GenCorp Reports 4th Quarter and Fiscal Year 1999 Results
12 January 2000
GenCorp Reports 4th Quarter and Fiscal Year 1999 Results
Full Year Earnings for Continuing Businesses Up 21%
SACRAMENTO, Calif., Jan. 12 -- GenCorp reported
today substantially improved 1999 full year results for continuing operations
of $1.09 per diluted share compared to $0.90 per diluted share for 1998, an
increase of 21% over the prior year. Revenues for continuing operations grew
2% in 1999 to $1.07 billion from $1.05 billion in 1998.
GenCorp's continuing businesses include Aerojet, its aerospace, defense
and pharmaceutical fine chemicals segment and its automotive Vehicle Sealing
segment. Earlier in the year, the Company completed a spin-off of its
Decorative & Building Products and Performance Chemicals businesses as a
separate publicly traded company named OMNOVA Solutions Inc. The spin-off was
approved by shareholders at a special meeting on September 8 and by GenCorp's
Board of Directors on September 17. The Board declared a dividend of one share
of OMNOVA Solutions Inc. common stock for each share of GenCorp common stock
held on the September 27, 1999 record date. The dividend distribution was made
on October 1, 1999.
The OMNOVA businesses and the Penn Racquet Sports division, which was sold
in the second quarter of 1999, are now reflected as discontinued operations in
GenCorp's financial statements.
"Looking at our continuing operations for the full year, we are pleased
with the results, which exceeded consensus expectations," said Bob Wolfe,
Chairman and CEO. "Increased sales and profit in 1999 at our automotive
Vehicle Sealing segment were encouraging. Accelerating this trend of year over
year improved performance through cost reduction and organizational and
process enhancements is a continuing priority," he said. "At Aerojet, we
remain focused on the need to consolidate the propulsion side of the business
through a joint venture or other alternatives, and we are aggressively
pursuing acquisition candidates to grow Aerojet's other businesses."
"Our Aerojet Fine Chemicals unit had a disappointing fourth quarter,
hurting both Aerojet's sales and earnings when compared to its performance in
the fourth quarter of 1998; however, we have taken immediate actions to get
this new start up business back on track in the year 2000," Wolfe said.
"With the spin-off behind us, we are looking forward to the new year and
devoting our full attention to increasing earnings," Wolfe added. "Our
strategy for fiscal year 2000 is simple. We will continue to seek cost
reductions and revenue improvements in all of our businesses. We expect
earnings per share to be up at least 10 percent above the $1.09 reported in
1999. Driving this earnings growth will be continued margin improvements at
both Vehicle Sealing and Aerojet, and further reductions in corporate expense.
"During the year, we will also be seeking accretive acquisitions to help
our businesses grow faster. Even without acquisitions, we are confident that
we can obtain at least a 10 percent increase in earnings per share," he said.
Total sales from continuing operations during the fourth quarter of
1999 decreased 12% to $255.5 million, versus $289.6 million for the same
period in 1998. Sales decreases at Aerojet were partially offset by an
increase in Vehicle Sealing. Earnings from continuing businesses in the fourth
quarter were $0.26 per diluted share compared to $0.33 per diluted share
during the fourth quarter of 1998. During the quarter, the settlement of
certain environmental related claims resulted in the Company recognizing
$7.1 million of earnings.
Aerospace, Defense and Fine Chemicals
Sales at Aerojet were $134.7 million in the fourth quarter of 1999
compared to $175.9 million in the same quarter of 1998. Lower revenues on the
Titan, Defense Support Program (DSP), and Integrated AMSU programs and in Fine
Chemicals contributed to the decline, partially offset by higher smart
munitions volume.
Operating profit declined to $6.2 million in the fourth quarter 1999
versus $19.6 million in the fourth quarter of 1998, impacted by lower sales
volume and operational issues at Fine Chemicals including delayed delivery
schedules by customers, facility start-up problems, and higher than expected
production ramp-up costs for new products. Appropriate corrective actions are
being implemented to resolve the operational issues contributing to the
shortfall. Year over year, Aerojet's operating earnings of $61.9 million were
down from $67.4 million earned in fiscal year 1998, due entirely to the poor
performance of the Aerojet Fine Chemicals unit.
