measure) | 13.6% | 9.7% | 12.9% | 9.5% |
| Components of segment performance: | ||||
| Aerospace and Defense | $59.9 | $40.7 | $150.4 | $109.8 |
| Environmental remediation provision adjustments | (29.4) | (4.7) | (32.7) | (6.6) |
| Retirement benefit plan expense | (12.3) | (6.1) | (37.1) | (18.3) |
| Unusual items | (50.1) | (0.1) | (49.4) | (0.2) |
| Rocketdyne purchase accounting adjustments not allocable to the Company's U.S. government contracts: | ||||
| Amortization of the Rocketdyne Business' intangible assets | (3.0) | (3.0) | (9.0) | (9.0) |
| Depreciation associated with the step-up in the fair value of the Rocketdyne Business' tangible assets | (2.8) | (3.5) | (8.4) | (9.2) |
| Cost of sales associated with the step-up in the fair value of the Rocketdyne Business' inventory | (0.1) | (1.3) | (0.3) | (3.2) |
| Aerospace and Defense total | $(37.8) | $22.0 | $13.5 | $63.3 |
The increase in net sales during the third quarter of fiscal 2015 compared to the third quarter of fiscal 2014 was primarily due to the following: (i) an increase of $20.7 million on the RS-25 program which is currently engaged in a significant development and integration effort in support of the National Aeronautics and Space Administration's Space Launch System ("SLS") development program; (ii) increased deliveries on the Terminal High Altitude Area Defense ("THAAD") program which generated $11.2 million in additional net sales; and (iii) an increase of $8.5 million in the various Standard Missile contracts primarily from increased deliveries as a result of transitioning the Standard Missile-3 Block IB contract from low-rate initial production to full-rate production. The increase in net sales was partially offset by (i) a decrease of $21.8 million in the RL-10 and RS-68 programs as a result of the timing of deliveries and costs incurred on these multi-year contracts and (ii) a decrease of $8.3 million on the J-2X program due to the successful completion of current J-2X development requirements. See net sales information below:
| Three months ended August 31, | |||
| 2015 | 2014 | Change | |
| (In millions) | |||
| Net sales: | |||
| Standard Missile | $55.6 | $47.1 | $8.5 |
| THAAD | 61.2 | 50.0 | 11.2 |
| RS-25 | 50.2 | 29.5 | 20.7 |
| RL-10 | 26.8 | 37.1 | (10.3) |
| RS-68 | 24.9 | 36.4 | (11.5) |
| Orion | 20.1 | 15.2 | 4.9 |
| J-2X | 4.1 | 12.4 | (8.3) |
| All other Aerospace and Defense programs | 196.0 | 192.0 | 4.0 |
| $438.9 | $419.7 | $19.2 | |
The increase in the segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items in the third quarter of fiscal 2015 compared to the third quarter of fiscal 2014 was primarily due to the settlement of the Antares AJ-26 program (see discussion below under "Legal Settlement"). The impact of the Antares AJ-26 program on the segment margin is as follows:
| Three months ended August 31, | |||
| 2015 | 2014 | Change | |
| (In millions) | |||
| Segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items (Non-GAAP measure) | $59.9 | $40.7 | $19.2 |
| (Income) loss on Antares AJ-26 program (1) | (11.2) | 17.5 | (28.7) |
| $48.7 | $58.2 | $(9.5) | |
|
______ |
|||
| (1) The Company incurred a $50.0 million legal settlement charge associated with the Antares AJ-26 program reported as an unusual item. See discussion below under "Legal Settlement." | |||
