Aerojet Rocketdyne Holdings Inc (AJRD) 2002 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Terry Hall GenCorp third quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. If you should require assistance during the call, press zero and then star. As a reminder, this conference is being recorded. I would like to turn the conference over to President and CEO of GenCorp, Mr. Terry Hall. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining us on our third quarter earnings call with me, I have among others, Yasmin Seyal, our CFO, Greg Scott, our General Counsel and Linda Cutler, our VP of Corporate Communications. Before I start with comments on the quarter, I would like to ask Linda to read the forward-looking statements.

Thanks, Terry. During this conference call, GenCorp's management team may make forward-looking statements. As encouraged by the Private Litigation Reform Act of 1995. All statements in this conference call and in subsequent discussions other than historical information are forward-looking statements. These statements represent management's current judgment on expectations for future operations.

A variety of factors listed in the forward-looking statements section of our third quarter 2002 earnings release as well as management's discussion and analysis and elsewhere in our most recent Form 10-K and other filings with the SEC could cause business conditions and actual results to differ materially from those expected by the company or expressed in our forward-looking statements. Also, please note that a telephonic replay of today's conference call will be available for the next week through Thursday, October 10th. The call is also being audio broadcast and will be available at GenCorp's website at www.gencorp.com. Terry?

Thank you, Linda. I am pleased with the company's performance this quarter. One of our major goals in year was to improve the operating performance of our operating units. What we saw in the third quarter is a continuation of a trend of improving those results. Q3 profits or operating profits were up 16 percent from 19 million a year ago to 22 million. That was a result of focusing our businesses on cost and efficiencies.

Across all our businesses, we had improved results. The primary drivers of large improvements were at AFC and at GDX, our automotive business. At GDX year-over-year, the last year they lost $5 million. This year, they made $5 million in the quarter. At Aerojet Fine Chemicals last year, they lost $6 million during the quarter this year, they made $3 million during the quarter.

Again, we continue to have a focus on reducing the cost at AFC within the last year we have reduced the head count by approximately 45 percent. And we are putting out more product. At GDX, since we acquired Draftex in December of 2000, we have shut down four plants and we have reduced the head count there by 1600 people. We are going to continue to work on improving the margin, and you will see in the next quarter we will be taking a $2 million restructuring charge for GDX where we'll be shutting down another plant in Europe and also taking out head count out of the divisional headquarters at GDX.

When you look at how we did below the line, I think that there are two things of importance there. One is interest costs year ago, interest costs for the quarter were $10 million. This year, they were $4 million. That is a result of both of lower debt rates and a lower amount of debt outstanding. Also, you will notice that we have a low tax rate for this quarter. That was a result of a donation of some old GenCorp plant property in Cordova, Michigan, that we gave to the State of Michigan, resulting in a tax rate of 33 percent. The net of all that was EPS of 9 cents versus 7 cents a year ago, and 19 cents versus our guidance, which was 14 to 16 cents, for the quarter.

When you look at other financial results on the table, the other thing that I think stands out is the amount of corporate SG&A expense for the year. Year to date, we are at 21 million and over a third of that amount is related to expense that we had when we went through the accounting investigation relating to accounting issue in March and also in there, we have expense as a result of a contract that the company signed with Mr. Wolf, our Chairman, who will be retiring in November of 2003. So on the financial side, we think we're continuing to see a trend of improved performance. We should see increasing margins going forward and we expect to have a stronger fourth quarter than we had in this third quarter.

In terms of the second important thing that happened recently, yesterday, as we announced, we closed the acquisition of General Dynamics space business. This is the first step in our goal of growing our Aerospace and Defense business Aerojet. We have told Aerojet that we want them to double within the next three years which means we have a goal of getting them to $500 million in terms revenue.

Why did we start with GDSS? First, it was a good financial deal. We expect that it will be accretive to earnings. -- commencing next year. Second, it gave us a major market position in space and satellite propulsion. In our calculation, we believe that the combined Aerojet/GDSS will have a market share of about 45 percent of that market. It improves the company's position on a number of programs that we're currently on, including national missile defense and the NASA shuttle. It also makes available to us some new markets and some new technology that we haven't been in before, primarily things like electric propulsion and fire suppression for fighter aircraft.

We're going to continue to look for acquisitions in this field. We will do them if they meet our financial criteria and meet our strategic criteria of being related to propulsion and to a business that we know. We paid for the acquisition with the new term loan. We raised $115 million. $90 million is for the acquisition of GDSS. The rate was LIBOR plus 375. And what we didn't spend on the acquisition, we will use to reduce our revolver. In terms of other things going on, another important milestone that we're working on and making progress on is monetizing our real estate.