-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BeW7SA2iaUljtbPWDAc9ySBNbFAjuZjEB0ssLn5sIo3dP6XG0YgtYwwGyU+mCn1Z oWTYs/8H1mZdqS/fVAlJoA== 0000950152-96-004788.txt : 19960923 0000950152-96-004788.hdr.sgml : 19960923 ACCESSION NUMBER: 0000950152-96-004788 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19960920 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENCORP INC CENTRAL INDEX KEY: 0000040888 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 340244000 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01520 FILM NUMBER: 96632391 BUSINESS ADDRESS: STREET 1: 175 GHENT RD CITY: FAIRLAWN STATE: OH ZIP: 44333 BUSINESS PHONE: 2168694200 MAIL ADDRESS: STREET 1: 175 GHENT RD CITY: FAIRLAWN STATE: OH ZIP: 44333 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL TIRE & RUBBER CO DATE OF NAME CHANGE: 19840330 10-Q 1 GENCORP, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended August 31, 1996 Commission File Number 1-1520 --------------- ------ GenCorp Inc. ------------ (Exact name of registrant as specified in its charter) Ohio 34-0244000 ---- ---------- (State of Incorporation) (I.R.S. Employer Identification No.) 175 Ghent Road Fairlawn, Ohio 44333-3300 ---------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (330) 869-4200 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- At August 31, 1996, there were 33,450,781 outstanding shares of GenCorp Inc.'s Common Stock, par value $.10. 2 GenCorp Inc.
Table of Contents Page No. -------- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Income - Three Months and Nine Months Ended August 31, 1996 and 1995 -3- Condensed Consolidated Balance Sheets - August 31, 1996 and November 30, 1995 -4- Condensed Consolidated Statements of Cash Flows - Nine Months Ended August 31, 1996 and 1995 -5- Notes to the Unaudited Interim Condensed Consolidated Financial Statements -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -11- Part II. Other Information Item 1. Legal Proceedings -14- Item 5. Other Information -14- Item 6. Exhibits and Reports on Form 8-K -14- Signatures -15-
-2- 3 PART I. FINANCIAL INFORMATION ----------------------------- GenCorp Inc. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in millions, except per share data)
Unaudited Unaudited Three Months Ended Nine Months Ended ------------------ ----------------- Aug. 31, Aug. 31, Aug. 31, Aug. 31, 1996 1995 1996 1995 --------- --------- ----------- ---------- NET SALES $ 360.9 $ 431.4 $ 1,107.2 $ 1,321.4 -------- -------- ----------- ---------- COSTS AND EXPENSES Cost of products sold 290.0 364.7 909.3 1,114.4 Selling, general and administrative 38.6 47.1 126.1 136.2 Interest expense 6.0 8.3 20.6 26.2 Other (income) and expense, net (.1) (2.0) (3.3) (7.5) Unusual items (Note C) - - 24.9 - -------- -------- ----------- ---------- 334.5 418.1 1,077.6 1,269.3 -------- -------- ----------- ---------- INCOME BEFORE INCOME TAXES 26.4 13.3 29.6 52.1 Income tax provision 10.5 5.3 11.3 20.8 -------- -------- ----------- ---------- NET INCOME $ 15.9 $ 8.0 $ 18.3 $ 31.3 ======== ======== =========== ========== EARNINGS PER SHARE OF COMMON STOCK (NOTE B) Primary $ .47 $ .24 $ .55 $ .96 Fully Diluted $ .42 $ .23 $ .55 $ .89 Average number of shares of common stock outstanding (in thousands) Primary 33,734 33,362 33,622 32,620 Fully diluted 40,893 40,520 40,852 39,778 Cash dividends paid per share of common stock $ .15 $ .15 $ .45 $ .45
The accompanying notes to the unaudited interim condensed consolidated financial statements are an integral part of these statements. -3- 4 GenCorp Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in millions)
Unaudited Audited August 31, November 30, 1996 1995 ---------- ---------- CURRENT ASSETS: Cash and equivalents $ 19.9 $ 17.0 Accounts receivable 208.6 241.7 Inventories (Note D) 152.2 161.3 Prepaid expenses and other 55.7 45.0 ---------- ---------- TOTAL CURRENT ASSETS 436.4 465.0 ---------- ---------- Recoverable from U.S. government and third parties for environmental remediation 121.1 120.8 Deferred income taxes 143.1 147.8 Prepaid pension 104.6 109.4 Investments and other assets 87.2 71.2 Property, plant and equipment: At cost 1,098.4 1,302.2 Accumulated depreciation (685.3) (758.9) -------- -------- Net property, plant and equipment 413.1 543.3 ---------- ---------- TOTAL ASSETS $ 1,305.5 $ 1,457.5 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Notes payable $ 40.3 $ 20.7 Accounts payable - trade 67.6 98.6 Income taxes (.4) 4.8 Other current liabilities 215.8 251.4 ---------- ---------- TOTAL CURRENT LIABILITIES 323.3 375.5 ---------- ---------- Long-term debt (Note E) 304.9 382.9 Postretirement benefits other than pensions 350.0 371.7 Environmental reserves 228.3 231.6 Other liabilities 61.4 60.3 Contingencies (Note F) SHAREHOLDERS' EQUITY Preference stock - (none outstanding) - - Common stock - $.10 par value; 33.5 million shares outstanding 3.4 3.3 Other capital 22.0 21.9 Retained earnings 5.8 2.5 Currency translation adjustment 6.4 7.8 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 37.6 35.5 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,305.5 $ 1,457.5 ========== ==========
