Financial Overview
Third Quarter of Fiscal 2014 compared to Third Quarter of Fiscal 2013
First Nine Months of Fiscal 2014 compared to First Nine Months of Fiscal 2013
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* The Company provides Non-GAAP measures as a supplement to financial results based on accounting principles generally accepted in
"The third quarter was particularly notable as
"Our ongoing efforts integrating
Operations Review
Aerospace and Defense Segment
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2014 | 2013 | 2014 | 2013 | |
(In millions, except percentage amounts) | ||||
Net sales |
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Segment performance (Non-GAAP measure) | 22.7 | 22.7 | 65.5 | 64.6 |
Segment margin (Non-GAAP measure) | 5.4% | 6.2% | 5.7% | 7.2% |
Segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items (Non-GAAP measure) | 9.9% | 12.2% | 9.8% | 12.3% |
Components of segment performance: | ||||
Aerospace and Defense |
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Environmental remediation provision adjustments | (4.7) | (1.7) | (6.6) | (2.3) |
Retirement benefit plan expense | (6.1) | (11.3) | (18.3) | (32.8) |
Unusual items | (0.1) | (0.2) | (0.2) | (1.8) |
Rocketdyne purchase accounting adjustments not allocable to the Company's U.S. government contracts: | ||||
Amortization of the Rocketdyne Business' intangible assets | (3.0) | (2.3) | (9.0) | (2.3) |
Depreciation associated with the step-up in the fair value of the Rocketdyne Business' tangible assets | (3.5) | (5.2) | (9.2) | (5.2) |
Cost of sales associated with the step-up in the fair value of the Rocketdyne Business' inventory | (1.3) | (1.3) | (3.2) | (1.3) |
Aerospace and Defense total |
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The increase in net sales in the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013 was primarily due to increased deliveries on the Terminal High Altitude Area Defense ("THAAD"), Atlas V, and RL-10 programs generating
Three months ended August 31, | |||
2014 | 2013 | Change | |
(In millions) | |||
THAAD |
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Standard Missile | 47.1 | 62.9 | (15.8) |
Atlas V | 37.7 | 17.2 | 20.5 |
RL-10 | 37.1 | 26.3 | 10.8 |
Antares | (2.4) | 9.7 | (12.1) |
All other Aerospace and Defense programs | 248.5 | 244.3 | 4.2 |
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The decrease in segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items in the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013 was primarily due to
The increase in net sales in the first nine months of fiscal 2014 compared to the first nine months of fiscal 2013 was primarily due to sales from the Rocketdyne Business which was acquired on
Nine months ended August 31, | |||
2014 | 2013 | Change | |
(In millions) | |||
Aerojet | |||
Standard Missile |
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Atlas V | 78.8 | 63.1 | 15.7 |
Antares | 3.5 | 27.4 | (23.9) |
T3 IIA and IIB | 10.9 | 30.9 | (20.0) |
Extra week of sales in fiscal 2013 | — | 27.8 | (27.8) |
All other Aerojet programs | 394.6 | 376.9 | 17.7 |
Rocketdyne (1) | 522.5 | 136.8 | 385.7 |
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(1) Includes net sales beginning |
The decrease in the segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items in the first nine months of fiscal 2014 compared to the first nine months of fiscal 2013, was primarily due to
A summary of the Company's backlog is as follows:
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2013 |
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(In billions) | ||
Funded backlog |
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Unfunded backlog | 0.9 | 0.8 |
Total contract backlog |
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The increase in backlog from
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
The Rocketdyne Business integration costs incurred and capitalized through
Real Estate Segment
Sales and segment performance for the third quarter of fiscal 2014 were
Easton has continued several important actions during the third quarter of fiscal 2014 in a comprehensive effort to secure entitlements and permits thereby improving project visibility and decreasing financial risk for prospective buyers seeking to develop the property. These actions include investments in predevelopment activities that relate to the relocation of certain
Additional Information
