<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 February 28, 1999 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 March 31, 1999, there were 41,706,560 outstanding shares of GenCorp Inc.'s
Common Stock, par value $0.10.
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GENCORP INC.
<TABLE>
<CAPTION>
Table of Contents
Part I. Financial Information Page No.
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Income -
Three Months Ended February 28, 1999 and 1998 -3-
Condensed Consolidated Balance Sheets -
February 28, 1999 and November 30, 1998 -4-
Condensed Consolidated Statements of Cash Flows -
Three Months Ended February 28, 1999 and 1998 -5-
Notes to the Unaudited Interim Condensed Consolidated
Financial Statements as of February 28, 1999 -6-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -13-
Item 3. Quantitative and Qualitative Disclosures
About Market Risk -17-
Part II. Other Information
Item 1. Legal Proceedings -17-
Item 4. Submission of Matters to a Vote of Security Holders -18-
Item 6. Exhibits and Reports on Form 8-K -19-
Signatures -20-
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
GENCORP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
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February 28, February 28,
1999 1998
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<S> <C> <C>
NET SALES $439.6 $365.5
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COSTS AND EXPENSES
Cost of products sold 341.2 290.6
Selling, general and administrative 46.1 37.0
Depreciation 17.7 15.7
Interest expense 5.4 2.1
Other (income) and expense, net (.3) (1.3)
Unusual items .5 -
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410.6 344.1
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INCOME BEFORE INCOME TAXES 29.0 21.4
Income tax provision 11.8 8.6
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NET INCOME $ 17.2 $ 12.8
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EARNINGS PER SHARE OF COMMON STOCK
Basic $ .41 $ .31
Diluted $ .41 $ .31
Average number of shares of common stock outstanding (in thousands)
Basic 41,582 41,349
Diluted 42,036 41,942
Cash dividends paid per share of common stock $ .15 $ .15
</TABLE>
See notes to the unaudited interim condensed consolidated financial statements.
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GENCORP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<TABLE>
<CAPTION>
Unaudited Audited
February 28, November 30,
1999 1998
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<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 21.5 $ 28.6
Accounts receivable 272.2 275.7
Inventories 160.0 165.3
Prepaid expenses and other 56.3 59.1
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TOTAL CURRENT ASSETS 510.0 528.7
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Recoverable from U.S. Government and third parties for
environmental remediation 148.0 149.3
Deferred income taxes 137.1 136.9
Prepaid pension 136.5 127.4
Investments and other assets 299.4 301.4
Property, plant and equipment:
At cost 1,228.8 1,238.3
Accumulated depreciation (731.3) (738.6)
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Net property, plant and equipment 497.5 499.7
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TOTAL ASSETS $1,728.5 $1,743.4
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable $ 53.2 $ 14.4
Accounts payable - trade 88.0 118.7
Income taxes 34.3 34.0
Other current liabilities 226.9 263.2
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TOTAL CURRENT LIABILITIES 402.4 430.3
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Long-term debt 356.1 356.2
Postretirement benefits other than pensions 315.6 318.4
Environmental reserves 248.5 245.7
Other liabilities 51.7 49.3
SHAREHOLDERS' EQUITY
Preference stock - (none outstanding) - -
Common stock - $0.10 par value; 41.7 million shares outstanding 4.2 4.2
Other capital 153.6 150.8
Retained earnings 209.1 198.1
Accumulated other comprehensive loss (12.7) (9.6)
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TOTAL SHAREHOLDERS' EQUITY 354.2 343.5
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,728.5 $1,743.4
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</TABLE>
See notes to the unaudited interim condensed consolidated financial statements.
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GENCORP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
February 28,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 17.2 $ 12.8
Depreciation, amortization and gain/loss on disposal of fixed assets 19.0 16.4
Deferred income taxes (.2) (.1)
Changes in operating assets and liabilities net of effects of acquisitions and
dispositions of businesses:
Current assets 11.6 26.5
Current liabilities (66.7) (49.2)
Other non-current assets (1.8) (3.2)
Other non-current liabilities .6 (11.2)
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NET CASH USED IN OPERATING ACTIVITIES (20.3) (8.0)
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INVESTING ACTIVITIES
Capital expenditures (19.0) (12.9)
Proceeds from asset dispositions 9.0 .3
Acquisitions (9.0) -
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NET CASH USED IN INVESTING ACTIVITIES (19.0) (12.6)
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FINANCING ACTIVITIES
Long-term debt incurred 20.0 20.0
Long-term debt paid (20.1) (10.4)
Net short-term debt incurred 38.8 18.0
Dividends (6.2) (6.2)
Other equity transactions (.3) 1.7
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NET CASH PROVIDED BY FINANCING ACTIVITIES 32.2 23.1
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NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (7.1) 2.5
Cash and equivalents at beginning of year 28.6 18.4
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Cash and equivalents at end of period $ 21.5 $ 20.9
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</TABLE>
Cash paid for interest was $6.1 million and $2.1 million for the three months
ended February 28, 1999 and 1998, respectively. Cash paid for income taxes was
$10.2 million and $2.9 million for the three months ended February 28, 1999 and
1998, respectively.
See notes to the unaudited interim condensed consolidated financial statements.
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<PAGE> 6
GENCORP INC.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AS OF FEBRUARY 28,1999
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, 1998.
All normal recurring accruals and adjustments considered necessary for a
fair presentation of the unaudited results for the three months ended February
28, 1999 and 1998, have been reflected. The results of operations for the three
months ended February 28, 1999, 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.
Certain reclassifications have been made to conform prior year's data to the
current presentation.
Note B - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
February 28,
(Dollars in millions, except per share amounts and shares in thousands) 1999 1998
--------------------------
<S> <C> <C>
Numerator
Net income $17.2 $12.8
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Denominator
Denominator for basic earnings per share -
weighted average shares 41,582 41,349
Effect of dilutive securities:
Employee stock options 435 578
Other 19 15
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Dilutive potential common shares 454 593
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Denominator for diluted earnings per share -
adjusted weighted average shares and assumed conversions 42,036 41,942
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Earnings Per Share Of Common Stock
Basic earnings per share $.41 $.31
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Diluted earnings per share $.41 $.31
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</TABLE>
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Note C - Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), as of December 1, 1998, which
established standards for reporting and displaying comprehensive income and its
components in the financial statements. The adoption of SFAS 130, which had no
impact on the Company's net income or shareholders' equity, requires cumulative
translation adjustments and minimum pension liability adjustments, which prior
to adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
During the quarters ended February 28, 1999 and 1998, total comprehensive
income was $14 million and $10 million, respectively.
Note D - Acquisitions, Divestitures and Other Matters
On December 2, 1998, the Company acquired the U.S. acrylic emulsion polymers
business of PolymerLatex, located in Fitchburg, Massachusetts, for $9 million.
This acquisition was accounted for using the purchase method and was included in
the results of operations for the Company from the date of acquisition.
On December 14, 1998, the Company sold its residential wallcovering business
to Blue Mountain Wallcoverings, Inc. for an aggregate consideration of
approximately $9 million. The loss on the sale of this business was reflected in
the 1998 results of operations.
On December 14, 1998, the Company announced it had initiated the process for
divesting its Penn Racquet Sports division for which the Company expects to
realize a gain.
