<PAGE> 1
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, 1997 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 May 31, 1997, there were 33,556,672 outstanding shares of GenCorp Inc.'s
Common Stock, par value $.10.
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GenCorp Inc.
Table of Contents
Page No.
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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, 1997 and 1996 -3-
Condensed Consolidated Balance Sheets -
May 31, 1997 and November 30, 1996 -4-
Condensed Consolidated Statements of Cash Flows -
Six Months Ended May 31, 1997 and 1996 -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 -12-
Part II. Other Information
Item 1. Legal Proceedings -15-
Item 6. Exhibits and Reports on Form 8-K -16-
Signatures -17-
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PART I. FINANCIAL INFORMATION
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GenCorp Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
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May 31, May 31, May 31, May 31,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $403.5 $378.0 $731.5 $746.3
------ ------ ------ ------
COSTS AND EXPENSES
Cost of products sold 326.5 307.0 592.3 619.3
Selling, general and administrative 43.5 42.4 85.1 87.5
Interest expense 6.2 6.6 11.9 14.6
Other (income) and expense, net (4.3) (1.6) (4.5) (3.2)
Unusual items (Note D) -- .1 -- 24.9
------ ------ ------ ------
371.9 354.5 684.8 743.1
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INCOME BEFORE INCOME TAXES 31.6 23.5 46.7 3.2
Income tax benefit (provision) (Note E) 52.5 (9.4) 48.5 (.8)
------ ------ ------ ------
NET INCOME $84.1 $14.1 $95.2 $2.4
===== ===== ===== ====
EARNINGS PER SHARE OF COMMON STOCK (NOTE B)
Primary $2.45 $.42 $2.78 $.07
Fully diluted $2.06 $.38 $2.36 $.07
Average number of shares of common
stock outstanding (in thousands)
Primary 34,293 33,632 34,235 33,592
Fully diluted 41,607 40,991 41,558 40,986
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)
<TABLE>
<CAPTION>
Unaudited Audited
May 31, November 30,
1997 1996
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<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 18.7 $ 22.6
Accounts receivable 247.2 206.7
Inventories (Note F) 162.7 158.4
Prepaid expenses and other 63.7 64.7
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TOTAL CURRENT ASSETS 492.3 452.4
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Recoverable from U.S. government and third
parties for environmental remediation 113.9 118.1
Deferred income taxes 157.6 156.3
Prepaid pension 108.4 103.5
Investments and other assets 111.6 86.8
Property, plant and equipment:
At cost 1,114.2 1,102.3
Accumulated depreciation (708.5) (689.5)
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Net property, plant and equipment 405.7 412.8
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TOTAL ASSETS $ 1,389.5 $ 1,329.9
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable $ 28.1 $ 42.9
Accounts payable - trade 74.9 80.6
Income taxes 51.8 26.6
Other current liabilities 211.3 219.6
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TOTAL CURRENT LIABILITIES 366.1 369.7
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Long-term debt (Note G) 261.0 263.2
Postretirement benefits other than pensions 343.3 346.1
Environmental reserves 221.2 230.3
Other liabilities 64.7 64.9
Contingencies (Note H)
SHAREHOLDERS' EQUITY
Preference stock - (none outstanding) -- --
Common stock - $.10 par value; 33.6 million
shares outstanding 3.4 3.4
Other capital 23.3 22.2
Retained earnings 108.7 23.5
Currency translation adjustment (2.2) 6.6
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TOTAL SHAREHOLDERS' EQUITY 133.2 55.7
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,389.5 $ 1,329.9
========== ==========
</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)
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
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May 31,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 95.2 $ 2.4
Provision for unusual items -- 24.9
Depreciation, amortization and loss on
disposal of fixed assets 29.6 35.7
Increase in working capital (31.2) (73.8)
Decrease (Increase) in deferred income taxes (1.3) 5.2
Other - net (12.1) (13.9)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 80.2 (19.5)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (18.6) (20.1)
Proceeds from asset dispositions 13.1 119.5
Acquisition (46.5) --
Investments and other - net 2.6 (2.7)
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NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (49.4) 96.7
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CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term debt (paid) incurred (14.8) 3.1
Long-term debt incurred 100.1 360.1
Long-term debt paid (102.3) (427.8)
Dividends (10.0) (9.9)
Other equity transactions (7.7) (3.7)
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NET CASH USED IN FINANCING ACTIVITIES (34.7) (78.2)
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NET DECREASE IN CASH AND EQUIVALENTS (3.9) (1.0)
Cash and equivalents at beginning of year 22.6 17.0
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Cash and equivalents at end of period $ 18.7 $ 16.0
======== ========
</TABLE>
Cash paid during the period for interest was $12.0 million and $15.5 million for
the six months ended May 31, 1997 and 1996, respectively. Cash paid during the
period for income taxes was $28.5 million and $17.1 million for the six months
ended May 31, 1997 and 1996, 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, 1996.
