e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended November 30, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to . |
Commission file number 1-1520
GenCorp Inc.
(Exact name of registrant as specified in its charter)
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Ohio
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34-0244000 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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Highway 50 and Aerojet Road
Rancho Cordova, California
(Address of principal executive offices) |
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95742
(Zip Code) |
P.O. Box 537012
Sacramento, California
(Mailing address) |
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95853-7012
(Zip Code) |
Registrant’s telephone number, including area code
(916) 355-4000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Name of each exchange on which registered |
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Common stock, par value of $0.10 per share
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New York Stock Exchange and Chicago Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated files, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large
accelerated filer” in
Rule 12b-2 of the
Exchange Act. Check one.
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Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o |
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Act.) o Yes
þ No
The aggregate market value of the voting common equity held by
nonaffiliates of the registrant as of May 31, 2005 was
approximately $1.0 billion.
As of January 31, 2006, there were 55,091,138 outstanding
shares of the Company’s Common Stock, $0.10 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2006 Proxy Statement of GenCorp Inc. relating to
its annual meeting of shareholders scheduled to be held on
March 29, 2006 are incorporated by reference into
Part III of this Report.
GENCORP INC.
Annual Report on
Form 10-K
For the Fiscal Year Ended November 30, 2005
Table of Contents
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The information called for by Items 10, 11, 12, 13
and 14, to the extent not included in this Report, is
incorporated herein by reference to the information to be
included under the captions “Election of Directors,”
“Section 16(a) Beneficial Ownership Reporting
Compliance,” “Board Committees,” “Executive
Compensation,” “Director Compensation,”
“Employment Contracts and Termination of Employment and
Change in Control Arrangements,” “Compensation
Committee Interlocks and Insider Participation,”
“Report of the Organization & Compensation
Committee on Executive Compensation,” “Performance
Graph,” “Security Ownership of Officers and
Directors,” and “Ratification of Registered Public
Accounting Firm,” in GenCorp Inc.’s 2006 Proxy
Statement, which is expected to be filed by February 28,
2006. |
PART I
Unless otherwise indicated or required by the context, as
used in this Annual Report on
Form 10-K, the
terms “we,” “our” and “us” refer
to GenCorp Inc. and all of its subsidiaries that are
consolidated in conformity with accounting principles generally
accepted in the United States.
Certain information contained in this Annual Report on
Form 10-K should
be considered “forward-looking statements” as defined
by Section 21E of the Private Securities Litigation Reform
Act of 1995. All statements in this report other than historical
information may be deemed forward-looking statements. These
statements present (without limitation) the expectations,
beliefs, plans and objectives of management and future financial
performance and assumptions underlying, or judgments concerning,
the matters discussed in the statements. The words
“believe,” “estimate,”
“anticipate,” “project” and
“expect,” and similar expressions, are intended to
identify forward-looking statements. Forward-looking statements
involve certain risks, estimates, assumptions and uncertainties,
including with respect to future sales and activity levels, cash
flows, contract performance, the outcome of litigation and
contingencies, environmental remediation and anticipated costs
of capital. A variety of factors could cause actual results or
outcomes to differ materially from those expected and expressed
in our forward-looking statements. Some important risk factors
that could cause actual results or outcomes to differ from those
expressed in the forward-looking statements are described in the
section “Risk Factors” in Item 1A of this
Report.
The list of factors that may affect future performance and
the accuracy of forward-looking statements described in the
section “Risk Factors” in Item 1A of this Report
is illustrative, but by no means exhaustive. Additional risk
factors may be described from time to time in our future filings
with the U.S. Securities and Exchange Commission.
Accordingly, all forward-looking statements should be evaluated
with the understanding of their inherent uncertainty. All such
risk factors are difficult to predict, contain material
uncertainties that may affect actual results and may be beyond
our control.
We are a technology-based aerospace and defense manufacturer
operating in the United States with significant real estate
assets. Our continuing operations are organized into two
segments:
Aerospace and Defense — includes the operations
of Aerojet-General Corporation, or Aerojet, which develops and
manufactures propulsion systems for defense and space
applications, armament systems for precision tactical weapon
systems and munitions applications. We are one of the largest
providers of propulsion systems in the United States and the
only company that provides both Solid and Liquid propellant
based systems. Primary customers served include major prime
contractors to the United States (U.S.) government, the
Department of Defense (DoD), and the National Aeronautics and
Space Administration (NASA).
Real Estate — includes activities related to
the re-zoning, entitlement, sale, and leasing of our real estate
assets. Through our Aerojet subsidiary, we own approximately
12,600 acres of land adjacent to U.S. Highway 50
between Rancho Cordova and Folsom, California just east of
Sacramento, which we refer to as the Sacramento Land. We are
currently in the process of seeking zoning changes and other
governmental approvals on a portion of the Sacramento Land to
optimize its value. We have filed applications with and
submitted information to governmental and regulatory authorities
for approvals necessary to re-zone over 6,400 acres of the
Sacramento Land.
During the second quarter of fiscal 2004, we announced plans to
sell our GDX Automotive (GDX) business, which developed and
manufactured vehicle sealing systems for automotive original
equipment manufacturers. This decision was a result of declining
volumes and continued challenges in this market environment
including adverse customer pricing pressures, increased material
costs, high development and
start-up costs and
increased working capital requirements. In accordance with our
plan to sell the GDX business, we classified our GDX business as
a discontinued operation during the second quarter of fiscal
2004. During the third quarter of fiscal 2004, we completed the
sale of GDX to Cerberus Capital Management, L.P. for
$147 million, subject to adjustment, of which
$140 million has been received as of November 30, 2005.
1
On October 15, 2004, we announced our strategic decision to
sell our Fine Chemicals business, which, through Aerojet Fine
Chemicals, was a custom manufacturer of active pharmaceutical
ingredients and registered intermediates for pharmaceutical and
biotechnology companies. This plan was a result of
management’s decision to focus our capital and resources on
our Aerospace and Defense and Real Estate segments. During the
fourth quarter of fiscal 2005, we completed the sale of the Fine
Chemicals to American Pacific Corporation (AMPAC) for
$114 million, subject to adjustment, consisting of
$88 million of cash, unsecured subordinated seller note of
$26 million, and the assumption by the buyer of certain
liabilities. Additionally, AMPAC may be required to pay us up to
$5 million based on the Fine Chemicals business achieving
specified earning targets in the twelve month period ending
September 30, 2006.
Our fiscal year ends on November 30 of each year. When we
refer to a fiscal year, such as fiscal 2005, we are referring to
the fiscal year ended on November 30 of that year.
We were incorporated in Ohio in 1915 and our principal executive
offices are located at Highway 50 and Aerojet Road, Rancho
Cordova, CA 95670. Our mailing address is P.O. Box 537012,
Sacramento, CA 95853-7012 and our telephone number is
916-355-4000.
Our Internet web site address is www.GenCorp.com. We have made
available through our Internet web site, free of charge, our
Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q, Current
Reports on
Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after such materials are electronically
filed with, or furnished to, the Securities and Exchange
Commission (SEC). We also make available on our Internet web
site our corporate governance guidelines and the charters for
each of the following committees of the Company’s Board of
Directors: Audit; Corporate Governance & Nominating;
Finance; and Organization & Compensation. Our corporate
governance guidelines and such charters are also available in
print to any shareholder who requests them.
Aerospace and Defense
For over 60 years, Aerojet has been an industry leader and
pioneer in the development of critical products and technologies
that have strengthened the U.S. military and enabled the
exploration of space. Aerojet focuses on creating military
defense systems, as well as military, civil and commercial space
systems, that address the needs of two broad industry sectors:
defense systems and space systems. Aerojet believes it is in a
unique competitive position, due to the diversity of its
propulsion technologies (solid, liquid, gels, air-breathing and
electric) and synergy of its product lines to offer its
customers the most innovative and advanced solutions available
in the domestic propulsion market. Aerojet has historically been
able to capitalize on its strong technical capabilities to
become a critical provider of components and systems for major
propulsion programs. Aerojet propulsion systems have flown
prominently on manned and unmanned missions for NASA and the DoD
since the inception of the U.S. Space Program. Principal
customers include the DoD, NASA, The Boeing Company (Boeing),
Lockheed Martin Corporation (Lockheed Martin) and Raytheon
Company (Raytheon).
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Defense systems — Our defense systems
products include liquid, solid and air-breathing propulsion for
strategic and tactical missiles, precision strike missiles and
interceptors required for missile defense. In addition, Aerojet
is a leading supplier of armament systems to the DoD and its
prime contractors. Product applications for defense systems
include strategic and tactical missile motors, maneuvering
propulsion systems, attitude control systems and warhead
assemblies used in precision weapon systems and missile defense,
as well as advanced airframe structures required on the F-22
Raptor aircraft and fire suppression systems for military and
commercial vehicles. |
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Space systems — Our space systems
products include liquid, solid and electric propulsion systems
for launch vehicles, transatmospheric vehicles and spacecraft.
Product applications for space systems include liquid engines
for expendable and reusable launch vehicles, upper stage
engines, satellite propulsion, large solid boosters and
integrated propulsion subsystems. |
2
Aerojet has been proactively engaged in the consolidation of the
propulsion industry. In the third quarter of fiscal 2004,
Aerojet acquired from Pratt & Whitney’s Chemical
Systems Division (CSD) certain intellectual property and
personal property associated with several solid rocket motor
programs for a nominal amount. This transaction highlights a key
event in the continuing consolidation of the propulsion industry
because CSD has now exited the solid propulsion business. In the
fourth quarter of fiscal 2003, Aerojet acquired substantially
all of the assets of the propulsion business of Atlantic
Research Corporation (ARC), a subsidiary of Sequa Corporation.
This acquisition made Aerojet a leading supplier of solid rocket
motors for tactical and missile defense applications and
complements Aerojet’s capabilities for air-breathing and
strategic systems. In fiscal 2002, Aerojet acquired the assets
of the General Dynamics’ Ordnance and Tactical Systems
Space Propulsion and Fire Suppression business (Redmond,
Washington operations), a leading supplier of satellite
propulsion systems for defense, civilian and commercial
applications. These acquisitions have strengthened our market
positions in both the defense systems and space systems industry
sectors, and have provided leadership positions in the tactical
and in-space propulsion market. Although the major propulsion
industry consolidation is over, our business strategy
contemplates continued expansion of our Aerospace and Defense
operations including growth through acquisitions that make both
strategic and economic sense.
Aerojet has also expanded its Aerospace and Defense production
capabilities, with the completion of two facility expansion
projects in fiscal 2005. The first expansion in Socorro, New
Mexico, is dedicated to the production of fire suppression
systems for commercial and military vehicles and the second, in
Camden, Arkansas, is dedicated to high rate explosive fills and
warhead assemblies. These new manufacturing facilities will
strengthen Aerojet’s competitive position in the fire
safety and warhead markets respectively.
While broad support continues for DoD and NASA budgets in the
government Fiscal Year (FY) 2007 and beyond, the impact of
the global war on terrorism, the cost of military support in
Iraq and Afghanistan, the rising federal deficit, and the
significant recovery costs of the 2005 hurricane season may
impact these budgets in the near-term.
Following a period of budget decreases in the post-Cold War era,
the U.S. defense budget, as appropriated by Congress, has
increased in recent years. Under the Bush Administration, the
national defense discretionary budget authority has risen to
over $401 billion in FY 2005 from $319 billion since
FY 2001. The DoD has requested $419 billion in
discretionary budget authority for FY 2006, and there are
proposals to increase it to $445 billion in FY 2007. We
expect the U.S. defense budgets for research, development,
test and evaluation, and procurement — the primary
funding sources for Aerojet’s programs — to grow
as well, with annual forecasts continuing to show increases
through FY 2010. While the top line number continues to
increase, the Pentagon has announced it favors reductions in the
overall rate of growth. While the ultimate distribution of the
defense budget remains uncertain, Aerojet is well positioned to
benefit from DoD investment in high priority transformational
systems that address contemporary war fighting needs and
requirements.
In fiscal 2005, the Defense Department finalized work on the
Quadrennial Defense Review, the
once-in-four-year
review of U.S. military strategy and force structure.
Although the document is not expected to be published until
early 2006, we believe the document may recommend, among other
things, adaptation of current weapon systems to new kinds of
threats, suggesting that a number of Aerojet’s existing
product platforms in the tactical and missile defense areas may
be headed for upgrades or new applications as opposed to being
displaced downstream by new systems. Requirements for long-range
precision strike capabilities and active protection of military
satellites and in-space systems may also be contained in the
document. These requirements, if they hold, suggest to us that
maneuvering and in-space propulsion as well as hypersonics may
see new development opportunities in the near future as the DoD
adjusts its focus more substantively to confronting
asymmetrical, non-traditional threats.
3
The United States Congress continues to support the new Vision
for Space Exploration, unveiled in 2004, which renews
commitments to space and planetary exploration. The Bush
Administration announced plans early in 2005 to increase
NASA’s FY 2005 budget of $16 billion by an average of
3% over the next two years and by approximately 2% in the three
subsequent years. More recently, congressional committees have
been considering the authorization of additional appropriations
for NASA in FY 2007 and FY 2008.
The NASA Administrator has indicated that his primary objective
will be to complete the Space Station and retire the Space
Shuttle by 2010 and develop a new Crew Exploration Vehicle (CEV)
before 2014. Additionally, it is anticipated that the Office of
Management and Budgets (OMB) will recommend to Congress that
NASA’s previously separate budgets for Exploration (e.g.
CEV) and Space Operations (i.e. Space Shuttle) be consolidated
in FY 2007. If approved by Congress, this would provide the NASA
Administrator with unprecedented reprogramming flexibility to
accelerate CEV transition. As the market leader of In-Space
propulsion system products, CEV poses a significant opportunity
to continue Aerojet’s legacy of providing mission-critical
propulsion systems to NASA as it has since the inception of the
U.S. manned space program.
We believe Aerojet is well-positioned to provide propulsion
solutions in NASA’s special interest areas —
advanced propellant technology, reliable launch abort for crew
survivability, attitude/ reaction control systems, and robotic
exploration propulsion. Furthermore, as a result of NASA’s
intention to retire the Space Shuttle from service as early as
2010, we believe that NASA will focus on maneuvering and
long-duration propulsion systems that are currently available
and flight-proven, which will present additional opportunities
for existing Aerojet systems.
Participation in the defense and space propulsion market is
capital intensive and requires long research and development
periods that represent significant barriers to entry. Aerojet
may partner on various programs with its major customers or
suppliers, some of whom are, from time to time, competitors on
other programs.
The table below lists the primary participants in the propulsion
market serving the U.S. government and its agencies:
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Company |
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Parent |
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Propulsion Type |
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Propulsion Application |
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Aerojet
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GenCorp Inc. |
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Solid, liquid, air- breathing, electric |
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Launch, in-space, tactical, strategic, missile defense |
Alliant Techsystems
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Alliant Techsystems Inc. |
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Solid, air-breathing |
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Launch, tactical, strategic, missile defense |
Astrium
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European Aeronautics Defense and Space Company and BAE Systems |
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Solid, liquid |
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In-space, tactical |
Northrop Grumman Space Technology (Formerly TRW)
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Northrop Grumman Corporation |
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Liquid |
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Launch, in-space |
Pratt & Whitney Rocketdyne
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United Technologies Corporation |
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Liquid, air-breathing, electric |
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Launch, in-space, missile defense |
United Technologies Corporation acquired the Rocketdyne division
of Boeing in 2005, forming the largest liquid propulsion
contractor in the U.S. domestic market and making Aerojet
the number two provider. The domestic solid propulsion market
remained unchanged in 2005 with Aerojet in the number two
position behind Alliant Techsystems. As the only domestic
supplier of both solid and liquid propulsion systems, Aerojet
believes it is in a unique competitive position. The diversity
of its technologies and synergy of its product lines offer
Aerojet customers the most innovative and advanced solutions
available in the domestic propulsion market. The basis on which
Aerojet competes in the Aerospace and Defense industry varies by
program, but generally is based upon price, technology, quality
and service. Although competition is intensive
4
for all of Aerojet’s products and services, Aerojet
believes it possesses adequate resources to compete successfully.
As a merchant supplier to the aerospace and defense industry, we
do not align ourselves with any single prime contractor except
on a project-by-project basis. We believe that our position as a
merchant supplier has helped us become a trusted partner to our
customers, enabling us to maintain strong relationships with a
variety of prime contractors. Under each of our contracts, we
act either as a prime contractor, where we sell directly to the
end user, or as a subcontractor, where we sell our products to
other prime contractors.
The principal end-user customers of our products and technology
include agencies of the U.S. government. Since a majority
of Aerojet’s sales are, directly or indirectly, to the
U.S. government, funding for the purchase of Aerojet’s
products and services generally follows trends in
U.S. defense spending. However, individual government
agencies, which include the military services, the Defense
Advanced Research Projects Agency (DARPA), NASA, the Missile
Defense Agency, and the prime contractors that serve these
agencies, exercise independent purchasing power within
“budget top-line” limits. Therefore, sales to the
U.S. government are not regarded as sales to one customer
and, accordingly, each contracting agency is viewed as a
separate customer. Thus, while we believe the DoD and NASA
budgets are generally relevant to our business outlook, closer
examination of the needs and priorities of the
U.S. government agencies provides a better indication of
product area stability and growth potential.
Aerojet contracts directly with a number of major prime
contractors and directly with agencies of the
U.S. government. During fiscal 2005, Lockheed Martin and
Raytheon accounted for approximately 39% and 16%, respectively,
of net sales.
Aerojet’s direct sales to the U.S. government and its
agencies, or government customers, and indirect sales to
government customers via direct sales to prime contractors
accounted for a total of approximately 81% of Aerojet’s
sales, or approximately $501 million, in fiscal 2005. The
following are approximate percentages of Aerojet’s net
sales by principal end user in fiscal 2005:
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U.S. Air Force
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23 |
% |
U.S. Army
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22 |
% |
NASA
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20 |
% |
U.S. Navy
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16 |
% |
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Total government customers
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81 |
% |
Commercial customers
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19 |
% |
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Total
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100 |
% |
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5
Defense systems — Aerojet believes it is in a
unique competitive position due to the diversity of its
propulsion technologies (solid, liquid, gels, air-breathing and
electric), its complete warhead capabilities and the synergy of
its product lines to offer its defense customers the most
innovative and advanced solutions available in the domestic
market. In fiscal 2005, Aerojet expanded its defense systems
footprint by reentering the strategic Inter-Continental
Ballistic Missile (ICBM market) with the awarding of the Air
Force’s Phase II Advanced Second Stage booster
development program.
A subset of our key defense systems programs is listed below:
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Program |
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Primary Customer |
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End Users |
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Program Description |
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Program Status |
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Army Tactical Missile System (ATACMS)
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Lockheed Martin |
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U.S. Army |
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Tactical solid rocket motors |
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Production |
F-22 Raptor Aircraft
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Boeing |
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U.S. Air Force |
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Advanced electron beam welding for airframe structures |
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Production |
Ground Based Mid-Course Defense (GMD) Exoatmospheric Kill
Vehicle Liquid Divert and Attitude Control Systems (DACS)
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Raytheon |
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Missile Defense Agency |
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Liquid propulsion divert and attitude control propulsion systems |
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Development/ Production |
Minuteman III
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Northrop Grumman |
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U.S. Air Force |
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Liquid maneuvering propulsion |
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Development/ Production |
HyFly (Hypersonic Flight)
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Boeing |
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U.S. Navy |
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Dual combustion ramjet (air-breathing) |
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Development |
Javelin
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Lockheed Martin/ Raytheon |
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U.S. Army |
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Tactical solid rocket motors |
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Development/ Production |
Joint Common Missile (JCM)
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Lockheed Martin |
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U.S. Army |
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Tactical solid rocket motors |
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Development |
Multiple Launch Rocket System (MLRS)
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Lockheed Martin |
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U.S. Army, International |
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Tactical solid rocket motors |
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Production |
Non-Line of Sight Missile (NLOS)
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Lockheed Martin/ Raytheon |
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U.S. Army |
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Tactical solid rocket motors |
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Development |
Patriot Advanced Capability (PAC)-3
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Lockheed Martin |
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U.S. Army, Missile Defense Agency |
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Tactical solid rocket motors |
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Development/ Production |
Tube-launched, Optically- tracked, Wire-guided Missile (TOW)
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Raytheon |
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U.S. Army |
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Tactical solid rocket warheads |
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Production |
Standard Missile
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Raytheon |
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U.S. Navy, Missile Defense Agency |
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Tactical solid rocket motors |
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Development/ Production |
Small Diameter Bomb
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Boeing |
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U.S. Air Force |
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Precision munitions |
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Development/ Production |
Terminal High Altitude Air Defense (THAAD)
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Lockheed Martin |
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U.S. Army, Missile Defense Agency |
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Tactical solid rocket motors |
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Development |
Supersonic Sea Skimming Target (SSST)
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Orbital Sciences Corporation |
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U.S. Navy |
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Variable flow ducted rocket (air-breathing) |
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Production |
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Program |
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Primary Customer |
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End Users |
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Program Description |
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Program Status |
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Tactical Tomahawk
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Raytheon |
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U.S. Navy |
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Tactical solid rocket motors and warheads |
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Production |
Advanced Second Stage Booster (ICBM)
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U.S. Air Force |
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U.S. Air Force |
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Solid Booster |
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Development |
Space Systems Programs — Aerojet improved its
already strong market position in the space systems market
segment in fiscal 2005 with several successful space exploration
missions and critical launches, including the Deep Impact Comet
Encounter, launch of Mars Reconnaissance Orbiter and the
continuation of the Discovery missions. The last Titan IV
vehicle was successfully launched, using Aerojet’s liquid
booster engines, completing a legacy of 100% mission success
over the nearly 50 year history of the program. In
addition, the first
Atlas® V
vehicle using three Aerojet solid rocket boosters was launched
in fiscal 2005. In-space propulsion highlights included the
qualification of an advanced form of electric propulsion called
a Hall Thruster which is being used on the first series of
Advanced Extremely High Frequency (AEHF) military satellites.
These successes, coupled with NASA’s plans to embark on the
development of new manned and unmanned missions, provide
opportunities to grow our legacy of supplying mission critical
propulsion systems to the DoD and NASA as we have since the
inception of the U.S. space program.
A subset of our key space systems programs is listed below:
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Program |
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Primary Customer |
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End Users |
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Program Description |
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Program Status |
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A2100tm
Commercial Geostationary Satellite Systems
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Lockheed Martin |
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Various |
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Electric and liquid spacecraft thrusters and propellant tanks |
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Production |
Mercury MESSENGER
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Johns Hopkins Advanced Physics Lab (APL) |
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NASA |
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Liquid spacecraft propulsion system |
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Successfully Launched |
Advanced Extremely High Frequency MilSatCom
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Lockheed Martin |
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U.S. Air Force |
|
Electric and liquid spacecraft thrusters |
|
Production |
Atlas V
|
|
Lockheed Martin |
|
U.S. Air Force, Commercial |
|
Solid “strap-on” booster motors for this
medium-to-heavy lift launch vehicle |
|
Production |
Cassini Mission
|
|
Lockheed Martin |
|
NASA |
|
Liquid spacecraft thrusters |
|
Orbiting Saturn |
Mars Rover Missions
|
|
Lockheed Martin |
|
NASA JPL |
|
Liquid spacecraft thrusters |
|
Mission Complete — Rovers Remain Operational |
Mars Reconnaissance Orbiter
|
|
Lockheed Martin |
|
NASA JPL |
|
Liquid spacecraft thrusters |
|
Successfully Launched |
Mars Lander Engine
|
|
Jet Propulsion Laboratory |
|
NASA JPL |
|
Liquid spacecraft thrusters |
|
Development |
Delta II
|
|
Boeing |
|
NASA, U.S. Air Force, Commercial |
|
Upper stage pressure-fed liquid rocket engines |
|
Production |
Titan IV
|
|
Lockheed Martin |
|
U.S. Air Force |
|
First and second stage liquid rocket booster engines |
|
Final Titan IV launched in 2005 |
Upper Stage Engine Technology
|
|
U.S. Air Force Research Laboratory |
|
NASA, U.S. Air Force |
|
Develop design tools for future upper stage liquid engines |
|
Development |
7
|
|
|
|
|
|
|
|
|
Program |
|
Primary Customer |
|
End Users |
|
Program Description |
|
Program Status |
|
|
|
|
|
|
|
|
|
Orbital Star-2 Bus
|
|
Orbital Sciences Corp |
|
Commercial |
|
Liquid spacecraft thrusters |
|
Production |
Time History of Events and Macroscale Interactions During
Substorms (THEMIS)
|
|
Swales Aerospace |
|
NASA |
|
Liquid spacecraft propulsion system |
|
Production |
Aerojet’s top five programs accounted for less than 36% of
fiscal 2005 net sales.
Under each of its contracts, Aerojet acts either as a prime
contractor, where it sells directly to the end user, or as a
subcontractor, selling its products to other prime contractors.
Research and development contracts are awarded during the
inception stage of a program’s development. Production
contracts provide for the production and delivery of mature
products for operational use. Aerojet’s contracts can
generally be categorized as either “cost-reimbursable”
or “fixed-price.” During fiscal 2005, approximately
60% of Aerojet’s net sales were achieved on fixed-price
contracts and 40% on cost-reimbursable contracts.
Cost-reimbursable contracts are typically (i) cost plus
fixed fee, (ii) cost plus incentive fee, or (iii) cost
plus award fee contracts. For cost plus fixed fee contracts,
Aerojet typically receives reimbursement of its costs, to the
extent the costs are allowable under contractual provisions, in
addition to receipt of a fixed fee. For cost plus incentive fee
contracts and cost plus award fee contracts, Aerojet receives
adjustments in the contract fee, within designated limits, based
on its actual results as compared to contractual targets for
factors such as cost, performance, quality, and schedule.
Fixed-price contracts are typically (i) fixed-price,
(ii) fixed-price-incentive, or (iii) fixed-price level
of effort contracts. For fixed-price contracts, Aerojet performs
work for a fixed price and realizes all of the profit or loss
resulting from variations in costs of performance. For
fixed-price-incentive contracts, Aerojet receives increased or
decreased fees or profits based upon actual performance against
established targets or other criteria. For fixed-price level of
effort contracts, Aerojet generally receives a structured fixed
price per labor hour, dependent upon the customer’s labor
hour needs. All fixed-price contracts present the risk of
unreimbursed cost overruns.
Many programs under contract have product lifecycles exceeding
10 years, such as the Delta, Standard Missile, and Tomahawk
programs. It is typical for U.S. government propulsion
contracts to be relatively small ($2.5 million a year on
average) during development phases that can last from two to
five years, followed by low-rate and then full-rate production,
where annual funding can grow as high as $30 million a year
over many years.
As of November 30, 2005, contract backlog was
$696 million compared to $879 million as of
November 30, 2004. The decrease in the contract backlog is
primarily a result of the renegotiated Atlas V contract.
Excluding the impact of Atlas, other program contract backlog
grew by $69 million. Funded backlog, which includes only
the amount for which money has been directly authorized by the
U.S. Congress, or for which a purchase order has been
received from a commercial customer, was $498 million as of
November 30, 2005, compared to funded backlog of
$538 million on November 30, 2004. Excluding the
impact of Atlas, other program funded backlog grew by
$27 million.
Aerojet views its research and development efforts as critical
to maintain its leadership positions in markets in which it
competes. We maintain an active research and development effort
supported primarily by customer funding. Customer-funded
research and development expenditures are funded under contract
specifications, typically research and development contracts,
several of which we believe will become key
8
programs in the future. Historically, over 90% of our research
and development expenditures were customer funded. We believe
customer-funded research and development activities are vital to
our ability to compete for contracts and to enhance our
technology base.
Aerojet’s company-funded research and development efforts
include expenditures for technical activities that are vital to
the development of new products, services, processes or
techniques, as well as those expenses for significant
improvements to existing products or processes.
The following table summarizes Aerojet’s research and
development expenses during the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Customer-funded
|
|
$ |
177 |
|
|
$ |
132 |
|
|
$ |
92 |
|
Company-funded
|
|
|
13 |
|
|
|
8 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenditures
|
|
$ |
190 |
|
|
$ |
140 |
|
|
$ |
99 |
|
|
|
|
|
|
|
|
|
|
|
Aerojet’s strong portfolio of advanced propulsion
technologies, across the solid and liquid propulsion spectrum,
has enabled our steady growth in research and development. The
ARC acquisition in October 2003 contributed $30 million in
customer-funded research and development expenditures in fiscal
2004 as compared to fiscal 2003. A ramp up of several motor
development activities, including THAAD, PAC-3, and Standard
Missile, contributed to increases in customer-funded research
and development expenditures in fiscal 2005 compared to fiscal
2004.
|
|
|
Raw Materials, Suppliers and Seasonality |
Availability of raw materials and supplies to Aerojet is
generally sufficient. Aerojet is sometimes dependent, for a
variety of reasons, upon sole-source suppliers for procurement
requirements but has experienced no significant difficulties in
meeting production and delivery obligations because of delays in
delivery or reliance on such suppliers.
We closely monitor sources of supply to assure that adequate raw
materials and other supplies needed in our manufacturing
processes are available. As a U.S. government contractor,
we are frequently limited to procuring materials and components
from sources of supply that can meet rigorous customer and/or
government specifications. In addition, as business conditions,
the DoD budget, and Congressional allocations change, suppliers
of specialty chemicals and materials sometimes consider dropping
low volume items from their product lines, which may require, as
it has in the past, qualification of new suppliers for raw
materials on key programs. These disruptions of key raw
materials almost always impact the entire propulsion industry
and are not just Aerojet specific. For example, the supply of
ammonium perchlorate, a principal raw material used in solid
propellant, is limited to a single source that supplies the
entire domestic solid propellant industry. This single source,
however, maintains two separate manufacturing lines a reasonable
distance apart which mitigates the likelihood of a fire,
explosion, or other problem impacting production. The industry
also presently relies on one primary supplier for graphite
fiber, which is used in the production of composite materials.
This supplier has multiple manufacturing lines for the product.
Although other sources of graphite fiber exist, the addition of
a new supplier would require us to qualify the new source for
use.
We are also impacted, as is the rest of the industry, by
increases in the prices and lead-times of raw materials used in
production on fixed-price contracts. Most recently, we have seen
an increase in the price and lead-times of commodity metals,
primarily steel, titanium and aluminum. Aerojet monitors the
price and supply of these materials and works closely with the
suppliers to schedule purchases far enough in advance and in the
most economical means possible to reduce program impact.
9
Aerojet’s business is not subject to predictable
seasonality. Primary factors affecting the timing of
Aerojet’s sales include the timing of government awards,
the availability of U.S. government funding, contractual
product delivery requirements and customer acceptances.
Where appropriate, Aerojet obtains patents in the U.S. and other
countries covering various aspects of the design and manufacture
of its products. We consider these patents to be important to
Aerojet as they illustrate Aerojet’s innovative design
ability and product development capabilities. We do not believe
the loss or expiration of any single patent would have a
material adverse effect on the business or financial results of
Aerojet or on our business as a whole.
Real Estate
Through our Aerojet subsidiary, we own approximately
12,600 acres of land in the Sacramento metropolitan area
(Sacramento Land). The property is located 15 miles
northeast of downtown Sacramento, along
U.S. Highway 50, a key growth corridor in the region.
We believe our land offers a number of valuable competitive
business advantages, including one of the largest single-owner
land tracts suitable for development in the Sacramento region, a
very low cost basis in our land, and what we believe a desirable
“in-fill” location surrounded by developing
residential and business properties.
The Sacramento Land was acquired by Aerojet in the early 1950s
for the manufacture and testing of propulsion products. Most of
the Sacramento Land was never used for production or testing
purposes, rather it was used to provide safe buffer zones for
propulsion products. In order to optimize the value of our real
estate assets, our plan is to continue to reposition excess
Sacramento land holdings for higher and better uses. Currently,
we have formal entitlement applications pending for the
re-zoning of approximately 5,800 acres of the Sacramento
Land. In 2005, we initiated discussions for the re-zoning and
annexation process for an approximate 625 acres in the City
of Folsom Sphere of Influence. This land has been identified by
the local authorities for future annexation into the City of
Folsom and is expected to be a mix of uses including residential
and commercial. Our efforts regarding entitlement re-zoning
changes and annexation for this approximately 6,400 acres
are expected to increase the value of this land over it current
value.
In conjunction with our entitlements efforts, we will continue
to explore real estate structures (or transactions) that may
enhance the value of our real estate assets, including outright
sales, and/or joint ventures with real estate developers,
residential builders or other third parties. We recently
announced our exploration of a possible real estate transaction
with one or more substantial residential builders. The focus of
the exploratory discussions at this time concerns a possible
joint venture relating to our Rio Del Oro project.
The Sacramento Land is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmentally | |
|
Environmentally | |
|
|
|
|
Unrestricted | |
|
Restricted(1) | |
|
Total | |
|
|
| |
|
| |
|
| |
Land Currently Undergoing Entitlement and Re-zoning
|
|
|
3,010 |
|
|
|
3,435 |
|
|
|
6,445 |
|
Land Available for Future Entitlements(2)
|
|
|
1,003 |
|
|
|
— |
|
|
|
1,003 |
|
Aerojet Operations Land
|
|
|
24 |
|
|
|
5,108 |
|
|
|
5,132 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Sacramento Land
|
|
|
4,037 |
|
|
|
8,543 |
|
|
|
12,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Land is subject to federal and/or state environmental
restrictions (see Note 14(c) in Notes to Consolidated
Financial Statements). |
|
(2) |
Land is currently zoned Special Planning Area |
|
|
|
Land Currently Undergoing Entitlement and Re-zoning |
Easton is the brand name that identifies the approximate
6,400 acres of Sacramento Land for which we are currently
seeking entitlement. We expect Easton to become the
region’s premier master-planned
10
community which will include a broad range of housing as well as
office, industrial, retail, and recreational uses. The table
below summarizes acreage for the various projects within Easton,
and our best current estimates of when we believe approvals
and/or entitlements may be achieved:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected | |
|
Environmentally | |
|
Environmentally | |
|
|
Project |
|
Approvals/Entitlement | |
|
Unrestricted | |
|
Restricted | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Rio Del Oro
|
|
|
Late 2006 |
|
|
|
— |
|
|
|
2,716 |
|
|
|
2,716 |
|
Glenborough and Easton Place
|
|
|
Late 2007 |
|
|
|
1,055 |
|
|
|
330 |
|
|
|
1,385 |
|
Westborough
|
|
|
2008 |
|
|
|
1,377 |
|
|
|
277 |
|
|
|
1,654 |
|
Folsom Sphere of Influence
|
|
|
Beyond 2008 |
|
|
|
522 |
|
|
|
103 |
|
|
|
625 |
|
Office Park/ Auto Mall
|
|
|
Auto Mall Early 2006 |
|
|
|
56 |
|
|
|
9 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Easton Total
|
|
|
|
|
|
|
3,010 |
|
|
|
3,435 |
|
|
|
6,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The environmentally restricted acreage described above is
subject to environmental restrictions imposed by state and/or
federal regulatory agencies because of Aerojet’s historical
propulsion activities, even though most of the land was never
used for propulsion, production, and testing. We intend to
retain such land until release of these restrictions. We are
actively working with the various regulatory agencies that
control the environmental restrictions to have them removed as
early as practicable.
Following is a discussion of the various projects within Easton
and a description of the environmental restrictions on each of
the projects:
Rio Del Oro — In 2002, we filed an application
with the County of Sacramento (County) for a general plan
amendment and request for
re-zoning of an
approximate 2,700 acre project called Rio Del Oro. In 2003,
this application was transferred to the newly incorporated City
of Rancho Cordova (Rancho Cordova). Our application was
submitted in conjunction with an application by a regional
homebuilder for the property the homebuilder owns west and
adjacent to the Rio del Oro land. In 2001, we granted this
regional homebuilder the right to purchase 400 acres
of our Rio Del Oro property, for which the purchase price is
fixed at $10 million. The homebuilder is obligated to pay
costs associated with the entitlements for our portion of Rio
Del Oro as well as its other land.
The Draft Rio Del Oro Specific Plan, dated September 7,
2005 (Plan) includes our 2,700 acres and the
homebuilder’s 1,100 acres. The plan calls for 22
different proposed land uses with estimated land areas for each
use. The Plan combines these uses into four categories with
estimated land acreage for each category as follows:
|
|
|
|
|
Land Use(1) |
|
Total | |
|
|
| |
Residential
|
|
|
1,920 |
|
Village Services & Employment
|
|
|
521 |
|
Education
|
|
|
152 |
|
Open Space & Public
|
|
|
1,236 |
|
|
|
|
|
Rio Del Oro Total
|
|
|
3,829 |
|
|
|
|
|
|
|
(1) |
There are no assurances that Rancho Cordova will approve any
plan and if it approves a plan that the plan will conform to the
uses and areas describe above. |
The Plan does not separate our portion of the Plan from the
homebuilder’s portion. Our estimate for our
2,700 acres is as follows: Residential 1,484 acres;
Village Services & Employment, 184 acres;
Education, 65 acres; and Open Space & Public,
983 acres.
Rio Del Oro is subject to certain state environmental
restrictions which we are working with state regulators to
remove. We believe the first portions of the Rio Del Oro land
should have environmental restrictions lifted within the same
approximate time frame that Rancho Cordova approves our
application for re-zoning. The project also has extensive
wetland conservation areas and preserved habitat for certain
species
11
on the Federal Endangered Species List. We are working on a
conservation plan that will be a part of the approval of the
land use application by Ranch Cordova.
In accordance with the California Environmental Quality Act
(CEQA), government and regulatory authorities are required to
determine what, if any, impacts a project will have on the
environment. Typically the preparation of an Environment Impact
Report (EIR) is required, which Rancho Cordova is in the
process completing as part of the entitlement process. In
addition, in the case of Rio Del Oro, federal agencies,
including the U.S. Army Corps of Engineers (Corps), must
prepare an environmental impact study (EIS) in accordance
with the National Environmental Policy Act (NEPA). Rancho
Cordova staff and the applicants have been working to complete
the EIR/ EIS since mid-2005. Delays in receiving information
from the Corps and the U.S. Fish and Wildlife Service
(USFWS) have postponed the release of the EIR/ EIS for
public comment. Currently, Rancho Cordova expects the release by
March 2006, approximately 6 months later than originally
planned. Rancho Cordova’s approval of our land use
application is not expected before late 2006.
Glenborough and Easton Place — In 2004, we
announced plans for an approximate 1,400 acre master
planned community called Glenborough and Easton Place and filed
applications with the County for a general plan amendment and
changes in zoning. Easton Place will take full advantage of its
location on the Highway 50 corridor, the new light rail station
within Easton Place and the existing Aerojet employment base.
The Glenborough and Easton Place projects have been well
received by the County. The general categories of land use and
their currently estimated acreage are as follows:
|
|
|
|
|
Land Use(1) |
|
Total | |
|
|
| |
Residential
|
|
|
542 |
|
Commercial, Mixed-Use & Office
|
|
|
213 |
|
Urban Transit & Mixed-Use Core
|
|
|
95 |
|
Open Space & Parkways
|
|
|
455 |
|
Schools
|
|
|
20 |
|
Community Resources & Roads
|
|
|
75 |
|
|
|
|
|
Glenborough & Easton Place Total
|
|
|
1,400 |
|
|
|
|
|
|
|
(1) |
There are no assurances that the County will approve any plan
and if it approves a plan that the plan will conform to the uses
and areas describe above. |
Approximately 330 acres in Glenborough are subject to
federal environmental restrictions, which must be lifted before
those acres can be developed or sold. We have submitted
proposals to the appropriate agencies regarding remedial
activities necessary to have the restrictions lifted. We believe
these restrictions will not delay the County’s approval for
our application. Significant areas will remain subject to
environmental restrictions for a period of time after receipt of
County approval of our entitlements application. However, we do
not expect any delays in the overall project schedule because
the sale of those portions of the project is not expected to
begin for several years. The County began preparation of the EIR
for Glenborough and Easton Place in June 2005. The initial draft
of the EIR is expected to be completed in the second half of
2006. This project has a considerable habitat for the Valley
Elderberry Long-horned Beetle (VELB), a protected species on the
Federal Endangered Species List. We are working with USFWS to
develop a comprehensive mitigation plan that will provide
suitable mitigation for the impact caused by the project. This
mitigation plan will be part of the approval of the land use
application by the County. We expect the County’s approval
of this project to be granted in late 2007.
Westborough — In 2004, we filed an application
with Rancho Cordova for a general plan amendment for an
approximate 1,650 acre project named Westborough. The
Westborough application will be completed in two phases. In June
2005, we submitted an updated general plan amendment and a
re-zoning application for approximately 1,100 acres as the
initial phase of Westborough. Of the approximate 550 acres
in the second phase of Westborough, a portion of the land is
within the City of Rancho Cordova and a portion is in the
County. Consequently, over the next few years, we will be
working with the County and City to reach
12
agreement on the terms and conditions for annexation of the
County land into Rancho Cordova. Once an agreement is achieved,
we will file an application for the second phase. In 2005, we
worked with Rancho Cordova to complete the information necessary
to commence the EIR for the initial phase of Westborough. Rancho
Cordova expects to start the EIR within the next few months.
Since the EIR takes at least one year to prepare, we do not
expect that Rancho Cordova will complete a first draft of the
EIR for review until
mid-2007. In 2004, we
contracted with a regional homebuilder to sell 100 acres of
Westborough, for which the purchase price is fixed at
$3.1 million. As partial consideration for this purchase
agreement, the regional homebuilder also agreed to remove a
restriction on residential development of Westborough extending
through 2009 that had been granted to such developer pursuant to
a 2001 transaction.
Approximately 280 acres of the second phase is subject to
federal environmental
clean-up restrictions
which we do not expect to be removed for several years. We do
not anticipate delays in our overall project schedule because
those portions of the project are part of phase two that will
not be entitled for several years. This project also has
extensive habitat for the VELB. We are working with USFWS to
develop a comprehensive mitigation plan that will provide
suitable mitigation for the impact caused by the project. This
mitigation plan will be part of the approval of the land use
application by Rancho Cordova. We anticipate Rancho
Cordova’s approval of the initial phase of this project
during 2008.
Folsom Sphere of Influence — Approximately
625 acres of the Sacramento Land is within a larger area
designated as the City of Folsom Sphere of Influence (SOI).
Aerojet, in cooperation with the other landowners in the SOI, is
working with Folsom to satisfy the conditions of annexation of
the entire SOI, including our 625 acres, to Folsom. The
proposed land uses for the 625 acres include residential,
office, and retail. The annexation process is expected to be
lengthy and it is too early to estimate a completion date for
the annexation.
Office Park and Auto Mall — In March 2003, we
entered into a joint venture with Panattoni Development Company
to develop an office park. An office park is consistent with the
existing zoning for the property. We are working with the County
and the U.S. Army Corp of Engineers to obtain the necessary
approvals.
In 2004, we submitted an application to the County for a
conditional use permit to allow the sale of new cars on
approximately 30-acres
of the Sacramento Land. The application has been approved by the
County Planning Commission; however, opposition to the proposal
has recently surfaced. The final County Board of Supervisor
action on the application is expected in the first quarter 2006.
We sold approximately 20 acres to two automobile dealers in
fiscal 2003. The sales completed in 2003 will not be impacted if
the conditional use permit is not approved.
|
|
|
Land Available for Future Entitlements |
We believe it will be several years before any of the
1,003 acres of available land available will be processed
for a change in entitlements. Some of this land is outside the
current Urban Services Boundary established by the County and
all of it is far from existing infrastructure, making it
uneconomical to attempt to develop it at this time.
We believe that the land currently available for the ongoing
Aerojet operations is more than adequate for its long-term
needs. As a result, additional land may become available for
re-zoning in the future.
|
|
|
Sacramento Real Estate Market |
During the second half of 2005 the rate of new home sales for
the Sacramento region has slowed from historically high levels,
which has resulted in homebuilders approaching inventory as they
did in less exuberant market periods. We expect that this
healthy marketplace adjustment will slow the rate of home price
and entitled land appreciation. However, we believe a return to
more normal market absorption rates and appreciation in land and
home prices does not change the long-term prospects for the
Sacramento region,
13
which still remains an attractive and affordable alternative to
the San Francisco Bay area and other large metropolitan
areas of California. The Sacramento Land is positioned in one of
the strongest growth corridors of the region, and it commands a
unique location advantage. We believe the compelling Sacramento
area demographic and real estate fundamentals support our
objective of creating value by re-zoning a substantial portion
of the Sacramento Land.
In California, all applications for a change in land use must
include a source of water to serve the proposed project. We
addressed this critical issue with our 2003 water settlement
agreement with the County. Pursuant to that agreement, Aerojet
transferred all of the remediated groundwater to the County.
Subject to conditions and limitations in the agreement,
including all required approvals under CEQA, the County assumed
the responsibility for providing replacement water to those
water purveyors who have lost wells as a result of groundwater
contamination. If the amount of Aerojet’s transferred
remediated groundwater is in excess of the replacement water
actually provided to the impacted water purveyors, the County
has committed to make such excess water available to Aerojet to
satisfy the requirements for the Easton project.
Aerojet owns approximately 400 acres of land in Chino
Hills, California. This property was used for the manufacture
and testing of ordnance. With the sale of its ordnance business
in the mid-1990’s, Aerojet closed this facility and
commenced clean-up of
the site. At this time, Aerojet continues to work with state
regulators and the City of Chino Hills to complete those
efforts. Once the remediation is complete and based on the
certification of use from the State, Aerojet will work with the
City of Chino Hills to maximize the value of the site.
In addition to the projects described above, we currently lease
to third parties approximately 330,000 square feet of
office space and 10 acres of land. These leasing activities
generated $7 million in revenue in fiscal 2005.
Although we are actively working with various governmental and
regulatory agencies to obtain the necessary entitlements and to
lift environmental restrictions, we may not be able to obtain
these required approvals in the time periods described in the
prior paragraphs, or at all. For a discussions of the risks
related to our real estate activities, please see Item 1A,
Risk Factors.
