Aerojet Rocketdyne Holdings
Jul 9, 2013

GenCorp Reports 2013 Second Quarter Results

SACRAMENTO, Calif., July 9, 2013 (GLOBE NEWSWIRE) -- GenCorp Inc. (NYSE:GY) today reported results for the second quarter ended May 31, 2013.

Financial Overview

The Company provides Non-GAAP measures as a supplement to financial results based on 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.

Second Quarter of Fiscal 2013 compared to Second Quarter of Fiscal 2012

The net loss for the second quarter of fiscal 2013 compared to the comparable prior year period was primarily driven by the following: (i) $6.8 million increase in interest expense primarily related to the financing of the acquisition of United Technologies Corporation's ("UTC") Pratt & Whitney Rocketdyne (the "Rocketdyne Business"); (ii) expenses of $6.4 million incurred in the second quarter of fiscal 2013 related to the acquisition the Rocketdyne Business; (iii) $5.8 million increase in non-cash retirement benefit expense; and (iv) $1.8 million increase in stock-based compensation primarily due to increases in the fair value of the Company's stock appreciation rights.

On June 14, 2013, the Company completed the acquisition of substantially all of the Rocketdyne Business. The aggregate consideration to UTC was $411 million, paid in cash, which represents the initial purchase price of $550 million reduced by $55 million relating to the expected future acquisition of UTC's 50% ownership interest of RD Amross, LLC ("RD Amross") (a joint venture with NPO Energomash of Khimki, Russia which sells RD-180 engines to RD Amross) and the portion of the UTC business that markets and supports the sale of RD-180 engines. The acquisition of UTC's 50% ownership interest of RD Amross and UTC's related business is expected to close following the receipt of the Russian governmental regulatory approvals. The purchase price was further adjusted for changes in customer advances, capital expenditures and other net assets, and is subject further to post-closing adjustments.

Included in the (loss) income from continuing operations before income taxes of ($9.6) million and $4.6 million for the second quarter of fiscal 2013 and 2012, respectively, are the following:

  Three months ended
  May 31,
2013
May 31,
2012
  (In millions)
Retirement benefit expense  $ 16.1 $ 10.3
Acquisition costs  6.4  —
Interest expense associated with financing of acquisition, net   8.5  —
Stock compensation  3.1  1.3
  $ 34.1 $ 11.6

"We are pleased with these second quarter results which reflect the continued focus on delivering program performance to our customers while launching a new ERP system and completing the acquisition of Pratt and Whitney Rocketdyne in June 2013," said GenCorp Inc. President and CEO, Scott J. Seymour. "These significant accomplishments transform our Company and create value for all stakeholders."

Operations Review

Aerospace and Defense Segment

Net sales for the second quarter of fiscal 2013 were $285.4 million compared to $247.7 million for the second quarter of fiscal 2012. The increase in net sales was primarily due to (i) an increase of $29.8 million in the various Standard Missile programs primarily from increased development activities for the Throttling Divert and Attitude Control System for the Standard Missile-3 Block IIA program and increased deliveries on the Standard Missile-1 Regrain program and (ii) increased deliveries on the Atlas V program generating additional sales of $13.9 million. Net sales for the first half of fiscal 2013 were $527.7 million compared to $448.0 million for the first half of fiscal 2012. The increase in net sales was primarily due to (i) an increase of $62.4 million in the various Standard Missile programs primarily from increased development activities for the Throttling Divert and Attitude Control System for the Standard Missile-3 Block IIA program and increased deliveries on the Standard Missile-1 Regrain program and (ii) increased deliveries on the Atlas V program generating additional sales of $20.0 million.

The Company's fiscal year ends on November 30 of each year. The fiscal year of the Company's subsidiary, Aerojet-General Corporation ("Aerojet"), ends on the last Saturday of November. As a result of the 2013 calendar, Aerojet had 14 weeks of operation in the first quarter of fiscal 2013 compared to 13 weeks of operations in the first quarter of fiscal 2012. The additional week of operation in the first quarter of fiscal 2013 accounted for $27.8 million in additional net sales.

Segment margin before environmental remediation provision adjustments, retirement benefit plan expense, and unusual items (Non-GAAP measure) was 12.8% for the second quarter of fiscal 2013, compared to 11.1% for the second quarter of fiscal 2012. Segment margin before environmental remediation provision adjustments, retirement benefit plan expense, and unusual items (Non-GAAP measure) was 12.4% for the first half of fiscal 2013, compared to 11.7% for the first half of fiscal 2012.  The increase in the segment margin was primarily driven by improved contract performance on a space program which experienced cost growth in the first half of fiscal 2012.

