-----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, NtZ6pAHZSTDritfCeTw7fHPTUarFotX9ykGja9CQ5dHnF2tQQQ+NAzjxPwWWEMyD 8kVBhUoyZkCt1oOmcwACdg== 0000950152-97-004573.txt : 19970619 0000950152-97-004573.hdr.sgml : 19970619 ACCESSION NUMBER: 0000950152-97-004573 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970618 SROS: NONE 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: 97625794 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 May 31, 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 May 31, 1997, there were 33,556,672 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 Six Months Ended May 31, 1997 and 1996 -3- Condensed Consolidated Balance Sheets - May 31, 1997 and November 30, 1996 -4- Condensed Consolidated Statements of Cash Flows - Six Months Ended May 31, 1997 and 1996 -5- Notes to the Unaudited Interim Condensed Consolidated Financial Statements -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -12- Part II. Other Information Item 1. Legal Proceedings -15- Item 6. Exhibits and Reports on Form 8-K -16- Signatures -17- -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 Six Months Ended --------------------- ----------------------- May 31, May 31, May 31, May 31, 1997 1996 1997 1996 ------ ------ ------ ------ NET SALES $403.5 $378.0 $731.5 $746.3 ------ ------ ------ ------ COSTS AND EXPENSES Cost of products sold 326.5 307.0 592.3 619.3 Selling, general and administrative 43.5 42.4 85.1 87.5 Interest expense 6.2 6.6 11.9 14.6 Other (income) and expense, net (4.3) (1.6) (4.5) (3.2) Unusual items (Note D) -- .1 -- 24.9 ------ ------ ------ ------ 371.9 354.5 684.8 743.1 ------ ------ ------ ------ INCOME BEFORE INCOME TAXES 31.6 23.5 46.7 3.2 Income tax benefit (provision) (Note E) 52.5 (9.4) 48.5 (.8) ------ ------ ------ ------ NET INCOME $84.1 $14.1 $95.2 $2.4 ===== ===== ===== ==== EARNINGS PER SHARE OF COMMON STOCK (NOTE B) Primary $2.45 $.42 $2.78 $.07 Fully diluted $2.06 $.38 $2.36 $.07 Average number of shares of common stock outstanding (in thousands) Primary 34,293 33,632 34,235 33,592 Fully diluted 41,607 40,991 41,558 40,986 Cash dividends paid per share of common stock $.15 $.15 $.30 $.30
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 May 31, November 30, 1997 1996 ---------- ---------- CURRENT ASSETS: Cash and equivalents $ 18.7 $ 22.6 Accounts receivable 247.2 206.7 Inventories (Note F) 162.7 158.4 Prepaid expenses and other 63.7 64.7 ---------- ---------- TOTAL CURRENT ASSETS 492.3 452.4 ---------- ---------- Recoverable from U.S. government and third parties for environmental remediation 113.9 118.1 Deferred income taxes 157.6 156.3 Prepaid pension 108.4 103.5 Investments and other assets 111.6 86.8 Property, plant and equipment: At cost 1,114.2 1,102.3 Accumulated depreciation (708.5) (689.5) ---------- ---------- Net property, plant and equipment 405.7 412.8 ---------- ---------- TOTAL ASSETS $ 1,389.5 $ 1,329.9 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Notes payable $ 28.1 $ 42.9 Accounts payable - trade 74.9 80.6 Income taxes 51.8 26.6 Other current liabilities 211.3 219.6 ---------- ---------- TOTAL CURRENT LIABILITIES 366.1 369.7 ---------- ---------- Long-term debt (Note G) 261.0 263.2 Postretirement benefits other than pensions 343.3 346.1 Environmental reserves 221.2 230.3 Other liabilities 64.7 64.9 Contingencies (Note H) SHAREHOLDERS' EQUITY Preference stock - (none outstanding) -- -- Common stock - $.10 par value; 33.6 million shares outstanding 3.4 3.4 Other capital 23.3 22.2 Retained earnings 108.7 23.5 Currency translation adjustment (2.2) 6.6 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 133.2 55.7 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,389.5 $ 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 Six Months Ended ------------------- May 31, 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 95.2 $ 2.4 Provision for unusual items -- 24.9 Depreciation, amortization and loss on disposal of fixed assets 29.6 35.7 Increase in working capital (31.2) (73.8) Decrease (Increase) in deferred income taxes (1.3) 5.2 Other - net (12.1) (13.9) -------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 80.2 (19.5) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (18.6) (20.1) Proceeds from asset dispositions 13.1 119.5 Acquisition (46.5) -- Investments and other - net 2.6 (2.7) -------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (49.4) 96.7 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net short-term debt (paid) incurred (14.8) 3.1 Long-term debt incurred 100.1 360.1 Long-term debt paid (102.3) (427.8) Dividends (10.0) (9.9) Other equity transactions (7.7) (3.7) -------- -------- NET CASH USED IN FINANCING ACTIVITIES (34.7) (78.2) -------- -------- NET DECREASE IN CASH AND EQUIVALENTS (3.9) (1.0) Cash and equivalents at beginning of year 22.6 17.0 -------- -------- Cash and equivalents at end of period $ 18.7 $ 16.0 ======== ========
