GenCorp Reports 2014 Fourth Quarter and Annual Results

SACRAMENTO, Calif., Jan. 30, 2015 (GLOBE NEWSWIRE) -- GenCorp Inc. (NYSE:GY) today reported results for the fourth quarter and year ended November 30, 2014.

Financial Overview

Fourth Quarter of Fiscal 2014 compared to Fourth Quarter of Fiscal 2013

• Net sales for the fourth quarter of fiscal 2014 totaled $439.6 million compared to $485.3 million for the fourth quarter of fiscal 2013.
• Net income for the fourth quarter of fiscal 2014 was $10.1 million, or $0.15 diluted income per share, compared to a net loss of $(3.7) million, or $(0.06) loss per share, for the fourth quarter of fiscal 2013.
• Adjusted EBITDAP (Non-GAAP measure*) for the fourth quarter of fiscal 2014 was $63.4 million, or 14.4% of net sales, compared to $53.3 million, or 11.0% of net sales, for the fourth quarter of fiscal 2013.
• Segment performance (Non-GAAP measure*) before environmental remediation provision adjustments, retirement benefit plan expense, and unusual items was $54.5 million for the fourth quarter of fiscal 2014, compared to $47.0 million for the fourth quarter of fiscal 2013.
• Cash provided by operating activities in the fourth quarter of fiscal 2014 totaled $116.3 million, compared to $51.1 million in the fourth quarter of fiscal 2013. The cash generated from operating activities in the fourth quarter of fiscal 2014 included an increase of $76.1 million in cash advances on long-term contracts.
• Free cash flow (Non-GAAP measure*) in the fourth quarter of fiscal 2014 totaled $104.8 million, compared to $26.6 million in the fourth quarter of fiscal 2013.
• As of November 30, 2014, the Company had $516.3 million in net debt (Non-GAAP measure*) compared to $501.6 million as of November 30, 2013.
• As of November 30, 2014, the Company had $2.2 billion of funded backlog compared to $1.7 billion as of November 30, 2013.
• In January 2015, $34.4 million of 4 ¹/₁₆% Convertible Subordinated Debentures ("4 ¹/₁₆% Debentures") were converted to 3.8 million shares of common stock.
• In January 2015, the Company retired $8.0 million principal amount of its delayed draw term loan.

Fiscal 2014 compared to Fiscal 2013

• Net sales for fiscal 2014 totaled $1,597.4 million compared to $1,383.1 million for fiscal 2013. Fiscal 2014 and 2013 results include 12 months and 5 ¹/₂ months, respectively, of the Pratt & Whitney Rocketdyne division (the "Rocketdyne Business") operating results.
• Net loss for fiscal 2014 was $(53.0) million, or $(0.92) loss per share, compared to net income of $167.9 million, or $2.11 diluted income per share, for fiscal 2013. The net loss for fiscal 2014 included pre-tax cost growth of $23.6 million on the Antares AJ-26 program and a pre-tax charge of $60.6 million related to the repurchase of $59.6 million of principal of the Company's 4 ¹/₁₆% Debentures. The net income for fiscal 2013 included a $193.9 million income tax benefit primarily associated with the release of deferred tax asset valuation allowance reserves.
• Adjusted EBITDAP (Non-GAAP measure*) for fiscal 2014 was $174.2 million, or 10.9% of net sales, compared to $155.6 million, or 11.3% of net sales, for fiscal 2013.
• Segment performance (Non-GAAP measure*) before environmental remediation provision adjustments, retirement benefit expense, and unusual items was $145.5 million for fiscal 2014, compared to $151.4 million for fiscal 2013.
• Cash provided by operating activities in fiscal 2014 totaled $150.4 million, compared to $77.6 million in fiscal 2013. The cash generated from operating activities in fiscal 2014 included an increase of $94.1 million in cash advances on long-term contracts.
• Free cash flow (Non-GAAP measure*) in fiscal 2014 totaled $107.0 million, compared to $14.4 million in fiscal 2013.
• Repurchased 3.5 million shares of common stock at a cost of $64.5 million in fiscal 2014.
• In January 2015, $34.4 million of 4 ¹/₁₆% Debentures were converted to 3.8 million shares of common stock.
• In January 2015, the Company retired $8.0 million principal amount of its delayed draw term loan.