Environmental Matters
Our current and legacy business operations are subject to, and
affected by, federal, state, local and foreign environmental
laws and regulations relating to the discharge, treatment,
storage, disposal, investigation and remediation of certain
materials, substances and wastes. Our policy is to conduct our
business with due regard for the preservation and protection of
the environment. We continually assess compliance with these
regulations and management of environmental matters. We believe
our operations are in substantial compliance with all applicable
environmental laws and regulations.
Operation and maintenance costs associated with environmental
compliance and management of contaminated sites are a normal,
recurring part of our operations. These costs are not
significant relative to total operating costs and most such
costs are incurred by our Aerospace and Defense segment and are
generally allowable costs under contracts with the
U.S. government.
Under existing U.S. environmental laws a Potentially
Responsible Party (PRP) is jointly and severally liable,
and therefore we are potentially liable to the government or
third parties for the full cost of remediating the contamination
at our facilities or former facilities or at third-party sites
where we have been designated as a PRP by the Environmental
Protection Agency or a state environmental agency. 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 remediation measures.
However, we review these matters and accrue for costs associated
with environmental remediation when it becomes probable that a
liability has been incurred and the amount of the liability,
usually based on proportionate sharing, can be reasonably
estimated.
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These liabilities have not been discounted to their present
value as the timing of cash payments is not fixed or reliably
determinable. See Management’s Discussion and Analysis in
Part II, Item 7 of this Report for additional
information.
Employees
As of November 30, 2005, 17% of our 3,101 employees were
covered by collective bargaining or similar agreements all of
which are due to expire within two years. We believe that our
relations with employees are good.
Executive Officers of the Registrant
See Part III, Item 10 of this Report for information
about Executive Officers of the Company.
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Item 1A. Risk
Factors
Set forth below are the risks that we believe are material to
our investors. This section contains forward-looking statements.
You should refer to the explanation of the qualifications and
limitations on forward-looking statements set forth at the
beginning of Item 1 of this Report.
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The cancellation or material modification of one or more
significant contracts could have a material adverse effect on
our ability to realize anticipated sales. |
Sales, directly and indirectly, to the U.S. government and
its agencies accounted for approximately 80% of our total net
sales in fiscal 2005. Our contracts typically permit the
U.S. government to unilaterally modify or terminate a
contract or to discontinue funding for a particular program at
any time. The cancellation of one or more significant contracts
could have a material adverse effect on our ability to realize
anticipated sales and profits. The cancellation of a contract,
if terminated for cause, could also subject us to liability for
the excess costs incurred by the U.S. government in
procuring undelivered items from another source. If terminated
for convenience, our recovery of costs would be limited to
amounts already incurred or committed, and our profit would be
limited to work completed prior to termination.
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Future reductions or changes in U.S. government
spending could negatively affect our sales. |
Our primary aerospace and defense customers include the DoD and
its agencies, the government prime contractors that supply
products to these customers, and NASA. As a result, we rely on
particular levels of U.S. government spending on propulsion
systems for defense and space applications and armament systems
for precision tactical weapon systems and munitions
applications, and our backlog depends, in a large part, on
continued funding by the U.S. government for the programs
in which we are involved. These spending levels are not
generally correlated with any specific economic cycle, but
rather follow the cycle of general political support for this
type of spending. Although the DoD currently forecasts continued
defense budget increases through its fiscal year 2010, which is
the remainder of the DoD’s detailed forecast period, future
levels of defense spending may not increase and could decrease.
Moreover, although our contracts often contemplate that our
services will be performed over a period of several years,
Congress usually must approve funds for a given program each
government fiscal year and may significantly reduce or eliminate
funding for a program. A decrease in U.S. military
expenditures, or the elimination or curtailment of a material
program in which we are involved, could negatively affect our
revenues.
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A significant percentage of our net sales are generated
from fixed-price contracts. If we experience cost overruns on
these contracts, we would have to absorb the excess costs and
our profitability would be adversely affected. |
Our aerospace and defense contracts generally can be categorized
as either “fixed-price” or
“cost-reimbursable” contracts. Under fixed-price
contracts, we agree to perform specified work for a fixed price
and realize all of the profit or loss resulting from variations
in the costs of performing the contract. As a result, all
fixed-price contracts involve the inherent risk of unreimbursed
cost overruns. To the extent we were to incur unanticipated cost
overruns on a program or platform subject to a fixed-price
contract, our profitability would be adversely affected. For
example, our Atlas V contract, which was recently renegotiated,
was a fixed-price contract that was historically unprofitable,
in part, due to cost overruns. We are also transitioning a
fixed-price fire suppression system for the Ford Crown Victoria
police vehicle from development to full rate production. Future
profitability is subject to risks including the ability of
suppliers to deliver components of acceptable quality on
schedule and the successful implementation of automated tooling
in production processes.
During fiscal 2005, approximately 60% of Aerojet’s net
sales were achieved on fixed-price contracts and 40% on cost
reimbursable contracts.
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Our success and growth in the aerospace and defense
industry depend on our ability to secure contracts. We face
significant competition, including from competitors with greater
resources than ours, which may adversely affect our market
share. |
We encounter intense competition in bidding for contracts. Many
of our competitors have financial, technical, production, and
other resources substantially greater than ours. Although the
downsizing of the defense industry in the early 1990s has
resulted in a reduction in the aggregate number of competitors,
the consolidation has also strengthened the capabilities of some
of the remaining competitors resulting in an increasingly
competitive environment. The U.S. government also has its
own manufacturing capabilities in some areas. We may be unable
to compete successfully with our competitors and our inability
to do so could result in a decrease in revenues that we
historically have generated from these contracts. Further, the
U.S. government may open to competition programs on which
we are currently the sole supplier, which could also adversely
affect our sales.
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Our Aerospace and Defense segment is subject to
procurement and other related laws and regulations inherent in
contracting with the U.S. government, non-compliance with
which could have a material adverse effect on our
business. |
In the performance of contracts with the U.S. government,
we are subject to complex and extensive procurement and other
related laws and regulations. Possible consequences of a failure
to comply, even inadvertently, with these laws and regulations
include civil and criminal fines and penalties, in some cases,
double or triple damages, and suspension or debarment from
future government contracts and exporting of goods for a
specified period of time.
These laws and regulations provide for ongoing audits and
reviews of incurred costs as well as contract procurement,
performance and administration. The U.S. government may, if
appropriate, conduct an investigation into possible illegal or
unethical activity in connection with these contracts.
Investigations of this nature are common in the aerospace and
defense industry, and lawsuits may result. In addition, the
U.S. government and its principal prime contractors
periodically investigate the financial viability of its
contractors and subcontractors as part of its risk assessment
process associated with the award of new contracts. If the
U.S. government or one or more prime contractors were to
determine that we were not financially viable, our ability to
continue to act as a government contractor or subcontractor
would be impaired.
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Our inability to adapt to rapid technological changes
could impair our ability to remain competitive. |
The aerospace and defense industry has undergone rapid and
significant technological development over the last few years.
Our competitors may implement new technologies before we are
able to, allowing them to provide more effective products at
more competitive prices. Future technological developments could:
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adversely impact our competitive position if we are unable to
react to these developments in a timely or efficient manner; |
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require us to write-down obsolete facilities, equipment and
technology; |
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require us to discontinue production of obsolete products before
we can recover any or all of our related research, development
and commercialization expenses; or |
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require significant capital expenditures for research,
development and launch of new products or processes. |
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We may experience product failures, schedule delays or
other problems with existing or new products and systems, all of
which could result in increased costs and loss of sales. |
Many of the products we develop and manufacture are
technologically advanced systems that must function under
demanding operating conditions. Even though we believe that we
employ sophisticated and
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rigorous design, manufacturing and testing processes and
practices, we may not be able to successfully launch or
manufacture our products on schedule or our products may not
perform as intended.
Some of our contracts require us to forfeit a portion of our
expected profit, receive reduced payments, provide a replacement
product or service or reduce the price of subsequent sales to
the same customer if our products fail to perform adequately.
Performance penalties also may be imposed should we fail to meet
delivery schedules or other measures of contract performance. We
do not generally insure against potential costs resulting from
any required remedial actions or costs or loss of sales due to
postponement or cancellation of scheduled operations or product
deliveries.
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Future reductions in airbag propellant volume could
adversely affect our profitability. |
One of our plants produces large volumes of propellants used in
automobile airbags sold to a single customer. These products are
subject to extreme cost competition from other potential
domestic and foreign suppliers. The loss of significant volume
could affect fixed cost absorption in the plant and negatively
impact profitability on other products.
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Our operations and properties are currently the subject of
significant environmental claims, and the numerous environmental
and other government regulations to which we are subject may
become more stringent in the future and may reduce our
profitability. |
We are subject to federal, state, and local laws and regulations
that, among other things, require us to obtain permits to
operate and install pollution control equipment and regulate the
generation, storage, handling, transportation, treatment and
disposal of hazardous and solid wastes. We may also be subject
to fines and penalties relating to the operation of our existing
and formerly owned businesses, and are subject to toxic tort and
asbestos suits as well as other third-party lawsuits, due to
either our past or present use of hazardous substances or the
alleged on-site or
off-site contamination of the environment through past or
present operations. We may incur material costs in defending
these proceedings or claims. Any unexpected adverse judgment or
cash outlay could reduce our profitability and leave us with
less cash available to service our debt.
For additional discussion of environmental and legal matters,
please see the environmental discussion in Note 14 to
Consolidated Financial Statements.
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Although some of our environmental costs may be
recoverable and we have established reserves, given the many
uncertainties involved in assessing liability for environmental
claims, our reserves may not be sufficient. |
Under an agreement with the U.S. government, the
U.S. government recognizes as allowable for government
contract cost purposes up to 88% of environmental expenses at
our Sacramento and former Azusa sites. Aerojet’s mix of
contracts can affect the actual reimbursement made by the
U.S. government. Because these costs are recovered through
forward pricing arrangements, our ability to continue recovering
these costs from the U.S. government depends on
Aerojet’s sustained business volume under
U.S. government contracts and programs and the relative
size of Aerojet’s commercial business.
As of November 30, 2005, we had established reserves of
$268 million, which we believe to be sufficient to cover
our estimated share of the environmental remediation costs at
that time. However, given the many uncertainties involved in
assessing liability for environmental claims, our reserves may
prove to be insufficient. We continually evaluate the adequacy
of those reserves, and they could change. In addition, the
reserves are based only on known sites and the known
contamination at those sites. It is possible that additional
remediation sites will be identified in the future or that
unknown contamination at previously identified sites will be
discovered. This could lead us to have additional expenditures
for environmental remediation in the future and given the many
uncertainties involved in assessing liability for environmental
claims, our reserves may prove to be insufficient.
18
For additional discussion of environmental matters, please see
the environmental discussion in Note 14 to Consolidated
Financial Statements.
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The release or explosion of dangerous materials used in
our business could disrupt our operations and cause us to incur
additional costs and liability. |
The operations of our business involve the handling and
production of potentially explosive materials and other
dangerous chemicals, including materials used in rocket
propulsion and explosive devices. Despite our use of specialized
facilities to handle dangerous materials and intensive employee
training programs, the handling and production of hazardous
materials could result in incidents that temporarily shut down
or otherwise disrupt our manufacturing operations and could
cause production delays. It is possible that a release of these
chemicals or an explosion could result in death or significant
injuries to employees and others. Material property damage to us
and third parties could also occur. The use of these products in
applications by our customers could also result in liability if
an explosion or fire were to occur. Any release or explosion
could expose us to adverse publicity or liability for damages or
cause production delays, any of which could have a material
adverse effect on our reputation and profitability.
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Disruptions in the supply of key raw materials and
difficulties in the supplier qualification process, as well as
increases in prices of raw materials, could adversely impact our
operations. |
We closely monitor sources of supply to assure that adequate raw
materials and other supplies needed in our manufacturing
processes are available. As a U.S. government contractor,
we are frequently limited to procuring materials and components
from sources of supply that meet rigorous customer and/or
government specifications. In addition, as business conditions,
DoD budgets, and Congressional allocations change, suppliers of
specialty chemicals and materials sometimes consider dropping
low-volume items from their product lines, which may require us
to qualify new suppliers for raw materials on key programs.
Current suppliers of some insulation materials used in rocket
motors have announced plans to close manufacturing plants and
discontinue certain product lines. These materials, which
include a neoprene compound and silica phenolic used as an
insulator, are used industry-wide in the production of rocket
motors and, therefore, are key to many of our solid booster/
motor programs. We have qualified new suppliers and materials
for this insulation and we expect that such new materials can be
available in time to meet our future production needs.
Another supplier has announced it will stop production of a
primary binder compound (R45) used industry-wide in all solid
propellants. The U.S. Government and companies operating in
the propulsion industry worked together to resolve the
availability issue of the R45 primary binder material. In
our case, Aerojet entered into a new supply contract which
includes a “surcharge” as a price adjustment. We were
able accomplish this with the assistance of our customers
through similar price adjustment clauses on many of our existing
contracts.
The supply of ammonium perchlorate, a principal raw material
used in solid propellant, is limited to a single source that
supplies the entire domestic solid propellant industry. This
single source, however, maintains two separate manufacturing
lines a reasonable distance apart which mitigates the likelihood
of a fire, explosion, or other problem impacting production. The
industry also currently relies on one primary supplier for
graphite fiber, which is used in the production of composite
materials. This supplier has multiple manufacturing lines for
such material. Although other sources of graphite fiber exist,
the addition of a new supplier would require us to qualify the
new source for use. As of year end 2005, neither of these key
materials has had any indication that their availability is in
jeopardy.
We are also impacted, as is the rest of the industry, by
increases in the prices and lead-times of raw materials used in
production on various fixed-price contracts. Most recently, we
have seen an increase in the price and lead-times of commodity
metals, primarily steel, titanium and aluminum. Aerojet monitors
the price and supply of these materials and works closely with
suppliers to schedule purchases far enough in advance and in the
most economical means possible to reduce program impact.
Additionally, we have negotiated
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economic and/or price adjustment clauses tied to commodity
indices, whenever possible with our customers. Our past success
in negotiating these terms is no indication of our ability to
continue to do so.
Prolonged disruptions in the supply of any of our key raw
materials, difficulty qualifying new sources of supply,
implementing use of replacement materials or new sources of
supply, and/or a continuing increase in the prices of raw
materials could have an adverse effect on our operating results,
financial condition and/or our cash flows.
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Substantially all of our real estate is located in
Sacramento County, California making us vulnerable to changes in
economic and other conditions in that particular market. |
As a result of the geographic concentration of our properties,
our long-term performance and the value of our properties will
depend upon conditions in the Sacramento region, including:
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the sustainability and growth of industries located in the
Sacramento region; |
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the financial strength and spending of the State of California; |
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local real estate market conditions; |
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changes in neighborhood characteristics; and |
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real estate tax rates. |
There can be no assurance that the Sacramento market will
continue to grow or that conditions will remain favorable. If
unfavorable economic or other conditions occur in the region,
our business plan could be adversely affected.
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We have limited experience in real estate
activities. |
While we have owned our Sacramento real estate for over
50 years, we have no significant real estate business
experience. Therefore, we do not have any real estate history
from which you can draw conclusions about our ability to execute
our real estate business plans.
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The real estate business is inherently risky. |
Our real estate activities may subject us to the following risks:
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we may be unable to obtain, or suffer delays in obtaining,
necessary re-zoning, land use, building, occupancy and other
required governmental permits and authorizations, which could
result in increased costs or our abandonment of these projects; |
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we may be unable to complete environmental remediation or to
lift state and federal environmental restrictions on our real
estate, which could cause a delay or abandonment of these
projects; |
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we may be unable to obtain sufficient water sources to service
our projects, which may prevent us from executing our plan; |
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our real estate activities require significant capital
expenditures and we may not be able to obtain financing on
favorable terms, which may render us unable to proceed with our
plan; |
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economic and political uncertainties could have adverse effects
on consumer buying habits, construction costs, availability of
labor and materials and other factors affecting us and the real
estate industry in general; |
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our property is subject to federal, state and local regulations
and restrictions that may impose significant limitations on our
plans. Much of our property is raw land located in areas where
the natural habitats of various endangered or protected wildlife
species; and |
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if our land use plans are approved by the appropriate
governmental authorities, we may face potential lawsuits from
those who oppose such plans. Such lawsuits and the costs
associated with such opposition |
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could be material and have an adverse effect on our ability to
sell properties or realize income from our projects. |
Additionally, the time frame required for approval of our plans
means that we may have to wait years for a significant cash
return.
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The value of our real estate assets could be adversely
affected by an increase in interest rates. |
For the past three years, interest rates in the U.S. have
been at historically low levels, which has facilitated the
financing and purchase of homes. Historical evidence has shown
that significant increases in interest rates have a negative
impact on housing demand. Since June 30, 2004, the federal
funds rate has increased from 1% to 4.25%. If interest rates
continue to increase, and the ability or willingness of
prospective buyers to finance home purchases is diminished, the
value of our real estate assets may decrease.
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We have a substantial amount of debt, and the cost of
servicing that debt could adversely affect our ability to take
actions or our liquidity or financial condition. |
We have a substantial amount of debt for which we are required
to make interest and principal payments. As of November 30,
2005, we had $444 million of debt. Subject to the limits
contained in some of the agreements governing our outstanding
debt, we may incur additional debt in the future.
Our level of debt places significant demands on our cash
resources, which could:
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make it more difficult for us to satisfy our outstanding debt
obligations; |
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require us to dedicate a substantial portion of our cash for
payments on our debt, reducing the amount of our cash flow
available for working capital, capital expenditures,
acquisitions, entitle our real estate assets, and other general
corporate purposes; |
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limit our flexibility in planning for, or reacting to, changes
in the industries in which we compete; |
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place us at a competitive disadvantage compared to our
competitors, some of which have lower debt service obligations
and greater financial resources than we do; |
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limit our ability to borrow additional funds; or |
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increase our vulnerability to general adverse economic and
industry conditions. |
If we are unable to generate sufficient cash flow to service our
debt and fund our operating costs, our liquidity may be
adversely affected.
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We are obligated to comply with financial and other
covenants in our debt that could restrict our operating
activities, and the failure to comply could result in defaults
that accelerate the payment of our debt. |
Our outstanding debt generally contains various restrictive
covenants. These covenants include, among others, provisions
restricting our ability to:
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incur additional debt; |
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make certain distributions, investments and other restricted
payments; |
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limit the ability of restricted subsidiaries to make payments to
us; |
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enter into transactions with affiliates; |
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create certain liens; |
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sell assets and if sold, use of proceeds; and |
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consolidate, merge or sell all or substantially all of our
assets. |
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Our secured debt also contains other customary covenants,
including, among others, provisions:
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relating to the maintenance of the property securing the
debt, and |
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restricting our ability to pledge assets or create other liens. |
In addition, certain covenants in our bank facilities require us
and our subsidiaries to maintain certain financial ratios. Any
of the covenants described in this risk factor may restrict our
operations and our ability to pursue potentially advantageous
business opportunities. Our failure to comply with these
covenants could also result in an event of default that, if not
cured or waived, could result in the acceleration of all or a
substantial portion of our debt.
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If our operating subsidiaries do not generate sufficient
cash flow or if they are not able to pay dividends or otherwise
distribute their cash to us, or if we have insufficient funds on
hand, we may not be able to service our debt. |
All of the operations of our Aerospace and Defense and Real
Estate businesses are conducted through subsidiaries.
Consequently, our cash flow and ability to service our debt
obligations will be largely dependent upon the earnings of our
operating subsidiaries and the distribution of those earnings to
us, or upon loans, advances or other payments made by these
subsidiaries to us. The ability of our subsidiaries to pay
dividends or make other payments or advances to us will depend
upon their operating results and will be subject to applicable
laws and any contractual restrictions contained in the
agreements governing their debt, if any.
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We may expand our operations through acquisitions, which
may divert management’s attention and expose us to
unanticipated liabilities and costs. We may experience
difficulties integrating any acquired operations, and we may
incur costs relating to acquisitions that are never
consummated. |
Our business strategy may include continued expansion of our
Aerospace and Defense operations through future acquisitions
that make both strategic and economic sense. However, our
ability to consummate and integrate effectively any future
acquisitions on terms that are favorable to us may be limited by
the number of attractive acquisition targets, internal demands
on our resources and our ability to obtain financing. Our
success in integrating newly acquired businesses will depend
upon our ability to retain key personnel, avoid diversion of
management’s attention from operational matters, integrate
general and administrative services and key information
processing systems and, where necessary, requalify our customer
programs. In addition, future acquisitions could result in the
incurrence of additional debt, costs and contingent liabilities.
We may also incur costs and divert management attention to
acquisitions that are never consummated. Integration of acquired
operations may take longer, or be more costly or disruptive to
our business, than originally anticipated. It is also possible
that expected synergies from future acquisitions may not
materialize.
Although we undertake a diligence investigation of each business
that we acquire, there may be liabilities of the acquired
companies that we fail to or are unable to discover during the
diligence investigation and for which we, as a successor owner,
may be responsible. In connection with acquisitions, we
generally seek to minimize the impact of these types of
potential liabilities through indemnities and warranties from
the seller, which may in some instances be supported by
deferring payment of a portion of the purchase price. However,
these indemnities and warranties, if obtained, may not fully
cover the liabilities due to limitations in scope, amount or
duration, financial limitations of the indemnitor or warrantor
or other reasons.
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We have recently focused our operations through
divestitures. We may incur additional costs related to these
divestitures, which may negatively impact our
profitability. |
In connection with our recent divestitures of the Fine Chemicals
and GDX businesses, we may incur additional costs, including
costs related to the closure of a manufacturing facility in
Chartres, France. This closure in France requires us to comply
with certain procedures and processes that are defined under
local law and labor regulations. These procedures may require
additional cash expenditures, thereby reducing our profitability
and our liquidity.
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A strike or other work stoppage, or our inability to renew
collective bargaining agreements on favorable terms, could have
a material adverse effect on our cost structure and ability to
run our facilities and produce our products. |
As of November 30, 2005, 17% of our 3,101 employees
were covered by collective bargaining or similar agreements all
of which are due to expire within two years. If we are unable to
negotiate acceptable new agreements with the unions representing
our employees upon expiration of the existing contracts, we
could experience strikes or work stoppages. Even if we are
successful in negotiating new agreements, the new agreements
could call for higher wages or benefits paid to union members,
which would increase our operating costs and could adversely
affect our profitability. If our unionized workers were to
engage in a strike or other work stoppage, or other
non-unionized operations were to become unionized, we could
experience a significant disruption of operations at our
facilities or higher ongoing labor costs. A strike or other work
stoppage in the facilities of any of our major customers could
also have similar effects on us.
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A loss of key personnel or highly skilled employees could
disrupt our operations. |
Our executive officers are critical to the management and
direction of our businesses. Our future success depends, in
large part, on our ability to retain these officers and other
capable management personnel. In general, we do not enter into
employment agreements with our executive officers. We have
entered into severance agreements with our executive officers
that allow those officers to terminate their employment under
particular circumstances, such as a change of control affecting
us. Although we believe that we will be able to attract and
retain talented personnel and replace key personnel should the
need arise, our inability to do so could disrupt the operations
of the segment affected or our overall operations. In addition,
because of the complex nature of many of our products and
programs, we are generally dependent on an educated and
highly-skilled engineering staff and workforce. Our operations
could be disrupted by a shortage of available skilled employees.
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Due to the nature of our business, our sales levels may
fluctuate causing our quarterly operating results to
fluctuate. |
Changes in our operating results from quarter to quarter could
result in volatility in our common stock price. Our quarterly
and annual sales are affected by a variety of factors that could
lead to significant variability in our operating results:
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In our Aerospace and Defense business, sales earned under
long-term contracts are recognized either on a cost basis, when
deliveries are made, or when contractually defined performance
milestones are achieved. The timing of deliveries or milestones
may fluctuate from quarter to quarter. |
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In our Real Estate business, sales of property will be made from
time to time, which will result in variability in our operating
results. |
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If we are unable to effectively and efficiently implement
the necessary initiatives to eliminate the material weakness
identified in our internal controls and procedures, there could
be an adverse effect on our operations or financial
results. |
We identified a material weakness in the Information and
Communication component of internal control due to:
(i) insufficient processes and controls to identify,
capture and accurately communicate information in sufficient
detail concerning complex, non-routine transactions in a timely
manner to appropriate members of our finance and accounting
organization that possess the necessary skills, knowledge and
authority to determine that such transactions are properly
accounted for in accordance with U.S. generally accepted
accounting principles, and (ii) the lack of specificity in
the existing processes regarding the degree and extent of
procedures that should be performed by key finance and
accounting personnel in their review of accounting for complex,
non-routine transactions to determine that the objective of the
review has been achieved. As a result of this material weakness,
errors occurred in several significant accounts in fiscal 2005
interim consolidated financial statements that were not
detected. The areas most affected by this deficiency include
revenue recognition and foreign currency translation. This
material weakness impacts our ability to properly
23
account for complex, non-routine transactions in the financial
statements. Due to this material weakness, management believes
that as of November 30, 2005, our internal control over
financial reporting was not effective based on the Committee of
Sponsoring Organizations of the Treadway Commission criteria. We
have and continue to implement various initiatives in fiscal
2006 to improve our internal controls over financial reporting
and address the matters discussed in Management’s Report on
Internal Control over Financial Reporting. The implementation of
the initiatives and the consideration of additional necessary
improvements are among our highest priorities. The Board of
Directors, under the direction of the Audit Committee, will
continually assess the progress of the initiatives and the
improvements, and take further actions as deemed necessary.
Until the identified material weakness is eliminated, there is a
risk of an adverse effect on our operations or financial results.
|
|
|
Investment returns on pension plan assets and the discount
rate used to determine pension liabilities may have a material
affect on our shareholders’ deficit. |
In the event pension liabilities (based on the accumulated
benefit obligation) exceed pension assets on the annual
measurement date as a result of the investment returns on such
assets and/or the discount rate used to measure pension
liabilities, we would record a material charge which will cause
an increase to our shareholders’ deficit.
24
|
|
Item 1B. |
Unresolved Staff Comments |
None.
Significant operating, manufacturing, research, design and/or
marketing facilities are set forth below.
Facilities
Corporate Headquarters
GenCorp Inc.
Highway 50 and Aerojet Road
Rancho Cordova, California 95670
Mailing address:
P.O. Box 537012
Sacramento, California 95853-7012
Manufacturing/ Research/ Design/ Marketing Locations
|
|
|
|
|
|
|
|
|
Aerospace and Defense
Aerojet-General Corporation
P.O. Box 13222
Sacramento, California
95813-6000 |
|
Design/Manufacturing Facilities: Camden, Arkansas* Clearfield, Utah* El Segundo, California* Gainesville, Virginia* Jonesborough, Tennessee Orange, Virginia Rancho Cordova, California Redmond, Washington Socorro, New Mexico* Vernon, California* |
|
Marketing/Sales Offices: Huntsville, Alabama* Southfield, Michigan* Washington, DC* |
Real Estate
620 Coolidge Drive,
Suite 100
Folsom, California 95630* |
|
|
|
|
|
|
|
|
|
|
* |
An asterisk next to a facility listed above indicates that it is
a leased property. |
We believe each of the facilities is adequate for the business
conducted at that facility. The facilities are suitable and
adequate for their intended purpose and taking into account
current and future needs. A portion of Aerojet’s property
in California (approximately 3,900 acres of undeveloped
land), and its Redmond, Washington facility are encumbered by a
deed of trust or mortgage. In addition, we own and lease
properties (primarily machinery and warehouse and office
facilities) in various locations for use in the ordinary course
of our business.
25
|
|
Item 3. |
Legal Proceedings |
The following information pertains to legal proceedings,
including proceedings relating to environmental matters, which
are discussed in detail in Notes 14(b) and 14(c) to the
Consolidated Financial Statements.
Groundwater Cases
Aerojet-General Corporation, along with other industrial
Potentially Responsible Parties (PRPs) and area water purveyors,
was sued in three cases by approximately 500 individual
plaintiffs residing in the vicinity of Aerojet’s facilities
near Sacramento, California (the Sacramento cases). One of such
cases was voluntarily dismissed by the named plaintiff. As
discussed in detail in Notes 14(b) and 14(c) to the
Consolidated Financial Statements, through dismissals and
settlements, the number of plaintiffs has been reduced to 18.
The remaining Sacramento cases are denominated as follows:
Allen, et al. v. Aerojet-General Corporation,
et al., Case No. 97AS06295, Sacramento County Superior
Court, served January 14, 1998.
Smith v. Aerojet-General Corporation, et al., Case
No. 05AS01500, Sacramento County Superior Court, served
August 14, 2005.
In the Sacramento cases, the plaintiffs allege that industrial
defendants contaminated groundwater provided by the water
purveyors as drinking water, which plaintiffs consumed causing
illness, death and economic injury. Plaintiffs seek judgment
against defendants for unspecified general, special and punitive
damages.
As discussed in detail in Notes 14(b) and 14(c) to the
Consolidated Financial Statements, the regulated water entities
defendants were dismissed from the litigation. As a result of
the plaintiffs’ settlement with McDonnell Douglas
Corporation, Aerojet is the only remaining defendant in these
cases. Discovery is complete and trial has been set for February
2006.
Orange County Water District v. Northrop Corporation,
et al., Case No. O4CC00715, Orange County (CA)
Superior Court, served December 29, 2004. Aerojet and other
defendants were sued by the Orange County Water District, a
public entity with jurisdiction over groundwater resources and
water supplies in Orange County. The plaintiff alleges that
groundwater in Orange County, California is contaminated with
chlorinated solvents that were allegedly released to the
environment by Aerojet and other industrial defendants causing
it to incur unspecified response costs and other damages. The
plaintiff seeks declaratory relief and recovery of past costs in
connection with investigation and remediation of groundwater
resources. Aerojet has filed its answer and discovery is ongoing.
Water Entity Cases
In October 2002, Aerojet, along with approximately 65 other
individual and corporate defendants, was served with four civil
suits filed in the U.S. District Court for the Central
District of California pursuant to which plaintiff water
purveyors seek recovery of costs allegedly incurred in response
to the contamination present at the South El Monte Operable Unit
(SEMOU) of the San Gabriel Valley Superfund site. The cases
are denominated as follows:
San Gabriel Valley Water Company v. Aerojet-General
Corporation, et al., Case
No. CV-02-6346 ABC
(RCx), U.S. District Court, Central District of CA, served
October 30, 2002.
San Gabriel Basin Water Quality Authority v.
Aerojet-General Corporation, et al., Case
No. CV-02-4565 ABC
(RCx), U.S. District Court, Central District of CA, served
October 30, 2002.
26
Southern California Water Company v. Aerojet-General
Corporation, et al., Case
No. CV-02-6340 ABC
(RCx), U.S. District Court, Central District of CA, served
October 30, 2002.
The City of Monterey Park v. Aerojet-General
Corporation, et al., Case
No. CV-02-5909 ABC
(RCx), U.S. District Court, Central District of CA, served
October 30, 2002.
The cases have been coordinated for ease of administration by
the court. Plaintiffs allege that groundwater in the SEMOU is
contaminated with chlorinated solvents and ammonium perchlorate
that were released into the environment by Aerojet and other
defendants, causing plaintiffs to incur unspecified response
costs and other damages.
Aerojet has filed third-party complaints against several water
entities on the basis that they introduced
perchlorate-containing Colorado River water to the basin. Those
water entities have filed motions to dismiss Aerojet’s
complaints. The motions as well as discovery have been stayed
pending efforts to resolve the litigation through mediation.
Olin Case
GenCorp Inc. v. Olin Corporation, Case
No. 5:93CV2269, U.S. District Court, N.D. Ohio, filed
October 25, 1993. GenCorp initiated civil proceedings
against Olin Corporation (Olin), the owner and operator of a
former chemical manufacturing facility located on land formerly
owned by the Company, seeking a declaratory judgment that the
Company was not liable to Olin for remedial costs. In the same
case, Olin counterclaimed against GenCorp, alleging that the
Company was jointly and severally liable under CERCLA for
remediation costs estimated at $70 million due to its
contractual relationship with Olin, operational activities and
land ownership by GenCorp. As a defense to Olin’s
counterclaim, the Company asserted that under the terms of a
1962 manufacturing agreement with Olin (the 1962 Agreement),
Olin had a contractual obligation to insure against
environmental and other risks and that its failure to protect
such insurance payments under these policies precluded Olin from
recovery against the Company for these remediation costs.
Further, the Company asserted that any failure on Olin’s
part to comply with the terms of such insurance policies would
result in the Company being entitled to breach of contract
remedies resulting in a reduction in any CERCLA liability
amounts determined to be owed to Olin that would have otherwise
been recovered from Olin’s insurance carriers (the
Reduction Claims).
The trial court ruled GenCorp liable based on theories of owner
and arranger liability under CERCLA. The trial court found
GenCorp 30% liable and Olin 70% liable for the Big D site, and
GenCorp 40% liable and Olin 60% liable for another site, for
CERCLA remediation costs. Notwithstanding such ruling, the trial
court has not ruled on the Company’s Reduction Claims;
rather, the trial court ruled that the Company’s Reduction
Claims are held in abeyance pending the resolution of
Olin’s litigation against its insurance carriers.
On November 21, 2005, after losing its appeal with the
Sixth Circuit Court of Appeals and after its petition to the
United States Supreme Court for a writ of certiorari was denied,
the Company paid the full amount of the judgment plus interest
to Olin in the amount of $30 million which resulted in a
$28 million unusual charge in the fourth quarter of fiscal
2005.
In summary, the Reduction Claims portion of the case is on hold
pending final resolution in New York federal court (the New York
Court) in a case involving Olin and its insurance carriers as to
whether Olin’s notice to its insurance carriers was or was
not timely. If Olin prevails in the NY Court action against its
excess insurance carriers, it is expected that the Company will
ultimately benefit from available insurance proceeds as part of
the Company’s Reduction Claims. If the NY Court decides
Olin’s notice to its insurers was untimely, the Ohio Court
could rule in GenCorp Inc. v. Olin Corporation that
Olin’s late notice constituted a breach of Olin’s
obligation under the 1962 Agreement to protect the insurance; or
it could conclude that Olin’s conduct does not support the
Company’s Reduction Claims. If the Ohio Court rules that
Olin’s late notice is a breach of the 1962 Agreement, then
it must determine the damages suffered by the Company as a
result of the breach. The Company has argued that the proper
measure of damages is the coverage limits of the policies that
Olin forfeited — an amount in this case that is more
than the judgment paid by the Company to Olin.
27
In November 2005, Olin filed a new lawsuit against the Company
seeking recovery from the Company of $1 million for certain
remediation costs Olin allegedly incurred between
January 1, 2000 and December 31, 2004 relating to the
sites at issue in the first litigation which was recorded as an
unusual charge in the fourth quarter of fiscal 2005.
Vinyl Chloride Litigation
The following table sets forth information related to our vinyl
chloride litigation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Claims filed
|
|
|
4 |
|
|
|
14 |
|
|
|
11 |
|
Claims dismissed
|
|
|
9 |
|
|
|
8 |
|
|
|
4 |
|
Claims settled
|
|
|
9 |
|
|
|
1 |
|
|
|
2 |
|
Claims pending
|
|
|
10 |
|
|
|
24 |
|
|
|
19 |
|
Aggregate settlement costs
|
|
$ |
18 |
|
|
$ |
425 |
|
|
$ |
55 |
|
Average settlement costs
|
|
$ |
2 |
|
|
$ |
425 |
|
|
$ |
27 |
|
Legal and administrative fees for the vinyl chloride cases were
approximately $0.4 million in each of fiscal years 2005,
2004 and 2003.
Asbestos Litigation
The following table sets forth information related to our
asbestos litigation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in thousands) | |
Claims filed
|
|
|
149* |
|
|
|
63 |
|
|
|
40 |
|
Claims dismissed
|
|
|
65 |
|
|
|
27 |
|
|
|
21 |
|
Claims settled
|
|
|
2 |
|
|
|
8** |
|
|
|
6 |
|
Claims pending
|
|
|
152 |
|
|
|
70 |
|
|
|
42 |
|
Aggregate settlement costs
|
|
$ |
50 |
|
|
$ |
3,073** |
|
|
$ |
226 |
|
Average settlement costs
|
|
$ |
25 |
|
|
$ |
384** |
|
|
$ |
38 |
|
|
|
|
|
* |
Includes 30 additional cases filed against PCC Flow
Technologies, Inc. and its affiliates (PCC) for which the
Company is required to defend and indemnify PCC, effective
May 31, 2005. PCC had originally tendered 57 cases to the
Company, but 27 of such cases were dismissed prior to the
Company’s and PCC’s May 31, 2005 settlement
agreement. |
|
|
** |
The number of claims settled and the aggregate settlement costs
and average settlement costs for fiscal 2004 include the
Goede et al. v. Chesterton Inc. et al.
matter in which there was a judgment of approximately
$5 million against Aerojet, which was reduced to
approximately $2 million after setoff based on
plaintiffs’ settlements with other defendants. The total
amount paid, including interest accruing from the date of
judgment, was $2 million. |
Legal and administrative fees for the asbestos cases for fiscal
2005, fiscal 2004, and fiscal 2003 were approximately
$0.5 million, $1.0 million, and $1.4 million,
respectively.
Other Legal Proceedings
We are subject to other legal actions, governmental
investigations and proceedings relating to a wide range of
matters in addition to those discussed above. While there can be
no certainty regarding the outcome of any litigation,
investigation or proceeding, in the opinion of the our
management, after reviewing the
28
information that is currently available with respect to such
matters, we believe that any liability that may ultimately be
incurred with respect to these matters is not expected to
materially affect our consolidated financial condition. The
effect of resolution of these matters on our financial condition
and results of operations cannot be predicted because any such
effect depends on future results of operations, our liquidity
position and available financial resources, and the amount and
timing of the resolution of such matters. In addition, it is
possible that amounts incurred could be significant in any
particular reporting period.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
PART II
|
|
Item 5. |
Market for Registrant’s Common Equity, Related
Stockholders’ Matters and Issuer Purchases of Equity
Securities |
Our common stock is quoted on the New York Stock Exchange under
the trading symbol “GY.” The following table lists, on
a per share basis for the periods indicated, the high and low
sale prices for the common stock as reported by the New York
Stock Exchange:
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
Price | |
|
|
| |
Fiscal Year Ended November 30, |
|
High | |
|
Low | |
|
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
11.74 |
|
|
$ |
10.00 |
|
|
Second Quarter
|
|
$ |
11.82 |
|
|
$ |
10.18 |
|
|
Third Quarter
|
|
$ |
13.53 |
|
|
$ |
10.77 |
|
|
Fourth Quarter
|
|
$ |
17.70 |
|
|
$ |
12.03 |
|
2005
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
18.99 |
|
|
$ |
16.75 |
|
|
Second Quarter
|
|
$ |
21.25 |
|
|
$ |
17.88 |
|
|
Third Quarter
|
|
$ |
20.62 |
|
|
$ |
18.20 |
|
|
Fourth Quarter
|
|
$ |
19.99 |
|
|
$ |
17.74 |
|
As of January 31, 2006, there were 9,545 holders of record
of the common stock. On January 31, 2006, the last reported
sale price of our common stock on the New York Stock Exchange
was $20.03 per share.
During each quarter of fiscal 2003 and during the first two
quarters of fiscal 2004, we paid a quarterly cash dividend on
our common stock of $0.03 per share. Our Board of Directors
has eliminated the payment of quarterly dividends effective the
third quarter of fiscal 2004. Beginning in December 2004, the
senior credit facility restricted the payment of dividends.
Information concerning long-term debt, including material
restrictions relating to payment of dividends on our common
stock appears in Part II, Item 7 under the caption
“Liquidity and Capital Resources” and at Note 11
in Notes to Consolidated Financial Statements, which is
incorporated herein by reference. Information concerning
securities authorized for issuance under our equity compensation
plans appears in Part III, Item 12 under the caption
“Equity Compensation Plan Information” which is
incorporated herein by reference.
29
|
|
Item 6. |
Selected Financial Data |
The following selected financial data is qualified by reference
to and should be read in conjunction with the consolidated
financial statements, including the notes thereto, and
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions, except per share and dividend amounts) | |
Net sales(1)(2)
|
|
$ |
624 |
|
|
$ |
499 |
|
|
$ |
348 |
|
|
$ |
277 |
|
|
$ |
640 |
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of income taxes(2)
|
|
$ |
(206 |
) |
|
$ |
(86 |
) |
|
$ |
12 |
|
|
$ |
15 |
|
|
$ |
168 |
|
|
Income (loss) from discontinued operations, net of income
taxes(1)
|
|
|
(24 |
) |
|
|
(312 |
) |
|
|
10 |
|
|
|
15 |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(230 |
) |
|
$ |
(398 |
) |
|
$ |
22 |
|
|
$ |
30 |
|
|
$ |
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations(2)
|
|
$ |
(3.78 |
) |
|
$ |
(1.91 |
) |
|
$ |
0.26 |
|
|
$ |
0.36 |
|
|
$ |
3.98 |
|
|
Income (loss) from discontinued operations(1)
|
|
|
(0.43 |
) |
|
|
(6.91 |
) |
|
|
0.24 |
|
|
|
0.35 |
|
|
|
(0.95 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(4.21 |
) |
|
$ |
(8.82 |
) |
|
$ |
0.50 |
|
|
$ |
0.71 |
|
|
$ |
3.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations(2)
|
|
$ |
(3.78 |
) |
|
$ |
(1.91 |
) |
|
$ |
0.26 |
|
|
$ |
0.35 |
|
|
$ |
3.94 |
|
|
Income (loss) from discontinued operations(1)
|
|
|
(0.43 |
) |
|
|
(6.91 |
) |
|
|
0.24 |
|
|
|
0.35 |
|
|
|
(0.94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(4.21 |
) |
|
$ |
(8.82 |
) |
|
$ |
0.50 |
|
|
$ |
0.70 |
|
|
$ |
3.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per share of Common Stock
|
|
$ |
— |
|
|
$ |
0.06 |
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,057 |
|
|
$ |
1,495 |
|
|
$ |
1,929 |
|
|
$ |
1,656 |
|
|
$ |
1,468 |
|
|
Long-term debt, including current maturities
|
|
$ |
444 |
|
|
$ |
577 |
|
|
$ |
538 |
|
|
$ |
387 |
|
|
$ |
214 |
|
|
|
(1) |
On August 31, 2004, we completed the sale of our GDX
Automotive (GDX) business. On November 30, 2005, we
completed the sale of our Fine Chemicals business. The GDX and
Fine Chemicals businesses are classified as discontinued
operations in these Consolidated Financial Statements and Notes
to Consolidated Financial Statements. |
|
(2) |
On October 22, 2001, we completed the sale of our
Electronics and Information Systems (EIS) business. The gain on
the transaction was $206 million. EIS contributed net sales
of $398 million for fiscal 2001. |
30
|
|
Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
We begin Management’s Discussion and Analysis of Financial
Condition and Results of Operations with an overview of our
business and operations. This is followed by a discussion of our
results of operations, including results of our operating
segments, for the past two fiscal years. We then provide an
analysis of our liquidity and capital resources, including
discussions of our cash flows, debt arrangements, sources of
capital and financial commitments. In the next section, we
discuss the critical accounting policies that we believe are
important to understanding the assumptions and judgments
incorporated in our reported financial results.
The following discussion should be read in conjunction with the
other sections of this Report, including the Consolidated
Financial Statements and Notes thereto appearing in Item 8
of this Report, the Risk Factors appearing in Item 1A of
this Report and the disclaimer regarding forward-looking
statements appearing at the beginning of Item 1 of this
Report. Historical results set forth in Item 6 and
Item 8 of this Report should not be taken as indicative of
our future operations.
Overview
We are a technology-based aerospace and defense manufacturer
operating primarily in the United States with significant real
estate assets. Our continuing operations are organized into two
segments:
Aerospace and Defense — includes the operations
of Aerojet-General Corporation, or Aerojet, which develops and
manufactures propulsion systems for defense and space
applications, armament systems for precision tactical weapon
systems and munitions applications. We are one of the largest
providers of propulsion systems in the United States and the
only company that provides both Solid and Liquid propellant
based systems. Primary customers served include major prime
contractors to the United States (U.S.) government, the
Department of Defense (DoD), and the National Aeronautics and
Space Administration (NASA).
Real Estate — includes activities related to
the re-zoning, entitlement, sale, and leasing of our real estate
assets. Through our Aerojet subsidiary, we own approximately
12,600 acres of land adjacent to U.S. Highway 50
between Rancho Cordova and Folsom, California just east of
Sacramento, which we refer to as the Sacramento Land. We are
currently in the process of seeking zoning changes and other
governmental approvals on a portion of the Sacramento Land to
optimize its value. We have filed applications with and
submitted information to governmental and regulatory authorities
for approvals necessary to re-zone over 6,400 acres of the
Sacramento Land.
During the second quarter of fiscal 2004, we announced plans to
sell our GDX business, which developed and manufactured vehicle
sealing systems for automotive original equipment manufacturers.
This decision was a result of declining volumes and continued
challenges in this market environment including adverse customer
pricing pressures, increased material costs, high development
and start-up costs and
increased working capital requirements. In accordance with our
plan to sell the GDX business, we classified our GDX business as
a discontinued operation during the second quarter of fiscal
2004. During the third quarter of fiscal 2004, we completed the
sale of GDX to Cerberus Capital Management, L.P. for
$147 million, subject to adjustment, of which
$140 million has been received as of November 30, 2005.
During the fourth quarter of fiscal 2004, we announced our
strategic decision to sell our Fine Chemicals business, which,
through Aerojet Fine Chemicals, was a custom manufacturer of
active pharmaceutical ingredients and registered intermediates
for pharmaceutical and biotechnology companies. This plan was a
result of management’s decision to focus our capital and
resources on our Aerospace and Defense and Real Estate segments.
During the fourth quarter of fiscal 2005, we completed the sale
of the Fine Chemicals to American Pacific Corporation (AMPAC)
for $114 million, subject to adjustment, consisting of
$88 million of cash, unsecured subordinated seller note of
$26 million, and the assumption by the buyer of certain
liabilities. Additionally, AMPAC will be required to pay us up
to $5 million if the Fine Chemical business achieves
specified earning targets in the twelve month period ending
September 30, 2006. See additional discussion in
Note 18 in Notes to Condensed Consolidated Financial
Statements.
