Aerojet Rocketdyne Holdings
May 8, 2017

Aerojet Rocketdyne Holdings, Inc. Reports First Quarter 2017 Results

EL SEGUNDO, Calif., May 08, 2017 (GLOBE NEWSWIRE) -- Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) today reported results for the first quarter ended March 31, 2017.

Financial Overview

First quarter of fiscal 2017 compared to first quarter of fiscal 2016

______________
* 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 very excited to have announced the next phase of our Competitive Improvement Program and to have closed on the acquisition of Coleman Aerospace," said Eileen Drake, CEO and President of Aerojet Rocketdyne Holdings, Inc. "Our strong first quarter year over year growth in net sales is a reflection of our continued commitment to delivering on our programs. We look forward to continuing our affordability initiatives while maintaining a focus on strengthening our overall competitiveness and driving value for our various stakeholders."

Operations Review

Aerospace and Defense Segment

   Three months ended March 31,
   2017  2016
           
   (In millions, except percentage amounts)
Net sales  $403.7   $355.3 
Segment performance  34.7   29.9 
Segment margin  8.6%  8.4%
Segment margin before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure)  9.6%  10.1%
Components of segment performance:      
Aerospace and Defense   $38.7   $36.0 
Environmental remediation provision adjustments  (0.6)  (0.6)
Retirement benefits, net  (4.0)  (5.6)
Unusual items  0.6   0.1 
Aerospace and Defense total  $34.7   $29.9 
           

The increase in net sales in the first quarter of fiscal 2017 compared to the first quarter of fiscal 2016 was primarily due to the following: (i) an increase of $58.4 million in space programs primarily driven by the RS-25 program development and integration effort in support of the Space Launch System development program and increased deliveries on the Atlas V program during the first quarter of fiscal 2017 and (ii) a decrease of $8.3 million in defense programs primarily driven by the timing of deliveries on the Terminal High Altitude Area Defense ("THAAD") program.

Segment margin before environmental remediation provision adjustments, retirement benefits, net and unusual items decreased primarily due to current period cost growth as the Company continues to work toward resolving design challenges on electric propulsion contracts. In addition, as anticipated, the Company's increased sales were primarily on lower margin programs such as Atlas while the Company experienced decreased sales from the timing of higher margin programs such as THAAD.

Backlog

A summary of the Company's backlog is as follows:

  March 31,
2017
  December 31,
2016
          
   (In billions)
Funded backlog $2.2   $2.3 
Unfunded backlog 2.0   2.2 
Total contract backlog $4.2   $4.5 
          

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 March 31, 2017 total contract backlog, approximately 45%, or $1.9 billion, is expected to be filled within one year as compared to 38%, or $1.7 billion, at December 31, 2016. Backlog has declined from December 31, 2016 due to current period sales outpacing current period awards. This decline was anticipated and may continue as the Company recognizes sales under contracts with large multi-year awards, such as the $1.2 billion award for RS-25 engine restart received in November 2015 and continuing through November 2024. The nature and timing of large multi-year awards can create variability in the Company's funded and total contract backlog.

Real Estate Segment

  Three months ended March 31,
  2017 2016
       
  (In millions)
Net sales $1.6 $1.6
Segment performance 0.8 0.8
     

Net sales and segment performance consist primarily of rental property operations.

Additional Information

Costs included in income before income taxes for the periods presented are as follows:

 Three months ended March 31,
 2017 2016
        
 (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  
Depreciation associated with the fair value adjustments to tangible assets1.0  1.8 
Cost of sales associated with the step-up in the fair value of the Rocketdyne Business inventory0.1   0.1 
Total Rocketdyne Business acquisition costs4.1  4.9 
Other costs:   
Retirement benefits, net (1)9.0  10.3 
Environmental remediation provision0.8  0.3 
Interest expense7.4  11.1 
Loss on debt  0.3 
Stock-based compensation expense6.8  2.3 

______________
(1)  Retirement benefits are net of cash funding to the Company's tax-qualified defined benefit pension plan which are recoverable costs under its U.S. government contracts. The Company's recoverable tax-qualified pension costs in the first quarter of fiscal 2017 and 2016 totaled $9.3 million and $6.9 million, respectively.

Debt Activity

The Company's debt principal activity since December 31, 2016 was as follows:

 December 31,
2016
 Cash
Payments
 Non-cash
Equity
Conversion
  March 31, 2017
                 
 (In millions)
Term loan$390.0  $(5.0) $  $385.0 
2.25% Convertible Senior Notes300.0      300.0 
4 1/16% Convertible Subordinated Debentures35.6    (35.6)  
Total Debt and Borrowing Activity$725.6  $(5.0) $(35.6) $685.0 
                

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:

About Aerojet Rocketdyne Holdings, Inc.