Cash paid during the period for interest was $12.0 million and $15.5 million for the six months ended May 31, 1997 and 1996, respectively. Cash paid during the period for income taxes was $28.5 million and $17.1 million for the six months ended May 31, 1997 and 1996, respectively. The accompanying notes to the unaudited interim condensed consolidated financial statements are an integral part of these statements. -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 six months ended May 31, 1997 and 1996, have been reflected. The results of operations for the six months ended May 31, 1997 are not necessarily indicative, if annualized, of those to be expected for the full fiscal year. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Note B - Net Income Per Share of Common Stock - --------------------------------------------- In February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings per Share" (SFAS 128), which is required to be adopted on November 30, 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact would result in a $.06 per share increase in primary earnings per share for the second quarter ended May 31, 1997 and no change in the primary earnings per share amount reported for the second quarter ended May 31, 1996. The impact of SFAS 128 on the calculation of fully diluted earnings per share for these quarters is not expected to be material. Currently, primary earnings per share of common stock are calculated by dividing net income by the weighted average number of common shares outstanding adjusted for the inclusion of stock options and shares to be issued under other stock based compensation programs. For fully diluted earnings per share, net income and shares outstanding have also been adjusted as if the Company's $115,000,000 8% Convertible Subordinated Debentures Due August 1, 2002 had been converted. (See Note G for further information regarding the debentures.) Note C - Acquisition - -------------------- On May 7, 1997 the Company acquired Printworld from Technographics, Inc. for approximately $47 million in cash. Printworld is a recognized leader in the transfer printing and paper laminate industry. The acquisition was accounted for as a purchase in accordance with Accounting Principle Board Opinion No. 16. The acquisition resulted in goodwill of $26 million which is being amortized over 15 years. -6- 7 Note D - 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 1996, the Company took a pretax charge of $15 million for expenses related to the Voluntary Early Retirement Incentive Program for eligible employees at the Company's Fairlawn, Ohio headquarters and Corporate Technology Center. Note E - Income Taxes - --------------------- The Company received federal income tax refunds resulting from settlement agreements with the Internal Revenue Service relating to certain prior taxable years, which reduced the Company's tax provision by $2 million and $65 million in the first and second quarters of 1997, respectively. Note F - Inventories - -------------------- Inventories are stated at the lower of cost or market value. A portion of the inventories is priced by use of the last-in, first-out (LIFO) method using various dollar value pools. Interim LIFO determinations involve management's judgments of expected year-end inventory levels. Components of inventory are as follows:
Unaudited Audited May 31, November 30, 1997 1996 --------- ----------- Raw materials and supplies $ 43.0 $ 37.4 Work-in-process 10.1 8.8 Finished products 55.0 62.4 -------- -------- Approximate replacement cost of LIFO inventories 108.1 108.6 Reserves, primarily LIFO (38.9) (39.5) Long-term contracts at average cost 186.3 172.0 Progress payments (92.8) (82.7) -------- -------- $ 162.7 $ 158.4 ======== ========
At May 31, 1997, Aerojet's contract accounting positions reflected the expected recovery of approximately $7 million in pending claims on numerous contracts with the U.S. government. These claims are in varying stages of negotiation, and relate principally to requests for price adjustments related to customer-caused issues or contracts terminated or canceled at the customer's convenience. Management believes that the resolution of these claims, in the aggregate, will not have a material effect on the consolidated financial condition of the Company. -7- 8 Note G - Long-term Debt and Credit Lines - ---------------------------------------- On May 17, 1996, the Company entered into a new five-year unsecured $400 million revolving credit facility (Facility) which expires in May 2001. As of May 31, 1997, unused revolving lines of credit totaled $260 million. The Company pays a variable commitment fee, which is currently 1/4 of one percent, on the unused balance. Interest rates are variable, primarily based on LIBOR, and are currently at an average rate of 6.6 percent. The Facility contains various debt restrictions and provisions relating to net worth, interest coverage and debt to earnings before interest, taxes, depreciation and amortization (Debt/EBITDA) ratios. The Company is required to maintain consolidated net worth of at least $23.5 million. On May 23, 1997, the Company called for redemption its $115,000,000 8% Convertible Subordinated Debentures Due August 1, 2002 (Debentures), with a redemption date of June 23, 1997. The Debentures are convertible into shares of common stock at a conversion price of $16.065 per share (equivalent to a conversion rate of approximately 62.247 shares of Common Stock per $1,000 principal amount of Debentures) subject to adjustment in certain circumstances. The fair market value of the Debentures was $151 million at May 31, 1997. At May 31, 1997, the Company had unsecured, uncommitted lines of credit with several banks for short-term borrowings aggregating $80 million, of which $25 million was outstanding. Borrowings under such lines generally bear interest at money market rates and are payable on demand. The Company also had outstanding letters of credit totaling $18 million at May 31, 1997. Note H - Contingencies - ---------------------- 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. During the second quarter of 1997, the State of California expanded surveillance of perchlorate under the RI/FS when this chemical was detected at previously undetectable levels using new testing protocols in water wells near Aerojet's