On December 17, 1998, the Company announced a plan to spin off its
Performance Chemicals and Decorative & Building Products businesses to GenCorp
shareholders as a separate publicly traded polymer products company. Following
the spin-off, GenCorp would continue to operate Aerojet, its aerospace, defense
and fine chemicals segment, and its automotive Vehicle Sealing business unit.
Implementation of the plan is subject to approval by GenCorp shareholders, the
receipt of a favorable ruling from the Internal Revenue Service, as well as
market conditions at the time of the proposed spin-off.
Note E - 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
February 28, November 30,
(Dollars in millions) 1999 1998
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<S> <C> <C>
Raw materials and supplies $ 49.1 $ 48.0
Work-in-process 8.6 8.5
Finished products 75.4 74.6
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Approximate replacement cost of inventories 133.1 131.1
Reserves, primarily LIFO (40.2) (40.2)
Long-term contracts at average cost 274.4 276.2
Progress payments (207.3) (201.8)
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$ 160.0 $ 165.3
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</TABLE>
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<PAGE> 8
Note F - Long-term Debt and Credit Lines
The Company has a five-year unsecured $400 million revolving credit facility
(Facility) which expires in May 2001. As of February 28, 1999, unused and
available revolving lines of credit totaled $120 million. The Company pays a
variable commitment fee, which was 1/5 of one percent, on the unused balance.
Interest rates were variable, primarily based on LIBOR, and were at an average
rate of 5.6 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. As of
February 28, 1999, the Company was required to maintain consolidated net worth
of at least $192 million.
On September 30, 1998, the Company entered into a $75 million revolving
credit facility for the purchase of certain assets of Sequa Chemicals, the
specialty chemicals unit of Sequa Corporation. This facility is available
through April 29, 1999 and contains various debt restrictions and other
provisions which are the same as those in the Facility described above. The rate
is 75 basis points over LIBOR. The Company pays a commitment fee of
approximately 1/4 of one percent on the unused balance. The Company intends to
convert the $75 million revolving credit facility into the Facility at or before
the date of expiration. At that time, the unused available revolving lines of
credit on the Facility will be reduced accordingly.
At February 28, 1999, the Company had unsecured, uncommitted lines of credit
with several banks for short-term borrowings aggregating $92 million, of which
$50 million was outstanding. Interest rates for these lines of credit were
variable and were at an average rate of 5.3 percent on February 28, 1999.
Borrowings under such lines are payable on demand. The Company also had
outstanding letters of credit totaling $23 million at February 28, 1999.
Note G - Contingencies
Spin-off Related Matters
On March 22, 1999, the Company announced a Voluntary Enhanced Retirement
Program (VERP) and an Enhanced Involuntary Separation Pay Plan (EISP) which are
associated with and contingent upon completion of the Company's plan to spin-off
its Performance Chemicals and Decorative & Building Products divisions as a
separate publicly traded company.
The VERP offers enhanced retirement benefits to eligible salaried employees
within a number of corporate facilities and divisional headquarters. The
majority of the related benefits will be paid from the Company's defined benefit
pension and retiree healthcare plans. The maximum estimated cost of the VERP
could range up to $7.6 million. The actual cost of both the VERP and the EISP
plans will be reflected in the financial statements after the total number of
participants is known and the spin-off has occurred.
In January 1999, the Company's Board of Directors approved the 1999 GenCorp
Key Employee Retention Plan. This plan provides for the issuance of retention
agreements to selected key employees with a total maximum payout of up to $3.2
million payable before March 2001.
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<PAGE> 9
Note G - Contingencies (continued)
Environmental Matters
Sacramento, California
In 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 to prepare a 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
governmental oversight costs associated with compliance with the Decree. The
State of California expanded surveillance of perchlorate and
nitrosodimethylamine (NDMA) under the RI/FS because these chemicals were
detected in public water supply wells near Aerojet's property at previously
undetectable levels using new testing protocols.
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. The remediation
costs are principally for design, construction, enhancement and operation of
groundwater and soil treatment facilities, ongoing project management and
regulatory oversight, and are expected to be incurred over a period of
approximately 15 years. Aerojet is also addressing groundwater contamination off
of its facility.
San Gabriel Valley Basin, California
Aerojet, through its Azusa facility, has been named by the U.S.
Environmental Protection Agency (EPA) as 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 requiring site specific
investigation, possible cleanup, issuance of a Record of Decision (ROD)
regarding regional groundwater remediation and issuance to Aerojet and 18 other
PRPs Special Notice letters requiring groundwater remediation.
Aerojet's investigation demonstrated that the principal groundwater
contamination, volatile organic compounds (VOC), is upgradient of Aerojet's
property and that lower concentrations of VOC 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 is participating in a Steering Committee comprised of nineteen of
the PRPs.
The ROD and Special Notice letters issued by the EPA require 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
"watermaster" plan in which certain water supply entities would integrate the
remedial requirements into a water supply project. If implemented, the
watermaster plan approach would allow the project to be eligible for federal
funding for 25 percent of the non-recurring costs and additional funding from
water supply entities receiving benefit from the project, thus reducing the
PRPs' costs.
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<PAGE> 10
Note G - Contingencies (continued)
San Gabriel Valley Basin, California (continued)
Soon after the EPA issued the Special Notice letter, the State of California
also detected perchlorate in water wells in Southern California, including the
San Gabriel Valley, at previously undetectable levels using new testing
protocols. As a result of the recent finding of perchlorate, the EPA has
required investigation for and studies regarding treatability of perchlorate
contaminated water. Consequently, the EPA has allowed time extensions for
submittal by the PRPs of a good faith offer and negotiation of a consent decree
in response to the Special Notice letter. More recently, NDMA has been detected
in water supply wells, also at previously undetectable levels. The extent of
NDMA in the groundwater is being studied. Treatment technology is established.
The perchlorate and NDMA investigations and studies are underway, primarily
funded by Aerojet. The final perchlorate and NDMA cleanup standards (which have
not yet been determined) could impact total cleanup cost, allocation among the
PRPs, and implementation of the proposed consensus plan.
Muskegon, Michigan
In a lawsuit filed by the 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 of an earlier chemical plant at the site, who is the other
potentially responsible party (PRP). 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. Petitions for certiorari to the United States Supreme Court for
its review of the appellate decision were filed on behalf of the State of
Michigan and the EPA and were granted in December 1997. On June 8, 1998, the
U.S. Supreme Court issued its opinion. The Court held that a parent corporation
could be directly liable as an operator under CERCLA if it can be shown that the
parent corporation operated the facility. The Supreme Court vacated the Sixth
Circuit's 1997 ruling and remanded the case back to the U.S. District Court in
Michigan for retrial. Aerojet does not expect that it will be found liable on
remand. Aerojet is involved in settlement discussions with the EPA and expects
the filing of a proposed consent decree which, if approved by the District
Court, would allow Aerojet and Cordova to be dismissed.
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. Further, the Michigan
Supreme Court also 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. A settlement agreement with the State of Michigan,
related to the proposed consent decree discussed above, is also being finalized
and will be executed contingent on the U.S. consent decree being approved. In
addition, Aerojet believes it has insurance coverage for the site.
