The Company provides Non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the Non-GAAP measures to the most directly comparable GAAP measures is included at the end of the release.
Second Quarter of Fiscal 2012 compared to Second Quarter of Fiscal 2011
Net sales for the second quarter of fiscal 2012 increased to
$249.9 millioncompared to $229.9 millionfor the second quarter of fiscal 2011. Net income for the second quarter of fiscal 2012 was $1.7 million, or $0.03diluted income per share, compared to a net income of $0.0 millionfor the second quarter of fiscal 2011. Adjusted EBITDAP (Non-GAAP measure) for the second quarter of fiscal 2012 was $26.7 millionor 10.7% of net sales, compared to $26.0 millionor 11.3% of net sales, for the second quarter of fiscal 2011. Segment performance (Non-GAAP measure) before environmental remediation provision adjustments, retirement benefit plan expense, and unusual items was $28.5 millionfor the second quarter of fiscal 2012, compared to $25.6 millionfor the second quarter of fiscal 2011. Cash provided by operating activities in the second quarter of fiscal 2012 was $29.3 million, compared to $14.6 millionin the second quarter of fiscal 2011. Free cash flow (Non-GAAP measure) in the second quarter of fiscal 2012 was $23.6 million, compared to $9.9 millionin the second quarter of fiscal 2011. As of May 31, 2012, the Company had $99.8 millionin net debt (Non-GAAP measure) compared to $163.4 millionas of May 31, 2011.
"We are very pleased to report growth in sales and cash flow generated from operations for the second quarter of 2012," said
Aerospace and Defense Segment
Net sales for the second quarter of fiscal 2012 were
Net sales for the first half of fiscal 2012 were
Segment performance for the second quarter of fiscal 2012 was income of
Segment margin was 8.9% and 9.0% for the first half of fiscal 2012 and 2011, respectively.
A summary of the Company's backlog is as follows:
May 31, November 30, 2012 2011 (In millions) Funded backlog $ 882 $ 902 Unfunded backlog 432 520 Total contract backlog $ 1,314 $ 1,422
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.
Real Estate Segment
Net sales for the second quarter of fiscal 2012 were
The Company's debt activity during the first half of fiscal 2012 was as follows:
November 30, Cash May 31, 2011 Payments 2012 (In millions) Term loan $ 50.0 $ (1.3) $ 48.7 9 1/2% Senior Subordinated Notes 75.0 (75.0) — 4 1/16% Convertible Subordinated Debentures 200.0 — 200.0 2 1/4% Convertible Subordinated Debentures 0.2 — 0.2 Other debt 1.2 (0.1) 1.1 Total Debt and Borrowing Activity $ 326.4 $ (76.4) $ 250.0
In addition, as of
Retirement Benefit Plans
As of the last measurement date at November 30, 2011, the Company's total defined benefit pension plan assets, total projected benefit obligations, and unfunded pension obligation for the qualified pension plan were approximately
The Company does not expect to make any cash contributions to the tax-qualified defined benefit pension plan during fiscal years 2012 or 2013. The Pension Protection Act (the "PPA") requires underfunded pension plans to improve their funding ratios based on the funded status of the plan as of specified measurement dates through contributions or application of prepayment credits. As of
Further, with the
The funded status of the pension plan is affected by the investment experience of the plan's 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 or other plan experience. Accordingly, if the performance of the Company's plan assets does not meet the assumptions, if there are changes to the
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:
cancellation or material modification of one or more significant contracts; future reductions or changes in U.S. government spending; negative audit of the Company's business by the U.S. government; cost overruns on the Company's contracts that require the Company to absorb excess costs; failure of the Company's subcontractors or suppliers to perform their contractual obligations; failure to secure contracts; failure to comply with regulations applicable to contracts with the U.S. government; costs and time commitment related to potential acquisition activities; the Company's inability to adapt to rapid technological changes; failure of the Company's information technology infrastructure; failure to effectively implement the Company's enterprise resource planning system; product failures, schedule delays or other problems with existing or new products and systems; the release or explosion of dangerous materials used in the Company's businesses; loss of key qualified suppliers of technologies, components, and materials; the funded status of the Company's defined benefit pension plan and the Company's obligation to make cash contributions in excess of the amount that the Company can recover in its current period overhead rates; effects of changes in discount rates, actual returns on plan assets, and government regulations of defined benefit pension plans; the possibility that environmental and other government regulations that impact the Company become more stringent or subject the Company to material liability in excess of its established reserves; environmental claims related to the Company's current and former businesses and operations; reductions in the amount recoverable from environmental claims; the results of significant litigation; occurrence of liabilities that are inadequately covered by indemnity or insurance; inability to protect the Company's patents and proprietary rights; business disruptions; the earnings and cash flow of the Company's subsidiaries and the distribution of those earnings to the Company; the substantial amount of debt which places significant demands on our cash resources and could limit our ability to borrow additional funds or expand our operations; the Company's ability to comply with the financial and other covenants contained in the Company's debt agreements; risks inherent to the real estate market; changes in economic and other conditions in the
Sacramento, Californiametropolitan area real estate market or changes in interest rates affecting real estate values in that market; additional costs related to the Company's divestitures; the loss of key employees and shortage of available skilled employees to achieve anticipated growth; a strike or other work stoppage or the Company's inability to renew collective bargaining agreements on favorable terms; fluctuations in sales levels causing the Company's quarterly operating results and cash flows to fluctuate; changes in the Company's contract-related accounting estimates; new accounting standards that could result in changes to the Company's methods of quantifying and recording accounting transactions; failure to maintain effective internal controls in accordance with the Sarbanes-Oxley Act; and those risks detailed from time to time in the Company's reports filed with the SEC.
(Tables to follow)
GenCorp Inc. Unaudited Condensed Consolidated Statements of Operations Three months ended May 31, Six months ended May 31, 2012 2011 2012 2011 (In millions, except per share amounts) Net Sales $ 249.9 $ 229.9 $ 451.8 $ 439.7 Operating costs and expenses: Cost of sales (exclusive of items shown separately below) 220.3 203.0 394.2 383.6 Selling, general and administrative 11.2 11.0 21.5 21.3 Depreciation and amortization 5.5 5.8 10.8 11.5 Other expense, net 2.6 1.7 4.5 2.9 Total operating costs and expenses 239.6 221.5 431.0 419.3 Operating income 10.3 8.4 20.8 20.4 Non-operating (income) expense: Interest income (0.1) (0.3) (0.3) (0.6) Interest expense 5.8 7.7 11.8 15.5 Total non-operating expense, net 5.7 7.4 11.5 14.9 Income from continuing operations before income taxes 4.6 1.0 9.3 5.5 Income tax provision 3.3 0.5 5.6 3.1 Income from continuing operations 1.3 0.5 3.7 2.4 Income (loss) from discontinued operations, net of income taxes 0.4 (0.5) 0.4 (1.2) Net income $1.7 $ — $ 4.1 $ 1.2 Income Per Share of Common Stock Basic Income per share from continuing operations $ 0.02 $ 0.01 $ 0.06 $ 0.04 Income (loss) per share from discontinued