A summary of the Company's backlog is as follows:

  May 31, November 30,
   2013   2012 
  (In millions)
Funded backlog $ 1,014 $ 1,018
Unfunded backlog  544  508
Total contract backlog $ 1,558 $ 1,526

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 2013 were $1.2 million compared to $2.2 million for the second quarter of fiscal 2012. Segment performance for the second quarter of fiscal 2013 was income of $1.0 million compared to income of $0.9 million for the second quarter of fiscal 2012.  Net sales for the first half of fiscal 2013 were $2.6 million compared to $3.8 million for the first half of fiscal 2012. Segment performance for the first half of fiscal 2013 and 2012 was income of $2.0 million. Net sales and segment performance consist primarily of rental property operations. Fiscal 2012 results included $0.6 million in land sales.

Additional Information

Debt Activity

The Company's debt activity during the first half of fiscal 2013 was as follows:

  November 30,
2012

Additions
Cash
Payments
May 31,
2013
  (In millions)
Term loan  $ 47.5 $ —  $ (1.2) $ 46.3 
71/8% Second-Priority Senior Secured Notes   —   460.0  —   460.0 
41/16% Convertible Subordinated Debentures  200.0  —   —   200.0 
2¼% Convertible Subordinated Debentures   0.2  —   —   0.2 
Other debt   1.0  —   (0.1)  0.9 
Total Debt and Borrowing Activity  $ 248.7 $ 460.0 $ (1.3) $ 707.4 

As of May 31, 2013, the Company had $105.2 million available under its revolving credit facility. In addition, as of May 31, 2013, the Company had $44.8 million of outstanding letters of credit.

Retirement Benefit Plans

Components of retirement benefit expense are: 

  Three months ended May 31, Six months ended May 31,
  2013 2012 2013 2012
  (In millions)
Service cost  $ 1.5 $ 1.2 $ 2.8 $ 2.3
Interest cost on benefit obligation  15.8  19.1  31.6  38.3
Assumed return on plan assets  (24.1)  (24.8)  (48.2)  (49.6)
Amortization of prior service credits  (0.2)  —  (0.4)  —
Recognized net actuarial losses  23.1  14.8  46.2  29.5
Retirement benefit expense $ 16.1 $ 10.3 $ 32.0 $ 20.5

The increase in retirement benefit expense was primarily due to higher actuarial losses recognized in 2013 compared to the prior year periods. The increase in actuarial losses was primarily the result of a decline in the discount rate used to determine the Company's retirement benefit obligation. 

The Company does not expect to make any cash contributions to its tax-qualified defined benefit pension plan until fiscal 2015 or later. In addition, under the Office of Federal Procurement Policy rules, the Company will recover portions of any required pension funding through its government contracts and the Company estimates that approximately 84% of its unfunded pension obligation as of November 30, 2012 is related to its government contracting business.

The funded status of the pension plan may be adversely 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. Accordingly, if the performance of the Company's plan's assets does not meet assumptions, if there are changes to the Internal Revenue Service regulations or other applicable law or if other actuarial assumptions are modified, future contributions to the underfunded pension plan could be higher than the Company expects.

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 GenCorp

GenCorp is a leading 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. Additional information about the Company can be obtained by visiting the Company's website at http://www.GenCorp.com

         
GenCorp Inc.        
Unaudited Condensed Consolidated Statements of Operations        
  Three months ended May 31, Six months ended May 31,
  2013 2012 2013 2012
  (In millions, except per share amounts)
  (Unaudited)
Net Sales $ 286.6 $ 249.9 $ 530.3 $ 451.8
Operating costs and expenses:        
Cost of sales (exclusive of items shown separately below)  254.4  220.3  471.9  394.2
Selling, general and administrative  13.5  11.2  25.8  21.5
Depreciation and amortization  5.3  5.5  11.4  10.8
Other expense, net  10.5  2.6  16.4  4.5
Total operating costs and expenses  283.7  239.6  525.5  431.0
Operating income  2.9  10.3  4.8  20.8
Non-operating (income) expense:        
Interest income  (0.1)  (0.1)  (0.2)  (0.3)
Interest expense  12.6  5.8  23.8  11.8
Total non-operating expense, net  12.5  5.7  23.6  11.5
(Loss) income from continuing operations before income taxes  (9.6)  4.6  (18.8)  9.3
Income tax provision  2.1  3.3  7.0  5.6
(Loss) income from continuing operations  (11.7)  1.3  (25.8)  3.7
(Loss) income from discontinued operations, net of income taxes  (0.1)  0.4   —   0.4
Net (loss) income $ (11.8) $ 1.7 $ (25.8) $ 4.1
(Loss) Income Per Share of Common Stock        
Basic and Diluted        
(Loss) income per share from continuing operations $ (0.20) $ 0.02 $ (0.43) $ 0.06
Income per share from discontinued operations, net of income taxes   —   0.01  —    0.01
Net (loss) income per share $ (0.20) $ 0.03 $ (0.43) $ 0.07
Weighted average shares of common stock outstanding, basic and diluted  59.5  59.0  59.4  58.9