property. In September 1993, Aerojet reached a settlement with the U.S. government whereby Aerojet recovered approximately $18 million for costs incurred at the site from July 1989 through November 1992. The settlement also provides that 65 percent of covered costs incurred after November 1992, net of insurance recoveries, will be added to the pricing of government contracts. Aerojet is negotiating with the U.S. government to recover all environmental costs associated with perchlorate as part of the 1993 settlement. Aerojet is continuing its efforts under the Decree to determine the nature and extent of contamination at the facility and to identify the technologies that will likely be used to remediate the site. Based on available facts, existing technology and current environmental laws and regulations, Aerojet recorded a net $68 million charge in 1994 to remediate the site. These remediation costs are principally for design, construction and enhancement of groundwater and soil treatment facilities, ongoing project management and regulatory oversight, and are expected to be incurred over a period of approximately 20 years. This estimate will be subject to change as work progresses, additional experience is gained and environmental standards are revised. -8- 9 Note H - Contingencies (continued) - ---------------------- At May 31, 1997, Aerojet had a reserve of $194 million for costs to complete the original RI/FS and remediate the site and has recognized $114 million for probable future recoveries under the 1993 settlement agreement with the U.S. government. Legal proceedings to obtain reimbursements of environmental costs from insurers are continuing. Lawrence, Massachusetts The Company has studied remediation alternatives for its closed Lawrence, Massachusetts facility, which was contaminated with PCBs, and has begun site remediation and off-site disposal of debris. The Company has a reserve of $31 million for estimated decontamination and long-term operating and maintenance costs of this site. The reserve represents the Company's best estimate for the remaining remediation costs. Estimates of future remediation costs could range as high as $52 million depending on the results of future testing and the ultimate remediation alternatives undertaken at the site. The time frame for remediation is currently estimated to range from 7 to 12 years. Muskegon, Michigan In a lawsuit filed by the U.S. Environmental Protection Agency (EPA), the United States District Court ruled in 1992 that Aerojet and its two inactive Cordova Chemical subsidiaries (Cordova) are liable for remediation of Cordova's Muskegon, Michigan site, along with a former owner/operator PRP of an earlier chemical plant at the site. That decision was appealed to the United States Court of Appeals. In May 1997, the United States Court of Appeals for the Sixth Circuit issued an en banc decision reversing Aerojet's and the other PRP's liability under the CERCLA statute. Aerojet and the EPA have until October 1997 to file a petition for certiorari to the United States Supreme Court for its review of the appellate decision. If the petition is not sought or not granted, the case will be remanded to the Federal District Court for fact finding determinations affecting the Cordova Chemical subsidiaries. In a separate action, Aerojet and Cordova won indemnification for the Muskegon site investigation and remediation costs from the State of Michigan in the state court of claims. The Michigan Court of Appeals affirmed on appeal, and the Michigan Supreme Court refused to hear the case. On December 23, 1996, the Michigan Supreme Court denied the State's motion for reconsideration. As a result, the Company believes that most of the $50 million to $100 million in anticipated remediation costs will be paid by the State of Michigan and the former owner/operator of the site. In addition, Aerojet believes it has insurance coverage for the site. San Gabriel Valley Basin, California Aerojet, through its Azusa facility, is considered to be a potentially responsible party (PRP) in the portion of the San Gabriel Valley Superfund Site known as the Baldwin Park Operable Unit (BPOU). Regulatory action involves issuance of a Record of Decision (ROD) requiring regional groundwater remediation, site specific investigation and possible cleanup. -9- 10 Note H - Contingencies (continued) - ---------------------- Aerojet's investigation demonstrated that the principal groundwater contamination is upgradient of Aerojet's property and that only low concentrations of contaminants are present in the soils of Aerojet's presently and historically owned properties. The EPA contends that Aerojet is one of the four largest sources of groundwater contamination at the BPOU of the nineteen PRPs identified by the EPA. Aerojet contests the EPA's position regarding the source of contamination and the number of responsible PRPs. Aerojet has joined a Steering Committee comprised of eleven of the PRPs identified by the EPA. The ROD issued by the EPA requires groundwater remediation for the BPOU, estimated to cost $47 million in non-recurring costs and $4 million to $5 million in annual operating expense. Aerojet, as part of the Steering Committee, is participating in an effort to develop an alternative "consensus" plan in which certain water supply entities would integrate the remedial requirements into a water supply project. On May 15, 1997, the EPA sent Special Notice letters (which included a draft Consent Decree and Statement of Work) to the 19 PRPs initiating a 60 day period during which a good faith offer by the PRPs must be submitted. If implemented, the