Included in the loss from continuing operations before income taxes for the periods presented are as follows:
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2014 | 2013 | 2014 | 2013 | ||
(In millions) | |||||
Rocketdyne Business acquisition costs not allocable to the Company's U.S. government contracts: | |||||
Interest expense associated with financing of the Rocketdyne Business acquisition |
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Amortization of the Rocketdyne Business intangible assets | 3.0 | 2.3 | 9.0 | 2.3 | |
Depreciation associated with the step-up in the fair value of the Rocketdyne Business' tangible assets | 3.5 | 5.2 | 9.2 | 5.2 | |
Cost of sales associated with the step-up in the fair value of the Rocketdyne Business' inventory | 1.3 | 1.3 | 3.2 | 1.3 | |
Total Rocketdyne Business acquisition costs | 16.1 | 16.9 | 46.1 | 28.1 | |
Other costs | |||||
Retirement benefit expense | 8.9 | 16.5 | 26.7 | 48.5 | |
Environmental remediation provision adjustments | 5.4 | 1.9 | 8.0 | 5.4 | |
Loss on Antares AJ-26 program | 17.5 | 0.2 | 31.4 | 0.6 | |
Loss on debt repurchased | 9.8 | — | 60.6 | — | |
Stock-based compensation | 1.5 | 3.4 | 4.5 | 9.7 | |
Total other costs | 43.1 | 22.0 | 131.2 | 64.2 | |
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Share Repurchase Activity
During the first nine months of fiscal 2014, the Company repurchased 3.5 million of its common shares at a cost of
Debt Activity
As of
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2014 | 2013 | |
(In millions) | ||
Senior debt |
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Senior secured notes | 460.0 | 460.0 |
Convertible subordinated notes | 133.8 | 193.4 |
Delayed draw term loan | 89.0 | — |
Capital lease | 0.7 | 0.8 |
Total debt |
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As of
During the first nine months of fiscal 2014, the Company repurchased
Principal amount repurchased |
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Cash repurchase price | (119.9) |
Write-off of deferred financing costs | (0.3) |
Loss on 4 1/16% Debentures repurchased |
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Retirement Benefit Plans
As of
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2013 |
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(In millions) | ||
Defined benefit tax-qualified pension plans' assets |
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As of the last measurement date at
On
The funded status of the pension plans may be adversely affected by the investment experience of the plans' assets, by any changes in U.S. law and by changes in the statutory interest rates used by tax-qualified pension plans in the U.S. to calculate funding requirements. Accordingly, if the performance of the Company's plans' assets does not meet assumptions, if there are changes to the
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
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Unaudited Condensed Consolidated Statement of Operations | ||||
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2014 | 2013 | 2014 | 2013 | |
(In millions, except per share amounts) | ||||
Net sales |
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Operating costs and expenses: | ||||
Cost of sales (exclusive of items shown separately below) | 374.2 | 326.7 | 1,027.2 | 798.6 |
Selling, general and administrative | 9.7 | 14.1 | 28.1 | 39.9 |
Depreciation and amortization | 15.7 | 15.2 | 45.9 | 26.6 |
Other expense, net: | ||||
Loss on debt repurchased | 9.8 | — | 60.6 | — |
Other | 6.5 | 8.1 | 11.6 | 24.5 |
Total operating costs and expenses | 415.9 | 364.1 | 1,173.4 | 889.6 |
Operating income (loss) | 3.6 | 3.4 | (21.1) | 8.2 |
Non-operating (income) expense: | ||||
Interest income | — | — | — | (0.2) |
Interest expense | 14.0 | 12.4 | 39.0 | 36.2 |
Total non-operating expense, net | 14.0 | 12.4 | 39.0 | 36.0 |
Loss from continuing operations before income taxes | (10.4) | (9.0) | (60.1) | (27.8) |
Income tax (benefit) provision | (0.7) | (206.6) | 1.1 | (199.6) |
(Loss) income from continuing operations | (9.7) | 197.6 | (61.2) | 171.8 |
Income (loss) from discontinued operations, net of income taxes | 0.2 | (0.2) | (0.6) | (0.2) |
Net (loss) income |
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(Loss) Income Per Share of Common Stock | ||||
Basic | ||||
(Loss) income per share from continuing operations |
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Loss per share from discontinued operations, net of income taxes | — | — | (0.01) | — |
Net (loss) income per share |
