-----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, LmuL7IRIwN+BCqZ9r67HQG8xQSwG20QbqpvGIAqCvxxlPKM+a0Z+wFVmfWHozwRb 3S8Sm+7k6xMSXv7NLNA4qw== 0000950152-97-002732.txt : 19970410 0000950152-97-002732.hdr.sgml : 19970410 ACCESSION NUMBER: 0000950152-97-002732 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970409 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: 97577182 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. QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended February 28, 1997 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 March 31, 1997, there were 33,553,102 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 Ended February 28, 1997 and February 29, 1996 -3- Condensed Consolidated Balance Sheets - February 28, 1997 and November 30, 1996 -4- Condensed Consolidated Statements of Cash Flows - Three Months Ended February 28, 1997 and February 29, 1996 -5- Notes to the Unaudited Interim Condensed Consolidated Financial Statements -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -11- Part II. Other Information Item 1. Legal Proceedings -14- Item 4. Submission of Matters to a Vote of Security Holders -15- Item 6. Exhibits and Reports on Form 8-K -16- Signatures -17-
-2- 3 PART I. FINANCIAL INFORMATION ----------------------------- GenCorp Inc. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in millions, except per share data)
Unaudited Three Months Ended -------------------------- February 28, February 29, 1997 1996 ------------ ------------ NET SALES $ 328.0 $ 368.3 ------- ------- COSTS AND EXPENSES Cost of products sold 265.8 312.3 Selling, general and administrative 41.6 45.1 Interest expense 5.7 8.0 Other (income) and expense, net (.2) (1.6) Unusual items (Note C) -- 24.8 ------- ------- 312.9 388.6 ------- ------- INCOME (LOSS) BEFORE INCOME TAXES 15.1 (20.3) Income tax provision (benefit) (Note D) 4.0 (8.6) ------- ------- NET INCOME (LOSS) $ 11.1 $ (11.7) ======= ======= EARNINGS (LOSS) PER SHARE OF COMMON STOCK (NOTE B) Primary $ .32 $ (.35) ======= ======= Fully Diluted $ .30 $ (.35) ======= ======= Average number of shares of common stock outstanding (in thousands) Primary 34,230 33,670 Fully Diluted 41,393 40,828 Cash dividends paid per share of common stock $ .15 $ .15
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 February 28, November 30, 1997 1996 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 11.4 $ 22.6 Accounts receivable 215.8 206.7 Inventories (Note E) 171.4 158.4 Prepaid expenses and other 63.6 64.7 -------- -------- TOTAL CURRENT ASSETS 462.2 452.4 -------- -------- Expected recoveries from U.S. government and third parties for environmental remediation 114.7 118.1 Deferred taxes 158.5 156.3 Prepaid pension 105.8 103.5 Investments and other assets 83.8 86.8 Property, plant and equipment: At cost 1,101.0 1,102.3 Accumulated depreciation (699.5) (689.5) -------- -------- Net property, plant and equipment 401.5 412.8 -------- -------- TOTAL ASSETS $1,326.5 $1,329.9 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Notes payable $ 37.1 $ 42.9 Accounts payable - trade 66.3 80.6 Income taxes 11.0 26.6 Other current liabilities 199.2 219.6 -------- -------- TOTAL CURRENT LIABILITIES 313.6 369.7 -------- -------- Long-term debt (Note F) 322.3 263.2 Postretirement benefits other than pensions 346.7 346.1 Environmental reserves 223.8 230.3 Other liabilities 64.2 64.9 Contingencies (Note G) SHAREHOLDERS' EQUITY Preference stock; none outstanding -- -- Common stock - $.10 par value; 33.5 million shares outstanding 3.4 3.4 Other capital 23.2 22.2 Retained earnings 29.5 23.5 Cumulative currency translation adjustment (.2) 6.6 -------- -------- TOTAL SHAREHOLDERS' EQUITY 55.9 55.7 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,326.5 $1,329.9 ======== ========
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 Three Months Ended -------------------------- February 28, February 29, 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 11.1 $ (11.7) Provision for unusual items -- 24.8 Depreciation, amortization and loss on disposal of fixed assets 15.0 24.3 Increase in working capital (79.5) (94.3) (Increase) decrease in deferred income taxes (2.2) 2.9 Other - net (2.8) (8.8) ------- -------- NET CASH USED IN OPERATING ACTIVITIES (58.4) (62.8) ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (8.2) (10.4) Proceeds from asset dispositions 4.8 80.3 Investments and other - net -- (.4) ------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (3.4) 69.5 ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net short-term debt incurred 2.4 3.6 Long-term debt incurred 60.1 110.0 Long-term debt paid (1.0) (115.9) Dividends (5.0) (5.0) Other equity transactions (5.9) (1.2) ------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 50.6 (8.5) ------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (11.2) (1.8) Cash and cash equivalents at beginning of year 22.6 17.0 ------- -------- Cash and cash equivalents at end of period $ 11.4 $ 15.2 ======= ========
