UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

Form 8-K
_____________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event Reported): October 30, 2018  

Aerojet Rocketdyne Holdings, Inc.
(Exact Name of Registrant as Specified in Charter)

Delaware1-0152034-0244000
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification Number)

 

222 N. Pacific Coast Highway, Suite 500, El Segundo, California 90245
(Address of Principal Executive Offices) (Zip Code)

(310) 252-8100
(Registrant's telephone number, including area code)


(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 [   ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 [   ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 [   ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 [   ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [   ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 
 

Item 2.02. Results of Operations and Financial Condition.

Attached hereto as Exhibit 99.1 is the text of the registrant’s press release issued on October 30, 2018 in which Aerojet Rocketdyne Holdings, Inc. (the “Company”) reported financial results for the third quarter ended September 30, 2018.

As discussed in Exhibit 99.1, the press release contains forward-looking statements within the meaning of the federal securities laws. These statements reflect the present expectations of the Company’s management, and are subject to the limitations listed therein and in the Company’s other Securities and Exchange Commission reports, including that actual events or results may differ materially from those in the forward-looking statements.

The foregoing information (including Exhibit 99.1) is being furnished under “Item 2.02. Results of Operations and Financial Condition” and “Item 7.01. Regulation FD Disclosure.” Such information (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

The filing of this Report and the furnishing of this information pursuant to Items 2.02 and 7.01 (including Exhibit 99.1) do not mean that such information is material or that disclosure of such information is required.

Item 7.01. Regulation FD Disclosure.

See “Item 2.02. Results of Operations and Financial Condition” above.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.   Description 
99.1 Aerojet Rocketdyne Holdings, Inc.’s press release dated October 30, 2018 


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 Aerojet Rocketdyne Holdings, Inc.
   
  
Date: October 30, 2018By: /s/ Paul R. Lundstrom        
  Paul R. Lundstrom
  Vice President and Chief Financial Officer
  

EdgarFiling

EXHIBIT 99.1

Aerojet Rocketdyne Holdings, Inc. Reports Third Quarter 2018 Results

EL SEGUNDO, Calif., Oct. 30, 2018 (GLOBE NEWSWIRE) -- Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) today reported results for the third quarter ended September 30, 2018.

Financial Overview

Third quarter of 2018 compared with third quarter of 2017

First nine months of 2018 compared with first nine months of 2017

_________
* The Company provides Non-GAAP measures as a supplement to financial results presented in accordance with 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.

“2018 continues to be an outstanding year for Aerojet Rocketdyne,” said Eileen Drake, CEO and President of Aerojet Rocketdyne. “Free cash flow generation of $76 million through the first nine months and a year-to-date Adjusted EBITDAP margin of 13.6%, excluding the $43 million benefit of a change in environmental recovery, are a reflection of our continued focus on program execution and efficiency.” Aerojet Rocketdyne sales were up 3% in the quarter on an as-reported basis. Effective January 1, 2018, the Company adopted the new revenue recognition standard ASC 606. Using the previous accounting standard, sales would have been $513.2 million in the quarter, an increase of 6%.

Operations Review

Aerospace and Defense Segment

 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
        
 (In millions, except percentage amounts)
Net sales$497.2  $482.5  $1,453.2  $1,344.2 
Segment performance108.0  46.7  209.6  137.6 
Segment margin21.7% 9.7% 14.4% 10.2%
Segment margin before environmental remediation provision adjustments, retirement benefits, net, and unusual items (Non-GAAP measure)14.2% 11.0% 12.2% 11.2%
Components of segment performance:       
Aerospace and Defense income$70.7  $52.9  $176.8  $149.9 
Environmental remediation provision adjustments39.9  (0.5) 37.6  (1.6)
GAAP/Cost Accounting Standards (“CAS”) retirement benefits expense difference(2.6) (5.8) (4.8) (12.7)
Unusual items  0.1    2.0 
Aerospace and Defense total$108.0  $46.7  $209.6  $137.6 

Net sales were significantly impacted by the adoption of new revenue recognition guidance effective January 1, 2018, using the modified retrospective method. The primary impact of the new guidance was a change in the timing of revenue recognition on certain long-term contracts. Under this new guidance, the Company discontinued the use of the unit-of-delivery method on certain customer contracts and re-measured the performance obligations using the cost-to-cost method.