The increase in net sales for the first nine months of fiscal 2015 compared to the first nine months of fiscal 2014 was primarily due to the following: (i) an increase of $52.9 million on the RS-25 program which is currently engaged in a significant development and integration effort in support of the SLS development program; (ii) increased deliveries on the THAAD program which generated $32.7 million in additional net sales; and (iii) an increase of $29.5 million in the various Standard Missile contracts primarily from increased deliveries as a result of transitioning the Standard Missile-3 Block IB contract from low-rate initial production to full-rate production; and (iv) increased development work on the Orion program which generated $24.8 million in additional net sales. The increase in net sales was partially offset by (i) a decrease of $67.3 million in the RL-10 and RS-68 programs as a result of the timing of deliveries and costs incurred on these multi-year contracts and (ii) a decrease of $46.3 million on the J-2X program due to the successful completion of current J-2X development requirements. See net sales information below:
| Nine months ended August 31, | |||
| 2015 | 2014 | Change | |
| (In millions) | |||
| Net sales: | |||
| Standard Missile | $165.6 | $136.1 | $29.5 |
| THAAD | 158.2 | 125.5 | 32.7 |
| RS-25 | 131.4 | 78.5 | 52.9 |
| RS-68 | 76.3 | 108.9 | (32.6) |
| RL-10 | 71.8 | 106.5 | (34.7) |
| Orion | 52.4 | 27.6 | 24.8 |
| J-2X | 7.4 | 53.7 | (46.3) |
| All other Aerospace and Defense programs | 506.2 | 516.4 | (10.2) |
| $1,169.3 | $1,153.2 | $16.1 | |
The increase in the segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items for the first nine months of fiscal 2015 compared to the first nine months of fiscal 2014 was primarily due to the settlement of the Antares AJ-26 program (see discussion below under "Legal Settlement"). The impact of the Antares AJ-26 program on the segment margin is as follows:
| Nine months ended August 31, | |||
| 2015 | 2014 | Change | |
| (In millions) | |||
| Segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items (Non-GAAP measure) | $150.4 | $109.8 | $40.6 |
| (Income) loss on Antares AJ-26 program (1) | (7.9) | 31.4 | (39.3) |
| $142.5 | $141.2 | $1.3 | |
|
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| (1) The Company incurred a $50.0 million legal settlement charge associated with the Antares AJ-26 program reported as an unusual item. See discussion below under "Legal Settlement." | |||
AR1 Research and Development
Company-sponsored research and development ("R&D") expenses (reported as a component of cost of sales) are generally allocated among all contracts and programs in progress under U.S. government contractual arrangements. The Company's newest large liquid booster engine development project, the AR1, recorded $13.5 million of such costs during the first nine months of fiscal 2015. During the third quarter of fiscal 2015, the Company began separately reporting the portion of the engine development expenses associated with the AR1 project which are currently not allocated across all contracts and programs in progress under U.S. governmental contractual arrangements. The total of these recorded costs amounted to $10.5 million during the first nine months of fiscal 2015 bringing the aggregate total AR1 R&D costs incurred during the first nine months of fiscal 2015 to $24.0 million.
A summary of the Company's backlog is as follows:
|
August 31, 2015 |
November 30, 2014 |
|
| (In billions) | ||
| Funded backlog | $2.6 | $2.2 |
| Unfunded backlog | 0.4 | 0.9 |
| Total contract backlog | $3.0 | $3.1 |
Total backlog includes both funded backlog (unfilled orders for which funding is authorized, appropriated and contractually obligated by the customer) and unfunded backlog (firm orders for which funding has not been appropriated). Indefinite delivery and quantity contracts and unexercised options are not reported in total backlog. Backlog is subject to funding delays or program restructurings/cancellations which are beyond the Company's control. Of the Company's August 31, 2015 total contract backlog, approximately 50%, or $1.5 billion, is expected to be filled within one year.
As of August 31, 2015, the Company's funded backlog included $369.4 million on the Atlas V program, of which $118.2 million is expected to be filled within one year.