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* 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.

"We are particularly pleased with the progress that has been made during the fourth quarter in moving toward a more fully integrated business following the acquisition of Rocketdyne in 2013 as we continue to position the Company to support the many challenges our customers must address in an increasingly complex fiscal and strategic environment," said Scott Seymour, President and Chief Executive Officer of GenCorp. "Many of our key, year-over-year metrics, such as cash generation and backlog, have steadily improved during this important period of transformation. We look forward to continuing our integration activities in the coming months while maintaining our focus on strengthening the Company's overall competitiveness."

Operations Review

Aerospace and Defense Segment

The decrease in net sales in the fourth quarter of fiscal 2014 compared to the fourth quarter of fiscal 2013 was primarily due to (i) a decrease of $28.6 million in the J-2X program due to successful completion of NASA's space launch systems upper stage engine test program in June 2014; (ii) a decrease of $21.1 million in the RS-68 program as a result of the timing of deliveries on this multi-year contract; and (iii) a decrease of $20.4 million in the various Standard Missile contracts primarily from the transitioning of the Standard Missile-3 Block IB contract from development activities to low-rate initial production and decreased development activities for the Throttling Divert and Attitude Control System ("TDACS") for the current phase of the Standard Missile-3 Block IIA contract. The decrease in net sales was partially offset by increased deliveries on the Terminal High Altitude Area Defense ("THAAD") program generating $46.8 million in additional net sales. The ramp-up in deliveries on the THAAD program was due to the program supporting full-rate production requirements. See net sales information below:

The increase in segment margin before environmental remediation provision adjustments, retirement benefit plan expense, Rocketdyne purchase accounting adjustments, and unusual items in the fourth quarter of fiscal 2014 compared to the fourth quarter of fiscal 2013 was primarily due to $16.4 million, 3.7% of net sales, favorable RL-10 contract termination for convenience with a commercial customer partially offset by losses of (i) $3.0 million, 0.7% of net sales, on a tactical program to gain entry into a new tactical product line and (ii) $2.5 million, 0.6% of net sales, associated with increased non-contract related costs during the period.

The increase in net sales in fiscal 2014 compared to fiscal 2013 was primarily due to sales from the Rocketdyne Business which was acquired on June 14, 2013. The net sales attributable to the Rocketdyne Business increased $360.0 million in fiscal 2014 compared to fiscal 2013. The increase in net sales also included increased deliveries on the Atlas V, THAAD, and Orion programs totaling $71.9 million. The increase in net sales was partially offset by (i) a decrease of $113.9 million in the various Standard Missile contracts primarily from the transitioning of the Standard Missile-3 Block IB contract from development activities to low-rate initial production, decreased development activities for the TDACS for the Standard Missile-3 Block IIA contract, and the cessation of deliveries on the Standard Missile-1 Regrain contract in fiscal 2014 as a result of contract completion of the most recent foreign military sales order; (ii) an additional week of operations in the first quarter of fiscal 2013 resulting in $27.8 million in net sales; (iii) a decrease of $21.7 million as a result of the completion of the T3 IIA and IIB contracts as the program enters the next development phase; (iv) a decrease of $26.4 million from lower deliveries and changes in the estimated measurement of progress toward completion on the Antares program; and (v) a decrease of $24.6 million as a result of lower deliveries on the Guidance Enhanced Missile TBM ("GEM-T") program. See net sales information below:

The decrease in the segment margin before environmental remediation provision adjustments, retirement benefit expense, Rocketdyne purchase accounting adjustments, and unusual items in fiscal 2014 compared to fiscal 2013, was primarily due to $23.6 million, 1.5% of net sales, of cost growth on the Antares AJ-26 program, including the cost to repair or replace engines, as necessary, in light of the previously reported engine test failures, an associated increase in hardware inspections and corrective actions on remaining engines, costs to repair the damaged test stand, and costs resulting from delayed deliveries.

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

The increase in contract backlog from November 30, 2013 is primarily due to the receipt of large, multi-year awards on several programs including RS-68, RS-27, Atlas V, and THAAD.

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.  Of the Company's November 30, 2014 total contract backlog, approximately 48%, or approximately $1.5 billion, is expected to be filled within one year.