31
For all periods presented, we have classified the results of
operations of GDX and Fine Chemicals as discontinued operations
in the Consolidated Statements of Operations. The assets and
liabilities of Fine Chemicals have been classified as Assets of
Discontinued Operations and Liabilities of Discontinued
Operations in the Consolidated Balance Sheets as of
November 30, 2004.
Business Outlook
Aerospace and Defense — With the recent
completion of deliveries on the Titan program and restructure of
the Atlas V contract, sales for these two programs in fiscal
2006 are expected to decline by approximately $70 million
from fiscal 2005 sales. Titan sales are expected to rebound in
fiscal 2007 and fiscal 2008 when final facilities conversion and
other related close-out activities are funded by the
U.S. Air Force.
Real Estate — We expect to actively work with
governmental authorities to affect entitlement changes and to
lift environmental restrictions for approximately
6,400 acres of the Sacramento Land as soon as practicable.
In conjunction with these efforts, we will continue to explore
real estate structures (or transactions) that may enhance the
value of our real estate assets, including outright sales,
and/or joint ventures with real estate developers, residential
builders or other third parties. We recently announced our
exploration of a possible real estate transaction with one or
more substantial residential builders. The focus of the
exploratory discussions at this time concerns a possible joint
venture relating to our Rio Del Oro project.
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
|
|
|
|
| |
|
2005 vs. | |
|
2004 vs. | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Net Sales
|
|
$ |
624 |
|
|
$ |
499 |
|
|
$ |
348 |
|
|
$ |
125 |
|
|
$ |
151 |
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
739 |
|
|
|
447 |
|
|
|
260 |
|
|
|
292 |
|
|
|
187 |
|
Selling, general and administrative
|
|
|
30 |
|
|
|
49 |
|
|
|
31 |
|
|
|
(19 |
) |
|
|
18 |
|
Depreciation and amortization
|
|
|
28 |
|
|
|
31 |
|
|
|
28 |
|
|
|
(3 |
) |
|
|
3 |
|
Interest expense
|
|
|
24 |
|
|
|
35 |
|
|
|
22 |
|
|
|
(11 |
) |
|
|
13 |
|
Other (income) expense, net
|
|
|
1 |
|
|
|
(15 |
) |
|
|
(9 |
) |
|
|
16 |
|
|
|
(6 |
) |
Unusual items
|
|
|
37 |
|
|
|
9 |
|
|
|
5 |
|
|
|
28 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
859 |
|
|
|
556 |
|
|
|
337 |
|
|
|
303 |
|
|
|
219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(235 |
) |
|
|
(57 |
) |
|
|
11 |
|
|
|
(178 |
) |
|
|
(68 |
) |
Income tax (benefit) provision
|
|
|
(29 |
) |
|
|
29 |
|
|
|
(1 |
) |
|
|
(58 |
) |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(206 |
) |
|
|
(86 |
) |
|
|
12 |
|
|
|
(120 |
) |
|
|
(98 |
) |
Income (loss) from discontinued operations, net of tax
|
|
|
(24 |
) |
|
|
(312 |
) |
|
|
10 |
|
|
|
288 |
|
|
|
(322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(230 |
) |
|
$ |
(398 |
) |
|
$ |
22 |
|
|
$ |
168 |
|
|
$ |
(420 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales increased to $624 million in fiscal
2005 compared to $499 million in fiscal 2004. The increase
in sales in fiscal 2005 is primarily due to the following
programs: Atlas V, Standard Missile, and Terminal
High-Altitude Area Defense.
Consolidated net sales increased to $499 million in fiscal
2004 compared to $348 million in fiscal 2003. The increase
in sales was primarily due to $156 million of sales
contributed by the propulsion business of ARC, which was
acquired in October 2003.
32
During fiscal 2005, Lockheed Martin and Raytheon accounted for
39% and 16%, respectively, of net sales. During fiscal 2004,
Lockheed Martin and Raytheon accounted for 32% and 15%,
respectively, of net sales. During fiscal 2003, Lockheed Martin,
Boeing, and Raytheon accounted for 28%, 15%, and 10%,
respectively, of net sales. Sales in fiscal 2005, fiscal 2004
and fiscal 2003 directly and indirectly to the
U.S. government and its agencies (principally the DoD),
including sales to our significant customers discussed above,
totaled $501 million, $420 million and
$263 million, respectively. Our contracts typically permit
the U.S. government to unilaterally modify or terminate a
contract or to discontinue funding for a particular program at
any time. The cancellation of one or more significant contracts
could have a material adverse effect on our ability to realize
anticipated sales and profits. The cancellation of a contract,
if terminated for cause, could also subject us to liability for
the excess costs incurred by the U.S. government in
procuring undelivered items from another source. If terminated
for convenience, our recovery of costs would be limited to
amounts already incurred or committed, and our profit would be
limited to work completed prior to termination.
|
|
|
Income (Loss) from Continuing Operations Before Income
Taxes |
For fiscal 2005, we reported a loss from continuing operations
before income taxes of $235 million compared to a loss from
continuing operations of $57 million for fiscal 2004. The
increased loss was primarily due to the following:
|
|
|
|
• |
Declines in performance of our Aerospace and Defense and Real
Estate segments, primarily driven by the write-down of the
inventory associated with the Atlas V contract. See discussion
of “Segment Performance,” below. |
|
|
• |
Employee retirement benefit expense of $48 million in
fiscal 2005 compared to expense of $44 million in fiscal
2004. See discussion of “Retirement Benefit Plans,”
below. |
|
|
• |
Unusual charges of $37 million in fiscal 2005 versus
$9 million in fiscal 2004. See discussion of “Unusual
Items,” below. |
|
|
• |
Offset by decreased spending related to corporate and other
expenses. See discussion of “Corporate and Other
Expenses,” below. |
|
|
• |
Offset by decreased interest expense of $11 million in
fiscal 2005 as compared to fiscal 2004. The decrease is the
result of lower average debt and interest rates as a result of
the sale of the GDX Automotive business in August 2004 and our
recapitalization transactions, initiated in November 2004 and
completed in February 2005. |
We reported a loss from continuing operations before income
taxes of $57 million during fiscal 2004 compared to
$11 million of income from continuing operations in fiscal
2003. This decrease is primarily due to the following:
|
|
|
|
• |
Declines in segment performance for our Aerospace and Defense
and Real Estate segments. See discussion of “Segment
Performance,” below. |
|
|
• |
Employee retirement benefit expense of $44 million in
fiscal 2004 compared to income of $1 million in fiscal
2003. See discussion of “Retirement Benefit Plans,”
below. |
|
|
• |
Interest expense increased to $35 million in fiscal 2004
from $22 million in fiscal 2003. The increase is primarily
the result of higher debt levels and average interest rates.
Additional debt includes amounts incurred to finance the ARC
acquisition completed in October 2003, to fund working capital
in fiscal 2004, and to refinance a portion of the
53/4% Convertible
Subordinated Notes with the issuance of the
21/4% Convertible
Subordinated Debentures in November 2004. Net cash proceeds from
the sale of GDX received in August 2004 and the Equity Offering
in November 2004 were held as restricted cash as of
November 30, 2004 and were used to reduce debt balances in
fiscal 2005. |
|
|
• |
Increased spending related to corporate and other expenses. See
discussion of “Corporate and Other Expenses,” below. |
33
|
|
|
|
• |
Unusual charges of $9 million in fiscal 2004 versus
$5 million in fiscal 2003. See discussion of “Unusual
Items,” below. |
|
|
|
Income Tax (Benefit) Provision |
Our tax provision in fiscal 2005 reflects $29 million
benefit from continuing operations for the carryback of current
and prior year losses resulting in refunds of previously paid
taxes. In fiscal 2004, a net income tax provision for continuing
operations of $29 million was recorded consisting of
$34 million primarily to reflect the uncertainty of
realizing tax benefits, given historical losses, offset by
$5 million benefit primarily related to research tax credit
refund claims. We recorded a net income tax benefit of
$1 million in fiscal 2003 resulting from $5 million in
domestic federal and state tax settlements.
At November 30, 2005, we had a federal net operating loss
carryforward of approximately $226 million of which
$61 million expires in 2024 and $165 million expires
in 2025, if not utilized. Approximately $8 million of the
net operating loss carryforward relates to the exercise of stock
options, the benefit of which will be credited to equity when
realized. In addition, we also have federal and state capital
loss carryforwards of approximately $153 million and
$62 million, respectively, most of which expire in 2009.
For state tax purposes, we have approximately $215 million
in net operating loss carryforwards of which $3 million
expire in 2023, $32 million expire in 2024, and
$180 million expire in 2025, if not utilized.
We also have a federal research credit carryforward of
$6 million which begins expiring in 2021; and a California
manufacturing investment credit carryforward of $3 million
which begins expiring in 2009; and a foreign tax credit
carryforward of $6 million which begins expiring in 2010,
if not utilized. These tax carryforwards are subject to
examination by the tax authorities.
|
|
|
Income (Loss) from Discontinued Operations |
On August 31, 2004, we completed the sale of GDX, including
substantially all of the assets of GenCorp Inc. that were used
in the GDX business and substantially all of GenCorp Inc.’s
worldwide subsidiaries that were engaged in the GDX business, to
Cerberus for $147 million, subject to adjustment, of which
$140 million has been received as of November 30,
2005. The loss on the sale of the GDX business during fiscal
2004 was $279 million.
During the third quarter of fiscal 2004, we classified the Fine
Chemicals business as a discontinued operation as a result of
our plans to sell the business. This plan was a result of
management’s decision to focus our capital and resources on
our Aerospace and Defense and Real Estate operating segments. On
November 30, 2005, we completed the sale of the Fine
Chemicals to American Pacific Corporation (AMPAC) for
$114 million, subject to adjustment, consisting of
$88 million of cash, unsecured subordinated seller note of
$26 million, and the assumption by the buyer of certain
liabilities. Additionally, AMPAC will be required to pay us up
to $5 million based on the Fine Chemical business achieving
specified earnings targets in the twelve month period ending
September 30, 2006. Income will be recorded in the future
on the seller note of $26 million and any contingent
payment when realized. The loss on the sale of the Fine
Chemicals business during fiscal 2005 was $29 million.
In November 2003, we announced the closing of a GDX
manufacturing facility in Chartres, France. The decision
resulted primarily from declining sales volumes with French
automobile manufacturers. In June 2004, we completed the legal
process for closing the facility and establishing a social plan.
In fiscal 2004, an expense of approximately $14 million
related to employee social costs was recorded in accordance with
SFAS 146, Accounting for Costs Associated with Exit of
Disposal Activities. An expense of $1 million was
recorded during the fiscal 2005 primarily related to employee
social costs that became estimable in fiscal 2005 and is
included as a component of discontinued operations. We have not
yet recorded expenses associated with certain social benefits
due to the uncertainty of the benefit amount. These additional
social costs may result in an additional pre-tax expense of up
to $2 million and are anticipated to be incurred over the
next 12 months.
34
Summarized financial information for the discontinued operations
is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Net sales
|
|
$ |
64 |
|
|
$ |
629 |
|
|
$ |
844 |
|
Income (loss) before income taxes
|
|
|
(24 |
) |
|
|
(308 |
) |
|
|
6 |
|
Income tax benefit (provision)
|
|
|
— |
|
|
|
(4 |
) |
|
|
4 |
|
Net income (loss) from discontinued operations
|
|
|
(24 |
) |
|
|
(312 |
) |
|
|
10 |
|
Segment Results
We evaluate our operating segments based on several factors, of
which the primary financial measure is segment performance.
Segment performance, which is a non-GAAP financial measure,
represents net sales from continuing operations less applicable
costs, expenses and provisions for unusual items relating to
operations. Segment performance excludes corporate income and
expenses, commercial legacy income or expenses, provisions for
unusual items not related to the operations, interest expense,
and income taxes. We believe that segment performance provides
information useful to investors in understanding our underlying
operational performance. Specifically, we believe the exclusion
of the items listed above permits an evaluation and a comparison
of results for ongoing business operations, and it is on this
basis that management internally assesses operational
performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
|
|
|
|
November 30, | |
|
|
|
|
|
|
| |
|
2005 vs. | |
|
2004 vs. | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(In millions) | |
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
$ |
617 |
|
|
$ |
492 |
|
|
$ |
321 |
|
|
$ |
125 |
|
|
$ |
171 |
|
|
Real Estate
|
|
|
7 |
|
|
|
15 |
|
|
|
32 |
|
|
|
(8 |
) |
|
|
(17 |
) |
|
Intersegment sales elimination
|
|
|
— |
|
|
|
(8 |
) |
|
|
(5 |
) |
|
|
8 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
624 |
|
|
$ |
499 |
|
|
$ |
348 |
|
|
$ |
125 |
|
|
$ |
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
$ |
(113 |
) |
|
$ |
57 |
|
|
$ |
45 |
|
|
$ |
(170 |
) |
|
$ |
12 |
|
|
Benefit plan income (expense)(1)
|
|
|
(34 |
) |
|
|
(27 |
) |
|
|
3 |
|
|
|
(7 |
) |
|
|
(30 |
) |
|
Unusual items(2)
|
|
|
10 |
|
|
|
— |
|
|
|
(5 |
) |
|
|
10 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
|
(137 |
) |
|
|
30 |
|
|
|
43 |
|
|
|
(167 |
) |
|
|
(13 |
) |
|
|
Real Estate
|
|
|
4 |
|
|
|
12 |
|
|
|
23 |
|
|
|
(8 |
) |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Performance
|
|
$ |
(133 |
) |
|
$ |
42 |
|
|
$ |
66 |
|
|
$ |
(175 |
) |
|
$ |
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of segment performance to income from
continuing operations before income taxes is shown below: |
|
|
Segment Performance
|
|
$ |
(133 |
) |
|
$ |
42 |
|
|
$ |
66 |
|
|
$ |
(175 |
) |
|
$ |
(24 |
) |
|
Interest expense
|
|
|
(24 |
) |
|
|
(35 |
) |
|
|
(22 |
) |
|
|
11 |
|
|
|
(13 |
) |
|
Corporate benefit plan expense(1)
|
|
|
(14 |
) |
|
|
(17 |
) |
|
|
(2 |
) |
|
|
3 |
|
|
|
(15 |
) |
|
Corporate and other expenses
|
|
|
(17 |
) |
|
|
(38 |
) |
|
|
(31 |
) |
|
|
21 |
|
|
|
(7 |
) |
|
Unusual items(2)
|
|
|
(47 |
) |
|
|
(9 |
) |
|
|
— |
|
|
|
(38 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$ |
(235 |
) |
|
$ |
(57 |
) |
|
$ |
11 |
|
|
$ |
(178 |
) |
|
$ |
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
See discussion of benefit plan income (expense) under the
caption “Retirement Benefit Plans” following the
segment discussion. Discussions of the individual operating
segments’ results below exclude these items. |
35
|
|
(2) |
See discussion of unusual charges under the caption
“Unusual Items” following the segment discussion.
Discussions of the individual operating segments’ results
below exclude these items. |
Aerospace and Defense
Sales for fiscal 2005 increased 25% to $617 million
compared to $492 million last year. Included in these
amounts were Atlas sales of $84 million in fiscal 2005 and
$13 million in fiscal 2004. Excluding Atlas sales, fiscal
2005 sales increased 11% to $533 million compared to
$479 million last year. The fiscal 2005 sales improvements
excluding Atlas include net increases in most of Aerojet’s
product areas with individual program increases of greater than
$10 million related to Standard Missile, Terminal
High-Altitude Area Defense (THAAD), and Tomahawk.
Segment performance was a loss of $137 million in fiscal
2005 compared to income of $30 million in fiscal 2004.
Excluding the effect of employee retirement benefit plan expense
and unusual items, segment performance was a loss of
$113 million in fiscal 2005 compared to income of
$57 million in fiscal 2004. Significant factors impacting
the change in segment performance compared to prior year were:
(i) $169 million and $16 million write-down of
inventory associated with the Atlas V program in fiscal 2005 and
fiscal 2004, respectively, which resulted in increases in costs
of products sold; (ii) environmental reserve and recovery
adjustments that resulted in a $16 million favorable impact
to fiscal 2004 segment performance compared to $4 million
expense in fiscal 2005; and (iii) changes in product mix
that resulted in lower margins during fiscal 2005.
As previously reported, recovery of the Atlas V inventory had
been subject to several uncertainties. Upon learning that
U.S. government funding would not be available to recover
past costs, we concluded that renegotiation of our contract with
Lockheed Martin Corporation was in our best interest, curtailing
future investments and cash outflows. An agreement on revised
terms with Lockheed Martin was signed on December 22, 2005.
Among other provisions, the revised terms include an increase in
unit pricing for 14 motors to be delivered in fiscal 2006 and
fiscal 2007. We anticipate negotiating terms for an additional
21 motors, for delivery in fiscal 2008 and beyond, in fiscal
2006. In connection with the renegotiation, we wrote-off
$169 million of inventory costs for the design and
production of the motors produced under the original contract.
Net sales for the Aerospace and Defense segment totaled
$492 million for fiscal 2004, an increase of 53% compared
with sales of $321 million for fiscal 2003. The ARC
business acquired in October 2003 contributed $156 million
of the increase. Excluding sales increases attributable to the
ARC acquisition, programs contributing higher sales were as
follows: increased deliveries to Boeing on the
F-22/A program, volume
on the recently acquired THAAD program and higher sales on
programs utilizing electric and liquid thrusters for orbit and
attitude maintenance. The sales increases were offset by lower
volume on a variety of defense and armament programs.
Segment performance before unusual items and benefit plan
expense was $57 million and $45 million for fiscal
2004 and fiscal 2003, respectively. Segment performance for
fiscal 2004 increased over fiscal 2003 performance from higher
sales volume, and a $16 million favorable environmental
reserve adjustment. Segment performance for fiscal 2004 included
an inventory write down of $16 million related to the Atlas
V Program.
36
Real Estate
Real Estate sales and segment performance for fiscal 2005 were
$7 million and $4 million, respectively, compared to
$15 million and $12 million, respectively, for fiscal
2004. The fiscal 2004 results included revenue from a property
usage agreement and an exclusive mining rights agreement.
Results for fiscal 2005 consist of rental property operations
and there were no significant sales of real estate assets.
Real Estate sales and segment performance for fiscal 2004 were
$15 million and $12 million, respectively, compared to
$32 million and $23 million, respectively, for fiscal
2003. The fiscal 2003 results included sales of real estate
assets. Results for fiscal 2004 do not include any sales of real
estate assets, but do include revenue from a property usage
agreement with the Sacramento Regional Transit for construction
of a Light Rail station adjacent to property we intend to
develop. We also finalized an agreement with Granite
Construction Company for the exclusive rights to mine excess
aggregates from certain portions of our Sacramento Land.
Corporate and Other Expenses
Corporate and other expenses decreased to $17 million in
fiscal 2005 compared to $38 million in fiscal 2004. The
decrease in spending was primarily due to lower corporate costs
as a result of personnel reductions and resource redeployment to
Aerojet to adjust for the reduction in operations as a result of
the divesture of GDX in August 2004.
Corporate and other expenses increased to $38 million in
fiscal 2004 compared to $31 million in fiscal 2003. The
increase in spending was primarily due to the following:
(i) increases in professional accounting fees primarily
related to Sarbanes-Oxley compliance, (ii) a
$2 million environmental remediation charge related to a
former operating site, and (iii) increases in insurance
costs.
Corporate and other expenses include costs associated with
commercial legacy business matters, including legal and
environmental costs.
Retirement Benefit Plans
Income (expense) from pension and medical and life
retirement benefit plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Aerospace and Defense
|
|
$ |
34 |
|
|
$ |
27 |
|
|
$ |
(3 |
) |
Real Estate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Corporate
|
|
|
14 |
|
|
|
17 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Benefit plan (income) expense
|
|
$ |
48 |
|
|
$ |
44 |
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
The increased cost of benefit plans over the past two fiscal
years is primarily due to the deferred recognition of the
underperformance of the U.S. pension plan assets in prior
years and decreases in the discount rate used to determine
benefit obligations, due to lower market interest rates.
37
Unusual Items
Charges and gains associated with unusual items are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Aerospace and Defense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecoverable portion of legal settlement
|
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
5 |
|
|
Gain on settlements and recoveries
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
Corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated loss on legal matter
|
|
|
29 |
|
|
|
— |
|
|
|
— |
|
|
Loss on redemption of
91/2% Notes
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
Loss on repayment of
53/4% Notes
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
Loss on termination of the Restated Credit Facility
|
|
|
5 |
|
|
|
9 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unusual items
|
|
$ |
37 |
|
|
$ |
9 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2005, we recorded a charge of $2 million related
to an estimated legal settlement of the San Gabriel Valley
and Chino Hills toxic tort cases. In addition, we recorded an
unusual gain of $12 million, $3 million of which
related to a settlement with its insurance providers and
$9 million of which related to an adjustment of reserves we
had established in fiscal 2001 for customer reimbursements of
tax recoveries that has been settled. We recorded a charge of
$29 million related to the Olin legal matter (see
additional discussion in Note 14 in Notes to Condensed
Consolidated Financial Statements). We recorded a charge of
$18 million as a result of the redemption of
$52 million of principal of the
91/2% Senior
Subordinated Notes
(91/2% Notes),
repayment of $60 million of principal of the
53/4% Convertible
Subordinated Notes
(53/4% Notes),
and the termination of the Restated Credit Facility.
In fiscal 2004, we incurred a $9 million charge as a result
of the repayment of $70 million of principal of the
53/4% Notes.
In fiscal 2003, we recorded an unusual charge of $5 million
representing the unrecoverable portion of an estimated legal
settlement with a local water company related to contaminated
wells.
Environmental Matters
Our policy is to conduct our businesses with due regard for the
preservation and protection of the environment. We devote a
significant amount of resources and management attention to
environmental matters and actively manage our ongoing processes
to comply with environmental laws and regulations. We are
involved in the remediation of environmental conditions that
resulted from generally accepted manufacturing and disposal
practices at certain plants in the 1950s and 1960s. In addition,
we have been designated a PRP with other companies at third
party sites undergoing investigation and remediation.
Estimating environmental remediation costs is difficult due to
the significant uncertainties inherent in these activities,
including the extent of the remediation required, changing
governmental regulations and legal standards regarding
liability, evolving technologies and the long periods of time
over which most remediation efforts take place. In accordance
with the American Institute of Certified Public
Accountants’ Statement of
Position 96-1
(SOP 96-1),
Environmental Remediation Liabilities and Staff
Accounting Bulletin No. 92 (SAB 92), Accounting and
Disclosure Relating to Loss Contingencies, we:
|
|
|
|
• |
accrue for costs associated with the remediation of
environmental pollution when it becomes probable that a
liability has been incurred and when our proportionate share of
the costs can be reasonably estimated. In some cases, only a
range of reasonably possible costs can be estimated. In
establishing |
38
|
|
|
|
|
our reserves, the most probable estimate is used when
determinable and the minimum estimate is used when no single
amount is more probable; and |
|
|
• |
record related estimated recoveries when such recoveries are
deemed probable. |
We continually review estimated future remediation costs that we
could incur, which take into consideration the investigative
work and analysis of our engineers and the advice of our legal
staff regarding the status and anticipated results of various
administrative and legal proceedings. In most cases only a range
of reasonably possible costs can be estimated. In establishing
our reserves, the most probable estimated amount is used when
determinable and the minimum is used when no single amount is
more probable. The timing of payment for estimated future
environmental costs is subject to variability and depends on the
timing of regulatory approvals for planned remedies and the
construction and completion of the remedies.
Quarterly, we complete a review of estimated future
environmental costs which incorporates, but is not limited to,
the following: (i) status of work completed since the last
estimate; (ii) expected cost savings related to the
substitution of new remediation technology and to information
not available previously; (iii) obligations for
reimbursement of regulatory agency service costs;
(iv) updated cost estimates; (v) costs of complying
with the Western Groundwater Administrative Order, including
replacement water and remediation upgrades; (vi) estimated
costs related to the Inactive Rancho Cordova Test Site
(IRCTS) and Aerojet’s Sacramento site; (vii) new
information related to the extent and location of previously
unidentified contamination; and (viii) additional
construction costs. Our review of estimated future remediation
costs resulted in additions to our environmental reserves of
$14 million in fiscal 2005, $25 million in fiscal 2004
and $12 million in fiscal 2003.
The effect of the final resolution of environmental matters and
our obligations for environmental remediation and compliance
cannot be accurately predicted due to the uncertainty concerning
both the amount and timing of future expenditures, and due to
regulatory or technological changes. We believe, that on the
basis of presently available information, the resolution of
environmental matters and our obligations for environmental
remediation and compliance will not have a material adverse
effect on our results of operations, liquidity or financial
condition. We will continue our efforts to mitigate past and
future costs through pursuit of claims for recoveries from
insurance coverage, where available, and other PRPs and
continued investigation of new and more cost effective
remediation alternatives and associated technologies.
A summary of our environmental reserve activity is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, | |
|
2003 | |
|
2003 | |
|
November 30, | |
|
2004 | |
|
2004 | |
|
November 30, | |
|
2005 | |
|
2005 | |
|
November 30, | |
|
|
2002 | |
|
Additions | |
|
Expenditures | |
|
2003 | |
|
Additions | |
|
Expenditures | |
|
2004 | |
|
Additions | |
|
Expenditures | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Aerojet
|
|
$ |
318 |
|
|
$ |
12 |
|
|
$ |
(32 |
) |
|
$ |
298 |
|
|
$ |
23 |
|
|
$ |
(34 |
) |
|
$ |
287 |
|
|
$ |
13 |
|
|
$ |
(44 |
) |
|
$ |
256 |
|
Other Sites
|
|
|
22 |
|
|
|
— |
|
|
|
(5 |
) |
|
|
17 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
17 |
|
|
|
1 |
|
|
|
(6 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental Reserve
|
|
$ |
340 |
|
|
$ |
12 |
|
|
$ |
(37 |
) |
|
$ |
315 |
|
|
$ |
25 |
|
|
$ |
(36 |
) |
|
$ |
304 |
|
|
$ |
14 |
|
|
$ |
(50 |
) |
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of November 30, 2005, the Aerojet reserves include
$151 million for the Sacramento site, $88 million for
Baldwin Park Operable Unit (BPOU), and $17 million for
other Aerojet sites.
On January 12, 1999, Aerojet and the U.S. government
implemented an Agreement in Principle (Global Settlement)
resolving certain prior environmental and facility
disagreements, with retroactive effect to December 1, 1998.
The Global Settlement covered all environmental contamination at
the Sacramento and Azusa sites. Under the Global Settlement,
Aerojet and the U.S. government resolved disagreements
about an appropriate cost-sharing ratio. The Global Settlement
provides that the cost-sharing ratio will continue for a number
of years.
39
Pursuant to the Global Settlement covering environmental costs
associated with Aerojet’s Sacramento site and its former
Azusa site, we can recover up to 88% of its environmental
remediation costs for these sites through the establishment of
prices for Aerojet’s products and services sold to the
U.S. government. Allowable environmental costs are charged
to these contracts as the costs are incurred. Aerojet’s mix
of contracts can affect the actual reimbursement made by the
U.S. government. Because these costs are recovered through
forward pricing arrangements, Aerojet’s ability to continue
recovering these costs depends on its sustained business volume
under U.S. government contracts and programs, and the
relative size of its commercial business.
In conjunction with the sale of EIS, Aerojet entered into an
agreement with Northrop Grumman Corporation (Northrop) whereby
Aerojet is reimbursed by Northrop for a portion of environmental
expenditures eligible for recovery under the Global Settlement.
Amounts reimbursed are subject to annual limitations, with
excess amounts carrying over to subsequent periods, the total of
which will not exceed $190 million over the term of the
agreement, which ends in 2028. As of November 30, 2005,
$148 million in potential future reimbursements were
available over the remaining life of the agreement.
As part of the acquisition of the propulsion business of ARC,
Aerojet entered into an agreement with ARC pursuant to which
Aerojet is responsible for up to $20 million of costs
(Pre-Close Environmental Costs) associated with environmental
issues that arose prior to Aerojet’s acquisition of the ARC
propulsion business. Pursuant to an agreement with the
U.S. government which was entered into prior to the closing
of the ARC acquisition, these Pre-Close Environmental Costs will
be treated as allowable costs and combined with Aerojet
environmental costs under the Global Settlement, and will be
recovered through the establishment of prices for Aerojet’s
products and services sold to the U.S. government. These
costs are allocable to all Aerojet operations (including the
previously excluded Redmond, Washington operations) beginning in
2005.
In conjunction with the ARC acquisition, Aerojet signed a
Memorandum of Understanding with the U.S. government
agreeing to key assumptions and conditions that will preserve
the original methodology to be used in recalculating the
percentage allocation between Aerojet and Northrop. Aerojet has
presented a proposal to the U.S. government based on the
Memorandum of Understanding and expects to complete an agreement
in the near term.
In conjunction with our review of environmental reserves
discussed above, quarterly we review our estimate of costs that
will be recovered under the Global Settlement based on business
expected to be conducted under contracts with the
U.S. government and our agencies in the future. In fiscal
2005, the increase to the reserve of $14 million resulted
in a corresponding increase to the receivable, resulting in a
net impact of $5 million in net loss. In fiscal 2004,
Aerojet increased its estimated recoveries by $38 million,
resulting in a net impact of $16 million of other income in
fiscal 2004 primarily as a result of our plan to sell the Fine
Chemicals business in fiscal 2004.
Liquidity and Capital Resources
Short-term liquidity requirements consist primarily of normal
recurring operating expenses; costs associated with legacy
business matters, including costs related to our retirement
benefit plans; capital expenditures and debt service
requirements. We expect to meet these requirements through
available cash and our revolving credit facility.
As of November 30, 2005, long-term liquidity requirements
consist primarily of obligations under our long-term debt
obligations. We expect to meet long-term liquidity requirements
through cash provided from operations, and if necessary, with
long-term secured and unsecured borrowings and other debt and
equity financing alternatives. The availability and terms of any
such financing will depend upon market and other conditions at
the time.
40
|
|
|
Net Cash Provided by (Used in) Operating, Investing, and
Financing Activities |
Cash and cash equivalents increased by $23 million during
the year ended November 30, 2005. The change in cash and
cash equivalents is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Net Cash Provided by (Used in) Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
(82 |
) |
|
$ |
5 |
|
|
$ |
(12 |
) |
|
Discontinued operations
|
|
|
(2 |
) |
|
|
(35 |
) |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(84 |
) |
|
|
(30 |
) |
|
|
44 |
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
289 |
|
|
|
(78 |
) |
|
|
(149 |
) |
|
Discontinued operations
|
|
|
(38 |
) |
|
|
(41 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
251 |
|
|
|
(119 |
) |
|
|
(180 |
) |
Net Cash Provided by (Used in) Financing Activities
|
|
|
(144 |
) |
|
|
157 |
|
|
|
144 |
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
— |
|
|
|
(4 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
$ |
23 |
|
|
$ |
4 |
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities |
Fiscal 2005 versus 2004 — Continuing operations
used cash of $82 million in fiscal 2005 compared to
generating cash of $5 million in fiscal 2004. The year over
year change consists of: (i) timing of payables and
receivables and working capital increases reflecting sales
growth in our Aerospace and Defense segment; (ii) no real
estate asset sales in fiscal 2005 versus collection of a
$20 million note receivable and real estate sales in fiscal
2004; (iii) a payment in fiscal 2005 of $30 million
for the Olin judgment; partially offset by lower interest and
corporate costs.
Fiscal 2004 versus 2003 — Continuing operations
generated cash of $5 million in fiscal 2004 compared to
cash usage of $12 million in fiscal 2003. The year over
year change consists of: (i) improved Aerospace and Defense
segment performance before the non-cash impact of retirement
benefit plans, including cash flow from the ARC business
acquired in October 2003, partially offset by working capital
requirements for certain programs including Atlas V;
(ii) real estate asset sales in fiscal 2004 and collection
of a $20 million note receivable; partially offset by
increased interest costs as a result of higher debt levels and
increased corporate expenses.
Discontinued operations used cash of $2 million in fiscal
2005 as compared to $35 million in fiscal 2004, and
generated cash of $56 million in fiscal 2003.
|
|
|
Net Cash Provided by (Used In) Investing Activities |
Restricted Cash — As of November 30, 2004,
we designated $201 million as restricted cash, consisting
of a portion of the proceeds from the GDX Automotive sale and
the proceeds from the Equity Offering completed in fiscal 2004.
This restricted cash was used to repay debt in early fiscal 2005.
Fiscal 2005 — Continuing operations provided
cash of $289 million consisting of $108 million of
proceeds from sale of the Fine Chemicals business,
$201 million of restricted cash; offset by $20 million
in capital
41
expenditures. The proceeds of $108 million from the sale of
the Fine Chemicals business consist of the $88 million of
cash upon closing and $20 million for reimbursement for
capital expenditures and working capital, which is subject to
adjustment.
Fiscal 2004 — Continuing operations used cash
of $78 million consisting of $140 million of proceeds
from sale of GDX business, $4 million of proceeds from the
sale of certain assets acquired with the ARC acquisition; offset
by $201 million designated as restricted cash as of fiscal
year end 2004, and $21 million in capital expenditures.
Fiscal 2003 — Continuing operations used cash
of $149 million consisting of $138 million paid for
the ARC acquisition and $11 million in capital expenditures.
Discontinued operations used cash of $38 million in fiscal
2005 for capital expenditures in the Fine Chemicals business, of
which $17 million was reimbursed pursuant to the amended
Fine Chemicals purchase agreement. Cash of $41 million and
$31 million in fiscal 2004 and fiscal 2003, respectively,
was used for capital expenditures in both the GDX and Fine
Chemicals businesses.
|
|
|
Net Cash Provided by (Used in) Financing Activities |
Fiscal 2005 — Cash of $144 million was
used primarily reflecting the completion of our recapitalization
initiated in November 2004. We redeemed $265 million of
outstanding debt including redemption costs, offset by
$66 million from the issuance of our additional
21/4% Debentures
and $56 million from the issuance of Term Loans under our
New Credit Facility. In addition, we incurred $6 million in
debt issuance costs and received $5 million in other equity
transactions.
Fiscal 2004 — Cash of $157 million was
generated reflecting the recapitalization completed in fiscal
2005, and other borrowings and debt repayments. We generated net
cash proceeds of $131 million from the issuance of
8.6 million shares of common stock for $16 per share
(Equity Offering), and $80 million from the issuance of our
21/4% Debentures
with net proceeds used to repurchase $79 million of the
outstanding
53/4% Notes
including redemption costs. We also issued $125 million of
4% Convertible Subordinated Notes (4% Notes) and had
net debt repayments of $96 million. We paid $9 million
in debt issuance costs, received $8 million in other equity
transactions, and paid $3 million in dividends on our
common stock.
Fiscal 2003 — Cash of $144 million was
generated. We issued $150 million of
91/2% Senior
Subordinated Notes
(91/2% Notes),
generating net proceeds of $145 million used to finance, in
part, the ARC acquisition. We also paid $2 million in net
repayments of debt, received $6 million in other equity
transactions, and paid $5 million in dividends on our
common stock.
Our Board of Directors eliminated the payment of quarterly
dividends effective the third quarter of fiscal 2004. Beginning
in December 2004, the senior credit facility restricted the
payment of dividends.
42
|
|
|
Borrowing Activity, Debt and Credit Facility: |
Our borrowing activity in fiscal 2005 and our debt balances as
of November 30, 2004 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, | |
|
|
|
|
|
November 30, | |
|
|
2004 | |
|
Additions | |
|
(Payments) | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
53/4% Convertible
Subordinated Notes
|
|
$ |
80 |
|
|
$ |
— |
|
|
$ |
(60 |
) |
|
$ |
20 |
|
4% Contingent Convertible Subordinated Notes
|
|
|
125 |
|
|
|
— |
|
|
|
— |
|
|
|
125 |
|
21/4% Convertible
Subordinated Debentures
|
|
|
80 |
|
|
|
66 |
|
|
|
— |
|
|
|
146 |
|
91/2% Senior
Subordinated Notes
|
|
|
150 |
|
|
|
— |
|
|
|
(52 |
) |
|
|
98 |
|
Term Loans
|
|
|
141 |
|
|
|
56 |
|
|
|
(142 |
) |
|
|
55 |
|
Other
|
|
|
1 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt and Borrowing Activity
|
|
$ |
577 |
|
|
$ |
122 |
|
|
$ |
(255 |
) |
|
$ |
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The outstanding debt as of November 30, 2005 had effective
interest rates ranging from 2.25% to 9.50%, with maturities as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term | |
|
91/2% | |
|
53/4% | |
|
4% | |
|
21/4% | |
|
|
|
|
Loans | |
|
Notes | |
|
Notes | |
|
Notes | |
|
Debenture | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
2006
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1 |
|
2007
|
|
|
1 |
|
|
|
— |
|
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
2008
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
2009
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
2010
|
|
|
51 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51 |
|
Thereafter
|
|
|
— |
|
|
|
98 |
|
|
|
— |
|
|
|
125 |
|
|
|
146 |
|
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
$ |
55 |
|
|
$ |
98 |
|
|
$ |
20 |
|
|
$ |
125 |
|
|
$ |
146 |
|
|
$ |
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The New Credit Facility provides for an $80 million
revolving credit facility (Revolver) maturing in December 2009,
and a credit-linked facility maturing in December 2010, subject
to early maturity in January 2007 if the
53/4% Notes
remain outstanding or have not been cash collateralized by then.
As of November 30, 2005, the credit-linked facility
consisted of a $55 million term loan subfacility, and a
$44 million letter of credit subfacility. Interest rates
are based on LIBOR borrowings or Alternate Base Rate borrowings,
as defined in the Credit Agreement. The interest rate on the
Revolver is LIBOR plus 225 basis points, or Alternate Base
Rate plus 125 basis points, subject to adjustment based on
our senior leverage ratio to a maximum of LIBOR plus
300 basis points, or Alternate Base Rate plus
200 basis points. The interest rate on the term loan for
fiscal 2006 has been amended to LIBOR plus 325 basis
points, or Alternate Base Rate plus 225 basis points,
subject to a 50 basis point increase in the event that our
senior secured debt ratings are lowered to certain levels. The
fees on the letter of credit subfacility for 2006 have also been
amended to 325 basis points plus any shortfall from LIBOR
earned on the credit-linked deposits. The Revolver commitment
fee is .5% per annum on the unused balance of the Revolver.
As of November 30, 2005, the borrowing limit under the
Revolver was $80 million of which we had zero outstanding
borrowings. We had $55 million outstanding on the term loan
and $27 million outstanding letters of credit as of
November 30, 2005.
The New Credit Facility is secured by substantially all of our
assets, including the stock and assets of our material domestic
subsidiaries that are guarantors of this facility. We are
subject to certain limitations including the ability to: incur
additional debt or sell assets, with restrictions on the use of
proceeds; make
43
certain investments and acquisitions; grant liens; and make
restricted payments. We are also subject to financial covenants,
as amended and are as follows:
|
|
|
|
|
|
|
|
|
|
|
Actual Ratios | |
|
Required Covenants Through |
|
Required Covenants Dec. 1, 2005 |
Financial Covenant |
|
November 30, 2005 | |
|
November 30, 2005 |
|
Through Nov. 30, 2006 |
|
|
| |
|
|
|
|
Interest coverage ratio
|
|
|
2.68 to 1.00 |
|
|
Not less than: 2.00 to 1.00 |
|
Not less than: 2.00 to 1.00 |
Fixed charge coverage ratio
|
|
|
2.12 to 1.00 |
|
|
Not less than: 1.10 to 1.00 |
|
Not less than: 1.15 to 1.00 |
Leverage ratio
|
|
|
5.39 to 1.00 |
|
|
Not greater than: 7.50 to 1.00 |
|
Not greater than: 8.00 to 1.00 |
Senior leverage ratio
|
|
|
0.00 to 1.00 |
|
|
Not greater than: 2.50 to 1.00 |
|
Not greater than: 2.50 to 1.00 |
We were in compliance with our financial covenants as of
November 30, 2005. In January 2006, we entered into an
Amendment to increase the maximum leverage covenant to 8.00 to
1.00 for fiscal 2006 and increase the interest rate on the
credit-linked facility as discussed above. In August 2005, we
entered into an Amendment and Waiver to the Credit Agreement,
which permitted us to provide seller financing in connection
with the sale of the Fine Chemicals business and waived
compliance with the Fixed Charge Coverage Ratio covenant for the
period calculated as of August 31, 2005 due to the
non-recurring investment for the Fine Chemicals business.
Pursuant to the indenture for our
91/2% Notes,
if the net cash proceeds from sale of the Fine Chemicals
business are not used to repay debt senior to the
91/2% Notes
or reinvested in our business on or before November 30,
2006, we will be required to make an offer to purchase an
aggregate principal amount of the
91/2% Notes
equal to the amount of such unused net sale proceeds at par plus
accrued and unpaid interest in the first quarter of fiscal 2007.
In June 2002, we filed a $300 million shelf registration
statement with the Securities and Exchange Commission of which
$162 million remains available for issuance. We may use the
shelf to issue debt securities, shares of common stock, or
preferred stock
As disclosed in Notes 14(b) and 14(c) in Notes to
Consolidated Financial Statements, we have exposure for certain
legal matters. We believe that it is currently not possible to
estimate the impact, if any, that the ultimate resolution of
certain of these matters will have on our financial position or
cash flows.
We believe that our existing cash and cash equivalents, existing
credit facilities and forecasted operating cash flows will
provide sufficient funds to meet our operating plan for the next
twelve months. The operating plan for this period provides for
full operation of our businesses, interest and principal
payments on our debt. We estimate $10 million to
$14 million will be paid by us in fiscal 2006 related to
Fine Chemicals business purchase price adjustments, including
working capital and transaction costs. We may also access
capital markets to raise debt or equity financing to fund
required debt payments and for acquisitions that make both
strategic and economic sense. The timing, terms, size and
pricing of any such financing will depend on investor interest
and market conditions, and there can be no assurance that we
will be able to obtain any such financing.
Major factors that could adversely impact our forecasted
operating cash and our financial condition are described in the
“Risk Factors.” In addition, our liquidity and
financial condition will continue to be affected by changes in
prevailing interest rates on the portion of debt that bears
interest at variable interest rates.
|
|
|
Critical Accounting Policies |
Our financial statements are prepared in accordance with
accounting principles generally accepted in the United States
that offers acceptable alternative methods for accounting for
certain items affecting our financial results, such as
determining inventory cost, depreciating long-lived assets and
recognizing revenues.
The preparation of financial statements requires the use of
estimates, assumptions, judgments and interpretations that can
affect the reported amounts of assets, liabilities, revenues and
expenses, the disclosure of contingent assets and liabilities
and other supplemental disclosures. The development of
accounting estimates is the responsibility of our management.
Management discusses those areas that require significant
judgments with the audit committee of our board of directors.
The audit committee has reviewed all financial disclosures in
our filings with the SEC. Although we believe that the positions
we have taken with regard to uncertainties are reasonable,
44
others might reach different conclusions and our positions can
change over time as more information becomes available. If an
accounting estimate changes, its effects are accounted for
prospectively.
The areas most affected by our accounting policies and estimates
are revenue recognition for long-term contracts, goodwill and
other long-lived assets, retirement benefit plan obligations,
litigation, environmental remediation costs and recoveries, and
income taxes. Except for income taxes, which are not allocated
to our operating segments, these areas affect the financial
results of our business segment.
For a discussion of all of our accounting policies, including
the accounting policies discussed below, see Note 1 in
Notes to Consolidated Financial Statements.
|
|
|
Revenue Recognition/ Long-Term Contracts |
In our Aerospace and Defense segment, recognition of profit on
long-term contracts requires the use of assumptions and
estimates related to the contract value or total contract
revenue, the total cost at completion and the measurement of
progress towards completion. Due to the nature of the programs,
developing the estimated total cost at completion requires the
use of significant judgment. Estimates are continually evaluated
as work progresses and are revised as necessary. Factors that
must be considered in estimating the work to be completed
include labor productivity, the nature and technical complexity
of the work to be performed, availability and cost volatility of
materials, subcontractor and vendor performance, warranty costs,
volume assumptions, anticipated labor agreements and
inflationary trends, schedule and performance delays,
availability of funding from the customer, and the
recoverability of costs incurred outside the original contract
included in any estimates to complete. Aerojet reviews contract
performance and cost estimates for some contracts at least
monthly and for others at least quarterly and more frequently
when circumstances significantly change. When a change in
estimate is determined to have an impact on contract earnings,
Aerojet records a positive or negative adjustment to earnings
when identified. Changes in estimates and assumptions related to
the status of certain long-term contracts may have a material
effect on the amounts reported for net sales and segment
performance.
Our aerospace and defense business is derived substantially from
contracts that are accounted for in conformity with the American
Institute of Certified Public Accountants (AICPA) audit and
accounting guide, Audits of Federal Government Contracts
and the AICPA’s Statement of Position
No. 81-1
(SOP 81-1),
Accounting for Performance of Construction-Type and Certain
Production Type Contracts. We consider the nature of the
individual underlying contract and the type of products and
services provided in determining the proper accounting for a
particular contract. Each method is applied consistently to all
contracts having similar characteristics, as described below. We
typically account for these contracts using the
percentage-of-completion
method, and progress is measured on a
cost-to-cost or
units-of-delivery
basis. Sales are recognized using various measures of progress,
as allowed by
SOP 81-1,
depending on the contractual terms and scope of work of the
contract. We recognize revenue on a
units-of-delivery basis
when contracts require unit deliveries on a frequent and routine
basis. Sales using this measure of progress are recognized at
the contractually agreed upon unit price. Where the scope of
work on contracts principally relates to research and/or
development efforts, or the contract is predominantly a
development effort with few deliverable units, we recognize
revenue on a
cost-to-cost basis. In
this case, sales are recognized as costs are incurred and
include estimated earned fees or profits calculated on the basis
of the relationship between costs incurred and total estimated
costs at completion. Revenue on service or time and material
contracts is recognized when performed. If at any time expected
costs exceed the value of the contract, the loss is recognized
immediately.