The accompanying notes to the unaudited interim condensed consolidated financial statements are an integral part of these statements. -4- 5 GenCorp Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions)
Unaudited Nine Months Ended ----------------------------- August 31, 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 18.3 $ 31.3 Provision for unusual items 24.9 - Depreciation, amortization and loss on disposal of fixed assets 51.1 57.1 Increase in working capital (83.7) (92.3) Increase in deferred income taxes 4.7 (7.9) Other - net (12.3) (21.5) -------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3.0 (33.3) -------- -- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (30.3) (39.9) Proceeds from asset dispositions 121.1 - Payments for acquisitions (3.5) - Investments and other - net (12.9) 7.8 -------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 74.4 (32.1) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net short-term debt incurred 19.6 12.4 Long-term debt incurred 360.1 215.1 Long-term debt paid (438.1) (172.4) Dividends (14.9) (14.8) Other equity transactions (1.2) 22.2 -------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (74.5) 62.5 -------- --------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2.9 (2.9) Cash and equivalents at beginning of year 17.0 22.4 ---------- --------- Cash and equivalents at end of period $ 19.9 $ 19.5 ========== =========
Cash paid during the period for interest was $24 million and $28 million for the nine months ended August 31, 1996 and 1995, respectively. Cash paid during the period for income taxes was $22 million and $11 million for the nine months ended August 31, 1996 and 1995, respectively. The accompanying notes to the unaudited interim condensed consolidated financial statements are an integral part of these statements. -5- 6 GenCorp Inc. NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note A - Basis of Presentation - ------------------------------ The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These interim statements should be read in conjunction with the financial statements and notes thereto included or incorporated by reference in the GenCorp Inc. (Company) Annual Report on Form 10-K for the fiscal year ended November 30, 1995. All normal recurring accruals and adjustments considered necessary for a fair presentation of the unaudited results for the nine months ended August 31, 1996 and 1995, have been reflected. The results of operations for the nine months ended August 31, 1996, are not necessarily indicative, if annualized, of those to be expected for the full fiscal year. Note B - Net Income Per Share of Common Stock - --------------------------------------------- Primary earnings per share of common stock are calculated by dividing net income by the weighted average number of common shares outstanding adjusted for the inclusion of stock options and shares to be issued under other stock based compensation programs. For fully diluted earnings per share, net income and shares outstanding have also been adjusted as if the Company's $115,000,000 8% Convertible Subordinated Debentures Due August 1, 2002 had been converted. (See Note E for further information regarding the Debentures.) Note C - Unusual Items - ---------------------- On March 1, 1996, GenCorp Inc. completed the sale of substantially all of the assets and certain liabilities of its Reinforced Plastics Division to Cambridge Industries, Inc. of Madison Heights, Michigan for an aggregate consideration of approximately $42 million, of which approximately $18 million was paid in cash at the closing, approximately $14 million of which was covered by delivery of a Subordinated Promissory Note of Cambridge Industries Holdings, Inc. and approximately $10 million of which was paid through the retention of receivables. The sale was effective as of February 29, 1996. On February 15, 1996, GenCorp Inc. completed the sale of substantially all of the assets and certain liabilities of its Vibration Control Division to BTR Antivibration Systems, Inc., a subsidiary of BTR plc. for an aggregate consideration of approximately $80 million paid in cash at the closing. The Company