Bulletin
Investor Alert

London Markets Open in:

July 27, 2020, 4:32 p.m. EDT

10-Q: AEROJET ROCKETDYNE HOLDINGS, INC.

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Unless otherwise indicated or required by the context, as used in this Quarterly Report on Form 10-Q, the terms "the Company," "we," "our" and "us" refer to Aerojet Rocketdyne Holdings, Inc. and all of its subsidiaries that are consolidated in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. In addition, our operating results for interim periods may not be indicative of the results of operations for a full year or future periods. This section contains a number of forward-looking statements, all of which are based on current expectations and are subject to risks and uncertainties including those described in this Quarterly Report under the heading "Forward-Looking Statements." Actual results may differ materially. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019, and periodic reports subsequently filed with the Securities and Exchange Commission ("SEC"). Overview Our operations are organized into two segments: Aerospace and Defense - includes the operations of our wholly-owned subsidiary Aerojet Rocketdyne, Inc. ("Aerojet Rocketdyne"), a leading technology-based designer, developer and manufacturer of aerospace and defense products and systems for the United States ("U.S.") government, including the Department of Defense ("DoD"), the National Aeronautics and Space Administration ("NASA"), and major aerospace and defense prime contractors. Real Estate - includes the activities of our wholly-owned subsidiary Easton Development Company, LLC ("Easton") related to the re-zoning, entitlement, sale, and leasing of our excess real estate assets. A summary of the significant financial highlights for the three and six months ended June 30, 2020 and 2019, which management uses to evaluate our operating performance and financial condition, is presented below. Three months ended June 30, Six Months ended June 30, 2020 2019 2020 2019 (In millions, except percentage and per share amounts) Net sales $ 512.4 $ 485.0 $ 988.5 $ 976.7 Net income 39.2 44.1 70.6 82.8 Net income as a percentage of net sales 7.7 % 9.1 % 7.1 % 8.5 % Adjusted Net Income (Non-GAAP measure*) 38.5 41.4 67.9 77.7 Adjusted Net Income (Non-GAAP measure*) as a percentage of net sales 7.5 % 8.5 % 6.9 % 8.0 % Earnings Per Share ("EPS") - Diluted 0.47 0.54 0.84 1.01 Adjusted EPS (Non-GAAP measure*) 0.46 0.50 0.81 0.95 Adjusted EBITDAP (Non-GAAP measure*) 76.3 78.4 138.7 149.4 Adjusted EBITDAP (Non-GAAP measure*) as a percentage of net sales 14.9 % 16.2 % 14.0 % 15.3 % Cash provided by operating activities 144.7 48.9 127.6 31.2 Free cash flow (Non-GAAP measure*) 131.5 43.5 111.4 24.3 _________ * We provide Non-GAAP measures as a supplement to financial results presented in accordance with GAAP. A reconciliation of the Non-GAAP measures to the most directly comparable GAAP measures is presented later in the Management's Discussion and Analysis under the heading "Use of Non-GAAP Financial Measures." Our business outlook is affected by both increasing complexity in the global security environment and continuing worldwide economic pressures, including those resulting from the coronavirus ("COVID-19") pandemic. A significant component of our strategy in this environment is to focus on protecting our employees' health and safety, delivering excellent performance to our customers, driving improvements and efficiencies across our operations, and creating value through the enhancement and expansion of our business. Some of the significant challenges we face are as follows: uncertainty associated with the COVID-19 pandemic and the actions taken by governments, companies, and individuals in response, dependence upon U.S. government programs and contracts, future reductions or changes in U.S. government spending in our markets, environmental matters, capital structure, underfunded retirement benefit plans, and cyber security.

COVID-19







                              Three months ended June 30,        Six months ended June 30,
                                2020               2019            2020              2019
        U.S. government           96 %               94 %            96 %               94 %
        Non U.S. government        4                  6               4                  6
        


The following table summarizes the percentages of net sales for significant programs, all of which are included in the U.S. government sales and are comprised of multiple contracts:







                                             Three months ended June 30,            Six months ended June 30,
                                              2020                 2019              2020                2019
        RS-25                                    19 %                 17 %              19 %                 16 %
        Standard Missile                         14                   15                13                   14
        Terminal High Altitude Area
        Defense ("THAAD")                        10                   11                11                   11
        


The following table summarizes customers that represented more than 10% of net sales, each of which involves sales of several product lines and programs:







