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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 1996 Commission File Number 1-1520
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GenCorp Inc.
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(Exact name of registrant as specified in its charter)
Ohio 34-0244000
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(State of Incorporation) (I.R.S. Employer Identification No.)
175 Ghent Road Fairlawn, Ohio 44333-3300
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 869-4200
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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At June 30, 1996, there were 33,420,393 outstanding shares of GenCorp Inc.'s
Common Stock, par value $.10.
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GenCorp Inc.
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Table of Contents
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income -
Three Months and Six Months Ended May 31, 1996 and 1995 -3-
Condensed Consolidated Balance Sheets -
May 31, 1996 and November 30, 1995 -4-
Condensed Consolidated Statements of Cash Flows -
Six Months Ended May 31, 1996 and 1995 -5-
Notes to the Unaudited Interim Condensed Consolidated
Financial Statements -6-
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations -11-
Part II. Other Information
Item 1. Legal Proceedings -14-
Item 5. Other Information -14-
Item 6. Exhibits and Reports on Form 8-K -15-
Signatures -16-
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PART I. FINANCIAL INFORMATION
GenCorp Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
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Unaudited Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
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May 31, May 31, May 31, May 31,
1996 1995 1996 1995
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NET SALES $ 378.0 $ 461.9 $ 746.3 $ 890.0
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COSTS AND EXPENSES
Cost of products sold 307.0 383.0 619.3 749.7
Selling, general and administrative 42.4 45.7 87.5 89.1
Interest expense 6.6 9.2 14.6 17.9
Other (income) and expense, net (1.6) (3.2) (3.2) (5.5)
Unusual items (Note C) .1 - 24.9 -
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354.5 434.7 743.1 851.2
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INCOME BEFORE INCOME TAXES 23.5 27.2 3.2 38.8
Income tax provision 9.4 10.9 .8 15.5
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NET INCOME $ 14.1 $ 16.3 $ 2.4 $ 23.3
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EARNINGS PER SHARE OF COMMON STOCK (NOTE B)
Primary $ .42 $ .50 $ .07 $ .72
Fully diluted $ .38 $ .45 $ .07 $ .66
Average number of shares of common
stock outstanding (in thousands)
Primary 33,632 32,533 33,592 32,397
Fully diluted 40,991 39,691 40,986 39,555
Cash dividends paid per share of common stock $ .15 $ .15 $ .30 $ .30
</TABLE>
The accompanying notes to the unaudited interim condensed consolidated
financial statements are an integral part of these statements.
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GenCorp Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
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Unaudited Audited
May 31, November 30,
1996 1995
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CURRENT ASSETS:
Cash and equivalents $ 16.0 $ 17.0
Accounts receivable 210.2 241.7
Inventories (Note D) 139.8 161.3
Prepaid expenses and other 57.3 45.0
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TOTAL CURRENT ASSETS 423.3 465.0
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Recoverable from U.S. government and third
parties for environmental remediation 121.9 120.8
Deferred income taxes 142.6 147.8
Prepaid pension 101.3 109.4
Investments and other assets 85.2 71.2
Property, plant and equipment:
At cost 1,095.8 1,302.2
Accumulated depreciation (679.5) (758.9)
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Net property, plant and equipment 416.3 543.3
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TOTAL ASSETS $ 1,290.6 $ 1,457.5
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable $ 23.8 $ 20.7
Accounts payable - trade 70.8 98.6
Income taxes (7.9) 4.8
Other current liabilities 221.1 251.4
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TOTAL CURRENT LIABILITIES 307.8 375.5
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Long-term debt (Note E) 315.2 382.9
Postretirement benefits other than pensions 352.2 371.7
Environmental reserves 229.6 231.6
Other liabilities 61.5 60.3
Contingencies (Note F)
SHAREHOLDERS' EQUITY
Preference stock - (none outstanding) - -
Common stock - $.10 par value;33.4 million
shares outstanding 3.3 3.3
Other capital 21.9 21.9
Retained earnings (deficit) (5.1) 2.5
Currency translation adjustment 4.2 7.8
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TOTAL SHAREHOLDERS' EQUITY 24.3 35.5
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,290.6 $ 1,457.5
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</TABLE>
The accompanying notes to the unaudited interim condensed consolidated
financial statements are an integral part of these statements.
