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| GY > SEC Filings for GY > Form 10-Q on 27-Mar-2009 | All Recent SEC Filings |
27-Mar-2009
Quarterly Report
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions)
Net Sales $ 170.9 $ 176.6 $ (5.7 )
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* Primary reason
for change. We
report our
fiscal year
sales and
income under a
52/53 week
accounting
convention.
Fiscal 2008
was a 53 week
year with the
extra week
accounted for
in the first
quarter of
fiscal 2008,
or one more
week than as
reported in
the first
quarter of
2009. The
additional
week of
operations in
the first
quarter of
fiscal 2008
accounted for
$19.1 million
in net sales.
Sales of
$170.9 million
for the first
quarter of
2009 decreased
from
$176.6 million
in the first
quarter of
fiscal 2008,
reflecting the
additional
week in the
first quarter
of fiscal 2008
of
$19.1 million,
partially
offset by
growth in the
Standard
Missile and
Atlas V®
programs.
Customers that represented more than 10% of net sales for the periods presented are as follows:
Three Months ended
February 28, February 29,
2009 2008
Raytheon Company 34 % 31 %
Lockheed Martin Corporation 22 % 24 %
United Launch Alliance 11 % *
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* Less than 10% of net sales
Sales in the first quarter of fiscal 2009 and fiscal 2008 directly and
indirectly to the U.S. government and its agencies, including sales to our
significant customers discussed above, totaled 90% and 88%, respectively, of net
sales.
Operating Income:
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions, except percentage amounts)
Operating income: $ 10.7 $ 9.0 $ 1.7
Percentage of net sales 6.3 % 5.1 %
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* Primary reason for change. The improved operating income is due to the following:
• Decrease of $3.3 million in employee retirement benefit expense primarily due to the freeze of the defined benefit pension and benefit restoration plans effective February 1, 2009 and the increase in the discount rate used to determine benefit obligations, partially offset by lower expected investment returns.
• Decrease of $1.3 million in SG&A employee compensation expenses and professional costs.
• Decrease of $0.8 million in environmental remediation costs (see Note 8(c) of the Unaudited Condensed Consolidated Financial Statements).
The factors discussed above were partially offset by the following:
• Increase of $2.2 million in unusual items related to an executive severance
charge and the 401(k) rescission.
• Increase of $0.9 million in due to the change in the fourth quarter of fiscal 2008 in the estimated life of the deferred financing costs for the 4% Contingent Convertible Subordinated Notes ("4% Notes") and 21/4% Convertible Subordinated Debentures ("21/4% Debentures") to the dates at which we could be required to repay the debt in January 2010 and November 2011, respectively.
• Decrease in net sales as a result of one less week of operations during the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 and other resulting in $0.6 million decline in operating income.
Cost of sales:
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions, except percentage amounts)
Cost of sales: $ 148.9 $ 158.8 $ (9.9 )
Percentage of net sales 87.1 % 89.9 %
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* Primary reason for change. The decrease in costs of sales as a percentage of net sales was primarily due to a decrease of $4.5 million of non-cash aerospace and defense retirement benefit plan expenses in the first quarter of fiscal 2009 primarily due to the freeze of the defined benefit pension and benefit restoration plans effective February 1, 2009 and the increase in the discount rate used to determine benefit obligations, partially offset by lower expected investment returns.
Selling, General and Administrative (SG&A):
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions, except percentage amounts)
Selling, General and Administrative: $ 2.1 $ 2.2 $ (0.1 )
Percentage of net sales 1.2 % 1.2 %
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* Primary reason for change. The decrease in SG&A spending is primarily due to lower employee compensation expenses and professional costs, partially offset by an increase of $1.2 million in non-cash corporate retirement benefit plan expenses primarily due to lower expected investment returns, partially offset by the increase in the discount rate used to determine benefit obligations.
Depreciation and Amortization:
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions, except percentage amounts)
Depreciation and amortization: $ 7.4 $ 6.5 $ 0.9
Percentage of net sales 4.3 % 3.7 %
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* Primary reason for change. The increase in depreciation and amortization expense was primarily due to the change in the fourth quarter of fiscal 2008 in the estimated life of the deferred financing costs for the 4% Notes and 21/4% Debentures to the dates at which we could be required to repay the debt in January 2010 and November 2011, respectively (see Note 7 of the Unaudited Condensed Consolidated Financial Statements).
Other (income) expense, net:
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions)
Other (income) expense, net $ (0.4 ) $ 0.1 $ (0.5 )
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* Primary reason for change. The increase in other (income) expense, net is primarily due to lower environmental remediation costs in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008.
Unusual items:
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions)
Unusual items $ 2.2 $ - $ 2.2
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* Primary reason for change. In the first quarter of fiscal 2009, we incurred a charge of $1.8 million associated with an executive severance agreement. Additionally, during the first quarter of fiscal 2009, we recorded a $0.4 million for realized losses and interest associated with the failure to register with the SEC the issuance of certain of our common shares under the defined contribution 401(k) employee benefit plan (see Note 9 of the Unaudited Condensed Consolidated Financial Statements).