Aerojet Rocketdyne Holdings, Inc., headquartered in El Segundo, California, is an innovative technology-based manufacturer of aerospace and defense products and systems, with a real estate segment that includes activities related to the entitlement, sale, and leasing of the company's excess real estate assets. More information can be obtained by visiting the company's website at www.aerojetrocketdyne.com.

      
Aerojet Rocketdyne Holdings, Inc.      
Unaudited Condensed Consolidated Statement of Operations     
   Three months ended March 31,
  2017  2016
          
  (In millions, except per share amounts)
Net sales $405.3   $356.9 
Operating costs and expenses:     
Cost of sales (exclusive of items shown separately below) 352.7   309.7 
Selling, general and administrative 18.5   11.6 
Depreciation and amortization 16.3   15.1 
Other expense, net 1.7   0.7 
Total operating costs and expenses 389.2   337.1 
Operating income 16.1   19.8 
Non-operating (income) expense:     
Loss on debt    0.3 
Interest income (0.5)  (0.2)
Interest expense 7.4   11.1 
Total non-operating expense, net 6.9   11.2 
Income before income taxes 9.2   8.6 
Income tax provision  3.3   3.5 
Net income $5.9   $5.1 
Earnings Per Share of Common Stock   
Basic and Diluted     
Net income per share $0.08   $0.08 
Weighted average shares of common stock outstanding, basic 72.3    63.0 
Weighted average shares of common stock outstanding, diluted 72.3   63.1 


      
Aerojet Rocketdyne Holdings, Inc.     
Unaudited Operating Segment Information     
  Three months ended March 31,
  2017  2016
          
  (In millions)
Net Sales:     
Aerospace and Defense $403.7   $355.3 
Real Estate 1.6   1.6 
Total Net Sales $405.3   $356.9 
Segment Performance:     
Aerospace and Defense $38.7   $36.0 
Environmental remediation provision adjustments (0.6)  (0.6)
Retirement benefits, net (1) (4.0)  (5.6)
Unusual items 0.6   0.1 
Aerospace and Defense Total 34.7   29.9 
Real Estate 0.8   0.8 
Total Segment Performance $35.5   $30.7 
Reconciliation of segment performance to income before income taxes:     
Segment performance $35.5   $30.7 
Interest expense (7.4)  (11.1)
Interest income 0.5   0.2 
Stock-based compensation expense (6.8)   (2.3)
Corporate retirement benefits (5.0)  (4.7)
Corporate and other expense, net (6.6)  (3.9)
Unusual items (1.0)  (0.3)
Income before income taxes $9.2   $8.6 

______________
(1)  Retirement benefits are net of cash funding to the Company's tax-qualified defined benefit pension plan which are recoverable costs under the Company's U.S. government contracts. The Company's recoverable tax-qualified pension costs in the first quarter of fiscal 2017 and 2016 totaled $9.3 million and $6.9 million, respectively.

The Company evaluates its operating segments based on several factors, of which the primary financial measure is segment performance. Segment performance represents net sales 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     
  March 31,
2017
  December 31,
2016
          
  (In millions)
ASSETS
Current Assets     
Cash and cash equivalents $382.1   $410.3 
Accounts receivable 202.2   136.4 
Inventories 160.4   185.1 
Recoverable from the U.S. government and other third parties for environmental remediation costs 23.2   25.2 
Receivable from Northrop Grumman Corporation ("Northrop") 6.0   6.0 
Other current assets, net 96.4   91.7 
Total Current Assets 870.3   854.7 
Noncurrent Assets     
Property, plant and equipment, net 361.4   366.0 
Real estate held for entitlement and leasing 92.3   91.8 
Recoverable from the U.S. government and other third parties for environmental remediation costs 237.7   239.8 
Receivable from Northrop 61.7   62.0  
Deferred income taxes 284.3   292.5 
Goodwill 159.9   158.1 
Intangible assets 95.5   94.4 
Other noncurrent assets, net 92.1   90.2 
Total Noncurrent Assets 1,384.9   1,394.8 
Total Assets $2,255.2   $2,249.5 
LIABILITIES, REDEEMABLE COMMON STOCK, AND STOCKHOLDERS' EQUITY
Current Liabilities     
Current portion of long-term debt $19.9   $55.6  
Accounts payable 98.2   96.2 
Reserves for environmental remediation costs 36.0   37.1 
Postretirement medical and life insurance benefits 5.2   5.2 
Advance payments on contracts 208.6   221.8 
Other current liabilities 181.7   167.8 
Total Current Liabilities 549.6   583.7 
Noncurrent Liabilities     
Long-term debt 604.9   608.0 
Reserves for environmental remediation costs 309.5   312.6 
Pension benefits 540.8   548.2 
Postretirement medical and life insurance benefits 36.7   37.4 
Other noncurrent liabilities 124.8   124.0 
Total Noncurrent Liabilities 1,616.7   1,630.2 
Total Liabilities 2,166.3   2,213.9 
Commitments and contingencies     
Redeemable common stock 0.1    1.1 
Stockholders' Equity     
Preference stock     
Common stock 7.3   6.9 
Other capital 495.2   456.9 
Treasury stock at cost (64.5)  (64.5)
Accumulated deficit (55.9)  (61.8)
Accumulated other comprehensive loss, net of income taxes (293.3)  (303.0)
Total Stockholders' Equity 88.8   34.5 
Total Liabilities, Redeemable Common Stock and Stockholders' Equity $2,255.2   $2,249.5 