                                              Three months ended June 30,            Six months ended June 30,
                                               2020                 2019              2020                2019
        Lockheed Martin Corporation               32 %                 30 %              33 %                 30 %
        NASA                                      23                   22                23                   21
        Raytheon Technologies Corporation         17                   20                17                   19
        United Launch Alliance                     *                   10                 *                   11
        ______
        


which includes DoD and NASA full-year appropriations bills for Government Fiscal Year 2020. Additionally, the U.S. government enacted the Coronavirus Aid, Relief & Economic Security ("CARES") Act on March 27, 2020, which provides $60 million of supplemental appropriations for NASA operational adjustments due to delays and center closures and an additional $2.45 billion for the DoD to support the defense industrial-base. There is no assurance that we will receive any benefit to our existing contracts from the CARES Act or other emergency support legislation. Disruptions to our customer's facilities or delays in supply chain as a result of COVID-19 could delay or decrease expenditures by U.S. government agencies. Such a decrease in DoD and/or NASA expenditures, the elimination or curtailment of a material program in which we are or hope to be involved, or changes in payment patterns of our customers as a result of changes in U.S. government outlays, could have a material adverse effect on our operating results, financial condition, and/or cash flows. Environmental Matters







                                                        Recoverable       Environmental      Estimated Range
                                                        Amounts (1)          Reserves         of Liability
                                                                          (In millions)
        Sacramento                                    $       179.7     $          204.1     $204.1 - $328.2
        Baldwin Park Operable Unit                             72.0                 81.9         81.9 - 97.5
        Other Aerojet Rocketdyne sites                          9.1                  9.1          9.1 - 19.6
        Other sites                                             0.7                  4.2           4.2 - 5.6
        Total                                         $       261.5     $          299.3     $299.3 - $450.9
        _____
        


Environmental remediation costs are primarily incurred by our Aerospace and Defense segment, and certain of these costs are recoverable from our contracts with the U.S. government. We currently estimate approximately 12% of our future Aerospace and Defense segment environmental remediation costs will not likely be reimbursable and are expensed.

attacks, and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential, personal or otherwise protected information (ours or that of our employees, customers or partners), and corruption of data, networks or systems. We also could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our partners' or customers' systems that are used in connection with our business.







        Net Sales:
                        Three months ended June 30,                         Six months ended June 30,
                           2020              2019           Change*           2020             2019          Change**
                                                               (In millions)
        Net sales    $         512.4     $     485.0     $      27.4     $       988.5     $     976.7     $     11.8
        


* Primary reason for change. The increase in net sales was primarily driven by the Guided Multiple Launch Rocket System ("GMLRS") and Medium Range Ballistic Missile ("MRBM") programs partially offset by a decline in the Redesigned Exoatmospheric Kill Vehicle ("RKV") program which was canceled in 2019. ** Primary reason for change. The increase in net sales was primarily driven by the GMLRS and RS-25 programs partially offset by a decline in the RKV program which was canceled in 2019.







                         Three months ended June 30,                         Six months ended June 30,
                           2020               2019          Change*           2020               2019          Change**
                                                   (In millions, except percentage amounts)
        Cost of sales
        (exclusive of
        items shown
        separately
        below)        $      415.2       $      379.6     $     35.6     $      810.1       $      777.2     $     32.9
        Percentage of
        net sales             81.0 %             78.3 %                          82.0 %             79.6 %
        


* Primary reason for change. The increase in cost of sales as a percentage of net sales was primarily driven by risk retirements in 2019 on the THAAD and Standard Missile programs. ** Primary reason for change. The increase in cost of sales as a percentage of net sales was primarily driven by the following: (i) cost growth on a portion of the Standard Missile program in 2020; (ii) risk retirements in 2019 on the THAAD and Standard Missile programs; and (iii) the reserve release upon the final AJ-60 solid rocket motor delivery in 2019. Selling, General and Administrative Expense ("SG&A"):







        Components of
        SG&A:
        SG&A
        excluding
        stock-based
        compensation  $         5.4         $         6.7     $     (1.3 )   $       12.1       $       13.6     $     (1.5 )
        Stock-based
        compensation            5.3                  10.2           (4.9 )            7.7               15.5           (7.8 )
        SG&A          $        10.7         $        16.9     $     (6.2 )   $       19.8       $       29.1     $     (9.3 )
        Percentage of
        net sales               2.1 %                 3.5 %                           2.0 %              3.0 %
        Percentage of
        net sales
        excluding
        stock-based
        compensation            1.1 %                 1.4 %                           1.2 %              1.4 %
        


* Primary reason for change. The decrease in SG&A expense was primarily driven by (i) stock-based compensation as a result of decreases in the fair value of the stock appreciation rights in the current period and (ii) a decrease in business travel-related expenses due to our restrictions on travel in response to COVID-19.