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GenCorp Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
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Unaudited
SIX MONTHS ENDED
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May 31,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2.4 $ 23.3
Provision for unusual items 24.9 --
Depreciation, amortization and loss on
disposal of fixed assets 35.7 38.0
Increase in working capital (73.8) (75.0)
Decrease (Increase) in deferred income taxes 5.2 (2.0)
Other - net (13.9) (10.0)
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NET CASH USED IN OPERATING ACTIVITIES (19.5) (25.7)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (20.1) (25.3)
Proceeds from asset dispositions 119.5 --
Investments and other - net (2.7) 4.8
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 96.7 (20.5)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term debt incurred 3.1 4.9
Long-term debt incurred 360.1 165.1
Long-term debt paid (427.8) (131.6)
Dividends (9.9) (9.7)
Other equity transactions (3.7) 15.2
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NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (78.2) 43.9
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NET DECREASE IN CASH AND EQUIVALENTS (1.0) (2.3)
Cash and equivalents at beginning of year 17.0 22.4
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Cash and equivalents at end of period $ 16.0 $ 20.1
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</TABLE>
Cash paid during the period for interest was $15.5 million and $18 million for
the six months ended May 31, 1996 and 1995, respectively. Cash paid during the
period for income taxes was $17.1 million and $11.7 million for the six months
ended May 31, 1996 and 1995, respectively.
The accompanying notes to the unaudited interim condensed consolidated
financial statements are an integral part of these statements.
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GenCorp Inc.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with the instructions to Form 10-Q
and therefore do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
These interim statements should be read in conjunction with the financial
statements and notes thereto included or incorporated by reference in the
GenCorp Inc. (Company) Annual Report on Form 10-K for the fiscal year ended
November 30, 1995.
All normal recurring accruals and adjustments considered necessary for a
fair presentation of the unaudited results for the six months ended May 31,
1996 and 1995, have been reflected. The results of operations for the six
months ended May 31, 1996 are not necessarily indicative, if annualized, of
those to be expected for the full fiscal year.
NOTE B - NET INCOME PER SHARE OF COMMON STOCK
Primary earnings per share of common stock are calculated by dividing net
income by the weighted average number of common shares outstanding adjusted for
the inclusion of stock options and shares to be issued under other stock based
compensation programs. For fully diluted earnings per share, net income and
shares outstanding have also been adjusted as if the Company's $115,000,000 8%
Convertible Subordinated Debentures Due August 1, 2002 had been converted. (See
Note E for further information regarding the debentures.)
NOTE C - UNUSUAL ITEMS
On March 1, 1996, GenCorp Inc. completed the sale of substantially all of
the assets and certain liabilities of its Reinforced Plastics Division to
Cambridge Industries, Inc. of Madison Heights, Michigan for an aggregate
consideration of approximately $42 million, of which approximately $18 million
was paid in cash at the closing, approximately $14 million of which was covered
by delivery of a Subordinated Promissory Note of Cambridge Industries Holdings,
Inc. and approximately $10 million of which was paid through the retention of
receivables. The sale was effective as of February 29, 1996.
On February 15, 1996, GenCorp Inc. completed the sale of substantially all
of the assets and certain liabilities of its Vibration Control Division to BTR
Antivibration Systems, Inc., a subsidiary of BTR plc. for an aggregate
consideration of approximately $80 million paid in cash at the closing.
The Company recognized a loss of $10 million from the sale of the two
divisions and used the proceeds to reduce outstanding debt.
Also during the first quarter of 1996, the Company took a pretax charge of
$14.8 million for expenses related to the Voluntary Early Retirement Incentive
Program for eligible employees at the Company's Fairlawn headquarters and
Corporate Technology Center.