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Diluted | ||||
(Loss) income per share from continuing operations |
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Loss per share from discontinued operations, net of income taxes | — | — | (0.01) | — |
Net (loss) income per share |
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Weighted average shares of common stock outstanding, basic | 56.9 | 59.7 | 58.2 | 59.5 |
Weighted average shares of common stock outstanding, diluted | 56.9 | 82.1 | 58.2 | 81.9 |
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Unaudited Operating Segment Information | ||||
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2014 | 2013 | 2014 | 2013 | |
(In millions) | ||||
Net Sales: | ||||
Aerospace and Defense |
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Real Estate | 1.5 | 1.6 | 4.6 | 4.2 |
Total Net Sales |
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Segment Performance: | ||||
Aerospace and Defense |
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Environmental remediation provision adjustments | (4.7) | (1.7) | (6.6) | (2.3) |
Retirement benefit plan expense | (6.1) | (11.3) | (18.3) | (32.8) |
Unusual items | (0.1) | (0.2) | (0.2) | (1.8) |
Aerospace and Defense Total | 22.7 | 22.7 | 65.5 | 64.6 |
Real Estate | 0.8 | 0.9 | 2.6 | 2.9 |
Total Segment Performance |
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Reconciliation of segment performance to loss from continuing operations before income taxes: | ||||
Segment performance |
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Interest expense | (14.0) | (12.4) | (39.0) | (36.2) |
Interest income | — | — | — | 0.2 |
Stock-based compensation expense | (1.5) | (3.4) | (4.5) | (9.7) |
Corporate retirement benefit plan expense | (2.8) | (5.2) | (8.4) | (15.7) |
Corporate and other | (5.8) | (5.0) | (15.5) | (16.7) |
Unusual items | (9.8) | (6.6) | (60.8) | (17.2) |
Loss from continuing operations before income taxes |
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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 on-going business operations. It is on this basis that management internally assesses the financial performance of its segments.
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Unaudited Condensed Consolidated Balance Sheet | |||
2014 |
2013 |
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(In millions) | |||
ASSETS | |||
Current Assets | |||
Cash and cash equivalents |
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Accounts receivable | 214.7 | 214.1 | |
Inventories | 132.3 | 105.9 | |
Recoverable from the U.S. government and other third parties for environmental remediation costs | 20.1 | 20.4 | |
Receivable from Northrop Grumman Corporation ("Northrop") | 6.0 | 6.0 | |
Other receivables, prepaid expenses and other | 26.7 | 22.4 | |
Income taxes | 13.4 | 12.6 | |
Deferred income taxes | 4.0 | 17.0 | |
Total Current Assets | 572.1 | 596.0 | |
Noncurrent Assets | |||
Property, plant and equipment, net | 370.6 | 374.7 | |
Real estate held for entitlement and leasing | 87.3 | 80.2 | |
Recoverable from the U.S. government and other third parties for environmental remediation costs | 83.6 | 88.7 | |
Receivable from Northrop | 74.0 | 72.0 | |
Deferred income taxes | 180.0 | 175.7 | |
Goodwill | 164.4 | 159.6 | |
Intangible assets | 125.6 | 135.7 | |
Other noncurrent assets, net | 92.1 | 72.7 | |
Total Noncurrent Assets | 1,177.6 | 1,159.3 | |
Total Assets |
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LIABILITIES, REDEEMABLE COMMON STOCK, AND SHAREHOLDERS' (DEFICIT) EQUITY | |||
Current Liabilities | |||
Short-term borrowings and current portion of long-term debt |
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Accounts payable | 115.4 | 122.5 | |
Reserves for environmental remediation costs | 35.0 | 36.6 | |
Postretirement medical and life insurance benefits | 7.2 | 7.3 | |
Advance payments on contracts | 122.4 | 104.4 | |
Other current liabilities | 216.4 | 206.0 | |
Total Current Liabilities | 501.9 | 479.7 | |
Noncurrent Liabilities | |||
Senior debt | 95.0 | 42.5 | |
Second-priority senior notes | 460.0 | 460.0 | |
Convertible subordinated notes | 133.6 | 193.2 | |
Other debt | 89.4 | 0.6 | |
Reserves for environmental remediation costs | 133.6 | 134.7 | |
Pension benefits | 248.3 | 261.7 | |
Postretirement medical and life insurance benefits | 57.1 | 59.3 | |
Other noncurrent liabilities | 79.3 | 73.8 | |
Total Noncurrent Liabilities | 1,296.3 | 1,225.8 | |