operations, net of income taxes 0.01 (0.01) 0.01 (0.02) Net income per share $ 0.03 $ — $ 0.07 $ 0.02 Diluted Income per share from continuing operations $ 0.02 $ 0.01 $ 0.06 $ 0.04 Income (loss) per share from discontinued operations, net of income taxes 0.01 (0.01) 0.01 (0.02) Net income per share $ 0.03 $ — $ 0.07 $ 0.02 Weighted average shares of common stock outstanding 59.0 58.7 58.9 58.6 Weighted average shares of common stock outstanding, assuming dilution 59.0 58.7 58.9 58.6GenCorp Inc. Unaudited Operating Segment Information Three months ended May 31, Six months ended May 31, 2012 2011 2012 2011 (In millions) Net Sales: Aerospace and Defense $ 247.7 $ 228.3 $ 448.0 $ 436.4 Real Estate 2.2 1.6 3.8 3.3 Total Net Sales $ 249.9 $ 229.9 $ 451.8 $ 439.7 Segment Performance: Aerospace and Defense $ 27.6 $ 24.5 $ 52.5 $ 51.8 Environmental remediation provision adjustments (2.3) (0.8) (2.8) (1.8) Retirement benefit plan expense (4.7) (5.3) (9.4) (10.5) Unusual items (0.2) (0.2) (0.4) (0.4) Aerospace and Defense Total 20.4 18.2 39.9 39.1 Real Estate 0.9 1.1 2.0 2.3 Total Segment Performance $ 21.3 $ 19.3 $ 41.9 $ 41.4 Reconciliation of segment performance to income from continuing operations before income taxes: Segment performance $ 21.3 $ 19.3 $ 41.9 $ 41.4 Interest expense (5.8) (7.7) (11.8) (15.5) Interest income 0.1 0.3 0.3 0.6 Stock-based compensation expense (1.3) (1.7) (2.2) (2.9) Corporate retirement benefit plan expense (5.6) (6.3) (11.1) (12.7) Corporate and other (3.7) (2.9) (7.4) (5.6) Unusual items (0.4) — (0.4) 0.2 Income from continuing operations before income taxes $ 4.6 $ 1.0 $ 9.3 $ 5.5
GenCorp Inc. Unaudited Condensed Consolidated Balance Sheets May 31, 2012 November 30, 2011 (In millions) ASSETS Current Assets Cash and cash equivalents $ 150.2 $ 188.0 Accounts receivable 107.8 107.0 Inventories 37.4 49.5 Recoverable from the U.S. government and other third parties for environmental remediation costs 22.3 23.6 Receivable from Northrop Grumman Corporation ("Northrop") 6.0 6.0 Other receivables, prepaid expenses and other 18.0 21.5 Income taxes 3.2 5.3 Total Current Assets 344.9 400.9 Noncurrent Assets Property, plant and equipment, net 127.7 126.9 Real estate held for entitlement and leasing 64.4 63.3 Recoverable from the U.S. government and other third parties for environmental remediation costs 109.9 114.1 Receivable from Northrop 66.8 66.3 Goodwill 94.9 94.9 Intangible assets 14.6 15.4 Other noncurrent assets, net 50.8 57.7 Total Noncurrent Assets 529.1 538.6 Total Assets $ 874.0 $ 939.5 LIABILITIES, REDEEMABLE COMMON STOCK, AND SHAREHOLDERS' DEFICIT Current Liabilities Short-term borrowings and current portion of long-term debt $ 2.8 $ 2.8 Accounts payable 39.6 33.8 Reserves for environmental remediation costs 38.5 40.7 Postretirement medical and life benefits 6.8 6.8 Advance payments on contracts 101.4 108.5 Deferred income taxes 8.8 3.1 Other current liabilities 99.7 104.1 Total Current Liabilities 297.6 299.8 Noncurrent Liabilities Senior debt 46.2 47.5 Senior subordinated notes — 75.0 Convertible subordinated notes 200.2 200.2 Other debt 0.8 0.9 Deferred income taxes 0.3 4.5 Reserves for environmental remediation costs 146.4 149.9 Pension benefits 225.4 236.4 Postretirement medical and life benefits 67.4 68.4 Other noncurrent liabilities 61.0 64.1 Total Noncurrent Liabilities 747.7 846.9 Total Liabilities 1,045.3 1,146.7 Commitments and Contingencies Redeemable common stock 4.2 4.4 Shareholders' Deficit Preference stock — — Common stock 5.9 5.9 Other capital 263.7 261.2 Accumulated deficit (175.2) (179.3) Accumulated other comprehensive loss, net of income taxes (269.9) (299.4) Total Shareholders' Deficit (175.5) (211.6) Total Liabilities, Redeemable Common Stock and Shareholders' Deficit $ 874.0 $ 939.5
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 provisions for unusual items relating to the segment operations. Segment performance excludes corporate income and expenses, legacy income or expenses, provisions for 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.