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<PAGE> 11
Note G - Contingencies (continued)
Aerojet's Reserve and Recovery Balances
On January 12, 1999, having finally received all necessary Government
approvals, Aerojet and the U.S. Government implemented, with effect retroactive
to December 1, 1998, the October 1997 Agreement in Principle resolving certain
prior environmental and facility disagreements between the parties. Under this
Agreement, a "global" settlement covering all environmental contamination
(including perchlorate) at the Sacramento and Azusa sites was achieved; the
Government/Aerojet environmental cost sharing ratio was raised to 88 percent/12
percent from the previous 65 percent/35 percent (with both Aerojet and the
Government retaining the right to opt out of this sharing ratio for Azusa only,
after at least $40 million in allowable environmental remediation costs at Azusa
have been recognized); the cost allocation base for these costs was expanded to
include all of Aerojet (in lieu of the prior limitation to the Sacramento
business base); and Aerojet obtained title to all of the remaining Government
facilities on its Sacramento property, together with an advance agreement
recognizing the allowability of certain facility demolition costs.
At February 28, 1999, Aerojet had total reserves of $239 million for costs
to remediate the above sites and has recognized $164 million for probable future
recoveries. These estimates are subject to change as work progresses, additional
experience is gained and environmental standards are revised. 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 $17
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 $38 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 5 to 10 years.
Other Sites
The Company is also currently involved, together with other companies, in 35
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, and in many instances, has been
less than 1 percent. The Company has reserves of approximately $20 million as of
February 28, 1999 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> 12
Note G - Contingencies (continued)
Other Legal Matters
Olin Corporation
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. 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 and, at its request, in 1998, it
received an additional briefing regarding the impact of the recent Best Foods
Supreme Court decision which the Company believes definitively addresses many
issues in this case in its favor. Another hearing relative to liability and
allocation was held on January 11, 1999. The parties argued their respective
positions based on recent case law. The judge indicated that a decision may be
forthcoming in the next several months. If the Court finds GenCorp is liable,
subsequent trial phases will address damages.
The Company continues to vigorously litigate 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.
Other Matters
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> 13
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 three months of fiscal
1999 was $20.3 million as compared to $8.0 million in the first three months of
1998. The increase in cash flow used by operating activities primarily reflects
a higher working capital requirement.
For the three month period ending February 28, 1999, $19.0 million was used
for investing activities, including the acquisition of the Fitchburg,
Massachusetts facility for $9.0 million and capital expenditures of $19.0
million, offset by proceeds of $9.0 million from asset dispositions. This is
compared to $12.6 million used for investing activities in the first three
months of 1998, which was mainly for capital expenditures.
Cash flow provided from financing activities in the first three months of
1999 primarily reflects a $38.7 million net increase in debt offset by payments
of $6.2 million in dividends. The net increase in debt from November 30, 1998 to
February 28, 1999 was mainly due to the acquisition of the Fitchburg facility
and capital expenditures. Cash flow provided from financing activities in the
first three months of 1998 reflected a $27.6 million net increase in debt and
payments of $6.2 million in dividends.
Interest expense increased to $5.4 million in the first quarter of 1999
versus $2.1 million in the same period a year ago due to the higher debt levels.
Material Changes in Results of Operations
Sales during the first quarter of 1999 of $439.6 million were up 20 percent,
compared to sales of $365.5 million in the first quarter of 1998. Segment
operating profit for the first quarter of 1999 of $38.0 million increased 28
percent versus $29.6 million for the first quarter of 1998, and was up in all
three GenCorp reporting segments, aerospace and defense, polymer products and
automotive. Consolidated segment operating profit margins rose to 8.6 percent in
the first quarter of 1999 versus 8.1 percent for the same period of 1998.
The Company announced on December 17, 1998, that it plans to spin off its
Performance Chemicals and Decorative & Building Products businesses to GenCorp
shareholders as a separate publicly traded polymer products company. Under the
plan, GenCorp would continue to operate Aerojet's aerospace, defense and fine
chemicals businesses, and the Vehicle Sealing automotive business unit.
The Company expects to complete the spin-off in the second half of 1999, a
plan that is contingent upon a tax-free ruling from the IRS, shareholder
approval and market conditions at the time of the spin-off. During the quarter,
the Company expensed $0.5 million of spin-off related activities.
Within the Company's polymer products segment, net sales increased for the
first quarter of 1999 by 26 percent to $185.5 million compared to $147.5 million
in the first quarter of 1998. Performance Chemicals and Decorative & Building
Products both posted double-digit sales gains during the quarter. Higher sales
and improved operating performance were also posted by Penn Racquet Sports,
which the Company is in the process of divesting.
Operating profit for the polymer products segment during the first quarter
of 1999 improved 15 percent to $16.8 million versus $14.6 million in the first
quarter of 1998. Segment operating profit margins declined to 9.1 percent versus
9.9 percent last year, primarily due to lower pricing in several markets and
integration costs related to acquisition activity in the latter half of 1998.
-13-
<PAGE> 14
Material Changes in Results of Operations (continued)
During the quarter, Decorative & Building Products continued its integration
of GenCorp U.K. Wallcoverings Inc. This August 1998 acquisition elevated the
Company to the worldwide market share leader in commercial wallcovering. In the
North American market, introduction of new wallcovering designs in late 1998 has
resulted in encouraging growth of new orders in the past several months.
Synergies realized from the 1997 Printworld acquisition have led to
double-digit sales growth in the decorative laminates business from new
coordinated paper and vinyl product lines.
During the quarter, Decorative & Building Products also increased market
share across all of its Building Systems product lines.
Performance Chemicals completed the acquisition of PolymerLatex's U.S.
acrylics business located in Fitchburg, Massachusetts in the first quarter of
1999, further diversifying its product lines and technology and expanding
geographic reach into the Northeastern United States.
Aerojet's 1999 first quarter operating profits improved to $18.4 million
versus $14.2 million in the first quarter of 1998. Operating margins grew to
12.2 percent in the current quarter versus 10.5 percent last year, primarily as
a result of strong performance in the Strategic and Space Propulsion and Space
Surveillance businesses. Sales in the first quarter of 1999 increased 11 percent
to $150.3 million, versus $135.4 million during the first quarter of 1998.
Higher revenues were achieved from the Titan, Space Based Infrared System (SBIRS
High), and tactical programs.
Highlights during the quarter included three Delta II launches, one of which
marked the 200th consecutive successful launch of Aerojet's second-stage engine.
Also during the quarter, Aerojet booked new contract awards of $223 million,
increasing contract backlog to $1.8 billion.
One major contract awarded by Lockheed Martin calls for Aerojet to build a
new generation solid rocket motor for the Atlas V medium-to-heavy lift launch
vehicle for the commercial satellite market and government missions. This new
contract, with potential to exceed one half billion dollars of sales over the
next decade, fits with Aerojet's continuing strategy of aggressively pursuing
work in the commercial space arena.
Aerojet also won an $8.5 million contract from the Boeing Company to provide
altitude control systems for the National Missile Defense (NMD) first stage
booster rocket. Aerojet expects to deliver a flight-qualified system in less
than six months, with additional units to be supplied over the next year to
support the flight test program.
Also during the quarter, Aerojet finalized an important agreement with the
U.S. Air Force, which significantly enhances Aerojet's environmental cost
recovery from 65 percent to 88 percent.
Automotive segment sales were $103.8 million in the first quarter of 1999,
versus $82.6 million in the same quarter of 1998. The 26 percent sales increase
came from higher volumes on the Ford F-150 and Explorer, Mercedes AAV, and
General Motors C/K pickup programs.