All normal recurring accruals and adjustments considered necessary for a fair
presentation of the unaudited results for the six months ended May 31, 1997 and
1996, have been reflected. The results of operations for the six months ended
May 31, 1997 are not necessarily indicative, if annualized, of those to be
expected for the full fiscal year.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Note B - Net Income Per Share of Common Stock
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In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings per Share" (SFAS 128), which is required to be
adopted on November 30, 1998. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact
would result in a $.06 per share increase in primary earnings per share for the
second quarter ended May 31, 1997 and no change in the primary earnings per
share amount reported for the second quarter ended May 31, 1996. The impact of
SFAS 128 on the calculation of fully diluted earnings per share for these
quarters is not expected to be material.
Currently, 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 G for further information regarding the debentures.)
Note C - Acquisition
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On May 7, 1997 the Company acquired Printworld from Technographics, Inc. for
approximately $47 million in cash. Printworld is a recognized leader in the
transfer printing and paper laminate industry. The acquisition was accounted for
as a purchase in accordance with Accounting Principle Board Opinion No. 16. The
acquisition resulted in goodwill of $26 million which is being amortized over 15
years.
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Note D - Unusual Items
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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 $84 million paid in cash, of which approximately
$80 million was paid in the first quarter of 1996.
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 paid 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.
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 1996, the Company took a pretax charge of $15 million for
expenses related to the Voluntary Early Retirement Incentive Program for
eligible employees at the Company's Fairlawn, Ohio headquarters and Corporate
Technology Center.
Note E - Income Taxes
- ---------------------
The Company received federal income tax refunds resulting from settlement
agreements with the Internal Revenue Service relating to certain prior taxable
years, which reduced the Company's tax provision by $2 million and $65 million
in the first and second quarters of 1997, respectively.
Note F - 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 involve management's
judgments of expected year-end inventory levels. Components of inventory are as
follows:
<TABLE>
<CAPTION>
Unaudited Audited
May 31, November 30,
1997 1996
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<S> <C> <C>
Raw materials and supplies $ 43.0 $ 37.4
Work-in-process 10.1 8.8
Finished products 55.0 62.4
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Approximate replacement cost of LIFO inventories 108.1 108.6
Reserves, primarily LIFO (38.9) (39.5)
Long-term contracts at average cost 186.3 172.0
Progress payments (92.8) (82.7)
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$ 162.7 $ 158.4
======== ========
</TABLE>
At May 31, 1997, Aerojet's contract accounting positions reflected the
expected recovery of approximately $7 million in pending claims on numerous
contracts with the U.S. government. These claims are in varying stages of
negotiation, and relate principally to requests for price adjustments related to
customer-caused issues or contracts terminated or canceled at the customer's
convenience. Management believes that the resolution of these claims, in the
aggregate, will not have a material effect on the consolidated financial
condition of the Company.
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Note G - 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, 1997, unused revolving lines of credit totaled $260 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 6.6 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
$23.5 million.
On May 23, 1997, the Company called for redemption its $115,000,000 8%
Convertible Subordinated Debentures Due August 1, 2002 (Debentures), with a
redemption date of June 23, 1997. The Debentures are convertible 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 fair market value of the Debentures was $151 million at May 31, 1997.
At May 31, 1997, the Company had unsecured, uncommitted lines of credit with
several banks for short-term borrowings aggregating $80 million, of which $25
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 $18 million at May 31, 1997.