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NOTE D - INVENTORIES
Inventories are stated at the lower of cost or market value. A portion of
the inventories is priced by use of the last-in, first-out (LIFO) method using
various dollar value pools. Interim LIFO determinations may involve
management's judgments of expected year-end inventory levels. Components of
inventory are as follows:
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Unaudited Audited
May 31, November 30,
1996 1995
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Raw materials and supplies $ 48.4 $ 46.7
Work-in-process 4.2 15.5
Finished products 57.7 64.9
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Approximate replacement cost of LIFO inventories 110.3 127.1
Reserves, primarily LIFO (42.4) (42.8)
Long-term contracts at average cost 184.5 178.5
Progress payments (112.6) (101.5)
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$ 139.8 $ 161.3
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NOTE E - LONG-TERM DEBT AND CREDIT LINES
On May 17, 1996, the Company entered into a new five-year unsecured $400
million revolving credit facility (Facility) which expires in May 2001. As of
May 31, 1996, unused revolving lines of credit totaled $210 million. The
Company pays a variable commitment fee, which is currently 1/4 of one percent,
on the unused balance. Interest rates are variable, primarily based on LIBOR,
and are currently at an average rate of 6.22 percent. The Facility contains
various debt restrictions and provisions relating to net worth, interest
coverage and debt to earnings before interest, taxes, depreciation and
amortization (Debt/EBITDA) ratios. The Company is required to maintain
consolidated net worth of at least $2.6 million.
The $115,000,000 8% Convertible Subordinated Debentures Due August 1, 2002
(Debentures) are redeemable at the option of the Company, in whole or in part,
at any time on or after August 10, 1996. The Debentures are convertible at any
time prior to maturity, unless previously redeemed, into shares of common stock
at a conversion price of $16.065 per share (equivalent to a conversion rate of
approximately 62.247 shares of Common Stock per $1,000 principal amount of
Debentures) subject to adjustment in certain circumstances. The market value of
the Debentures was $123.1 million at May 31, 1996.
At May 31, 1996, the Company had unsecured, uncommitted lines of credit
with several banks for short-term borrowings aggregating $45.9 million, of
which $20.8 million was outstanding. Borrowings under such lines generally bear
interest at money market rates and are payable on demand. The Company also had
outstanding letters of credit totaling $27.3 million at May 31, 1996.
NOTE F - CONTINGENCIES AND UNCERTAINTIES
ENVIRONMENTAL MATTERS
Sacramento, California
In June 1989, the United States District Court approved a Partial
Consent Decree (Decree) requiring Aerojet to conduct a Remedial
Investigation/Feasibility Study (RI/FS) of Aerojet's Sacramento, California site
and prepare an RI/FS report on specific environmental conditions present at the
site and alternatives available to remedy such conditions. Aerojet also is
required to pay for certain government oversight costs associated with
compliance with the Decree.
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NOTE F - CONTINGENCIES AND UNCERTAINTIES (continued)
In September 1993, Aerojet reached a settlement with the U.S. government
whereby Aerojet recovered approximately $18 million for costs incurred at the
site from July 1989 through November 1992. The settlement also provides that 65
percent of covered costs incurred after November 1992, net of insurance
recoveries, will be added to the pricing of government contracts.
Aerojet has substantially completed its efforts under the Decree to
determine the nature and extent of contamination at the facility and to
identify the technologies that will likely be used to remediate the site. Based
on available facts, existing technology and current environmental laws and
regulations, Aerojet recorded a net $68 million charge in 1994 to remediate the
site. These remediation costs are principally for design, construction and
enhancement of groundwater and soil treatment facilities, ongoing project
management and regulatory oversight, and are expected to be incurred over a
period of approximately 20 years. This estimate will be subject to changes as
work progresses and additional experience is gained.
At May 31, 1996, Aerojet had a reserve of $202 million for costs to
complete the RI/FS and remediate the site and has recognized $118 million for
probable future recoveries under the 1993 settlement agreement with the U.S.
government.
Legal proceedings to obtain reimbursements of environmental costs from
insurers are continuing.