 

         
GenCorp Inc.        
Unaudited Operating Segment Information        
  Three months ended May 31, Six months ended May 31,
  2013 2012 2013 2012
  (In millions)
  (Unaudited)
Net Sales:        
Aerospace and Defense $ 285.4 $ 247.7 $ 527.7 $ 448.0
Real Estate  1.2  2.2  2.6  3.8
Total Net Sales $ 286.6 $ 249.9 $ 530.3 $ 451.8
         
Segment Performance:        
Aerospace and Defense $ 36.4 $ 27.6 $ 65.6 $ 52.5
Environmental remediation provision adjustments  (1.2)  (2.3)  (0.6)  (2.8)
Retirement benefit plan expense  (10.8)  (4.7)  (21.5)  (9.4)
Unusual items  (1.7)  (0.2)  (1.6)  (0.4)
Aerospace and Defense Total  22.7  20.4  41.9  39.9
Real Estate  1.0  0.9  2.0  2.0
         
Total Segment Performance $ 23.7 $ 21.3 $ 43.9 $ 41.9
         
Reconciliation of segment performance to (loss) income from continuing operations before income taxes:        
Segment performance $ 23.7 $ 21.3 $ 43.9 $ 41.9
Interest expense  (12.6)  (5.8)  (23.8)  (11.8)
Interest income  0.1  0.1  0.2  0.3
Stock-based compensation expense  (3.1)  (1.3)  (6.3)  (2.2 )
Corporate retirement benefit plan expense  (5.3)  (5.6)  (10.5)  (11.1)
Corporate and other   (7.8)  (3.7)  (11.7)  (7.4)
Unusual items  (4.6)  (0.4)  (10.6)  (0.4)
         
(Loss) income from continuing operations before income taxes $ (9.6) $ 4.6 $ (18.8) $ 9.3
         

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, 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 Balance Sheets    
  May 31,
2013
November 30,
2012
  (In millions)
  (Unaudited)
ASSETS
Current Assets    
Cash and cash equivalents  $ 134.6 $ 162.1
Restricted cash   10.0  — 
Accounts receivable  142.0  111.5
Inventories   59.2  46.9
Recoverable from the U.S. government and other third parties for environmental remediation costs   22.3  22.3
Receivable from Northrop Grumman Corporation ("Northrop")   6.0  6.0
Other receivables, prepaid expenses and other   9.2  16.8
Income taxes   2.4  2.5
Total Current Assets   385.7  368.1
Noncurrent Assets    
Restricted cash   460.0  —
Property, plant and equipment, net   155.9  143.9
Real estate held for entitlement and leasing   71.8  70.2
Recoverable from the U.S. government and other third parties for environmental remediation costs   97.7  107.9
Receivable from Northrop   69.5  69.3
Goodwill   94.9  94.9
Intangible assets   13.1  13.9
Other noncurrent assets, net   62.5  51.1
Total Noncurrent Assets   1,025.4  551.2
Total Assets  $ 1,411.1 $ 919.3
 
LIABILITIES, REDEEMABLE COMMON STOCK, AND SHAREHOLDERS' DEFICIT
Current Liabilities    
Short-term borrowings and current portion of long-term debt  $ 2.8  $ 2.7
Accounts payable   73.4   56.1
Reserves for environmental remediation costs   41.6   39.5
Postretirement medical and life benefits   7.5   7.5
Advance payments on contracts   95.4   100.1
Income taxes   0.3  — 
Deferred income taxes   10.5   9.4
Other current liabilities   126.3   103.3
Total Current Liabilities   357.8  318.6
Noncurrent Liabilities    
Senior debt   43.8  45.0
Second-priority senior notes   460.0   — 
Convertible subordinated notes   200.2   200.2
Other debt   0.6   0.8
Deferred income taxes   2.5   2.2
Reserves for environmental remediation costs   139.9   150.0
Pension benefits   439.1   454.5
Postretirement medical and life benefits   66.7   68.3
Other noncurrent liabilities   67.4   68.5
Total Noncurrent Liabilities   1,420.2  989.5
Total Liabilities   1,778.0  1,308.1
Commitments and contingencies (Note 7)    
Redeemable common stock   2.7   3.9
Shareholders' Deficit    
Common stock   5.9  5.9
Other capital   272.7  269.6
Accumulated deficit  (207.7)  (181.9)
Accumulated other comprehensive loss, net of income taxes   (440.5)  (486.3)
Total Shareholders' Deficit   (369.6)  (392.7)
Total Liabilities, Redeemable Common Stock and Shareholders' Deficit $ 1,411.1 $ 919.3
     