Real Estate Segment
| Three months ended August 31, | Nine months ended August 31, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (In millions) | ||||
| Net sales | $1.6 | $1.5 | $46.7 | $4.6 |
| Components of net sales: | ||||
| Land - cash | — | — | 40.0 | — |
| Land - promissory note | — | — | 2.0 | — |
| Rental property operations | 1.6 | 1.5 | 4.7 | 4.6 |
| Segment performance (Non-GAAP measure) | 0.9 | 0.8 | 33.4 | 2.6 |
| Components of segment performance: | ||||
| Segment performance related to land sale | $— | $— | $30.6 | $— |
| Segment performance from rental property operations | 0.9 | 0.8 | 2.8 | 2.6 |
| Real estate total | $0.9 | $0.8 | $33.4 | $2.6 |
During the second quarter of fiscal 2015, the Company finalized the sale of the Hillsborough land for a total purchase price of $57.0 million which was comprised of $46.7 million cash and $10.3 million of promissory notes. The total acreage covered by the Hillsborough land transaction was approximately 700 acres, of which approximately 550 acres was recognized as a sale in the second quarter of fiscal 2015. At the initial closing, the buyer paid $40.0 million cash and executed a $9.0 million promissory note secured by a first lien Deed of Trust on a portion of the sale property which resulted in a gain of $30.6 million in the second quarter of fiscal 2015. The $9.0 million promissory note secured by a first lien Deed of Trust is divided into two components: (i) a $3.0 million 7% promissory note payable 7 years after close of escrow, which includes a possible $1.0 million reduction in principal if the Company is unable to obtain the necessary road and utility approvals, and (ii) a $6.0 million 7% promissory note payable 7 years after close of escrow and only payable after certain environmental clearances associated with "Area 40" (discussed below) are obtained by the Company. The sale also included a $1.3 million non-interest bearing promissory note secured by a first lien Deed of Trust on a portion of the sale property associated with the location of future city roads. In addition, approximately 150 acres of this land, including a 50-acre portion known as "Area 40," was held back from the initial closing. Upon receipt of regulatory approvals, a closing will take place for the sale of the developable portions of such holdback acreage for a purchase price of $6.7 million in cash.
Additional Information
Costs included in loss from continuing operations before income taxes for the periods presented are as follows:
| Three months ended August 31, | Nine months ended August 31, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (In millions) | ||||
| Rocketdyne Business acquisition costs not allocable to the Company's U.S. government contracts: | ||||
| Amortization of the Rocketdyne Business intangible assets | $3.0 | $3.0 | $9.0 | $9.0 |
| Depreciation associated with the step-up in the fair value of the Rocketdyne Business' tangible assets | 2.8 | 3.5 | 8.4 | 9.2 |
| Cost of sales associated with the step-up in the fair value of the Rocketdyne Business' inventory | 0.1 | 1.3 | 0.3 | 3.2 |
| Total Rocketdyne Business acquisition costs | 5.9 | 7.8 | 17.7 | 21.4 |
| Other costs | ||||
| Retirement benefit expense | 16.6 | 8.9 | 50.0 | 26.7 |
| (Income) loss on Antares AJ-26 program | (11.2) | 17.5 | (7.9) | 31.4 |
| Environmental remediation provision adjustments | 29.5 | 5.4 | 33.2 | 8.0 |
| Legal settlement (see below) | 50.0 | — | 50.0 | — |
| Loss on debt repurchased | 1.1 | 9.8 | 1.8 | 60.6 |
| Stock-based compensation | 2.3 | 1.5 | 9.6 | 4.5 |
| Total other costs | 88.3 | 43.1 | 136.7 | 131.2 |
| $94.2 | $50.9 | $154.4 | $152.6 | |
Legal Settlement
On September 21, 2015, Aerojet Rocketdyne entered into a Settlement and Mutual Release Agreement (the "Agreement") with Orbital Sciences Corporation ("Orbital") pursuant to which the parties mutually agreed to a termination for convenience of the contract relating to the provision by Aerojet Rocketdyne of 20 AJ-26 liquid propulsion rocket engines to Orbital for the Antares program (the "Contract"). The Agreement also settles all claims the parties may have had against one another arising out of the Contract and the launch failure that occurred on October 28, 2014 of an Antares launch vehicle carrying the Cygnus ORB-3 service and cargo module ("ORB-3"). The ORB-3 launch vehicle was powered by two AJ-26 engines supplied to Orbital by Aerojet Rocketdyne. Under the terms of the Agreement, Aerojet Rocketdyne made a one-time payment of $50.0 million to Orbital on September 30, 2015, and Orbital transferred to Aerojet Rocketdyne title to the 10 engines remaining to be delivered under the Contract. Aerojet Rocketdyne is seeking reimbursement from its insurers of a portion of the settlement costs. The Company has accrued $50.0 million for this matter as of August 31, 2015.