Despite the fourth quarter decline at Aerojet Fine Chemicals, this unit
participated as a key supplier on approximately 20% of all new compounds that
were approved by the FDA in 1999. Aerojet Fine Chemicals is now involved as a
supplier for anti viral, arthritis, cancer, AIDS and epilepsy new drug
applications.
Overall margins on Aerojet's government contracts were steady to improved
compared to the same period in 1998.
Highlights at Aerojet during the quarter included:
-- "Excellent" award fee ratings on a number of key contracts including
Titan, Defense Support Program, Central Theater Processing Program, and
the Long Range Air Launch Target (LRALT) program.
-- The signing of a teaming agreement to be a significant member of the
TRW/Raytheon Space Based Infrared Low (SBIRS Low) team. SBIRS Low is
the low-Earth orbiting component of the U.S. Air Force's SBIRS system,
the nation's next-generation, ballistic missile early-warning system.
The TRW/Raytheon team has won one of two $275 million contracts from
the Air Force for the 38-month Program Definition Risk Reduction phase
of SBIRS Low. With the new teaming agreement, Aerojet is now
strategically positioned with key roles on both the High, teamed with
Lockheed Martin, and Low components of this major program.
-- The award of a 10-month, $4 million contract from NASA for the
formulation phase of the Advanced Technology Microwave Sounder (ATMS).
ATMS is the next generation space-borne microwave instrument for use in
weather forecasting and climate change research.
-- During the quarter, Aerojet booked contract award funding of
$167 million with contract backlog at year-end totaling $1.6 billion.
Vehicle Sealing
Net sales from continuing businesses for the Vehicle Sealing segment
improved 6% to $120.8 million in the fourth quarter of 1999, versus
$113.7 million in the fourth quarter of 1998. The sales gain was due to higher
volumes in North America on General Motors' C/K pickup and Grand AM platforms,
Ford's full size and compact pickup platforms, and the Mercedes all terrain
vehicle. Operating profit in the fourth quarter of 1999 was $3.3 million,
unchanged from fourth quarter 1998. Operating profit margins reflect certain
physical inventory adjustments and launch expenses associated with the new
Saturn Z and LS product introductions. With the numerous programs introduced
in 1998 continuing to mature, operating margins showed steady improvement
throughout 1999. For the year, Vehicle Sealing operating profits improved from
$3.1 million in 1998 to $17.6 million in 1999.
Vehicle Sealing is currently well positioned in the marketplace with a
strong mix of popular passenger car, sport utility vehicle and light truck
platforms, many on the top ten best seller's list. As launch and development
costs continue to subside and operating processes continue to be improved and
modernized, profit margins are expected to trend upward during 2000.
Unusual Items
During the fourth quarter of 1999, the Company incurred unusual items
resulting in net income of $7.1 million. Unusual items included a pretax gain
of $59.2 million on settlements covering certain environmental claims with
insurance carriers; a provision for environmental remediation costs of
$32.7 million associated with the Company's initial estimate of its probable
share, as a Potentially Responsible Party (PRP), in the portion of the San
Gabriel Valley Basin Superfund Site known as the Baldwin Park Operable Unit
(BPOU); a provision for environmental remediation costs at the Company's
Lawrence, Massachusetts site of $6.0 million; a provision for environmental
remediation costs associated with other Company sites of $2.5 million; a
charge of $3.7 million related to a pricing dispute with a major automotive
customer; a charge of $1.5 million for write-down of assets to net realizable
value; and a charge of $1.0 million related to relocation/retention costs
associated with the spin-off.
The Company believes that environmental provisions made in the fourth
quarter adequately address all currently known material financial exposures
related to environmental matters.
Other Expenses
Corporate and other expenses were favorably impacted in the fourth quarter
of 1999 by a focused cost reduction program implemented prior to the spin-off,
improved results in retiree medical expenses and an increase in pension
income. At November 30, 1999, GenCorp's total debt decreased to $158 million
versus $371 million at year-end 1998 due to a special dividend payment of
$200 million to GenCorp by OMNOVA Solutions Inc. at the date of the spin-off,
which was used to repay indebtedness. Interest expense for continuing
operations was $3.8 million in the fourth quarter of 1999, not directly
comparable to interest expenses during the same period in 1998, which
reflected allocations made by GenCorp prior to the spin-off. Equity decreased
to $80 million at year-end 1999 from $344 million a year ago due to the
combination of equity allocation at the date of the spin-off and the special
dividend payment from OMNOVA Solutions Inc.