The automotive segment operating profit improved, as expected, to $2.8
million during the first quarter of 1999, compared to operating profit of $0.8
million during the first quarter of 1998, due to the completion of launch
activities for several new programs in 1998. Improvements were offset slightly
by some launch costs on several new 1999 passenger car programs, and currency
exchange rates from Canadian operations. Henniges, the business unit's European
operation, had positive operating profit during the quarter.
The automotive segment continues to focus on light trucks and sport utility
vehicles, the most profitable and fastest growing segment of the market.
Profitability is expected to gradually increase during the year as programs
launched in 1998 and early 1999 mature.
-14-
<PAGE> 15
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 generally accepted manufacturing
and disposal practices in the 1950s and 1960s which were followed at certain
GenCorp 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 the
amount of the liability (usually based upon proportionate sharing) can be
reasonably estimated. The Company's Condensed Consolidated Balance Sheet at
February 28, 1999 reflects accruals of $276 million and amounts recoverable of
$164 million from the U.S. Government and other 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 and more cost effective
remediation alternatives and associated technologies. For additional discussion
of environmental matters, refer to Note G - Contingencies.
Year 2000
The Company is currently engaged in a comprehensive project to upgrade its
information, technology, and manufacturing and facilities computer hardware and
software programs to address the Year 2000 issue at its domestic and
international businesses. Many of the Company's systems include new hardware and
updated software packages purchased from established vendors who have
represented that these systems are Year 2000 ready. The Company does not have
large centralized systems, a factor, which the Company believes, reduces the
risk of a single point of failure having widespread impact on the Company.
As part of this project, the Company has formally communicated with all of
its significant suppliers, vendors and large customers to determine the extent
to which the Company is vulnerable to those parties' failures to correct their
own Year 2000 issues. As of February 28, 1999, the Company has received
approximately 95 percent of the responses, and those responses generally
indicate that these parties will be Year 2000 ready.
The Company has completed an inventory and assessment of its information
technology systems. Both internal and external resources are being utilized to
test the Company's software for Year 2000 readiness and, where necessary, the
systems are being remediated through upgrading, replacement or reprogramming.
Also, the Company has completed an inventory and assessment of its
non-information technology (embedded) systems, prioritizing the impact of each
of these systems on the Company's ability to conduct its operations and, as
necessary, obtaining vendor verification and/or remediation of those systems.
The process of analyzing, prioritizing, remediating and testing will be an
iterative process until all critical systems are Year 2000 ready.
-15-
<PAGE> 16
Year 2000 (continued)
The estimated cost for this project is projected to range between $6 million
and $8 million, which is being funded through operating cash flows. The Company
has spent approximately $2 million as of February 28, 1999 on this project and
expects to spend the remaining budget by the third quarter of 1999. Excluding
recent acquisitions, the Company believes that approximately 70 percent of its
systems are Year 2000 ready as of February 28, 1999 and the remaining systems
will be Year 2000 ready by mid-year 1999. Recent acquisitions are targeted for
completion by the end of the third quarter of 1999.
Based upon currently available information and considering the Company's
diversified business base, decentralized systems and Year 2000 efforts,
management believes that the most reasonably likely worst case scenario could
result in minor short-term business interruptions. The Company is preparing
contingency plans which include alternative sourcing to minimize any disruptions
to its businesses resulting from a vendor or supplier not being Year 2000 ready.
However, failure by the Company and/or vendors and customers to complete Year
2000 readiness work in a timely manner could have a material adverse effect on
certain of the Company's operations. The Company's exposure could increase or
its timetable for Year 2000 readiness could be delayed as a result of any new
acquisitions.
Adoption of the Euro
Based upon a preliminary evaluation, management believes that the adoption
of the Euro by the European Economic Community will not have a material impact
on the Company's international businesses. The Company's foreign operations
currently are small and each operation conducts the majority of its business in
a single currency with minimal price variations between countries.
Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in interest rates on
long-term debt obligations. The Company's policy is to manage its interest
rate exposures through the use of a combination of fixed and variable rate
debt. Currently, the Company does not use derivative financial instruments to
manage its interest rate risk. Substantially all of the Company's long-term debt
of $359 million which matures in the year 2001 is variable and had an average
variable interest rate of 5.6 percent at February 28, 1999. The Company's
long-term debt bears interest at market rates and therefore, the carrying value
approximates fair value.
Although the Company conducts business in foreign countries, international
operations were not material to the Company's consolidated financial position,
results of operations or cash flows as of February 28, 1999. Additionally,
foreign currency transaction gains and losses were not material to the Company's
results of operations for the three months ended February 28, 1999. Accordingly,
the Company should not be subject to material foreign currency exchange rate
risk with respect to future costs or cash flows from its foreign subsidiaries.
To date, the Company has not entered into any significant foreign currency
forward exchange contracts or other derivative financial instruments to hedge
the effects of adverse fluctuations in foreign currency exchange rates. The
Company is evaluating the future use of such financial instruments.
Forward-Looking Statements
This report on Form 10-Q contains forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. These statements may present
(without limitation) management's expectations, beliefs, plans and objectives,
future financial performance, and assumptions or judgments concerning such
matters. Any discussions contained in this report, except to the extent that
they contain historical facts, are forward-looking and accordingly involve
estimates, assumptions, judgments and uncertainties. There are a number of
factors that could cause actual results or outcomes to differ materially from
those addressed in the forward-looking statements. Such factors are detailed in
the Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1998 filed with the Securities and Exchange Commission.
-16-
<PAGE> 17
Item 3. Quantitative and Qualitative Disclosure About Market Risk
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-Quantitative and Qualitative Disclosure About Market Risk."
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning legal proceedings, including proceedings relating to
environmental matters, which appears in Note G beginning on page 8 of this
report is incorporated herein by reference.
PUC Investigation
Because of recent "toxic tort" lawsuits which named California water
purveyors as defendants, on March 12, 1998, the PUC announced a wide ranging
investigation of drinking water quality in California. The PUC's General Counsel
has publicly stated that he believes that under the California Constitution, the
PUC's jurisdiction overrides that of the Courts in this area. Accordingly,
Aerojet is also preparing to defend its interests before the PUC. Aerojet's
intervention petition to allow Aerojet to participate in the PUC's proceedings
has been granted. The PUC's investigation is expected to be completed by fall
1999, at which point the stays in the toxic tort cases (as discussed in the
Company's 1998 annual report on Form 10-K) may be lifted, unless the Court of
Appeal so orders earlier.
In re: Proposition 65 Notices
Aerojet was served in February 1999 with a notice from a private party
alleging that it had released chemicals into air and groundwater at and near its
Azusa, California facility above state limits in violation of California's
Proposition 65 and/or without filing sufficiently detailed public notifications
as required by Proposition 65. Following collection and review of all of its
Proposition 65 records, air release reports and groundwater reports, Aerojet
believes it is in compliance with Proposition 65 and will vigorously defend a
Proposition 65 lawsuit if such a lawsuit is initiated.
McKinley, et al. v. GenCorp Inc., et al.
Following an "investigative" report published in the Houston Chronicle on
November 29, 1998 (which was reprinted by other newspapers and may well generate
further media coverage), a "toxic tort" lawsuit was filed against 40 chemical
companies and trade association co-defendants in Common Pleas Court for
Ashtabula County, Ohio, Case No. 98CV00797. The complaint was filed by the heirs
of a former production employee at GenCorp's former polyvinyl chloride ("PVC")
resin facility in Ashtabula, Ohio and GenCorp was served on December 21, 1998.