Cash paid during the period for interest was $8.1 million and $10.8 million for the three months ended February 28, 1997 and February 29, 1996, respectively. Cash paid during the period for income taxes was $22.7 million and $2.9 million for the three months ended February 28, 1997 and February 29, 1996, 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, 1996. All normal recurring accruals and adjustments considered necessary for a fair presentation of the unaudited results for the three months ended February 28, 1997 and February 29, 1996, have been reflected. The results of operations for the three months ended February 28, 1997, are not necessarily indicative, if annualized, of those to be expected for the full fiscal year. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Note B - Net Income Per Share of Common Stock - --------------------------------------------- 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 F for further information regarding the debentures.) Note C - Unusual Items - ---------------------- On February 15, 1996, GenCorp Inc. completed the sale of substantially all of the assets and certain liabilities of its Vibration Control Division to BTR Antivibration Systems, Inc., a subsidiary of BTR plc. for an aggregate consideration of approximately $84 million paid in cash of which approximately $80 million was paid in the first quarter of 1996. On March 1, 1996, GenCorp Inc. completed the sale of substantially all of the assets and certain liabilities of its Reinforced Plastics Division to Cambridge Industries, Inc. of Madison Heights, Michigan for an aggregate consideration of approximately $42 million, of which approximately $18 million was paid in cash at the closing, approximately $14 million of which was paid by delivery of a Subordinated Promissory Note of Cambridge Industries Holdings, Inc. and approximately $10 million of which was paid through the retention of receivables. The sale was effective as of February 29, 1996. The Company recognized a loss of $10 million from the sale of the two divisions and used the proceeds to reduce outstanding debt. Also during the first quarter of 1996, the Company took a pretax charge of $14.8 million for expenses related to the Voluntary Early Retirement Incentive Program for eligible employees at the Company's Fairlawn, Ohio headquarters and Corporate Technology Center. -6- 7 Note D - Income Taxes - --------------------- During the first quarter of 1997, the Company received a federal income tax refund related to interest on the timing of certain deductions which reduced the tax provision by $2.0 million. Subsequent to the first quarter, the Company announced on March 24, 1997 that it had reached an agreement with the IRS related to certain prior taxable years which will reduce the Company's tax provision by approximately $65 million during the second quarter ending May 31, 1997. Note E - Inventories - -------------------- Inventories are stated at the lower of cost or market value. A portion of the inventories is priced by use of the last-in, first-out (LIFO) method using various dollar value pools. Interim LIFO determinations involve management's judgments of expected year-end inventory levels. Components of inventory are as follows:
Unaudited Audited February 28, November 30, 1997 1996 ------------ ------------ Raw materials and supplies $ 42.6 $ 37.4 Work-in-process 9.7 8.8 Finished products 57.2 62.4 ------- ------- Approximate replacement cost of LIFO inventories 109.5 108.6 Reserves, primarily LIFO (39.8) (39.5) Long-term contracts at average cost 196.0 172.0 Progress payments (94.3) (82.7) ------- ------- $ 171.4 $ 158.4 ======= =======
