GENCORP INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
[X]		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: August 31, 2002
		or
[ ]		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________________ to _______________________

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.)

Highway 50 and Aerojet Road
Rancho Cordova, California		95670
(Address of Principal Executive Offices)		(Zip Code)

P.O. Box 537012
Sacramento, California		95853-7012
(Mailing Address)		(Zip Code)

Registrant’s telephone number, including area code (916) 355-4000

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 [ ]

As of September 30, 2002, there were 43,234,894 outstanding shares of the Company’s Common Stock, $0.10 par value.

TABLE OF CONTENTS


Part I – FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II – OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
Signatures
CERTIFICATIONS
Restricted Stock Agreement
Asset Purchase Agreement
Agreement to Amend and Restate

GenCorp Inc.

Quarterly Report on Form 10-Q
For the Quarterly Period Ended August 31, 2002

Table of Contents


Item Number		Page

	PART I – FINANCIAL INFORMATION
1	Financial Statements	1

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

3	Quantitative and Qualitative Disclosures About Market Risk	37

4	Controls and Procedures	38

	PART II – OTHER INFORMATION

1	Legal Proceedings	38

5	Other Information	38

6	Exhibits and Reports on Form 8-K	38

	SIGNATURES

	Signatures	40

	CERTIFICATIONS

	Certifications	41

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

GenCorp Inc.

Condensed Consolidated Statements of Income
(Unaudited)


	Three months ended					Nine months ended
	August 31,					August 31,

	2002		2001			2002		2001

			(Restated)					(Restated)

	(In millions, except per share amounts)
Net Sales	$	266	$	356		$	818	$	1,119
Costs and Expenses
Cost of products sold		223		313			683		979
Selling, general and administrative		8		12			33		32
Depreciation and amortization		18		21			48		58
Interest expense		4		10			11		28
Other (income) expense, net		1		(5	)		7		(9	)
Foreign exchange gain		–		–			–		(11	)
Restructuring charge		–		–			–		19
Unusual items, net		–		–			9		8

Income Before Income Taxes		12		5			27		15
Provision (credit) for income taxes		4		2			10		(7	)

Net Income	$	8	$	3		$	17	$	22

Earnings Per Share of Common Stock
Basic	$	0.19	$	0.07		$	0.40	$	0.52

Diluted	$	0.19	$	0.07		$	0.40	$	0.51

Weighted average shares of common stock outstanding		42.9		42.3			42.8		42.1

Weighted average shares of common stock outstanding, assuming dilution		51.4		42.8			43.2		42.5

Dividends Declared Per Share of Common Stock	$	0.03	$	0.03		$	0.09	$	0.09

See Notes to Unaudited Condensed Consolidated Financial Statements.

-1-

GenCorp Inc.

Condensed Consolidated Balance Sheets


		August 31			November 30,
		2002			2001

		(unaudited)
		(Dollars in millions,
		except per share amounts)

Current Assets
Cash and cash equivalents		$	37		$	44
Accounts receivable			128			173
Inventories, net			184			167
Recoverable from the U.S. Government and other third parties for environmental remediation			18			18
Current deferred income taxes			7			14
Prepaid expenses and other			5			4

	Total Current Assets		379			420
Noncurrent Assets
Property, plant and equipment, net			453			454
Recoverable from the U.S. Government and other third parties for environmental remediation			217			140
Deferred income taxes			–			6
Prepaid pension asset			326			287
Goodwill, net			83			65
Other noncurrent assets, net			74			96

	Total Assets	$	1,532		$	1,468

Current Liabilities
Short-term borrowings and current portion of long-term debt		$	20		$	17
Accounts payable			79			87
Reserves for environmental remediation			30			35
Income taxes payable			6			29
Other current liabilities			242			301

	Total Current Liabilities		377			469
Noncurrent Liabilities
Convertible subordinated notes			150			–
Other long-term debt, net of current portion			122			197
Reserves for environmental remediation			316			244
Postretirement benefits other than pensions			177			194
Deferred income taxes			11			–
Other noncurrent liabilities			33			54

	Total Liabilities		1,186			1,158
Commitments and Contingent Liabilities
Shareholders’ Equity
Preference stock, par value of $1.00 per share; 15 million shares authorized; none issued or outstanding			–			–
Common stock, par value of $0.10 per share; 150 million shares authorized; 43.5 million shares issued, 43.0 million outstanding as of August 31, 2002 (43.3 million shares issued, 42.6 million shares outstanding as of November 30, 2001)			4			4
Other capital			13			9
Retained earnings			344			331
Accumulated other comprehensive loss, net of income taxes			(15	)		(34	)

	Total Shareholders’ Equity		346			310

	Total Liabilities and Shareholders’ Equity	$	1,532		$	1,468

See Notes to Unaudited Condensed Consolidated Financial Statements.

-2-

GenCorp Inc.