GenCorp, as the former employer, is alleged to have intentionally exposed the
decedent to vinyl chloride ("VC"), a building block compound for PVC that is
listed as a carcinogen by certain government agencies. The alleged exposure is
claimed to have resulted in fatal liver damage. Plaintiffs also allege that all
of the co-defendants engaged in a conspiracy to suppress information regarding
the carcinogenic risk of VC to industry workers, despite the fact that OSHA has
strictly regulated workplace exposure to VC since 1974. GenCorp has notified its
insurers and will vigorously defend this and any future actions which may be
generated.
This lawsuit is apparently an outgrowth of three similar but unrelated
"toxic tort" civil conspiracy cases brought in 14th Judicial District Court,
Calcasieu Parish, Louisiana by the heirs of deceased former employees of two
chemical plants in Lake Charles, Louisiana Ross, et ux. v. Conoco, Inc., et al.
(Case No. 90-4837); Landon, et ux. v. Conoco, Inc., et al. (Case No. 97-7949);
Tousaint, et ux. v. Insurance Co. of North America, et al. (Case No. 92-6172).
GenCorp was named as a "conspiring" co-defendant in all three cases, along with
most of the same co-defendants in the McKinley case.
On March 22, 1999, GenCorp was served with a similar conspiracy suit
alleging VC exposure from various aerosol products, including hairspray. Bland,
et al. v. Air Products & Chemicals, Inc., et al., Jefferson County (Beaumont),
Texas, (Case No. D-160,599). VC was used as an aerosol propellant in the 1960's.
Again, the same co-defendants are named, with the addition of various consumer
products and personal care manufacturers.
-17-
<PAGE> 18
Item 1. Legal Proceedings (continued)
McKinley, et al. v. GenCorp Inc., et al. (continued)
Unlike McKinley, in none of these cases was GenCorp alleged to be an
employer, manufacturer or VC supplier. Nonetheless, GenCorp notified its
insurers and has vigorously defended these actions since served.
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 the matters discussed above 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 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 matter.
The Company and its subsidiaries are presently engaged in other litigation,
and additional litigation has been threatened. However, based upon information
presently available, none of such other litigation is believed to constitute a
"material pending legal proceeding" within the meaning of Item 103 of Regulation
S-K (17 CFR Reg. 229.103) and the Instructions thereto.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on March 31, 1999,
holders of GenCorp Common Stock elected C. A. Corry, W. K. Hall, R. K.
Jaedicke, and D. M. Steuert as directors to serve a three year term expiring in
2002. Previously, J.M. Osterhoff, J.G. Cooper and J.B. Yasinsky were elected as
directors to serve three year terms which continue until March 2000 and D.E.
McGarry, Dr. R.B. Pipes and S.W. Percy were elected as directors to serve three
year terms which continue until March 2001. Shareholders also ratified the Board
of Directors' appointment of Ernst & Young LLP as the Company's independent
auditors for 1999.
Following is the final result of the Common votes cast:
A) Election of Directors:
<TABLE>
<CAPTION>
For Withheld Broker Nonvotes
<S> <C> <C> <C>
C. A. Corry 37,490,658 461,637 -0-
---------- ------- ---
W. K. Hall 37,515,913 436,382 -0-
---------- ------- ---
R. K. Jaedicke 37,480,773 471,522 -0-
---------- ------- ---
D. M. Steuert 37,383,225 569,070 -0-
---------- ------- ---
</TABLE>
B) Ratification of the Board of Directors' appointment of Ernst & Young LLP as
independent auditors:
<TABLE>
<S> <C> <C> <C>
For: 37,685,399 Against: 151,229 Abstain: 115,667 Broker Nonvotes: -0-
---------- ------- ------- ---
</TABLE>
-18-
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<CAPTION>
Table Exhibit
Item No. Exhibit Description Number
------------------------------------------------------------------------------------------------------
<S> <C> <C>
10 Material Contracts
10.(iii)(A) Management contracts, compensatory
plans or arrangements
Form of Restricted Stock Agreement between the 10.1
Company and Non employee Directors providing for
payment of part of Directors' compensation for
service on the Board of Directors in Company Stock
1999 GenCorp Key Employee Retention Plan 10.2
providing for payment of up to two
annual cash retention payments to Eligible
Employees who satisfactorily continue
their employment with GenCorp, attain
specified performance objectives
(including the spin-off of the GenCorp
Performance Chemicals and Decorative and
Building Products Divisions), and meet all
plan provisions. To date, 14 key employees
have received Key Employee Retention
Letter Agreements pursuant to the Plan,
providing for individual total retention
payments ranging from $75,000 to $800,000.
27 Financial Data Schedule 27
(Filed for EDGAR only)
</TABLE>
b) Reports on Form 8-K
The Company filed a Report on Form 8-K on December 22, 1998
incorporating its press release dated December 17, 1998 regarding its
proposed plan to spin off its Performance Chemicals and Decorative &
Building Products businesses.
-19-
<PAGE> 20
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 April 12, 1999 By /s/ Michael E. Hicks
---------------- --------------------------------------------
M. E. Hicks
Senior Vice President and Chief Financial
Officer
Date April 12, 1999 By /s/ William R. Phillips
---------------- -------------------------------------------
W. R. Phillips
Senior Vice President, Law; General Counsel
-20-
<PAGE> 1
EXHIBIT 10.1
RESTRICTED STOCK AGREEMENT
GENCORP INC.
March 1999
AGREEMENT, Made in Fairlawn, Ohio as of March 30, 1999 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 Fifty (250) 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 Fifty (250) 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 dividend
reinvestment program, pursuant to the standard terms and conditions of
participation. Additional shares of GenCorp common stock accumulated pursuant to
the dividend reinvestment feature shall not be subject to the Restriction
Period. Director may decline to participate in such program 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 paragraphs 7 or
10 hereof, ownership of the Shares deposited hereunder shall vest irrevocably in
the Director on March 30, 2001, subject to the other terms and restrictions of
this Agreement.
<PAGE> 2
-2-
7. Change in Control.
(a) Notwithstanding paragraph 6 above, the ownership of the Shares
granted hereby shall automatically vest, the Restriction Period shall terminate,
all restrictions shall lapse and delivery to Director of certificate(s)
representing such Shares shall occur immediately, if at any time during the
Restriction Period a Change in Control (as defined herein) shall occur.
(b) For purposes of this Agreement, "Change in Control" shall mean the
occurrence during the term of this Agreement of any of the following events,
subject to the provisions of Section (7)(b)(vi) hereof:
(i) All or substantially all of the assets of the Company are
sold or transferred to another corporation or entity, or the Company is merged,
consolidated or reorganized into or with another corporation or entity, with the
result that upon conclusion of the transaction less than 51% of the outstanding
securities entitled to vote generally in the election of directors or other
capital interests of the acquiring corporation or entity are owned directly or
indirectly, by the shareholders of the Company generally prior to the
transaction; or
(ii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act (a "Person")) has
become the beneficial owner (as the term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act (a "Beneficial Owner")) of securities representing 20% or more of the
combined voting power of the then-outstanding voting securities of the Company;
or
(iii) The individuals who, at the beginning of any period of
two consecutive calendar years, constituted the Directors of the Company cease
for any reason to constitute at least a majority thereof unless the nomination
for election by the Company's stockholders of each new Director of the Company
was approved by a vote of at least two-thirds of the Directors of the Company
still in office who were Directors of the Company at the beginning of any such
period; or
(iv) There shall be an announcement of the intent of any
Person to commence a tender offer or exchange offer to acquire (when added to
any shares as to which such Person is the beneficial owner immediately prior to
such tender or exchange offer) beneficial ownership of 30% or more of the
combined voting power of the then-outstanding voting securities of the Company;
or
(v) The Board determines that (A) any particular actual or
proposed merger, consolidation, reorganization, sale or transfer of assets,
accumulation of shares or tender offer for shares of the Company or other
transaction or event or series of transactions or events will, or is likely to,
if carried out, result in a Change in Control falling within Subsections (i),
(ii), (iii) or (iv) and (B) it is in the best interests of the Company and its
shareholders, and will serve the intended purposes of this Agreement, if the
provisions of paragraph 7(a) of this Agreement shall thereupon become
immediately operative.