Note F - 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 February 28, 1997, unused revolving lines of credit totaled $200 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 6.2 percent. The Facility contains various debt restrictions and provisions relating to net worth, interest coverage and debt to earnings before interest, taxes, depreciation and amortization (Debt/EBITDA) ratios. The Company is required to maintain consolidated net worth of at least $23.5 million. Proceeds from divested business units in 1996 were used to reduce outstanding debt. 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 fair market value of the Debentures was $135 million at February 28, 1997. At February 28, 1997, the Company had unsecured, uncommitted lines of credit with several banks for short-term borrowings aggregating $80 million, of which $33 million was outstanding. Borrowings under such lines generally bear interest at money market rates and are payable on demand. The Company also had outstanding letters of credit totaling $18 million at February 28, 1997. -7- 8 Note G - Contingencies - ---------------------- 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 change as work progresses, additional experience is gained and environmental standards are revised. At February 28, 1997, Aerojet had a reserve of $196 million for costs to complete the RI/FS and remediate the site and has recognized $114 million for probable future recoveries under the 1993 settlement agreement with the U.S. government. Legal proceedings to obtain reimbursements of environmental costs from insurers are continuing. Lawrence, Massachusetts The Company has studied remediation alternatives for its closed Lawrence, Massachusetts facility, which was contaminated with PCBs, and has begun site remediation and off-site disposal of debris. The Company has a reserve of $33 million for estimated decontamination and long-term operating and maintenance costs of this site. The reserve represents the Company's best estimate for the remaining remediation costs. Estimates of future remediation costs could range as high as $54 million depending on the results of future testing and the ultimate remediation alternatives undertaken at the site. The time frame for remediation is currently estimated to range from 7 to 12 years. Muskegon, Michigan In a lawsuit filed by the U.S. Environmental Protection Agency (EPA), the United States District Court ruled in 1992 that Aerojet and its two inactive Cordova Chemical subsidiaries (Cordova) are liable for remediation of Cordova's Muskegon, Michigan site, along with a former owner/operator of an earlier chemical plant at the site. That decision has been appealed to the United States Court of Appeals. In a separate action, Aerojet and Cordova won indemnification for the Muskegon site investigation and remediation costs from the State of Michigan in the state court of claims. The Michigan Court of Appeals affirmed on appeal, and the Michigan Supreme Court refused to hear the case. On December 23, 1996, the Michigan Supreme Court denied the State's motion for reconsideration. As a result, the Company believes that most of the $50 million to $100 million in anticipated remediation costs will be paid by the State of Michigan and the former owner/operator of the site. In addition, Aerojet believes it has insurance coverage for the site. -8- 9 Note G - Contingencies (continued) - ---------------------------------- San Gabriel Valley Basin, California Aerojet, through its Azusa facility, is considered to be a potentially responsible party (PRP) in the portion of the San Gabriel Valley Superfund Site known as the Baldwin Park Operable Unit (BPOU). Regulatory action involves issuance of a Record of Decision (ROD) requiring regional groundwater remediation, site specific investigation and possible cleanup. Aerojet's investigation demonstrated that the principal groundwater contamination is upgradient of Aerojet's property and that only low concentrations of contaminants are present in the soils of Aerojet's presently and historically owned properties. The EPA contends that Aerojet is one of the four largest sources of groundwater contamination at the BPOU of the eighteen PRPs identified by the EPA. Aerojet contests the EPA's position regarding the source of contamination and the number of responsible PRPs. Aerojet has joined a Steering Committee comprised of twelve of the PRPs identified by the EPA. The ROD issued by the EPA requires groundwater remediation for the BPOU, estimated to cost $47 million in non-recurring costs and $4 million to $5 million in annual operating expense. Aerojet, as part of the Steering Committee, is participating in an effort to develop an alternative "consensus" plan in which certain water supply entities would integrate the remedial requirements into a water supply project. If implemented, the consensus plan will provide federal funding for 25 percent of the non-recurring costs and additional