Note H - Contingencies
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Environmental Matters
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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. During the second quarter of 1997, the State of
California expanded surveillance of perchlorate under the RI/FS when this
chemical was detected at previously undetectable levels using new testing
protocols in water wells near Aerojet's property.
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 is
negotiating with the U.S. government to recover all environmental costs
associated with perchlorate as part of the 1993 settlement.
Aerojet is continuing 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 change as work
progresses, additional experience is gained and environmental standards are
revised.
-8-
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Note H - Contingencies (continued)
- ----------------------
At May 31, 1997, Aerojet had a reserve of $194 million for costs to complete
the original RI/FS and remediate the site and has recognized $114 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 $31
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 costs. Estimates of future remediation costs could range
as high as $52 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 7 to 12 years.
Muskegon, Michigan
In a lawsuit filed by the U.S. Environmental Protection Agency (EPA), the
United States District Court ruled in 1992 that Aerojet and its two inactive
Cordova Chemical subsidiaries (Cordova) are liable for remediation of Cordova's
Muskegon, Michigan site, along with a former owner/operator PRP of an earlier
chemical plant at the site. That decision was appealed to the United States
Court of Appeals.
In May 1997, the United States Court of Appeals for the Sixth Circuit issued
an en banc decision reversing Aerojet's and the other PRP's liability under the
CERCLA statute. Aerojet and the EPA have until October 1997 to file a petition
for certiorari to the United States Supreme Court for its review of the
appellate decision. If the petition is not sought or not granted, the case will
be remanded to the Federal District Court for fact finding determinations
affecting the Cordova Chemical subsidiaries.
In a separate action, Aerojet and Cordova won indemnification for the
Muskegon site investigation and remediation costs from the State of Michigan in
the state court of claims. The Michigan Court of Appeals affirmed on appeal, and
the Michigan Supreme Court refused to hear the case. On December 23, 1996, the
Michigan Supreme Court denied the State's motion for reconsideration. As a
result, the Company believes that most of the $50 million to $100 million in
anticipated remediation costs will be paid by the State of Michigan and the
former owner/operator of the site. In addition, Aerojet believes it has
insurance coverage for the site.
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
issuance of a Record of Decision (ROD) requiring regional groundwater
remediation, site specific investigation and possible cleanup.
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<PAGE> 10
Note H - Contingencies (continued)
- ----------------------
Aerojet's investigation demonstrated 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 nineteen
PRPs identified by the EPA. Aerojet contests the EPA's position regarding the
source of contamination and the number of responsible PRPs. Aerojet has joined a
Steering Committee comprised of eleven of the PRPs identified by the EPA.
The ROD issued by the EPA requires 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, as part of the Steering Committee,
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. On May 15, 1997, the EPA sent Special Notice
letters (which included a draft Consent Decree and Statement of Work) to the 19
PRPs initiating a 60 day period during which a good faith offer by the PRPs must
be submitted. If implemented, the consensus plan will provide federal funding
for 25 percent of the nonrecurring costs and additional funding from water
supply entities receiving benefit from the project, thus reducing the PRPs'
costs.
The State of California has also detected perchlorate in water wells in
Southern California, including the San Gabriel Valley, at previously
undetectable levels using the new testing protocols.
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 $14 million as of May 31,
1997 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.
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<PAGE> 11
Note H - Contingencies (continued)
- ----------------------
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.
In late 1995, the Court hearing on the issue of joint and several liability
was completed, and in August 1996 the Court held hearings relative to
allocation. The Court has not yet rendered a decision. If the Court finds
GenCorp is liable, subsequent trial phases will address 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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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Material Changes in Financial Condition
- ---------------------------------------
Cash flow provided from operating activities for the first six months of
fiscal 1997 was $80.2 million as compared to a use of $19.5 million in the first
six months of 1996. The increase in cash flow from operating activities
reflected receipt of the tax refunds (see Note E - Income Taxes) and a lower
seasonal increase in operating working capital.
For the six month period ended May 31, 1997, $49.4 million was used for
investing activities, including the acquisition of Printworld for approximately
$46.5 million and capital expenditures of $18.6 million, offset by proceeds of
$13.1 million from asset dispositions. This is compared to cash flow of $96.7
million for the six month period ended May 31, 1996 resulting from asset
dispositions of $119.5 million from the sales of the Vibration Control and
Reinforced Plastics divisions, reduced by capital expenditures of $20.1
million.