consensus plan will provide federal funding for 25 percent of the nonrecurring costs and additional funding from water supply entities receiving benefit from the project, thus reducing the PRPs' costs. The State of California has also detected perchlorate in water wells in Southern California, including the San Gabriel Valley, at previously undetectable levels using the new testing protocols. Aerojet's cost exposure cannot be estimated at this time. However, management believes, on the basis of presently available information, that resolution of this matter will not materially affect the consolidated financial condition of the Company. Among the factors considered by management are the following: the number of other viable PRPs; the potential for federal funding or cost sharing with water supply interests; Aerojet's site-specific investigation; and the fact that, to date, Aerojet's San Gabriel Valley costs are being recovered from the government in the pricing of Aerojet's contracts. Additionally, Aerojet has filed suit against its insurers for recovery of such costs. Other Sites The Company is also currently involved, together with other companies, in 28 other Superfund and non-superfund remediation sites. In many instances, the Company's liability and proportionate share of costs have not been determined largely due to uncertainties as to the nature and extent of site conditions and the Company's involvement. While government agencies frequently claim PRPs are jointly and severally liable at such sites, in the Company's experience, interim and final allocations of liability costs are generally made based on relative contributions of waste. Based on the Company's previous experience, its allocated share has frequently been minimal, in many instances less than 1 percent. The Company has reserves of approximately $14 million as of May 31, 1997 which it believes are sufficient to cover its best estimate of its share of the environmental remediation costs at these other sites. Also, the Company is seeking recovery of its costs from its insurers. Environmental Summary - --------------------- In regard to the sites discussed above, management believes, on the basis of presently available information, that resolution of these matters will not materially affect liquidity, capital resources or the consolidated financial condition of the Company. The effect of resolution of these matters on results of operations cannot be predicted due to the uncertainty concerning both the amount and timing of future expenditures and future results of operations. -10- 11 Note H - Contingencies (continued) - ---------------------- Other Legal Matters - ------------------- In August 1991, Olin Corporation (Olin) advised GenCorp that Olin believed GenCorp to be jointly and severally liable for certain Superfund remediation costs, estimated by Olin to be $70 million, associated with a former Olin manufacturing facility and waste disposal sites in Ashtabula County, Ohio. In 1993, GenCorp sought declaratory judgment in the United States District Court for the Northern District of Ohio that the Company is not responsible for environmental remediation costs associated with the former Olin facility and Superfund sites. Olin counterclaimed seeking a judgment that GenCorp is jointly and severally liable for a share of remediation costs. In late 1995, the Court hearing on the issue of joint and several liability was completed, and in August 1996 the Court held hearings relative to allocation. The Court has not yet rendered a decision. If the Court finds GenCorp is liable, subsequent trial phases will address damages. The Company is vigorously litigating this matter and believes that it has meritorious defenses to Olin's claims. While there can be no certainty regarding the outcome of any litigation, in the opinion of management, after reviewing the information currently available with respect to this matter and consulting with the Company's counsel, any liability which may ultimately be incurred will not materially affect the consolidated financial condition of the Company. The Company and its subsidiaries are subject to various other legal actions, governmental investigations, and proceedings relating to a wide range of matters in addition to those discussed above. In the opinion of management, after reviewing the information which is currently available with respect to such matters and consulting with the Company's counsel, any liability which may ultimately be incurred with respect to these additional matters will not materially affect the consolidated financial condition of the Company. The effect of resolution of these matters on results of operations cannot be predicted because any such effect depends on both future results of operations and the amount and timing of the resolution of such matters. -11- 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Material Changes in Financial Condition - --------------------------------------- Cash flow provided from operating activities for the first six months of fiscal 1997 was $80.2 million as compared to a use of $19.5 million in the first six months of 1996. The increase in cash flow from operating activities reflected receipt of the tax refunds (see Note E - Income Taxes) and a lower seasonal increase in operating working capital. For the six month period ended May 31, 1997, $49.4 million was used for investing activities, including the acquisition of Printworld for approximately $46.5 million and capital expenditures of $18.6 million, offset by proceeds of $13.1 million from asset dispositions. This is compared to cash flow of $96.7 million