<PAGE> 3
-3-
(vi) Notwithstanding the foregoing provisions of this Section
(7)(b):
(A) If any such merger, consolidation,
reorganization, sale or transfer of assets, or tender offer or other transaction
or event or series of transactions or events mentioned in Section (7)(b)(v)
shall be abandoned, or any such accumulations of shares shall be dispersed or
otherwise resolved, the Board may, by notice to the Director, reinstate such
restrictions on transfer of Shares under this Agreement as were previously in
effect, but without prejudice to any action that may have been taken prior to
such reinstatement.
(B) Unless otherwise determined in a specific case by
the Board of Directors, a "Change in Control" shall not be deemed to have
occurred for purposes of Section (7)(b)(ii) or 7(b)(iv) solely because (X) the
Company, (Y) a Subsidiary, or (Z) any Company-sponsored employee stock ownership
plan or any other employee benefit plan of the Company or any Subsidiary either
files or becomes obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the Exchange Act
disclosing beneficial ownership by it of shares of the then-outstanding voting
securities of the Company, whether in excess of 20% or otherwise, or because the
Company reports that a change in control of the Company has occurred or will
occur in the future by reason of such beneficial ownership.
8. 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.
9. 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.
10. 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.
11. Termination Due to Other Reasons. If Director's service on the
Board terminates for any reason other than a reason set forth in paragraphs 7 or
10 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.
12. 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).
<PAGE> 4
-4-
13. 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.
14. 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 30th day of
March, 1999.
GENCORP INC.
By:__________________________
J. B. Yasinsky
Chairman and Chief Executive Officer
Agreed to and accepted:
- ----------------------------------
Director Signature*
TO OPT OUT OF PARTICIPATION IN THE COMPANY'S DIVIDEND REINVESTMENT PROGRAM,
INITIAL THE STATEMENT BELOW:
____ I DO NOT ELECT TO PARTICIPATE IN THE DIVIDEND REINVESTMENT PROGRAM
*Sign and return one copy by April 30, 1999 to GenCorp Inc., 175 Ghent Road,
Fairlawn, Ohio 44333-3300; Attention: Secretary.
<PAGE> 1
EXHIBIT 10.2
1999 GENCORP KEY EMPLOYEE RETENTION PLAN
ARTICLE 1
Introduction
1.1 GenCorp Inc. ("GenCorp") hereby adopts this 1999 GenCorp Key
Employee Retention Plan ("Plan"), effective as of February 1, 1999, to provide
periodic cash payments ("Retention Benefits") to Eligible Employees who
satisfactorily continue their employment with GenCorp, attain specified
performance objectives (including the "spin-off" of the GenCorp Performance
Chemicals and Decorative & Building Products Divisions), and meet all Plan
provisions.
1.2 The term of the Plan is expected to extend beyond the proposed
"spin-off" of GenCorp's Performance Chemicals and Decorative & Building Products
Divisions to a new entity (currently unnamed, but designated herein as "NewCo").
After the "spin-off" occurs, all references herein to GenCorp should be
construed as reference to GenCorp and/or NewCo, as applicable to the Eligible
Employee.
1.3 GenCorp intends to pay the Retention Benefits provided hereunder
from the general assets of GenCorp; however, GenCorp reserves the right to fund
and provide all or part of the Retention Benefits hereunder through one or more
welfare trusts.
1.4 This plan document contains all information required by law to be
provided to employees. Information regarding the Plan, its claims procedures and
employees' rights under the Employee Retirement Income Security Act of 1974
("ERISA") are included as Section 5.7 and Articles 6 and 8.
1.5 This Plan shall be administered, in all respects, by the
Organization and Compensation Committee of the GenCorp Board of Directors or its
adopted designee (the "Committee"), including sole responsibility for
determining eligibility for benefits under the Plan, interpreting Plan terms,
and resolving disputes under the Plan, all of which is set forth herein.
<PAGE> 2
ARTICLE 2
Eligibility For Retention Benefits
2.1 Eligibility: Subject to the exclusions contained in Section 2.2, an
employee must satisfy all of the following conditions, during the term of this
Plan as defined in Section 5.5, or such shorter term as designated by the
Committee, to be eligible for Retention Benefits under this Plan:
(a) GenCorp must offer such employee a Letter Agreement
incorporating the terms and conditions of this Plan and setting forth
the Retention Benefits, if any, available to the employee under Article
3 hereof. The identity of employees to be offered a Letter Agreement
will be decided by GenCorp, in its sole and complete discretion;
(b) The employee must execute and deliver to GenCorp the
Letter Agreement within the time period set forth in the Letter
Agreement;
(c) The employee must work diligently in the best interests of
GenCorp throughout the period that (i) GenCorp prepares to "spin-off"
its Performance Chemicals and Decorative & Building Products Divisions;
(ii) the "spinoff" occurs; and (iii) GenCorp and NewCo complete all
post-spinoff transactions and filings; and
(d) Upon payment of the final installment of Retention
Benefits for which the Employee is eligible under the Plan or in the
event of involuntary employment termination for other than cause during
the term of the Plan and/or Letter Agreement, the employee must execute
and deliver a Release in substantially the form attached hereto as
Exhibit "A".
An employee who satisfies the foregoing conditions shall be deemed to be an
"Eligible Employee."
2.2 Exclusion: Notwithstanding the satisfaction by an employee of all
of the conditions in Section 2.1, the following employees are not Eligible
Employees:
(a) Any employee who refuses Comparable Employment with
GenCorp or Newco. As used herein, "Comparable Employment" means
employment in any capacity, whether as an employee, consultant,
independent contractor, leased employee or otherwise, which is broadly
within the career scope indicated by the employee's present and
previous training and positions, and for which his annualized cash
compensation (salary and any incentive bonus) is at least equal to his
annual cash compensation at the time of offer.
2
<PAGE> 3
(b) Any employee who voluntarily retires or resigns from
employment.
(c) Any employee whose employment is terminated "for cause" as
defined in Article 4, below.
2.3 Failure of Purpose:
(a) In the event that the spinoff does not occur before
February 1, 2000, for whatever reason, only a pro-rata share of those
Retention Benefits payable as of February 1, 2000 shall be paid (based
on the number of months between February 1, 1999 and the date that the
proposed spin-off is formally cancelled), and there shall be no
obligation to pay any future Retention Benefits, contemplated,
anticipated or accrued. Pro-rata Retention Benefits shall be paid
within thirty (30) days of formal spinoff cancellation
(b) In the event that a "Change in Control" of GenCorp occurs
(as defined in applicable severance agreements) prior to completion of
the spinoff, this Plan and related Letter Agreements shall be
cancelled, and any obligation to pay any Retention Benefits,
contemplated, anticipated or accrued, shall be deemed null and void.