Lawrence, Massachusetts
The Company has studied remediation alternatives for its closed Lawrence,
Massachusetts facility, which was contaminated with PCBs, and has begun site
remediation and off-site disposal of debris. The Company has a reserve of $28
million for estimated decontamination and long-term operating and maintenance
costs of this site. The reserve represents the Company's best estimate for the
remaining remediation cost. Estimates of future remediation cost could range as
high as $54 million depending on the results of future testing and the ultimate
remediation alternatives undertaken at the site. The time frame for remediation
is currently estimated to range from 4 to 8 years.
Muskegon, Michigan
The United States District Court has ruled that Aerojet and its two
inactive Cordova Chemical subsidiaries (Cordova) are liable with a former
owner/operator of a former chemical plant at the Cordova site in Muskegon,
Michigan for remediation of the site. Subsequently, the United States District
Court's decision has been appealed to the United States Court of Appeals.
Separately, the State of Michigan Court of Claims previously ruled that the
State of Michigan is obligated to indemnify Aerojet and Cordova for all
remediation and investigation costs at the site. On July 14, 1995, the Michigan
Court of Appeals affirmed the decision of the Court of Claims, and on September
20, 1995, the Michigan Court of Appeals denied the State of Michigan's motion
for a rehearing. The State has petitioned the Michigan State Supreme Court for
review.
The Company believes that most of the $50 million to $100 million in
anticipated remediation costs will be paid by the State of Michigan or the
former owner/operator and that its $13 million reserve will be adequate to
cover the Company's costs associated with this matter. Included in investments
and other assets is $9 million to be recovered from insurance companies.
San Gabriel Valley Basin, California
Aerojet, through its Azusa facility, is considered to be a potentially
responsible party (PRP) in the portion of the San Gabriel Valley Superfund Site
known as the Baldwin Park Operable Unit (BPOU). Regulatory action involves
possible regional groundwater remediation, site specific investigation and
cleanup.
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NOTE F - CONTINGENCIES AND UNCERTAINTIES (continued)
Aerojet's investigation concluded that the principal groundwater
contamination is upgradient of Aerojet's property and that only low
concentrations of contaminants are present in the soils of Aerojet's presently
and historically owned properties. The EPA contends that Aerojet is one of the
four largest sources of groundwater contamination at the BPOU of the sixteen
PRPs identified by the EPA. Aerojet contests the EPA's position regarding the
source of contamination and the number of responsible PRPs.
The EPA has issued a Record of Decision requiring groundwater remediation
for the BPOU, estimated to cost $47 million in non-recurring costs and $4
million to $5 million in annual operating expense. Aerojet is participating in
an effort to develop an alternative "consensus" plan in which certain water
supply entities would integrate the remedial requirements into a water supply
project. If implemented, the consensus plan will provide federal funding and
funding from water supply entities receiving benefit from the project, thus
reducing the PRPs' costs.
Aerojet's cost exposure cannot be estimated at this time. However,
management believes, on the basis of presently available information, that
resolution of this matter will not materially affect the consolidated financial
condition of the Company. Among the factors considered by management are the
following: the number of other viable PRPs; the potential for federal funding
or cost sharing with water supply interests; Aerojet's site-specific
investigation; and the fact that, to date, Aerojet's San Gabriel Valley costs
are being recovered from the government in the pricing of Aerojet's contracts.
Additionally, Aerojet has filed suit against its insurers for recovery of such
costs.
Other Sites
The Company is also currently involved, together with other companies, in
28 other Superfund and non-superfund remediation sites. In many instances, the
Company's liability and proportionate share of costs have not been determined
largely due to uncertainties as to the nature and extent of site conditions and
the Company's involvement. While government agencies frequently claim PRPs are
jointly and severally liable at such sites, in the Company's experience,
interim and final allocations of liability costs are generally made based on
relative contributions of waste. Based on the Company's previous experience,
its allocated share has frequently been minimal, in many instances less than 1
percent. The Company has reserves of approximately $19 million as of May 31,
1996 which it believes are sufficient to cover its best estimate of its share
of the environmental remediation costs at these other sites. Also, the Company
is seeking recovery of its costs from its insurers.