Competitive Improvement Program
During the second quarter of fiscal 2015, the Company initiated a competitive improvement program (the "CIP") comprised of activities and initiatives aimed at reducing costs in order for the Company to continue to compete successfully. The CIP is composed of three major components: (i) facilities optimization and footprint reduction; (ii) product affordability; and (iii) reduced administrative and overhead costs. Under the CIP, the Company expects an estimated 500 headcount reduction in its total employee population. The Company currently estimates that it will incur restructuring and related costs over the next four years totaling approximately $110 million. A summary of the Company's CIP reserve activity for the first nine months of fiscal 2015 is shown below:
| Severance | Retention | Total | |
| (In millions) | |||
| February 28, 2015 | $— | $— | $— |
| Accrual established | 10.7 | 0.5 | 11.2 |
| May 31, 2015 | 10.7 | 0.5 | 11.2 |
| Accrual | 2.4 | 1.1 | 3.5 |
| August 31, 2015 | $13.1 | $1.6 | $14.7 |
The costs associated with the CIP will be a component of the Company's U.S. government forward pricing rates, and therefore, will be recovered through the pricing of the Company's products and services to the U.S. government. In addition to the employee-related CIP obligations, the Company incurred non-cash accelerated depreciation expense of $0.4 million in the first nine months of fiscal 2015 associated with changes in the estimated useful life of long-lived assets impacted by the CIP.
In addition, as part of the Company's ongoing effort to optimize business resources and achieve headcount reduction goals established through the CIP, the Company offered a Voluntary Reduction in Force ("VRIF") in July 2015 to its employees. In connection with the VRIF, the Company recorded a liability of $2.6 million in the third quarter of fiscal 2015, consisting of costs for severance, employee-related benefits and other associated expenses. These costs will be a component of the Company's U.S. government forward pricing rates, and therefore, will be recovered through the pricing of the Company's products and services to the U.S. government.
Debt Activity
The Company's debt activity during the first nine months of fiscal 2015 was as follows:
|
November 30, 2014 |
Cash Payments |
Non-cash Activity |
August 31, 2015 |
|
| (In millions) | ||||
| Term loan | $98.8 | $(3.8) | $— | $95.0 |
| 7 1/8% Second-Priority Senior Secured Notes | 460.0 | — | — | 460.0 |
| 4 1/16% Debentures | 133.6 | — | (49.0) | 84.6 |
| 2 1/4% Convertible Subordinated Debentures | 0.2 | — | — | 0.2 |
| Delayed draw term loan | 89.0 | (68.0) | — | 21.0 |
| Other debt | 0.6 | (0.2) | — | 0.4 |
| Total Debt and Borrowing Activity | $782.2 | $(72.0) | $(49.0) | $661.2 |
As of August 31, 2015, the Company had $156.5 million of available borrowings under its senior credit facility.
Forward-Looking Statements
This release may contain certain "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. Such statements in this release and in subsequent discussions with the Company's management are based on management's current expectations and are subject to risks, uncertainty and changes in circumstances, which cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. All statements contained herein and in subsequent discussions with the Company's management that are not clearly historical in nature are forward-looking and the words "anticipate," "believe," "expect," "estimate," "plan," and similar expressions are generally intended to identify forward-looking statements. A variety of factors could cause actual results or outcomes to differ materially from those expected and expressed in the Company's forward-looking statements. Some important risk factors that could cause actual results or outcomes to differ from those expressed in the forward-looking statements include, but are not limited to, the following:
- future reductions or changes in U.S. government spending;
- cancellation or material modification of one or more significant contracts;
- negative audit of the Company's business by the U.S. government;
- the difficulties to integrate the Rocketdyne Business into the Company's existing operations successfully or to realize the anticipated benefits of the acquisition including successful execution of the CIP plan;