for the six month period ended May 31, 1996 resulting from asset dispositions of $119.5 million from the sales of the Vibration Control and Reinforced Plastics divisions, reduced by capital expenditures of $20.1 million. Financing activities in the first six months of 1997 and 1996 primarily reflect a decrease in debt and the payment of dividends. At May 31, 1997, GenCorp's total debt was $289 million, down $70 million from the first quarter of 1997 and the lowest level in ten years. Debt decreased primarily due to the receipt of the tax refunds offset by the cash used in the acquisition of Printworld. Interest expense decreased to $6.2 million from $6.6 million in the comparable second quarter period a year ago due to lower average debt levels. On May 23, 1997, the Company called for redemption its $115,000,000 8% Convertible Subordinated Debentures Due August 1, 2002 (Debentures), with a redemption date of June 23, 1997. The Debentures are convertible into shares of common stock at a conversion price of $16.065 per share (equivalent to a conversion rate of approximately 62.247 shares of common stock per $1,000 principal amount of Debentures) subject to adjustment in certain circumstances. If all or most of the Debentures are tendered for conversion into common stock, the Company's long-term debt would decrease and shareholders' equity would increase by approximately $115 million. Material Changes in Results of Operations - ----------------------------------------- Sales totaled $403.5 million for the second quarter of 1997, an increase of 7 percent as compared to $378.0 million during the second quarter of 1996. The Company's aerospace and defense segment, Aerojet, had significantly improved sales during the quarter. The polymer products segment also posted increased sales, while the automotive segment experienced an expected decline in revenues. For the six months ended May 31, 1997, sales from continuing operations increased 5 percent to $731.5 million as compared to $699.0 million during the first six months of 1996. Operating profit improved to $43.4 million for the second quarter of 1997, versus $34.3 million for the second quarter of 1996, an increase of 27 percent. Operating margins increased to 10.8 percent in the second quarter of 1997, compared to 9.1 percent for the second quarter of 1996. For the first six months of 1997, operating profit from continuing operations improved 22 percent to $69.4 million versus $57.1 million for the first half of 1996. The Company reported significantly improved net income of $84.1 million, or $2.06 per fully diluted share, for the second quarter of 1997 compared to net income of $14.1 million, or $0.38 per fully diluted share for the second quarter of 1996. Earnings for the second quarter of 1997 included a benefit of $65 million, or $1.57 per share from a tax refund. Excluding the tax refund, earnings for the second quarter of 1997 totaled $0.49 per share versus $0.38 for the second quarter of 1996. -12- 13 Material Changes in Results of Operations (continued) - ----------------------------------------- The Company's net income for the six months ended May 31, 1997 was $95.2 million or $2.36 per fully diluted share, compared to $2.4 million, or $.07 per fully diluted share, for the same period in 1996. The increase was primarily due to the tax refunds received in 1997 and charges the Company took in early 1996 relating to the divestitures of two business units and the Voluntary Early Retirement Incentive Program. Second quarter results highlight the positive progress the Company is making in all major areas of performance and marks the sixth quarter of year over year operating margin improvement for continuing businesses. Significant events during the quarter have greatly improved cash flow and the balance sheet. The strategic acquisition of Printworld strengthens Decorative and Building Products' position in the film and printed woodgrain laminate markets, an example of the Company's growth strategy to enter new, but faster growing, related markets. The Company is continuing to strengthen its portfolio of businesses both operationally and strategically, and remains strongly focused on creating greater shareholder value through initiatives that evolve from its two top priorities of operational excellence and value-creating growth. Net sales for the polymer products businesses in the second quarter of 1997 increased 4 percent to $160.9 million compared to $154.7 million in the second quarter of 1996. Sales increased in the segment's Decorative and Building Products and Specialty Polymers business units, while Penn Racquet Sports experienced a slight decline. Improved sales in commercial wallcovering, building systems and specialty latices for paper coatings and textiles led the increase. Operating profit for the polymer products businesses increased to $20.9 million for the second quarter of 1997 versus $20.7 million in the second quarter of 1996. Operating margins declined slightly to 13.0 percent in the second quarter of 1997 compared to 13.4 percent in the second quarter of 1996 due to higher PVC resin costs in Decorative and Building Products and slightly lower average selling prices in Specialty Polymers. However, margins rebounded significantly from the 7.6 percent reported in the first quarter of 1997. The Decorative and Building Products business unit completed the acquisition of Printworld, a recognized leader in the transfer printing and paper laminate industry. This acquisition expands the Company's product offerings, combining the Company's existing vinyl laminate capabilities with Printworld's faster