ARTICLE 3
Retention Benefits
3.1 Retention Benefits: Subject to the terms of the Plan, up to two (2)
annual cash retention payments ("Retention Benefits") will be designated in the
Letter Agreement for each potentially Eligible Employee. All Retention Benefits
are taxable compensation subject to normal tax withholding.
3.2 Payment Date: As a condition of payment of any Retention Benefit,
an Eligible Employee must be actively employed by GenCorp or NewCo on the
designated Payment Date, and no pro-rata payments shall be made, except for the
reasons set forth in Section 2.3(a) above and 3.4 below.
3.3 Involuntary Employment Termination: In the event of involuntary
employment termination for any reason, (other than Termination Without
Compensation as defined in Article 4 below), and subject to Section 2.3 above,
an Eligible Employee shall be paid all unpaid Retention Benefits in the
amount(s) set forth in his Letter Agreement within thirty (30) days of
employment termination, and conditioned upon execution of the Release attached
hereto as Exhibit "A".
3
<PAGE> 4
3.4 Pension Enhancements: In the event that an age and service pension
enhancement is offered and elected by an Eligible Employee, a pro-rata portion
of those Retention Benefits payable as of February 1, 2000 will be paid to the
Eligible Employee base on the number of months between February 1, 1999 and the
date that the proposed spin-off becomes effective. The pro-rata retention
benefits payable under this provision shall be paid on or about February 1,
2000.
ARTICLE 4
Termination Without Compensation
4.1 Other provisions of this Plan notwithstanding, GenCorp will have no
obligation to pay Retention Benefits to any employee whose employment is
terminated according to Section 4.2 or 4.3.
4.2 "Termination Without Compensation" means circumstances where the
employment termination results from any activity of the employee deemed contrary
to the best interests of GenCorp, its subsidiaries or its operating business
units, as determined in the sole discretion of the Committee. Such determination
is to be approved by the GenCorp Senior Vice President of Human Resources, or
his designee. For the purposes of this Plan, "Termination Without Compensation"
shall be defined as:
(a) A material violation of any of GenCorp's published Company
Policies.
(b) A serious violation of facility rules adopted to promote
the safety of employees, protect GenCorp's property or reputation, or
maintain general working conditions and employee discipline.
(c) The commission of any crime against GenCorp, such as
embezzlement or falsification or theft of documents or records.
(d) Any material act deliberately committed to provoke
dismissal in order to obtain termination pay.
4.3 "Termination Without Compensation" may also occur in the event of
unsatisfactory work performance.
4
<PAGE> 5
ARTICLE 5
General Provisions
5.1 Other Plans:
(a) Benefits received under this Plan will not be included in
compensation or earnings for purposes of determining benefits,
including pension benefits, under any other employee benefit plan of
GenCorp.
(b) Except as otherwise provided in this Plan, payment of
benefits under this Plan will not adversely affect an Eligible
Employee's rights under any other employee benefit plan of GenCorp,
including any other plan, program or agreement that provides other
severance benefits. An Eligible Employee's rights under such other
plans shall be governed by the terms of the plans in effect at the time
of the Eligible Employee's termination from GenCorp.
5.2 Reductions: GenCorp may setoff and reduce the amount of Retention
Benefits to recover any amounts which an Eligible Employee owes to GenCorp.
5.3 No Rights to Employment: Nothing herein, or in any Letter Agreement
offered or executed hereunder, or in oral discussions regarding this Plan shall
constitute a commitment for employment for any specified duration, or be deemed
to limit GenCorp's right or power to terminate the employment of any employee.
5.4 No Right to Transfer or Assign Benefits: Benefits under this Plan
are intended for the exclusive benefit of Eligible Employees. Present and future
benefits cannot be subjected to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge (except as required by law), and any
attempt to do so is null and void.
5.5 Duration/Amendment/Termination of the Plan:
(a) This Plan will be effective as of February 1, 1999 and,
unless modified or terminated in accordance with Section 5.5(b), will
terminate on February 1, 2001, or, if earlier, upon the announcement by
GenCorp's Chief Executive Officer that GenCorp has ceased further
consideration of the spinoff of its Performance Chemicals and
Decorative & Building Products Divisions.
(b) The Committee retains the right to modify or terminate the
Plan, at any time, in its entirety or in part, with or without prior
notice to employees. However, any such amendment or termination shall
not adversely affect an Eligible Employee's right to Retention Benefits
if all conditions set forth in Section 2.1 as currently written are
thereafter satisfied.
5
<PAGE> 6
5.6 Plan Administration:
(a) The Plan constitutes an employee welfare benefit plan as
defined by the Employee Retirement Income Security Act of 1974. The
Plan Administrator for the Plan is the Organization and Compensation
Committee of the Board of Directors of GenCorp Inc., 175 Ghent Road,
Fairlawn, OH 44333-3300, (330) 869-4220.
(b) Legal matters, including service of process, relating to
the Plan should be addressed to the GenCorp Senior Vice President, Law;
General Counsel, at the address shown above.
(c) Records for the Plan are kept on a plan year basis,
beginning December 1 and ending the following November 30.
(d) For government reporting purposes, the Employer
Identification Number for GenCorp is 34-02244000. In addition, the Plan
is identified by the following official name and plan number:
1999 GenCorp Key Employee Retention Plan
Plan Number: 501
This plan name and number should be used in any formal correspondence
relating to the Plan.
ARTICLE 6
Claims Procedure
6.1 Claim:
(a) An Eligible Employee need not present a formal claim in
order to qualify for rights or benefits under this Plan. However, if
GenCorp fails to provide any benefit to which an Eligible Employee is
entitled hereunder or if any Eligible Employee believes (i) that the
Plan is not being administered or operated in accordance with its
terms, (ii) that fiduciaries of the Plan have breached their duties, or
(iii) that his or her own legal rights are being violated with respect
to the Plan (a "claimant"), the claimant must file a formal claim under
the procedures set forth in this Article 6. The procedures in this
Article 6 shall apply to all claims that any person has with respect to
the Plan, including claims against fiduciaries and former fiduciaries,
except to the extent the Plan Administrator determines, in its sole
discretion, that it does not have the power to grant, in substance, all
relief reasonably being sought by the claimant.
6
<PAGE> 7
(b) A claim by any person shall be presented to GenCorp's
Senior Vice President of Human Resources ("Claims Official") in writing
within ninety (90) days of the date upon which the claimant (or his or
her predecessor in interest) first knew (or should have known) of the
facts upon which the claim is based, unless the Plan Administrator in
writing consents otherwise. The Claims Official shall, within ninety
(90) days of receiving the claim, consider the claim and issue his or
her determination thereon in writing. The Claims Official may extend
the determination period for up to an additional ninety days by giving
the claimant written notice. If the claim is granted, the benefits or
relief the claimant seeks will be provided.
6.2 Denial: If the claim is wholly or partially denied, the Claims
Official shall, within ninety (90) days (or such longer period as described
above), provide the claimant with written notice of the denial, setting forth,
in a manner calculated to be understood by the claimant,
(a) the specific reason or reasons for the denial,
(b) specific references to pertinent Plan provisions on which
the denial is based,
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of
why the material or information is necessary, and
(d) an explanation of the Plan's claim review procedure.
