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