recognized a loss of $10 million from the sale of the two divisions and used the proceeds to reduce outstanding debt. Also during the first quarter of 1996, the Company took a pretax charge of $14.9 million for expenses related to the Voluntary Early Retirement Incentive Program for eligible employees at the Company's Fairlawn headquarters and Corporate Technology Center. -6- 7 Note D - Inventories - -------------------- Inventories are stated at the lower of cost or market value. A portion of the inventories is priced by use of the last-in, first-out (LIFO) method using various dollar value pools. Interim LIFO determinations may involve management's judgments of expected year-end inventory levels. Components of inventory are as follows:
Unaudited Audited August 31, November 30, 1996 1995 ----------- ------------ Raw materials and supplies $ 41.7 $ 46.7 Work-in-process 8.6 15.5 Finished products 62.1 64.9 -------- -------- Approximate replacement cost of LIFO inventories 112.4 127.1 Reserves, primarily LIFO (42.9) (42.8) Long-term contracts at average cost 177.8 178.5 Progress payments (95.1) (101.5) ------ ------ $ 152.2 $ 161.3 ======== ========
Note E - Long-term Debt and Credit Lines - ---------------------------------------- On May 17, 1996, the Company entered into a new five-year unsecured $400 million revolving credit facility (Facility) which expires in May 2001. As of August 31, 1996, unused revolving lines of credit totaled $220 million. The Company pays a variable commitment fee, which is currently 1/4 of one percent, on the unused balance. Interest rates are variable, primarily based on LIBOR, and are currently at an average rate of 6.24 percent. The Facility contains various debt restrictions and provisions relating to net worth, interest coverage and debt to earnings before interest, taxes, depreciation and amortization (Debt/EBITDA) ratios. The Company is required to maintain consolidated net worth of at least $2.6 million. The $115,000,000 8% Convertible Subordinated Debentures Due August 1, 2002 (Debentures) are redeemable at the option of the Company, in whole or in part, at any time on or after August 10, 1996. The Debentures are convertible at any time prior to maturity, unless previously redeemed, into shares of common stock at a conversion price of $16.065 per share (equivalent to a conversion rate of approximately 62.247 shares of Common Stock per $1,000 principal amount of Debentures) subject to adjustment in certain circumstances. The market value of the Debentures was $119.6 million at August 31, 1996. At August 31, 1996, the Company had unsecured, uncommitted lines of credit with several banks for short-term borrowings aggregating $46.6 million, of which $36.1 million was outstanding. Borrowings under such lines generally bear interest at money market rates and are payable on demand. The Company also had outstanding letters of credit totaling $26.1 million at August 31, 1996. -7- 8 Note F - Contingencies and Uncertainties - ---------------------------------------- Environmental Matters - --------------------- Sacramento, California In June 1989, the United States District Court approved a Partial Consent Decree (Decree) requiring Aerojet to conduct a Remedial Investigation/Feasibility Study (RI/FS) of Aerojet's Sacramento, California site and prepare an RI/FS report on specific environmental conditions present at the site and alternatives available to remedy such conditions. Aerojet also is required to pay for certain government oversight costs associated with compliance with the Decree. In September 1993, Aerojet reached a settlement with the U.S. government whereby Aerojet recovered approximately $18 million for costs incurred at the site from July 1989 through November 1992. The settlement also provides that 65 percent of covered costs incurred after November 1992, net of insurance recoveries, will be added to the pricing of government contracts. Aerojet has substantially completed its efforts under the Decree to determine the nature and extent of contamination at the facility and to identify the technologies that will likely be used to remediate the site. Based on available facts, existing technology and current environmental laws and regulations, Aerojet recorded a net $68 million charge in 1994 to remediate the site. These remediation costs are principally for design, construction and enhancement of groundwater and soil treatment facilities, ongoing project management and regulatory oversight, and are expected to be incurred over a period of approximately 20 years. This estimate will be subject to changes as work progresses and additional experience is gained. At August 