Interest Expense:
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions)
Interest expense $ 6.7 $ 7.3 $ (0.6 )
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* Primary reason for change. The decrease in interest expense was primarily due to lower average interest rates on variable rate debt in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008.
Interest Income:
Three months ended
February 28, February 28,
2009 2008 Change*
(In millions)
Interest income $ (0.5 ) $ (1.4 ) $ 0.9
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* Primary reason for change. The decline in interest income was primarily due to lower average rates in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008.
Income Tax Benefit:
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions)
Income tax benefit $ (20.5 ) $ (0.2 ) $ (20.3 )
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* Primary reason for change. The income tax benefit of $20.5 million in the first quarter of fiscal 2009 is primarily related to new guidance that was published by the Chief Counsel's Office of the Internal Revenue Service in December 2008 clarifying which costs qualify for ten-year carryback of tax net operating losses for refund of prior years' taxes. As a result of the clarifying language, we recorded an income tax benefit of $19.7 million, of which $14.5 million is for the release of the valuation allowance associated with the utilization of the qualifying tax net operating losses and $5.2 million is for the recognition of affirmative claims related to previous uncertain tax positions associated with prior years refund claims related to the qualifying costs. An additional $0.6 million benefit was recorded in the first quarter of fiscal 2009 to reflect the tax benefit of unusual items.
The difference between net income at the statutory rate and the income tax
benefit reflected is primarily related to a decrease in the valuation allowance
due to the realization of certain deferred tax assets for both the first
quarters of fiscal 2009 and 2008.
As of February 28, 2009, the liability for uncertain income tax positions was
$0.4 million. Due to the high degree of uncertainty regarding the timing of
potential future cash flows associated with these liabilities, we are unable to
make a reasonably reliable estimate of the amount and period in which these
liabilities might be paid.
Discontinued Operations:
In November 2003, we announced the closing of a GDX manufacturing facility in
Chartres, France owned by Snappon SA, a subsidiary of the Company. The decision
resulted primarily from declining sales volumes with French automobile
manufacturers. In June 2004, we completed the legal process for closing the
facility and establishing a social plan. In fiscal 2004, an expense of
approximately $14.0 million related to employee social costs was recorded in
accordance with SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. An expense of $1.0 million was recorded during fiscal 2005
primarily related to employee social costs that became estimable in fiscal 2005.
During the first quarter of fiscal 2009, we recorded $3.7 million related to
employee social costs that became estimable in the first quarter of fiscal 2009
(see Note 8(a) of the Unaudited Condensed Consolidated Financial Statements).
Summarized financial information for discontinued operations is set forth
below:
Three months ended
February 28, February 29,
2009 2008
(In millions)
Net sales $ - $ -
Loss before income taxes (3.9 ) (0.4 )
Income tax benefit (0.1 ) (0.1 )
Loss from discontinued operations, net of income taxes (3.8 ) (0.3 )
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Recently Adopted Accounting Pronouncements
As of November 30, 2007, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 158 ("SFAS 158"), Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, which requires that the
consolidated balance sheets reflect the funded status of the pension and
postretirement plans. Effective November 30, 2009, we will adopt the measurement
provision of SFAS 158 which requires measurement of the pension and
postretirement plans assets and benefit obligations at our fiscal year end. We
currently perform this measurement as of August 31 of each fiscal year.
On December 1, 2007, we adopted the provisions of Financial Accounting
Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in
Income Taxes ("FIN 48"). As of December 1, 2007, we had $3.2 million of
unrecognized tax benefits, $3.0 million of which would impact our effective tax
rate if recognized. The adoption resulted in a reclassification of certain tax
liabilities from current to non-current, a reclassification of certain tax
indemnification liabilities from income taxes payable to other current
liabilities, and a cumulative effect adjustment benefit of $9.1 million that was
recorded directly to our accumulated deficit. We recognize interest and
penalties related to uncertain tax positions in income tax expense. Interest and
penalties are immaterial at the date of adoption and are included in
unrecognized tax benefits. As of February 28, 2009, our accrued interest and
penalties related to uncertain tax positions is immaterial. The tax years ended
November 30, 2005 through November 30, 2008 remain open to examination for U.S.
federal income tax purposes. For our other major taxing jurisdictions, the tax
years ended November 30, 2004 through November 30, 2008 remain open to
examination.
On December 1, 2007, we adopted the provisions of SFAS No. 157 ("SFAS 157"),
Fair Value Measurements, for financial instruments. Although the adoption of
SFAS 157 did not materially impact our financial position or results of
operations, we are now required to provide additional disclosures in the notes
to our financial statements.
On December 1, 2007, we adopted SFAS No. 159 ("SFAS 159"), The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment of
FASB Statement No. 115. At the date of adoption, we did not elect to use the
fair value option for any of our outstanding financial assets or liabilities.
Accordingly, the adoption of SFAS 159 did not have an impact on our financial
position, results of operations, or cash flows.