Segment performance during the three and nine months ended September 30, 2018, was significantly impacted by a one-time benefit of $43.0 million as a result of reaching a determination with the U.S. government that certain environmental expenditures are reimbursable under the Global Settlement (see discussion below).

Third quarter of 2018 compared with third quarter of 2017

Net sales in the three months ended September 30, 2018, would have been $511.6 million under the previous revenue recognition guidance which is $29.1 million higher than the net sales reported in the three months ended September 30, 2017, resulting from an increase of $47.1 million in defense programs primarily driven by increased deliveries on the Standard Missile, Guided Multiple Launch Rocket System (“GMLRS”), Terminal High Altitude Area Defense (“THAAD”), and Patriot Advanced Capability-3 (“PAC-3”) programs. The increase in net sales was partially offset by a decrease of $18.0 million in space programs primarily driven by a decrease in volume on the Commercial Crew Development program. The Atlas V program contributed sales of $9.1 million under the new revenue recognition guidance in the three months ended September 30, 2018, and sales of $29.6 million under the previous revenue recognition guidance in the three months ended September 30, 2018.

The increase in segment margin before environmental remediation provision adjustments, retirement benefits, net and unusual items was primarily driven by risk retirements on the RS-68 and RL-10 programs, partially offset by cost growth and performance issues in the current period on the Commercial Crew Development program.

During the three months ended September 30, 2018, we had $26.9 million of favorable changes in contract estimates on operating results before income taxes compared with favorable changes of $11.5 million during the three months ended September 30, 2017.

First nine months of 2018 compared with first nine months of 2017

Net sales in the nine months ended September 30, 2018, would have been $1,454.4 million under the previous revenue recognition guidance which is $110.2 million higher than the net sales reported in the nine months ended September 30, 2017, resulting from an increase of $164.4 million in defense programs primarily driven by increased deliveries on the Standard Missile, PAC-3, THAAD and GMLRS programs. The increase in net sales was partially offset by a decrease of $54.2 million in space programs primarily driven by performance issues on the Commercial Crew Development program. The Atlas V program contributed sales of $41.4 million under the new revenue recognition guidance in the nine months ended September 30, 2018, and sales of $74.2 million under the previous revenue recognition guidance in the nine months ended September 30, 2018.

The increase in the segment margin before environmental remediation provision adjustments, retirement benefits, net and unusual items was primarily due to the following: (i) risk retirements on the RS-68 program, (ii) favorable overhead rate performance, and (iii) cost growth and manufacturing inefficiencies in 2017 on electric propulsion contracts. These factors were partially offset by cost growth and performance issues in the current period on the Commercial Crew Development program and favorable contract performance on the THAAD program in 2017 as a result of risk retirements and cost reductions.

During the nine months ended September 30, 2018, we had $41.0 million of favorable changes in contract estimates on operating results before income taxes compared with favorable changes of $25.2 million during the nine months ended September 30, 2017.

Real Estate Segment

 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
        
 (In millions)
Net sales$1.6  $1.6  $4.8  $4.8 
Segment performance0.6  0.5  1.8  2.1 

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

Backlog

As of September 30, 2018, the Company’s total remaining performance obligations, which are also referred to as backlog, were $3.7 billion. The Company expects to recognize approximately 50%, or $1.9 billion, of the remaining performance obligations as sales over the next twelve months. A summary of the Company’s backlog is as follows:

 September 30,
2018
 December 31,
2017
    
 (In billions)
Funded backlog$1.6  $2.1 
Unfunded backlog2.1  2.5 
Total backlog$3.7  $4.6 

The Company’s adoption of the new revenue recognition guidance accelerated the timing of revenue recognition on some of the Company’s contracts, the adoption resulted in a $0.6 billion reduction in the Company’s backlog as of December 31, 2017. 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.