Certain government contracts contain cost or performance
incentive provisions that provide for increased or decreased
fees or profits based upon actual performance against
established targets or other criteria. Aerojet continually
evaluates its performance and incorporates any anticipated
penalties and cost incentives into its revenue and earnings
calculations. Performance incentives, which increase or decrease
earnings based solely on a single significant event, generally
are not recognized until an event occurs.
Revenue from real estate asset sales is recognized when a
sufficient down-payment has been received, financing has been
arranged and title, possession and other attributes of ownership
have been transferred to the buyer.
45
Revenue that is not derived from long-term development and
production contracts, or real estate asset transactions, is
recognized when persuasive evidence of a final agreement exists,
delivery has occurred, the selling price is fixed or
determinable and payment from the customer is reasonably
assured. Sales are recorded net of provisions for customer
pricing allowances.
We test goodwill for possible impairment on an annual basis and
at any other time if events occur or circumstances indicate that
the carrying amount of goodwill may not be recoverable.
Circumstances that could trigger an impairment test include but
are not limited to: a significant adverse change in the business
climate or legal factors; an adverse action or assessment by a
regulator; unanticipated competition; loss of key personnel; the
likelihood that a reporting unit or significant portion of a
reporting unit will be sold or otherwise disposed; results of
testing for recoverability of a significant asset group within a
reporting unit; and recognition of a goodwill impairment loss in
the financial statements of a subsidiary that is a component of
a reporting unit.
The determination as to whether a write down of goodwill is
necessary involves significant judgment based on the short-term
and long-term projections of the future performance of the
reporting unit to which the goodwill is attributed. The
assumptions supporting the estimated future cash flows of the
reporting unit, including the discount rate used and estimated
terminal value reflect our best estimates.
Retirement Benefit Plans include defined benefit pension plans
and postretirement benefit plans (medical and life benefits).
Retirement benefits are a significant cost of doing business and
represent obligations that will be ultimately settled far in the
future and therefore are subject to estimates. Our pension and
medical and life benefit obligations and related costs are
calculated using actuarial concepts in accordance with Statement
of Financial Accounting Standards No. 87 (SFAS 87),
Employer’s Accounting for Pensions, and Statement of
Financial Accounting Standards No. 106 (SFAS 106),
Employer’s Accounting for Postretirement Benefits Other
Than Pensions, respectively. Pension accounting is intended
to reflect the recognition of future benefit costs over the
employee’s approximate service period based on the terms of
the plans and the investment and funding decisions made by us.
We are required to make assumptions regarding such variables as
the expected long-term rate of return on assets and the discount
rate applied to determine service cost and interest cost to
arrive at pension income or expense for the year.
The discount rate represents the current market interest rate to
determine the present value of future cash flows currently
expected to be required to settle pension obligations. The
discount rate is determined at the annual measurement date of
August 31 for our pension plans, and is subject to change
each year based on changes in the overall market interest rates.
The assumed rate reflects the market yield for high-quality
fixed income debt instruments on the measurement date with
maturities matched to the expected future cash flows of benefit
obligations. The discount rate used to determine benefit
obligations for both continuing and discontinued operations
decreased to 5.50% for fiscal 2005 from 6.25% for fiscal 2004.
This 75 basis point decline in the discount rate resulted
in an increase in the present value of pension benefit
obligations as of November 30, 2005 and is a component of
pension expense for fiscal 2006.
The expected long-term rate of return on plan assets represents
the rate of earnings expected in the funds invested to provide
for anticipated benefit payments. The expected long-term rate of
return on plan assets is also determined at the annual
measurement date of August 31 for our pension plans. The
expected long-term rate of return used to determine benefit
obligations was 8.75% for both fiscal 2005 and fiscal 2004. With
input from our investment advisors and actuaries, we have
analyzed the expected rates of return on assets and determined
that these rates are reasonable based on the current and
expected asset allocations and on the plans’ historical
investment performance and best estimates for future investment
performance. Our asset managers regularly review actual asset
allocations and periodically rebalance investments to targeted
allocations when considered appropriate. At November 30,
2005, the actual asset allocation was consistent with the asset
allocation assumptions used in determining the expected
long-term rate of return. Management
46
will continue to assess the expected long-term rate of return on
assets for each plan based on relevant market conditions and
will make adjustments to the assumptions as appropriate.
Market conditions and interest rates significantly affect assets
and liabilities of our pension plans. Pension accounting
requires that market gains and losses be deferred and recognized
over a period of years. This “smoothing” results in
the creation of assets or liabilities which will be amortized to
pension costs in future years. The accounting method we utilize
recognizes one-fifth of the unamortized gains and losses in the
market-related value of pension assets and all other gains and
losses including changes in the discount rate used to calculate
benefit costs each year. Investment gains or losses for this
purpose are the difference between the expected return and the
actual return on the market-related value of assets which
smoothes asset values over three years. Although the smoothing
period mitigates some volatility in the calculation of annual
pension costs, future pension costs are impacted by changes in
the market value of pension plan assets and changes in interest
rates.
In addition, we maintain postretirement benefit plans (medical
and life benefits) other than pensions that are not funded. A
one percentage point increase in the assumed trend rate for
healthcare costs would have increased the medical and life
accumulated benefit obligation recorded as of November 30,
2005 by $2 million and the effect on the service and
interest cost components of expense for fiscal 2005 would not
have been significant. A one percentage point decrease in the
assumed trend rate for healthcare costs would have decreased the
medical and life accumulated benefit obligation recorded as of
November 30, 2005 by $2 million and the effect on the
service and interest cost components of expense for fiscal 2005
would not have been significant.
|
|
|
Contingencies and Litigation |
We are currently involved in certain legal proceedings and, as
required, have accrued our estimate of the probable costs for
resolution of these claims. These estimates are based upon an
analysis of potential results, assuming a combination of
litigation and settlement strategies. It is possible, however,
that future results of operations for any particular quarterly
or annual period could be materially affected by changes in
assumptions or the effectiveness of strategies related to these
proceedings. See Note 14 in Notes to Consolidated Financial
Statements for more detailed information on litigation exposure.
|
|
|
Reserves for Environmental Remediation and Recoverable
from the U.S. Government and Other Third Parties for
Environmental Remediation Costs |
For a discussion of our accounting for environmental remediation
obligations and costs and related legal matters, see
“Environmental Matters” above and Note 14 in
Notes to Consolidated Financial Statements.
We accrue for costs associated with the remediation of
environmental pollution when it becomes probable that a
liability has been incurred, and when its proportionate share of
the costs can be reasonably estimated. Management has a
well-established process in place to identify and monitor our
environmental exposures. In most cases only a range of
reasonably possible costs can be estimated. In establishing the
reserves, the most probable estimated amount is used when
determinable, and the minimum amount is used when no single
amount in the range is more probable. Environmental reserves
include the costs of completing remedial investigation and
feasibility studies, remedial and corrective actions, regulatory
oversight costs, the cost of operation and maintenance of the
remedial action plan, and employee compensation costs for
employees who are expected to devote a significant amount of
time to remediation efforts. Measurement of environmental
reserves is based on the evaluation of currently available
information with respect to each individual environmental site
and considers factors such as existing technology, presently
enacted laws and regulations, and prior experience in
remediation of contaminated sites. Such estimates are based on
the expected costs of investigation and remediation and the
likelihood that other potentially responsible parties will be
able to fulfill their commitments at sites where we may be
jointly or severally liable.
As of November 30, 2005, we had accrued environmental
remediation liabilities of $268 million. Environmental
remediation cost estimation involves significant uncertainties,
including the extent of the remediation required, changing
governmental regulations and legal standards regarding
liability, evolving
47
technologies and the long periods of time over which most
remediation efforts take place. A number of factors could
substantially change environmental remediation cost estimates,
examples of which include: regulatory changes reducing the
allowable levels of contaminants such as perchlorate,
nitrosodimethylamine or others; enhanced monitoring and testing
technology or protocols which could result in the discovery of
previously undetected contaminants; and the implementation of
new remediation technologies which could reduce future
remediation costs.
On January 12, 1999, Aerojet and the U.S. government
implemented the October 1997 Agreement in Principle resolving
certain prior environmental and facility disagreements, with
retroactive effect to December 1, 1998. The Global
Settlement covered all environmental contamination at the
Sacramento and Azusa sites. Under the Global Settlement, Aerojet
and the U.S. government resolved disagreements about an
appropriate cost-sharing ratio. The Global Settlement provides
that the cost-sharing ratio will continue for a number of years.
Pursuant to the Global Settlement covering environmental costs
associated with Aerojet’s Sacramento site and its former
Azusa site, Aerojet can recover up to 88% of its environmental
remediation costs for these sites through the establishment of
prices for Aerojet’s products and services sold to the
U.S. government. Allowable environmental costs are charged
to these contracts as the costs are incurred. Aerojet’s mix
of contracts can affect the actual reimbursement made by the
U.S. government. Because these costs are recovered through
forward-pricing arrangements, the ability to continue recovering
these costs depends on Aerojet’s sustained business volume
under U.S. government contracts and programs and the
relative size of Aerojet’s commercial business.
Based on Aerojet’s projected business volume and the
proportion of its business expected to be covered by the Global
Settlement, Aerojet currently believes that, as of
November 30, 2005, approximately $196 million of its
estimated future environmental costs will be recoverable.
Significant estimates and assumptions that could affect the
future recovery of environmental remediation costs include: the
proportion of Aerojet’s future business base and total
business volume which will be subject to the Global Settlement;
limitations on the amount of recoveries available under the
Northrop agreement; the ability of Aerojet to competitively bid
and win future contracts if estimated environmental costs
significantly increase; the relative size of Aerojet’s
commercial business base; the timing of environmental
expenditures; and uncertainties inherent in long-term cost
projections of environmental remediation projects.
We file a consolidated U.S. income tax return for ourselves
and our wholly-owned consolidated subsidiaries. We account for
income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting
for Income Taxes. The deferred tax assets and/or liabilities
are determined by multiplying the differences between the
financial reporting and tax reporting bases for assets and
liabilities by the enacted tax rates expected to be in effect
when such differences are recovered or settled. The effect on
deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date of the change.
The carrying value of our deferred tax assets is dependent upon
our ability to generate sufficient future taxable income. We
have established a full valuation allowance against our net
deferred tax assets for continuing operations to reflect the
uncertainty of realizing the deferred tax benefits, given
historical losses. A valuation allowance is required when it is
more likely than not that all or a portion of a deferred tax
asset will not be realized. A review of all available positive
and negative evidence is considered, including our past and
future performance, the market environment in which we operate,
the utilization of tax attributes in the past, and the length of
carryback and carryforward periods and evaluation of potential
tax planning strategies. We expect to continue to maintain a
full valuation allowance until an appropriate level of
profitability is sustained or a prudent and feasible tax
strategy arises that would enable us to conclude that it is more
likely than not that a portion of our deferred tax assets would
be realizable.
Income taxes can be affected by estimates of whether, and within
which jurisdictions, future earnings will occur combined with
other aspects of an overall income tax strategy. Additionally,
taxing jurisdictions could
48
retroactively disagree with our tax treatment of certain items,
and some historical transactions have income tax effects going
forward. Accounting rules require these future effects be
evaluated using current laws, rules and regulations, each of
which can change at any time and in an unpredictable manner. We
establish tax reserves when, despite our belief that our tax
return positions are fully supportable, we believe that certain
positions are likely to be challenged and that we may not
succeed. We adjust these reserves in light of changing facts and
circumstances, such as the progress of a tax audit. We believe
we have adequately provided for any reasonably foreseeable
outcome related to these matters, and we do not anticipate any
material earnings impact from their ultimate resolutions.
Financing Obligations and Other Commitments
Our financing obligations and other commitments include
primarily outstanding notes, senior credit facilities and
operating leases. The following table summarizes these
obligations as of November 30, 2005 and their expected
effect on our liquidity and cash flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Payment Dates | |
|
|
|
|
For the Years Ended November 30, | |
|
|
|
|
| |
|
|
Total | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Financing Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
444 |
|
|
$ |
1 |
|
|
$ |
21 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
51 |
|
|
$ |
369 |
|
Operating leases
|
|
|
21 |
|
|
|
6 |
|
|
|
5 |
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
465 |
|
|
$ |
7 |
|
|
$ |
26 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
52 |
|
|
$ |
374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We also issue purchase orders and make other commitments to
suppliers for equipment, materials and supplies in the normal
course of business. These purchase commitments are generally for
volumes consistent with anticipated requirements to fulfill
purchase orders or contracts for product deliveries received, or
expected to be received, from customers.
Arrangements with Off-Balance Sheet Risk
As of November 30, 2005, obligations required to be
disclosed in accordance with FASB Interpretation No. 45
(FIN 45), Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
the Indebtedness of Others consisted of:
|
|
|
— $27 million in outstanding commercial letters
of credit expiring in 2006 and securing obligations for
environmental remediation and insurance coverage. |
|
|
— Up to $120 million aggregate in guarantees by
GenCorp of Aerojet’s obligations to government agencies for
environmental remediation activities. |
|
|
— Guarantees, jointly and severally, by the
Company’s material domestic subsidiaries of its obligations
under its senior credit facilities and its
91/2% Notes. |
In addition, to the items discussed above, we will from time to
time enter into certain types of contracts that require us to
indemnify parties against potential third-party and other
claims. These contracts primarily relate to:
(i) divestiture agreements, under which we may provide
customary indemnifications to purchasers of our businesses or
assets including, for example, claims arising from the operation
of the businesses prior to disposition, liability to investigate
and remediate environmental contamination existing prior to
disposition; (ii) certain real estate leases, under which
we may be required to indemnify property owners for other claims
arising from the use of the applicable premises; and,
(iii) certain agreements with officers and directors, under
which we may be required to indemnify such persons for
liabilities arising out of their employment relationship.
The terms of such obligations vary. Generally, a maximum
obligation is not explicitly stated. Because the obligated
amounts of these types of agreements often are not explicitly
stated, the overall maximum amount of the obligations cannot be
reasonably estimated. Historically, we have not been obligated
to make significant
49
payments for these obligations, and no liabilities have been
recorded for these obligations on our balance sheet as of
November 30, 2005 or 2004.
Recently Issued Accounting Standards
In December 2004, the FASB issued Statement 123(R),
Share-Based Payment, which requires all companies to
measure compensation cost for all share-based payments
(including employee stock options) at fair value. In April 2005,
the SEC issued a release which amends the compliance dates for
Statement 123(R). We will now be required to adopt the new
accounting provisions beginning in the first quarter of fiscal
2006. We could adopt the new standard in one of two
ways — the modified prospective transition method or
using the modified retrospective transition method. The adoption
of the Statement 123(R) will not have a significant effect
on our earnings or financial position. Stock option expense
after the adoption of SFAS No. 123(R) is not expected
to be materially different than the table in Note 2 of
Notes to Consolidated Financial Statements and is dependent on
levels of share-based payments granted in the future.
In March 2005, the FASB issued Interpretation 47(FIN 47),
Accounting for Conditional Asset Retirement Obligations,
an interpretation of FASB Statement 143, Accounting for
Asset Retirement Obligations. FIN 47 requires an entity
to recognize a liability for the fair value of a conditional
asset retirement obligation when incurred if the
liability’s fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after
December 15, 2005. We are currently evaluating the effect
that the adoption of FIN 47 will have on our financial
position and results of operations.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk |
Policies and Procedures
As an element of our normal business practice, we have
established policies and procedures for managing our exposure to
changes in interest rates.
The objective in managing exposure to interest rate changes is
to limit the impact of interest rate changes on earnings and
cash flow and to make overall borrowing costs more predictable.
To achieve this objective, we may use interest rate hedge
transactions (Swaps) or other interest rate hedge instruments to
manage the net exposure to interest rate changes related to our
portfolio of borrowings and to balance our fixed rate compared
to floating rate debt.
Interest Rate Risk
We are exposed to market risk principally due to changes in
domestic interest rates. Debt with interest rate risk includes
borrowings under our senior credit facilities. Other than
pension assets and our postretirement benefit liabilities, we do
not have any other significant exposure to interest rate risk.
We have used a combination of fixed and variable rate debt to
reduce our exposure to interest rate risk. As of
November 30, 2005, our debt totaled $444 million:
$389 million, or 88% was at an average fixed rate of 4.81%;
and $55 million or 12% was at a variable rate of 7.41%.
The estimated fair value of our total debt was $497 million
as of November 30, 2005 compared to a carrying value of
$444 million. The fair value of the convertible
subordinated notes and the senior subordinated notes was
determined based on quoted market prices as of November 30,
2005. The fair value of the remaining debt was determined to
approximate carrying value as the interest rates are generally
variable based on market interest rates and reflect current
market rates available to us.
50
|
|
Item 8. |
Consolidated Financial Statements and Supplementary
Data |
Report of Independent
Registered Public Accounting Firm
The Board of Directors and Shareholders of GenCorp Inc.
We have audited the accompanying consolidated balance sheets of
GenCorp Inc. as of November 30, 2005 and 2004, and the
related consolidated statements of operations,
shareholders’ (deficit) equity, and cash flows for
each of the three years in the period ended November 30,
2005. Our audits also included the financial statement schedule
at Item 15(a). These financial statements and schedule are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of GenCorp Inc. at November 30, 2005 and
2004, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
November 30, 2005, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of GenCorp’s internal control over financial
reporting as of November 30, 2005, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 7, 2006 expressed
an unqualified opinion on management’s assessment of the
effectiveness of internal control over financial reporting and
an adverse opinion on the effectiveness of internal control over
financial reporting.
Sacramento, California
February 7, 2006
51
GENCORP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions, except per share | |
|
|
amounts) | |
Net sales
|
|
$ |
624 |
|
|
$ |
499 |
|
|
$ |
348 |
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
739 |
|
|
|
447 |
|
|
|
260 |
|
Selling, general and administrative
|
|
|
30 |
|
|
|
49 |
|
|
|
31 |
|
Depreciation and amortization
|
|
|
28 |
|
|
|
31 |
|
|
|
28 |
|
Interest expense
|
|
|
24 |
|
|
|
35 |
|
|
|
22 |
|
Other (income) expense, net
|
|
|
1 |
|
|
|
(15 |
) |
|
|
(9 |
) |
Unusual items
|
|
|
37 |
|
|
|
9 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
859 |
|
|
|
556 |
|
|
|
337 |
|
Income (loss) from continuing operations before income taxes
|
|
|
(235 |
) |
|
|
(57 |
) |
|
|
11 |
|
Income tax (benefit) provision
|
|
|
(29 |
) |
|
|
29 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(206 |
) |
|
|
(86 |
) |
|
|
12 |
|
Income (loss) from discontinued operations, net of tax
|
|
|
(24 |
) |
|
|
(312 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(230 |
) |
|
$ |
(398 |
) |
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share from continuing operations
|
|
$ |
(3.78 |
) |
|
$ |
(1.91 |
) |
|
$ |
0.26 |
|
Income (loss) per share from discontinued operations
|
|
|
(0.43 |
) |
|
|
(6.91 |
) |
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$ |
(4.21 |
) |
|
$ |
(8.82 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
54.6 |
|
|
|
45.1 |
|
|
|
43.3 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding, assuming
dilution
|
|
|
54.6 |
|
|
|
45.1 |
|
|
|
43.4 |
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share of common stock
|
|
$ |
— |
|
|
$ |
0.06 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
52
GENCORP INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
As of November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions, except | |
|
|
per share amounts) | |
ASSETS |
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
91 |
|
|
$ |
68 |
|
Restricted cash
|
|
|
— |
|
|
|
23 |
|
Accounts receivable, net
|
|
|
82 |
|
|
|
82 |
|
Inventories
|
|
|
57 |
|
|
|
159 |
|
Recoverable from the U.S. government and other third
parties for environmental remediation costs
|
|
|
25 |
|
|
|
36 |
|
Prepaid expenses and other
|
|
|
26 |
|
|
|
12 |
|
Assets of discontinued operations
|
|
|
— |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
281 |
|
|
|
474 |
|
Noncurrent Assets
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
— |
|
|
|
178 |
|
Property, plant and equipment, net
|
|
|
140 |
|
|
|
145 |
|
Recoverable from the U.S. government and other third
parties for environmental remediation costs
|
|
|
171 |
|
|
|
197 |
|
Prepaid pension asset
|
|
|
233 |
|
|
|
278 |
|
Goodwill
|
|
|
102 |
|
|
|
103 |
|
Intangible assets
|
|
|
27 |
|
|
|
28 |
|
Other noncurrent assets
|
|
|
103 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
Total Noncurrent Assets
|
|
|
776 |
|
|
|
1,021 |
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
1,057 |
|
|
$ |
1,495 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt
|
|
$ |
1 |
|
|
$ |
23 |
|
Accounts payable
|
|
|
57 |
|
|
|
55 |
|
Reserves for environmental remediation
|
|
|
52 |
|
|
|
51 |
|
Income taxes payable
|
|
|
6 |
|
|
|
35 |
|
Postretirement medical and life benefits
|
|
|
12 |
|
|
|
15 |
|
Other current liabilities
|
|
|
142 |
|
|
|
141 |
|
Liabilities of discontinued operations
|
|
|
2 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
272 |
|
|
|
338 |
|
Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
Convertible subordinated notes
|
|
|
291 |
|
|
|
285 |
|
Senior subordinated notes
|
|
|
98 |
|
|
|
150 |
|
Other long-term debt, net of current portion
|
|
|
54 |
|
|
|
119 |
|
Reserves for environmental remediation
|
|
|
216 |
|
|
|
253 |
|
Postretirement medical and life benefits
|
|
|
138 |
|
|
|
149 |
|
Other noncurrent liabilities
|
|
|
61 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
Total Noncurrent Liabilities
|
|
|
858 |
|
|
|
1,016 |
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,130 |
|
|
|
1,354 |
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Shareholders’ (Deficit) Equity
|
|
|
|
|
|
|
|
|
Preference stock, par value of $1.00; 15 million shares
authorized; none issued or outstanding
|
|
|
— |
|
|
|
— |
|
Common stock, par value of $0.10; 150 million shares
authorized; 55.6 million shares issued, 55.0 million
outstanding in 2005; 54.6 million shares issued,
54.0 million shares outstanding in 2004
|
|
|
6 |
|
|
|
5 |
|
Other capital
|
|
|
181 |
|
|
|
167 |
|
Accumulated deficit
|
|
|
(258 |
) |
|
|
(28 |
) |
Accumulated other comprehensive loss, net of income taxes
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
Total Shareholders’ (Deficit) Equity
|
|
|
(73 |
) |
|
|
141 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ (Deficit) Equity
|
|
$ |
1,057 |
|
|
$ |
1,495 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
53
GENCORP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT)
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
Total | |
|
|
Comprehensive | |
|
Common Stock | |
|
|
|
Accumulated | |
|
Other | |
|
Shareholders’ | |
|
|
Income | |
|
| |
|
Other | |
|
Deficit/Retained | |
|
Comprehensive | |
|
(Deficit) | |
|
|
(Loss) | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Income (Loss) | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(In millions, except share and per share amounts) | |
|
|
November 30, 2002
|
|
|
|
|
|
|
42,968,094 |
|
|
$ |
4 |
|
|
$ |
13 |
|
|
$ |
356 |
|
|
$ |
(13 |
) |
|
$ |
360 |
|
Net income
|
|
$ |
22 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
— |
|
|
|
22 |
|
Currency translation adjustments and other, net of taxes
|
|
|
45 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
45 |
|
|
|
45 |
|
Cash dividends of $0.12 per share
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
|
|
(5 |
) |
Shares issued under stock option and stock incentive plans
|
|
|
— |
|
|
|
812,963 |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2003
|
|
$ |
67 |
|
|
|
43,781,057 |
|
|
|
4 |
|
|
|
19 |
|
|
|
373 |
|
|
|
32 |
|
|
|
428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(398 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(398 |
) |
|
|
— |
|
|
|
(398 |
) |
Reclassifications and other, net of taxes
|
|
|
(35 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(35 |
) |
|
|
(35 |
) |
Cash dividends of $0.06 per share
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
Proceeds from issuance of common stock (net of offering expenses
of $7 million)
|
|
|
— |
|
|
|
8,625,000 |
|
|
|
1 |
|
|
|
130 |
|
|
|
— |
|
|
|
— |
|
|
|
131 |
|
Shares issued under stock option and stock incentive plans
|
|
|
— |
|
|
|
1,596,110 |
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2004
|
|
$ |
(433 |
) |
|
|
54,002,167 |
|
|
|
5 |
|
|
|
167 |
|
|
|
(28 |
) |
|
|
(3 |
) |
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(230 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(230 |
) |
|
|
— |
|
|
|
(230 |
) |
Change in minimum pension liability, net of taxes
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
Shares issued under stock option and stock incentive plans
|
|
|
— |
|
|
|
960,457 |
|
|
|
1 |
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2005
|
|
$ |
(229 |
) |
|
|
54,962,624 |
|
|
$ |
6 |
|
|
$ |
181 |
|
|
$ |
(258 |
) |
|
$ |
(2 |
) |
|
$ |
(73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
54
GENCORP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
(206 |
) |
|
$ |
(86 |
) |
|
$ |
12 |
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on repayment of convertible notes
|
|
|
18 |
|
|
|
9 |
|
|
|
— |
|
|
Foreign currency gain
|
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
Depreciation and amortization
|
|
|
28 |
|
|
|
31 |
|
|
|
28 |
|
|
Stock compensation and savings plan expense
|
|
|
10 |
|
|
|
8 |
|
|
|
— |
|
|
Deferred income taxes
|
|
|
— |
|
|
|
28 |
|
|
|
(17 |
) |
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions and divestiture of businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
11 |
|
|
|
2 |
|
|
|
4 |
|
|
|
|
Inventories
|
|
|
102 |
|
|
|
(17 |
) |
|
|
(16 |
) |
|
|
|
Prepaid expenses and other
|
|
|
(16 |
) |
|
|
7 |
|
|
|
(9 |
) |
|
|
|
Other noncurrent assets
|
|
|
54 |
|
|
|
31 |
|
|
|
(2 |
) |
|
|
|
Current liabilities
|
|
|
(36 |
) |
|
|
6 |
|
|
|
53 |
|
|
|
|
Other noncurrent liabilities
|
|
|
(47 |
) |
|
|
(14 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
(82 |
) |
|
|
5 |
|
|
|
(12 |
) |
Net cash provided by (used in) discontinued operations
|
|
|
(2 |
) |
|
|
(35 |
) |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Operating Activities
|
|
|
(84 |
) |
|
|
(30 |
) |
|
|
44 |
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(20 |
) |
|
|
(21 |
) |
|
|
(11 |
) |
Proceeds from business dispositions
|
|
|
108 |
|
|
|
144 |
|
|
|
— |
|
Restricted cash
|
|
|
201 |
|
|
|
(201 |
) |
|
|
— |
|
Acquisition of businesses, net of cash acquired
|
|
|
— |
|
|
|
— |
|
|
|
(138 |
) |
Investing activities of discontinued operations
|
|
|
(38 |
) |
|
|
(41 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
251 |
|
|
|
(119 |
) |
|
|
(180 |
) |
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
66 |
|
|
|
205 |
|
|
|
150 |
|
Repayment of convertible note and senior subordinated note,
including redemption costs
|
|
|
(122 |
) |
|
|
(79 |
) |
|
|
— |
|
Net proceeds from issuance of common stock
|
|
|
— |
|
|
|
131 |
|
|
|
— |
|
Repayments, net of borrowings on revolving credit facility
|
|
|
— |
|
|
|
(30 |
) |
|
|
(15 |
) |
Net short-term debt (repaid) incurred
|
|
|
— |
|
|
|
(28 |
) |
|
|
27 |
|
Proceeds from the issuance of other long-term debt
|
|
|
56 |
|
|
|
2 |
|
|
|
6 |
|
Repayments on other long-term debt
|
|
|
(143 |
) |
|
|
(40 |
) |
|
|
(20 |
) |
Debt issuance costs
|
|
|
(6 |
) |
|
|
(9 |
) |
|
|
(5 |
) |
Dividends paid
|
|
|
— |
|
|
|
(3 |
) |
|
|
(5 |
) |
Other equity transactions
|
|
|
5 |
|
|
|
8 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Financing Activities
|
|
|
(144 |
) |
|
|
157 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
— |
|
|
|
(4 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
Increase in Cash and Cash Equivalents
|
|
|
23 |
|
|
|
4 |
|
|
|
16 |
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
68 |
|
|
|
64 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$ |
91 |
|
|
$ |
68 |
|
|
$ |
64 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
55
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Summary of Significant Accounting Policies |
|
|
|
a. Basis of Presentation and Nature of
Operations |
The consolidated financial statements of GenCorp Inc. (GenCorp
or the Company) include the accounts of the parent company and
its wholly owned and majority owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been
made to financial information for prior years to conform to the
current year’s presentation.
The Company is a technology-based aerospace and defense
manufacturer operating in the United States with significant
real estate assets. The Company’s continuing operations are
organized into two segments:
Aerospace and Defense — includes the operations
of Aerojet-General Corporation, or Aerojet, which develops and
manufactures propulsion systems for defense and space
applications, armament systems for precision tactical weapon
systems and munitions applications. The Company is one of the
largest providers of propulsion systems in the United States and
the only company that provides both Solid and Liquid propellant
based systems. Primary customers served include major prime
contractors to the United States (U.S.) government, the
Department of Defense (DoD), and the National Aeronautics and
Space Administration (NASA).
Real Estate — includes activities related to
the re-zoning, entitlement, sale, and leasing of our real estate
assets. The Company owns approximately 12,600 acres of land
adjacent to U.S. Highway 50 between Rancho Cordova and
Folsom, California just east of Sacramento (Sacramento Land).
The Company is currently in the process of seeking zoning
changes and other governmental approvals on a portion of the
Sacramento Land to optimize its value. The Company has filed
applications with and submitted information to governmental and
regulatory authorities for approvals necessary to re-zone over
6,400 acres of the Sacramento Land.
On August 31, 2004, the Company completed the sale of its
GDX Automotive (GDX) business. On November 30, 2005,
the Company completed the sale of its Fine Chemicals business.
The GDX and Fine Chemicals businesses are classified as
discontinued operations in these Consolidated Financial
Statements and Notes to Consolidated Financial Statements (see
Note 18).
The preparation of the consolidated financial statements in
conformity with U.S. generally accepted accounting
principles requires the Company to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results
could differ from those estimates.
As of November 30, 2005, 17% of our 3,101 employees were
covered by collective bargaining or similar agreements all of
which are due to expire within two years.
|
|
|
c. Cash and Cash Equivalents |
All highly liquid debt instruments purchased with a remaining
maturity at the date of purchase of three months or less are
considered to be cash equivalents. The Company classifies
securities underlying its cash equivalents as
“available-for-sale” in accordance with the Financial
Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 115 (SFAS 115),
Accounting for Certain Investments in Debt and Equity
Securities. The Company aggregates its cash balances by
bank, and reclassifies any negative balances to accounts payable.
56
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On November 30, 2005, the Company received cash proceeds of
$108 million, before fees, from the sale of its Fine
Chemicals business to American Pacific Corporation (see
Note 18). Under the terms of the senior credit facility,
the term loan lenders exercised their rights to decline
repayment of $55 million outstanding term loans; therefore,
releasing the restrictions on the use of such cash.
As of November 30, 2004, the Company had designated
$201 million as restricted cash in accordance with
agreements reached with the senior lenders under its senior
credit facility. The components of the restricted cash were:
(i) $70 million of the proceeds from the sale of GDX
and (ii) $131 million of the proceeds from the
November 2004 equity offering of the Company’s common
stock. During fiscal 2005, the restricted cash was used to repay
debt.
|
|
|
e. Fair Value of Financial Instruments |
The carrying amounts of certain of the Company’s financial
instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued compensation and other
accrued liabilities, approximate fair value because of their
short maturities. The estimated fair value of the Company’s
total debt was $497 million as of November 30, 2005
compared to a carrying value of $444 million. The fair
value of the convertible subordinated notes and the senior
subordinated notes was determined based on quoted market prices
as of November 30, 2005. The fair value of the remaining
debt approximates the carrying value as the interest rates are
generally variable based on market interest rates and reflect
current market rates available to the Company.
Accounts receivable consist of billed and unbilled amounts.
Billed amounts include invoices presented to customers which
have not been paid. Unbilled amounts are for long-term contracts
where revenues have been recorded and billings have not been
presented to customers. Amounts for overhead disallowances are
reflected in billed receivables and primarily represent
estimates of overhead type costs which may not be successfully
negotiated and collected.
Inventories are stated at the lower of cost or market, generally
using the average cost method. General and administrative costs
in inventory include bid and proposal, research and development,
and environmental expenses.
|
|
|
h. Property, Plant and Equipment |
Property, plant and equipment are recorded at cost.
Refurbishment costs are capitalized in the property accounts,
whereas ordinary maintenance and repair costs are expensed as
incurred. Depreciation is computed principally by accelerated
methods. Depreciable lives on buildings and improvements, and
machinery and equipment, range from five years to 45 years,
and three years to 15 years, respectively.
Goodwill represents the excess of the purchase price of an
acquired enterprise or assets over the fair values of the
identifiable assets acquired and liabilities assumed. Tests for
impairment of goodwill are performed on an annual basis, or at
any other time, if events occur or circumstances indicate that
the carrying amount of goodwill may not be recoverable. The
Company performed the annual impairment tests for goodwill as of
September 1, 2005 and 2004 and determined that goodwill was
not impaired as of those dates.
57
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Circumstances that could trigger an impairment test include but
are not limited to: a significant adverse change in the business
climate or legal factors; an adverse action or assessment by a
regulator; unanticipated competition; loss of key personnel; and
results of testing for recoverability of a significant asset
group within a reporting unit.
If the carrying amount of the reporting unit goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recorded. Measurement of the fair value of a reporting unit is
based on one or more of the following fair value measures
including: amounts at which the unit as a whole could be bought
or sold in a current transaction between willing parties; using
present value techniques of estimated future cash flows; or
using valuation techniques based on multiples of earnings or
revenue, or a similar performance measure.
|
|
|
j. Other Intangible Assets |
Identifiable intangible assets, such as patents, trademarks and
licenses, are recorded at cost or when acquired as part of a
business combination at estimated fair value. Identifiable
intangible assets are amortized based on when they provide the
Company economic benefit, or using the straight-line method,
over their estimated useful life. Amortization periods for
identifiable intangible assets range from two to 27 years.
|
|
|
k. Impairment or Disposal of Long-Lived Assets
(property, plant and equipment and other intangible
assets) |
Impairment of long-lived assets is recognized when events or
circumstances indicate that the carrying amount of the asset, or
related groups of assets, may not be recoverable. Circumstances
which could trigger a review include, but are not limited to:
significant decreases in the market price of the asset;
significant adverse changes in the business climate or legal
factors; accumulation of costs significantly in excess of the
amount originally expected for the acquisition or construction
of the asset; current period cash flow or operating losses
combined with a history of losses or a forecast of continuing
losses associated with the use of the asset; or current
expectation that the asset will more likely than not be sold or
disposed significantly before the end of its estimated useful
life.
A long-lived asset classified as “held for sale” is
initially measured at the lower of its carrying amount or fair
value less costs to sell. In the period that the “held for
sale” criteria are met, the Company recognizes an
impairment charge for any initial adjustment of the long-lived
asset amount. Gains or losses not previously recognized
resulting from the sale of a long-lived asset is recognized on
the date of sale.
During fiscal 2003, the Company’s GDX Automotive business
recognized impairment charges of $6 million to write-down
assets at one of its plants in France to their estimated net
realizable value upon plant closure (see Note 18). The
impaired assets included buildings and machinery and equipment
with a net book value prior to impairment of $10 million
and an estimated net realizable value of $4 million as of
November 30, 2003. During fiscal 2004, the Company
recognized impairment charges of $2 million to write-down
the remaining value of the assets down to zero. The impairment
charges in fiscal 2004 and fiscal 2003 are included as a
component of discontinued operations.
|
|
|
l. Revenue Recognition/ Long-Term Contracts |
The Company accounts for sales derived from long-term
development and production contracts in conformity with the
American Institute of Certified Public Accountants (AICPA) Audit
and Accounting guide, Audits of Federal Government Contracts
and the AICPA’s Statement of Position
No. 81-1
(SOP 81-1),
Accounting for Performance of Construction-Type and Certain
Production Type Contracts. The Company considers the nature
of the individual underlying contract and the type of products
and services provided in determining the proper accounting for a
particular contract. Each method is applied consistently to all
contracts having similar characteristics, as described below.
The Company typically accounts for these
58
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
contracts using the
percentage-of-completion
method, and progress is measured on a
cost-to-cost or
units-of-delivery
basis. Sales are recognized using various measures of progress,
as allowed by SOP 81-1, depending on the contractual terms
and scope of work of the contract. The Company recognizes
revenue on a
units-of-delivery basis
when contracts require unit deliveries on a frequent and routine
basis. Sales using this measure of progress are recognized at
the contractually agreed upon unit price. Where the scope of
work on contracts principally relates to research and/or
development efforts, or the contract is predominantly a
development effort with few deliverable units, the Company
recognizes revenue on a
cost-to-cost basis. In
this case, sales are recognized as costs are incurred and
include estimated earned fees or profits calculated on the basis
of the relationship between costs incurred and total estimated
costs at completion. Revenue on service or time and material
contracts is recognized when performed. If at any time expected
costs exceed the value of the contract, the loss is recognized
immediately.
Certain government contracts contain cost or performance
incentive provisions that provide for increased or decreased
fees or profits based upon actual performance against
established targets or other criteria. The Company continually
evaluates its performance and incorporates any anticipated
penalties and cost incentives into its revenue and earnings
calculations. Performance incentives, which increase or decrease
earnings based solely on a single significant event, generally,
are not recognized until an event occurs.
Revenue from real estate asset sales is recognized primarily
when a sufficient down-payment has been received, financing has
been arranged, title, possession, and other attributes of
ownership have been transferred to the buyer.
Revenue that is not derived from long-term development and
production contracts, or real estate transactions, is recognized
when persuasive evidence of a final agreement exists, delivery
has occurred, the selling price is fixed or determinable, and
payment from the customer is reasonably assured. Sales are
recorded net of provisions for customer pricing allowances.
|
|
|
Dependence upon government programs and contracts |
Sales in fiscal 2005, fiscal 2004, and fiscal 2003 directly and
indirectly to the U.S. government and its agencies,
including sales to the Company’s significant customers
discussed below, totaled $501 million, $420 million,
and $263 million, respectively. The demand for certain of
the Company’s services and products is directly related to
the level of funding of government programs.
During fiscal 2005, Lockheed Martin Corporation (Lockheed
Martin) and Raytheon Company (Raytheon) accounted for 39% and
16%, respectively, of net sales. During fiscal 2004, Lockheed
Martin and Raytheon accounted for 32% and 15%, respectively, of
net sales. During fiscal 2003, Lockheed Martin, The Boeing
Company (Boeing), and Raytheon accounted for 28%, 15%, and 10%,
respectively, of net sales.
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of cash
equivalents and trade receivables. The Company invests available
cash in money market securities of various banks and securities
backed by the U.S. government. The Company performs ongoing
credit evaluations of its customers’ financial condition
and maintains an appropriate allowance for uncollectible
accounts receivable based upon the expected collectiblity of all
accounts receivable. The Company’s accounts receivables are
generally unsecured and are not backed by collateral from its
customers. At November 30, 2005, Lockheed Martin and
Raytheon accounted for 46% and 21%, respectively, of accounts
59
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
receivable. At November 30, 2004, Lockheed Martin and
Raytheon accounted for 44% and 17%, respectively, of accounts
receivable.
|
|
|
Dependence on Single Source and Other Third Party
Suppliers |
The Company depends on a single or limited number of outside
suppliers for raw materials. The Company closely monitors
sources of supply to assure that adequate raw materials and
other supplies needed in the manufacturing processes are
available. As a U.S. government contractor, the Company is
frequently limited to procuring materials and components from
sources of supply that can meet rigorous customer and/or
government specifications. In addition, as business conditions,
the DoD budget, and Congressional allocations change, suppliers
of specialty chemicals and materials sometimes consider dropping
low volume items from their product lines, which may require, as
it has in the past, qualification of new suppliers for raw
materials on key programs. Current suppliers of some insulation
materials used in rocket motors have announced plans to close
manufacturing plants and discontinue certain product lines.
These materials, which include a neoprene compound and silica
phenolic used as an insulator, are used industry-wide in the
production of rocket motors and, therefore, are key to many of
the Company’s solid booster/motor programs. The Company has
qualified new suppliers and materials for this insulation and it
expects that such new materials can be available in time to meet
future production needs. Another supplier has announced it will
stop production of a primary binder compound (R45) used
industry-wide in all solid propellants. The U.S. government
and companies operating in the propulsion industry worked
together to resolve the availability issue of the R45 primary
binder material. The Company entered into a new supply contract
which includes a “surcharge” as a price adjustment.
The Company was able accomplish this with the assistance of its
customers through similar price adjustment clauses on many of
the Company’s existing contracts.
The supply of ammonium perchlorate, a principal raw material
used in solid propellant, is limited to a single source that
supplies the entire domestic solid propellant industry. This
single source, however, maintains two separate manufacturing
lines a reasonable distance apart which mitigates the likelihood
of a fire, explosion, or other problem impacting production. The
industry also currently relies on one primary supplier for
graphite fiber, which is used in the production of composite
materials. This supplier has multiple manufacturing lines for
such material. Although other sources of graphite fiber exist,
the addition of a new supplier would require the Company to
qualify the new source for use. As of November 30, 2005,
neither of these key materials has had any indication that their
availability is in jeopardy.
The Company is also impacted, as is the rest of the industry, by
increases in the prices and lead-times of raw materials used in
production on various fixed-price contracts. Most recently, the
Company has seen an increase in the price and lead-times of
commodity metals, primarily steel, titanium and aluminum. The
Company monitors the price and supply of these materials and
works closely with suppliers to schedule purchases far enough in
advance and in the most economical means possible to reduce
program impact. Additionally, the Company has negotiated
economic and/or price adjustment clauses tied to commodity
indices, whenever possible with its customers. The
Company’s past success in negotiating these terms is no
indication of its ability to continue to do so.
Prolonged disruptions in the supply of any of key raw materials,
difficulty completing qualification of new sources of supply, or
implementing use of replacement materials or new sources of
supply could have a material adverse effect on the
Company’s operating results and financial condition.
|
|
|
n. Research and Development Expenses |
Company-sponsored research and development (R&D) expenses
were $13 million in fiscal 2005, $8 million in fiscal
2004, and $7 million in fiscal 2003. Company-sponsored
R&D expenses include the costs of technical activities that
are useful in developing new products, services, processes or
techniques, as well as expenses for technical activities that
may significantly improve existing products or processes.
60
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Customer-sponsored R&D expenditures, which are funded under
government contracts, totaled $177 million in fiscal 2005,
$130 million in fiscal 2004, and $92 million in fiscal
2003.
|
|
|
o. Environmental Remediation Costs |
The Company accounts for identified or potential environmental
remediation liabilities in accordance with the AICPA’s
Statement of
Position 96-1
(SOP 96-1),
Environmental Remediation Liabilities and Security and
Exchange Commission (SEC) Staff Accounting
Bulletin No. 92, Accounting and Disclosures
Relating to Loss Contingencies. Under this guidance, the
Company expenses, on a current basis, recurring costs associated
with managing hazardous substances and pollution in ongoing
operations. The Company 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. In most cases only a
range of reasonably possible costs can be estimated. In
establishing the Company’s reserves, the most probable
estimated amount is used when determinable, and the minimum
amount is used when no single amount in the range is more
probable. The Company’s environmental reserves include the
costs of completing remedial investigation and feasibility
studies, remedial and corrective actions, regulatory oversight
costs, the cost of operation and maintenance of the remedial
action plan, and employee compensation costs for employees who
are expected to devote a significant amount of time to
remediation efforts. Measurement of environmental reserves is
based on the evaluation of currently available information with
respect to each individual environmental site and considers
factors such as existing technology, presently enacted laws and
regulations, and prior experience in remediation of contaminated
sites. Such estimates are based on the expected costs of
investigation and remediation and the likelihood that other
potentially responsible parties will be able to fulfill their
commitments at sites where the Company may be jointly or
severally liable. The Company recognizes amounts recoverable
from insurance carriers, the U.S. government or other third
parties, when the collection of such amounts is probable.
Pursuant to U.S. government agreements or regulations, the
Company can recover a substantial portion of its environmental
costs for its Aerospace and Defense segment through the
establishment of prices of the Company’s products and
services sold to the U.S. government. The ability of the
Company to continue recovering these costs from the
U.S. government depends on Aerojet’s sustained
business volume under U.S. government contracts and
programs.
|
|
|
p. Stock-Based Compensation |
The Company applies the provisions of Accounting Principles
Board Opinion No. 25 (APB 25), Accounting for Stock
Issued to Employees, and related interpretations to account
for awards of stock-based compensation granted to employees.
|
|
|
q. Derivative Financial Instruments |
Forward contracts are
marked-to-market each
quarter and the unrealized gains or losses are included in other
income and expense. Foreign currency transaction gains were less
than $1 million and $4 million in fiscal 2004 and
fiscal 2003, respectively, including gains and losses on foreign
currency forward and option contracts. The Company’s
foreign currency transaction and forward contracts were
primarily associated with the Company’s GDX business, which
was classified as a discontinued operation and substantially all
of the assets of GenCorp Inc. that were used in the GDX business
were sold effective August 31, 2004 (see Note 18). The
Company did not have any forward contracts outstanding as of
November 30, 2005.