       
Aerojet Rocketdyne Holdings, Inc.     
Unaudited Condensed Consolidated Statements of Cash Flows     
  Three months ended March 31,
  2017  2016
          
  (In millions)
Operating Activities     
Net income $5.9   $5.1 
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization 16.3   15.1 
Amortization of debt discount and deferred financing costs 2.1   0.6 
Stock-based compensation 6.8   2.3 
Retirement benefits, net 7.7   8.5 
Loss on debt    0.3 
Loss on disposal of long-lived assets 0.1    
Changes in assets and liabilities, net of effects from acquisition:     
Accounts receivable (54.3)  (12.8)
Inventories 24.7   (14.4)
Other current assets, net (4.4)   (1.6)
Real estate held for entitlement and leasing (0.6)  (1.2)
Receivable from Northrop 0.3   0.5 
Recoverable from the U.S. government and other third parties for environmental remediation costs 4.1   2.2 
Other noncurrent assets (3.1)  2.8 
Accounts payable 1.1    22.5 
Advance payments on contracts (13.2)  (30.1)
Other current liabilities 4.9   (23.3)
Deferred income taxes 2.3   (3.8)
Reserves for environmental remediation costs (4.2)  (3.0)
Other noncurrent liabilities and other 0.4   (1.4)
Net Cash Used in Operating Activities (3.1)  (31.7)
Investing Activities     
Purchase of Coleman Aerospace (15.0)   
Capital expenditures (2.7)  (7.7)
Net Cash Used in Investing Activities (17.7)  (7.7)
Financing Activities     
Debt repayments (5.0)   (14.4)
Repurchase of shares for withholding taxes and option costs under employee equity plans (4.7)  (0.7)
Proceeds from shares issued under equity plans 2.3   1.5 
Net Cash Used in Financing Activities (7.4)  (13.6)
Net Decrease in Cash and Cash Equivalents (28.2)  (53.0)
Cash and Cash Equivalents at Beginning of Period 410.3   208.5 
Cash and Cash Equivalents at End of Period $382.1    $155.5 
Supplemental disclosures of cash flow information     
Cash paid for interest $4.0   $17.7 
Cash paid for income taxes    12.7 
Conversion of debt to common stock 35.6    
        

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 measure its operating performance. The Company believes that to effectively compare core operating performance from period to period, 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 income before income taxes adjusted by interest expense, interest income, depreciation and amortization, retirement benefits, 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 income as determined in accordance with GAAP.

   
   Three months ended March 31,
  2017  2016
          
  (In millions, except percentage amounts)
Income before income taxes $9.2   $8.6 
Interest expense 7.4   11.1 
Interest income (0.5)  (0.2)
Depreciation and amortization 16.3   15.1 
Retirement benefits, net (1) 9.0   10.3 
Unusual items 0.4   0.2 
Adjusted EBITDAP $41.8   $45.1 
Adjusted EBITDAP as a percentage of net sales 10.3%  12.6%

______________
(1)  Retirement benefits are net of cash funding to the Company's tax-qualified defined benefit pension plan which are recoverable costs under the Company's U.S. government contracts. The Company's recoverable tax-qualified pension costs in the first quarter of fiscal 2017 and 2016 totaled $9.3 million and $6.9 million, respectively.

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 March 31,
  2017  2016
          
  (In millions)
Net Cash Used in Operating Activities $(3.1)  $(31.7)
Capital expenditures (2.7)  (7.7)
Free cash flow(1) $(5.8)  $(39.4 )

______________

(1) Free Cash Flow, a Non-GAAP financial measure, is defined as cash flow from operating activities less capital 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.

       
   March 31,
2017
  December 31,
2016
           
   (In millions)
Debt principal  $685.0   $725.6 
Cash and cash equivalents  (382.1)  (410.3)
Net debt  $302.9   $315.3 

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.

Contact information:



Investors:

Paul R. Lundstrom, vice president and chief financial officer  310.252.8142

Brendan King, vice president, investor relations  916.351.8618

Media:

Glenn Mahone, vice president, communications  202.302.9941

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Source: Aerojet Rocketdyne Holdings, Inc.

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