31, 1996, Aerojet had a reserve of $201 million for costs to complete the RI/FS and remediate the site and has recognized $117 million for probable future recoveries under the 1993 settlement agreement with the U.S. government. Legal proceedings to obtain reimbursements of environmental costs from insurers are continuing. Lawrence, Massachusetts The Company has studied remediation alternatives for its closed Lawrence, Massachusetts facility, which was contaminated with PCBs, and has begun site remediation and off-site disposal of debris. The Company has a reserve of $28 million for estimated decontamination and long-term operating and maintenance costs of this site. The reserve represents the Company's best estimate for the remaining remediation cost. Estimates of future remediation cost could range as high as $56 million depending on the results of future testing and the ultimate remediation alternatives undertaken at the site. The time frame for remediation is currently estimated to range from 4 to 8 years. Muskegon, Michigan The United States District Court has ruled that Aerojet and its two inactive Cordova Chemical subsidiaries (Cordova) are liable with a former owner/operator of a former chemical plant at the Cordova site in Muskegon, Michigan for remediation of the site. Subsequently, the United States District Court's decision has been appealed to the United States Court of Appeals. Separately, the State of Michigan Court of Claims previously ruled that the State of Michigan is obligated to indemnify Aerojet and Cordova for all remediation and investigation costs at the site. On July 14, 1995, the Michigan Court of Appeals affirmed the decision of the Court of Claims, and on September 20, 1995, the Michigan Court of Appeals denied the State of Michigan's motion for a rehearing. The State has petitioned the Michigan State Supreme Court for review. -8- 9 Note F - Contingencies and Uncertainties (continued) - ---------------------------------------- The Company believes that most of the $50 million to $100 million in anticipated remediation costs will be paid by the State of Michigan or the former owner/operator and that its $13 million reserve will be adequate to cover the Company's costs associated with this matter. Included in recoverable from U.S. government and third parties is $9 million to be recovered from insurance companies. San Gabriel Valley Basin, California Aerojet, through its Azusa facility, is considered to be a potentially responsible party (PRP) in the portion of the San Gabriel Valley Superfund Site known as the Baldwin Park Operable Unit (BPOU). Regulatory action involves possible regional groundwater remediation, site specific investigation and cleanup. Aerojet's investigation concluded that the principal groundwater contamination is upgradient of Aerojet's property and that only low concentrations of contaminants are present in the soils of Aerojet's presently and historically owned properties. The EPA contends that Aerojet is one of the four largest sources of groundwater contamination at the BPOU of the sixteen PRPs identified by the EPA. Aerojet contests the EPA's position regarding the source of contamination and the number of responsible PRPs. The EPA has issued a Record of Decision requiring groundwater remediation for the BPOU, estimated to cost $47 million in non-recurring costs and $4 million to $5 million in annual operating expense. Aerojet is participating in an effort to develop an alternative "consensus" plan in which certain water supply entities would integrate the remedial requirements into a water supply project. If implemented, the consensus plan will provide federal funding and funding from water supply entities receiving benefit from the project, thus reducing the PRPs' costs. Aerojet's cost exposure cannot be estimated at this time. However, management believes, on the basis of presently available information, that resolution of this matter will not materially affect the consolidated financial condition of the Company. Among the factors considered by management are the following: the number of other viable PRPs; the potential for federal funding or cost sharing with water supply interests; Aerojet's site-specific investigation; and the fact that, to date, Aerojet's San Gabriel Valley costs are being recovered from the government in the pricing of Aerojet's contracts. Additionally, Aerojet has filed suit against its insurers for recovery of such costs. Other Sites The Company is also currently involved, together with other companies, in 27 other Superfund and non-superfund remediation sites. In many instances, the Company's liability and proportionate