With the consent of the claimant, this determination period can be extended
further. If the Claims Official fails to respond to the claim in a timely
manner, the claimant may treat the claim as having been denied by the claims
official.
6.3 Appeal: Each claimant may appeal in writing the Claims Official's
denial of a claim to the Committee within sixty (60) days after receipt by the
claimant of written notice of the claim denial, or within sixty (60) days after
such written notice was due, if the written notice was not sent. In connection
with the review proceeding, the claimant or his or her duly authorized
representative may review pertinent documents and may submit issues and comments
in writing. The claimant may only present evidence and theories during the
review which the claimant presented during the claims procedure, except for
information which the Claims Official requested the claimant to provide to
perfect the claim (see Section 6.2(c). Any claims which the claimant does not in
good faith pursue through the review stage of the procedure shall be treated as
having been irrevocably waived.
7
<PAGE> 8
6.4 Review Procedures: The Committee shall adopt procedures pursuant to
which claims shall be reviewed and may adopt different procedures for different
claims without being bound by past actions. Any procedures adopted, however,
shall be designed to afford a claimant a full and fair review of his or her
claim.
6.5 Final Decision: The decision by the review official upon review of
a claim shall be made not later than sixty (60) days after the written request
for review is received by the Committee, unless special circumstances require an
extension of time for processing, in which case a decision shall be rendered as
soon as possible, but not later than one hundred twenty (120) days after receipt
of the request for review, unless the claimant agrees to a greater extension of
that deadline.
6.6 Form: The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner calculated to be
understood by the claimant, with specific references to the pertinent Plan
provisions on which the decision is based.
6.7 Legal Effect: To the extent permitted by law, the decision of the
Claims Official (if no review thereof is requested as herein provided) or the
decision of the Committee, as the case may be, shall be final and binding on all
parties. Any claims which the claimant does not pursue through the review and
appeal stages of the procedures herein provided shall be deemed waived, finally
and irrevocably. No legal action for benefits under the Plan shall be brought
unless and until the claimant has exhausted his or her remedies under this
Article 6. If, after exhausting the claims and appeal procedures, a claimant
institutes any legal action against the Plan and/or GenCorp, the claimant may
present only the evidence and theories which the claimant presented during the
claims and appeal procedures. Judicial review of the claimant's denied claim
shall be limited to a determination of whether the denial was an abuse of
discretion based on the evidence and theories which were presented to and
considered by the Committee during the claims and appeal procedure.
ARTICLE 7
Effect of Fiduciary Action
7.1 Plan Interpretation: The Plan Administrator shall administer the
Plan in accordance with its terms and the intended meanings of the Plan and any
other welfare or pension benefit plan of GenCorp. The Plan Administrator shall
have the discretion to make any findings of fact needed in the administration of
the Plan.
8
<PAGE> 9
7.2 Authority of Committee: The Committee shall have the discretion to
interpret or construe the terms of the Plan, whether express or implied, and
resolve any ambiguities, including but not limited to terms governing the
eligibility of employees and the administration of the Plan, and fashion any
remedy which the Committee, in its sole judgment, deems appropriate. The
validity of any such finding of fact, interpretation, construction or decision
shall not be given de novo review if challenged in court, by arbitration or in
any other forum, and shall be upheld unless clearly arbitrary or capricious.
7.3 Exercise of Discretion: To the extent the Plan Administrator or the
Committee has been granted discretionary authority under the Plan, such
fiduciary's prior exercise of such authority shall not obligate it to exercise
its authority in a like fashion thereafter.
7.4 Intent: If, due to errors in drafting, any Plan provision does not
accurately reflect its intended meaning, as demonstrated by consistent
interpretations or other evidence of intent, or as determined by the Committee
in its sole and exclusive judgment, the provision shall be considered ambiguous
and shall be interpreted by the Plan Administrator in a fashion consistent with
its intent, as determined by the Committee in its sole discretion. The
Committee, without the need for Board of Directors' approval, may amend the Plan
retroactively to cure any such ambiguity.
7.5 Consistency: This Article 7 may not be invoked by any person to
require the Plan to be administered in a manner which is inconsistent with its
interpretation by the Committee.
7.6 Final and Binding: All actions taken and all determinations made in
good faith by the Plan Administrator or by the Committee shall be final and
binding upon all persons claiming any interest in or under the Plan.
ARTICLE 8
The Plan and ERISA
8.1 ERISA Requirements: "ERISA" -- the Employee Retirement Income
Security Act of 1974 -- is a comprehensive law that sets standards and
procedures for employee benefit plans.
You have the right under ERISA to get further information about the
Plan. Specifically, you are entitled to:
o Examine without charge, at the Plan Administrator's office or
upon request at your local Human Resources Department, all
documents related to the Plan and copies of all documents
filed by the Plan with the U.S. Department of Labor, such as
Annual Reports and Plan Descriptions.
9
<PAGE> 10
o Obtain copies of all documents related to the Plan and other
Plan information upon written request to the Plan
Administrator. The Plan Administrator may make a reasonable
charge for the copies.
8.2 Discrimination: In addition to creating rights for participants,
ERISA imposes duties upon the persons who are responsible for the operation of
the Plan. The persons who operate the Plan, called "fiduciaries" of the Plan,
have a duty to do so prudently in your interest and that of other participants
and beneficiaries. No one may fire you or otherwise discriminate against you in
any way to prevent you from obtaining benefits or exercising your rights under
ERISA. If your claim for a benefit is denied in whole or in part, you must
receive a written explanation of the reason for the denial. You have the right
to have your claim reviewed and reconsidered. (See Article 7, above).
8.3 ERISA Claims: Under ERISA, there are steps you can take to enforce
the above rights. For instance, if you request materials from the Plan
Administrator and do not receive them within thirty days, you may file suit in a
federal court. In such a case, the court may require the Plan Administrator to
provide the materials and pay you up to one hundred dollars a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the Plan Administrator's control. If you have a claim for benefits which
is denied or ignored, in whole or in part, you may file suit in a state or
federal court. If you are discriminated against for asserting your rights, you
may seek assistance from the U.S. Department of Labor, or you may file suit in a
federal court. The court will decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to pay these
costs and fees. If you lose and the court finds that your claim is frivolous,
the court may order you to pay these costs and fees.
8.4 Information Requests: If you have any questions about the Plan, you
should contact the Plan Administrator. If you have any questions about your
rights under ERISA, you should contact the nearest area office of the U.S.
Labor-Management Services Administration, Department of Labor. GenCorp supports
both the spirit and letter of ERISA and is committed to assuring proper
treatment and full disclosure of all pertinent information to plan participants.
It is the policy of GenCorp that no employee will be fired or discriminated
against, either to prevent him from obtaining benefits or for exercising his
rights under ERISA.
10
<PAGE> 11
This Plan is hereby adopted and approved this 15th day of March, 1999.
GenCorp Inc.
By: /s/ Samuel W. Harmon
------------------------
Samuel W. Harmon,
Senior Vice President,
Human Resources
APPROVED AS TO FORM:
/s/ William Gorenc, Jr.
- -----------------------------
William Gorenc, Jr., Esq.
GenCorp key employee retention
11
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<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> FEB-28-1999
<CASH> 21,500
<SECURITIES> 6,900
<RECEIVABLES> 272,200
<ALLOWANCES> 0
<INVENTORY> 160,000
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<PP&E> 1,228,800
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0
0
<COMMON> 4,200
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<SALES> 439,600
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