- ability to manage effectively the Company's expanded operations;
- ability to manage effectively the Company's leverage and debt service obligations;
- the Company's international sales are subject to applicable laws relating to export controls, the violation of which could adversely affect its operations;
- cost overruns on the Company's contracts that require the Company to absorb excess costs;
- failure of the Company's subcontractors or suppliers to perform their contractual obligations;
- failure to secure contracts;
- failure to comply with regulations applicable to contracts with the U.S. government;
- failure to comply with applicable laws, including laws relating to export controls and anti-corruption or bribery laws;
- costs and time commitment related to potential acquisition activities;
- the Company's inability to adapt to rapid technological changes;
- failure of the Company's information technology infrastructure including a successful cyber-attack, accident or security breach that could result in disruptions to the Company's operations;
- product failures, schedule delays or other problems with existing or new products and systems;
- the release, or explosion, or unplanned ignition of dangerous materials used in the Company's businesses;
- loss of key qualified suppliers of technologies, components, and materials;
- the funded status of the Company's defined benefit pension plan and the Company's obligation to make cash contributions in excess of the amount that the Company can recover in its current period overhead rates;
- effects of changes in discount rates and actuarial estimates, actual returns on plan assets, and government regulations on defined benefit pension plans;
- the possibility that environmental and other government regulations that impact the Company become more stringent or subject the Company to material liability in excess of its established reserves;
- environmental claims related to the Company's current and former businesses and operations including the inability to protect or enforce previously executed environmental agreements;
- reductions in the amount recoverable from environmental claims;
- the results of significant litigation;
- occurrence of liabilities that are inadequately covered by indemnity or insurance;
- inability to protect the Company's patents and proprietary rights;
- business disruptions to the extent not covered by insurance;
- the earnings and cash flows of the Company's subsidiaries and the distribution of those earnings to the Company;
- the substantial amount of debt which places significant demands on the Company's cash resources and could limit the Company's ability to borrow additional funds or expand its operations;
- the Company's ability to comply with the financial and other covenants contained in the Company's debt agreements;
- risks inherent to the real estate market;
- changes in economic and other conditions in the Sacramento, California metropolitan area real estate market or changes in interest rates affecting real estate values in that market;
- additional costs related to the Company's discontinued operations;
- the loss of key employees and shortage of available skilled employees to achieve anticipated growth;
- a strike or other work stoppage or the Company's inability to renew collective bargaining agreements on favorable terms;
- fluctuations in sales levels causing the Company's quarterly operating results and cash flows to fluctuate;
- failure to maintain effective internal controls in accordance with the Sarbanes-Oxley Act; and
- those risks detailed in the Company's reports filed with the SEC.
About Aerojet Rocketdyne Holdings, Inc.
Aerojet Rocketdyne Holdings, Inc. is an innovative company delivering solutions that create value for its customers in the aerospace and defense markets. The company is a world-recognized aerospace and defense leader that provides propulsion and energetics to the space, missile defense and strategic systems, tactical systems and armaments areas, in support of domestic and international markets. Additional information about Aerojet Rocketdyne can be obtained by visiting our websites at www.Rocket.com and www.AerojetRocketdyne.com.
(Tables to follow)