share of costs have not been determined largely due to uncertainties as to the nature and extent of site conditions and the Company's involvement. While government agencies frequently claim PRPs are jointly and severally liable at such sites, in the Company's experience, interim and final allocations of liability costs are generally made based on relative contributions of waste. Based on the Company's previous experience, its allocated share has frequently been minimal, in many instances less than 1 percent. The Company has reserves of approximately $18 million as of August 31, 1996 which it believes are sufficient to cover its best estimate of its share of the environmental remediation costs at these other sites. Also, the Company is seeking recovery of its costs from its insurers. Environmental Summary - --------------------- In regard to the sites discussed above, management believes, on the basis of presently available information, that resolution of these matters will not materially affect liquidity, capital resources or the consolidated financial condition of the Company. The effect of resolution of these matters on results of operations cannot be predicted due to the uncertainty concerning both the amount and timing of future expenditures and future results of operations. -9- 10 Note F - Contingencies and Uncertainties (continued) - ---------------------------------------- Other Legal Matters - ------------------- In August 1991, Olin Corporation (Olin) advised GenCorp that Olin believed GenCorp to be jointly and severally liable for certain Superfund remediation costs, estimated by Olin to be $70 million, associated with a former Olin manufacturing facility and waste disposal sites in Ashtabula County, Ohio. In 1993, GenCorp sought declaratory judgment in the United States District Court for the Northern District of Ohio that the Company is not responsible for environmental remediation costs associated with the former Olin facility and Superfund sites. Olin counterclaimed seeking a judgment that GenCorp is jointly and severally liable for a share of remediation costs. In late 1995, the Court hearing on the first phase of the case relative to the issue of joint and several liability was completed, and in August 1996 the Court held hearings relative to allocation. The Court has not yet rendered a decision. If the Court finds GenCorp is liable, subsequent trial phases will address damages. The Company is vigorously litigating this matter and believes that it has meritorious defenses to Olin's claims. While there can be no certainty regarding the outcome of any litigation, in the opinion of management, after reviewing the information currently available with respect to this matter and consulting with the Company's counsel, any liability which may ultimately be incurred will not materially affect the consolidated financial condition of the Company. The Company and its subsidiaries are subject to various other legal actions, governmental investigations, and proceedings relating to a wide range of matters in addition to those discussed above. In the opinion of management, after reviewing the information which is currently available with respect to such matters and consulting with the Company's counsel, any liability which may ultimately be incurred with respect to these additional matters will not materially affect the consolidated financial condition of the Company. The effect of resolution of these matters on results of operations cannot be predicted because any such effect depends on both future results of operations and the amount and timing of the resolution of such matters. -10- 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Material Changes in Financial Condition - --------------------------------------- Cash flow provided by operating activities for the first nine months of fiscal 1996 was $3.0 million. Cash flow used in operating activities for the first nine months of fiscal 1995 was $33.3 million. At August 31, 1996, GenCorp's total debt was $345 million, down $94 million from the third quarter of 1995. Debt has decreased due to stronger operating cash flow and the receipt of divestiture proceeds of $115.6 million. Interest expense decreased to $6.0 million from $8.3 million in the comparable period a year ago due to lower interest rates and lower average debt levels. Material Changes in Results of Operations - ----------------------------------------- Sales from continuing businesses totaled $360.9 million for the third quarter of 1996, compared to $371.3 million during the third quarter of 1995. The Company's commercial businesses posted an increase in sales, while sales for