ENVIRONMENTAL SUMMARY
In regard to the sites discussed above, management believes, on the basis
of presently available information, that resolution of these matters will not
materially affect liquidity, capital resources or the consolidated financial
condition of the Company. The effect of resolution of these matters on results
of operations cannot be predicted due to the uncertainty concerning both the
amount and timing of future expenditures and future results of operations.
OTHER LEGAL MATTERS
In August 1991, Olin Corporation (Olin) advised GenCorp that Olin
believed GenCorp to be jointly and severally liable for certain Superfund
remediation costs, estimated by Olin to be $70 million, associated with a
former Olin manufacturing facility and waste disposal sites in Ashtabula
County, Ohio.
In 1993, GenCorp sought declaratory judgment in the United States
District Court for the Northern District of Ohio that the Company is not
responsible for environmental remediation costs associated with the former Olin
facility and Superfund sites. Olin counterclaimed seeking a judgment that
GenCorp is jointly and severally liable for a share of remediation costs.
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NOTE F - CONTINGENCIES AND UNCERTAINTIES (continued)
In late 1995, the Court hearing on the first phase of the case relative
to the issue of joint and several liability was completed, but the Court has
not yet rendered a decision. If the Court finds GenCorp is liable, subsequent
trial phases will address allocation and damages.
The Company is vigorously litigating this matter and believes that it has
meritorious defenses to Olin's claims. While there can be no certainty
regarding the outcome of any litigation, in the opinion of management, after
reviewing the information currently available with respect to this matter and
consulting with the Company's counsel, any liability which may ultimately be
incurred will not materially affect the consolidated financial condition of the
Company.
The Company and its subsidiaries are subject to various other legal
actions, governmental investigations, and proceedings relating to a wide range
of matters in addition to those discussed above. In the opinion of management,
after reviewing the information which is currently available with respect to
such matters and consulting with the Company's counsel, any liability which may
ultimately be incurred with respect to these additional matters will not
materially affect the consolidated financial condition of the Company. The
effect of resolution of these matters on results of operations cannot be
predicted because any such effect depends on both future results of operations
and the amount and timing of the resolution of such matters.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash flow used in operating activities for the first six months of fiscal
1996 was $19.5 million as compared to $25.7 million for the first six months of
1995.
At May 31, 1996, GenCorp's total debt was $339 million, the lowest level
in nine years. Debt decreased $62 million in the quarter due to strong
operating cash flow and the receipt of divestiture proceeds of $32 million.
Interest expense decreased to $6.6 million from $9.2 million in the comparable
period a year ago due to lower interest rates and lower average debt levels.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Net sales in the second quarter of 1996 declined 18 percent to $378.0
million from $461.9 million in the second quarter of 1995. For the six months
ended May 31, 1996, net sales were $746.3 million compared to $890.0 million
for the same period in 1995. The decline in net sales was primarily due to the
divestitures in early 1996. Sales from continuing businesses totaled $378.0
million for the second quarter of 1996, compared to $386.3 million during the
second quarter of 1995. For the first six months of 1996 sales from continuing
businesses were $699 million, compared to $742.2 million for the same period in
1995. The sales decline was primarily related to lower volumes at the
automotive segment due to the strike against General Motors in March.
Segment operating profit decreased to $34.3 million in the second quarter
of 1996, from $37.4 million in the second quarter of 1995. Strong improvement
in operating profit at the polymer products segment and at Aerojet was offset
by declines in automotive operating profit due to the General Motors strike and
the absence of $4.5 million in operating profit in the second quarter of 1995
from divested divisions. Operating profit from continuing businesses improved
to $34.3 million for the second quarter of 1996, compared to $32.9 million for
the second quarter of 1995, after adjusting for the recent divestitures.
Operating margins from continuing businesses increased to 9.1 percent in the
second quarter of 1996, compared to 8.5 percent for the second quarter of 1995.
On a consolidated basis, the Company reported net income of $14.1 million
for the second quarter of 1996 compared to net income of $16.3 million in the
second quarter of 1995. For the second quarter of 1996, earnings per share from
continuing businesses totaled $0.38 on a fully diluted basis compared to $0.34
last year after adjusting for the divestitures. Consolidated fully diluted
earnings per share were $0.38 and $0.45 during the second quarter of 1996 and
1995, respectively.