funding from water supply entities receiving benefit from the project, thus reducing the PRPs' costs. Aerojet's cost exposure cannot be estimated at this time. However, management believes, on the basis of presently available information, that resolution of this matter will not materially affect the consolidated financial condition of the Company. Among the factors considered by management are the following: the number of other viable PRPs; the potential for federal funding or cost sharing with water supply interests; Aerojet's site-specific investigation; and the fact that, to date, Aerojet's San Gabriel Valley costs are being recovered from the government in the pricing of Aerojet's contracts. Additionally, Aerojet has filed suit against its insurers for recovery of such costs. Other Sites The Company is also currently involved, together with other companies, in 28 other Superfund and non-superfund remediation sites. In many instances, the Company's liability and proportionate share of costs have not been determined largely due to uncertainties as to the nature and extent of site conditions and the Company's involvement. While government agencies frequently claim PRPs are jointly and severally liable at such sites, in the Company's experience, interim and final allocations of liability costs are generally made based on relative contributions of waste. Based on the Company's previous experience, its allocated share has frequently been minimal, in many instances less than 1 percent. The Company has reserves of approximately $15 million as of February 28, 1997 which it believes are sufficient to cover its best estimate of its share of the environmental remediation costs at these other sites. Also, the Company is seeking recovery of its costs from its insurers. Environmental Summary - --------------------- In regard to the sites discussed above, management believes, on the basis of presently available information, that resolution of these matters will not materially affect liquidity, capital resources or the consolidated financial condition of the Company. The effect of resolution of these matters on results of operations cannot be predicted due to the uncertainty concerning both the amount and timing of future expenditures and future results of operations. -9- 10 Note G - Contingencies (continued) - ---------------------------------- Other Legal Matters - ------------------- In August 1991, Olin Corporation (Olin) advised GenCorp that Olin believed GenCorp to be jointly and severally liable for certain Superfund remediation costs, estimated by Olin to be $70 million, associated with a former Olin manufacturing facility and waste disposal sites in Ashtabula County, Ohio. In 1993, GenCorp sought declaratory judgment in the United States District Court for the Northern District of Ohio that the Company is not responsible for environmental remediation costs associated with the former Olin facility and Superfund sites. Olin counterclaimed seeking a judgment that GenCorp is jointly and severally liable for a share of remediation costs. In late 1995, the Court hearing on the issue of joint and several liability was completed, and in August 1996 the Court held hearings relative to allocation. The Court has not yet rendered a decision. If the Court finds GenCorp is liable, subsequent trial phases will address damages. The Company is vigorously litigating this matter and believes that it has meritorious defenses to Olin's claims. While there can be no certainty regarding the outcome of any litigation, in the opinion of management, after reviewing the information currently available with respect to this matter and consulting with the Company's counsel, any liability which may ultimately be incurred will not materially affect the consolidated financial condition of the Company. The Company and its subsidiaries are subject to various other legal actions, governmental investigations, and proceedings relating to a wide range of matters in addition to those discussed above. In the opinion of management, after reviewing the information which is currently available with respect to such matters and consulting with the Company's counsel, any liability which may ultimately be incurred with respect to these additional matters will not materially affect the consolidated financial condition of the Company. The effect of resolution of these matters on results of operations cannot be predicted because any such effect depends on both future results of operations and the amount and timing of the resolution of such