| Aerojet Rocketdyne Holdings, Inc. | ||||
| Unaudited Condensed Consolidated Statement of Operations | ||||
| Three months ended August 31, | Nine months ended August 31, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (In millions, except per share amounts) | ||||
| Net sales | $440.5 | $421.2 | $1,216.0 | $1,157.8 |
| Operating costs and expenses: | ||||
| Cost of sales (exclusive of items shown separately below) | 373.3 | 376.5 | 1,026.4 | 1,034.4 |
| AR1 research and development | 8.3 | — | 10.5 | — |
| Selling, general and administrative | 11.5 | 9.7 | 39.6 | 28.1 |
| Depreciation and amortization | 16.1 | 15.8 | 48.2 | 46.4 |
| Other expense, net: | ||||
| Loss on debt repurchased | 1.1 | 9.8 | 1.8 | 60.6 |
| Legal settlement | 50.0 | — | 50.0 | — |
| Other | 29.3 | 6.5 | 33.1 | 11.6 |
| Total operating costs and expenses | 489.6 | 418.3 | 1,209.6 | 1,181.1 |
| Operating (loss) income | (49.1) | 2.9 | 6.4 | (23.3) |
| Non-operating (income) expense: | ||||
| Interest income | (0.1) | — | (0.2) | — |
| Interest expense | 11.9 | 14.0 | 38.5 | 39.0 |
| Total non-operating expense, net | 11.8 | 14.0 | 38.3 | 39.0 |
| Loss from continuing operations before income taxes | (60.9) | (11.1) | (31.9) | (62.3) |
| Income tax (benefit) provision | (22.2) | (1.0) | (7.5) | 0.2 |
| Loss from continuing operations | (38.7) | (10.1) | (24.4) | (62.5) |
| Income (loss) from discontinued operations, net of income taxes | 0.6 | 0.2 | 0.8 | (0.6) |
| Net loss | $(38.1) | $(9.9) | $(23.6) | $(63.1) |
| Loss Per Share of Common Stock | ||||
| Basic and diluted | ||||
| Loss per share from continuing operations | $(0.63) | $(0.18) | $(0.40) | $(1.07) |
| Income (loss) per share from discontinued operations, net of income taxes | 0.01 | — | 0.01 | (0.01) |
| Net loss per share | $(0.62) | $(0.18) | $(0.39) | $(1.08) |
| Weighted average shares of common stock outstanding, basic and diluted | 61.8 | 56.9 | 60.5 | 58.2 |
| Aerojet Rocketdyne Holdings, Inc. | ||||
| Unaudited Operating Segment Information | ||||
| Three months ended August 31, | Nine months ended August 31, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (In millions) | ||||
| Net Sales: | ||||
| Aerospace and Defense | $438.9 | $419.7 | $1,169.3 | $1,153.2 |
| Real Estate | 1.6 | 1.5 | 46.7 | 4.6 |
| Total Net Sales | $440.5 | $421.2 | $1,216.0 | $1,157.8 |
| Segment Performance: | ||||
| Aerospace and Defense | $54.0 | $32.9 | $132.7 | $88.4 |
| Environmental remediation provision adjustments | (29.4) | (4.7) | (32.7) | (6.6) |
| Retirement benefit plan expense | (12.3) | (6.1) | (37.1) | (18.3) |
| Unusual items | (50.1) | (0.1) | (49.4) | (0.2) |
| Aerospace and Defense Total | (37.8) | 22.0 | 13.5 | 63.3 |
| Real Estate | 0.9 | 0.8 | 33.4 | 2.6 |
| Total Segment Performance | $(36.9) | $22.8 | $46.9 | $65.9 |
| Reconciliation of segment performance to loss from continuing operations before income taxes: | ||||
| Segment performance | $(36.9) | $22.8 | $46.9 | $65.9 |
| Interest expense | (11.9) | (14.0) | (38.5) | (39.0) |
| Interest income | 0.1 | — | 0.2 | — |
| Stock-based compensation expense | (2.3) | (1.5) | (9.6) | (4.5) |
| Corporate retirement benefit plan expense | (4.3) | (2.8) | (12.9) | (8.4) |
| Corporate and other expense, net | (4.5) | (5.8) | (16.2) | (15.5) |
| Unusual items | (1.1) | (9.8) | (1.8) | (60.8) |
| Loss from continuing operations before income taxes | $(60.9) | $(11.1) | $(31.9) | $(62.3) |
The Company evaluates its operating segments based on several factors, of which the primary financial measure is segment performance. Segment performance represents net sales from continuing operations less applicable costs, expenses and unusual items relating to the segment operations. Segment performance excludes corporate income and expenses, unusual items not related to the segment operations, interest expense, interest income, and income taxes. The Company believes that segment performance provides information useful to investors in understanding its underlying operational performance. Specifically, the Company believes the exclusion of the items listed above permits an evaluation and a comparison of results for ongoing business operations. It is on this basis that management internally assesses the financial performance of its segments.