Environmental

On January 12, 1999, Aerojet Rocketdyne and the U.S. government reached a settlement agreement (“Global Settlement”) covering environmental costs associated with the Company’s Sacramento site and its former Azusa site. Pursuant to the Global Settlement, the Company can recover up to 88% of its environmental remediation costs through the establishment of prices for Aerojet Rocketdyne’s products and services sold to the U.S. government. Additionally, in conjunction with the sale of the EIS business in 2001, Aerojet Rocketdyne entered into an agreement (the “Northrop Agreement”) with Northrop Grumman Corporation (“Northrop”) whereby Aerojet Rocketdyne is reimbursed by Northrop for a portion of environmental expenditures eligible for recovery under the Global Settlement, subject to an annual billing limitation of $6.0 million and a cumulative limitation of $189.7 million.

The cumulative expenditure limitation of $189.7 million under the Northrop Agreement was reached in June 2017. At that time, the Company was uncertain of the allowability and allocability of additional expenditures above that cumulative limitation and therefore did not recognize a recoverable asset for such amounts. During the three months ended September 30, 2018, the Company reached a determination with the U.S. government that these expenditures are reimbursable under the Global Settlement and therefore recorded a one-time benefit of $43.0 million to recognize the recoverability of environmental expenditures at a rate of 88%.

The impact of environmental reserves and recoveries to the unaudited condensed consolidated statements of operations is set forth below:

 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
        
 (In millions)
(Benefit) expense to unaudited condensed consolidated statement of operations$(39.8) $0.5  $(37.0) $2.2 

Income Taxes

In the nine months ended September 30, 2018, the income tax provision was $39.8 million for an effective tax rate of 25.9%. The Company’s effective tax rate differed from the 21% statutory federal income tax rate primarily due to state income taxes and certain expenditures which are permanently not deductible for tax purposes, partially offset by the impact of research and development credits.

The current income taxes payable as of September 30, 2018, was $130.3 million compared with $0.8 million as of December 31, 2017. The significant increase in the current income taxes payable during this reporting period relates to the impact of the Company’s adoption of the new revenue recognition guidance on January 1, 2018. This increase in current income taxes payable was offset with an increase in deferred tax assets, resulting in no net impact to the Company’s income tax provision. In anticipation of the increase to the payable, the Company filed a non-automatic accounting method change request, Form 3115 Application for Change in Accounting Method, with the Internal Revenue Service (“IRS”) during the three months ended March 31, 2018. As of the reporting period ended September 30, 2018, the IRS had not responded to the Company’s request; however, subsequent to this reporting period, the Company was informed by the IRS that it would not provide a ruling as the U.S. Treasury is currently preparing Treasury Regulations that may provide guidance on this matter. The Company believes that the increase in the current income taxes payable is an unintended consequence of the new revenue recognition guidance and if the matter is not adequately addressed through such Treasury Regulations, the Company will further pursue the matter with the IRS.

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 could 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.

Contact information:
Investors: Paul R. Lundstrom, vice president and chief financial officer 310.252.8142

 
 
Aerojet Rocketdyne Holdings, Inc. 
Unaudited Condensed Consolidated Statement of Operations
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
        
 (In millions, except per share amounts)
Net sales$498.8  $484.1  $1,458.0  $1,349.0 
Operating costs and expenses:       
Cost of sales (exclusive of items shown separately below)400.7  403.8  1,197.0  1,113.8 
Selling, general and administrative expense13.0  17.5  30.8  40.7 
Depreciation and amortization18.1  18.6  53.5  54.0 
Other (income) expense, net:       
Environmental remediation provision adjustments(39.8) 0.5  (37.0) 2.2 
Other(1.5) 0.1  (2.2) (1.2)
Total operating costs and expenses390.5  440.5  1,242.1  1,209.5 
Operating income108.3  43.6  215.9  139.5 
Non-operating (income) expense:       
Retirement benefits expense14.4  18.3  43.2  54.9 
Interest income(2.8) (1.0) (6.4) (2.3)
Interest expense9.1  7.7  25.5  22.9 
Total non-operating expense, net20.7  25.0  62.3  75.5 
Income before income taxes87.6  18.6  153.6  64.0 
Income tax provision22.6  6.0  39.8  21.2 
Net income$65.0  $12.6  $113.8  $42.8 
Earnings Per Share of Common Stock      
Basic       
Basic net income per share$0.85  $0.17  $1.50  $0.57 
Diluted       
Diluted net income per share$0.82  $0.17  $1.47  $0.57 
Weighted average shares of common stock outstanding, basic74.7  73.5  74.2  72.8 
Weighted average shares of common stock outstanding, diluted77.3  73.9  75.9  73.0 
 