The Company's net income for the six months ended May 31, 1996 was $2.4
million, compared to $23.3 million for the same period in 1995. The decline was
primarily due to charges the Company took in early 1996 relating to the
divestitures and the Voluntary Early Retirement Incentive Program.
Second quarter results reflect a trend of improvement in the Company's
continuing businesses. Expanded margins in the polymer products business units
and at Aerojet, substantially lower debt and interest expense and reduced
corporate expenses highlighted the quarter. Additionally, divestitures of the
two non-strategic businesses earlier in 1996, a new five-year financing
agreement and key senior management changes have enhanced the Company's
position for implementing new growth strategies.
At Aerojet, net sales were $121.1 million in the second quarter of 1996,
versus $121.2 million in the second quarter of 1995. Higher volumes on Titan,
Advanced Microwave Sounding Unit, Minuteman and the Space Based Infrared System
(SBIRS) were offset by lower volumes on Delta, Search and Destroy Armor
(SADARM) and the Defense Support Program (DSP).
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MATERIAL CHANGES IN RESULTS OF OPERATIONS (continued)
Aerojet's segment operating profit for the second quarter of 1996 was
$8.4 million compared to $7.6 million in the second quarter of 1995, with
operating margins increasing to 6.9 percent from 6.3 percent.
During the quarter, Aerojet was awarded a $20 million increase to the DSP
contract for additional Medium Wave Length Infrared modules. In March and
April, Aerojet executed successful tests on the SADARM program that completed
the Engineering Verification testing and triggered a low rate initial
production award of $27 million. Aerojet is the prime contractor for SADARM, a
smart anti-armor munition system being developed for the Army. Year to date,
Aerojet's contract backlog has grown 10 percent and now exceeds $1 billion.
Automotive sales from continuing businesses totaled $102.2 million in the
second quarter of 1996 versus $114.3 million in the second quarter of 1995, a
10.6 percent decline. Lower volume in Europe and the appliance gasket business
as well as the General Motors strike led to the sales decline. Total net sales
for the automotive business segment in the second quarter of 1996 decreased to
$102.2 million, compared to $184.6 million in the second quarter of 1995,
primarily as a result of the divestitures of the Vibration Control and
Reinforced Plastics divisions in the first quarter of 1996.
The Company's continuing automotive businesses earned $5.2 million for
the second quarter of 1996, versus $10.2 million in the second quarter of 1995,
excluding $4.6 million of income from divested divisions. Profit was impacted
by development costs for the Automotive Occupant Sensor (AOS), lower profit in
plastic extrusions and the General Motors strike. Excluding the GM strike,
North American margins were comparable with last year's second quarter. Also,
the segment's European subsidiary, Henniges, achieved positive earnings for the
quarter after significant restructuring efforts in 1995.
During the quarter, the Vehicle Sealing Division received QS-9000
certification for the Wabash, Indiana and Troy, Michigan design and engineering
centers, and ISO-9002 and QS-9000 certification for the Marion, Indiana and
Welland, Ontario, Canada manufacturing plants. In recognition of demonstrated
capabilities and engineering excellence, the Division was designated a "Full
Service Supplier" from Ford for the supply of dynamic/static sealing systems.
Also, the Division was chosen as the early design source for two North American
vehicles set for 1999/2000 launch dates.
Net sales in the second quarter of 1996 for the Polymer Products business
segment increased 2.6 percent to $154.7 million, compared to $150.8 million in
the second quarter of 1995, excluding $5.3 million of sales from the rigid
plastics business sold in November 1995. Sales increases were achieved by the
Decorative Products group and Penn Racquet Sports Division, while sales for the
Specialty Polymers Division declined slightly due to lower latex volume in the
paper industry.
Improved segment operating profit for the polymer products businesses was
$20.7 million, versus $15.0 million in the second quarter of 1995. Operating
margins from continuing businesses showed strong improvement to 13.4 percent in
the second quarter of 1996 compared to 10.0 percent for the second quarter of
1995. Continued productivity improvements, new product introductions and lower
raw material prices resulted in the improved profits for the quarter.