| Aerojet Rocketdyne Holdings, Inc. | ||||
| Unaudited Condensed Consolidated Balance Sheet | ||||
|
August 31, 2015 |
November 30, 2014 |
|||
| (In millions) | ||||
| ASSETS | ||||
| Current Assets | ||||
| Cash and cash equivalents | $243.3 | $265.9 | ||
| Accounts receivable | 186.7 | 172.9 | ||
| Inventories | 148.7 | 139.0 | ||
| Recoverable from the U.S. government and other third parties for environmental remediation costs | 23.2 | 19.4 | ||
| Receivable from Northrop Grumman Corporation ("Northrop") | 6.0 | 6.0 | ||
| Other current assets, net | 60.0 | 38.0 | ||
| Deferred income taxes | 19.4 | 25.3 | ||
| Total Current Assets | 687.3 | 666.5 | ||
| Noncurrent Assets | ||||
| Property, plant and equipment, net | 351.8 | 367.5 | ||
| Real estate held for entitlement and leasing | 84.2 | 94.4 | ||
| Recoverable from the U.S. government and other third parties for environmental remediation costs | 123.2 | 81.2 | ||
| Receivable from Northrop | 70.0 | 74.8 | ||
| Deferred income taxes | 253.6 | 259.0 | ||
| Goodwill | 164.4 | 164.4 | ||
| Intangible assets | 112.1 | 122.2 | ||
| Other noncurrent assets, net | 110.8 | 91.6 | ||
| Total Noncurrent Assets | 1,270.1 | 1,255.1 | ||
| Total Assets | $1,957.4 | $1,921.6 | ||
| LIABILITIES, REDEEMABLE COMMON STOCK, AND STOCKHOLDERS' DEFICIT | ||||
| Current Liabilities | ||||
| Short-term borrowings and current portion of long-term debt | $5.3 | $5.3 | ||
| Accounts payable | 88.7 | 103.5 | ||
| Reserves for environmental remediation costs | 37.6 | 31.9 | ||
| Postretirement medical and life insurance benefits | 6.4 | 6.4 | ||
| Advance payments on contracts | 211.7 | 198.5 | ||
| Other current liabilities | 241.3 | 221.7 | ||
| Total Current Liabilities | 591.0 | 567.3 | ||
| Noncurrent Liabilities | ||||
| Senior debt | 90.0 | 93.8 | ||
| Second-priority senior notes | 460.0 | 460.0 | ||
| Convertible subordinated notes | 84.8 | 133.8 | ||
| Other debt | 21.1 | 89.3 | ||
| Reserves for environmental remediation costs | 198.5 | 134.1 | ||
| Pension benefits | 471.7 | 482.8 | ||
| Postretirement medical and life insurance benefits | 49.4 | 51.7 | ||
| Other noncurrent liabilities | 98.1 | 79.7 | ||
| Total Noncurrent Liabilities | 1,473.6 | 1,525.2 | ||
| Total Liabilities | 2,064.6 | 2,092.5 | ||
| Commitments and contingencies | ||||
| Redeemable common stock | 0.1 | 1.6 | ||
| Stockholders' Deficit | ||||
| Preference stock | — | — | ||
| Common stock | 6.4 | 5.9 | ||
| Other capital | 339.6 | 287.3 | ||
| Treasury stock | (64.5) | (64.5) | ||
| Accumulated deficit | (90.6) | (67.0) | ||
| Accumulated other comprehensive loss, net of income taxes | (298.2) | (334.2) | ||
| Total Stockholders' Deficit | (107.3) | (172.5) | ||
| Total Liabilities, Redeemable Common Stock and Stockholders' Deficit | $1,957.4 | $1,921.6 | ||
| Aerojet Rocketdyne Holdings, Inc. | ||
| Unaudited Condensed Consolidated Statements of Cash Flows | ||
| Nine months ended August 31, | ||
| 2015 | 2014 | |
| (In millions) | ||
| Operating Activities | ||
| Net loss | $(23.6) | $(63.1) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||
| (Income) loss from discontinued operations, net of income taxes | (0.8) | 0.6 |
| Depreciation and amortization | 48.2 | 46.4 |
| Amortization of financing costs | 2.0 | 2.7 |
| Stock-based compensation | 9.6 | 4.5 |
| Retirement benefit expense | 50.0 | 26.7 |
| Loss on debt repurchased | 1.8 | 60.6 |
| Write-off of deferred financing costs associated with a bank amendment | — | 0.2 |
| Loss on disposal of long-lived assets | 0.2 | 2.5 |
| Tax benefit on stock-based awards | (2.0) | (1.5) |
| Changes in assets and liabilities | (14.9) | (45.4) |
| Net cash provided by continuing operations | 70.5 | 34.2 |
| Net cash used in discontinued operations | — | (0.1) |
| Net Cash Provided by Operating Activities | 70.5 | 34.1 |
| Investing Activities | ||
| Purchase of Rocketdyne Business | — | 0.2 |
| Capital expenditures | (17.9) | (31.9) |
| Net Cash Used in Investing Activities | (17.9) | (31.7) |
| Financing Activities | ||
| Proceeds from issuance of debt | — | 189.0 |
| Debt issuance costs | — | (4.2) |
| Debt repayments/repurchases | (72.0) | (165.0) |
| Repurchase of shares to satisfy tax withholding obligations | (6.5) | (1.9) |
| Proceeds from shares issued under stock plans | 1.3 | — |