        Depreciation and Amortization:
                        Three months ended June 30,                        Six months ended June 30,
                            2020             2019          Change*            2020             2019          Change*
                                                                (In millions)
        Components of
        depreciation
        and
        amortization:
        Depreciation  $         13.3     $      13.4     $     (0.1 )   $         26.4     $      26.9     $     (0.5 )
        Amortization             3.4             3.4              -                6.8             6.8              -
        Accretion                0.7             0.7              -                1.4             1.3            0.1
        Depreciation
        and
        amortization  $         17.4     $      17.5     $     (0.1 )   $         34.6     $      35.0     $     (0.4 )
        


* Primary reason for change. Depreciation and amortization expense was comparable with the prior year periods. Other Expense (Income), net:

* Primary reason for change. The change in other expense (income), net was primarily due to (i) the recovery of previously reserved environmental remediation costs associated with a 2020 settlement and (ii) lower expenses associated with our deferred compensation plans, partially offset by a reserve for a legal related matter in 2020. Retirement Benefits Expense:







                           Three months ended June 30,                           Six months ended June 30,
                            2020                 2019           Change*           2020               2019          Change*
                                                                   (In millions)
        Components of
        retirement
        benefits
        expense:
        Interest cost
        on benefit
        obligation    $        10.8         $        13.4     $     (2.6 )   $       21.6       $       26.9     $     (5.3 )
        Expected
        return on
        assets                (15.1 )               (16.2 )          1.1            (30.2 )            (32.4 )          2.2
        Amortization
        of prior
        service costs
        (credits)                 -                   0.1           (0.1 )            0.1                  -            0.1
        Amortization
        of net losses          13.4                   9.2            4.2             26.8               18.5            8.3
        Retirement
        benefits
        expense       $         9.1         $         6.5     $      2.6     $       18.3       $       13.0     $      5.3
        


* Primary reason for change. The increase in retirement benefits expense was primarily due to higher actuarial losses in the current period as a result of a decrease in the discount rate used to calculate the benefit obligation at December 31, 2019, partially offset by lower interest costs on the benefit obligation.







        Interest Income:
                          Three months ended June 30,                       Six months ended June 30,
                             2020             2019          Change*           2020             2019          Change*
                                                                 (In millions)
        Interest income $         1.0     $       4.0     $     (3.0 )   $         4.2     $       8.0     $     (3.8 )
        


* Primary reason for change. The decrease in interest income was primarily due to lower market rates partially offset by higher average cash balances.







        Interest Expense:
                        Three months ended June 30,                       Six months ended June 30,
                           2020             2019          Change*            2020             2019          Change*
                                                               (In millions)
        Components of
        interest
        expense:
        Contractual
        interest and
        other         $         4.9     $       6.9     $     (2.0 )   $         10.9     $      13.6     $     (2.7 )
        Amortization
        of debt
        discount and
        deferred
        financing
        costs                   2.5             2.3            0.2                4.9             4.6            0.3
        Interest
        expense       $         7.4     $       9.2     $     (1.8 )   $         15.8     $      18.2     $     (2.4 )
        


*Primary reason for change. The decrease in interest expense was primarily due to lower variable interest rates and average obligations on our senior secured senior credit facility (the "Senior Credit Facility"). Income Taxes:

In the six months ended June 30, 2020, the income tax provision was $25.6 million for an effective tax rate of 26.6%. Our 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 ("R&D") credits. In the six months ended June 30, 2019, the income tax provision was $28.4 million for an effective tax rate of 25.5%. Our 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 R&D credits. Operating Segment Information:







                               Three months ended June 30,                        Six months ended June 30,
                                 2020               2019          Change*          2020               2019          Change**
        . . .
        


Jul 27, 2020

COMTEX_368512512/2041/2020-07-27T16:32:19

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

(c) 1995-2020 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.