Gencorp Q3 Earnings from Operations Improve 26% to $0.53 Per Share
10 September 1999
Gencorp Third Quarter Earnings from Operations Improve 26 Percent to $0.53 Per Share
FAIRLAWN, Ohio, Sept. 10 -- GenCorp reported today
significantly improved 1999 third quarter earnings from continuing businesses
of $0.53 per diluted share compared to $0.42 per diluted share during the
third quarter of 1998. For the nine months ending August 31, 1999, earnings
from continuing businesses were $1.56 per diluted share as compared to $1.26
per diluted share for the same period in 1998, an increase of 24%. With
unusual items, earnings totaled $0.48 per diluted share during the quarter,
which included an expense of $2.8 million related to the planned spin-off of
the Decorative & Building Products and Performance Chemicals business units
into OMNOVA Solutions Inc., a separate publicly traded company, and income of
$0.9 million related to a divestiture.
During the quarter, the Internal Revenue Service issued a favorable ruling
that GenCorp's planned spin-off will be a tax-free transaction. Shareholders
voted to approve the transaction at a Special Shareholders' Meeting on
September 8, 1999. GenCorp's Board of Directors will meet September 17, 1999
to vote on final approval of the plan and to set a record date for the
distribution. Spin-off completion is expected about October 1, 1999. GenCorp
will continue to operate Aerojet, its existing aerospace, defense and fine
chemicals segment, and its Vehicle Sealing business unit.
When the spin-off is completed the OMNOVA businesses will be reflected as
discontinued operations in the continuing financial statements of GenCorp.
"We were pleased to receive such an overwhelming response from
shareholders in favor of the planned spin-off," said John Yasinsky, GenCorp
Chairman and CEO. "Their resounding endorsement gives us confidence going
forward as we prepare to operate as two separate companies, each with
increased focus on its core businesses and significant opportunities to
enhance shareholder value."
Sales from continuing operations totaled $459.4 million for the third
quarter of 1999, compared to $443.1 million during the third quarter of 1998.
Sales increases at the Company's Automotive and Polymer Products segments were
partially offset by a decline at Aerojet. For the nine months ended August
31, 1999, sales from continuing businesses increased 16% to $1.39 billion as
compared to $1.2 billion during the first nine months of 1998.
Operating profit from continuing businesses totaled $43.9 million for the
third quarter of 1999, an improvement of 22% versus $36.0 million for the
third quarter of 1998. For the nine months ended August 31, 1999, operating
profit from continuing businesses increased 20% to $132.0 million as compared
to $109.8 million during last year's period.
Corporate and other expenses were favorably impacted by a focused cost
reduction program to prepare for the planned spin-off, a reduction in retiree
medical expense and an increase in pension income. Also during the quarter,
the Company incurred costs of $2.8 million for spin-off related activities and
reflected a tax provision that was $0.8 million higher than normal because of
certain spin-off costs that will not be deductible for income tax purposes.
Polymer Products -- OMNOVA businesses will be comprised of the polymer
products reporting segment. Net sales from continuing businesses for the
polymer products segment in the third quarter of 1999 increased 26% to
$202.9 million compared to $160.8 million in the third quarter of 1998. Sales
increased in both Decorative & Building Products and Performance Chemicals,
primarily from acquisitions. Operating profit for the polymer products
businesses declined to $21.6 million for the third quarter of 1999 versus
$22.5 million in the third quarter of 1998. Operating margins declined to
10.6% in the third quarter of 1999 compared to 14.0% in the third quarter of
1998, due to product mix in Decorative & Building Products, lower average unit
selling prices across certain Performance Chemicals product lines, higher raw
material prices and increased new product development spending.