61
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
2. |
Earnings (Loss) Per Share |
A reconciliation of the numerator and denominator used to
calculate basic and diluted earnings (loss) per share of common
stock (EPS) is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions, except per | |
|
|
share amounts; shares in thousands) | |
Numerator for Basic and Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
(206 |
) |
|
$ |
(86 |
) |
|
$ |
12 |
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
(24 |
) |
|
|
(312 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$ |
(230 |
) |
|
$ |
(398 |
) |
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
Denominator for Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
54,575 |
|
|
|
45,097 |
|
|
|
43,347 |
|
|
|
|
|
|
|
|
|
|
|
Denominator for Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
54,575 |
|
|
|
45,097 |
|
|
|
43,347 |
|
|
Employee stock options
|
|
|
— |
|
|
|
— |
|
|
|
59 |
|
|
Other
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,575 |
|
|
|
45,097 |
|
|
|
43,408 |
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per basic share from continuing operations
|
|
$ |
(3.78 |
) |
|
$ |
(1.91 |
) |
|
$ |
0.26 |
|
|
Income (loss) per basic share from discontinued operations
|
|
$ |
(0.43 |
) |
|
$ |
(6.91 |
) |
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$ |
(4.21 |
) |
|
$ |
(8.82 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
The following were not included in the computation of diluted
loss per share for fiscal 2005 because the effect would be
antidilutive:
|
|
|
Description |
|
Conversion Rate |
|
|
|
53/4% Convertible
Subordinated Notes
(53/4% Notes)
|
|
54.29 Shares per $1,000 outstanding |
4% Contingent Convertible Subordinated Notes (4% Notes)
|
|
64.81 Shares per $1,000 outstanding |
21/4% Convertible
Subordinated Debentures
(21/4% Debentures)
|
|
50.00 Shares per $1,000 outstanding |
The following were not included in the computation of diluted
loss per share for fiscal 2004 because the effect would be
antidilutive:
|
|
|
Description |
|
Conversion Rate |
|
|
|
53/4% Convertible
Subordinated Notes
|
|
54.29 Shares per $1,000 outstanding |
4% Contingent Convertible Subordinated Notes
|
|
64.81 Shares per $1,000 outstanding |
The
53/4% Notes
were not included in the computation of diluted income per share
for fiscal 2003 because the effect would be antidilutive.
The holders of the 4% Notes had the right to convert their
notes into GenCorp’s common stock during the calendar
quarter ending December 31, 2005 (for the period
October 1, 2005 through December 31, 2005) because the
stock price contingent conversion condition was met in the
calendar quarter ended September 30,
62
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
2005. As discussed above, the shares relating to the
4% Notes were not included in the computation of diluted
loss per share because the effect would be antidilutive for
fiscal 2005 and fiscal 2004.
Potentially dilutive securities that are not included in the
diluted EPS calculation because they would be antidilutive are
employee stock options of 1,914,504 as of November 30,
2005, 2,388,785 as of November 30, 2004, and 2,693,000 as
of November 30, 2003.
As permitted by Statement of Financial Accounting Standards
No. 123 (SFAS 123), Accounting for Stock-Based
Compensation and Statement of Financial Accounting Standards
No. 148 (SFAS 148), Accounting for Stock-Based
Compensation — Transition and Disclosure, the
Company applies the existing accounting rules under APB Opinion
No. 25, Accounting for Stock Issued to Employees,
which provides that no compensation expense is charged for
options granted at an exercise price equal to the market value
of the underlying common stock on the date of grant. Had
compensation expense for the Company’s stock option plans
been determined based upon the fair value at the grant date for
awards under these plans using market-based option valuation
models, net income (loss) and the effect on net income (loss)
per share would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions, except | |
|
|
per share amounts) | |
Net income (loss), as reported
|
|
$ |
(230 |
) |
|
$ |
(398 |
) |
|
$ |
22 |
|
Add: Stock based compensation expense reported, net of related
tax effects
|
|
|
3 |
|
|
|
1 |
|
|
|
1 |
|
Deduct: Stock based compensation expense determined under fair
value based method for all awards, net of related tax effects
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss), pro forma
|
|
$ |
(230 |
) |
|
$ |
(398 |
) |
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(4.21 |
) |
|
$ |
(8.82 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
(4.21 |
) |
|
$ |
(8.82 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(4.21 |
) |
|
$ |
(8.82 |
) |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
(4.21 |
) |
|
$ |
(8.82 |
) |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
|
Option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company’s employee stock options have
characteristics significantly different from those of traded
options and because changes in the input assumptions can
materially affect the fair value estimate, it is the
Company’s opinion that the existing models do not
necessarily provide a reliable single measure of the fair value
of the employee stock options.
63
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of options granted was estimated at the
measurement date of grant using a Black-Scholes stock option
pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Expected life (in years)
|
|
|
5.00 |
|
|
|
5.00 |
|
Volatility
|
|
|
42.00 |
% |
|
|
44.00 |
% |
Risk-free interest rate
|
|
|
3.07 |
% |
|
|
3.30 |
% |
Dividend yield
|
|
|
0.00 |
% |
|
|
1.50 |
% |
During fiscal 2005, the Company did not issue any stock options
to employees. Discontinued operations earnings (loss) per share
would not have changed as a result of stock-based compensation
expense.
|
|
3. |
Accounts Receivable, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Receivables under long-term contracts:
|
|
|
|
|
|
|
|
|
|
Billed
|
|
$ |
45 |
|
|
$ |
46 |
|
|
Unbilled costs and estimated earnings
|
|
|
37 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$ |
82 |
|
|
$ |
82 |
|
|
|
|
|
|
|
|
The unbilled receivable amounts as of November 30, 2005 and
2004 expected to be collected after one year were
$3 million and $6 million, respectively. Such amounts
are billed either upon delivery of completed units or
settlements of contracts.
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Raw materials and supplies
|
|
$ |
2 |
|
|
$ |
2 |
|
Work in progress on commercial products
|
|
|
3 |
|
|
|
— |
|
Long-term contracts at average cost
|
|
|
86 |
|
|
|
235 |
|
Progress payments
|
|
|
(34 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
|
|
Inventories
|
|
$ |
57 |
|
|
$ |
159 |
|
|
|
|
|
|
|
|
Inventories applicable to contracts, related to the
Company’s Aerospace and Defense segment, include general
and administrative costs. The total of such costs incurred in
fiscal 2005 and fiscal 2004 were $99 million and
$79 million, respectively, and the cumulative amount of
general and administrative costs in inventory is estimated to be
$8 million and $26 million at November 30, 2005
and 2004, respectively.
During fiscal 2005, the Company recorded an inventory write-down
of $169 million on a contract to design, develop and
produce a solid rocket motor for Lockheed Martin’s Atlas V
program. Recovery of the Atlas V inventory has been subject to
several uncertainties. Until recently, the Company believed that
a contract restructuring, projected to occur in late 2005, would
permit recovery of inventoried development and production costs.
This belief was based on prior statements by government
officials regarding funding for the
64
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Evolved Expendable Launch Vehicle program, and ongoing
discussions with the prime contractor over a long period of
time, including requests for historical costs and past
investment. Recently, the Company learned that government
funding is not available to recover past costs, and as a result,
the Company concluded renegotiation of the contract was in its
best interest to prevent further unrecoverable investment in
this historically unprofitable program. Accordingly, on
December 22, 2005, the Company reached an agreement with
Lockheed Martin Corporation, which spells out the renegotiated
terms.
During fiscal 2004, the Company recorded an inventory write-down
of $16 million on the Atlas V program. This write-down
relates to unanticipated transition costs from the development
phase to the production phase of the contract and the value of
materials rendered obsolete by a decision to proceed with
qualification and production of an enhanced motor configuration.
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards
No. 109 (SFAS 109), Accounting for Income
Taxes. The Company files a consolidated federal income tax
return with its wholly-owned subsidiaries.
The components of the Company’s income tax (benefit)
provision from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
$ |
(29 |
) |
|
$ |
(3 |
) |
|
$ |
9 |
|
|
State and local
|
|
|
— |
|
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(2 |
) |
|
|
12 |
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
|
— |
|
|
|
28 |
|
|
|
(12 |
) |
|
State and local
|
|
|
— |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
31 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision
|
|
$ |
(29 |
) |
|
$ |
29 |
|
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
A reconciliation of the U.S. federal statutory income tax
rate to the Company’s effective income tax rate on book
earnings from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Statutory federal income tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State and local income taxes, net of federal income tax benefit
|
|
|
— |
|
|
|
(2.1 |
) |
|
|
5.3 |
|
Tax settlements, refund claims, and reserve adjustments,
including interest
|
|
|
(0.8 |
) |
|
|
8.5 |
|
|
|
(50.1 |
) |
Valuation allowance
|
|
|
(18.9 |
) |
|
|
(91.1 |
) |
|
|
— |
|
Other, net
|
|
|
(2.8 |
) |
|
|
(1.7 |
) |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
12.5 |
% |
|
|
(51.4 |
)% |
|
|
(9.1 |
)% |
|
|
|
|
|
|
|
|
|
|
The Company increased its fiscal 2005 income tax benefit from
continuing operations by $13 million for tax refund claims
related to 10 year carryback of prior year’s losses.
65
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The current year net operating loss resulted in an income tax
benefit of $16 million dollars for the portion eligible for
carryback to prior years and refund of previously paid taxes.
However, to reflect the uncertainty of realizing the benefit of
the portion of the net operating losses to be carried forward to
offset future taxable income, no benefit has been recorded.
Instead, a valuation allowance has been recorded to offset the
net deferred tax assets for fiscal 2005. A valuation allowance
is required when it is more likely than not that all or a
portion of net deferred tax asset will not be realized. A review
of all available positive and negative evidence needs to be
considered, including a Company’s past and future
performance, the market environment in which the Company
operates, the utilization of tax attributes in the past, the
length of carryback and carryforward periods, and evaluation of
potential tax planning strategies.
Forming a conclusion that a valuation allowance is not needed is
difficult when there is negative evidence such as cumulative
losses in recent years. The Company determines cumulative losses
on a rolling twelve-quarter basis. Accordingly, as of
May 31, 2004, the Company concluded that it was appropriate
to establish a full valuation allowance for its net deferred tax
assets. Subsequent to May 31, 2004, the Company has
maintained a full valuation allowance on all of its net deferred
tax assets. The Company expects to continue to maintain a full
valuation allowance until circumstances change.
The Company reduced its fiscal 2004 income tax expense from
continuing operations by $5 million for domestic, federal
and state income tax settlements and research tax credit refund
claims and tax reserve adjustments for fiscal years 1997 through
2002. The Company is under routine examinations by domestic and
foreign tax authorities. While it is difficult to predict the
outcome or timing of a particular tax matter, the Company
believes it has adequately provided for any reasonable
foreseeable outcome related to these matters, and it does not
anticipate any material earnings impact from their ultimate
resolutions.
The Company reduced its fiscal 2003 income tax expense from
continuing operations by $5 million for domestic, federal
and state income tax settlements for 1994 through 2001.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
for continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Accrued estimated costs
|
|
$ |
57 |
|
|
$ |
59 |
|
Tax losses and credit carry-forwards
|
|
|
167 |
|
|
|
120 |
|
Depreciation
|
|
|
15 |
|
|
|
21 |
|
Other postretirement and employee benefits
|
|
|
62 |
|
|
|
66 |
|
Valuation allowance
|
|
|
(194 |
) |
|
|
(150 |
) |
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
107 |
|
|
|
116 |
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
92 |
|
|
|
105 |
|
Other
|
|
|
15 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
107 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
|
— |
|
|
|
— |
|
|
|
Less: current deferred tax assets/(liabilities)
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
66
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At November 30, 2005, the Company had a federal net
operating loss carryforward of approximately $226 million
of which $61 million expires in 2024 and $165 million
expires in 2025, if not utilized. Approximately $8 million
of the net operating loss carryforward relates to the exercise
of stock options, the benefit of which will be credited to
equity when realized. In addition, the Company has federal and
state capital loss carryforwards of approximately
$153 million and $62 million, respectively, most of
which expire in 2009. For state tax purposes, the Company has
approximately $215 million in net operating loss
carryforwards of which $3 million expire in 2023,
$32 million expire in 2024, and $180 million expire in
2025, if not utilized.
The Company also has a federal research credit carryforward of
$6 million which begins expiring in 2021; and a California
manufacturing investment credit carryforward of $3 million
which begins expiring in 2009; and a foreign tax credit
carryforward of $6 million which begins expiring in 2010,
if not utilized. These tax carryforwards are subject to
examination by the tax authorities. Cash paid during the year
for income taxes of both continuing and discontinued operations
was $1 million in fiscal 2005, $10 million in fiscal
2004, and $8 million in fiscal 2003.
Income taxes payable includes tax reserves for income tax
exposure in foreign jurisdictions including those related to the
period prior to the Company’s purchase of the Draftex group
in December 2000. The reserve is net of the reimbursement to be
received by the Laird Group in accordance with the tax
indemnification agreement executed at the time of the
acquisition.
|
|
6. |
Property, Plant and Equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Land
|
|
$ |
29 |
|
|
$ |
29 |
|
Buildings and improvements
|
|
|
135 |
|
|
|
128 |
|
Machinery and equipment
|
|
|
346 |
|
|
|
333 |
|
Construction-in-progress
|
|
|
12 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
522 |
|
|
|
505 |
|
Less: accumulated depreciation
|
|
|
(382 |
) |
|
|
(360 |
) |
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$ |
140 |
|
|
$ |
145 |
|
|
|
|
|
|
|
|
Depreciation expense for fiscal 2005, fiscal 2004, and fiscal
2003 was $24 million, $23 million, and
$21 million, respectively.
The goodwill balance at November 30, 2005 and 2004 relates
to the Company’s Aerospace and Defense segment. The changes
in the carrying amount of goodwill since November 30, 2003
were as follows (in millions):
|
|
|
|
|
Balance as of November 30, 2003
|
|
$ |
100 |
|
Purchase accounting adjustments during fiscal 2004
|
|
|
3 |
|
|
|
|
|
Balance as of November 30, 2004
|
|
|
103 |
|
Purchase accounting adjustments during fiscal 2005
|
|
|
(1 |
) |
|
|
|
|
Balance as of November 30, 2005
|
|
$ |
102 |
|
|
|
|
|
67
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
During fiscal 2005, goodwill was reduced by $1 million as a
result of an adjustment to the valuation of a liability
associated with the Atlantic Research Corporation
(ARC) acquisition. During fiscal 2004, goodwill of
$3 million was recorded as a result of corrections to the
valuation of assets and liabilities associated with the ARC
acquisition completed in October 2003 and the acquisition of the
General Dynamics Ordnance and Tactical Systems Space Propulsion
and Fire Suppression business (Redmond, Washington operations)
completed in October 2002. The adjustments reflect the use of
more accurate data in valuing certain operations acquired as
part of the transaction with Sequa which were required by the
Federal Trade Commission to be disposed of as a condition to
approving the ARC acquisition and in recording the
post-retirement obligation associated with the acquired Redmond,
Washington operation’s employees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
|
|
|
|
|
Carrying | |
|
Accumulated | |
|
Net Carrying | |
As of November 30, 2005: |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
|
|
(In millions) | |
|
|
Customer related
|
|
$ |
14 |
|
|
$ |
4 |
|
|
$ |
10 |
|
Acquired technology
|
|
|
18 |
|
|
|
3 |
|
|
|
15 |
|
Other
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$ |
34 |
|
|
$ |
7 |
|
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
|
|
|
|
|
Carrying | |
|
Accumulated | |
|
Net Carrying | |
As of November 30, 2004: |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
|
|
(In millions) | |
|
|
Customer related
|
|
$ |
14 |
|
|
$ |
3 |
|
|
$ |
11 |
|
Acquired technology
|
|
|
18 |
|
|
|
2 |
|
|
|
16 |
|
Other
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$ |
33 |
|
|
$ |
5 |
|
|
$ |
28 |
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to other intangible assets was
$2 million in fiscal 2005, fiscal 2004, and fiscal 2003.
Amortization expense for each of the five succeeding years
related to other intangible assets at November 30, 2005 is
estimated to be $2 million annually.
|
|
9. |
Other Noncurrent Assets |
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Note receivable
|
|
$ |
26 |
|
|
$ |
— |
|
Other receivable
|
|
|
26 |
|
|
|
23 |
|
Real estate held for entitlement and leasing
|
|
|
32 |
|
|
|
27 |
|
Deferred financing costs
|
|
|
17 |
|
|
|
21 |
|
Other
|
|
|
28 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
129 |
|
|
|
92 |
|
Less: allowance on note receivable
|
|
|
(26 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$ |
103 |
|
|
$ |
92 |
|
|
|
|
|
|
|
|
68
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On November 30, 2005, the Company received a
$26 million unsecured subordinated note receivable from
American Pacific Corporation in connection with sale of the
Company’s Fine Chemicals business (see Note 18). The
Company recorded a full valuation allowance on the note since
the collection was uncertain as of November 30, 2005.
As of November 30, 2005 and 2004, the Company had a
receivable of $26 million and $23 million from
Northrop Grumman Corporation related to amounts due related to
environmental remediation (see Note 14(d)).
The Company amortizes deferred financing costs over the term of
the related debt. Amortization of financing costs was
$2 million, $6 million, and $5 million in fiscal
2005, fiscal 2004, and fiscal 2003, respectively.
|
|
10. |
Other Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Accrued goods and services
|
|
$ |
5 |
|
|
$ |
11 |
|
Contract loss provisions
|
|
|
10 |
|
|
|
15 |
|
Advanced payments on contracts
|
|
|
45 |
|
|
|
22 |
|
Accrued compensation and employee benefits
|
|
|
41 |
|
|
|
37 |
|
Interest payable
|
|
|
5 |
|
|
|
8 |
|
Customer reimbursements of tax recoveries
|
|
|
13 |
|
|
|
25 |
|
Other
|
|
|
23 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$ |
142 |
|
|
$ |
141 |
|
|
|
|
|
|
|
|
The customer reimbursements of tax recoveries relate to a
unitary tax settlement and payment is expected during the second
quarter of fiscal 2006.
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Convertible subordinated notes
|
|
$ |
291 |
|
|
$ |
285 |
|
Senior subordinated notes
|
|
|
98 |
|
|
|
150 |
|
Other debt
|
|
|
55 |
|
|
|
142 |
|
|
|
|
|
|
|
|
Total debt
|
|
|
444 |
|
|
|
577 |
|
Less: Amounts due within one year
|
|
|
(1 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
Total long-term debt
|
|
$ |
443 |
|
|
$ |
554 |
|
|
|
|
|
|
|
|
69
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of November 30, 2005, the Company’s annual fiscal
year debt maturities are summarized as follows (in millions):
|
|
|
|
|
2006
|
|
$ |
1 |
|
2007
|
|
|
21 |
|
2008
|
|
|
1 |
|
2009
|
|
|
1 |
|
2010
|
|
|
51 |
|
Thereafter
|
|
|
369 |
|
|
|
|
|
Total Debt
|
|
$ |
444 |
|
|
|
|
|
Cash paid for interest for continuing and discontinued
operations was $29 million, $39 million, and
$24 million in fiscal 2005, fiscal 2004, and fiscal 2003,
respectively.
|
|
|
a. Convertible Subordinated Notes: |
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Convertible subordinated notes, bearing interest at
5.75% per annum, interest payments due in April and
October, maturing in 2007
(53/4% Notes)
|
|
$ |
20 |
|
|
$ |
80 |
|
Contingent convertible subordinated notes, bearing interest at
4.00% per annum, interest payments due in January and July,
maturing in 2024 (4% Notes)
|
|
|
125 |
|
|
|
125 |
|
Convertible subordinated debentures, bearing interest at
2.25% per annum, interest payments due in May and November,
maturing in 2024
(21/4% Debentures)
|
|
|
146 |
|
|
|
80 |
|
|
|
|
|
|
|
|
Total convertible subordinated notes
|
|
$ |
291 |
|
|
$ |
285 |
|
|
|
|
|
|
|
|
|
|
|
53/4% Convertible
Subordinated Notes |
In April 2002, the Company issued $150 million aggregate
principal amount of its
53/4% Notes.
The
53/4% Notes
mature in April 2007. Interest on the
53/4% Notes
accrues at a rate of 5.75% per annum and is payable on
April 15 and October 15, beginning in October 2002. The
53/4% Notes
are initially convertible into 54.29 shares of the
Company’s common stock per $1,000 principal amount of the
53/4% Notes,
implying a conversion price of $18.42 per share, at any
time until the close of business on the business day immediately
preceding the maturity date unless previously redeemed or
repurchased. The
53/4% Notes
are redeemable in whole or in part at the option of the holder
upon a change of control at 100% of the principal amount of the
53/4% Notes
to be repurchased, plus accrued and unpaid interest, if any, to
the date of repurchase, and at the option of the Company at any
time on or after April 22, 2005 if the closing price of the
Company’s common stock exceeds 125% of the conversion price
then in effect for at least 20 trading days within a period of
30 consecutive trading days ending on the trading day before the
day of the mailing of the optional redemption notice at
specified redemption prices, plus accrued and unpaid interest,
if any.
The
53/4% Notes
are general unsecured obligations of the Company and rank equal
in right of payment to all of the Company’s other existing
and future subordinated indebtedness including the 4% Notes
and the
21/4% Debentures.
The
53/4% Notes
rank junior in right of payment to all of the Company’s
existing and future senior indebtedness, including all of its
obligations under its senior credit facilities, and all of its
existing and future senior subordinated indebtedness, including
the outstanding
91/2% Senior
Subordinated Notes. In addition, the
53/4% Notes
are effectively subordinated to any of the Company’s
secured debt and to any and all debt and liabilities, including
trade debt of its subsidiaries.
70
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The indenture governing the
53/4% Notes
limits the Company’s ability to, among other things,
consolidate with or merge into any other person or convey,
transfer or lease its properties and assets substantially as an
entirety to any other person unless certain conditions are
satisfied. The indenture also contains customary events of
default, including failure to pay principal or interest when
due, cross-acceleration to other specified indebtedness, failure
to deliver shares of common stock as required, failure to comply
with covenants and certain events of bankruptcy, insolvency and
reorganization, subject in some cases to notice and applicable
grace periods.
Issuance of the
53/4% Notes
generated net proceeds of approximately $144 million, which
were used to repay debt outstanding under the senior credit
facilities.
In November 2004, the Company used the net proceeds from the
issuance of the
21/4% Debentures
to repurchase $70 million aggregate principal amount of
53/4% Notes,
resulting in an unusual charge of $9 million in fiscal 2004
including the write-off of deferred financing costs associated
with the repurchase of the
53/4% Notes.
The aggregate outstanding principal amount of
53/4% Notes
at November 30, 2004 was $80 million. In the first
quarter of fiscal 2005, an additional $60 million in
aggregate principal amount of
53/4% Notes
was repurchased with net proceeds from the exercise by an
initial purchaser of the
21/4% Debentures
of its option to purchase additional debentures. The repurchase
of the
53/4% Notes
resulted in an unusual charge of $6 million in fiscal 2005,
including the write-off of deferred financing costs associated
with the repurchased
53/4% Notes.
The holders of the
53/4% Notes
converted a de minimus amount of their notes into
GenCorp’s common stock during fiscal 2005.
|
|
|
4% Contingent Convertible Subordinated Notes |
In January 2004, the Company issued $125 million aggregate
principal amount of its 4% Notes in a private placement
pursuant to Section 4(2) and Rule 144A under the
Securities Act of 1933. The 4% Notes have been registered
for resell for the purchasers who requested registration. The
4% Notes mature in January 2024. Interest on the
4% Notes accrues at a rate of 4% per annum and is
payable on January 16 and July 16, beginning July 16,
2004. In addition, contingent interest is payable during any
six-month period, commencing with the six-month period,
beginning January 16, 2008, if the average market price of
a 4% Note for the five trading days ending on the third
trading day immediately preceding the relevant six-month period
equals 120% or more of the principal amount of the notes.
Each $1,000 principal amount of the 4% Notes is convertible
at each holder’s option into 64.81 shares of the
Company’s common stock (subject to adjustment as provided
in the indenture governing the 4% Notes) only if:
(i) during any calendar quarter the closing price of the
common stock for at least 20 trading days in the 30 trading-day
period ending on the last trading day of the preceding calendar
quarter exceeds 120% of the conversion price; (ii) the
Company has called the 4% Notes for redemption and
redemption has not yet occurred; (iii) during the five
trading day period after any five consecutive trading day period
in which the average trading price of the 4% Notes for each
day of such period is less than 95% of the product of the common
stock price on that day multiplied by the number of shares of
common stock issuable upon conversion of $1,000 principal amount
of the 4% Notes; or (iv) certain corporate events have
occurred. The initial conversion rate of 64.81 shares for
each $1,000 principal amount of the 4% Notes is equivalent
to a conversion price of $15.43 per share subject to
certain adjustments.
The Company may redeem, at its option, some or all of its
4% Notes for cash on or after January 19, 2010. In
addition, the Company may, at its option, redeem some or all of
its 4% Notes for cash on or after January 19, 2008 and
prior to January 19, 2010, if the closing price of its
common stock for at least 20 trading days in the 30 trading-day
period ending on the last trading day of the preceding calendar
month is more than 125% of the conversion price. Each holder may
require the Company to repurchase for cash all or a portion of
71
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
its 4% Notes on January 16, 2010, 2014, and 2019, or,
subject to certain exceptions, upon a change of control. In all
cases for either redemption of the 4% Notes or repurchase
of the 4% Notes at the option of the holder, the price is
equal to 100% of the principal amount of the 4% Notes, plus
accrued and unpaid interest, including contingent interest and
liquidated damages, if any.
The 4% Notes are general unsecured obligations and rank
equal in right of payment to all of the Company’s other
existing and future subordinated indebtedness, including the
53/4% Notes
and the
21/4% Debentures.
The 4% Notes rank junior in right of payment to all of the
Company’s existing and future senior indebtedness,
including all of its obligations under its senior credit
facilities, and all of its existing and future senior
subordinated indebtedness, including the Company’s
outstanding
91/2% Senior
Subordinated Notes. In addition, the 4% Notes are
effectively subordinated to any of the Company’s secured
debt and to any and all debt and liabilities, including trade
debt of its subsidiaries.
The indenture governing the 4% Notes limits the
Company’s ability to, among other things, consolidate with
or merge into any other person, or convey, transfer or lease its
properties and assets substantially as an entirety to any other
person unless certain conditions are satisfied. The indenture
also contains customary events of default, including failure to
pay principal or interest when due, cross-acceleration to other
specified indebtedness, failure to deliver shares of common
stock as required, failure to comply with covenants and certain
events of bankruptcy, insolvency and reorganization, subject in
some cases to notice and applicable grace periods.
Issuance of the 4% Notes generated net proceeds of
approximately $120 million, which were first used to repay
outstanding borrowings under the revolving credit facility and
to prepay the next 12 months of scheduled principal
amortization under Term Loan A. The remaining net proceeds
were available to be used for general corporate purposes.
The holders of the 4% Notes had the right to convert their
notes into GenCorp’s common stock during the calendar
quarters ending June 30, 2005, September 30, 2005, and
December 31, 2005 because the stock price contingent
conversion conditions were met. The holders of the 4% Notes
will not be able to convert their notes into GenCorp’s
common stock for the period January 1, 2006 through
March 31, 2006 because the stock price contingent was not
met in the calendar quarter ended December 31, 2005.
Whether the notes will be convertible after March 31, 2006
will depend on the occurrence of events specified in the
indenture governing the 4% Notes, including the market
price of our common stock.
|
|
|
21/4% Convertible
Subordinated Debentures |
In November 2004, the Company issued $80 million in
aggregate principal amount of its
21/4% Debentures
in a private placement pursuant to Section 4(2) and
Rule 144A under the Securities Act of 1933. In December
2004, an initial purchaser exercised its option to purchase
additional
21/4% Debentures
totaling $66 million aggregate principal amount. The
21/4% Debentures
have been registered for resell for the purchasers who requested
registration. The
21/4% Debentures
mature in November 2024. Interest on the
21/4% Debentures
accrues at a rate of
21/4% per
annum and is payable on May 15 and November 15, beginning
May 15, 2005.
Each $1,000 principal of the
21/4% Debentures
is convertible at each holder’s option, into cash and, if
applicable, the Company’s common stock at an initial
conversion price of $20 per share (subject to adjustment as
provided in the indenture governing the
21/4% Debentures)
only if: (i) during any fiscal quarter the closing price of
the common stock for at least 20 trading days in the 30
consecutive trading day period ending on the last trading day of
the preceding fiscal quarter exceeds 130% of the conversion
price; (ii) the Company has called the
21/4% Debentures
for redemption and redemption has not yet occurred;
(iii) subject to certain exceptions, during the five
business days after any five consecutive trading day period in
which the trading price per $1,000 principal amount of the
21/4% Debentures
for each day of such period is less than 95% of the
72
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
product of the common stock price on that day multiplied by the
conversion rate then in effect; (iv) specified corporate
transactions have occurred; or (v) occurrence of a
transaction or event constituting a designated event. The
Company may be required to pay a make-whole premium in shares of
common stock and accrued but unpaid interest if the
21/4% Debentures
are converted in connection with certain specified designated
events occurring on or prior to November 20, 2011. The
initial conversion rate of 50 shares for each $1,000
principal amount of the
21/4% Debentures
is equivalent to a conversion price of $20 per share,
subject to certain adjustments. None of these events have
occurred subsequent to the issuance of the debentures.
The Company may, at its option, redeem some or all of its
21/4% Debentures
for cash on or after November 15, 2014, at a redemption
price equal to 100% of the principal amount to be redeemed, plus
accrued and unpaid interest, including liquidated damages, if
any, to but not including the redemption date. In addition, the
Company may, at its option, redeem some or all of its
21/4% Debentures
on or after November 20, 2011 and prior to
November 15, 2014, if the closing price of its common stock
for at least 20 trading days in any 30 consecutive trading-day
period is more than 140% of the conversion price of $20, at a
redemption price equal to 100% of the principal amount to be
redeemed, plus accrued and unpaid interest, including liquidated
damages, if any, payable in cash. If the Company so redeems the
21/4% Debentures,
it will make an additional payment in cash, Company common stock
or a combination thereof, at its option, equal to the present
value of all remaining scheduled payments of interest on the
redeemed debentures through November 15, 2014.
Each holder may require the Company to repurchase all or part of
their
21/4% Debentures
on November 20, 2011, November 15, 2014 and
November 15, 2019, or upon the occurrence of certain
events, at a price equal to 100% of the principal amount of the
21/4% Debentures
plus accrued and unpaid interest, including liquidated damages,
if any, payable in cash, to but not including the repurchase
date, plus, in certain circumstances, a make-whole premium,
payable in Company common stock.
The
21/4% Debentures
are general unsecured obligations and rank equal in right of
payment to all of the Company’s other existing and future
subordinated indebtedness, including the
53/4% Notes
and the 4% Notes. The
21/4% Debentures
rank junior in right of payment to all of the Company’s
existing and future senior indebtedness, including all of its
obligations under its senior credit facilities and all of its
existing and future senior subordinated indebtedness, including
the Company’s outstanding
91/2% Senior
Subordinated Notes. In addition, the
21/4% Debentures
are effectively subordinated to any of the Company’s
secured debt and to any and all debt and liabilities, including
trade debt of its subsidiaries.
The indenture governing the
21/4% Debentures
limits the Company’s ability to, among other things,
consolidate with or merge into any other person, or convey,
transfer or lease its properties and assets substantially as an
entirety to any other person unless certain conditions are
satisfied. The indenture also contains customary events of
default, including failure to pay principal or interest when
due, cross-acceleration to other specified indebtedness, failure
to deliver cash or shares of common stock as required, failure
to comply with covenants and certain events of bankruptcy,
insolvency and reorganization, subject in some cases to notice
and applicable grace periods.
Issuance of the
21/4% Debentures
during fiscal 2004 generated net proceeds of approximately
$77 million, which were used to repurchase $70 million
of the
53/4% Notes.
During fiscal 2005, the initial purchaser exercised its option
to purchase an additional $66 million of
21/4% Debentures.
Net cash proceeds were $64 million and were used to
repurchase $60 million of the
53/4% Notes.
73
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
b. Senior Subordinated Notes: |
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Senior subordinated notes, bearing interest at 9.50% per
annum, interest payments due in February and August, maturing in
2013
(91/2% Notes)
|
|
$ |
98 |
|
|
$ |
150 |
|
|
|
|
|
|
|
|
|
|
|
91/2% Senior
Subordinated Notes |
In August 2003, the Company issued $150 million aggregate
principal amount of its
91/2% Notes
due 2013 in a private placement pursuant to Section 4(2)
and Rule 144A under the Securities Act of 1933. The
91/2% Notes
have been exchanged for registered, publicly tradable notes with
substantially identical terms. The
91/2% Notes
mature in August 2013. All or any portion of the
91/2% Notes
may be redeemed by the Company at any time on or after
August 15, 2008 at redemption prices beginning at 104.75%
and reducing to 100% by August 15, 2011. If the Company
undergoes a change of control or sells assets, it may be
required to offer to purchase the
91/2% Notes
from the holders of such notes.
The
91/2% Notes
are unsecured and subordinated to all of the Company’s
existing and future senior indebtedness, including borrowings
under its senior credit facilities. The
91/2% Notes
rank senior to the
53/4% Notes,
the 4% Notes, and the
21/4% Debentures.
The
91/2% Notes
are guaranteed by the Company’s material domestic
subsidiaries. Each subsidiary guarantee is unsecured and
subordinated to the respective subsidiary’s existing and
future senior indebtedness, including guarantees of borrowings
under the senior credit facilities. The
91/2% Notes
and related guarantees are effectively subordinated to the
Company’s and the subsidiary guarantors’ secured debt
and to any and all debt and liabilities, including trade debt of
the Company’s non-guarantor subsidiaries.
The indenture governing the
91/2% Notes
limits the Company’s ability and the ability of the
Company’s restricted subsidiaries, as defined in the
indenture, to incur or guarantee additional indebtedness, make
restricted payments, pay dividends or distributions on, or
redeem or repurchase, its capital stock, make investments, issue
or sell capital stock of restricted subsidiaries, create liens
on assets to secure indebtedness, enter into transactions with
affiliates and consolidate, merge or transfer all or
substantially all of the assets of the Company. The indenture
also contains customary events of default, including failure to
pay principal or interest when due, cross-acceleration to other
specified indebtedness, failure of any of the guarantees to be
in full force and effect, failure to comply with covenants and
certain events of bankruptcy, insolvency and reorganization,
subject in some cases to notice and applicable grace periods.
Pursuant to the
91/2% Notes Indenture,
if the net cash proceeds from the sale of the Fine Chemicals
business are not used to repay debt senior to the
91/2% Notes
or reinvested in the business on or before November 30,
2006, the Company will be required to make an offer to purchase
an aggregate principal amount of such unused net sale proceeds
at par plus accrued and unpaid interest in the first quarter of
fiscal 2007.
Issuance of the
91/2% Notes
generated net proceeds of approximately $145 million. The
Company used a portion of the net proceeds to repay outstanding
revolving loans under its senior credit facilities, and the
balance of the net proceeds to finance a portion of the purchase
price of the acquisition of substantially all of the assets of
the propulsion business of Atlantic Research Corporation and to
pay related fees and expenses.
In October 2004, the Company entered into a supplemental
indenture to amend the indenture dated August 11, 2003 to
(i) permit the refinancing of its outstanding
53/4% Notes
with new subordinated debt having a final maturity or redemption
date later than the final maturity or redemption date of the
53/4% Notes
being refinanced, and (ii) provide that the Company will
have up to ten business days to apply the proceeds of
74
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
refinancing indebtedness toward the redemption or repurchase of
outstanding indebtedness. The supplemental indenture also
amended the definition of refinancing indebtedness to include
indebtedness, the proceeds of which are used to pay a premium
necessary to accomplish a refinancing.
In February 2005, the Company redeemed $52 million
principal amount of its
91/2% Notes,
representing 35% of the $150 million aggregate principal
outstanding. In accordance with the indenture governing the
notes, the redemption price was 109.5% of the principal amount
of the
91/2% Notes
redeemed, plus accrued and unpaid interest. The Company paid the
redemption price using a portion of the restricted cash from the
proceeds of the equity offering completed in November 2004, and
recorded an unusual charge of $7 million in the first
quarter of fiscal 2005, including the write-off of deferred
financing costs associated with the redeemed
91/2% Notes.
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Term loan A, bearing interest at various rates (5.1% as of
November 30, 2004), payable in quarterly installments of
approximately $5 million plus interest through December
2004 and then four quarterly installments of approximately
$7 million plus interest through December 2005, with the
2004 quarterly installments prepaid in January 2004
|
|
$ |
— |
|
|
$ |
28 |
|
Term loan B, bearing interest at various rates (average
rate of 6.02% as of November 30, 2004), payable in
quarterly installments of approximately $300,000 plus interest
through December 2005 and then four quarterly installments of
approximately $8 million plus interest through December
2006, final payment of approximately $79 million due in
March 2007
|
|
|
— |
|
|
|
113 |
|
Term loan, bearing interest at various rates (rate of 7.41% as
of November 30, 2005), payable in quarterly installments of
approximately $250,000 plus interest, maturing in 2010
|
|
|
55 |
|
|
|
— |
|
Revolving Credit Facility, bearing interest on borrowed amounts
at various rates (8.50% as of November 30, 2005) maturing
in 2009
|
|
|
— |
|
|
|
— |
|
|
Other
|
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
|
|
Total other debt
|
|
|
55 |
|
|
|
142 |
|
Less: Amounts due within one year
|
|
|
(1 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
Other long-term debt, net of current portion
|
|
$ |
54 |
|
|
$ |
119 |
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility and Term Loans |
In December 2004, the Company entered into a new
$180 million credit facility (New Credit Facility) with a
syndicate of lenders. The New Credit Facility provides for an
$80 million revolving credit facility (Revolver) maturing
in December 2009, and a $100 million credit-linked facility
maturing in December 2010; subject to early maturity in January
2007 if the
53/4% Notes
remain outstanding or have not been cash collateralized by then.
As of November 30, 2005, the credit-linked facility
consisted of a $55 million term loan subfacility and a
$44 million letter of credit subfacility. Interest rates
are based on LIBOR borrowings or Alternate Base Rate borrowings,
as defined in the Credit Agreement. The interest rate on the
revolving credit facility is currently LIBOR plus 225 basis
points, or Alternate Base Rate plus 125 basis points,
subject to adjustment based on the Company’s senior
leverage ratio, to a maximum of LIBOR plus 300 basis
points, or Alternate Base Rate plus 200 basis points. The
interest rate on the term loan for fiscal 2006 has been amended
75
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
to be LIBOR plus 325 basis points, or Alternate Base Rate
plus 225 basis points, subject to a 50 basis point
increase in the event that the Company’s senior secured
debt ratings are lowered to certain levels. The fees on the
letter of credit subfacility for 2006 have also been amended to
be 325 basis points plus any shortfall from LIBOR earned on
the credit-linked deposits, subject to a 50 basis point
increase in the event that the Company’s senior secured
debt ratings are lowered to certain levels. The Revolver
commitment fee is .5% per annum on the unused balance of
the Revolver. As of November 30, 2005, the borrowing limit
under the Revolver was $80 million of which the Company had
zero outstanding borrowings. The Company also had
$55 million outstanding on the term loan and
$27 million outstanding letters of credit.
The New Credit Facility is secured by substantially all of the
Company’s assets, including the stock and assets of its
material domestic subsidiaries that are guarantors of this
facility. The Company is subject to certain limitations
including the ability to: incur additional debt or sell assets,
with restrictions on the use of proceeds; make certain
investments and acquisitions; grant liens; and make restricted
payments. The Company is also subject to financial covenants as
amended, and are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Ratios | |
|
Required Covenants | |
|
Required Covenants Dec. 1, 2005 | |
Financial Covenant |
|
November 30, 2005 | |
|
Through November 30, 2005 | |
|
Through Nov. 30, 2006 | |
|
|
| |
|
| |
|
| |
Interest coverage ratio
|
|
|
2.68 to 1.00 |
|
|
|
Not less than: 2.00 to 1.00 |
|
|
|
Not less than: 2.00 to 1.00 |
|
Fixed charge coverage ratio
|
|
|
2.12 to 1.00 |
|
|
|
Not less than: 1.10 to 1.00 |
|
|
|
Not less than: 1.15 to 1.00 |
|
Leverage ratio
|
|
|
5.39 to 1.00 |
|
|
|
Not greater than: 7.50 to 1.00 |
|
|
|
Not greater than: 8.00 to 1.00 |
|
Senior leverage ratio
|
|
|
0.00 to 1.00 |
|
|
|
Not greater than: 2.50 to 1.00 |
|
|
|
Not greater than: 2.50 to 1.00 |
|
The Company was in compliance with its financial covenants as of
November 30, 2005. In January 2006, the Company entered
into an Amendment to increase the maximum leverage covenant to
8.00 to 1.00 for fiscal 2006 and increase the interest rate on
the credit linked facility as discussed above. In August 2005,
the Company entered into an Amendment and Waiver to the Credit
Agreement, which permitted the Company to provide seller
financing in connection with the sale of the Fine Chemicals
business and waived compliance with the Fixed Charge Coverage
Ratio covenant for the period calculated as of August 31,
2005 due to the non-recurring investment for the Fine Chemicals
business.
The New Credit Facility replaces the previous credit facility
(Restated Credit Facility), which was terminated by the Company
in December 2004. The outstanding term loans totaling
$141 million plus accrued interest under the Restated
Credit Facility were repaid in full using restricted cash from
the proceeds of the GDX Automotive sale completed in August 2004
and an equity offering completed in November 2004. The Company
recorded an unusual charge of $5 million as a result of the
termination of the Restated Credit Facility in the first quarter
of fiscal 2005, representing the write-off of deferred financing
costs.
The Restated Credit Facility existing as of November 30,
2004 was originally a $500 million facility entered into in
December 2000 to finance an acquisition and to refinance a
former credit facility. As a result of amendments in 2001 and
repayment of debt using proceeds from the sale of Aerojet’s
EIS business, the credit facility was restructured to consist of
a $137 million revolving credit facility and a Term
Loan A maturing in December 2005. In October 2002, the
Company amended and restated the credit facility to provide for
a new Term Loan B in the amount of $115 million
maturing in March 2007. Proceeds of the Term Loan B were
used to finance the acquisition of the Redmond, Washington
operations and repay outstanding revolving loans.
The Company entered into several amendments, consents and
waivers (Amendments) with the lenders of the Restated Credit
Facility during fiscal 2003 and fiscal 2004 to among other
things (i) amended certain financial covenants;
(ii) permitted the issuance and use of proceeds of the
91/2% Notes
and the 4% Notes; (iii) allowed the sale of the GDX
business and provided temporary restrictions on the
$70 million of net proceeds; and (iv) allowed for
temporary restrictions on the net proceeds from the issuance of
common stock in the public offering.
76
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company paid a commitment fee between 0.375% and 0.50%
(based on the most recent leverage ratio) on the unused balance
of the Revolver. Borrowings under the Restated Credit Facility
bore interest at the borrower’s option, at various rates of
interest, based on an adjusted base rate (defined as the prime
lending rate or federal funds rate plus 0.50%) or Eurocurrency
rate plus, in each case, an incremental margin. For the Revolver
and Term Loan A borrowings, the incremental margin was
based on the most recent leverage ratio. For base rate loans,
the margin ranged between 0.75% and 2.00%, and for the
Eurocurrency loans, the margin ranged between 1.75% and 3.00%.
For Term Loan B borrowings the margins for base rate loans
and Eurocurrency rate loans were 2.75% and 3.75%, respectively.
Prior to the sale of GDX, the Company had credit facilities in
Europe and Canada, as well as other bank loans and capitalized
leases relating to its discontinued operations. With the sale of
GDX effective August 31, 2004 (see Note 18), the
outstanding debt relating to the GDX business was paid in full
or assumed by Cerberus and the foreign credit facilities were
terminated. The remaining balance of other debt of less than
$1 million and $1 million as of November 30, 2005
and 2004, respectively, represents a capitalized equipment lease
for continuing operations.
Effective January 2003, the Company entered into interest rate
swap agreements on $100 million of its variable rate term
loan debt for a two-year period. Under the swap agreements, the
Company made payments based on a fixed rate of 6.02% and receive
a London InterBank Offered Rate (LIBOR) based variable rate
(5.81% as of November 30, 2004). The Company accounts for
the interest rate swaps pursuant to SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities,
and there was no material ineffectiveness recognized in
earnings. As of November 30, 2004, the fair value of these
swaps was immaterial and the swaps were terminated in December
2004 concurrent with the repayment of the term loans.
On October 17, 2003, the Company’s Aerospace and
Defense segment completed the acquisition of substantially all
of the assets of the propulsion business of Atlantic Research
Corporation (ARC), a subsidiary of Sequa Corporation (Sequa), at
a purchase price of $144 million, comprised of
$133 million in cash and direct acquisition costs and
purchase price adjustments of $11 million. This acquisition
makes Aerojet a leading supplier of solid rocket motors for
tactical and missile defense applications and complements
Aerojet’s capabilities for air breathing and strategic
systems.
77
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The table presented below summarizes the allocation of the fair
value of ARC’s assets acquired and liabilities assumed as
of the acquisition date:
|
|
|
|
|
|
|
|
|
October 17, 2003 | |
|
|
| |
|
|
(In millions) | |
Current assets
|
|
$ |
51 |
|
Noncurrent assets
|
|
|
53 |
|
Intangible assets subject to amortization(1)
|
|
|
|
|
|
Customer related(2)
|
|
|
12 |
|
|
Process technology(3)
|
|
|
7 |
|
Goodwill
|
|
|
61 |
|
|
|
|
|
|
Total assets acquired
|
|
|
184 |
|
|
|
|
|
Current liabilities
|
|
|
23 |
|
Noncurrent liabilities
|
|
|
17 |
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
40 |
|
|
|
|
|
|
|
Net assets acquired
|
|
$ |
144 |
|
|
|
|
|
|
|
(1) |
25 year weighted average useful life. |
|
(2) |
27 year life on customer related intangibles. |
|
(3) |
22 year life on process technology. |
The Company recorded $61 million of goodwill in its
Aerospace and Defense segment and expects $32 million of
goodwill to be deductible for tax purposes. As a condition to
the Federal Trade Commission’s approval of the acquisition
of the propulsion business from ARC, Aerojet was required to
divest the former ARC in-space propulsion business operated out
of facilities located in New York and the United Kingdom. As
such, $6 million of assets and $2 million of
liabilities at these locations were recorded as held for sale
and were included in assets and liabilities of discontinued
operations, respectively, as of November 30, 2003. During
fiscal 2004, the Company adjusted the valuation of the assets
and liabilities held for sale by $2 million as a result of
more accurate data and sold the business to American Pacific
Corporation for approximately $4 million in cash and the
assumption of certain liabilities. During fiscal 2005, goodwill
was reduced by $1 million as a result of an adjustment to
the valuation of a liability.