The Company adopted the new revenue recognition guidance effective January 1, 2018, using the modified retrospective method, with the cumulative effect recognized during the three months ended March 31, 2018. The primary impact of the new guidance was a change in the timing of revenue recognition on certain long-term contracts in the Company’s Aerospace and Defense segment. The new guidance does not change the total sales or operating income on the related customer contracts, only the timing of when sales and operating income are recognized. Under this new guidance, the Company discontinued the use of the unit-of-delivery method on certain customer contracts and re-measured the performance obligations using the cost-to-cost method. The unit-of-delivery method was utilized for 48% of net sales for the year ended December 31, 2017. The cumulative impact of adoption was $37.6 million.

The following tables summarize the effect of adoption of the new revenue recognition standard on the Company’s unaudited Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2018.

 
Aerojet Rocketdyne Holdings, Inc. 
Unaudited Condensed Consolidated Statement of Operations 
 Three months ended September 30, 2018
 As Reported Effect of
Adoption
 Amounts
Excluding Effect
of Adoption
      
 (In millions, except per share amounts)
Net sales$498.8  $14.4  $513.2 
Operating costs and expenses:     
Cost of sales (exclusive of items shown separately below)400.7  16.6  417.3 
Selling, general and administrative expense13.0    13.0 
Depreciation and amortization18.1    18.1 
Other income, net:     
Environmental remediation provision adjustments(39.8)   (39.8)
Other(1.5)   (1.5)
Total operating costs and expenses390.5  16.6  407.1 
Operating income108.3  (2.2) 106.1 
Non-operating (income) expense:     
Retirement benefits expense14.4    14.4 
Interest income(2.8)   (2.8)
Interest expense9.1    9.1 
Total non-operating expense, net20.7    20.7 
Income before income taxes87.6  (2.2) 85.4 
Income tax provision22.6  (0.5) 22.1 
Net income$65.0  $(1.7) $63.3 
Earnings Per Share of Common Stock    
Basic     
Basic net income per share$0.85  $(0.02) $0.83 
Diluted     
Diluted net income per share$0.82  $(0.02) $0.80 
Weighted average shares of common stock outstanding, basic74.7    74.7 
Weighted average shares of common stock outstanding, diluted77.3    77.3 
 


 
Aerojet Rocketdyne Holdings, Inc. 
Unaudited Condensed Consolidated Statement of Operations 
 Nine months ended September 30, 2018
 As Reported Effect of
Adoption
 Amounts
Excluding Effect
of Adoption
      
 (In millions, except per share amounts)
Net sales$1,458.0  $1.2  $1,459.2 
Operating costs and expenses:     
Cost of sales (exclusive of items shown separately below)1,197.0  14.8  1,211.8 
Selling, general and administrative expense30.8    30.8 
Depreciation and amortization53.5    53.5 
Other income, net:     
Environmental remediation provision adjustments(37.0)   (37.0)
Other(2.2)   (2.2)
Total operating costs and expenses1,242.1  14.8  1,256.9 
Operating income215.9  (13.6) 202.3 
Non-operating (income) expense:     
Retirement benefits expense43.2    43.2 
Interest income(6.4)   (6.4)
Interest expense25.5    25.5 
Total non-operating expense, net62.3    62.3 
Income before income taxes153.6  (13.6) 140.0 
Income tax provision39.8  (3.6) 36.2 
Net income$113.8  $(10.0) $103.8 
Earnings Per Share of Common Stock    
Basic     
Basic net income per share$1.50  $(0.13) $1.37 
Diluted     
Diluted net income per share$1.47  $(0.13) $1.34 
Weighted average shares of common stock outstanding, basic74.2    74.2 
Weighted average shares of common stock outstanding, diluted75.9    75.9 
 