Condensed Consolidated Statements of Cash Flows
(Unaudited)


				Nine months ended
				August 31

				2002			2001

							(Restated)
				(Dollars in millions)

Operating Activities
Net income				$	17		$	22
Adjustments to reconcile net income to net cash used in operating activities:
	Net loss related to reacquisition of minority ownership interest in subsidiary				2			–
	Foreign exchange gain				–			(11	)
	Depreciation, amortization and gain on asset disposition				48			55
	Deferred income taxes				15			33
	Changes in assets and liabilities, net of effects of acquisitions of businesses:
		Current assets			36			(3	)
		Noncurrent assets			(110	)		(45	)
		Current liabilities			(101	)		(62	)
		Noncurrent liabilities			53			(33	)

			Net Cash Used in Operating Activities		(40	)		(44	)
Investing Activities
Capital expenditures					(31	)		(29	)
Proceeds from sale of fixed assets					4			5
Acquisition of businesses, net of cash acquired					(8	)		(179	)

			Net Cash Used in Investing Activities		(35	)		(203	)
Financing Activities
Proceeds from issuance of convertible debt, net of issuance costs					144			–
Repayments on revolving credit facility, net					(60	)		(104	)
Net short-term debt (repayments) incurred					(6	)		20
Proceeds from the issuance of long-term debt					25			350
Repayments of long-term debt					(37	)		–
Dividends paid					(4	)		(4	)
Other equity transactions					4			4

			Net Cash Provided by Financing Activities		66			266

Effect of exchange rate fluctuations on cash and cash equivalents					2			–

Net (Decrease) Increase in Cash and Cash Equivalents					(7	)		19
Cash and Cash Equivalents at Beginning of Period					44			17

Cash and Cash Equivalents at End of Period				$	37		$	36

See Notes to Unaudited Condensed Consolidated Financial Statements.

-3-

GenCorp Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation and Nature of Operations

The accompanying unaudited Condensed Consolidated Financial Statements of GenCorp Inc. (GenCorp or the Company) include the accounts of the parent company and its wholly-owned and majority-owned subsidiaries. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all of the information and notes required by accounting principles generally accepted in the United States (GAAP). These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in the GenCorp Annual Report on Form 10-K for the fiscal year ended November 30, 2001, as filed with the Securities and Exchange Commission (SEC).

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make certain assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. In addition, our operating results for interim periods may not be indicative of the results of operations for a full fiscal year.

Certain reclassifications have been made to financial information for prior periods to conform to the current period’s presentation.

Headquartered in Sacramento, California, GenCorp is a multinational manufacturing company operating primarily in North America and Europe. The Company’s operations are organized into three segments: GDX Automotive, Aerospace and Defense and Fine Chemicals. The Company’s GDX Automotive segment is a major automotive supplier, engaged in the development, manufacture and sale of highly engineered extruded and molded rubber and plastic sealing systems for vehicle bodies and windows for automotive original equipment manufacturers. The Aerospace and Defense segment includes the operations of Aerojet-General Corporation (Aerojet). Aerojet’s business primarily serves high technology markets that include Space and Strategic Rocket Propulsion and Tactical Weapons. Primary customers served include major prime contractors to the U.S. Government, the Department of Defense and the National Aeronautics and Space Administration (NASA). In addition, Aerojet has significant undeveloped real estate holdings in Sacramento, California. The Company’s real estate business is a component of its Aerospace and Defense segment. The Company’s Fine Chemicals segment consists of the operations of Aerojet Fine Chemicals LLC (AFC). AFC supplies special intermediates and active pharmaceutical ingredients primarily to commercial customers in the pharmaceutical industry. See Note 11 for financial information for the Company’s operating segments.

See Note 3 for information related to the acquisition and disposition of businesses for the periods covered by this report.

-4-

2. Restatement of Previously Issued Financial Statements

In January 2002, the Company became aware of certain potential accounting issues at two of its GDX Automotive manufacturing plants in North America. The Company promptly notified both its Audit Committee and its independent accountants. Under the direction and oversight of the Audit Committee and with the assistance of outside legal advisors and accounting consultants, the Company conducted an inquiry into these and related accounting issues as well as a more complete evaluation of accounting practices and internal control processes throughout the Company. As a result of this process, due primarily to activities at one GDX Automotive manufacturing plant, the Company restated its previously issued financial statements for the years ended November 30, 2000 and November 30, 1999. Unaudited quarterly financial information for the first three quarters of the year ended November 30, 2001 was also restated.

The revisions primarily arose from the correction of certain balance sheet and income statement items, which among other things, related to the accounting for customer-owned tooling and recognition of liabilities at one of the Company’s GDX Automotive manufacturing plants that the Company has determined were not properly recorded in the Company’s accounting records.

Unless otherwise expressly stated, all financial information in this Quarterly Report on Form 10-Q is presented inclusive of these revisions.

Condensed Consolidated Statements of Income


							2001

	First Quarter						Second Quarter						Third Quarter

	Previously						Previously						Previously
	Reported*			Restated			Reported*			Restated			Reported*			Restated

				(Dollars in millions, except per share amounts)
Net Sales	$	353		$	353		$	410		$	410		$	356		$	356
Costs and Expenses
Cost of products sold		309			314			354			352			309			313
Selling, general and administrative		11			11			10			9			13			12
Depreciation and amortization		18			17			20			20			21			21
Interest expense		9			9			9			9			10			10
Other income, net		(1	)		(1	)		(3	)		(3	)		(5	)		(5	)
Foreign exchange gain		(11	)		(11	)		–			–			–			–
Restructuring charge		–			–			19			19			–	</