matters. -10- 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Material Changes in Financial Condition - --------------------------------------- Cash flow used in operating activities decreased from $62.8 million in the first quarter of 1996 to $58.4 million for the first quarter of 1997. This decrease was due to reduced working capital requirements which was partially offset by lower income from operations (excluding unusual items and depreciation) due primarily to the sale of businesses during the first quarter of 1996. At February 28, 1997, GenCorp's total debt was $359 million, down $42 million from the first quarter of 1996. Debt decreased due to the receipt of proceeds from divestitures of the Vibration Control and Reinforced Plastics Divisions, of which approximately $40 million was received subsequent to the first quarter of 1996 and used to reduce bank borrowings. Interest expense decreased to $5.7 million from $8.0 million in the comparable first quarter 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 $328.0 million for the first quarter of 1997, an increase of 2 percent as compared to $321.0 million during the first quarter of 1996. The polymer products and aerospace and defense (Aerojet) segments had improved sales during the quarter, partially offset by an expected decline at the automotive segment. Total net sales during the quarter declined 11 percent to $328.0 million from $368.3 million in the first quarter of 1996 due to divestitures of two non-strategic automotive business units in early 1996. Segment operating profit from continuing businesses improved to $26.0 million for the first quarter of 1997, versus $22.8 million for the first quarter of 1996, an increase of 14 percent. Operating margins from continuing businesses improved to 7.9 percent in the first quarter of 1997, compared to 7.1 percent for the first quarter of 1996. The Company reported significantly improved net income of $11.1 million for the first quarter of 1997 compared to a net loss of $(11.7) million for the first quarter of 1996. Earnings for the first quarter of 1997 were $0.30 per fully diluted share and included a benefit of $0.05 per share from a tax refund. The refund which was related to interest on the timing of certain deductions, reduced the tax provision by $2.0 million. During the first quarter of 1996, the Company recorded a charge of $(14.8) million related to a voluntary early retirement program and incurred a loss of $(10.0) million for the divestiture of the two automotive businesses. First quarter results reflect the continued trend of improvement from the Company's program of change. For the fifth consecutive quarter, operating margins from continuing businesses have improved versus the prior year. The Company has strengthened its portfolio of businesses operationally and strategically and is building momentum through aggressive product development and marketing, combined with cost reductions and process improvement initiatives. The Company remains strongly focused on creating greater shareholder value through its two top priorities - operational excellence and value-creating growth. Net sales for the polymer products businesses in the first quarter of 1997 increased 6 percent to $134.0 million compared to $126.3 million in the first quarter of 1996. Sales increased at each of the segment's business units: Decorative and Building Products, Specialty Polymers and Penn Racquet Sports. Improved sales in commercial wallcovering, building systems and latex for paper coatings led the increase. Operating profit for the polymer products business declined to $10.2 million for the first quarter of 1997 versus $11.5 million in the first quarter of 1996. Operating margins declined to 7.6 percent in the first quarter of 1997 compared to 9.1 percent in the first quarter of 1996. Higher costs of certain raw materials and slightly lower average selling prices in Specialty Polymers impacted margins in the current quarter. The Company believes that several key raw material costs have reached a peak and sees indications of potential raw material price decreases in the coming months. -11- 12 Material Changes in Results of Operations (continued) - ----------------------------------------------------- Within the Specialty Polymers business, latex process trials were successfully conducted and production began at the recently modernized and expanded facility in Ohio. The capacity expansion, a source of growth for GenCorp, is designed to meet a variety of emerging needs for the Company's paper, textile