     
GenCorp Inc.    
Unaudited Condensed Consolidated Statements of Cash Flows    
  Six months ended 
  May 31, May 31,
   2013   2012 
  (In millions)
  (Unaudited)
Operating Activities    
Net (loss) income     $ (25.8)  $ 4.1
Adjustments to reconcile net (loss) income to net cash provided by operating activities:    
Income from discontinued operations      —   (0.4)
Depreciation and amortization   11.4  10.8
Amortization of debt discount and financing costs   2.7  1.2
Stock-based compensation   6.3  2.2
Retirement benefit expense   32.0  20.5
Tax benefit on stock-based awards  (0.1)  (0.7)
Loss on debt repurchased   —  0.4
Changes in assets and liabilities   (7.5)   9.3
Net cash provided by continuing operations   19.0  47.4
Net cash used in discontinued operations    (0.1)   (0.1)
Net Cash Provided by Operating Activities   18.9  47.3
Investing Activities    
Purchases of restricted cash investments  (470.0)   —
Purchases of investments  (0.5)   —
Proceeds from sale of property  —   0.6
Capital expenditures    (21.7)   (9.3)
Net Cash Used in Investing Activities   (492.2)  (8.7)
Financing Activities    
Tax benefit on stock-based awards  0.1  0.7
Proceeds from shares issued equity plans  0.1   —
Proceeds from issuance of debt  460.0  —
Debt issuance costs  (13.1)   (0.3)
Debt repayments  (1.3)  (76.4)
Vendor financing repayments   —   (0.4)
Net Cash Provided by (Used in) Financing Activities    445.8   (76.4)
Net Decrease in Cash and Cash Equivalents  (27.5)  (37.8)
Cash and Cash Equivalents at Beginning of Year    162.1   188.0
Cash and Cash Equivalents at End of Year  $ 134.6  $ 150.2
     

Use of Non-GAAP Financial Measures

In addition to segment performance (discussed above), the Company provides the Non-GAAP financial measures 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, 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 (pension and postretirement 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) 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, 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.

  Three months ended May 31,  Six months ended May 31, 
   2013   2012   2013   2012 
  (In millions, except percentage amounts)
  (Unaudited)
(Loss) income from continuing operations before income taxes  $ (9.6)  $ 4.6  $ (18.8)  $ 9.3
Interest expense  12.6  5.8  23.8  11.8
Interest income  (0.1)  (0.1)  (0.2)  (0.3)
Depreciation and amortization  5.3  5.5  11.4  10.8
Retirement benefit plan expense  16.1  10.3  32.0  20.5
Unusual items        
Rocketdyne Business acquisition related costs  6.4   —  11.8  —
Legal related matters  (0.1)  0.2  0.4  0.4
Loss on debt repurchased   —   0.4   —   0.4
Adjusted EBITDAP  $ 30.6  $ 26.7  $ 60.4  $ 52.9
Adjusted EBITDAP as a percentage of net sales  10.7%  10.7%  11.4%  11.7%

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,
  2013 2012 2013 2012
  (In millions)
  (Unaudited)
Cash provided by operating activities $ 12.0 $ 29.3 $ 18.9 $ 47.3
Capital expenditures (12.6) (5.7) (21.7) (9.3)
Free cash flow $ (0.6) $ 23.6 $ (2.8) $ 38.0
         
      May 31, May 31,
      2013 2012
      (In millions)
      (Unaudited)
Debt principal   $ 707.4 $ 250.0
Cash and cash equivalents including restricted cash   (604.6) (150.2)
Net debt   $ 102.8 $ 99.8
         

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:

         Kathy Redd

         vice president and chief financial officer

         916.355.2361



         Ron Samborsky

         vice president, investor relations

         916.355.3610



         Media:

         Glenn Mahone

         vice president, communications

         202.302.9941

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Source: GenCorp Inc.

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