The polymer products business units continue to provide enhanced value to
customers by developing highly engineered polymers to meet specific customer
needs, a key core competency. The Specialty Polymers Division's introduction of
GenCryl earlier in the year continues to receive extremely favorable response.
New trials were scheduled with several paper customers during the second
quarter for GenCryl, an advanced acrylonitrile latex offering improved coating
characteristics. GenFlex RM, a PVC roofing membrane which provides longer life
and ease of installation to roofing customers, has experienced good growth
within the Building Systems business unit through further market penetration.
The Decorative Products group has also experienced increased volume on its
upgraded line of elastotherm vinyl laminates for kitchen cabinets and
furniture components.
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ENVIRONMENTAL MATTERS
GenCorp's policy is to conduct its businesses with due regard for the
preservation and protection of the environment. The Company devotes a
significant amount of resources and management attention to environmental
matters and actively manages its ongoing processes to comply with extensive
environmental laws and regulations. The Company is involved in the remediation
of environmental conditions which resulted from previously accepted
manufacturing and disposal practices that date back to the 1950s and 1960s at
certain of its plants. In addition, the Company has been designated a
potentially responsible party, with other companies, at sites undergoing
investigation and remediation.
The nature of environmental investigation and cleanup activities often
makes it difficult to determine the timing and amount of any estimated future
costs that may be required for remedial measures. However, the Company reviews
these matters and accrues for costs associated with the remediation of
environmental pollution when it becomes probable that a liability has been
incurred and its proportionate share of the amount can be reasonably estimated.
The Company's Condensed Consolidated Balance Sheet at May 31, 1996 reflects
accruals of $262 million and amounts recoverable of $127 million from the U.S.
government and third parties for remediation costs.
The effect of resolution of environmental matters on results of
operations cannot be predicted due to the uncertainty concerning both the
amount and timing of future expenditures and future results of operations.
However, management believes, on the basis of presently available information,
that resolution of these matters will not materially affect liquidity, capital
resources or the consolidated financial condition of the Company. The Company
will continue its efforts to mitigate past and future costs through pursuit of
claims for insurance coverage and continued investigation of new remediation
alternatives and associated technologies. For additional discussion of
environmental matters, refer to Note F - Contingencies.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information concerning legal proceedings, including proceedings relating
to environmental matters, which appears in Note F beginning on page 7 of this
report is incorporated herein by reference.
In April 1996, two class action suits were filed, one in Federal and one
in state court, collectively alleging: (i) breach of collective bargaining
agreements/pension and insurance agreements under Section 301 of the Labor
Management Act; (ii) breach of fiduciary duties under ERISA; and (iii) breach
of individual contracts, fraud and promissory estoppel under state law. DIVINE,
ET AL. V. GENCORP INC., U.S.D.C., N.D. Ind. 3:96CV0296AS; DIVINE, ET AL. V.
GENCORP INC., Wabash County, Ind. Cir. Ct., 85C01-9605-CP-201. The suits were
filed on behalf of 639 hourly retirees, spouses and surviving spouses from
GenCorp's Wabash, Indiana, facility who are seeking damages and injunctive
relief to prevent proposed modifications to the Hourly Retiree Medical Plan.
The proposed modifications include increases to retiree co-payments and
deductibles, retiree contributions once aggregate costs exceed specified cost
caps, and changes to Medicare offsets, drug coverage and maximum benefit
provisions. The modifications are being implemented to control escalating
health care costs, and to limit liabilities under SFAS 106.
The Complaint filed in state court was removed to Federal court, now
U.S.D.C., N.D. Ind. 3:96CV0394AS, and GenCorp has filed a Motion to Consolidate
both actions. The court has approved expedited discovery and briefing
schedules, and the parties have agreed to maintain STATUS QUO benefit levels
until August 1, 1996. A trial date of late 1996 or early 1997 has been
requested.