Pension Benefits — The Company has defined
benefit pension plans covering substantially all salaried and
hourly employees. Normal retirement age is 65, but certain plan
provisions allow for earlier retirement. Pension benefits are
calculated under formulas based on average earnings and length
of service for salaried employees and under negotiated non-wage
based formulas for hourly employees. At the beginning of fiscal
2005 the Company had three qualified defined benefit pension
plans. The Company merged its two most significant plans
effective August 31, 2005. The merger provides economies in
the administrative functions, may reduce volatility of future
contributions to the plan, if any, and avoids a charge to
shareholders’ deficit as of November 30, 2005 due to a
shortfall of assets in one of the plans prior to the merger
caused primarily from the decline in interest rates. Adjustment
to shareholders’ deficit in the future could be required
based on future market returns on plan assets and changes in
interest rates. The Company’s funding policy complies with
funding requirements under applicable laws and regulations, and
most participants are covered under its most significant pension
plan which meets the IRS full funding requirements as of
November 30, 2005.
78
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Medical and Life Benefits — The Company
provides medical and life insurance benefits (postretirement
benefits) to certain eligible retired employees, with varied
coverage by employee group. Generally, employees hired after
January 1, 1997 are not eligible for medical and life
insurance benefits. The medical benefit plan provides for cost
sharing between the Company and its retirees in the form of
retiree contributions, deductibles, and coinsurance. Medical and
life benefit obligations are unfunded.
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (Act) was signed into
law. The Act introduces a prescription drug benefit under
Medicare Part D as well as a federal subsidy to sponsors of
retiree health care benefit plans that provide a benefit that is
at least actuarially equivalent to Medicare Part D. During
the fourth quarter of fiscal 2004, the Company elected to record
the effects of the Act in accordance with the guidelines of FASB
Staff Position No. 106-2 (FSP 106-2) Accounting and
Disclosure Requirements Related to the Medicare Prescription
Drug Improvement and Modernization Act of 2003. The Company
reduced its accumulated plan benefit obligation by
$3 million related to the Act and expects to receive an
annual federal subsidy of less than $0.5 million per year
beginning in fiscal 2006.
During fiscal 2005, the Company recorded a legal settlement
charge of less than $1 million related to the Wotus,
et al. v. GenCorp Inc. et al. case and
related cases. The remaining estimated medical costs of the
settlement of $12 million to $18 million will be
accounted for as a plan amendment pursuant to SFAS 106,
Employer’s Accounting for Postretirement Benefits Other
Than Pensions, and amortized over a period of years. Also
during fiscal 2005, the Company announced an amendment to its
medical plan for salaried retirees and certain hourly retirees.
Under the plan amendment, effective January 1, 2006, the
Company is reducing its obligations for those retirees eligible
for coverage under a Company-sponsored national insured plan
which will integrate with Medicare Part D. The estimated
decrease in the benefit obligation of approximately
$10 million to $20 million will be accounted for as a
plan amendment pursuant to SFAS 106, and amortized over a
period of years.
Defined Contribution 401(k) Benefits — The
Company sponsors defined contribution 401(k) plans and
participation in these plans is available to all employees.
Company contributions to these plans generally are based on a
percentage of employee contributions. The cost of these plans
for both continuing and discontinued operations was
$8 million in fiscal 2005, $9 million in fiscal 2004,
and $7 million in fiscal 2003. The Company’s
contribution to the plans is invested entirely in the GenCorp
Stock Fund, and may be funded with cash or shares of GenCorp
common stock. There are no restrictions on participants
re-allocating all or a part of their accounts in the GenCorp
Stock Fund to other investment choices.
79
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Summarized below are the balance sheet impacts of the
Company’s pension benefits and medical and life benefits.
Pension benefits include the two remaining qualified plans as
well as the unfunded non-qualified plan for benefits provided to
employees beyond those provided by the Company’s qualified
plans. Plan assets, benefit obligations, and the funded status
of the plans are determined at the annual measurement date of
August 31 for each year presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and | |
|
|
Pension Benefits | |
|
Life Benefits | |
|
|
| |
|
| |
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value — beginning of year
|
|
$ |
1,636 |
|
|
$ |
1,624 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
Actual return on plan assets
|
|
|
186 |
|
|
|
191 |
|
|
|
— |
|
|
|
— |
|
|
|
Divestiture(1)
|
|
|
— |
|
|
|
(52 |
) |
|
|
— |
|
|
|
— |
|
|
|
Employer contributions
|
|
|
4 |
|
|
|
2 |
|
|
|
11 |
|
|
|
20 |
|
|
|
Benefits paid
|
|
|
(132 |
) |
|
|
(129 |
) |
|
|
(11 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value — end of year
|
|
$ |
1,694 |
|
|
$ |
1,636 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation — beginning of year
|
|
$ |
1,617 |
|
|
$ |
1,603 |
|
|
$ |
127 |
|
|
$ |
190 |
|
|
|
Service cost(2)
|
|
|
14 |
|
|
|
17 |
|
|
|
1 |
|
|
|
1 |
|
|
|
Interest cost(2)
|
|
|
114 |
|
|
|
115 |
|
|
|
7 |
|
|
|
11 |
|
|
|
Amendments
|
|
|
12 |
|
|
|
1 |
|
|
|
(7 |
) |
|
|
— |
|
|
|
Divestiture(1)
|
|
|
— |
|
|
|
(44 |
) |
|
|
— |
|
|
|
(8 |
) |
|
|
Medicare Act(3)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
Actuarial (gain) loss
|
|
|
92 |
|
|
|
54 |
|
|
|
(4 |
) |
|
|
(44 |
) |
|
|
Benefits paid
|
|
|
(132 |
) |
|
|
(129 |
) |
|
|
(11 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation — end of year(4)
|
|
$ |
1,717 |
|
|
$ |
1,617 |
|
|
$ |
113 |
|
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans
|
|
$ |
(23 |
) |
|
$ |
19 |
|
|
$ |
(113 |
) |
|
$ |
(127 |
) |
|
Unrecognized actuarial loss
|
|
|
234 |
|
|
|
246 |
|
|
|
(30 |
) |
|
|
(32 |
) |
|
Unrecognized prior service cost
|
|
|
20 |
|
|
|
9 |
|
|
|
(10 |
) |
|
|
(8 |
) |
|
Fourth quarter divestiture(1)
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Minimum funding liability
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
Employer contributions/benefit payments August 31 through
November 30
|
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset (Liability) Recognized in the Consolidated Balance
Sheets(5)
|
|
$ |
228 |
|
|
$ |
274 |
|
|
$ |
(150 |
) |
|
$ |
(164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pension asset
|
|
$ |
233 |
|
|
$ |
278 |
|
|
$ |
— |
|
|
$ |
— |
|
Pension liability currently payable
|
|
|
(7 |
) |
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
Medical and life benefits, current
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
(15 |
) |
Medical and life benefits, long term
|
|
|
— |
|
|
|
— |
|
|
|
(138 |
) |
|
|
(149 |
) |
80
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and | |
|
|
Pension Benefits | |
|
Life Benefits | |
|
|
| |
|
| |
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Other noncurrent pension liabilities
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
Intangible assets
|
|
|
2 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
Accumulated other comprehensive loss
|
|
|
2 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset (Liability) Recognized in the Consolidated Balance
Sheets
|
|
$ |
228 |
|
|
$ |
274 |
|
|
$ |
(150 |
) |
|
$ |
(164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
As discussed in Note 18, the Company sold the GDX business
effective August 31, 2004 and transferred pension and other
medical and life benefit obligations and related assets to the
buyer for foreign operations and certain domestic employees
(shown as “Divestiture” in table above). In addition,
the Company sold the Fine Chemicals business effective
November 30, 2005 and will transfer pension obligations and
related assets to the buyer during fiscal year 2006 (shown as
“Fourth quarter divestiture” in table above). |
|
(2) |
The changes in the fair value of plan assets and benefit
obligations shown in the table above include the impacts of
discontinued operations. The service cost and interest costs are
combined for both continuing and discontinued operations. |
|
(3) |
The Company reduced its accumulated plan benefit obligation in
fiscal 2004 by $3 million related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003. |
|
(4) |
Pension amounts include $17 million in fiscal 2005 and
$14 million in fiscal 2004 for unfunded plans. |
|
(5) |
Pension amounts include $12 million in fiscal 2005 and
$13 million in fiscal 2004 for unfunded plans. |
The accumulated benefit obligation for the defined benefit
pension plans was $1,669 million and $1,589 million as
of the August 31, 2005 and 2004 measurement dates,
respectively.
Of the two remaining qualified plans, one plan has an
accumulated benefit obligation in excess of plan assets, as
detailed below:
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Projected benefit obligation
|
|
$ |
20 |
|
|
$ |
11 |
|
Accumulated benefit obligation
|
|
|
7 |
|
|
|
2 |
|
Fair value of plan assets
|
|
|
3 |
|
|
|
1 |
|
81
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Components of net periodic benefit (income) expense for
continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and | |
|
|
Pension Benefits | |
|
Life Benefits | |
|
|
| |
|
| |
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Service cost
|
|
$ |
14 |
|
|
$ |
12 |
|
|
$ |
10 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1 |
|
Interest cost on benefit obligation
|
|
|
114 |
|
|
|
113 |
|
|
|
106 |
|
|
|
7 |
|
|
|
10 |
|
|
|
12 |
|
Assumed return on plan assets(1)
|
|
|
(134 |
) |
|
|
(135 |
) |
|
|
(139 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of transition obligation
|
|
|
— |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of prior service costs
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
Amortization of net (gains) losses
|
|
|
55 |
|
|
|
48 |
|
|
|
13 |
|
|
|
(6 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) expense
|
|
$ |
51 |
|
|
$ |
38 |
|
|
$ |
(10 |
) |
|
$ |
(3 |
) |
|
$ |
6 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Actual returns for continuing and discontinued operations plan
assets were $186 million in fiscal 2005, $191 million
in fiscal 2004, and $159 million in fiscal 2003. |
Components of net periodic benefit (income) expense for
discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Pension and medical and life benefit (income) expense
|
|
$ |
1 |
|
|
$ |
9 |
|
|
$ |
(5 |
) |
Settlement/curtailment(1)
|
|
|
2 |
|
|
|
10 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) expense
|
|
$ |
3 |
|
|
$ |
19 |
|
|
$ |
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Related to the sale of the Fine Chemicals and GDX businesses in
fiscal 2005 and 2004, respectively. |
Market conditions and interest rates significantly affect assets
and liabilities of our pension plans. Pension accounting
requires that market gains and losses be deferred and recognized
over a period of years. This “smoothing” result in the
creation of assets or liabilities which will be amortized to
pension costs in future years. The accounting method we utilize
recognizes one-fifth of the unamortized gains and losses in the
market-related value of pension assets and all other gains and
losses including changes in the discount rate used to calculate
benefit costs each year. Investment gains or losses for this
purpose are the difference between the expected return and the
actual return on the market-related value of assets which
smoothes asset values over three years. Although the smoothing
period mitigates some volatility in the calculation of annual
pension costs, future pension costs are impacted by changes in
the market value of pension plan assets and changes in interest
rates.
82
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company used the following assumptions, calculated based on
a weighted-average, to determine the benefit obligations for the
applicable fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension | |
|
Medical and | |
|
|
Benefits | |
|
Life Benefits | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Discount rate
|
|
|
5.50 |
% |
|
|
6.25 |
% |
|
|
5.20 |
% |
|
|
6.00 |
% |
Expected long-term rate of return on plan assets
|
|
|
8.75 |
% |
|
|
8.75 |
% |
|
|
* |
|
|
|
* |
|
Rate of compensation increase
|
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
* |
|
|
|
* |
|
Initial healthcare trend rate
|
|
|
* |
|
|
|
* |
|
|
|
11.00 |
% |
|
|
10.00 |
% |
Ultimate healthcare trend rate
|
|
|
* |
|
|
|
* |
|
|
|
5.00 |
% |
|
|
5.00 |
% |
Year ultimate rate attained
|
|
|
* |
|
|
|
* |
|
|
|
2011 |
|
|
|
2011 |
|
Certain actuarial assumptions, such as assumed discount rate,
long-term rate of return, and assumed healthcare cost trend
rates can have a significant effect on amounts reported for
periodic cost of pension benefits and medical and life benefits,
as well as respective benefit obligation amounts. The assumed
discount rate represents the market rate available for
investments in high-quality fixed income instruments with
maturities matched to the expected benefit payments for pension
and medical and life benefit plans. For 2005 pension benefit
obligations, the discount rate was reduced by 75 basis
points to 5.50%, and for medical and life benefit obligations
the discount rate was reduced by 80 basis points to 5.20%.
The long-term rate of return for plan assets is based on current
and expected asset allocations, as well as historical and
expected returns on various categories of plan assets. With
input from the Company’s investment advisors and actuaries,
best estimate assumptions are developed for each asset class by
reviewing return forecasts of external investment management
firms as well as historical returns for each asset class,
including incremental returns achieved through active management
and expected management fees and plan expenses. These
assumptions are applied to the expected asset mix to determine
the long-term rate of return assumption. The Company assumed an
expected return on plan assets of 8.75% for fiscal 2005 benefit
obligations, consistent with fiscal 2004.
The Company reviews external data and its own historical trends
for healthcare costs to determine the healthcare cost trend
rates for the medical benefit plans. For 2005 medical benefit
obligations, the Company assumed an 11% annual rate of increase
in the per capita cost of covered healthcare claims with the
rate decreasing over 6 years until reaching 5%.
Based on these and other assumptions as of the August 31,
2005 measurement date, the Company estimates that its net
periodic pension and medical and life expense will be
approximately $44 million in fiscal 2006, a decrease of
$4 million compared to fiscal 2005.
83
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A one percentage point change in the key assumptions would have
the following effects on the projected benefit obligations as of
November 30, 2005 and on expense for fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits and | |
|
|
|
|
|
|
Medical and Life Benefits | |
|
Expected Long-term | |
|
Assumed Healthcare | |
|
|
Discount Rate | |
|
Rate of Return | |
|
Cost Trend Rate | |
|
|
| |
|
| |
|
| |
|
|
|
|
Projected | |
|
|
|
Net Periodic |
|
Accumulated | |
|
|
Net Periodic | |
|
Benefit | |
|
Net Periodic Pension | |
|
Medical and Life |
|
Benefit | |
|
|
Benefit Expense | |
|
Obligation | |
|
Benefit Expense | |
|
Benefit Expense |
|
Obligation | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
(In millions) | |
1% decrease
|
|
$ |
19 |
|
|
$ |
121 |
|
|
$ |
9 |
|
|
$ |
— |
|
|
$ |
(2 |
) |
1% increase
|
|
|
(18 |
) |
|
|
(109 |
) |
|
|
(9 |
) |
|
|
— |
|
|
|
2 |
|
|
|
|
d. Plan Assets and Investment Policy |
The Company’s pension plans weighted average asset
allocation and the investment policy asset allocation targets at
August 31, 2005 and 2004 (the Plans measurement dates), by
asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Actual | |
|
Target(1) | |
|
Actual | |
|
Target(1) | |
|
|
| |
|
| |
|
| |
|
| |
Domestic equity securities
|
|
|
29 |
% |
|
|
28 |
% |
|
|
42 |
% |
|
|
43 |
% |
International equity securities
|
|
|
15 |
|
|
|
15 |
|
|
|
15 |
|
|
|
15 |
|
Fixed income
|
|
|
39 |
|
|
|
41 |
|
|
|
42 |
|
|
|
41 |
|
Real estate
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Alternative investments
|
|
|
15 |
|
|
|
15 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Target range is plus or minus 2%. |
The Company’s investment strategy consists of a long-term,
risk-controlled approach using diversified investment options.
Plan assets are invested in asset classes that are expected to
produce a sufficient level of diversification and investment
return over the long term. The investment goals are to achieve
the long term rate of return within reasonable and prudent
levels of risk and to preserve the value of assets to meet
future obligations. Alternative investments include hedge funds,
venture capital funds, private equity investments, and other
investments.
The Company expects to pay $2 million in benefits to
participants for unfunded pension plans in fiscal 2006. In
addition, the Company expects to contribute $4 million to
one of its funded pension plans, which is partially recoverable
under government contracts.
84
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following presents estimated future benefit payments,
including expected future service:
|
|
|
|
|
|
|
|
|
|
|
Pension | |
|
Medical and | |
|
|
Benefits | |
|
Life Benefits | |
|
|
| |
|
| |
|
|
(In millions) | |
2006
|
|
$ |
131 |
|
|
$ |
12 |
|
2007
|
|
|
129 |
|
|
|
11 |
|
2008
|
|
|
127 |
|
|
|
11 |
|
2009
|
|
|
124 |
|
|
|
11 |
|
2010
|
|
|
121 |
|
|
|
11 |
|
Years 2011 — 2015
|
|
|
570 |
|
|
|
45 |
|
|
|
14. |
Commitments and Contingencies |
The Company and its subsidiaries lease certain facilities,
machinery and equipment and office buildings under long-term,
non-cancelable operating leases. The leases generally provide
for renewal options ranging from two to seventeen years and
require the Company to pay for utilities, insurance, taxes and
maintenance. Rent expense was $8 million in fiscal 2005,
$7 million in fiscal 2004, and $3 million in fiscal
2003. The Company also leases certain surplus facilities to
third parties. The Company recorded lease revenue of
$7 million in fiscal 2005 and $6 million fiscal 2004
and fiscal 2003 related to these arrangements, which have been
included in net sales. The future minimum rental commitments
under all non-cancelable operating leases and lease revenue in
effect as of November 30, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Future Minimum | |
|
Lease | |
|
|
Rental Commitments | |
|
Revenue | |
|
|
| |
|
| |
|
|
(In millions) | |
2006
|
|
$ |
6 |
|
|
$ |
6 |
|
2007
|
|
|
5 |
|
|
|
6 |
|
2008
|
|
|
2 |
|
|
|
5 |
|
2009
|
|
|
2 |
|
|
|
3 |
|
2010
|
|
|
1 |
|
|
|
— |
|
Thereafter
|
|
|
5 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
$ |
21 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
From time to time, the Company and its subsidiaries are subject
to legal proceedings, including litigation in federal and state
courts, which arise out of, and are incidental to, the ordinary
course of the Company’s on-going and historical businesses.
The Company is also subject to governmental investigations by
state and federal agencies. The Company cannot predict the
outcome of such proceedings with any degree of certainty, and
therefore as of November 30, 2005, except as noted below,
an estimate of a probable loss or range of loss cannot be made.
The potential liabilities that may result could have a material
adverse effect on the Company’s financial position or the
results of operations.
85
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Along with other industrial Potentially Responsible Parties
(PRPs) and area water purveyors, Aerojet was sued in three cases
by approximately 500 individual plaintiffs residing in the
vicinity of Aerojet’s facilities near Sacramento,
California (the Sacramento cases). One of the cases was
subsequently dismissed by the plaintiff. The trial court
determined that the Public Utility Commission regulated water
purveyor defendants did not serve water in violation of state
and federal standards. Accordingly, such regulated water
entities were dismissed from the litigation. Aerojet is the sole
defendant remaining in this litigation. The Sacramento Superior
Court through the initial pleading stage reduced the number of
plaintiffs in the Sacramento cases to approximately 300. On or
about May 28, 2004 and July 23, 2004, the Sacramento
Superior Court dismissed, without leave to amend, nearly 250
plaintiffs, leaving the number of plaintiffs at 53. Subsequent
dismissals, consolidation of another suit and a settlement with
a group of plaintiffs have reduced the number of plaintiffs to
18. The remaining individual plaintiffs in the Sacramento cases
generally seek damages for illness (in some cases death) and
economic injury allegedly caused by their ingestion of
groundwater contaminated or by Aerojet and others, without
specifying actual damages. Trial in the Sacramento cases has
been set for February 2006.
Aerojet and other defendants were sued by the Orange County
Water District, a public entity with jurisdiction over
groundwater resources and water supplies in Orange County.
Orange County Water District v. Northrop Corporation,
et al. Case No. O4CC00715, Orange County
(CA) Superior Court, served December 29, 2004. The
plaintiff alleges that groundwater in Orange County, California
is contaminated with chlorinated solvents that were allegedly
released to the environment by Aerojet and other industrial
defendants causing it to incur unspecified response costs and
other damages. The plaintiff seeks declaratory relief and
recovery of past costs in connection with investigation and
remediation of groundwater resources. Discovery is ongoing.
In October 2002, Aerojet, along with approximately 65 other
individual and corporate defendants, was served with four civil
suits filed in the U.S. District Court for the Central
District of California that seek recovery of costs allegedly
incurred in response to the contamination present at the South
El Monte Operable Unit (SEMOU) of the San Gabriel
Valley Superfund site. The cases are denominated as follows:
The City of Monterey Park v. Aerojet-General
Corporation, et al., (CV-02-5909 ABC (RCx));
San Gabriel Basin Water Quality Authority v.
Aerojet-General Corporation, et al., (CV-02-4565 ABC
(RCx)); San Gabriel Valley Water Company v.
Aerojet-General Corporation, et al., (CV-02-6346 ABC
(RCx)) and Southern California Water Company v.
Aerojet-General Corporation, et al., (CV-02-6340 ABC
(RCx)). The cases have been coordinated for ease of
administration by the court. The plaintiffs’ claims are
based upon allegations of discharges from a former site in the
El Monte area, as more fully discussed below under the headings
“San Gabriel Valley Basin, California —
South El Monte Operable Unit.” The total cost estimate to
implement projects under the Unilateral Administrative Order
(UAO) prepared by the EPA and the water entities is
approximately $90 million. Aerojet investigations do not
identify a credible connection between the contaminants
identified by the water entities in the SEMOU and those detected
at Aerojet’s former facility located in El Monte,
California, near the SEMOU (East Flair Drive site). Aerojet has
filed third-party complaints against several water entities on
the basis that they introduced perchlorate-containing Colorado
River water to the basin. Those water entities have filed
motions to dismiss Aerojet’s complaints. The motions as
well as discovery have been stayed pending efforts to resolve
the litigation through mediation.
In August 1991, Olin Corporation (Olin) advised the Company that
under a 1962 manufacturing agreement with Olin (the 1962
Agreement), it believed GenCorp to be jointly and severally
liable for certain
86
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Superfund remediation costs, estimated by Olin to be
$70 million. The costs were associated with a former Olin
manufacturing facility and its waste disposal sites in Ashtabula
County, Ohio. In 1993, the Company sought a declaratory judgment
in federal court (the Ohio Court) that it was not responsible
for such environmental remediation costs. GenCorp
Inc. v. Olin Corporation, Case No. 5:93CV2269,
U.S. District Court, N.D. Ohio. Olin counterclaimed seeking
a judgment that the Company was liable for a share of
remediation costs. The Company argued that it was not
derivatively or directly liable as an arranger for disposal of
waste at the “Big D Campground” landfill (the Big D
site), both as a matter of fact and law. As a defense to
Olin’s counterclaim, the Company asserted that under the
terms of the 1962 Agreement, Olin had a contractual obligation
to insure against environmental and other risks and that its
failure to protect such insurance payments under these policies
precluded Olin from recovery against the Company for these
remediation costs. Further, the Company asserted that any
failure on Olin’s part to comply with the terms of such
insurance policies would result in the Company being entitled to
breach of contract remedies resulting in a reduction in any
CERCLA liability amounts determined to be owed to Olin that
would have otherwise been recovered from Olin’s insurance
carriers (the Reduction Claims).
At trial, the Ohio Court found GenCorp 30% liable and Olin 70%
liable for the Big D site, and GenCorp 40% liable and Olin 60%
liable for another site, for CERCLA remediation costs. On
November 21, 2002, the Ohio Court issued a memorandum
opinion and judgment entering “final” judgment in
favor of Olin in the amount of approximately $19 million
plus prejudgment interest, which at the time amounted to
approximately $10 million. At that time, the Ohio Court did
not decide the Company’s Reduction Claims against Olin. The
Ohio Court held that the Company’s Reduction Claims
“are held in abeyance pending the resolution of
[Olin’s] appeal in the New York insurance litigation.”
On January 22, 2003, the Ohio Court issued a judgment order
stating the case was “terminated” on the Ohio
Court’s docket. However, in its memorandum opinion and
order of the same date, the Ohio Court stated “[w]hether
there was an insurable event upon which Olin would have been
entitled to recovery had it provided its insurers with timely
notice ... and ... whether GenCorp is entitled to credit based
upon Olin’s omission which foreclosed insurance recovery
for Big D, remain unresolved.” Management believes that a
recovery on the Company’s Reduction Claims could range from
a nominal amount to an amount sufficient to reduce the judgment
against the Company in its entirety.
On November 21, 2005, after losing its appeal with the
Sixth Circuit Court of Appeals and after its petition to the
United States Supreme Court for a writ of certiorari was denied,
the Company paid the full amount of the judgment plus interest
to Olin in the amount of $30 million which resulted in a
$28 million unusual charge in the fourth quarter of fiscal
2005.
In November 2005, Olin filed a new lawsuit against the Company
seeking recovery from the Company of approximately
$1 million for certain remediation costs Olin allegedly
incurred between January 1, 2000 and December 31, 2004
relating to the sites at issue in the first litigation, which
was recorded as an unusual charge in the fourth quarter of
fiscal 2005.
In a related case, on August 27, 2002, the
U.S. District Court for the Southern District of New York
(the NY Court) ruled that Olin failed to protect its right to
payments under its insurance policies for the Big D site. The NY
Court based its ruling on the fact that Olin had failed to
timely notify its insurance carriers of its claims. Given
Olin’s contractual obligations and the NY Court’s
finding that Olin failed to give proper notice of a claim under
these insurance policies, management could not then, or at this
time, estimate the possible amount of liability arising from
this case, if any.
Olin appealed the NY Court’s ruling to the Second Circuit
Court of Appeals. In November 2003, the Second Circuit Court of
Appeals vacated the NY Court’s decision with respect to
Olin’s excess insurance carriers. While the Second Circuit
Court of Appeals upheld the dismissal as to the primary
carriers, it held that the NY Court failed to make a record
sufficient to dismiss the excess carriers. Thus, the case was
87
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
remanded to the NY Court for further proceedings. On further
review, the NY Court may still decide that Olin’s notice to
the excess insurance carriers was untimely or could decide it
was timely.
In summary, the Reduction Claims portion of the case is on hold
pending final resolution of the NY Court’s determination as
to whether Olin’s notice to its insurance carriers was or
was not timely. If Olin prevails in the NY Court action against
its excess insurance carriers, it is expected that the Company
will ultimately benefit from available insurance proceeds as
part of the Company’s Reduction Claims. If the NY Court
decides Olin’s notice to its insurers was untimely, the
Ohio Court could rule in GenCorp Inc. v. Olin
Corporation that Olin’s late notice constituted a
breach of Olin’s obligation under the 1962 Agreement to
protect the insurance; or it could conclude that Olin’s
conduct does not support the Company’s Reduction Claims. If
the Ohio Court rules that Olin’s late notice is a breach of
the 1962 Agreement, then it must determine the damages suffered
by the Company as a result of the breach. The Company has argued
that the proper measure of damages is the coverage limits of the
policies that Olin forfeited — an amount in this case
that is more than the judgment paid by the Company to Olin.
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Vinyl Chloride Litigation |
Between the early 1950s and 1985, the Company produced polyvinyl
chloride (PVC) resin at its former Ashtabula, Ohio
facility. PVC is one of the most common forms of plastic
currently on the market. A building block compound of PVC is
vinyl chloride (VC), now listed as a known carcinogen by several
governmental agencies. The Occupational Safety and Health
Administration (OSHA) have strictly regulated workplace
exposure to VC since 1974.
Since the mid-1990s, the Company has been named in numerous
cases involving alleged exposure to VC. In the majority of such
cases, the Company is alleged to be a
“supplier/manufacturer” of PVC and/or a civil
co-conspirator with other VC and PVC manufacturers as a result
of membership in a trade association. Plaintiffs generally
allege that the Company and other defendants suppressed
information about the carcinogenic risk of VC to industry
workers, and placed VC or PVC into commerce without sufficient
warnings. A few of these cases alleged VC exposure through
various aerosol consumer products, in that VC had been used as
an aerosol propellant during the 1960s. Defendants in these
“aerosol” cases included numerous consumer product
manufacturers, as well as the more than 30 chemical
manufacturers. The Company used VC internally, but never
supplied VC for aerosol or any other use.
Of the cases that have been filed, the majority have been
dismissed or settled on terms favorable to the Company. The ten
pending cases involve employees at VC or PVC facilities owned or
operated by others, or allege aerosol exposure. One of the
pending cases is a class action seeking a medical monitoring
program for former employees at a PVC facility in New Jersey.
Given the lack of any significant consistency to claims (i.e.,
as to product, operational site, or other relevant assertions)
filed against the Company, the Company is unable to make a
reasonable estimate of the future costs of pending claims or
unasserted claims. Accordingly, no estimate of future liability
has been accrued for such contingencies.
The Company has from time to time been named as a defendant in
lawsuits alleging personal injury or death due to exposure to
asbestos in building materials, products or in manufacturing
operations. The majority have been filed in Madison County,
Illinois and San Francisco, California. Since 1998, more
than 160 of these asbestos lawsuits have been resolved, with the
majority being dismissed and many being settled for less than
$100,000 each. Pursuant to an agreement with PCC Flow
Technology, Inc., a subsidiary of Precision Castparts Corp
(PCC), pertaining to the operations of a former business,
effective May 31, 2005, the
88
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company assumed the defense of a number of asbestos cases filed
against PCC. Including the cases tendered by PCC, there were 152
asbestos cases pending as of November 30, 2005.
Given the lack of any significant consistency to claims (i.e.,
as to product, operational site, or other relevant assertions)
filed against the Company, the Company is unable to make a
reasonable estimate of the future costs of pending claims or
unasserted claims. Accordingly, no estimate of future liability
has been accrued for such contingencies.
The Company is subject to other legal actions, governmental
investigations and proceedings relating to a wide range of
matters in addition to those discussed above. While there can be
no certainty regarding the outcome of any litigation,
investigation or proceeding, in the opinion of the
Company’s management, after reviewing the information that
is currently available with respect to such matters, any
liability that may ultimately be incurred with respect to these
matters is not expected to materially affect the Company’s
consolidated financial condition. The effect of the resolution
of these matters on the Company’s financial condition and
results of operations, the Company’s liquidity and
available financial resources cannot be predicted because any
such effect depends on future results of operations, liquidity
position and available financial resources, and the amount and
timing of the resolution of such matters. In addition, it is
possible that amounts could be significant in any particular
reporting period.
In 1989, a federal district court in California approved a
Partial Consent Decree (Decree) requiring Aerojet to conduct a
Remedial Investigation/ Feasibility Study (RI/ FS) of a portion
of Aerojet’s Sacramento site. The Decree required Aerojet
to prepare a RI/ FS report on specific environmental conditions
present at the site and alternatives available to remediate such
conditions. Aerojet also is required to pay for certain
governmental oversight costs associated with Decree compliance.
Beginning in the mid-1990s, the State of California expanded its
surveillance of perchlorate and nitrosodimethylamine (NDMA).
Under the RI/ FS, traces of these chemicals were detected using
new testing protocols in public water supply wells near
Aerojet’s Sacramento site.
Aerojet completed the initial phase of a site-wide remedial
investigation in 1993. In addition, Aerojet has installed eight
groundwater extraction and treatment facilities as interim or
final measures to control groundwater contamination at the
Sacramento site. Aerojet is also investigating groundwater
contamination both on and off its facilities through the
development of operable unit feasibility studies. On
August 19, 2002, the EPA issued an administrative order
requiring Aerojet to implement the EPA approved remedial action
for the Western Groundwater Operable Unit. A nearly identical
order was issued by the California Regional Water Quality
Control Board, Central Valley (Central Valley RWQCB). In fiscal
2003, Aerojet discovered previously unidentified
NDMA-contaminated groundwater located to the north and west of
the Western Groundwater Operable Unit boundaries. Following such
discovery, Aerojet undertook investigation to characterize the
extent of the contamination. This investigation has been
substantially completed. This contaminated groundwater zone has
been incorporated into the Western Groundwater Operable Unit
remediation plan. The Western Groundwater Operable Unit will be
fully constructed in late 2006 or early 2007. Based on sampling,
Aerojet believes that no municipal drinking water wells are
threatened by this finding. Aerojet is conducting feasibility
studies to refine technical approaches and costs to remediate
the site. Remediation is underway at various site locations. The
remediation costs are principally for design, construction,
enhancement and operation of groundwater and soil treatment
facilities, ongoing project management and regulatory oversight.
A discussion of Aerojet’s efforts to estimate these costs
is contained below under the heading “Environmental
Reserves and Estimated Recoveries.”
89
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On April 15, 2002, the United States District Court
approved and entered a Stipulation and Order Modifying the
Partial Consent Decree (Stipulation and Order). Among other
things, the Stipulation and Order removed approximately
2,600 acres of Aerojet’s property from the
requirements of the Decree and from the Superfund site
designation, enabling Aerojet to put the 2,600 acres to
more productive use. The Stipulation and Order (i) required
the Company to provide a guarantee of up to $75 million (in
addition to a prior $20 million guarantee) to assure that
remediation activities at the Sacramento site are fully funded;
(ii) required Aerojet to provide a short-term and long-term
plan to replace lost water supplies; and (iii) divided the
Superfund site into “Operable Units” to allow Aerojet
and the regulatory agencies to more efficiently address and
restore priority areas. Obligations under the $75 million
aggregate guarantee are limited to $10 million in any year.
Both the $75 million aggregate guarantee and the
$10 million annual limitation are subject to adjustment
annually for inflation.
Aerojet leased the southern portion of the Sacramento site to
Douglas Aircraft for rocket assembly and testing from 1957 to
1961 and sold approximately 3,800 acres, including the
formerly leased portion, to Douglas Aircraft in 1961. Aerojet
reacquired such property known as IRCTS from MDC, the successor
to Douglas Aircraft and now an operating unit of The Boeing
Company, in 1984.
Both MDC and Aerojet were ordered to investigate and remediate
environmental contamination by certain orders issued in 1991 and
1994 by the California Department of Toxic Substances Control
(DTSC) and a similar 1997 order of the Central Valley
RWQCB. In 1997, approximately 1,100 acres of the property
were released from the DTSC orders, and in 2001, Aerojet sold
such 1,100 acre property. Aerojet is actively remediating
the remaining IRCTS property.
In March 2004, the California Office of Environmental Health
Hazard Assessment (OEHHA) established a perchlorate Public
Health Goal at 6 parts per billion (ppb). The California
Department of Health Services immediately established an Action
Level for perchlorate at 6 ppb. The previous Action Level
was 4 ppb. In early 2005, the National Academy of Sciences
(NAS) issued its report on the health effects of
perchlorate, which report was designed to help policymakers set
both federal and state standards for perchlorate in drinking
water. The NAS report suggested a reference dose that translates
into approximately 25 ppb. However, in April 2005, OEHHA
decided to maintain the Public Health Goal at 6 ppb.
California is in the process of establishing a drinking water
standard for perchlorate.
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San Gabriel Valley Basin, California |
Baldwin
Park Operable Unit
Aerojet, through its former Azusa, California operations, was
previously named by the U.S. Environmental Protection
Agency (EPA) as a Potentially Responsible Party
(PRP) for contamination in the portion of the
San Gabriel Valley Superfund Site known as the Baldwin Park
Operable Unit (BPOU).
Between January 1995 — January 1997, the EPA issued
Special Notice Letters to Aerojet and eighteen other companies
requesting that they implement a groundwater remedy.
Subsequently, perchlorate, NDMA, and
1,4-dioxane were
identified as contaminants in the BPOU. On June 30, 2000,
the EPA issued a UAO ordering the PRPs to implement a remedy
consistent with the Record of Decision (ROD), but encouraging
the PRPs to attempt to negotiate an agreement with the local
purveyors. Aerojet, along with seven other PRPs (the Cooperating
Respondents) signed a Project Agreement in late March 2002 with
the Water Quality Authority, Watermaster, Valley County Water
District, La Puente Valley Water District, San Gabriel
Valley Water Company, Suburban Water Systems and California
Domestic Water Company (the Water Entities). The Project
Agreement, which has a term of 15 years, became effective
on May 9, 2002. Pursuant to the Project Agreement, the
Cooperating Respondents fund through an escrow account, the
capital, operational, maintenance, and administrative costs of
certain treatment and water distribution facilities to be owned
and operated by the Water Entities. The Project Agreement also
settled the past environmental claims of the
90
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Water Entities. There are also provisions in the Project
Agreement for maintaining financial assurance (in the form of
cash or letters of credit). Aerojet and the other Cooperating
Respondents have entered into an interim allocation agreement
that establishes the interim payment obligations of Aerojet and
the remaining Cooperating Respondents for the costs of the
Project Agreement. Under the interim allocation, Aerojet is
responsible for approximately two-thirds of all project costs,
pending completion of any allocation proceeding. All project
costs are subject to reallocation among the Cooperating
Respondents. Aerojet intends to continue to defend itself
vigorously to assure that it is appropriately treated with other
PRPs and that costs of any remediation are properly allocated
among all PRPs.
A significant amount of public funding is available to offset
project costs. To date, Congress has appropriated approximately
$56 million (so called Title 16 or Dreier funds),
which is potentially available for payment of project costs. All
such funding will require Water Quality Authority (WQA)
action to allocate funds to the project, which the WQA is
currently considering. Approximately $34 million of the
funding has been allocated to the project and additional funds
may follow in later years.
As part of Aerojet’s sale of its Electronics and
Information Systems (EIS) business to Northrop Grumman
Corporation (Northrop) in October 2001, the EPA approved a
Prospective Purchaser Agreement with Northrop to absolve it of
pre-closing liability for contamination caused by the Azusa
facility, which liability will remain with Aerojet. As part of
that agreement, GenCorp agreed to provide a $25 million
guarantee of Aerojet’s obligations under the Project
Agreement. As part of the EIS sale to Northrop, Aerojet paid the
EPA $9 million which was an amount to be offset against
Aerojet’s share of the EPA’s total claimed past costs
(the EPA now claims total past costs attributable to various
parties are approximately $28 million). Prior payments to
the EPA bring the total payments to the EPA to approximately
$9.5 million. Aerojet and the EPA agreed to a final
settlement for Aerojet’s portion of such past costs and
entered into a Consent Decree under which Aerojet will pay the
United States approximately $1.65 million in two equal
installments over the next thirteen (13) months. The
lawsuit (Case
No. CV05-7516 CAS
(RZx)) filed as a prelude to the Consent Decree was subsequently
dismissed. Unresolved at this time is the issue of
California’s past costs.
In addition to the EPA’s UAO and the Project Agreement
executed with the Water Entities, the California Regional Water
Quality Control Board, Los Angeles Region (Los Angeles RWQCB)
issued orders to Aerojet and other PRPs to conduct groundwater
investigations on their respective sites (former Azusa,
California site). As a result, the Los Angeles RWQCB ordered
Aerojet to conduct limited soil vapor extraction, which Aerojet
completed in 2003. Aerojet is awaiting approval from the Los
Angeles RWQCB for the closure. The Los Angeles RWQCB also
directed Aerojet to characterize perchlorate contamination in
soils. Aerojet submitted a Remedial Action Plan (RAP) to
the Los Angeles RWQCB and has begun implementing the activities
recommended in the RAP. In addition, on January 11, 2005,
Aerojet submitted a work plan to the Los Angeles RWQCB for
additional soil characterization. Field work has been initiated
by Aerojet. After consultation with the Los Angeles RWQCB,
additional investigation activities are planned with respect to
perchlorate-impacted soils.
South
El Monte Operable Unit (SEMOU)
On December 21, 2000, Aerojet received an order from the
Los Angeles RWQCB requiring a work plan for investigation of
Aerojet’s former El Monte facility. On
January 22, 2001, Aerojet filed an appeal of the order with
the Los Angeles RWQCB asserting selective enforcement. The
appeal had been held in abeyance pending negotiations with the
Los Angeles RWQCB, but due to a two-year limitation on the
abeyance period, the appeal was dismissed without prejudice. On
February 21, 2001, Aerojet received a General Notice Letter
from the EPA Region IX naming Aerojet as a PRP with regard
to the SEMOU of the San Gabriel Valley Superfund site. In
September 2001, Aerojet submitted a limited work plan to the Los
Angeles RWQCB.
Aerojet continues to negotiate with the Los Angeles RWQCB
regarding an investigation of this former facility and has
agreed to a scope of work for additional field activities.
Aerojet is preparing to implement the
91
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
field work. In the event the Los Angeles RWQCB demands further
site investigation, Aerojet may
re-file its appeal.
On April 1, 2002, Aerojet received a special notice letter
from the EPA (dated March 28, 2002) that requested Aerojet
to enter into negotiations with the EPA regarding the
performance of a remedial design and remedial action for the
SEMOU. In light of this letter, Aerojet performed a limited site
investigation of the East Flair Drive Site. The data collected
and summarized in the Field Investigation Report showed that
chemicals including TCE and PCE were present in the soil and
groundwater at and near the East Flair Drive Site. The Field
Investigation Report also showed that the hydraulic gradient at
the East Flair Drive Site is oriented toward the northeast and
subsequent quarterly monitoring events continue to show an
easterly/southeasterly gradient. This finding indicates that the
site is not a likely source of contamination at the SEMOU, as
the groundwater flow at the site is away from the SEMOU and not
toward it. Given the data indicating that the East Flair Drive
Site is not a source of the contamination at the SEMOU, Aerojet
requested that the EPA reconsider its issuance of the SEMOU
special notice letter.
On August 29, 2003, the EPA issued a UAO against Aerojet
and approximately 40 other parties requiring them to conduct the
remedial design and remedial action in the SEMOU. The impact of
the UAO on the recipients is not clear as much of the remedy is
already being implemented by the water entities. The cost
estimate to implement projects under the UAO prepared by the EPA
and the water entities is approximately $90 million.
The UAO requires the implementation of the Interim Record of
Decision (IROD). The EPA extended the deadline for compliance
with the UAO to allow the PRPs to resolve their liabilities with
respect to SEMOU. In return, the EPA required the submission of
a Good Faith Offer to implement the IROD. The Company has been
working closely with the other PRPs to resolve this matter and
submitted a Good Faith Offer to the EPA that was rejected on
May 20, 2004. The EPA alleges that the Company, along with
the other UAO recipients, has failed to transmit a Good Faith
Offer in compliance with its obligations under the UAO. The
Company is working diligently with the EPA and the other PRPs to
resolve this matter and insure compliance with the UAO.
On November 17, 2005, Aerojet notified the Los Angeles
RWQCB and EPA that a former Aerojet division at the site was
involved in research and development at the site that included
the use of 1,4-dioxane.
This former division was divested in 1975, but it continued to
operate at the former El Monte facility. Aerojet’s
investigation is continuing.
Aerojet has been served with civil suits filed in the
U.S. District Court for the Central District of California
by four public and private water companies. The suits seek
recovery of costs allegedly incurred in response to the
contamination present in the SEMOU. Plaintiffs allege that
groundwater in the SEMOU is contaminated with chlorinated
solvents and ammonium perchlorate that were released into the
environment by Aerojet and other parties causing plaintiffs to
incur unspecified response costs and other damages.
Aerojet’s investigations to date have not identified a
credible connection between the contaminants identified by the
water entities in the SEMOU and those detected at Aerojet’s
former facility located at 9100 and 9200 East Flair Drive, El
Monte, California, which lies in or near the SEMOU.
Aerojet was successful in its efforts to eliminate several of
the claims initially raised by the water entities. However,
other claims remain. Aerojet has filed third-party complaints
against several water entities on the basis that they introduced
perchlorate-containing Colorado River water to the basin. The
water entities have filed motions to dismiss Aerojet’s
complaints. Discovery and the motions have been stayed pending
efforts to resolve the litigation through mediation.
92
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company has studied remediation alternatives for its closed
Lawrence, Massachusetts facility, which was primarily
contaminated with polychlorinated biphenyls, and has begun site
remediation and off-site disposal of debris. As part of these
remediation efforts, the Company is working with local, state
and federal officials and regulatory agencies to return the
property to a beneficial use. The time frame for the remediation
and redevelopment project is currently estimated to range from
two to three years.
The Company is also currently involved in approximately 35 other
remediation actions. In many of these matters, the Company is
involved with other PRPs. 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. In the
Company’s previous experience, the Company allocated share
has frequently been minimal, and in many instances, has been
less than one percent. Also, the Company is seeking recovery of
its costs from its insurers.
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d. Environmental Reserves and Estimated
Recoveries |
The Company continually reviews estimated future remediation
costs that could be incurred by the Company which take into
consideration the investigative work and analysis of the
Company’s engineers and the advice of its legal staff
regarding the status and anticipated results of various
administrative and legal proceedings. In most cases, only a
range of reasonably possible costs can be estimated. In
establishing the Company’s reserves, the most probable
estimated amount is used when determinable and the minimum is
used when no single amount is more probable. The timing of
payment for estimated future environmental costs is subject to
variability and depends on the timing of regulatory approvals
for planned remedies and the construction and completion of the
remedies.