Financing activities in the first six months of 1997 and 1996 primarily
reflect a decrease in debt and the payment of dividends.
At May 31, 1997, GenCorp's total debt was $289 million, down $70 million from
the first quarter of 1997 and the lowest level in ten years. Debt decreased
primarily due to the receipt of the tax refunds offset by the cash used in the
acquisition of Printworld. Interest expense decreased to $6.2 million from $6.6
million in the comparable second quarter period a year ago due to lower average
debt levels.
On May 23, 1997, the Company called for redemption its $115,000,000 8%
Convertible Subordinated Debentures Due August 1, 2002 (Debentures), with a
redemption date of June 23, 1997. The Debentures are convertible 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.
If all or most of the Debentures are tendered for conversion into common stock,
the Company's long-term debt would decrease and shareholders' equity would
increase by approximately $115 million.
Material Changes in Results of Operations
- -----------------------------------------
Sales totaled $403.5 million for the second quarter of 1997, an increase of 7
percent as compared to $378.0 million during the second quarter of 1996. The
Company's aerospace and defense segment, Aerojet, had significantly improved
sales during the quarter. The polymer products segment also posted increased
sales, while the automotive segment experienced an expected decline in revenues.
For the six months ended May 31, 1997, sales from continuing operations
increased 5 percent to $731.5 million as compared to $699.0 million during the
first six months of 1996.
Operating profit improved to $43.4 million for the second quarter of 1997,
versus $34.3 million for the second quarter of 1996, an increase of 27 percent.
Operating margins increased to 10.8 percent in the second quarter of 1997,
compared to 9.1 percent for the second quarter of 1996. For the first six months
of 1997, operating profit from continuing operations improved 22 percent to
$69.4 million versus $57.1 million for the first half of 1996.
The Company reported significantly improved net income of $84.1 million, or
$2.06 per fully diluted share, for the second quarter of 1997 compared to net
income of $14.1 million, or $0.38 per fully diluted share for the second quarter
of 1996. Earnings for the second quarter of 1997 included a benefit of $65
million, or $1.57 per share from a tax refund. Excluding the tax refund,
earnings for the second quarter of 1997 totaled $0.49 per share versus $0.38 for
the second quarter of 1996.
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<PAGE> 13
Material Changes in Results of Operations (continued)
- -----------------------------------------
The Company's net income for the six months ended May 31, 1997 was $95.2
million or $2.36 per fully diluted share, compared to $2.4 million, or $.07 per
fully diluted share, for the same period in 1996. The increase was primarily due
to the tax refunds received in 1997 and charges the Company took in early 1996
relating to the divestitures of two business units and the Voluntary Early
Retirement Incentive Program.
Second quarter results highlight the positive progress the Company is making
in all major areas of performance and marks the sixth quarter of year over year
operating margin improvement for continuing businesses. Significant events
during the quarter have greatly improved cash flow and the balance sheet. The
strategic acquisition of Printworld strengthens Decorative and Building
Products' position in the film and printed woodgrain laminate markets, an
example of the Company's growth strategy to enter new, but faster growing,
related markets. The Company is continuing to strengthen its portfolio of
businesses both operationally and strategically, and remains strongly focused on
creating greater shareholder value through initiatives that evolve from its two
top priorities of operational excellence and value-creating growth.
Net sales for the polymer products businesses in the second quarter of 1997
increased 4 percent to $160.9 million compared to $154.7 million in the second
quarter of 1996. Sales increased in the segment's Decorative and Building
Products and Specialty Polymers business units, while Penn Racquet Sports
experienced a slight decline. Improved sales in commercial wallcovering,
building systems and specialty latices for paper coatings and textiles led the
increase. Operating profit for the polymer products businesses increased to
$20.9 million for the second quarter of 1997 versus $20.7 million in the second
quarter of 1996. Operating margins declined slightly to 13.0 percent in the
second quarter of 1997 compared to 13.4 percent in the second quarter of 1996
due to higher PVC resin costs in Decorative and Building Products and slightly
lower average selling prices in Specialty Polymers. However, margins rebounded
significantly from the 7.6 percent reported in the first quarter of 1997.