and specialty application customers. Specialty Polymers, working in partnership with GenCorp's German automotive subsidiary, expanded its in-mold coating product line with the first delivery to sheet molding compound customers in Europe. Penn Racquet Sports was awarded significant spring promotions by major retailers for several tennis ball lines. Automotive sales from continuing operations totaled $89.6 million in the first quarter of 1997 versus $96.1 million in the first quarter of 1996. Sales declined due to lower customer vehicle builds on several key models. During the first quarter of 1996, total automotive net sales were $143.4 million, including $47.3 million from the two divested automotive units. The Company's continuing automotive operations earned $5.5 million for the first quarter of 1997, an increase of 45 percent versus $3.8 million in the first quarter of 1996. Operating profit margins from continuing businesses improved to 6.1 percent in the first quarter of 1997, versus 4.0 percent during the same period a year ago. Improved margins at vehicle sealing operations in North America and Europe were partially offset by restructuring costs in the appliance gasket business. Aggressive actions to reduce costs and boost productivity, along with the absence of expenses related to the divested Automotive Occupant Sensor business drove the profit improvement. During the first quarter of 1996, the two divested automotive businesses generated operating losses of $(5.4) million. During the quarter, the Company completed the first delivery of vehicle sealing parts to Mercedes-Benz in Alabama. GenCorp is the sole source supplier of body and window seals for the new all-activity vehicle. At Aerojet, net sales increased 6 percent to $104.4 million in the first quarter of 1997 versus $98.6 million in the first quarter of 1996. Higher volumes on space surveillance programs, including the Defense Support Program, the Space Based Infrared System and the Joint Tactical Ground Station were offset by lower volumes on the Standard Missile and F-22 programs. Aerojet's operating profit for the first quarter of 1997 was $10.3 million, up 37 percent compared to $7.5 million in the first quarter of 1996. Operating margins increased to 9.9 percent from 7.6 percent in first quarter of 1996 due to favorable contract performance and mix and higher incentive award fees. During the quarter, Aerojet's contract backlog increased to $2.1 billion, versus $2.0 billion at 1996 year-end and $900 million in the first quarter of 1996. Awards during the quarter included two key contracts for SADARM (Sense and Destroy Armor), a smart munition program for the Army. The SADARM awards totaled $82 million for the Low Rate Production II and $44 million for a four year Product Improvement contract. In addition, Aerojet was part of the Lockheed Martin team, one of two teams selected in December to develop the Air Force's new Evolved Expendable Launch Vehicle (EELV). Aerojet will co-develop a new upper stage rocket engine for the Lockheed Martin team. The Air Force will select a single contractor in 1998 for the Engineering and Manufacturing Development phase of the EELV program. Aerojet also received awards of $13 million from Kistler Aerospace during the quarter. Aerojet will provide the NK-33 propulsion system for Kistler's new reusable launch vehicle in a contract potentially worth $250 million over the next five years. Subsequent to the first quarter, the Company announced on March 24, 1997 that it had reached an agreement with the IRS related to certain prior taxable years which will reduce the Company's tax provision by approximately $65 million during the second quarter ending May 31, 1997. -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 1950s and 1960s 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 Sheet at February 28, 1997 reflects accruals of $257 million and amounts recoverable of $123 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 G - 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 G beginning on page 8 of this report is incorporated herein by reference. In April 1996, two class action suits were filed, one in Federal and one in state court, collectively alleging: (i) breach of collective bargaining/pension and insurance agreements under Section 301 of the Labor Management Relations Act; (ii) breach of fiduciary duties under ERISA; and (iii) breach of individual contracts, fraud and promissory estoppel under state law. DIVINE, ET AL. V. GENCORP INC., U.S.D.C., N.D. Ind. 