growing paper laminate products. Within the Specialty Polymers business, the Company continued to gain new customers for its paper, nonwoven and specialty latex applications. Volume increased across all end-uses during the quarter. Penn Racquet Sports signed a worldwide licensing agreement for marketing of the Penn brand name and increased its European market share. Automotive sales totaled $96.7 million in the second quarter of 1997 versus $102.2 million in the second quarter of 1996 due to lower unit volume and unfavorable exchange rates in Europe. The Company's automotive operations earned $8.7 million for the second quarter of 1997, an increase of 67 percent versus $5.2 million in the second quarter of 1996. Operating profit margins improved to 9.0 percent in the second quarter of 1997, versus 5.1 percent during the same period a year ago. Aggressive actions to reduce costs and boost productivity, along with the absence of expenses related to the divested Automotive Occupant Sensor business drove the profit improvement. For the first six months of 1997, the continuing automotive segment increased operating profit by $5.2 million compared to the first six months of 1996, despite declining sales of 6 percent and the impact of periodic UAW strikes at customer plants. Vehicle Sealing was awarded the body seal production for a major Ford truck program with production to begin in late 1997. Automotive operations in Rehburg, Germany achieved QS9000 certification. -13- 14 Material Changes in Results of Operations (continued) - ----------------------------------------- At Aerojet, net sales increased 20 percent to $145.9 million in the second quarter of 1997 versus $121.1 million in the second quarter of 1996. Higher volumes on the Space Based Infrared System (SBIRS), Defense Support Program (DSP), Joint Tactical Ground Station (JTAGS), Sense and Destroy Armor (SADARM), AMRAAM/Hawk tactical missiles and Custom Chemicals were offset by lower volumes on Titan and Delta. Aerojet's operating profit for the second quarter of 1997 was $13.8 million, up 64 percent compared to $8.4 million in the second quarter of 1996. Operating margins during the quarter increased to 9.5 percent from 6.9 percent in the second quarter of 1996 due to favorable contract performance and mix and an $.8 million pretax gain on the sale of Aerojet land in Nevada. During the quarter, Aerojet liquid engines performed in two successful Delta II launches and on a Titan II launch of a military weather satellite which carried sensors built by Aerojet. The SADARM program, during test firings of first initial production rounds, exceeded all Army requirements for this smart submunition. Contract awards totaled $141 million during the quarter. At May 31, 1997, Aerojet's contract backlog was $2.0 billion, unchanged from 1996 year-end, but up from $1.0 billion in the second quarter of 1996. Environmental Matters - --------------------- GenCorp's policy is to conduct its businesses with due regard for the preservation and protection of the environment. The Company devotes a significant amount of resources and management attention to environmental matters and actively manages its ongoing processes to comply with extensive environmental laws and regulations. The Company is involved in the remediation of environmental conditions which resulted from previously accepted manufacturing and disposal practices that date back to the 1950s and 1960s at certain of its plants. In addition, the Company has been designated a potentially responsible party, with other companies, at sites undergoing investigation and remediation. The nature of environmental investigation and cleanup activities often makes it difficult to determine the timing and amount of any estimated future costs that may be required for remedial measures. However, the Company reviews these matters and accrues for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and its proportionate share of the amount can be reasonably estimated. The Company's Condensed Consolidated Balance Sheet at May 31, 1997 reflects accruals of $251 million and amounts recoverable of $123 million from the U.S. government and third parties for such costs. The effect of resolution of environmental matters on results of operations cannot be predicted due to the uncertainty concerning both the amount and timing of future expenditures and future results of operations. However, management believes, on the basis of presently available information, that resolution of these matters will not materially affect liquidity, capital resources or the consolidated financial condition of the Company. The Company will continue its efforts to mitigate past and future costs through pursuit of claims for insurance coverage and continued investigation of new remediation alternatives and associated technologies. For additional discussion of environmental matters, refer to Note H - Contingencies. -14- 15 Part II. OTHER INFORMATION -------------------------- Item 1. Legal Proceedings - ------------------------- Information concerning legal proceedings, including proceedings relating to environmental matters, which appears in Note H beginning on page 8 of this report is incorporated herein by reference. In April 1996, two class action suits were filed, one in Federal and one in state court, collectively alleging: (i) breach of collective bargaining/pension and insurance agreements under Section 301 of the Labor Management Relations Act; (ii) breach of fiduciary duties under ERISA; and (iii) breach of individual contracts, fraud and promissory estoppel under state law. DIVINE, ET AL. V. GENCORP INC., U.S.D.C., N.D. Ind. 