Total Liabilities | 1,798.2 | 1,705.5 | |
Commitments and contingencies | |||
Redeemable common stock | 0.2 | 0.2 | |
Shareholders' (Deficit) Equity | |||
Common stock | 5.9 | 5.9 | |
Other capital | 285.4 | 280.1 | |
Treasury stock | (64.5) | — | |
Accumulated deficit | (75.8) | (14.0) | |
Accumulated other comprehensive loss, net of income taxes | (199.7) | (222.4) | |
Total Shareholders' (Deficit) Equity | (48.7) | 49.6 | |
Total Liabilities, Redeemable Common Stock and Shareholders' (Deficit) Equity |
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Unaudited Condensed Consolidated Statements of Cash Flows | ||
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2014 | 2013 | |
(In millions) | ||
Operating Activities | ||
Net (loss) income |
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Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||
Loss from discontinued operations, net of income taxes | 0.6 | 0.2 |
Depreciation and amortization | 45.9 | 26.6 |
Amortization of debt discount and financing costs | 2.7 | 3.6 |
Stock-based compensation | 4.5 | 9.7 |
Retirement benefit expense | 26.7 | 48.5 |
Loss on debt repurchased | 60.6 | — |
Loss on bank amendment | 0.2 | — |
Loss on disposal of long-lived assets | 2.5 | 0.1 |
Tax benefit on stock-based awards | (1.5) | (0.1) |
Changes in assets and liabilities | (46.2) | (233.6) |
Net cash provided by continuing operations | 34.2 | 26.6 |
Net cash used in discontinued operations | (0.1) | (0.1) |
Net Cash Provided by Operating Activities | 34.1 | 26.5 |
Investing Activities | ||
Purchases of restricted cash investments | — | (470.0) |
Sale of restricted cash investments | — | 470.0 |
Purchase of Rocketdyne Business | 0.2 | (411.2) |
Purchases of investments | — | (0.5) |
Capital expenditures | (31.9) | (38.7) |
Net Cash Used in Investing Activities | (31.7) | (450.4) |
Financing Activities | ||
Proceeds from issuance of debt | 189.0 | 460.0 |
Debt issuance costs | (4.2) | (14.7) |
Debt repayments/repurchases | (165.0) | (2.0) |
Proceeds from shares issued under equity plans, net | (1.9) | 0.3 |
Purchase of treasury stock | (64.5) | — |
Tax benefit on stock-based awards | 1.5 | 0.1 |
Net Cash (Used in) Provided by Financing Activities | (45.1) | 443.7 |
Net (Decrease) Increase in Cash and Cash Equivalents | (42.7) | 19.8 |
Cash and Cash Equivalents at Beginning of Period | 197.6 | 162.1 |
Cash and Cash Equivalents at End of Period |
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Use of Unaudited 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, on-going 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, on-going 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, on-going and customary activities. Adjusted EBITDAP does not represent, and should not be considered an alternative to, net (loss) income, as determined in accordance with GAAP.
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2014 | 2013 | 2014 | 2013 | |
(In millions, except percentage amounts) | ||||
Loss from continuing operations before income taxes |
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Interest expense | 14.0 | 12.4 | 39.0 | 36.2 |
Interest income | — | — | — | (0.2) |
Depreciation and amortization | 15.7 | 15.2 | 45.9 | 26.6 |
Retirement benefit expense | 8.9 | 16.5 | 26.7 | 48.5 |
Unusual items | 9.9 | 6.8 | 61.0 | 19.0 |
Adjusted EBITDAP |
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Adjusted EBITDAP as a percentage of net sales | 9.1% | 11.4% | 9.8% | 11.4% |
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.
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2014 | 2013 | 2014 | 2013 | |
(In millions) | ||||
Cash provided by operating activities |
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Capital expenditures | (13.4) | (17.0) | (31.9) | (38.7) |
Free cash flow(1) |
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(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. |
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(In millions) | ||
Debt principal |
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Cash and cash equivalents | (154.9) | (181.9) |
Net debt |
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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: Investors:Source:Kathy Redd , vice president and chief financial officer 916.355.2361Ron Samborsky , vice president, investor relations 916.355.3610 Media:Glenn Mahone , vice president,communications 202.302.9941
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