The Decorative & Building Products business unit announced the formation
of a joint venture company with Thailand-based conglomerate Charoen Pokphand
Group. The new company, CPPC Decorative Products Co., Ltd., will serve the
decorative PVC film and fabric markets in the Asia-Pacific region and provide
expanded product lines to North America and Europe. During the quarter,
Performance Chemicals announced that it had completed a strategic alliance
agreement with Germany-based PolymerLatex (a joint venture between Bayer AG
and Degussa-Huls AG) to serve the needs of the Company's global paper
customers. The relationship developed from GenCorp's acquisition of
PolymerLatex's U.S. emulsion polymers business last December. This summer,
Performance Chemicals opened a European office near London, to focus on
supporting the needs of its European customers and the European subsidiaries
of its North American customers in all of its served markets. Operationally,
Performance Chemicals' Mogadore, Ohio plant reached a significant milestone in
August by achieving ISO-9002 certification for its quality management systems.
Automotive -- Net sales from continuing businesses for the Vehicle Sealing
business improved 41% to $108.4 million in the third quarter of 1999, versus
$76.9 million in the third quarter of 1998. The sales gain was due to higher
volumes in North America on the General Motors C/K pickup, Ford Explorer and
F-150 platforms, and the absence of last year's strike at General Motors. For
the first nine months of 1999, Vehicle Sealing sales have increased 33% to
$335.5 million versus $252.1 million during the same period in 1998.
Vehicle Sealing's operating profit totaled $2.2 million in the third
quarter of 1999 as compared to a loss of $(6.4) million for the third quarter
of 1998. Operating profit margins improved to 2.0% in the third quarter of
1999 compared to (8.3)% in the third quarter of 1998, primarily due to the
absence of the General Motors strike and lower product launch costs, partially
offset by operating inefficiencies due to unprecedented levels of customer
vehicle builds and higher scrap rates. For the first nine months of 1999,
operating profit improved to $14.3 million versus $2.8 million for the first
nine months of 1998. Vehicle Sealing's German subsidiary, Henniges, was
profitable for the quarter and the nine months ended August 31, 1999.
Aerospace and Defense - At Aerojet, net sales were $148.1 million in the
third quarter of 1999 as compared to $205.4 million in the third quarter of
1998 which included sales of a Special Sensor Microwave Imager/Sounder (SSMIS)
unit and the final infrared sensor delivery for the Air Force's Defense
Support Program (DSP). Aerojet's operating profit for the third quarter of
1999 was $20.1 million, compared to $19.9 million in the third quarter of
1998. Operating margins improved during the quarter to 13.6% from 9.7% in the
third quarter of 1998, due to contract mix and favorable performance award
fees.
During the quarter, Aerojet delivered the third and final shipset of
Reaction Control Thrust Modules for the Air Force's Milstar program six months
ahead of schedule. Milstar is a joint service communications satellite system
developed to meet essential wartime requirements for high priority military
users. Aerojet received a 97% award fee from NASA's Goddard Space Flight
Center for its performance in supplying sensors for another satellite program,
the Advanced Microwave Sounding Unit. NASA made special note of Aerojet's
performance in the areas of program, milestone and schedule management. In
July, Aerojet won a contract to design and build a propulsion system for
NASA's Discovery program, which emphasizes lower-cost scientific missions.
Later that month, Aerojet and Ball Aerospace submitted a joint proposal to
NASA's Jet Propulsion Laboratory to build the new Mars MicroMission
spacecraft. During the quarter, Aerojet also announced that it is in
preliminary discussions with another defense company regarding a possible
propulsion joint venture. Contract awards for the quarter totaled
$168 million with contract backlog of $1.6 billion as of August 31, 1999.
This earnings release contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. All statements in this
release and in subsequent discussions with the Company's management, other
than historical information, are forward-looking statements. A variety of
factors, which are listed in the Forward-Looking Statements section of
Management's Discussion and Analysis in the Company's 1998 annual report and
in the annual report on Form 10K and the Definitive Proxy Statement dated
July 2, 1999, filed with the Securities and Exchange Commission, could cause
actual results or outcomes to differ materially from those expected by the
Company and expressed in the Company's forward-looking statements.