its aerospace and defense segment, Aerojet, declined $12.1 million from the third quarter of 1995. The decline was attributable to the closeout of the Small ICBM program during the third quarter of 1995. Total net sales during the quarter declined 16.3 percent to $360.9 million from $431.4 million in the third quarter of 1995. For the nine months ended August 31, 1996, net sales were $1,107.2 million compared to $1,321.4 million for the same period in 1995. The decline in net sales was primarily due to divestitures of two automotive business units in early 1996, and the sale of the Company's rigid plastics business during late 1995. Segment operating profit increased 66.8 percent to $37.2 million in the third quarter of 1996, from $22.3 million in the third quarter of 1995. Operating profit increased in each of the Company's aerospace and defense, polymer products, and automotive business segments. Operating margins from continuing businesses increased to 10.3 percent in the third quarter of 1996, compared to 6.0 percent for the third quarter of 1995. The third quarter of 1996 included a net gain of $2.5 million from the initial payment on the sale of the Company's Automotive Occupant Sensor (AOS) business. For the first nine months of 1996, operating profit from continuing businesses totaled $94.3 million, compared to $76.7 million during 1995. Year-to-date operating margins from continuing businesses have increased to 8.9 percent versus 6.9 percent for the first nine months of 1995. On a consolidated basis, the Company reported net income of $15.9 million for the third quarter of 1996 compared to net income of $8.0 million in the third quarter of 1995. For the third quarter of 1996, earnings per share totaled $0.42 on a fully diluted basis compared to $0.23 during the same period last year. The Company's net income for the nine months ended August 31, 1996 was $18.3 million compared to $31.3 million for the same period in 1995. The decline was primarily due to charges the Company took in early 1996 relating to divestitures and the Voluntary Early Retirement Incentive Program. Third quarter results reflect a trend of improvement in the Company's continuing businesses. Aggressive restructuring actions taken during the first half of 1996, including divestiture of non-strategic businesses, key top management changes, and reduced expenses led to the Company's improvements in continuing operations. Net sales for polymer products continuing businesses in the third quarter of 1996 increased to $147.0 million, compared to $146.6 million in the third quarter of 1995. Operating profit of $18.8 million for the polymer products continuing businesses was up significantly, versus $13.5 million in the third quarter of 1995, a 39.3 percent increase. Operating margins from continuing operations showed a strong improvement to 12.8 percent in the third quarter of 1996 compared to 9.2 percent in the third quarter of 1995. Improvements were driven by continued productivity enhancements, new product introductions, aggressive new marketing initiatives, and lower raw material prices. -11- 12 Material Changes in Results of Operations (continued) - ----------------------------------------- The polymer products business units continue to provide enhanced value to customers by developing highly engineered polymers to meet specific customer needs, a key core competency. Within the Specialty Polymers business unit, a Styrene Butadiene Acrylate coating, XL-9350, has been adapted by a major European customer as a binding agent for disposable diaper applications, with conversion to occur in the fourth quarter. North American application is anticipated to follow in 1997. Several Specialty Polymers' major paper customers are also in the process of converting their operations for GenCryl, an advanced acrylonitrile latex introduced earlier in the year, which offers improved coating characteristics. The Decorative Products group has completed development of a new Thermoplastic Polyolefin (TPO) single-ply membrane for roofing systems. The Company plans to introduce this product in October and will be the only supplier capable of offering customers three distinct roofing membrane products (EPDM, PVC, and TPO). The Company has also targeted selected businesses within the Decorative Products group as key growth platforms, particularly in the decorative films area. Automotive sales from continuing operations totaled $93.7 million in the third quarter of 1996 versus $92.4 million in the third quarter of 1995, a 1.4 percent increase. Increased sales of Vehicle Sealing products in North America were offset by lower volumes in Europe and in