As of December 1, 2008, we adopted Emerging Issues Task Force ("EITF")
No. 07-03 ("EITF 07-03"), Accounting for Non-Refundable Advance Payments for
Goods or Services to Be Used in Future Research and Development Activities. EITF
07-03 provides guidance on whether non-refundable advance payments for goods
that will be used or services that will be performed in future research and
development activities should be accounted for as research and development costs
or deferred and capitalized until the goods have been delivered or the related
services have been rendered. The adoption of EITF 07-03 did not have a material
impact on our financial position, results of operations, or cash flows.
As of December 1, 2008, we adopted Staff Position SFAS 157-2, Effective Date
of FASB Statement No. 157, which approved a one-year deferral of SFAS 157 as it
relates to non-financial assets and liabilities.
New Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations ("SFAS 141(R)"). Under SFAS 141(R), an entity is required to
recognize the assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration at their fair value on the acquisition date. It
further requires that acquisition-related costs be recognized separately from
the acquisition and expensed as incurred; that restructuring costs generally be
expensed in periods subsequent to the acquisition date; and that changes in
accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period be recognized as a component of the
provision for taxes. In addition, acquired in-process research and development
is capitalized as an intangible asset and amortized over its estimated useful
life. The adoption of SFAS 141(R) will change our accounting treatment for
business combinations on a prospective basis beginning December 1, 2009.
In December 2007, the FASB issued SFAS No. 160 ("SFAS 160"), Noncontrolling
Interests in Consolidated Financial Statements-an amendment of ARB No. 51. SFAS
160 changes the accounting and reporting for minority interests, which will be
recharacterized as non-controlling interests and classified as a component of
equity. The adoption of SFAS 160 will change the accounting treatment for
minority interests on a prospective basis beginning December 1, 2009. As of
February 28, 2009, we did not have any minority interests. Accordingly, the
adoption of SFAS 160 is not expected to impact our consolidated financial
statements.
In May 2008, the FASB issued Staff Position No. Accounting Principles Board
14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement ("FSP APB 14-1"), which is
effective for fiscal
years beginning after December 15, 2008. FSP APB 14-1 clarifies that convertible
debt instruments that may be settled in cash upon conversion are not addressed
by paragraph 12 of Accounting Principles Board Opinion No. 14, Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants. FSP APB 14-1 also
specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. We are currently evaluating the effect of FSP APB 14-1, and
we have not yet determined the impact of the standard on our financial position
or results of operations. However, we believe the adoption of FSP APB 14-1 will
significantly increase non-cash interest expense.
In December 2008, the FASB issued Staff Position SFAS No. 132(R)-1 ("SFAS
132(R)-1"), Employers' Disclosures about Postretirement Benefit Plan Assets,
which provides guidance on disclosures about plan assets of a defined benefit
pension or other postretirement plans. SFAS 132(R)-1 is effective for fiscal
years beginning after December 15, 2009. The adoption of SFAS 132(R)-1 will not
impact our financial position or results of operations, however, it will require
us to provide additional disclosures as part of our financial statements.
Operating Segment Information:
We evaluate our operating segments based on several factors, of which the
primary financial measure is segment performance. Segment performance, which is
a non-GAAP financial measure, represents net sales from continuing operations
less applicable costs, expenses and provisions for unusual items relating to the
segment. Excluded from segment performance are: corporate income and expenses,
interest expense, interest income, income taxes, legacy income or expenses, and
provisions for unusual items not related to the segment. We believe that segment
performance provides information useful to investors in understanding our
underlying operational performance. Specifically, we believe the exclusion of
the items listed above permits an evaluation and a comparison of results for
ongoing business operations, and it is on this basis that management internally
assesses operational performance.
Aerospace and Defense Segment
Three months ended
February 28, February 29,
2009 2008 Change*
(In millions)
Net Sales $ 169.3 $ 174.5 $ (5.2 )
Segment performance $ 14.6 $ 10.4 $ 4.2
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* Primary reason for change. Aerojet reports its fiscal year sales and income under a 52/53 week accounting convention. Fiscal 2008 was a 53 week year with the extra week accounted for in the first quarter of fiscal 2008, or one more week than as reported in the first quarter of 2009. Sales of $169.3 million for the first quarter of 2009 decreased from $174.5 million in the first quarter of fiscal 2008, reflecting the additional week in the first quarter of fiscal 2008 of $19.1 million, partially offset by growth in the Standard Missile and Atlas V programs.
Segment performance was income of $14.6 million in the first quarter of
fiscal 2009 compared to income of $10.4 million in the first quarter of fiscal
2008. The improved segment performance during the first quarter of fiscal 2009
as compared to the first quarter of fiscal 2008 is primarily the result of lower
non-cash retirement benefit plan costs due to the freeze of the defined benefit
pension and benefit restoration plans effective February 1, 2009 and the
increase in the discount rate used to determine benefit obligations, partially
offset by lower expected investment returns.
As of February 28, 2009, our total contract backlog was $1,018.9 million
compared with $1,034.5 million as of November 30, 2008. Funded backlog was
$743.5 million and $674.9 million at February 28, 2009 and November 30, 2008,
respectively.
Total backlog includes both funded backlog (the amount for which money has
been directly appropriated by the U.S. Congress, or for which a purchase order
has been received from a commercial 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 delivery delays or program cancellations which are beyond our
control.
. . .
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