 
Aerojet Rocketdyne Holdings, Inc. 
Unaudited Operating Segment Information 
 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
        
 (In millions)
Net Sales:       
Aerospace and Defense$497.2  $482.5  $1,453.2  $1,344.2 
Real Estate1.6  1.6  4.8  4.8 
Total Net Sales$498.8  $484.1  $1,458.0  $1,349.0 
Segment Performance:       
Aerospace and Defense$70.7  $52.9  $176.8  $149.9 
Environmental remediation provision adjustments39.9  (0.5) 37.6  (1.6)
GAAP/CAS retirement benefits expense difference(2.6) (5.8) (4.8) (12.7)
Unusual items  0.1    2.0 
Aerospace and Defense Total108.0  46.7  209.6  137.6 
Real Estate0.6  0.5  1.8  2.1 
Total Segment Performance$108.6  $47.2  $211.4  $139.7 
Reconciliation of segment performance to income before income taxes:       
Segment performance$108.6  $47.2  $211.4  $139.7 
Interest expense(9.1) (7.7) (25.5) (22.9)
Interest income2.8  1.0  6.4  2.3 
Stock-based compensation expense(6.2) (11.0) (12.9) (21.2)
Corporate retirement benefits expense(3.3) (5.0) (9.9) (15.0)
Corporate and other expense, net(5.0) (5.9) (15.7) (17.9)
Unusual items(0.2)   (0.2) (1.0)
Income before income taxes$87.6  $18.6  $153.6  $64.0 
 

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 
 September 30,
2018
 December 31,
2017
    
 (In millions)
ASSETS
Current Assets   
Cash and cash equivalents$608.6  $535.0 
Marketable securities3.0  20.0 
Accounts receivable189.0  64.5 
Contract assets195.9  268.1 
Other current assets, net126.1  129.1 
Total Current Assets1,122.6  1,016.7 
Noncurrent Assets   
Property, plant and equipment, net386.5  359.0 
Recoverable environmental remediation costs257.8  231.1 
Deferred income taxes228.9  145.8 
Goodwill161.3  161.3 
Intangible assets75.3  85.5 
Other noncurrent assets, net260.2  259.3 
Total Noncurrent Assets1,370.0  1,242.0 
Total Assets$2,492.6  $2,258.7 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities   
Current portion of long-term debt$271.1  $25.0 
Accounts payable86.2  100.9 
Reserves for environmental remediation costs39.6  35.2 
Contract liabilities195.9  276.8 
Other current liabilities315.2  156.9 
Total Current Liabilities908.0  594.8 
Noncurrent Liabilities   
Long-term debt356.4  591.4 
Reserves for environmental remediation costs295.8  306.2 
Pension benefits360.6  492.8 
Other noncurrent liabilities175.4  171.1 
Total Noncurrent Liabilities1,188.2  1,561.5 
Total Liabilities2,096.2  2,156.3 
Commitments and contingencies   
Stockholders’ Equity   
Common stock7.7  7.4 
Other capital556.3  503.1 
Treasury stock at cost(12.7) (64.5)
Retained earnings (accumulated deficit)80.4  (71.0)
Accumulated other comprehensive loss, net of income taxes(235.3) (272.6)
Total Stockholders’ Equity396.4  102.4 
Total Liabilities and Stockholders’ Equity$2,492.6  $2,258.7 
 


 
Aerojet Rocketdyne Holdings, Inc. 
Unaudited Condensed Consolidated Statements of Cash Flows 
 Nine months ended September 30,
 2018 2017
    