the Plastic Extrusion appliance gasket business. Total net sales for the automotive business segment in the third quarter of 1996 decreased 36.3 percent to $93.7 million compared to $147.1 million in the third quarter of 1995, as a result of the 1996 first quarter divestitures of the Vibration Control and Reinforced Plastics businesses. The Company's continuing automotive operations earned $7.5 million for the third quarter of 1996, versus $1.3 million in the third quarter of 1995. Improved margins from North American operations were offset by slight declines in Europe and from declines in the Plastic Extrusion business. Also during the quarter, the Company completed the sale of the AOS business to Robert Bosch Corporation (Bosch). The Company is positioned to benefit from future applications of the AOS technology, as Bosch brings this advanced technology to the marketplace, and as products are sold into the OEM market. At Aerojet, net sales were $120.2 million in the third quarter of 1996, versus $132.3 million in the third quarter of 1995. Higher volumes on Minuteman, Space Based Infrared System, earth sensing systems, and custom chemicals were offset by lower volumes on Defense Support program, tactical propulsion programs, and the Small ICBM closeout. Aerojet's segment operating profit for the third quarter of 1996 was $10.9 million compared to $7.5 million in the third quarter of 1995, with operating margins increasing to 9.1 percent from 5.7 percent in the third quarter of 1995 due to higher award fees, improved contract performance, and lower health care costs. During the quarter, Aerojet received a $67 million follow-on contract for 30 engines to supply the Delta expendable launch vehicle, with an option for 10 additional engines. Aerojet was awarded a $32 million contract to develop the reaction control system for the NASA X-33 reusable launch vehicle. Additional development awards were received during the quarter for Strutjet, an advanced propulsion system for NASA and Agena engines for the Lockheed Martin Evolved Expendable Launch Vehicle program. Year-to-date, Aerojet's funded and contract backlogs have grown 22 percent and 7 percent, respectively. -12- 13 Environmental Matters - --------------------- GenCorp's policy is to conduct its businesses with due regard for the preservation and protection of the environment. The Company devotes a significant amount of resources and management attention to environmental matters and actively manages its ongoing processes to comply with extensive environmental laws and regulations. The Company is involved in the remediation of environmental conditions which resulted from previously accepted manufacturing and disposal practices that date back to the 1950's and 1960's at certain of its own plants. In addition, the Company has been designated a potentially responsible party, with other companies, at sites undergoing investigation and remediation. The nature of environmental investigation and cleanup activities often makes it difficult to determine the timing and amount of any estimated future costs that may be required for remedial measures. However, the Company reviews these matters and accrues for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and its proportionate share of the amount can be reasonably estimated. The Company's Condensed Consolidated Balance Sheets at August 31, 1996 reflect accruals of $260 million and amounts recoverable of $126 million from the U.S. government and other third parties for such costs. The effect of resolution of environmental matters on results of operations cannot be predicted due to the uncertainty concerning both the amount and timing of future expenditures and future results of operations. However, management believes, on the basis of presently available information, that resolution of these matters will not materially affect liquidity, capital resources or the consolidated financial condition of the Company. The Company will continue its efforts to mitigate past and future costs through pursuit of claims for insurance coverage and continued investigation of new remediation alternatives and associated technologies. For additional discussion of environmental matters, refer to Note F - Contingencies. -13- 14 Part II. OTHER INFORMATION -------------------------- Item 1. Legal Proceedings - -------------------------- Information concerning legal proceedings, including proceedings relating to environmental matters, which appears in Note F beginning on page 8 of this report is incorporated herein by reference. In April 1996, two class action suits were filed, one in Federal and one in state court, collectively