The Rocketdyne Business integration costs incurred and capitalized through November 30, 2014 totaled $38.5 million. These integration costs are reimbursable by the U.S. government upon its audit and approval that the Company's planned integration savings will exceed its restructuring costs by a factor of at least two to one. In December 2014, the Company was informed that the Defense Contract Audit Agency had completed its audit of the Company's restructuring proposal and found that the Company had achieved the required minimum two to one savings to restructuring cost ratio.  Actual recovery of the previously deferred integration costs will take place after the final execution of an Advance Agreement with the Defense Contract Management Agency and determination from the Under Secretary of Defense that the audited restructuring savings exceed the costs by a factor of two to one.  The Company believes these final two actions will be completed in fiscal 2015.

Capital expenditures in fiscal 2014 related to the consolidation of leased facilities to owned Rocketdyne facilities totaled $11.3 million. These consolidation activities are part of an overall integration plan, that, when completed, are expected to improve the overall operating efficiency of the newly combined business.

Real Estate Segment

Sales and segment performance for the fourth quarter of fiscal 2014 were $1.6 million and $1.6 million, respectively, compared to $1.5 million and $0.9 million for the fourth quarter of fiscal 2013, respectively. Net sales and segment performance consist primarily of rental property operations.

Additional Information

Included in the income (loss) from continuing operations before income taxes for the periods presented are as follows:

Retirement Benefit Plans

The Company's tax-qualified pension plans' assets were as follows: 

The Company does not expect to make any significant cash contributions to its tax-qualified defined benefit pension plan until fiscal 2016. The Company estimates that approximately 86% of its unfunded pension obligation as of November 30, 2014 is related to Aerojet Rocketdyne which will be recoverable through its U.S. government contracts.

The Company estimates that its non-cash retirement benefit expense will be approximately $67 million in fiscal 2015 compared to $35.6 million in fiscal 2014. The increase in retirement benefit expense is primarily due to higher actuarial losses arising from the November 30, 2014 measurement associated with the updated mortality assumption and a decrease in the discount rate used to determine the Company's retirement benefit plans' obligations (discussed above).

The funded status of the pension plans may be adversely affected by the investment experience of the plans' assets, by 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 plans' 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 plans 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:

• future reductions or changes in U.S. government spending;
• cancellation or material modification of one or more significant contracts;
• negative audit of the Company's business by the U.S. government;
• the difficulties to integrate the Rocketdyne Business into the Company's existing operations successfully or to realize the anticipated benefits of the acquisition;
• ability to manage effectively the Company's expanded operations;
• ability to manage effectively the Company's leverage and debt service obligations;
• the Company's international sales are subject to applicable laws relating to export controls, the violation of which could adversely affect its operations;
• the acquisition of RD Amross, LLC is subject to a number of conditions which could delay or materially adversely affect the timing of its completion, or prevent it from occurring;
• cost overruns on the Company's contracts that require the Company to absorb excess costs;
• Antares ORB-3 launch failure may result in the termination of the AJ-26 supply contract and the Company may face significant damage claims;
• 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;
• failure to comply with applicable laws, including laws relating to export controls and anti-corruption or bribery laws;
• 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 including a successful cyber-attack, accident or security breach that could result in disruptions to the Company's operations;
• failure to effectively integrate the Rocketdyne Business into the Company's ERP system;
• product failures, schedule delays or other problems with existing or new products and systems;
• the release, or explosion, or unplanned ignition 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 and actuarial estimates, actual returns on plan assets, and government regulations on 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 including the inability to protect or enforce previously executed environmental agreements;
• 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 to the extent not covered by insurance;
• 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 the Company's cash resources and could limit the Company's ability to borrow additional funds or expand its 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, California metropolitan area real estate market or changes in interest rates affecting real estate values in that market;
• additional costs related to the Company's discontinued operations;
• 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;
• failure to maintain effective internal controls in accordance with the Sarbanes-Oxley Act; and
• those risks detailed in the Company's reports filed with the SEC.

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.

(Tables to follow)

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 unusual items relating to the segment operations. Segment performance excludes corporate income and expenses, 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.

Use of Unaudited 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 resulting from the Company's 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, 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 income (loss) 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 income (loss) as determined in accordance with GAAP.

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