Discontinued Operations
Earnings from discontinued operations per diluted share totaled $0.63 for
the full year compared to $1.09 per diluted share in 1998. A 1999 fourth
quarter loss from discontinued operations of $0.20 per diluted share compared
to earnings of $0.44 per diluted share during the fourth quarter of 1998. The
1999 fourth quarter loss is primarily due to $18.2 million in costs incurred
for spin related activities.
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 filed with the Securities and Exchange
Commission (SEC), as well as the Risk Factors section of the Company's special
Proxy Statement dated July 2, 1999 also filed with the SEC, 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 technology-based manufacturer with leading positions in the
aerospace and defense, pharmaceutical fine chemicals and automotive
industries. Additional information about GenCorp can be obtained by visiting
the Company's Web-site at http://www.GenCorp.com .
Business Segment Information (Unaudited)
GenCorp Inc.
Three Months Ended Year Ended
(Dollars in millions, Nov. 30, Nov. 30, Nov. 30, Nov. 30,
except per-share data) 1999 1998 1999 1998
Net Sales
Aerospace, defense
and fine chemicals $134.7 $175.9 $614.7 $673.1
Vehicle sealing 120.8 113.7 456.3 375.2
$255.5 $289.6 $1,071.0 $1,048.3
Income from Continuing
Operations
Aerospace, defense
and fine chemicals $6.2 $19.6 $61.9 $67.4
Vehicle sealing 3.3 3.3 17.6 3.1
Unusual items 21.3 -- 21.3 9.0
Segment Operating Profit $30.8 $22.9 $100.8 $79.5
Interest expense (3.8) (2.3) (5.5) (6.1)
Corporate other income
and (expense), net -- (0.3) (5.0) (5.8)
Corporate expenses (0.6) 0.1 (4.5) (7.4)
Unusual items (9.5) -- (9.5) --
Income tax (provision)
benefit (5.8) (6.4) (30.0) (22.4)
Net Income from Continuing
Operations $11.1 $14.0 $46.3 $37.8
Discontinued Operations,
net of tax (8.5) 18.3 26.4 46.0
Net Income $2.6 $32.3 $72.7 $83.8
Basic earnings per
common share:
Continuing Operations $0.27 $0.34 $1.11 $0.91
Discontinued Operations (0.21) 0.44 0.63 1.11
Total $0.06 $0.78 $1.74 $2.02
Diluted earnings per
common share:
Continuing Operations $0.26 $0.33 $1.09 $0.90
Discontinued Operations (0.20) 0.44 0.63 1.09
Total $0.06 $0.77 $1.72 $1.99
Average number of shares
of common stock outstanding
(in thousands):
Basic 41,837 41,530 41,740 41,468
Diluted 42,170 41,896 42,148 42,033
Capital expenditures $25.4 $18.9 $86.2 $68.2
Depreciation $8.3 $9.5 $42.3 $42.6
Condensed Consolidated Balance Sheet (Unaudited)
GenCorp Inc.
Nov. 30, Nov 30,
(Dollars in millions) 1999 1998
Assets
Cash and equivalents $14.1 $23.6
Accounts receivable 139.0 163.7
Inventories 144.2 101.3
Prepaid expenses and other 57.2 48.1
Current assets -
discontinued operations -- 192.0
Total Current Assets $354.5 $528.7
Recoverable from U.S. government
and third parties for
environmental remediation 211.5 149.3
Deferred income taxes 148.7 152.6
Prepaid pension 113.0 127.4
Investments and other assets 61.6 65.6
Property, plant and equipment, less
accumulated depreciation 335.5 296.7
Non-current assets -
discontinued operations -- 423.0
$1,224.8 $1,743.3
Liabilities and Shareholders' Equity
Notes payable $9.3 $14.4
Accounts payable-trade 44.3 40.7
Income taxes 44.4 33.0
Other current liabilities 264.0 243.4
Current liabilities -
discontinued operations -- 99.0
Total Current Liabilities $362.0 $430.5
Long-term debt 148.7 356.2
Postretirement benefits
other than pensions 251.0 318.4
Environmental reserves 346.2 245.7
Other liabilities 37.1 36.5
Non-Current liabilities -
discontinued operations -- 12.0
Shareholders' equity 79.8 344.0
$1,224.8 $1,743.3