Quarterly, the Company performs a review of estimated future
environmental costs which incorporates, but is not limited to
the following: (i) status of work completed since the last
estimate; (ii) expected cost savings related to the
substitution of new remediation technology and to information
not available previously; (iii) obligations for
reimbursement of regulatory agency service costs;
(iv) updated BPOU cost estimates; (v) costs of
complying with the Western Groundwater Administrative Order,
including replacement water and remediation upgrades at
Aerojet’s Sacramento site; (vi) estimated costs
related to IRCTS and Aerojet’s Sacramento site;
(vii) new information related to the extent and location of
previously unidentified contamination; and
(viii) additional construction costs. The Company’s
review of estimated future remediation costs resulted in a net
increase in the Company’s environmental reserves of
$14 million in fiscal 2005, $25 million in fiscal
2004, and $12 million in fiscal 2003.
The effect of the final resolution of environmental matters and
the Company’s obligations for environmental remediation and
compliance cannot be accurately predicted due to the uncertainty
concerning both the amount and timing of future expenditures and
due to regulatory or technological changes. The Company
believes, on the basis of presently available information, that
the resolution of environmental matters and the Company’s
obligations for environmental remediation and compliance will
not have a material adverse effect on the Company’s results
of operations, liquidity or financial condition. The Company
will continue its efforts to mitigate past and future costs
through pursuit of claims for recoveries from insurance coverage
and other PRPs and continued investigation of new and more cost
effective remediation alternatives and associated technologies.
93
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of the Company’s environmental reserve activity
is shown below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, | |
|
2003 | |
|
2003 | |
|
November 30, | |
|
2004 | |
|
2004 | |
|
November 30, | |
|
2005 | |
|
2005 | |
|
November 30, | |
|
|
2002 | |
|
Additions | |
|
Expenditures | |
|
2003 | |
|
Additions | |
|
Expenditures | |
|
2004 | |
|
Additions | |
|
Expenditures | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Aerojet
|
|
$ |
318 |
|
|
$ |
12 |
|
|
$ |
(32 |
) |
|
$ |
298 |
|
|
$ |
23 |
|
|
$ |
(34 |
) |
|
$ |
287 |
|
|
$ |
13 |
|
|
$ |
(44 |
) |
|
$ |
256 |
|
Other Sites
|
|
|
22 |
|
|
|
— |
|
|
|
(5 |
) |
|
|
17 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
17 |
|
|
|
1 |
|
|
|
(6 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental Reserve
|
|
$ |
340 |
|
|
$ |
12 |
|
|
$ |
(37 |
) |
|
$ |
315 |
|
|
$ |
25 |
|
|
$ |
(36 |
) |
|
$ |
304 |
|
|
$ |
14 |
|
|
$ |
(50 |
) |
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of November 30, 2005, the Aerojet reserves include
$151 million for the Sacramento site, $88 million for
BPOU, and $17 million for other Aerojet sites.
On January 12, 1999, Aerojet and the U.S. government
implemented the October 1997 Agreement in Principle (Global
Settlement) resolving certain prior environmental and facility
disagreements, with retroactive effect to December 1, 1998.
The Global Settlement covered all environmental contamination at
the Sacramento and Azusa sites. Under the Global Settlement,
Aerojet and the U.S. government resolved disagreements
about an appropriate cost-sharing ratio. The Global Settlement
provides that the cost-sharing ratio will continue for a number
of years.
Pursuant to the Global Settlement covering environmental costs
associated with Aerojet’s Sacramento site and its former
Azusa site, the Company can recover up to 88% of its
environmental remediation costs for these sites through the
establishment of prices for Aerojet’s products and services
sold to the U.S. government. Allowable environmental costs
are charged to these contracts as the costs are incurred.
Aerojet’s mix of contracts can affect the actual
reimbursement made by the U.S. government. Because these
costs are recovered through forward-pricing arrangements, the
ability of Aerojet to continue recovering these costs from the
U.S. government depends on Aerojet’s sustained
business volume under U.S. government contracts and
programs and the relative size of Aerojet’s commercial
business.
In conjunction with the sale of EIS, Aerojet entered into an
agreement with Northrop whereby Aerojet will be reimbursed by
Northrop for a portion of environmental expenditures eligible
for recovery under the Global Settlement. Amounts reimbursed are
subject to annual limitations, with excess amounts carrying over
to subsequent periods, the total of which will not exceed
$190 million over the term of the agreement, which ends in
2028. As of November 30, 2005, $148 million in
potential future reimbursements were available over the
remaining life of the agreement.
As part of the acquisition of the Atlantic Research Corporation
(ARC) propulsion business, Aerojet entered into an
agreement with ARC pursuant to which Aerojet is responsible for
up to $20 million of costs (Pre-Close Environmental Costs)
associated with environmental issues that arose prior to
Aerojet’s acquisition of the ARC propulsion business.
Pursuant to a separate agreement with the U.S. government
which was entered into prior to closing of the ARC acquisition,
these Pre-Close Environmental Costs will be treated as allowable
overhead costs combined with Aerojet’s environmental costs
under the Global Settlement, and will be recovered through the
establishment of prices for Aerojet’s products and services
sold to the U.S. government. These costs were allocated to
all Aerojet operations (including the previously excluded
Redmond, Washington operations) beginning in 2005.
As a result of the ARC acquisition, Aerojet signed a Memorandum
of Understanding with the U.S. government agreeing to key
assumptions and conditions that preserved the original
methodology used in recalculating the percentage split between
Aerojet and Northrop. Aerojet presented a proposal to the
U.S. government based on the Memorandum of Understanding
and expects to complete an agreement in the near term.
94
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In conjunction with the review of its environmental reserves
discussed above, the Company revised its estimate of costs that
will be recovered under the Global Settlement based on business
expected to be conducted under contracts with the
U.S. government and its agencies in the future. In fiscal
2003, due to the Global Settlement and Memorandum of
Understanding with the government, both discussed above, which
allow for costs to be allocated to all Aerojet operations
beginning in 2005 and for a decrease of the costs allocated to
Northrop annually, Aerojet increased its environmental reserves
by $12 million and estimated recoveries by
$13 million, which resulted in other income of
$1 million in the Company’s statement of operations.
The recovery of costs under the Global Settlement is based, in
part on the relative size of Aerojet’s commercial business
base, which has historically included the Fine Chemicals’
operating segment because it was previously a division of
Aerojet. As a result of the plan to sell Fine Chemicals, Aerojet
revised its estimated recovery of costs under the Global
Settlement during fiscal 2004. As a result, Aerojet increased
its estimated recoveries by $38 million and recorded
$16 million of other income (expense), net in fiscal 2004.
In fiscal 2005, the increase to the reserve of $14 million
in fiscal 2005 resulted in a corresponding increase to the
receivable and a net impact of $5 million in net loss.
|
|
|
e. Arrangements with Off-Balance Sheet Risk |
As of November 30, 2005, obligations required to be
disclosed in accordance with FASB Interpretation No. 45
(FIN 45), Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
the Indebtedness of Others consisted of:
|
|
|
— $27 million in outstanding commercial letters
of credit expiring over the next 14 months and securing
obligations for environmental remediation and insurance coverage. |
|
|
— Up to $120 million aggregate in guarantees by
GenCorp of Aerojet’s obligations to government agencies for
environmental remediation activities. |
|
|
— Guarantees, jointly and severally, by the
Company’s material domestic subsidiaries of its obligations
under its senior credit facilities and its
91/2% Notes. |
In addition, to the items discussed above, the Company from time
to time enters into certain types of contracts that contingently
require the Company to indemnify parties against third-party and
other claims. These contracts primarily relate to:
(i) divestiture agreements, under which the Company may
provide customary indemnifications to purchasers of the
Company’s businesses or assets including, for example,
claims arising from the operation of the businesses prior to
disposition, liability to investigate and remediate
environmental contamination existing prior to disposition;
(ii) certain real estate leases, under which the Company
may be required to indemnify property owners for other claims
arising from the Company’s use of the applicable premises;
and, (iii) certain agreements with the Company’s
officers and directors, under which the Company may be required
to indemnify such persons for liabilities arising out of their
employment relationship.
The terms of such obligations vary. Generally, a maximum
obligation is not explicitly stated. Because the obligated
amounts of these types of agreements often are not explicitly
stated, the overall maximum amount of the obligations cannot be
reasonably estimated. Historically, the Company has not been
obligated to make significant payments for these obligations,
and no liabilities have been recorded for these obligations on
its balance sheet as of November 30, 2005 or 2004.
|
|
15. |
Shareholders’ (Deficit) Equity |
|
|
|
a. Preference Stock and Preferred Share Purchase
Rights |
In January 1997, the Board of Directors extended for ten
additional years GenCorp’s Shareholder Rights Plan (Plan),
as amended. When the Plan was originally adopted in 1987, the
Directors declared a dividend of
95
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
one Preferred Share Purchase Right (Right) on each outstanding
share of common stock, payable to shareholders of record on
February 27, 1987. Rights outstanding as of
November 30, 2005 and 2004 totaled 55.3 million and
54.4 million, respectively. The Plan provides that under
certain circumstances each Right will entitle shareholders to
buy one one-hundredth of a share of a new Series A
Cumulative Preference Stock at an exercise price of $100. The
Rights are exercisable only if a person or group acquires 20% or
more of GenCorp’s common stock or announces a tender or
exchange offer that will result in such person or group
acquiring 30% or more of the common stock. GenCorp is entitled
to redeem the Rights at two cents per Right at any time until
ten days after a 20% position has been acquired (unless the
Board elects to extend such time period, which in no event may
exceed 30 days). If the Company is involved in certain
transactions after the Rights become exercisable, a holder of
Rights (other than Rights beneficially owned by a shareholder
who has acquired 20% or more of GenCorp’s common stock,
which Rights become void) is entitled to buy a number of the
acquiring company’s common shares, or GenCorp’s common
stock, as the case may be, having a market value of twice the
exercise price of each Right. A potential dilutive effect may
exist upon the exercise of the Rights. The Rights under the
extended Plan expire on February 18, 2007. Until a Right is
exercised, the holder has no rights as a stockholder of the
Company including, without limitation, the right to vote as a
stockholder or to receive dividends.
As of November 30, 2005, 1.5 million shares of
$1.00 par value Series A Cumulative Preference Stock
were reserved for issuance upon exercise of Preferred Share
Purchase Rights.
As of November 30, 2005, the Company had 150.0 million
authorized shares of common stock, par value $0.10 per
share (Common Stock), of which 55.6 million shares were
issued, 55.0 million shares were outstanding and
22.3 million shares were reserved for future issuance for
discretionary payments of the Company’s portion of
retirement savings plan contributions, exercise of stock
options, payment of awards under stock-based compensation plans
and conversion of the Company’s Notes (see Note 11).
During each quarter of fiscal 2003 and during the first two
quarters of fiscal 2004, the Company paid a quarterly cash
dividend on its common stock of $0.03 per share. The
Company’s Board of Directors eliminated the payment of
quarterly dividends for future periods, beginning with the third
quarter of fiscal 2004. Beginning in December 2004, the senior
credit facility restricted the payment of dividends.
On November 23, 2004, the Company closed a public offering
of 8,625,000 shares of its common stock at $16.00 per
share. The Company received net proceeds from the offering of
approximately $131 million.
|
|
|
c. Stock-based Compensation |
The Company accounts for stock-based compensation under
APB 25 and related interpretations. Under APB 25,
stock options granted to employees by the Company generate no
expense when the exercise price of the stock options at the date
of grant equals the market value of the underlying common stock.
The 1999 Equity and Performance Incentive Plan (1999 Plan),
provides for grants of stock options and stock appreciation
rights (SARS) to key employees and directors. Stock options
and SARS issued under the 1999 Plan are, in general, exercisable
in one-third increments at one year, two years, and three years
from the date of grant. During fiscal 2005, the Company granted
251,300 cash settled SARS to key employees of the Company
that primarily vest over a three year service period. The
Company did not incur any compensation charges related to the
SARS during fiscal 2005.
The 1999 Plan also provides for grants of restricted stock.
Grants to certain key employees of the Company were made under
the plan with vesting either based upon the attainment of
specified performance targets or time-frame up to four years.
Key employees of the Company were granted 153,700, 68,400, and
239,000 restricted shares in fiscal 2005, fiscal 2004, and
fiscal 2003, respectively. Restricted shares granted in
96
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
fiscal 2003 generally vest annually over a three year period if
the Company meets performance targets set by the
Organization & Compensation Committee of the Board.
Restricted shares granted in fiscal 2004 primarily vest
twenty-four months from date of grant. Restricted shares granted
in fiscal 2005 primarily vest over a 3 year of service
period or various operations and earnings targets. Unvested
restricted shares are canceled upon the employee’s
termination of employment or if the performance targets are not
achieved. During fiscal 2005, fiscal 2004, and fiscal 2003,
1,500, 43,000, and 33,500 shares, respectively were
canceled due to terminations. In fiscal 2005, fiscal 2004, and
fiscal 2003, 91,700, 26,600, and 17,900 shares,
respectively were canceled because performance targets were not
achieved. The Organization & Compensation Committee of
the Board has discretion over increasing or decreasing the
actual number of shares to vest in any period.
The Company’s 1997 Stock Option Plan and 1993 Stock
Option Plan each provide for an aggregate of 2.5 million
shares of the Company’s Common Stock to be purchased
pursuant to stock options or to be subject to stock appreciation
rights which may be granted to selected officers and key
employees at prices equal to the fair market value of a share of
common stock on the date of grant. Stock options issued under
the 1997 and 1993 Stock Option Plans are, in general,
exercisable in 25% increments at six months, one year, two years
and three years from the date of grant.
A summary of the Company’s stock option activity, and
related information for the fiscal years ended November 30
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
Stock | |
|
Average | |
|
Stock | |
|
Average | |
|
Stock | |
|
Average | |
|
|
Options | |
|
Exercise | |
|
Options | |
|
Exercise | |
|
Options | |
|
Exercise | |
|
|
(000s) | |
|
Price | |
|
(000s) | |
|
Price | |
|
(000s) | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at beginning of year
|
|
|
2,389 |
|
|
$ |
11.10 |
|
|
|
3,511 |
|
|
$ |
10.41 |
|
|
|
3,307 |
|
|
$ |
10.72 |
|
Granted
|
|
|
— |
|
|
$ |
— |
|
|
|
36 |
|
|
$ |
10.92 |
|
|
|
477 |
|
|
$ |
8.10 |
|
Exercised
|
|
|
(451 |
) |
|
$ |
10.98 |
|
|
|
(1,001 |
) |
|
$ |
8.83 |
|
|
|
(48 |
) |
|
$ |
8.71 |
|
Forfeited/canceled
|
|
|
(23 |
) |
|
$ |
8.95 |
|
|
|
(157 |
) |
|
$ |
10.06 |
|
|
|
(225 |
) |
|
$ |
10.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,915 |
|
|
$ |
11.15 |
|
|
|
2,389 |
|
|
$ |
11.10 |
|
|
|
3,511 |
|
|
$ |
10.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1,810 |
|
|
$ |
11.33 |
|
|
|
2,062 |
|
|
$ |
11.35 |
|
|
|
2,765 |
|
|
$ |
10.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of stock options
granted was $4.45 and $3.37 for stock options granted in fiscal
2004 and fiscal 2003, respectively.
97
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes the range of exercise prices and
weighted-average exercise prices for options outstanding and
exercisable as of November 30, 2005 under the
Company’s stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | |
|
|
|
|
|
|
| |
|
Exercisable | |
Year in |
|
|
|
|
|
Weighted | |
|
| |
Which Stock |
|
|
|
Stock | |
|
Weighted | |
|
Average | |
|
Stock | |
|
Weighted | |
Options |
|
|
|
Options | |
|
Average | |
|
Remaining | |
|
Options | |
|
Average | |
Were |
|
Range of Exercise | |
|
Outstanding | |
|
Exercise | |
|
Contractual | |
|
Exercisable | |
|
Exercise | |
Granted |
|
Prices | |
|
(000s) | |
|
Price | |
|
Life (years) | |
|
(000s) | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
1997
|
|
|
$10.03 – $15.64 |
|
|
|
205 |
|
|
$ |
12.54 |
|
|
|
1.6 |
|
|
|
205 |
|
|
$ |
12.54 |
|
1998
|
|
|
$12.67 – $16.06 |
|
|
|
241 |
|
|
$ |
15.92 |
|
|
|
2.3 |
|
|
|
241 |
|
|
$ |
15.92 |
|
1999
|
|
|
$ 9.40 – $13.59 |
|
|
|
234 |
|
|
$ |
10.34 |
|
|
|
3.4 |
|
|
|
234 |
|
|
$ |
10.34 |
|
2000
|
|
|
$ 8.19 – $10.13 |
|
|
|
274 |
|
|
$ |
9.52 |
|
|
|
4.1 |
|
|
|
274 |
|
|
$ |
9.52 |
|
2001
|
|
|
$10.44 – $12.30 |
|
|
|
329 |
|
|
$ |
10.87 |
|
|
|
5.3 |
|
|
|
329 |
|
|
$ |
10.87 |
|
2002
|
|
|
$ 9.77 – $15.43 |
|
|
|
258 |
|
|
$ |
12.70 |
|
|
|
6.5 |
|
|
|
258 |
|
|
$ |
12.70 |
|
2003
|
|
|
$ 6.53 – $ 9.29 |
|
|
|
346 |
|
|
$ |
7.96 |
|
|
|
7.3 |
|
|
|
241 |
|
|
$ |
7.95 |
|
2004
|
|
|
$10.92 |
|
|
|
28 |
|
|
$ |
10.92 |
|
|
|
8.2 |
|
|
|
28 |
|
|
$ |
10.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,915 |
|
|
|
|
|
|
|
|
|
|
|
1,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
d. Other Comprehensive Income (Loss), Net of Income
Taxes |
The Company’s other comprehensive income (loss) consists of
the accumulated effects of foreign currency translation
adjustments, changes in the fair value of certain derivative
financial instruments and changes in the minimum funding
liability for pension obligations. At November 30, 2004,
the Company had a balance of $2 million of foreign currency
translation losses. At November 30, 2005 and 2004, the
Company had $2 million and $1 million, respectively,
of minimum funding liabilities for pension obligations.
Additionally, at November 30, 2004, the Company had a
balance of less than $1 million of losses on derivative
financial instruments.
Prior to the sale of substantially all of the GDX business, the
Company had an accumulated foreign currency translation gain of
$35 million that was reflected as a net increase of
consolidated shareholders’ (deficit) equity and
related solely to the GDX business. In accordance with Statement
of Financial Accounting Standards No. 52, Foreign
Currency Translation, this amount has been included in the
determination of the loss on sale of GDX and in accordance with
Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, an equal amount is
reported as a reclassification adjustment.
The components of other comprehensive income (loss) and the
related income tax effects are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Net income (loss)
|
|
$ |
(230 |
) |
|
$ |
(398 |
) |
|
$ |
22 |
|
|
Other comprehensive income (loss), net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of change in minimum pension liability and other
|
|
|
1 |
|
|
|
(1 |
) |
|
|
46 |
|
|
|
Change in fair value of interest rate swap
|
|
|
— |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
Reclassification adjustment
|
|
|
— |
|
|
|
(35 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$ |
(229 |
) |
|
$ |
(433 |
) |
|
$ |
67 |
|
|
|
|
|
|
|
|
|
|
|
98
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
16. |
Operating Segments and Related Disclosures |
As discussed in Note 18, the Company divested the Aerojet
Fine Chemicals and GDX Automotive business units during fiscal
2005 and 2004, respectively. These businesses, which were
previously considered separate operating segments, have been
classified as discontinued operations. As a result, the
Company’s continuing operations are now organized into two
operating segments based on different products and customer
bases: Aerospace and Defense and Real Estate. The accounting
policies of the operating segments are the same as those
described in the summary of significant accounting policies (see
Note 1).
The Company evaluates its operating segments based on several
factors, of which the primary financial measure is segment
performance. Segment performance represents net sales from
continuing operations less applicable costs, expenses and
provisions for unusual items relating to operations. Segment
performance excludes corporate income and expenses, provisions
for unusual items not related to the operations, interest
expense, and income taxes (see Note 19 for a discussion on
unusual items).
Selected financial information for each reportable segment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
$ |
617 |
|
|
$ |
492 |
|
|
$ |
321 |
|
|
Real Estate
|
|
|
7 |
|
|
|
15 |
|
|
|
32 |
|
|
Intersegment sales elimination
|
|
|
— |
|
|
|
(8 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
624 |
|
|
$ |
499 |
|
|
$ |
348 |
|
|
|
|
|
|
|
|
|
|
|
Segment Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
$ |
(113 |
) |
|
$ |
57 |
|
|
$ |
45 |
|
|
Retirement benefit plan income (expense)
|
|
|
(34 |
) |
|
|
(27 |
) |
|
|
3 |
|
|
Unusual items
|
|
|
10 |
|
|
|
— |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense Total
|
|
|
(137 |
) |
|
|
30 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
4 |
|
|
|
12 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(133 |
) |
|
$ |
42 |
|
|
$ |
66 |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment performance to income (loss) from
continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Performance
|
|
$ |
(133 |
) |
|
$ |
42 |
|
|
$ |
66 |
|
|
Interest expense
|
|
|
(24 |
) |
|
|
(35 |
) |
|
|
(22 |
) |
|
Corporate retirement benefit plan expense
|
|
|
(14 |
) |
|
|
(17 |
) |
|
|
(2 |
) |
|
Corporate and other expenses
|
|
|
(17 |
) |
|
|
(38 |
) |
|
|
(31 |
) |
|
Corporate unusual items
|
|
|
(47 |
) |
|
|
(9 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
$ |
(235 |
) |
|
$ |
(57 |
) |
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
$ |
20 |
|
|
$ |
21 |
|
|
$ |
11 |
|
|
Real Estate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Corporate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
$ |
20 |
|
|
$ |
21 |
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
$ |
25 |
|
|
$ |
25 |
|
|
$ |
22 |
|
|
Real Estate
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
Corporate
|
|
|
2 |
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
$ |
28 |
|
|
$ |
31 |
|
|
$ |
28 |
|
|
|
|
|
|
|
|
|
|
|
99
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
As of November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Aerospace and Defense
|
|
$ |
781 |
|
|
$ |
943 |
|
Real Estate
|
|
|
43 |
|
|
|
37 |
|
|
|
|
|
|
|
|
Identifiable assets
|
|
|
824 |
|
|
|
980 |
|
Corporate
|
|
|
233 |
|
|
|
421 |
|
Discontinued operations
|
|
|
— |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
1,057 |
|
|
$ |
1,495 |
|
|
|
|
|
|
|
|
The Company’s continuing operations are located in the
United States. Inter-area sales are not significant to the total
sales of any geographic area.
Unusual items included in segment performance pertained only to
the United States.
|
|
17. |
Quarterly Financial Data (Unaudited) |
The following quarterly consolidated statement of operations for
the Company’s fiscal year 2005 is, by means of this filing,
being restated, except for the third and fourth quarter of
fiscal year 2005. The determination to restate the financial
data was made by management in consultation with the audit
committee as a result of identification of errors related to
(i) the application of consistent revenue recognition
policies and procedures for an acquired operation; and
(ii) the application of SFAS 52, Foreign Currency
Translation, subsequent to the divestiture of the GDX
Automotive business. The restatement has an immaterial effect on
the Company’s consolidated balance sheet and operating cash
flows at the end of each of the restated periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third | |
|
Fourth | |
|
|
First Quarter | |
|
Second Quarter | |
|
Quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Previously | |
|
|
|
Previously | |
|
|
|
|
|
|
|
|
Reported | |
|
Restated | |
|
Reported | |
|
Restated | |
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(In millions, except per share amounts) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
142 |
|
|
$ |
140 |
|
|
$ |
145 |
|
|
$ |
145 |
|
|
$ |
134 |
|
|
$ |
205 |
|
Cost of products sold
|
|
|
130 |
|
|
|
130 |
|
|
|
131 |
|
|
|
131 |
|
|
|
120 |
|
|
|
358 |
|
Unusual items
|
|
|
18 |
|
|
|
18 |
|
|
|
2 |
|
|
|
2 |
|
|
|
— |
|
|
|
17 |
|
Loss from continuing operations before income taxes
|
|
|
(28 |
) |
|
|
(30 |
) |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(5 |
) |
|
|
(191 |
) |
Income (loss) from continuing operations
|
|
|
(28 |
) |
|
|
(30 |
) |
|
|
4 |
|
|
|
4 |
|
|
|
(5 |
) |
|
|
(175 |
) |
Income (loss) from discontinued operations
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
1 |
|
|
|
(24 |
) |
|
|
— |
|
Net income (loss)
|
|
|
(29 |
) |
|
|
(31 |
) |
|
|
4 |
|
|
|
5 |
|
|
|
(29 |
) |
|
|
(175 |
) |
Basic and diluted income (loss) per share from continuing
operations
|
|
|
(0.51 |
) |
|
|
(0.55 |
) |
|
|
0.06 |
|
|
|
0.06 |
|
|
|
(0.08 |
) |
|
|
(3.19 |
) |
Basic and diluted income (loss) per share from discontinued
operations
|
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
0.01 |
|
|
|
0.03 |
|
|
|
(0.45 |
) |
|
|
0.01 |
|
Basic and diluted income (loss) per share
|
|
$ |
(0.54 |
) |
|
$ |
(0.58 |
) |
|
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
(0.53 |
) |
|
$ |
(3.18 |
) |
100
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
|
|
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(In millions, except per share amounts) | |
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
110 |
|
|
$ |
124 |
|
|
$ |
116 |
|
|
$ |
149 |
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
98 |
|
|
|
107 |
|
|
|
114 |
|
|
|
128 |
|
|
|
|
|
|
|
|
|
Unusual items
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(15 |
) |
|
|
(12 |
) |
|
|
(12 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(9 |
) |
|
|
(48 |
) |
|
|
(15 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(10 |
) |
|
|
(264 |
) |
|
|
(32 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
Net loss
|
|
|
(19 |
) |
|
|
(312 |
) |
|
|
(47 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
Basic and diluted loss per share from continuing operations
|
|
|
(0.22 |
) |
|
|
(1.08 |
) |
|
|
(0.33 |
) |
|
|
(0.30 |
) |
|
|
|
|
|
|
|
|
Basic and diluted loss per share from discontinued operations
|
|
|
(0.22 |
) |
|
|
(5.98 |
) |
|
|
(0.72 |
) |
|
|
(0.12 |
) |
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$ |
(0.44 |
) |
|
$ |
(7.06 |
) |
|
$ |
(1.05 |
) |
|
$ |
(0.42 |
) |
|
|
|
|
|
|
|
|
|
|
18. |
Discontinued Operations |
During the second quarter of fiscal 2004, the Company announced
plans to sell its GDX business. This decision was a result of
declining volumes and continued challenges in this market
environment including increased material costs, high development
and start-up costs,
anticipated working capital requirements as well as adverse
customer pricing pressures. In accordance with the
Company’s plan to sell its GDX business, the GDX operating
segment was classified as a discontinued operation during the
second quarter of fiscal 2004. During the third quarter of
fiscal 2004, the Company signed a definitive agreement to sell
substantially all subsidiaries that were engaged in the GDX
business to Cerberus for $147 million, subject to
adjustment, of which $140 million has been received as of
November 30, 2005. The Company closed the transaction on
August 31, 2004. For operating segment reporting, GDX was
reported as a separate operating segment.
During the second quarter of fiscal 2004, the GDX operating
segment net assets were adjusted to management’s estimate
of proceeds to be received on disposition less costs to sell
that resulted in a $261 million loss being recorded. The
loss included $95 million and $4 million related to
the write-off of goodwill and other intangible assets,
respectively. An additional loss of $18 million was
recorded in the third quarter of fiscal 2004 to reflect the net
assets of the GDX business and management’s estimate of the
proceeds from the sale of the GDX business to Cerberus.
In November 2003, the Company announced the closing of a GDX
manufacturing facility in Chartres, France. The decision
resulted primarily from declining sales volumes with French
automobile manufacturers. In June 2004, the Company completed
the legal process for closing the facility and establishing a
social plan. In fiscal 2004, an expense of approximately
$14 million related to employee social costs was recorded
in accordance with SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities. An expense of
$1 million was recorded during fiscal 2005 primarily
related to employee social costs that became estimable in fiscal
2005. The Company has not yet recorded expenses associated with
certain social benefits due to the uncertainty of the benefit
amount. These additional social costs are expected to result in
an additional pre-tax expense of up to $2 million and are
anticipated to be incurred over the next 12 months.
During the third quarter of fiscal 2004, the Company classified
the Fine Chemicals segment as a discontinued operation as a
result of its plans to sell the business. The plan was a result
of management’s decision to focus its capital and resources
on its Aerospace and Defense and Real Estate operating segments.
101
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In July 2005, the Company signed a definitive agreement to sell
the Fine Chemicals business to American Pacific Corporation
(AMPAC) for $119 million, consisting of
$100 million of cash, seller note of $19 million, and
the assumption by the buyer of certain liabilities.
Subsequently, AMPAC and the Company amended the purchase
agreement to modify the purchase price and payment terms related
to the Fine Chemicals sale. The revised purchase price consisted
of $88 million of cash paid at closing, unsecured
subordinated seller note of $26 million delivered at
closing, a contingent payment of up to $5 million if the
Fine Chemicals business achieves specified earning targets in
the twelve month period ending September 30, 2006, and the
assumption by the buyer of certain liabilities. Income will be
recorded in the future on the seller note of $26 million
and any contingent payment when realized. During the third
quarter of fiscal 2005, the Company recorded a loss of
$28 million on the difference between estimated cash
proceeds to be received on disposition less the carrying value
of net assets being sold and related transaction selling costs.
An additional loss of $1 million was recorded in the fourth
quarter of fiscal 2005 to reflect the net assets of the Fine
Chemicals business and management’s estimate of the
proceeds from the sale. The Company closed the transaction on
November 30, 2005. For operating segment reporting, the
Fine Chemicals business was previously reported as a separate
operating segment.
In accordance with
EITF 87-24,
Allocation of Interest to Discontinued Operations, the
Company allocated interest to discontinued operations based on
interest on debt that would be required to be repaid using
estimated proceeds to be received from the anticipated sale of
the GDX Automotive and Fine Chemicals businesses. This
allocation resulted in interest of $2 million,
$4 million, and $4 million for fiscal 2005, fiscal
2004, and fiscal 2003, respectively.
Summarized financial information for the GDX and Fine Chemicals
operations (discontinued operations) is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Net sales
|
|
$ |
64 |
|
|
$ |
629 |
|
|
$ |
844 |
|
Income (loss) before income taxes
|
|
|
(24 |
) |
|
|
(308 |
) |
|
|
6 |
|
Income tax benefit (provision)
|
|
|
— |
|
|
|
(4 |
) |
|
|
4 |
|
Net income (loss) from discontinued operations
|
|
|
(24 |
) |
|
|
(312 |
) |
|
|
10 |
|
As of November 30, 2005 and 2004, the components of assets
and liabilities of discontinued operations in the consolidated
balance sheets are as follows:
|
|
|
|
|
|
|
|
|
As of November 30, |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In millions) | |
Accounts receivable, net
|
|
$ |
— |
|
|
$ |
8 |
|
Inventories, net
|
|
|
— |
|
|
|
10 |
|
Other assets
|
|
|
— |
|
|
|
3 |
|
Property, plant and equipment, net
|
|
|
— |
|
|
|
73 |
|
|
|
|
|
|
|
|
Assets of discontinued operations
|
|
$ |
— |
|
|
$ |
94 |
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
1 |
|
|
$ |
8 |
|
Other liabilities
|
|
|
1 |
|
|
|
10 |
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
$ |
2 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
102
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Charges and gains associated with unusual items are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
November 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions) | |
Aerospace and Defense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecoverable portion of legal settlement
|
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
5 |
|
|
Gain on settlements and recoveries
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
Corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated loss on legal matter
|
|
|
29 |
|
|
|
— |
|
|
|
— |
|
|
Loss on redemption of
91/2% Notes
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
Loss on repayment of
53/4% Notes
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
Loss on termination of the Restated Credit Facility
|
|
|
5 |
|
|
|
9 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unusual items
|
|
$ |
37 |
|
|
$ |
9 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2005, the Company recorded a charge of $2 million
related to an estimated legal settlement of the San Gabriel
Valley and Chino Hills toxic tort cases. In addition, the
Company recorded an unusual gain of $12 million,
$3 million of which related to a settlement with its
insurance providers and $9 million of which related to an
adjustment of reserves established in fiscal 2001 for customer
reimbursements of tax recoveries that has been settled. The
Company recorded a charge of $29 million related to the
Olin legal matter (see additional discussion in Note 14).
The Company recorded a charge of $18 million as a result of
the redemption of $52 million of principal of the
91/2% Notes,
repayment of $60 million of principal of the
53/4% Notes,
and the termination of the Restated Credit Facility.
In fiscal 2004, the Company incurred a $9 million charge as
a result of the repayment of $70 million of principal of
the
53/4% Notes.
In fiscal 2003, the Company recorded an unusual charge of
$5 million representing the unrecoverable portion of an
estimated legal settlement with a local water company related to
contaminated wells.
|
|
20. |
Condensed Consolidating Financial Information |
The Company is providing condensed consolidating financial
information for its material domestic subsidiaries that have
guaranteed the Senior Subordinated Notes, and for those
subsidiaries that have not guaranteed the Senior Subordinated
Notes. These 100% owned subsidiary guarantors have, jointly and
severally, fully and unconditionally guaranteed the Senior
Subordinated Notes. The subsidiary guarantees are senior
subordinated obligations of each subsidiary guarantor and rank
(i) junior in right of payment with all senior
indebtedness, (ii) equal in right of payment with all
senior subordinated indebtedness and (iii) senior in right
of payment to all subordinated indebtedness, in each case, of
that subsidiary guarantor. The subsidiary guarantees will also
be effectively subordinated to any secured indebtedness of the
subsidiary guarantor with respect to the assets securing that
indebtedness. Absent both default and notice as specified in the
Company’s Credit Facility and agreements governing the
Company’s outstanding convertible notes and the Senior
Subordinated Notes, there are no restrictions on the
Company’s ability to obtain funds from its subsidiary
guarantors by dividend or loan.
The Company has not presented separate financial and narrative
information for each of the subsidiary guarantors, because it
believes that such financial and narrative information would not
provide investors with any additional information that would be
material in evaluating the sufficiency of the guarantees.
Therefore,
103
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the following condensed consolidating financial information
summarizes the financial position, and results of operations and
cash flows for the Company’s guarantor and non-guarantor
subsidiaries.
Condensed Consolidating Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
|
|
|
November 30, 2005 |
|
Parent | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
— |
|
|
$ |
624 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
624 |
|
Cost of products sold
|
|
|
— |
|
|
|
739 |
|
|
|
— |
|
|
|
— |
|
|
|
739 |
|
Selling, general and administrative
|
|
|
20 |
|
|
|
10 |
|
|
|
— |
|
|
|
— |
|
|
|
30 |
|
Depreciation and amortization
|
|
|
2 |
|
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
|
28 |
|
Interest expense
|
|
|
19 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
24 |
|
Other, (income) expense, net
|
|
|
47 |
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(88 |
) |
|
|
(147 |
) |
|
|
— |
|
|
|
— |
|
|
|
(235 |
) |
Income tax (benefit) provision
|
|
|
(25 |
) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(63 |
) |
|
|
(143 |
) |
|
|
— |
|
|
|
— |
|
|
|
(206 |
) |
Income (loss) from discontinued operations
|
|
|
(31 |
) |
|
|
8 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity earnings
|
|
|
(94 |
) |
|
|
(135 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
(230 |
) |
Equity (losses) earnings of subsidiaries
|
|
|
(136 |
) |
|
|
— |
|
|
|
— |
|
|
|
136 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(230 |
) |
|
$ |
(135 |
) |
|
$ |
(1 |
) |
|
$ |
136 |
|
|
$ |
(230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
|
|
|
November 30, 2004 |
|
Parent | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
— |
|
|
$ |
499 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
499 |
|
Cost of products sold
|
|
|
— |
|
|
|
447 |
|
|
|
— |
|
|
|
— |
|
|
|
447 |
|
Selling, general and administrative
|
|
|
36 |
|
|
|
13 |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
Depreciation and amortization
|
|
|
6 |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
31 |
|
Interest expense
|
|
|
34 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
Other, (income) expense, net
|
|
|
9 |
|
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(85 |
) |
|
|
28 |
|
|
|
— |
|
|
|
— |
|
|
|
(57 |
) |
Income tax (benefit) provision
|
|
|
(2 |
) |
|
|
31 |
|
|
|
— |
|
|
|
— |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(83 |
) |
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
(86 |
) |
Income (loss) from discontinued operations
|
|
|
(73 |
) |
|
|
15 |
|
|
|
(254 |
) |
|
|
— |
|
|
|
(312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity earnings
|
|
|
(156 |
) |
|
|
12 |
|
|
|
(254 |
) |
|
|
— |
|
|
|
(398 |
) |
Equity (losses) earnings of subsidiaries
|
|
|
(242 |
) |
|
|
— |
|
|
|
— |
|
|
|
242 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(398 |
) |
|
$ |
12 |
|
|
$ |
(254 |
) |
|
$ |
242 |
|
|
$ |
(398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
|
|
|
November 30, 2003 |
|
Parent | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
— |
|
|
$ |
348 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
348 |
|
Cost of products sold
|
|
|
— |
|
|
|
260 |
|
|
|
— |
|
|
|
— |
|
|
|
260 |
|
Selling, general and administrative
|
|
|
24 |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
31 |
|
Depreciation and amortization
|
|
|
5 |
|
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
28 |
|
Interest expense
|
|
|
21 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
Other, (income) expense, net
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(47 |
) |
|
|
58 |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
Income tax (benefit) provision
|
|
|
(21 |
) |
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(26 |
) |
|
|
38 |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
Income (loss) from discontinued operations
|
|
|
2 |
|
|
|
5 |
|
|
|
3 |
|
|
|
— |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity earnings
|
|
|
(24 |
) |
|
|
43 |
|
|
|
3 |
|
|
|
— |
|
|
|
22 |
|
Equity (losses) earnings of subsidiaries
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
(46 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
22 |
|
|
$ |
43 |
|
|
$ |
3 |
|
|
$ |
(46 |
) |
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
|
|
|
November 30, 2005 (In Millions) |
|
Parent | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents
|
|
$ |
100 |
|
|
$ |
(10 |
) |
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
91 |
|
Accounts receivable, net
|
|
|
— |
|
|
|
82 |
|
|
|
— |
|
|
|
— |
|
|
|
82 |
|
Inventories, net
|
|
|
— |
|
|
|
57 |
|
|
|
— |
|
|
|
— |
|
|
|
57 |
|
Recoverable from the U.S. government and other third
parties for environmental remediation costs
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Prepaid expenses and other
|
|
|
3 |
|
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
26 |
|
Assets of discontinued operations
|
|
|
(2 |
) |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
101 |
|
|
|
177 |
|
|
|
3 |
|
|
|
— |
|
|
|
281 |
|
Restricted cash
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Property, plant and equipment, net
|
|
|
1 |
|
|
|
139 |
|
|
|
— |
|
|
|
— |
|
|
|
140 |
|
Recoverable from the U.S. government and other third
parties for environmental remediation costs
|
|
|
— |
|
|
|
171 |
|
|
|
— |
|
|
|
— |
|
|
|
171 |
|
Prepaid pension asset
|
|
|
111 |
|
|
|
122 |
|
|
|
— |
|
|
|
— |
|
|
|
233 |
|
Goodwill
|
|
|
— |
|
|
|
102 |
|
|
|
— |
|
|
|
— |
|
|
|
102 |
|
Intercompany, net
|
|
|
(387 |
) |
|
|
402 |
|
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
Other noncurrent assets and intangibles, net
|
|
|
709 |
|
|
|
112 |
|
|
|
10 |
|
|
|
(701 |
) |
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
535 |
|
|
$ |
1,225 |
|
|
$ |
(2 |
) |
|
$ |
(701 |
) |
|
$ |
1,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1 |
|
Accounts payable
|
|
|
7 |
|
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
57 |
|
Reserves for environmental remediation
|
|
|
5 |
|
|
|
47 |
|
|
|
— |
|
|
|
— |
|
|
|
52 |
|
Income taxes payable
|
|
|
13 |
|
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
Other current liabilities and other postretirement medical and
life benefits
|
|
|
33 |
|
|
|
121 |
|
|
|
— |
|
|
|
— |
|
|
|
154 |
|
Liabilities of discontinued operations
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
59 |
|
|
|
211 |
|
|
|
2 |
|
|
|
— |
|
|
|
272 |
|
Long-term debt, net of current portion
|
|
|
443 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
443 |
|
Reserves for environmental remediation
|
|
|
7 |
|
|
|
209 |
|
|
|
— |
|
|
|
— |
|
|
|
216 |
|
Other noncurrent liabilities
|
|
|
99 |
|
|
|
100 |
|
|
|
— |
|
|
|
— |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
608 |
|
|
|
520 |
|
|
|
2 |
|
|
|
— |
|
|
|
1,130 |
|
|
Total shareholders’ (deficit) equity
|
|
|
(73 |
) |
|
|
705 |
|
|
|
(4 |
) |
|
|
(701 |
) |
|
|
(73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ (deficit) equity
|
|
$ |
535 |
|
|
$ |
1,225 |
|
|
$ |
(2 |
) |
|
$ |
(701 |
) |
|
$ |
1,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
|
|
|
November 30, 2004 (In Millions) |
|
Parent | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents
|
|
$ |
67 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
68 |
|
Restricted cash
|
|
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
23 |
|
Accounts receivable, net
|
|
|
— |
|
|
|
82 |
|
|
|
— |
|
|
|
— |
|
|
|
82 |
|
Inventories, net
|
|
|
— |
|
|
|
159 |
|
|
|
— |
|
|
|
— |
|
|
|
159 |
|
Recoverable from the U.S. government and other third
parties for environmental remediation costs
|
|
|
— |
|
|
|
36 |
|
|
|
— |
|
|
|
— |
|
|
|
36 |
|
Prepaid expenses and other
|
|
|
5 |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
Assets of discontinued operations
|
|
|
— |
|
|
|
93 |
|
|
|
1 |
|
|
|
— |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
95 |
|
|
|
378 |
|
|
|
1 |
|
|
|
— |
|
|
|
474 |
|
Restricted cash
|
|
|
178 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
178 |
|
Property, plant and equipment, net
|
|
|
1 |
|
|
|
144 |
|
|
|
— |
|
|
|
— |
|
|
|
145 |
|
Recoverable from the U.S. government and other third
parties for environmental remediation costs
|
|
|
— |
|
|
|
197 |
|
|
|
— |
|
|
|
— |
|
|
|
197 |
|
Prepaid pension asset
|
|
|
122 |
|
|
|
156 |
|
|
|
— |
|
|
|
— |
|
|
|
278 |
|
Goodwill
|
|
|
— |
|
|
|
103 |
|
|
|
— |
|
|
|
— |
|
|
|
103 |
|
Intercompany, net
|
|
|
(429 |
) |
|
|
444 |
|
|
|
(15 |
) |
|
|
— |
|
|
|
— |
|
Other noncurrent assets and intangibles, net
|
|
|
937 |
|
|
|
97 |
|
|
|
10 |
|
|
|
(924 |
) |
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
904 |
|
|
$ |
1,519 |
|
|
$ |
(4 |
) |
|
$ |
(924 |
) |
|
$ |
1,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and current portion of long-term debt
|
|
$ |
23 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
23 |
|
Accounts payable
|
|
|
6 |
|
|
|
49 |
|
|
|
— |
|
|
|
— |
|
|
|
55 |
|
Reserves for environmental remediation
|
|
|
7 |
|
|
|
44 |
|
|
|
— |
|
|
|
— |
|
|
|
51 |
|
Income taxes payable
|
|
|
23 |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
35 |
|
Other current liabilities and other postretirement medical and
life benefits
|
|
|
35 |
|
|
|
121 |
|
|
|
— |
|
|
|
— |
|
|
|
156 |
|
Liabilities of discontinued operations
|
|
|
— |
|
|
|
11 |
|
|
|
7 |
|
|
|
— |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
94 |
|
|
|
237 |
|
|
|
7 |
|
|
|
— |
|
|
|
338 |
|
Long-term debt, net of current portion
|
|
|
554 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
554 |
|
Reserves for environmental remediation
|
|
|
9 |
|
|
|
244 |
|
|
|
— |
|
|
|
— |
|
|
|
253 |
|
Other noncurrent liabilities
|
|
|
106 |
|
|
|
103 |
|
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
763 |
|
|
|
584 |
|
|
|
7 |
|
|
|
— |
|
|
|
1,354 |
|
|
Total shareholders’ equity
|
|
|
141 |
|
|
|
935 |
|
|
|
(11 |
) |
|
|
(924 |
) |
|
|
141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$ |
904 |
|
|
$ |
1,519 |
|
|
$ |
(4 |
) |
|
$ |
(924 |
) |
|
$ |
1,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
|
|
|
November 30, 2005 |
|
Parent | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
|
|
| |
Net cash used in operating activities
|
|
$ |
(69 |
) |
|
$ |
(10 |
) |
|
$ |
(5 |
) |
|
$ |
— |
|
|
$ |
(84 |
) |
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
— |
|
|
|
(20 |
) |
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
Proceeds from business disposition
|
|
|
108 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
108 |
|
Other investing activities
|
|
|
201 |
|
|
|
(38 |
) |
|
|
— |
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
309 |
|
|
|
(58 |
) |
|
|
— |
|
|
|
— |
|
|
|
251 |
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers (to) from parent
|
|
|
(74 |
) |
|
|
67 |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
Borrowings (repayments) on notes payable and long-term
debt, net
|
|
|
(148 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(148 |
) |
Net proceeds from common stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financing activities
|
|
|
12 |
|
|
|
(8 |
) |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(210 |
) |
|
|
59 |
|
|
|
7 |
|
|
|
— |
|
|
|
(144 |
) |
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
30 |
|
|
|
(9 |
) |
|
|
2 |
|
|
|
— |
|
|
|
23 |
|
Cash and cash equivalents at beginning of year
|
|
|
67 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
97 |
|
|
$ |
(8 |
) |
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
|
|
|
November 30, 2004 |
|
Parent | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
|
|
| |
Net cash provided by (used in) operating activities
|
|
$ |
(89 |
) |
|
$ |
73 |
|
|
$ |
(14 |
) |
|
$ |
— |
|
|
$ |
(30 |
) |
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
— |
|
|
|
(21 |
) |
|
|
— |
|
|
|
— |
|
|
|
(21 |
) |
Proceeds from business disposition
|
|
|
140 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
144 |
|
Other investing activities
|
|
|
(209 |
) |
|
|
(9 |
) |
|
|
(24 |
) |
|
|
— |
|
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(69 |
) |
|
|
(26 |
) |
|
|
(24 |
) |
|
|
— |
|
|
|
(119 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers (to) from parent
|
|
|
9 |
|
|
|
(42 |
) |
|
|
33 |
|
|
|
— |
|
|
|
— |
|
Borrowings (repayments) on notes payable and long-term
debt, net
|
|
|
57 |
|
|
|
— |
|
|
|
(36 |
) |
|
|
— |
|
|
|
21 |
|
Net proceeds from common stock issuance
|
|
|
131 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
131 |
|
Other financing activities
|
|
|
19 |
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
— |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
216 |
|
|
|
(49 |
) |
|
|
(10 |
) |
|
|
— |
|
|
|
157 |
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
58 |
|
|
|
(2 |
) |
|
|
(52 |
) |
|
|
— |
|
|
|
4 |
|
Cash and cash equivalents at beginning of year
|
|
|
9 |
|
|
|
3 |
|
|
|
52 |
|
|
|
— |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
67 |
|
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
GENCORP INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
|
|
|
November 30, 2003 |
|
Parent | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
|
|
| |
Net cash provided by (used in) operating activities
|
|
$ |
(1 |
) |
|
$ |
32 |
|
|
$ |
13 |
|
|
$ |
— |
|
|
$ |
44 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
— |
|
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
|
|
(11 |
) |
Acquisitions of businesses, net of cash acquired
|
|
|
— |
|
|
|
(138 |
) |
|
|
— |
|
|
|
— |
|
|
|
(138 |
) |
Other investing activities
|
|
|
(10 |
) |
|
|
(2 |
) |
|
|
(19 |
) |
|
|
— |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(10 |
) |
|
|
(151 |
) |
|
|
(19 |
) |
|
|
— |
|
|
|
(180 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers (to) from parent
|
|
|
(86 |
) |
|
|
109 |
|
|
|
(23 |
) |
|
|
— |
|
|
|
— |
|
Borrowings (repayments) on notes payable and long-term
debt, net
|
|
|
117 |
|
|
|
— |
|
|
|
26 |
|
|
|
— |
|
|
|
143 |
|
Other financing activities
|
|
|
(11 |
) |
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
20 |
|
|
|
109 |
|
|
|
15 |
|
|
|
— |
|
|
|
144 |
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
9 |
|
|
|
(10 |
) |
|
|
17 |
|
|
|
— |
|
|
|
16 |
|
Cash and cash equivalents at beginning of year
|
|
|
— |
|
|
|
13 |
|
|
|
35 |
|
|
|
— |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
9 |
|
|
$ |
3 |
|
|
$ |
52 |
|
|
$ |
— |
|
|
$ |
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21. |
New Accounting Pronouncements |
In December 2004, the FASB issued Statement 123(R),
Share-Based Payment, which requires all companies to
measure compensation cost for all share-based payments
(including employee stock options) at fair value. In April 2005,
the SEC issued a release which amends the compliance dates for
Statement 123(R). The Company will now be required to adopt
the new accounting provisions beginning in the first quarter of
fiscal 2006. The Company could adopt the new standard in one of
two ways — the modified prospective transition method
or the modified retrospective transition method. The Company
will adopt Statement 123(R) in the first quarter of fiscal
2006 and does not anticipate that the adoption of the
Statement 123(R) will have a significant effect on earnings
or the financial position of the Company. Stock option expense
after the adoption of SFAS No. 123(R) is not expected
to be materially different than the table in Note 2 and is
dependent on levels of share-based payments granted in the
future.