GenCorp is a $1.7 billion technology-based manufacturer with leading
positions in numerous markets served by its Performance Chemicals, Decorative
& Building Products and Vehicle Sealing businesses, and its aerospace &
defense segment, Aerojet.
Business Segment Information (Unaudited)
GenCorp Inc.
Three Months Ended Nine Months Ended
(Dollars in millions, Aug. 31, Aug. 31, Aug. 31, Aug. 31,
except per-share data) 1999 1998 1999 1998
Net Sales
Aerospace and defense $148.1 $205.4 $480.0 $497.2
Polymer products 202.9 177.7 598.4 500.1
Automotive 108.4 78.3 335.5 261.5
Total $459.4 $461.4 $1,413.9 $1,258.8
Income
Aerospace and defense $20.1 $19.9 $55.7 $47.8
Polymer products 21.6 23.1 63.3 61.2
Automotive 2.2 (6.9) 14.3 (.2)
Unusual items .9 -- 16.1 .2
Segment Operating Profit 44.8 36.1 149.4 109.0
Interest expense (5.7) (3.7) (16.6) (8.9)
Corporate other income
and (expense), net (.9) (.4) (.7) (2.6)
Corporate expenses -- (3.2) (6.1) (11.7)
Unusual items (2.8) -- (6.5) --
Income tax provision (15.0) (11.5) (49.4) (34.3)
Net Income $20.4 $17.3 $70.1 $51.5
Earnings per common share:
Basic $.49 $.42 $1.68 $1.24
Diluted $.48 $.41 $1.66 $1.22
Average number of shares
of common stock outstanding
(in thousands):
Basic 41,826 41,527 41,712 41,450
Diluted 42,391 42,103 42,192 42,077
Capital expenditures $36.9 $28.0 $83.6 $60.9
Depreciation $18.6 $15.8 $54.8 $47.5
Divested Businesses
Net Sales
Penn Racquet Sports $-- $16.9 $28.3 $51.9
Plastic Extrusions -- 1.4 -- 9.4
Total $-- $18.3 $28.3 $61.3
Segment Operating
Profit (Loss)
Penn Racquet Sports $-- $.6 $1.3 $2.0
Plastic Extrusions -- (.5) -- (3.0)
Total $-- $.1 $1.3 $(1.0)
Continuing Businesses
Net Sales
Aerospace and defense $148.1 $205.4 $480.0 $497.2
Polymer products 202.9 160.8 570.1 448.2
Automotive 108.4 76.9 335.5 252.1
Total $459.4 $443.1 $1,385.6 $1,197.5
Segment Operating Profit
Excluding Unusual Items
Aerospace and defense $20.1 $19.9 $55.7 $47.8
Polymer products 21.6 22.5 62.0 59.2
Automotive 2.2 (6.4) 14.3 2.8
Total $43.9 $36.0 $132.0 $109.8
Condensed Consolidated Balance Sheets (Unaudited)
GenCorp Inc.
Aug. 31, Nov. 30,
(Dollars in millions) 1999 1998
Assets
Cash and equivalents $26.9 $28.6
Accounts receivable 253.9 275.7
Inventories 190.1 165.3
Prepaid expenses and other 59.1 59.1
Total Current Assets 530.0 528.7
Recoverable from U.S. government and third
parties for environmental remediation 134.9 149.3
Deferred income taxes 137.8 136.9
Prepaid pension 151.6 127.4
Investments and other assets 309.7 301.4
Property, plant and equipment, less
accumulated depreciation 515.5 499.7
Total $1,779.5 $1,743.4
Liabilities and Shareholders' Equity
Notes payable $58.2 $14.4
Accounts payable-trade 91.7 118.7
Income taxes 47.8 34.0
Other current liabilities 255.5 263.2
Total Current Liabilities 453.2 430.3
Long-term debt 340.9 356.2
Postretirement benefits other than pensions 305.5 318.4
Environmental reserves 233.1 245.7
Other liabilities 52.9 49.3
Shareholders' equity 393.9 343.5
Total $1,779.5 $1,743.4