alleging: (i) breach of collective bargaining/pension and insurance agreements under Section 301 of the Labor Management Relations Act; (ii) breach of fiduciary duties under ERISA; and (iii) breach of individual contracts, fraud and promissory estoppel under state law. DIVINE, ET AL. V. GENCORP INC., U.S.D.C., N.D. Ind. 3:96CV0296AS; DIVINE, ET AL. V. GENCORP INC., Wabash County, Ind. Cir. Ct., 85C01-9605-CP-201. The suits were filed on behalf of 638 hourly retirees, spouses and surviving spouses from GenCorp's Wabash, Indiana, facility who are seeking damages and injunctive relief to prevent proposed modifications to the GenCorp Hourly Retiree Medical Plan. The proposed modifications include increases to retiree co-payments and deductibles, retiree contributions once aggregate costs exceed specified cost caps, and changes to Medicare offsets, drug coverage and maximum benefit provisions. The modifications are being implemented to control escalating health care costs, and to limit liabilities under SFAS 106. The Complaint filed in state court was removed to Federal court, and consolidated with U.S.D.C., N.D. Ind. 3:96CV0296AS. The parties have agreed to maintain STATUS QUO benefit levels until trial, tentatively scheduled for December 9, 1996. GenCorp has filed a Motion for Summary Judgment and has opposed Plaintiffs' Motion for Class Certification, both of which are scheduled to be heard on October 10, 1996. The Company and its subsidiaries are subject to various legal actions, governmental investigations, and proceedings relating to a wide range of matters in addition to those discussed above and in Part I of this report. In the opinion of management, after reviewing such matters and consulting with the Company's counsel, any liability which may ultimately be incurred with respect to these additional matters will not materially affect the consolidated financial position of the Company. Item 5. Other Information - -------------------------- On September 13, 1996, Kevin M. McMullen, President of the Company's Decorative Products Group, was elected a Vice President of the Company and William R. Phillips was elected Senior Vice President, Law; General Counsel. Item 6. Exhibits and Reports on Form 8-K - -----------------------------------------
a) Exhibits ----------- Table Exhibit Item No. Exhibit Description Number ------------------------------------------------------------------------------------------ 11 Statement re computation of per share earnings 11 27 Financial Data Schedule 27 (Filed for EDGAR only) b) Reports on Form 8-K ---------------------- There have been no reports on Form 8-K filed during the quarter ended August 31, 1996.
-14- 15 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENCORP INC. Date September 20, 1996 By /s/ D. M. Steuert ----------------------------- --------------------- D. M. Steuert, Senior Vice President and Chief Financial Officer Date September 20, 1996 By /s/ E. R. Dye ----------------------------- ----------------- E. R. Dye, Secretary -15- EX-11 2 EXHIBIT 11 1 EXHIBIT 11 GenCorp Inc. COMPUTATION OF EARNINGS PER COMMON SHARE
Unaudited Unaudited Three Months Ended Nine Months Ended -------------------------------------------------------------- Aug. 31, Aug. 31, Aug. 31, Aug. 31, 1996 1995 1996 1995 ---- ---- ---- ---- EARNINGS (Dollars in Millions) Net Income for Primary Earnings Per Share 15.9 8.0 18.3 31.3 Tax Affected Interest Expense Applicable to 8% Convertible Subordinated Debentures 1.4 1.4 4.1 4.1 ---------- --------- --------- ---------- Net Income for Fully Diluted Earnings Per Share $ 17.3 $ 9.4 $ 22.4 $ 35.4 ========== ========= ========= ========== SHARES (In Thousands) Weighted Average Number of Common Shares Outstanding for Primary Earnings Per Share (see Note B) 33,734 33,362 33,622 32,620 Additional Shares Issuable Under Stock Options for Fully Diluted Earnings Per Share 1 - 72 - Assuming Conversion of 8% Convertible Subordinated Debentures 7,158 7,158 7,158 7,158 ---------- --------- --------- ---------- Weighted Average Number of Common Shares Outstanding for Fully Diluted Earnings Per Share 40,893 40,520 40,852 39,778 ========== ========= ========= ========== EARNINGS PER SHARE Primary: $ .47 $ .24 $ .55 $ .96 ========== ========= ========= ========== Fully Diluted: $ .42 $ .23 $ .55 $ .89 ========== ========= ========= ==========
EX-27 3 EXHIBIT 27
5 1,000 9-MOS NOV-30-1996 AUG-31-1996 11,900 8,000 208,600 0 152,200 436,400 1,098,400 685,300 1,305,500 323,300 115,000 3,400 0 0 34,200 1,305,500 1,107,200 1,107,200 909,300 1,060,300 (3,300) 0 20,600 29,600 11,300 18,300 0 0 0 18,300 .55 .55
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