The Decorative and Building Products business unit completed the acquisition
of Printworld, a recognized leader in the transfer printing and paper laminate
industry. This acquisition expands the Company's product offerings, combining
the Company's existing vinyl laminate capabilities with Printworld's faster
growing paper laminate products. Within the Specialty Polymers business, the
Company continued to gain new customers for its paper, nonwoven and specialty
latex applications. Volume increased across all end-uses during the quarter.
Penn Racquet Sports signed a worldwide licensing agreement for marketing of the
Penn brand name and increased its European market share.
Automotive sales totaled $96.7 million in the second quarter of 1997 versus
$102.2 million in the second quarter of 1996 due to lower unit volume and
unfavorable exchange rates in Europe.
The Company's automotive operations earned $8.7 million for the second
quarter of 1997, an increase of 67 percent versus $5.2 million in the second
quarter of 1996. Operating profit margins improved to 9.0 percent in the second
quarter of 1997, versus 5.1 percent during the same period a year ago.
Aggressive actions to reduce costs and boost productivity, along with the
absence of expenses related to the divested Automotive Occupant Sensor business
drove the profit improvement. For the first six months of 1997, the continuing
automotive segment increased operating profit by $5.2 million compared to the
first six months of 1996, despite declining sales of 6 percent and the impact of
periodic UAW strikes at customer plants.
Vehicle Sealing was awarded the body seal production for a major Ford truck
program with production to begin in late 1997. Automotive operations in Rehburg,
Germany achieved QS9000 certification.
-13-
<PAGE> 14
Material Changes in Results of Operations (continued)
- -----------------------------------------
At Aerojet, net sales increased 20 percent to $145.9 million in the second
quarter of 1997 versus $121.1 million in the second quarter of 1996. Higher
volumes on the Space Based Infrared System (SBIRS), Defense Support Program
(DSP), Joint Tactical Ground Station (JTAGS), Sense and Destroy Armor (SADARM),
AMRAAM/Hawk tactical missiles and Custom Chemicals were offset by lower volumes
on Titan and Delta.
Aerojet's operating profit for the second quarter of 1997 was $13.8 million,
up 64 percent compared to $8.4 million in the second quarter of 1996. Operating
margins during the quarter increased to 9.5 percent from 6.9 percent in the
second quarter of 1996 due to favorable contract performance and mix and an $.8
million pretax gain on the sale of Aerojet land in Nevada.
During the quarter, Aerojet liquid engines performed in two successful Delta
II launches and on a Titan II launch of a military weather satellite which
carried sensors built by Aerojet. The SADARM program, during test firings of
first initial production rounds, exceeded all Army requirements for this smart
submunition. Contract awards totaled $141 million during the quarter. At May 31,
1997, Aerojet's contract backlog was $2.0 billion, unchanged from 1996 year-end,
but up from $1.0 billion in the second quarter of 1996.
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, 1997 reflects accruals of $251
million and amounts recoverable of $123 million from the U.S. government and
third parties for such 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 H - Contingencies.
-14-
<PAGE> 15
Part II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
- -------------------------
Information concerning legal proceedings, including proceedings relating to
environmental matters, which appears in Note H beginning on page 8 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/pension
and insurance agreements under Section 301 of the Labor Management Relations
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 approximately 600 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 GenCorp 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, and
consolidated with U.S.D.C., N.D. Ind. 3:96CV0296AS. GenCorp filed a Motion for
Summary Judgment and Opposition to Plaintiffs' Motion for Class Certification.
On November 26, 1996, the court granted GenCorp's Motion for Summary Judgment on
all counts, rendering the class certification issue moot. Plaintiffs have filed
a Notice of Appeal to the U.S. Seventh Circuit Court of Appeals. Briefing was
scheduled for completion by April 30, 1997. 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 effect of resolution of this matter 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 matter.
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.