| Purchase of treasury stock | — | (64.5) |
| Tax benefit on stock-based awards | 2.0 | 1.5 |
| Net Cash Used in Financing Activities | (75.2) | (45.1) |
| Net Decrease in Cash and Cash Equivalents | (22.6) | (42.7) |
| Cash and Cash Equivalents at Beginning of Period | 265.9 | 197.6 |
| Cash and Cash Equivalents at End of Period | $243.3 | $154.9 |
Use of Non-GAAP Financial Measures
In addition to segment performance (discussed above), the Company provides the Non-GAAP financial measure of its operational performance called Adjusted EBITDAP. The Company uses this metric to further its understanding of the historical and prospective consolidated core operating performance of its segments, net of expenses resulting from the Company's corporate activities in the ordinary, ongoing and customary course of its operations. Further, the Company believes that to effectively compare the core operating performance metrics from period to period on a historical and prospective basis, the metric should exclude items relating to retirement benefits, significant non-cash expenses, the impacts of financing decisions on the earnings, and items incurred outside the ordinary, ongoing and customary course of its operations. Accordingly, the Company defines Adjusted EBITDAP as GAAP loss from continuing operations before income taxes adjusted by interest expense, interest income, depreciation and amortization, retirement benefit expense, and unusual items which the Company does not believe are reflective of such ordinary, ongoing and customary activities. Adjusted EBITDAP does not represent, and should not be considered an alternative to, net loss, as determined in accordance with GAAP.
| Three months ended August 31, | Nine months ended August 31, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (In millions, except percentage amounts) | ||||
| Loss from continuing operations before income taxes | $(60.9) | $(11.1) | $(31.9) | $(62.3) |
| Interest expense | 11.9 | 14.0 | 38.5 | 39.0 |
| Interest income | (0.1) | — | (0.2) | — |
| Depreciation and amortization | 16.1 | 15.8 | 48.2 | 46.4 |
| Retirement benefit expense | 16.6 | 8.9 | 50.0 | 26.7 |
| Unusual items | 51.2 | 9.9 | 51.2 | 61.0 |
| Adjusted EBITDAP | $34.8 | $37.5 | $155.8 | $110.8 |
| Adjusted EBITDAP as a percentage of net sales | 7.9% | 8.9% | 12.8% | 9.6% |
In addition to segment performance and Adjusted EBITDAP, the Company provides the Non-GAAP financial measures of free cash flow and net debt. The Company uses these financial measures, both in presenting its results to stakeholders and the investment community, and in its internal evaluation and management of the business. Management believes that these financial measures are useful because it presents the Company's business using the same tools that management uses to gauge progress in achieving its goals.
| Three months ended August 31, | Nine months ended August 31, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (In millions) | ||||
| Cash provided by operating activities | $42.1 | $56.4 | $70.5 | $34.1 |
| Capital expenditures | (8.5) | (13.4) | (17.9) | (31.9) |
| Free cash flow(1) | $33.6 | $43.0 | $52.6 | $2.2 |
_______
(1) Free Cash Flow, a Non-GAAP financial measure, is defined as cash flow from operating activities less capital expenditures. Free Cash Flow excludes any mandatory debt service requirements and other non-discretionary expenditures. Free Cash Flow should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to cash flows from operations presented in accordance with GAAP. The Company believes Free Cash Flow is useful as it provides supplemental information to assist investors in viewing the business using the same tools that management uses to gauge progress in achieving the Company's goals.
|
August 31, 2015 |
November 30, 2014 |
|
| (In millions) | ||
| Debt principal | $661.2 | $782.2 |
| Cash and cash equivalents | (243.3) | (265.9) |
| Net debt | $417.9 | $516.3 |
Because the Company's method for calculating the Non-GAAP measures may differ from other companies' methods, the Non-GAAP measures presented above may not be comparable to similarly titled measures reported by other companies. These measures are not recognized in accordance with GAAP, and the Company does not intend for this information to be considered in isolation or as a substitute for GAAP measures.