3:96CV0296AS; DIVINE, ET AL. V. GENCORP INC., Wabash County, Ind. Cir. Ct., 85C01-9605-CP-201. The suits were filed on behalf of approximately 600 hourly retirees, spouses and surviving spouses from GenCorp's Wabash, Indiana facility who are seeking damages and injunctive relief to prevent proposed modifications to the GenCorp Hourly Retiree Medical Plan. The proposed modifications include increases to retiree co-payments and deductibles, retiree contributions once aggregate costs exceed specified cost caps, and changes to Medicare offsets, drug coverage and maximum benefit provisions. The modifications are being implemented to control escalating health care costs, and to limit liabilities under SFAS 106. The Complaint filed in state court was removed to Federal court, and consolidated with U.S.D.C., N.D. Ind. 3:96CV0296AS. GenCorp filed a Motion for Summary Judgment and Opposition to Plaintiffs' Motion for Class Certification. On November 26, 1996, the court granted GenCorp's Motion for Summary Judgment on all counts, rendering the class certification issue moot. Plaintiffs have filed a Notice of Appeal to the U.S. Seventh Circuit Court of Appeals. Briefing was scheduled for completion by April 30, 1997. While there can be no certainty regarding the outcome of any litigation, in the opinion of management, after reviewing the information currently available with respect to this matter and consulting with the Company's counsel, any liability which may ultimately be incurred will not materially affect the consolidated financial condition of the Company. The effect of resolution of this matter on results of operations cannot be predicted because any such effect depends on both future results of operations and the amount and timing of the resolution of such matter. The Company and its subsidiaries are subject to various legal actions, governmental investigations, and proceedings relating to a wide range of matters in addition to those discussed above and in Part I of this report. In the opinion of management, after reviewing such matters and consulting with the Company's counsel, any liability which may ultimately be incurred with respect to these additional matters will not materially affect the consolidated financial position of the Company. -15- 16 Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- a) Exhibits -------- Table Exhibit Item No. Exhibit Description Number -------------------------------------------------------------------------- 10 Material Contracts 10.(iii)(A) Management contracts, compensatory plans or arrangements Form of Restricted Stock Agreement between 10.1 the Company and Nonemployee Directors providing for payment of part of Directors' compensation for service on the Board of Directors in Company Stock 11 Statement re computation of per share earnings 11 27 Financial Data Schedule 27 (Filed for EDGAR only) b) Reports on Form 8-K ------------------- There have been no reports on Form 8-K filed during the quarter ended May 31, 1997. -16- 17 SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENCORP INC. Date June 18, 1997 By /s/ D. M. Steuert ------------- -------------------------------- D. M. Steuert Senior Vice President and Chief Financial Officer Date June 18, 1997 By /s/ W. R. Phillips ------------- -------------------------------- W. R. Phillips Senior Vice President, Law; General Counsel -17- EX-10.1 2 EXHIBIT 10.1 1 EXHIBIT 10.1 RESTRICTED STOCK AGREEMENT GENCORP INC. March 1997 AGREEMENT, Made in Fairlawn, Ohio as of March 26, 1997 between GenCorp Inc., an Ohio corporation ("Company") and the undersigned non-employee director of the Company ("Director"). WHEREAS, the Company desires to increase Director's identification with the interests of its shareholders and to increase Director's compensation for service on the Board of Directors of the Company ("Board") by granting to Director Two Hundred (200) shares of GenCorp Inc. Common Stock, $0.10 par value per share ("Shares"), subject to the conditions and restrictions set forth in this Restricted Stock Agreement ("Agreement"). NOW, THEREFORE, In consideration of the premises and the mutual covenants set forth in this Agreement and for other good and valuable consideration, the parties hereto agree as follows: 1. GRANT OF SHARES. As consideration for services to be rendered as a member of the Board, the Company will issue in the name of the Director Two Hundred (200) Shares which shall be subject to restrictions described below and shall be legended as having been issued in a private transaction not registered with the Securities and Exchange Commission. 2. ESCROW OF SHARES DURING RESTRICTION PERIOD. In aid of the restrictions to which the Shares shall be subject pursuant to this Agreement, the Shares shall be deposited in the name of the Director with the Shareholder Services Department of the Company and shall be so held by the Company during the period of Director's service on the Board ("Restriction Period"). 3. SHAREHOLDER RIGHTS. Director shall, during the Restriction Period, have the right to vote all Shares deposited hereunder and to receive all dividends and other distributions paid with respect to such Shares. 4. AUTOMATIC DIVIDEND REINVESTMENT. As to the Shares deposited hereunder, Director shall be automatically enrolled in GenCorp's Automatic Dividend Reinvestment Service ("Service"), pursuant to the standard terms and conditions of participation. Additional shares of GenCorp common stock accumulated pursuant to the dividend 2 - 2 - reinvestment feature shall be freely transferable, subject to the terms and conditions of the Service. Director may decline to participate in such Service by so indicating below his or her signature on this Agreement. 