The Company and its subsidiaries are subject to various legal actions,
governmental investigations, and proceedings relating to a wide range of
matters in addition to those discussed above and in Part I of this report. In
the opinion of management, after reviewing such matters and consulting with the
Company's counsel, any liability which may ultimately be incurred with respect
to these additional matters will not materially affect the consolidated
financial position of the Company.
ITEM 5. OTHER INFORMATION
On May 13, 1996, the Company announced that Nathaniel J. Mass had been
appointed to the position of Senior Vice President of Strategic Growth and
elected an officer of the Company.
On June 24, 1996, GenCorp announced the sale of its Automotive Occupant
Sensor (AOS) business to Robert Bosch Corporation. As part of the sale
agreement, GenCorp received a $3 million initial payment and has the right to
receive other future payments based on the success of the AOS program. The sale
included development, testing and laboratory facilities located in Bloomfield
Hills, Michigan, as well as AOS technology and patents. The Company expects to
recognize a small gain on the sale during the third quarter of 1996.
-14-
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
<TABLE>
<CAPTION>
Table
Exhibit
ITEM NO. EXHIBIT DESCRIPTION NUMBER
-------------------------------------------------------------------------
<S> <C> <C>
11 Statement re computation of per share earnings 11
27 Financial Data Schedule 27
(Filed for EDGAR only)
</TABLE>
b) REPORTS ON FORM 8-K
There have been no reports on Form 8-K filed during the quarter
ended May 31, 1996.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENCORP INC.
Date JULY 3, 1996 By /s/ D. M. STEUERT
---------------------- ------------------------------------
D.M. Steuert, Senior Vice President
and Chief Financial Officer
Date JULY 3, 1996 By /s/ E. R. DYE
---------------------- ------------------------------------
E. R. Dye, Secretary
-16-
<PAGE> 1
EXHIBIT 11
GenCorp Inc.
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Unaudited Unaudited
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- --------------------
May 31, May 31, May 31, May 31,
1996 1995 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
EARNINGS (Dollars in Millions)
Net Income for Primary Earnings
Per Share $ 14.1 $ 16.3 $ 2.4 $ 23.3
Tax Affected Interest Expense
Applicable to 8% Convertible
Subordinated Debentures 1.4 1.4 2.8 2.8
--------- --------- --------- ---------
Net Income for Fully Diluted Earnings
Per Share $ 15.5 $ 17.7 $ 5.2 $ 26.1
========= ========= ========= =========
SHARES (In Thousands)
Weighted Average Number of Common
Shares Outstanding for Primary
Earnings Per Share (See Note B) 33,632 32,533 33,592 32,397
Additional Shares Issuable Under Stock
Options for Fully Diluted Earnings Per
Share 201 - 236 -
Assuming Conversion of 8% Convertible
Subordinated Debentures 7,158 7,158 7,158 7,158
--------- --------- -------- --------
Weighted Average Number of Common
Shares Outstanding for Fully Diluted
Earnings Per Share 40,991 39,691 40,986 39,555
========= ========= ========= =========
EARNINGS PER SHARE
Primary: $ .42 $ .50 $ .07 $ .72
========= ======== ========= =========
Fully Diluted: $ .38 $ .45 $ .07 $ .66
========= ======== ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> MAY-31-1996
<CASH> 8,400
<SECURITIES> 7,600
<RECEIVABLES> 210,200
<ALLOWANCES> 0
<INVENTORY> 139,800
<CURRENT-ASSETS> 423,300
<PP&E> 1,095,800
<DEPRECIATION> 679,500
<TOTAL-ASSETS> 1,290,600
<CURRENT-LIABILITIES> 307,800
<BONDS> 115,000
<COMMON> 3,300
0
0
<OTHER-SE> 21,000
<TOTAL-LIABILITY-AND-EQUITY> 1,290,600
<SALES> 746,300
<TOTAL-REVENUES> 746,300
<CGS> 619,300
<TOTAL-COSTS> 731,700
<OTHER-EXPENSES> (3,200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,600
<INCOME-PRETAX> 3,200
<INCOME-TAX> 800
<INCOME-CONTINUING> 2,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,400
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