GenCorp Inc. Unaudited Condensed Consolidated Statements of Cash Flows Six months ended May 31, 2012 2011 (In millions) Operating Activities Net income $ 4.1 $ 1.2 Adjustments to reconcile net income to net cash provided by operating activities: (Income) loss from discontinued operations (0.4) 1.2 Depreciation and amortization 10.8 11.5 Amortization of debt discount and financing costs 1.2 3.4 Stock-based compensation 2.2 2.9 Retirement benefit expense 20.5 23.2 Tax benefit on stock-based awards (0.7) — Loss (gain) on debt redeemed\repurchased 0.4 (0.2) Changes in assets and liabilities 9.3 (10.7) Net cash provided by continuing operations 47.4 32.5 Net cash used in discontinued operations (0.1) (0.3) Net Cash Provided by Operating Activities 47.3 32.2 Investing Activities Marketable securities activity, net — 11.7 Proceeds from sale of property 0.6 — Capital expenditures (9.3) (6.7) Net Cash (Used in) Provided by Investing Activities (8.7) 5.0 Financing Activities Tax benefit on stock-based awards 0.7 — Debt issuance costs (0.3) — Debt repayments (76.4) (7.4) Vendor financing repayments (0.4) (0.5) Net Cash Used in Financing Activities (76.4) (7.9) Net (Decrease) Increase in Cash and Cash Equivalents (37.8) 29.3 Cash and Cash Equivalents at Beginning of Year 188.0 181.5 Cash and Cash Equivalents at End of Year $ 150.2 $ 210.8
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 further its understanding of the historical and prospective consolidated core operating performance of its segments, net of expenses incurred by its corporate activities in the ordinary, ongoing and customary course of its operations. Further, the Company believes that to effectively compare the core operating performance metric from period to period on a historical and prospective basis, the metric should exclude items relating to retirement benefits (pension and postretirement benefits), significant non-cash expenses, the impacts of financing decisions on the earnings, and items incurred outside the ordinary, ongoing and customary course of its operations. Accordingly, the Company defines Adjusted EBITDAP as GAAP income 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, 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 May 31, Six months ended May 31, 2012 2011 2012 2011 ( In millions, except percentage amounts) Income from continuing operations before income taxes $ 4.6 $ 1.0 $ 9.3 $ 5.5 Interest expense 5.8 7.7 11.8 15.5 Interest income (0.1) (0.3) (0.3) (0.6) Depreciation and amortization 5.5 5.8 10.8 11.5 Retirement benefit plan expense 10.3 11.6 20.5 23.2 Unusual items Legal related matters 0.2 0.2 0.4 0.4 Loss (gain) on debt redeemed\repurchased 0.4 — 0.4 (0.2) Adjusted EBITDAP $ 26.7 $ 26.0 $ 52.9 $ 55.3 Adjusted EBITDAP as a percentage of net sales 10.7% 11.3% 11.7% 12.6%
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 stockholders and the investment community, and in its internal evaluation and management of the business. Management believes that these financial measures are useful to investors because they permit investors to view the Company's business using the same tools that management uses to gauge progress in achieving its goals.
Three months ended May 31, Six months ended May 31, 2012 2011 2012 2011 (In millions) Cash provided by operating activities $ 29.3 $ 14.6 $ 47.3 $ 32.2 Capital expenditures (5.7) (4.7) (9.3) (6.7) Free cash flow $ 23.6 $ 9.9 $ 38.0 $ 25.5May 31, 2012 May 31, 2011 (In millions) Debt principal $ 250.0 $ 389.2 Cash and cash equivalents (150.2) (210.8) Marketable securities — (15.0) Net debt $ 99.8 $ 163.4
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.