5. ADJUSTMENTS. Shares issued pursuant to this Agreement and held by the Company during the Restriction Period will be subject to the same adjustment, if any, accorded to all other outstanding shares in the event of (i) any change in the total number of shares of common stock of the Company outstanding or the number or kind of securities into which shares have been changed, (ii) any reorganization or change in the Company's capital structure, or (iii) any other transaction or event having an effect similar to the foregoing. 6. VESTING. Unless vesting is accelerated pursuant to paragraph 9 hereof, ownership of the Shares deposited hereunder shall vest irrevocably in the Director, March 26, 1999, subject to the other terms and restrictions of this Agreement. 7. RESTRICTIONS ON TRANSFER. During the Restriction Period, the Shares may not be sold, transferred, pledged, assigned, alienated or hypothecated, or otherwise transferred to another person whether by operation of law or otherwise, except by will, the laws of descent and distribution or a qualified domestic relations order. 8. BENEFICIARY DESIGNATION. Director may designate any beneficiary or beneficiaries (contingently or successively) to whom Shares are to be paid if Director dies during the Restriction Period, and may at any time revoke or change any such designation. Absent such designation, any Shares which are due to Director under this Agreement upon Director's death will be payable to Director's estate. The designation of a Beneficiary will be effective only when Director has delivered a completed Designation of Beneficiary form to the Company's Secretary. A successive designation of Beneficiary will revoke a prior designation. 9. TERMINATION DUE TO DEATH, DISABILITY, OR RETIREMENT. If Director's service on the Board terminates by reason of his or her death, disability or retirement under the Non-Employee Directors' Retirement Plan, Shares not already vested, if any, shall automatically vest, the Restriction Period shall terminate and all restrictions shall lapse. 10. TERMINATION DUE TO OTHER REASONS. If Director's service on the Board terminates for any reason other than a reason set forth in paragraph 9 above, Shares which have not vested prior to such date of termination will be forfeited and cancelled as of such date. Notwithstanding the foregoing, by a majority vote of the directors then in office (with the terminating director abstaining), the Board shall have the right, in its sole discretion, to waive the forfeiture of all or any portion of such Shares subject to such terms as it deems appropriate. 3 - 3 - 11. DISPUTES. The Board shall have full and exclusive authority to determine all disputes and controversies concerning the interpretation of this Agreement by a majority vote of the directors then in office (with any disputing director abstaining). 12. NOTICES. All written notices and communications directed to the Company pursuant to this Agreement must be addressed to GenCorp Inc., 175 Ghent Road, Fairlawn, Ohio 44333-3300; Attention: Secretary. All communications directed to Director pursuant to this Agreement will be mailed to the Director's current address as recorded on the payroll records of the Company. 13. GOVERNING LAW. To the extent not preempted by federal law, this Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio. IN WITNESS WHEREOF, this Agreement has been executed by a duly authorized officer of the Company and by the Director as of the 26th day of March, 1997. GENCORP INC. By: /s/ J. B. Yasinsky --------------------------- J. B. Yasinsky Chairman and Chief Executive Officer Agreed to and accepted: - ---------------------------------- Director Signature* TO OPT OUT OF PARTICIPATION IN THE COMPANY'S AUTOMATIC DIVIDEND REINVESTMENT SERVICE, INITIAL THE STATEMENT BELOW: ____ I DO NOT ELECT TO PARTICIPATE IN THE AUTOMATIC DIVIDEND REINVESTMENT SERVICE *Sign and return one copy by May 1, 1997 to GenCorp Inc., 175 Ghent Road, Fairlawn, Ohio 44333-3300; Attention: Secretary. EX-11 3 EXHIBIT 11 1 EXHIBIT 11 GenCorp Inc. Computation of Earnings Per Common Share
Unaudited Unaudited Three Months Ended Six Months Ended ---------------------- ----------------------- May 31, May 31, May 31, May 31, 1997 1996 1997 1996 ------ ------ ------ ------ EARNINGS (Dollars in Millions) Net Income for Primary Earnings Per Share $84.1 $14.1 $95.2 $2.4 Tax Affected Interest Expense Applicable to 8% Convertible Subordinated Debentures 1.4 1.4 2.8 2.8 ------ ------ ------ ------ Net Income for Fully Diluted Earnings Per Share $85.5 $15.5 $98.0 $5.2 ====== ====== ====== ====== SHARES (In Thousands) Weighted Average Number of Common Shares Outstanding for Primary Earnings Per Share (See Note B) 34,293 33,632 34,235 33,592 Additional Shares Issuable Under Stock Options for Fully Diluted Earnings Per Share 156 201 165 236 Assuming Conversion of 8% Convertible Subordinated Debentures 7,158 7,158 7,158 7,158 ------ ------ ------ ------ Weighted Average Number of Common Shares Outstanding for Fully Diluted Earnings Per Share 41,607 40,991 41,558 40,986 ====== ====== ====== ====== EARNINGS PER SHARE Primary: $2.45 $.42 $2.78 $.07 ====== ====== ====== ====== Fully Diluted: $2.06 $.38 $2.36 $.07 ====== ====== ====== ======
EX-27 4 EXHIBIT 27
5 1,000 6-MOS NOV-30-1997 MAY-31-1997 10,700 8,000 247,200 0 162,700 492,300 1,114,200 708,500 1,389,500 366,100 115,000 3,400 0 0 129,800 1,389,500 731,500 731,500 592,300 677,400 (4,500) 0 11,900 46,700 (48,500) 95,200 0 0 0 95,200 2.78 2.36
-----END PRIVACY-ENHANCED MESSAGE-----