-15-
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
a) Exhibits
--------
Table
Exhibit
Item No. Exhibit Description Number
--------------------------------------------------------------------------
10 Material Contracts
10.(iii)(A) Management contracts, compensatory
plans or arrangements
Form of Restricted Stock Agreement between 10.1
the Company and Nonemployee Directors
providing for payment of part of Directors'
compensation for service on the Board of
Directors in Company Stock
11 Statement re computation of per share earnings 11
27 Financial Data Schedule 27
(Filed for EDGAR only)
b) Reports on Form 8-K
-------------------
There have been no reports on Form 8-K filed during the quarter ended May 31,
1997.
-16-
<PAGE> 17
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 June 18, 1997 By /s/ D. M. Steuert
------------- --------------------------------
D. M. Steuert
Senior Vice President
and Chief Financial Officer
Date June 18, 1997 By /s/ W. R. Phillips
------------- --------------------------------
W. R. Phillips
Senior Vice President, Law; General Counsel
-17-
<PAGE> 1
EXHIBIT 10.1
RESTRICTED STOCK AGREEMENT
GENCORP INC.
March 1997
AGREEMENT, Made in Fairlawn, Ohio as of March 26, 1997 between GenCorp
Inc., an Ohio corporation ("Company") and the undersigned non-employee director
of the Company ("Director").
WHEREAS, the Company desires to increase Director's identification with
the interests of its shareholders and to increase Director's compensation for
service on the Board of Directors of the Company ("Board") by granting to
Director Two Hundred (200) shares of GenCorp Inc. Common Stock, $0.10 par value
per share ("Shares"), subject to the conditions and restrictions set forth in
this Restricted Stock Agreement ("Agreement").
NOW, THEREFORE, In consideration of the premises and the mutual
covenants set forth in this Agreement and for other good and valuable
consideration, the parties hereto agree as follows:
1. GRANT OF SHARES. As consideration for services to be rendered as a
member of the Board, the Company will issue in the name of the Director Two
Hundred (200) Shares which shall be subject to restrictions described below and
shall be legended as having been issued in a private transaction not registered
with the Securities and Exchange Commission.
2. ESCROW OF SHARES DURING RESTRICTION PERIOD. In aid of the
restrictions to which the Shares shall be subject pursuant to this Agreement,
the Shares shall be deposited in the name of the Director with the Shareholder
Services Department of the Company and shall be so held by the Company during
the period of Director's service on the Board ("Restriction Period").
3. SHAREHOLDER RIGHTS. Director shall, during the Restriction Period,
have the right to vote all Shares deposited hereunder and to receive all
dividends and other distributions paid with respect to such Shares.
4. AUTOMATIC DIVIDEND REINVESTMENT. As to the Shares deposited
hereunder, Director shall be automatically enrolled in GenCorp's Automatic
Dividend Reinvestment Service ("Service"), pursuant to the standard terms and
conditions of participation. Additional shares of GenCorp common stock
accumulated pursuant to the dividend
<PAGE> 2
- 2 -
reinvestment feature shall be freely transferable, subject to the terms and
conditions of the Service. Director may decline to participate in such Service
by so indicating below his or her signature on this Agreement.
5. ADJUSTMENTS. Shares issued pursuant to this Agreement and held by
the Company during the Restriction Period will be subject to the same
adjustment, if any, accorded to all other outstanding shares in the event of (i)
any change in the total number of shares of common stock of the Company
outstanding or the number or kind of securities into which shares have been
changed, (ii) any reorganization or change in the Company's capital structure,
or (iii) any other transaction or event having an effect similar to the
foregoing.
6. VESTING. Unless vesting is accelerated pursuant to paragraph 9
hereof, ownership of the Shares deposited hereunder shall vest irrevocably in
the Director, March 26, 1999, subject to the other terms and restrictions of
this Agreement.
7. RESTRICTIONS ON TRANSFER. During the Restriction Period, the Shares
may not be sold, transferred, pledged, assigned, alienated or hypothecated, or
otherwise transferred to another person whether by operation of law or
otherwise, except by will, the laws of descent and distribution or a qualified
domestic relations order.
8. BENEFICIARY DESIGNATION. Director may designate any beneficiary or
beneficiaries (contingently or successively) to whom Shares are to be paid if
Director dies during the Restriction Period, and may at any time revoke or
change any such designation. Absent such designation, any Shares which are due
to Director under this Agreement upon Director's death will be payable to
Director's estate. The designation of a Beneficiary will be effective only when
Director has delivered a completed Designation of Beneficiary form to the
Company's Secretary. A successive designation of Beneficiary will revoke a prior
designation.