In March 2005, the FASB issued Interpretation 47(FIN 47),
Accounting for Conditional Asset Retirement Obligations,
an interpretation of FASB Statement 143, Accounting for
Asset Retirement Obligations. FIN 47 requires an entity
to recognize a liability for the fair value of a conditional
asset retirement obligation when incurred if the
liability’s fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after
December 15, 2005. The Company is currently evaluating the
effect that the adoption of FIN 47 will have on its
financial position and results of operations.
110
|
|
Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
Item 9A. |
Controls and Procedures |
As of November 30, 2005, we conducted an evaluation under
the supervision and with the participation of our management,
including our Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. The term “disclosure
controls and procedures,” as defined in
Rules 13a-15(f)
and 15d-15(f) under the
Securities Exchange Act of 1934, as amended (Exchange Act),
means controls and other procedures of a company that are
designed to ensure that information required to be disclosed by
the company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated
and communicated to the company’s management, including its
principal executive and principal financial officers, or persons
performing similar functions, as appropriate, to allow timely
decisions regarding required disclosure.
Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as a result of the
material weakness in our internal control over financial
reporting discussed below, our disclosure controls and
procedures were not effective as of the end of the period
covered by this annual report.
|
|
(b) |
Management’s Report on Internal Control over Financial
Reporting |
Our management, including our Chief Executive Officer and Chief
Financial Officer, are responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act
Rule 13a-15(f) and
15d-15(f). Our internal
control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of our financial
statements for external reporting purposes in accordance with
U.S. generally accepted accounting principles (GAAP).
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect all misstatements.
A control deficiency exists when the design or operation of a
control does not allow management or employees, in the normal
course of performing their assigned functions, to prevent or
detect misstatements on a timely basis. A significant deficiency
is a control deficiency, or combination of control deficiencies,
that adversely affects the company’s ability to initiate,
authorize, record, process, or report external financial data
reliably in accordance with generally accepted accounting
principles such that there is a more than a remote likelihood
that a misstatement of the company’s annual or interim
financial statements that is more than inconsequential will not
be prevented or detected. A material weakness is a significant
deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will
not be prevented or detected.
As of November 30, 2005, our management assessed the
effectiveness of our internal controls over financial reporting.
In making its assessment of internal control over financial
reporting, management used the criteria used by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control — Integrated Framework. In
performing the assessment, management identified and recorded
adjustments, as discussed in Note 17 in Notes to
Consolidated Financial Statements, for which the Company
believes the following entity-level material weakness is the
underlying root cause:
|
|
|
|
• |
A material weakness in the Information and Communication
component of internal control exists due to:
(i) insufficient processes and controls to identify,
capture and accurately communicate information in sufficient
detail concerning complex, non-routine transactions in a timely
manner to appropriate members of the Company’s finance and
accounting organization that possess the necessary skills,
knowledge and authority to determine that such transactions are
properly accounted for in accordance with U.S. generally
accepted accounting principles, and (ii) the lack of
specificity in the existing |
111
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|
|
|
|
processes regarding the degree and extent of procedures that
should be performed by key finance and accounting personnel in
their review of accounting for complex, non-routine transactions
to determine that the objective of the review has been achieved. |
This material weakness resulted in adjustments to the 2005
interim consolidated financial statements. The areas most
affected by this deficiency included the following significant
accounts: net sales and loss from discontinued operations. This
material weakness impacts the Company’s ability to properly
account for complex, non-routine transactions in its financial
statements. Because of the material weakness described above,
our management has concluded that as of November 30, 2005,
our system of internal control over financial reporting was not
effective based on the COSO criteria in Internal
Control — Integrated Framework.
Our independent registered public accounting firm,
Ernst & Young LLP, has issued an audit report on our
assessment of our internal control over financial reporting
which appears on the following page.
|
|
(c) |
Remediation Efforts to Address Material Weakness |
We have and will continue to implement changes to our processes
to improve our internal control over financial reporting. The
following steps are being taken to remediate the conditions
leading to the above stated material weakness:
|
|
|
|
• |
Examination and modification, if necessary, of existing policies
and procedures to identify areas where more explicit guidance is
required to more clearly define roles and responsibilities for
personnel with respect to the identification, escalation and
review by appropriate finance and accounting personnel of
complex, non-routine transactions in a timely manner. |
|
|
• |
Reassess existing processes to identify areas where related
polices should be clarified with respect to the degree and
extent of procedures and communication performed by key finance
and accounting personnel in their review of accounting for
complex, non-routine transactions. |
We believe the implementation, further improvement and close
monitoring of the enhancements identified above will correct
this material weakness for future periods. We also recently
announced the hiring of a Vice President, Corporate Controller
and are in the process of hiring additional personnel. Finally,
as part of our ongoing monitoring effort of the Company’s
internal control environment, we will report the progress and
status of the above remediation actions to the Audit Committee
throughout the year.
Not withstanding the above-mentioned weakness, we believe that
the consolidated financial statements included in this report
fairly present our consolidated financial position as of, and
the consolidated results of operations for the year ended,
November 30, 2005.
Our management, including our Chief Executive Officer and our
Chief Financial Officer, does not expect that our disclosure
controls and procedures or our internal control over financial
reporting are or will be capable of preventing or detecting all
errors and all fraud. Any control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives
will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.
112
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of GenCorp Inc.
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting, that GenCorp Inc. did not maintain
effective internal control over financial reporting as of
November 30, 2005, because of the effect of the material
weakness identified in management’s assessment related to
the Information and Communication component of internal control,
based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
GenCorp’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on management’s assessment and an opinion on the
effectiveness of the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weakness has been identified and included in
management’s assessment:
|
|
|
A material weakness in the Information and Communication
component of internal control exists due to:
(i) insufficient processes and controls to identify,
capture and accurately communicate information in sufficient
detail concerning complex, non-routine transactions in a timely
manner to appropriate members of the Company’s finance and
accounting organization that possess the necessary skills,
knowledge and authority to determine that such transactions are
properly accounted for in accordance with U.S. generally
accepted accounting principles and (ii) the lack of
specificity in the existing processes regarding the degree and
extent of the procedures that should be performed by key finance
and accounting personnel in their reviews of the accounting for
complex, non-routine transactions to determine that the
objective of the review has been achieved. |
113
|
|
|
This material weakness resulted in adjustments to the 2005
interim consolidated financial statements. The areas most
affected by this deficiency included the following significant
accounts: net sales and loss from discontinued operations. This
material weakness impacts GenCorp’s ability to properly
account for complex, non-routine transactions in its financial
statements. |
This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the
2005 financial statements, and this report does not affect our
report dated February 7, 2006 on those financial statements.
In our opinion, management’s assessment that GenCorp Inc.
did not maintain effective internal control over financial
reporting as of November 30, 2005, is fairly stated, in all
material respects, based on the COSO control criteria. Also, in
our opinion, because of the effect of the material weakness
described above on the achievement of the objectives of the
control criteria, GenCorp Inc. has not maintained effective
internal control over financial reporting as of
November 30, 2005, based on the COSO control criteria.
Sacramento, California
February 7, 2006
114
Item 9B. Other
Information
None.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
Directors of the Registrant
Information with respect to directors of the Company
(i) who will stand for election at the 2006 Annual Meeting
of Shareholders is set forth under the heading “NOMINEES
FOR ELECTION AT THIS MEETING TO TERM EXPIRING IN MARCH
2009” in our 2006 Proxy Statement for our 2006 Annual
General Meeting of Shareholders and (ii) whose terms extend
beyond the 2006 Annual Meeting of Shareholders is set forth
under the headings “DIRECTORS WHOSE TERMS CONTINUE UNTIL
MARCH 2007” and “DIRECTORS WHOSE TERMS CONTINUE UNTIL
MARCH 2008” in our 2006 Proxy Statement, which will be
filed with the Securities and Exchange Commission within
120 days after the close of our fiscal year. Such
information is incorporated herein by reference.
Executive Officers of the Registrant
The following information is given as of December 31, 2005,
and except as otherwise indicated, each individual has held the
same office during the preceding five-year period.
|
|
|
|
|
|
|
|
|
Name |
|
Title |
|
Other Business Experience Since 12/1/99 |
|
Age | |
|
|
|
|
|
|
| |
Terry L. Hall
|
|
Chairman of the Board (since December 2003), President and Chief
Executive Officer (since July 2002) |
|
Senior Vice President and Chief Operating Officer, November
2001 — July 2002; Senior Vice President and Chief
Financial Officer of the Company, July 2001 — November
2001; Senior Vice President and Chief Financial Officer;
Treasurer of the Company, October 1999 — July 2001; on
special assignment as Chief Financial Officer of Aerojet, May
1999 — October 1999, Senior Vice President and Chief
Financial Officer of US Airways Group, Inc., 1998, Chief
Financial Officer of Apogee Enterprise Inc., 1995 —
1997 |
|
|
51 |
|
|
Yasmin R. Seyal
|
|
Senior Vice President and Chief Financial Officer (since May
2002) |
|
Acting Chief Financial Officer and Senior Vice President,
Finance, November 2001 — May 2002; Treasurer of the
Company, July 2000 — September 2002; Assistant
Treasurer and Director of Taxes of the Company, March
2000 — July 2000; Director of Treasury and Taxes of
the Company, October 1999 — April 2000; Director of
Taxes as well as other management positions within Aerojet,
1989 — April 1999 |
|
|
48 |
|
115
|
|
|
|
|
|
|
|
|
Name |
|
Title |
|
Other Business Experience Since 12/1/99 |
|
Age | |
|
|
|
|
|
|
| |
|
Scott Neish
|
|
Vice President of the Company and President of Aerojet
(since November 2005) |
|
Executive Vice President of Aerojet, 2005; Vice President of
Aerojet Sacramento Operations, 2003 — 2005; Vice
President and General Manager, Aerojet Redmond, and its
predecessor, General-Dynamics-OTS, 2001 — 2004; Vice
President, Operations for Primex Aerospace 1998 — 2001. |
|
|
58 |
|
|
Michael F. Martin
|
|
Vice President (since November 2005) |
|
Vice President of the Company and President of Aerojet, November
2001 — November 2005; Acting President of Aerojet,
April 2001 — October 2001; Vice President and
Controller of the Company, October 1999 — November
2001; Vice President and Controller of Aerojet, September
1993 — October 1999 |
|
|
59 |
|
|
Dr. Joseph Carleone
|
|
Vice President (since November 2005) |
|
Vice President of the Company and President of Aerojet Fine
Chemicals LLC, September 2000 — November 2005; Vice
President and General Manager, Remote Sensing Systems and Vice
President, Operations at Aerojet, 1999 — 2000; Vice
President, Operations, 1997 — 2000; Vice President,
Tactical Product Sector, 1994 — 1997 |
|
|
59 |
|
|
William A. Purdy Jr.
|
|
Vice President of the Company and President, Real Estate (since
March 2002) |
|
Managing Director, Development, Transwestern Investment Company
LLC, January 1997 — March 2002; Chief Financial
Officer of American Health Care Providers Inc., April
1996 — January 1997 |
|
|
61 |
|
|
Chris W. Conley
|
|
Vice President, Environmental, Health & Safety (since
October 1999) |
|
Director Environmental, Health & Safety, March
1996 — October 1999; Environmental Consultant,
1994 — 1996. |
|
|
47 |
|
|
Linda B. Cutler
|
|
Vice President, Corporate Communications (since May 2002) |
|
Vice President, Communications of the Company, March
2002 — May 2002; Strategic Market Manager,
Telecommunications and Video Services of Output Technology
Solutions, September 2000 — March 2002; Vice
President, Marketing and Corporate Communications of Output
Technology Solutions, January 2000 — September 2000;
Vice President, Investor Relations and Corporate Communications
of USCS International, April 1996 — December 1999. |
|
|
52 |
|
116
|
|
|
|
|
|
|
|
|
Name |
|
Title |
|
Other Business Experience Since 12/1/99 |
|
Age | |
|
|
|
|
|
|
| |
|
Kari Van Gundy
|
|
Vice President, Treasurer (since October 2002) |
|
Senior Vice President, eCommerce, Zenith Insurance Company, June
2000 — September 2002; Senior Vice President,
Finance & Treasurer, CalFarm Insurance Company, May
1997 — September 1999 |
|
|
48 |
|
|
Mark A. Whitney
|
|
Vice President, Law; Deputy General Counsel and Assistant
Secretary (since April 2003) |
|
Senior Corporate Counsel, Tyco International (US) Inc., June
1999 — March 2003; Associate Corporate Counsel, Tyco
International (US) Inc., November 1996 — June 1999 |
|
|
42 |
|
|
Bryan Ramsey
|
|
Vice President — Human Resources (since July 2005) |
|
Vice President, Aerojet Human Resources since 2001; Director,
Aerojet Human Resources, 2000 — 2001; Director of
Aerojet Human Resources, Azusa 1998 — 1999. |
|
|
54 |
|
The Company’s executive officers generally hold terms of
office of one year and/or until their successors are elected.
Code of Ethics and Corporate Governance Guidelines
The Company has adopted a code of ethics known as the “Code
of Business Conduct” that applies to the Company’s
employees including the principal executive officer, principal
financial officer, principal accounting officer and controller.
The Company makes available on its website at www.GenCorp.com
(and in print to any shareholder who requests them) the
Company’s current Code of Business Conduct and the
Company’s corporate governance guidelines. Amendments to,
or waivers from, a provision of the Code of Business Conduct
that applies to our directors or executive officers will be
posted to our website within five business days following the
date of the amendment or waiver.
Section 16(a) Beneficial Ownership Reporting
Compliance
Information regarding compliance with Section 16(a) of the
Exchange Act is set forth under the heading
“Section 16(a) Beneficial Ownership Reporting
Compliance” in our 2006 Proxy Statement and is incorporated
herein by reference.
|
|
|
Material Changes for Director Nominee Procedures |
Since the date of our 2005 Proxy Statement, our Board of
Directors has not made any material changes to the procedures by
which shareholders of the Company may recommend nominees to our
Board of Directors
Audit Committee and Audit Committee Financial Expert
Information regarding the Audit Committee and the Audit
Committee’s Financial Expert is set forth under the heading
“Board Committees” in our 2006 Proxy Statement and is
incorporated herein by reference.
|
|
Item 11. |
Executive Compensation |
Information regarding executive compensation is set forth under
the heading “Executive Compensation” in our 2006 Proxy
Statement and is incorporated herein by reference. Information
regarding director compensation is set forth under the heading
“Director Compensation” in our 2006 Proxy Statement
and is incorporated herein by reference. Information regarding
employment contracts, termination of employment and change in
control agreements is set forth under the heading
“Employment Contracts and Termination of Employment and
Change in Control Arrangements” in our 2006 Proxy Statement
and is incorporated herein by reference. Information regarding
compensation committee interlocks is set forth under the heading
117
“Compensation Committee Interlocks and Insider
Participation” in our 2006 Proxy Statement and is
incorporated herein by reference. The Company’s Board
Compensation Committee Report on Executive Compensation is set
forth under the heading “Report of the
Organization & Compensation Committee of the Board of
Directors on Executive Compensation” in our 2006 Proxy
Statement and is incorporated herein by reference. The
performance graph required by this Item is set forth under the
heading “Performance Graph” in our 2006 Proxy
Statement and is incorporated herein by reference.
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
Information regarding the security ownership of certain
beneficial owners and management is set forth under the heading
“Security Ownership of Officers and Directors” in our
2006 Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan Information
The table below sets forth certain information regarding the
following equity compensation plans of the Company, pursuant to
which we have made equity compensation available to eligible
persons, as of November 30, 2005: (i) GenCorp Inc.
1993 Stock Option Plan; (ii) GenCorp Inc. 1997 Stock Option
Plan; and (iii) GenCorp Inc. 1999 Equity and Performance
Incentive Plan. All three plans have been approved by
shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
Remaining Available for | |
|
|
|
|
|
|
Future Issuance Under | |
|
|
Number of Securities to be | |
|
Weighted-Average | |
|
Equity Compensation | |
|
|
Issued Upon Exercise of | |
|
Exercise Price of | |
|
Plans (Excluding | |
|
|
Outstanding Options, | |
|
Outstanding Options, | |
|
Securities Reflected in | |
Plan Category |
|
Warrants and Rights | |
|
Warrants and Rights | |
|
Column (a)) | |
|
|
| |
|
| |
|
| |
|
|
(a) | |
|
(b) | |
|
(c) | |
Equity compensation plans approved by shareholders
|
|
|
1,914,504 |
|
|
$ |
11.15 |
|
|
|
242,884 |
(1) |
Equity compensation plans not approved by shareholders(2)
|
|
|
— |
|
|
|
N/A |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,914,504 |
|
|
$ |
11.15 |
|
|
|
242,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The number of shares issued as restricted shares, deferred
shares or performance shares is limited under the GenCorp Inc.
1999 Equity and Performance Incentive Plan to 900,000 common
shares and, during any period of three consecutive fiscal years,
the maximum number of common shares covered by awards of
restricted shares, deferred shares or performance shares granted
to any one participant is limited to 900,000 common shares. The
GenCorp Inc. 1999 Equity and Performance Incentive Plan further
provides that no participant may receive an award in any one
calendar year of performance shares or performance units having
an aggregate maximum value as of the date of grant in excess of
$2,000,000. |
|
(2) |
The Company also maintains the GenCorp Inc. and Participating
Subsidiaries Deferred Bonus Plan. This plan allows participating
employees to defer a portion of their compensation for future
distribution. All or a portion of such deferrals may be
allocated to an account based on the Company’s common stock
and does permit limited distributions in the form of Company
common shares. However, distributions in the form of common
shares are permitted only at the election of the
Organization & Compensation Committee of the Board of
Directors and, according to the terms of the plan, individuals
serving as officers or directors of the Company are not
permitted to receive distributions in the form of Company common
shares until at least six months after such individual ceases to
be an officer or director of the Company. The table does not
include information about this plan because no options, warrants
or rights are available under this plan and no specific number
of shares is set aside under this plan as available for future
issuance. Based upon the price of Company common shares on
November 30, 2005, the maximum |
118
|
|
|
number of shares that could be distributed to employees not
subject to the restrictions on officers and directors (if
permitted by the Organization & Compensation Committee)
would be 54,102. |
|
|
Item 13. |
Certain Relationships and Related Transactions |
Information regarding certain transactions and employment
agreements with management is set under the heading
“Employment Contracts and Termination of Employment and
Change of Control Arrangements” in our 2006 Proxy Statement
and is incorporated herein by reference.
|
|
Item 14. |
Principal Accountant Fees and Services |
Information regarding fees for professional audit services
rendered by Ernst & Young LLP (E&Y) for the audit
of our annual financial statements for the years ended
November 30, 2005 and November 30, 2004, and fees
billed for other services rendered by E&Y during those
periods as well as information regarding the Audit
Committee’s approval relating to such engagements is
disclosed under the heading “Ratification of Independent
Registered Public Accounting Firm” and “Policy on
Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting Firm”
in our 2006 Proxy Statement and is incorporated herein by
reference.
PART IV
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|
Item 15. |
Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this
report:
(1) FINANCIAL STATEMENTS
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Page | |
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Number | |
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51 |
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52 |
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53 |
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54 |
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55 |
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56 |
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(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as part of
this Annual Report on
Form 10-K. All
other financial statement schedules have been omitted because
they are inapplicable, not required by the instructions or
because the required information is either incorporated herein
by reference or included in the financial statements or notes
thereto included in this report.
119
GENCORP INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(In millions)
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Balance at | |
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Charged to | |
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Balance at | |
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Beginning of | |
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Costs and | |
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End of | |
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Period | |
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Expenses | |
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Deductions(1) |
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Period | |
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| |
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| |
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| |
Allowance for doubtful accounts (current and noncurrent):
|
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Year ended November 30, 2005
|
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$ |
1 |
|
|
$ |
26 |
|
|
$ |
— |
|
|
$ |
27 |
|
|
Year ended November 30, 2004
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
Year ended November 30, 2003
|
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— |
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— |
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— |
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— |
|
(3) See Item 15(b)
(b) EXHIBITS
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Table |
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Item No. |
|
Exhibit Description |
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2 |
.1 |
|
Purchase Agreement, dated May 2, 2003, between Atlantic
Research Corporation and Aerojet-General Corporation was filed
as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on
Form 10-Q for the fiscal quarter ended May 31, 2003
(File No. 1-1520) and is incorporated herein by reference.** |
|
|
2 |
.2 |
|
First Amendment to Purchase Agreement, dated August 29,
2003, between Aerojet-General Corporation and Atlantic Research
Corporation was filed as Exhibit 2.2 to GenCorp’s
Form S-4 Registration Statement dated October 6, 2003
(File No. 333-109518) and is incorporated herein by
reference.** |
|
|
2 |
.3 |
|
Second Amendment to Purchase Agreement, dated September 30,
2003, between Aerojet-General Corporation and Atlantic Research
Corporation was filed as Exhibit 2.2 to GenCorp Inc.’s
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 2003 (File No. 1-1520) and is incorporated
herein by reference.** |
|
|
2 |
.4 |
|
Third Amendment to Purchase Agreement, dated October 16,
2003, between Aerojet-General Corporation and Atlantic Research
Corporation was filed as Exhibit 2.4 to GenCorp’s
Amendment No. 1 to Form S-4 Registration Statement
dated December 15, 2003 (file no. 333-109518) and is
incorporated herein by reference.** |
|
|
2 |
.5 |
|
Stock and Asset Purchase Agreement by and between GDX Holdings
LLC and GenCorp Inc. dated July 16, 2004 (filed as
Exhibit 2.1 to GenCorp Inc.’s Current Report on
Form 8-K dated September 7, 2004 (File
No. 1-1520) and incorporated herein by reference).** |
|
|
2 |
.6 |
|
First Amendment to Stock and Asset Purchase Agreement by and
between GenCorp Inc. and GDX Holdings LLC dated as of
August 31, 2004 (filed as Exhibit 2.2 to GenCorp
Inc.’s Current Report on Form 8-K dated
September 7, 2004 (File No. 1-1520) and incorporated
herein by reference).** |
|
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2 |
.7 |
|
Second Amendment to Stock and Asset Purchase Agreement by and
between GenCorp Inc. and GDX Holdings LLC dated as of
October 14, 2004 (filed as Exhibit 2.3 to GenCorp
Inc.’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2004 (File No. 1-1520), as
amended, and incorporated herein by reference).** |
|
|
2 |
.8 |
|
Asset Purchase Agreement, dated as of July 12, 2005, by and
among Aerojet Fine Chemicals LLC, Aerojet-General Corporation
and American Pacific Corporation was filed as Exhibit 2.1
to GenCorp Inc.’s Current Report on Form 8-K filed on
July 18, 2005 (File No. 1-1520), and is incorporated
herein by reference.** |
|
|
2 |
.9 |
|
First Amendment to Asset Purchase Agreement by and among
American Pacific Corporation, Aerojet Fine Chemicals LLC and
Aerojet-General Corporation dated as of November 30, 2005
was filed as Exhibit 2.1 to GenCorp Inc.’s Current
Report on Form 8-K filed on December 1, 2005 (File
No. 1-1520) and incorporated herein by reference).** |
|
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3 |
.1 |
|
Amended Articles of Incorporation of GenCorp filed with the
Secretary of State of Ohio on August 7, 2003 was filed as
Exhibit 3.1 to GenCorp’s Form S-4 Registration
Statement dated October 6, 2003 (File No. 333-109518)
and is incorporated herein by reference. |
120
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Table |
|
|
Item No. |
|
Exhibit Description |
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3 |
.2 |
|
The Amended Code of Regulations of GenCorp, as amended on
March 29, 2000, was filed as Exhibit 3.2 to GenCorp
Inc.’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2000 (File No. 1-1520), and
is incorporated herein by reference. |
|
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4 |
.1 |
|
Amended and Restated Rights Agreement (with exhibits) dated as
of December 7, 1987 between GenCorp and Morgan Shareholder
Services Trust Company as Rights Agent was filed as
Exhibit D to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1987
(File No. 1-1520), and is incorporated herein by reference. |
|
|
4 |
.2 |
|
Amendment to Rights Agreement among GenCorp, The First Chicago
Trust Company of New York, as resigning Rights Agent and The
Bank of New York, as successor Rights Agent, dated
August 21, 1995, was filed as Exhibit A to GenCorp
Inc.’s Annual Report on Form 10-K for the fiscal year
ended November 30, 1995 (File No. 1-1520), and is
incorporated herein by reference. |
|
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4 |
.3 |
|
Amendment to Rights Agreement between GenCorp and The Bank of
New York as successor Rights Agent, dated January 20, 1997,
was filed as Exhibit 4.1 to GenCorp Inc.’s Current
Report on Form 8-K dated January 20, 1997 (File
No. 1-1520), and is incorporated herein by reference. |
|
|
4 |
.4 |
|
Indenture dated April 5, 2002 between GenCorp and The Bank
of New York, as trustee, relating to GenCorp’s
53/4% Convertible
Subordinated Notes due 2007 was filed as Exhibit 4.4 to
GenCorp’s Form S-3 Registration Statement
No. 333-89796 dated June 4, 2002 and is incorporated
herein by reference. |
|
|
4 |
.5 |
|
Form of
53/4% Convertible
Subordinated Notes (included in Exhibit 4.4) was filed as
Exhibit 4.6 to GenCorp’s Form S-3 Registration
Statement No. 333-89796 dated June 4, 2002 and is
incorporated herein by reference. |
|
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4 |
.6 |
|
Indenture, dated as of August 11, 2003, between GenCorp
Inc., the Guarantors named therein and The Bank of New York as
trustee relating to GenCorp’s
91/2% Senior
Subordinated Notes was filed as Exhibit 4.1 to
GenCorp’s Form S-4 Registration Statement dated
October 6, 2003 (File No. 333-109518) and is
incorporated herein by reference. |
|
|
4 |
.7 |
|
Form of
91/2% Senior
Subordinated Notes (included in Exhibit 4.7) was filed as
Exhibit 4.4 to GenCorp’s Form S-4 Registration
Statement dated October 6, 2003 (File No. 333-109518)
and is incorporated herein by reference. |
|
|
4 |
.8 |
|
First Supplemental Indenture dated as of October 29, 2004
to the Indenture between GenCorp Inc. and The Bank of New York,
as trustee relating to GenCorp’s
91/2% Senior
Subordinated Notes due 2013 (filed as Exhibit 10.1 to
GenCorp Inc.’s Current Report on Form 8-K dated
November 1, 2004 (File No. 1-1520) and incorporated
herein by reference). |
|
|
4 |
.9 |
|
Indenture dated January 16, 2004 between GenCorp and The
Bank of New York, as trustee, relating to GenCorp’s 4%
Contingent Convertible Subordinated Notes due 2024 was filed as
Exhibit 4.11 to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 2003
(File No. 1-1520) and is incorporated herein by reference. |
|
|
4 |
.10 |
|
Registration Rights Agreement dated January 16, 2004 by and
among GenCorp, Deutsche Bank Securities Inc., Wachovia Capital
Markets, LLC, Scotia Capital (USA) Inc., BNY Capital Markets,
Inc., NatCity Investments, Inc. and Wells Fargo Securities, LLC
was filed as Exhibit 4.12 to GenCorp Inc.’s Annual
Report on Form 10-K for the fiscal year ended
November 30, 2003 (File No. 1-1520) and is
incorporated herein by reference. |
|
|
4 |
.11 |
|
Form of 4% Contingent Convertible Subordinated Notes was filed
as Exhibit 4.13 (and included in Exhibit 4.11) to
GenCorp Inc.’s Annual Report on Form 10-K for the
fiscal year ended November 30, 2003 (File No. 1-1520)
and is incorporated herein by reference. |
|
|
4 |
.12 |
|
Indenture, dated as of November 23, 2004, between GenCorp
Inc. and The Bank of New York Trust Company, N.A., as trustee
relating to GenCorp Inc.’s
21/4% Convertible
Subordinated Debentures due 2024 (filed as Exhibit 4.01 to
GenCorp Inc.’s Current Report on Form 8-K dated
November 23, 2004 (File No. 1-1520), as amended, and
incorporated herein by reference). |
121
|
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|
Table |
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|
Item No. |
|
Exhibit Description |
|
|
|
|
|
4 |
.13 |
|
Registration Rights Agreement, dated as of November 23,
2004, by and between GenCorp Inc. and Wachovia Capital Markets,
LLC, as representative for the several initial purchasers of the
21/4% Convertible
Subordinated Debentures due 2024 (filed as Exhibit 4.14 to
GenCorp Inc.’s Form S-3 Registration Statement dated
January 11, 2005 (File No. 333-121948) and
incorporated herein by reference). |
|
|
4 |
.14 |
|
Form of
21/4% Convertible
Subordinated Debenture (filed as Exhibit 4.02 to GenCorp
Inc.’s Current Report on Form 8-K dated
November 23, 2004 (File No. 1-1520), as amended, and
incorporated herein by reference). |
|
|
10 |
.1 |
|
Distribution Agreement dated September 30, 1999 between
GenCorp Inc. and OMNOVA Solutions Inc. (OMNOVA) was filed as
Exhibit B to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 19, 1999
(File No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.2 |
|
Amended and Restated Environmental Agreement by and between
Aerojet and Northrop Grumman, dated October 19, 2001 was
filed as Exhibit 2.4 to the Company’s Current Report
on Form 8-K dated November 5, 2001 (File
No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.3 |
|
Credit Agreement, dated as of December 6, 2004, among
GenCorp, as the Borrower, each of those Material Domestic
Subsidiaries of the Borrower identified as a
“Guarantor” on the signature pages thereto and such
other Material Domestic Subsidiaries of the Borrower as may from
time to time become a party thereto, the several banks and other
financial institutions from time to time parties to such Credit
Agreement, and Wachovia Bank, National Association, a national
banking association, as Administrative Agent, was filed as
Exhibit 10.1 to GenCorp Inc.’s Current Report on
Form 8-K dated December 8, 2004 (File No. 1-1520)
and is incorporated herein by reference. |
|
|
10 |
.4 |
|
First Amendment to Credit Agreement and Waiver dated as of
August 31, 2005, among GenCorp, as the Borrower, each of
those Material Domestic Subsidiaries of the Borrower identified
as a ‘Guarantor‘ on the signature pages thereto and
such other Material Domestic Subsidiaries of the Borrower as may
from time to time become a party thereto, the several banks and
other financial institutions from time to time parties to the
Credit Agreement, and Wachovia Bank, National Association, a
national banking association, as Administrative Agent, was filed
as Exhibit 10.1 to GenCorp Inc.’s Current Report on
Form 8-K dated August 31, 2005 (File No. 1-1520)
and is incorporated herein by reference. |
|
|
10 |
.5* |
|
Second Amendment to Credit Agreement dated as of
January 26, 2006, among GenCorp, as the Borrower, each of
those Material Domestic Subsidiaries of the Borrower identified
as a ‘Guarantor‘ on the signature pages thereto and
Wachovia Bank, National Association, a national banking
association, as Administrative Agent. |
|
|
10 |
.6† |
|
Modified Employment Retention Agreement dated July 26,
2002, between GenCorp and Robert A. Wolfe was filed as
Exhibit 10.39 to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 2002
(File No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.7† |
|
GenCorp 1996 Supplemental Retirement Plan for Management
Employees effective March 1, 1996 was filed as
Exhibit B to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1996
(File No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.8† |
|
Benefits Restoration Plan for Salaried Employees of GenCorp Inc.
and Certain Subsidiary Companies as amended and restated
effective December 1, 1986, was filed as Exhibit G to
GenCorp Inc.’s Annual Report on Form 10-K for the
fiscal year ended November 30, 1987 (File No. 1-1520),
and is incorporated herein by reference. |
|
|
10 |
.9† |
|
Information relating to the Deferred Bonus Plan of GenCorp Inc.
is contained in Post-Effective Amendment No. 1 to
Form S-8 Registration Statement No. 2-83133 dated
April 18, 1986 and is incorporated herein by reference. |
|
|
10 |
.10† |
|
Amendment to the Deferred Bonus Plan of GenCorp Inc. effective
as of April 5, 1987, was filed as Exhibit I to GenCorp
Inc.’s Annual Report on Form 10-K for the fiscal year
ended November 30, 1987 (File No. 1-1520), and is
incorporated herein by reference. |
|
|
10 |
.11† |
|
GenCorp Inc. Deferred Compensation Plan for Nonemployee
Directors effective January 1, 1992 was filed as
Exhibit A to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1991
(File No. 1-1520), and is incorporated herein by reference. |
122
|
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|
Table |
|
|
Item No. |
|
Exhibit Description |
|
|
|
|
|
10 |
.12† |
|
GenCorp Inc. 1993 Stock Option Plan effective March 31,
1993 was filed as Exhibit 4.1 to Form S-8 Registration
Statement No. 33-61928 dated April 30, 1993 and is
incorporated herein by reference. |
|
|
10 |
.13† |
|
GenCorp Inc. 1997 Stock Option Plan effective March 26,
1997 was filed as Exhibit 4.1 to Form S-8 Registration
Statement No. 333-35621 dated September 15, 1997 and
is incorporated herein by reference. |
|
|
10 |
.14† |
|
GenCorp Inc. 1999 Equity and Performance Incentive Plan was
filed as Exhibit H to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1999
(File No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.15† |
|
GenCorp Inc. Executive Incentive Compensation Program, amended
September 8, 1995 to be effective for the 1996 fiscal year
was filed as Exhibit E to GenCorp Inc.’s Annual Report
on Form 10-K for the fiscal year ended November 30,
1997 (File No. 1-1520), and is incorporated herein by
reference. |
|
|
10 |
.16† |
|
2001 Supplemental Retirement Plan For GenCorp Executives
effective December 1, 2001, incorporating GenCorp
Inc.’s Voluntary Enhanced Retirement Program was filed as
Exhibit 10.29 to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 2001
(File No. 1-1520) and is incorporated herein by reference. |
|
|
10 |
.17† |
|
Form of Restricted Stock Agreement between the Company and
Nonemployee Directors providing for payment of part of
Directors’ compensation for service on the Board of
Directors in Company stock was filed as Exhibit 10.1 to
GenCorp Inc.’s Quarterly Report on Form 10-Q for the
fiscal quarter ended February 28, 1998 (File
No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.18† |
|
Form of Restricted Stock Agreement between the Company and
Nonemployee Directors providing for payment of part of
Directors’ compensation for service on the Board of
Directors in Company stock was filed as Exhibit 10.1 to
GenCorp Inc.’s Quarterly Report on Form 10-Q for the
fiscal quarter ended February 28, 1999 (File
No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.19† |
|
Form of Restricted Stock Agreement between the Company and
Directors or Employees for grants of time-based vesting of
restricted stock under the GenCorp Inc. 1999 Equity and
Performance Incentive Plan was filed as Exhibit 10.26 to
GenCorp Inc.’s Annual Report on Form 10-K for the
fiscal year ended November 30, 2004 (File No. 1-1520),
and is incorporated herein by reference. |
|
|
10 |
.20† |
|
Form of Stock Appreciation Rights Agreement between the Company
and Employees for grants of stock appreciation rights under the
GenCorp Inc. 1999 Equity and Performance Incentive Plan was
filed as Exhibit 10.27 to GenCorp Inc.’s Annual Report
on Form 10-K for the fiscal year ended November 30,
2004 (File No. 1-1520), and is incorporated herein by
reference. |
|
|
10 |
.21† |
|
Form of Stock Appreciation Rights Agreement between the Company
and Directors for grants of stock appreciation rights under the
GenCorp Inc. 1999 Equity and Performance Incentive Plan was
filed as Exhibit 10.28 to GenCorp Inc.’s Annual Report
on Form 10-K for the fiscal year ended November 30,
2004 (File No. 1-1520), and is incorporated herein by
reference. |
|
|
10 |
.22† |
|
Form of Restricted Stock Agreement between the Company and
Employees for grants of performance-based vesting of restricted
stock under the GenCorp Inc. 1999 Equity and Performance
Incentive Plan was filed as Exhibit 10.29 to GenCorp
Inc.’s Annual Report on Form 10-K for the fiscal year
ended November 30, 2004 (File No. 1-1520), and is
incorporated herein by reference. |
|
|
10 |
.23† |
|
Form of Director Nonqualified Stock Option Agreement between the
Company and Nonemployee Directors providing for annual grant of
nonqualified stock options prior to February 28, 2002,
valued at $30,000 was filed as Exhibit 10.1 to GenCorp
Inc.’s Quarterly Report on Form 10-Q for the fiscal
quarter ended May 31, 2002 (File No. 1-1520), and is
incorporated herein by reference. |
|
|
10 |
.24† |
|
Form of Director Nonqualified Stock Option Agreement between the
Company and Nonemployee Directors providing for an annual grant
of nonqualified stock options on or after February 28,
2002, valued at $30,000 in lieu of further participation in
Retirement Plan for Nonemployee Directors was filed as
Exhibit 10.2 to GenCorp Inc.’s Quarterly Report on
Form 10-Q for the fiscal quarter ended May 31, 2002
(File No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.25† |
|
Form of Director and Officer Indemnification Agreement was filed
as Exhibit L to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1999
(File No. 1-1520), and is incorporated herein by reference. |
123
|
|
|
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|
Table |
|
|
Item No. |
|
Exhibit Description |
|
|
|
|
|
10 |
.26† |
|
Form of Director Indemnification Agreement was filed as
Exhibit M to GenCorp Inc.’s Annual Report on
Form 10-K for the fiscal year ended November 30, 1999
(File No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.27† |
|
Form of Officer Indemnification Agreement was filed as Exhibit N
to GenCorp Inc.’s Annual Report on Form 10-K for the
fiscal year ended November 30, 1999 (File No. 1-1520),
and is incorporated herein by reference. |
|
|
10 |
.28† |
|
Form of Severance Agreement granted to certain executive
officers of the Company was filed as Exhibit D to GenCorp
Inc.’s Annual Report on Form 10-K for the fiscal year
ended November 30, 1997 (File No. 1-1520), and is
incorporated herein by reference. |
|
|
10 |
.29 |
|
Shareholder Agreement by and between GenCorp Inc. and Steel
Partners II L.P. dated February 15, 2005 (filed as
Exhibit 10.1 to GenCorp Inc.’s Current Report on
Form 8-K dated February 16, 2005 (File
No. 1-1520) and incorporated herein by reference). |
|
|
10 |
.30† |
|
Employment Letter Agreement dated April 12, 2005 by and
between GenCorp Inc. and Philip W. Cyburt was filed as
Exhibit 10.1 to GenCorp Inc.’s Current Report on
Form 8-K filed on April 14, 2005 (File
No. 1-1520), and is incorporated herein by reference. |
|
|
10 |
.31 |
|
American Pacific Corporation Subordinated Promissory Note, dated
November 30, 2005, in the principal amount of $25,500,000
(filed as Exhibit 10.1 to GenCorp Inc.’s Current
Report on Form 8-K dated November 30, 2005 (File
No. 1-1520) and incorporated herein by reference). |
|
|
10 |
.32*† |
|
Employment Offer Letter dated January 11, 2006 by and
between GenCorp Inc. and R. Leon Blackburn. |
|
|
10 |
.33*† |
|
Form of Restricted Stock Agreement Version 2 between the Company
and Employees for grants of performance-based vesting of
restricted stock under the GenCorp Inc. 1999 Equity and
Performance Incentive Plan. |
|
|
21 |
.1* |
|
Subsidiaries of the Company. |
|
|
23 |
.1* |
|
Consent of Independent Registered Public Accounting Firm. |
|
|
24 |
.1* |
|
Powers of Attorney executed by J. R. Anderson,
R. F. Balotti, C. F. Bolden Jr.,
J. G. Cooper, J. J. Didion,
J. M. Osterhoff, S. G. Rothmeier,
T. A. Wicks, and S. E. Widnall, Directors of
the Company. |
|
|
31 |
.1* |
|
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
|
|
31 |
.2* |
|
Certification of Principal Financial Officer pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended. |
|
32 |
.1* |
|
Certification of Principal Executive Officer and Principal
Accounting Officer pursuant to Rule 13a-14(b) under the
Securities Exchange Act of 1934 as amended, and
18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
* |
Filed herewith. All other exhibits have been previously filed. |
|
|
|
|
** |
Schedules and Exhibits have been omitted, but will be furnished
to the SEC upon request. |
|
|
|
|
† |
Management contract or compensatory plan or arrangement. |
124
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
February 10, 2006
|
|
|
|
|
Terry L. Hall |
|
Chairman of the Board, President and |
|
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
|
|
Title |
|
Date |
Signature |
|
|
|
|
|
|
|
|
|
|
/s/ TERRY L. HALL
Terry L. Hall |
|
Chairman of the Board, President and Chief Executive Officer/
Director (Principal Executive Officer) |
|
February 10, 2006 |
|
/s/ YASMIN R. SEYAL
Yasmin R. Seyal |
|
Senior Vice President, Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer) |
|
February 10, 2006 |
|
By: |
|
/s/ *
J. Robert Anderson |
|
Director |
|
February 10, 2006 |
|
By: |
|
/s/ *
R. Franklin Balotti |
|
Director |
|
February 10, 2006 |
|
By: |
|
/s/ *
C. F. Bolden Jr. |
|
Director |
|
February 10, 2006 |
|
By: |
|
/s/ *
J. Gary Cooper |
|
Director |
|
February 10, 2006 |
|
By: |
|
/s/ *
James J. Didion |
|
Director |
|
February 10, 2006 |
|
By: |
|
/s/ *
James M. Osterhoff |
|
Director |
|
February 10, 2006 |
|
By: |
|
/s/ *
Steven G. Rothmeier |
|
Director |
|
February 10, 2006 |
|
By: |
|
/s/ *
Timothy A. Wicks |
|
Director |
|
February 10, 2006 |
125
|
|
|
|
|
|
|
|
|
Title |
|
Date |
Signature |
|
|
|
|
|
|
|
|
|
|
By: |
|
/s/ *
Sheila E. Widnall |
|
Director |
|
February 10, 2006 |
|
By: |
|
/s/ YASMIN R. SEYAL
Yasmin R. Seyal |
|
Attorney-in-Fact pursuant to
Powers of Attorney filed herewith |
|
February 10, 2006 |
126