 (In millions)
Operating Activities   
Net income$113.8  $42.8 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization53.5  54.0 
Amortization of debt discount and deferred financing costs6.6  6.3 
Stock-based compensation12.9  21.2 
Retirement benefits, net10.4  (16.2)
Insurance proceeds(1.9)  
Other, net  0.3 
Changes in assets and liabilities, net of effects from acquisition in 2017:   
Accounts receivable(95.1) (78.0)
Contract assets49.7  (21.9)
Other current assets, net13.1  8.1 
Recoverable environmental remediation costs(26.7) 14.3 
Other noncurrent assets0.6  (47.4)
Accounts payable(36.6) 28.1 
Contract liabilities(47.5) (29.5)
Other current liabilities20.4  (1.1)
Deferred income taxes24.7  23.5 
Reserves for environmental remediation costs(6.0) (15.3)
Other noncurrent liabilities and other5.1  36.7 
Net Cash Provided by Operating Activities97.0  25.9 
Investing Activities   
Purchases of marketable securities(47.7)  
Sales of marketable securities65.1   
Purchase of Coleman Aerospace  (17.0)
Insurance proceeds1.9   
Capital expenditures(20.9) (10.5)
Net Cash Used in Investing Activities(1.6) (27.5)
Financing Activities   
Debt issuance costs(3.3)  
Debt repayments(20.5) (15.0)
Repurchase of shares for withholding taxes and option costs under employee equity plans(2.6) (5.7)
Proceeds from shares issued under equity plans4.6  4.5 
Net Cash Used in Financing Activities(21.8) (16.2)
Net Increase (Decrease) in Cash and Cash Equivalents73.6  (17.8)
Cash and Cash Equivalents at Beginning of Period535.0  410.3 
Cash and Cash Equivalents at End of Period$608.6  $392.5 
 

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 (pension and postretirement benefits), significant non-cash expenses, the impacts of financing decisions on earnings, and items incurred outside the ordinary, ongoing and customary course of its operations. Accordingly, the Company defines Adjusted EBITDAP as GAAP net income adjusted to exclude income taxes, interest expense, interest income, depreciation and amortization, retirement benefits net of amounts that are recoverable under its U.S. government contracts, 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 September 30, Nine months ended September 30,
 2018 2017 2018 2017
        
 (In millions, except percentage amounts)
Net income$65.0  $12.6  $113.8  $42.8 
Income tax provision22.6  6.0  39.8  21.2 
Interest expense9.1  7.7  25.5  22.9 
Interest income(2.8) (1.0) (6.4) (2.3)
Depreciation and amortization18.1  18.6  53.5  54.0 
GAAP retirement benefits expense14.4  18.3  43.2  54.9 
CAS recoverable retirement benefits expense (1)(8.5) (7.5) (28.5) (27.2)
Unusual items0.2  (0.1) 0.2  (1.0)
Adjusted EBITDAP$118.1  $54.6  $241.1  $165.3 
Net income as a percentage of net sales13.0% 2.6% 7.8% 3.2%
Adjusted EBITDAP as a percentage of net sales23.7% 11.3% 16.5% 12.3%

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(1) Effective January 1, 2018, the Company changed the presentation of CAS recoverable retirement benefits expense to include recoverable expenses under all retirement benefits plans. Previously, the CAS recoverable retirement benefits expense included only cash funding to the Company’s tax-qualified defined benefit pension plan. This change was not significant to any of the prior periods, which have been reclassified to conform to the current year’s presentation.

The Company also provides the Non-GAAP financial measure of Free Cash Flow. 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 uses Free Cash Flow, both in presenting its results to stakeholders and the investment community, and in the Company’s internal evaluation and management of the business. Management believes that this financial measure is useful because it provides supplemental information to assist investors in viewing the business using the same tools that management uses to evaluate progress in achieving the Company’s goals (including under the annual cash and long-term compensation incentive plans).

 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
 (In millions)
Net cash provided by (used in) operating activities$72.5  $(11.8) $97.0  $25.9 
Capital expenditures(8.7) (4.4) (20.9) (10.5)
Free Cash Flow$63.8  $(16.2) $76.1  $15.4 

Because the Company’s method for calculating these 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.