9. TERMINATION DUE TO DEATH, DISABILITY, OR RETIREMENT. If Director's
service on the Board terminates by reason of his or her death, disability or
retirement under the Non-Employee Directors' Retirement Plan, Shares not already
vested, if any, shall automatically vest, the Restriction Period shall terminate
and all restrictions shall lapse.
10. TERMINATION DUE TO OTHER REASONS. If Director's service on the
Board terminates for any reason other than a reason set forth in paragraph 9
above, Shares which have not vested prior to such date of termination will be
forfeited and cancelled as of such date. Notwithstanding the foregoing, by a
majority vote of the directors then in office (with the terminating director
abstaining), the Board shall have the right, in its sole discretion, to waive
the forfeiture of all or any portion of such Shares subject to such terms as it
deems appropriate.
<PAGE> 3
- 3 -
11. DISPUTES. The Board shall have full and exclusive authority to
determine all disputes and controversies concerning the interpretation of this
Agreement by a majority vote of the directors then in office (with any disputing
director abstaining).
12. NOTICES. All written notices and communications directed to the
Company pursuant to this Agreement must be addressed to GenCorp Inc., 175 Ghent
Road, Fairlawn, Ohio 44333-3300; Attention: Secretary. All communications
directed to Director pursuant to this Agreement will be mailed to the Director's
current address as recorded on the payroll records of the Company.
13. GOVERNING LAW. To the extent not preempted by federal law, this
Agreement will be governed by and interpreted in accordance with the laws of the
State of Ohio.
IN WITNESS WHEREOF, this Agreement has been executed by a duly
authorized officer of the Company and by the Director as of the 26th day of
March, 1997.
GENCORP INC.
By: /s/ J. B. Yasinsky
---------------------------
J. B. Yasinsky
Chairman and Chief Executive Officer
Agreed to and accepted:
- ----------------------------------
Director Signature*
TO OPT OUT OF PARTICIPATION IN THE COMPANY'S AUTOMATIC DIVIDEND REINVESTMENT
SERVICE, INITIAL THE STATEMENT BELOW:
____ I DO NOT ELECT TO PARTICIPATE IN THE AUTOMATIC DIVIDEND REINVESTMENT
SERVICE
*Sign and return one copy by May 1, 1997 to GenCorp Inc., 175 Ghent Road,
Fairlawn, Ohio 44333-3300; Attention: Secretary.
<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,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
EARNINGS (Dollars in Millions)
Net Income for Primary Earnings
Per Share $84.1 $14.1 $95.2 $2.4
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 $85.5 $15.5 $98.0 $5.2
====== ====== ====== ======
SHARES (In Thousands)
Weighted Average Number of Common
Shares Outstanding for Primary
Earnings Per Share (See Note B) 34,293 33,632 34,235 33,592
Additional Shares Issuable Under Stock
Options for Fully Diluted Earnings Per
Share 156 201 165 236
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 41,607 40,991 41,558 40,986
====== ====== ====== ======
EARNINGS PER SHARE
Primary: $2.45 $.42 $2.78 $.07
====== ====== ====== ======
Fully Diluted: $2.06 $.38 $2.36 $.07
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 10,700
<SECURITIES> 8,000
<RECEIVABLES> 247,200
<ALLOWANCES> 0
<INVENTORY> 162,700
<CURRENT-ASSETS> 492,300
<PP&E> 1,114,200
<DEPRECIATION> 708,500
<TOTAL-ASSETS> 1,389,500
<CURRENT-LIABILITIES> 366,100
<BONDS> 115,000
<COMMON> 3,400
0
0
<OTHER-SE> 129,800
<TOTAL-LIABILITY-AND-EQUITY> 1,389,500
<SALES> 731,500
<TOTAL-REVENUES> 731,500
<CGS> 592,300
<TOTAL-COSTS> 677,400
<OTHER-EXPENSES> (4,500)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,900
<INCOME-PRETAX> 46,700
<INCOME-TAX> (48,500)
<INCOME-CONTINUING> 95,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,200
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.36
</TABLE>