3:96CV0296AS; DIVINE, ET AL. V. GENCORP INC., Wabash County, Ind. Cir. Ct., 85C01-9605-CP-201. The suits were filed on behalf of approximately 600 hourly retirees, spouses and surviving spouses from GenCorp's Wabash, Indiana facility who are seeking damages and injunctive relief to prevent proposed modifications to the GenCorp Hourly Retiree Medical Plan. The proposed modifications include increases to retiree co-payments and deductibles, retiree contributions once aggregate costs exceed specified cost caps, and changes to Medicare offsets, drug coverage and maximum benefit provisions. The modifications are being implemented to control escalating health care costs, and to limit liabilities under SFAS 106. The Complaint filed in state court was removed to Federal court, and consolidated with U.S.D.C., N.D. Ind. 3:96CV0296AS. GenCorp filed a Motion for Summary Judgment and Opposition to Plaintiffs' Motion for Class Certification. On November 26, 1996, the court granted GenCorp's Motion for Summary Judgment on all counts, rendering the class certification issue moot. Plaintiffs have filed a Notice of Appeal to the U.S. Seventh Circuit Court of Appeals. Briefing is scheduled for completion by April 30, 1997. 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. -14- 15 Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- At the Company's Annual Meeting of Shareholders held on March 26, 1997, holders of GenCorp Common Stock elected James M. Osterhoff, Paul J. Phoenix and John B. Yasinsky as directors to serve a three year term expiring in 2000. Shareholders also approved the GenCorp Inc. 1997 Stock Option Plan and ratified the Board of Directors' appointment of Ernst & Young LLP as the Company's independent auditors for 1997. Following is the final result of the Common votes cast: A) Election of Directors:
Broker For Withheld Nonvotes --- -------- -------- James M. Osterhoff 27,574,541 3,544,563 -0- ---------- --------- -------- Paul J. Phoenix 27,539,717 3,579,387 -0- ---------- --------- -------- John B. Yasinsky 27,566,197 3,552,907 -0- ---------- --------- --------
B) Adoption of the 1997 Stock Option Plan: Broker For: 27,039,647 Against: 1,567,332 Abstain: 253,080 Nonvotes: 2,259,045 ---------- --------- ------- --------- C) Ratification of the Board of Directors' appointment of Ernst & Young LLP as independent auditors: Broker For: 30,888,621 Against: 114,887 Abstain: 115,596 Nonvotes: -0- ---------- ------- ------- ----- -15- 16 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 ---------------------- On February 7, 1997, the Company filed a Current Report on Form 8-K, Date of Report (date of earliest event reported) January 20, 1997 reporting that the Board of Directors had extended for ten additional years GenCorp's Shareholder Rights Plan, as amended. -16- 17 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENCORP INC. Date April 9, 1997 By /s/ D. M. Steuert ------------------------------- ------------------ D. M. Steuert Senior Vice President and Chief Financial Officer Date April 9, 1997 By /s/ W. R. Phillips ------------------------------- ------------------- W. R. Phillips Senior Vice President, Law; General Counsel -17- EX-11 2 EXHIBIT 11 1 EXHIBIT 11 GenCorp Inc. COMPUTATION OF EARNINGS PER COMMON SHARE
Unaudited Three Months Ended ------------------------------- February 28, February 29, 1997 1996 --------------- ------------- Earnings (Dollars in Millions) - -------- Net Income (Loss) for Primary Earnings Per Share $ 11.1 $(11.7) Tax Affected Interest Expense Applicable to 8% Convertible Subordinated Debentures 1.4 1.4 ------- ------ Net Income (Loss) for Fully Diluted Earnings Per Share $ 12.5 $(10.3) ======= ====== Shares (In Thousands) - ------ Weighted Average Number of Common Shares Outstanding for Primary Earnings Per Share (see Note B) 34,230 33,670 Additional Shares Issuable Under Stock Options for Fully Diluted Earnings Per Share 5 -- Assuming Conversion of 8% Convertible Subordinated Debentures 7,158 7,158 ------- -------- Weighted Average Number of Common Shares Outstanding for Fully Diluted Earnings Per Share 41,393 40,828 ======= ======= Earnings Per Share - ------------------ Primary: $ .32 $ (.35) ======= ======= Fully Diluted: $ .30 $ (.35) ======= =======
EX-27 3 EXHIBIT 27
5 1,000 3-MOS NOV-30-1997 FEB-28-1997 11,400 8,200 215,800 0 171,400 462,200 1,101,000 699,500 1,326,500 313,600 115,000 3,400 0 0 52,500 1,326,500 328,000 328,000 265,800 307,400 (200) 0 5,700 15,100 4,000 11,100 0 0 0 11,100 .32 .30
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