AEROJET ROCKETDYNE HOLDINGS, INC.
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended November 30, 2010 | ||
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or
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||
|
o
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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 or other jurisdiction
of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
|
Highway 50 and Aerojet Road
Rancho Cordova, California (Address of principal executive offices) |
95742
(Zip Code) |
|
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P.O. Box 537012
Sacramento, California (Mailing address) |
95853-7012
(Zip Code) |
Registrant’s telephone number, including area code
(916) 355-4000
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of each class
|
Name of each exchange on which registered
|
|
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Common Stock, $0.10 par value per share
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New York Stock Exchange and
Chicago Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
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
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes
o
No
o
The
registrant is not yet subject to this requirement.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
o
|
Accelerated filer þ |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act.) Yes
o
No
þ
The aggregate market value of the voting common equity held by
nonaffiliates of the registrant as of May 31, 2010 was
approximately $305 million.
As of January 20, 2011, there were 58.6 million
outstanding shares of the Company’s Common Stock, including
redeemable common stock, $0.10 par value.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the 2011 Proxy Statement of GenCorp Inc. relating to
its annual meeting of shareholders scheduled to be held on
March 30, 2011 are incorporated by reference into
Part III of this Report.
GENCORP
INC.
Annual Report on
Form 10-K
For the Fiscal Year Ended November 30, 2010
Table of Contents
| * | The information called for by Items 10, 11, 12, 13, and 14, to the extent not included in this Report, is incorporated herein by reference to the information to be included under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Communications with Directors,” “Board Committees,” “Executive Compensation,” “Director Compensation,” “Organization & Compensation Committee Report” “Compensation Committee Interlocks and Insider Participation,” “Security Ownership of Certain Beneficial Owners,” “Security Ownership of Officers and Directors,” “Employment Agreements and Indemnity Agreements,” “Potential Payments upon Termination of Employment or Change in Control,” “Determination of Independence of Directors,” and “Ratification of the Appointment of Independent Auditors,” in GenCorp Inc.’s 2011 Proxy Statement, to be filed within 120 days after the close of our fiscal year. |
Table of Contents
PART I
| Item 1. | Business |
Unless otherwise indicated or required by the context, as
used in this Annual Report on
Form 10-K,
the terms “we,” “our,” and “us”
refer to GenCorp Inc. and all of its subsidiaries that are
consolidated in conformity with accounting principles generally
accepted in the United States of America.
Certain information contained in this Annual Report on
Form 10-K
should be considered “forward-looking statements” as
defined by Section 21E of the Private Securities Litigation
Reform Act of 1995. All statements in this report other than
historical information may be deemed forward-looking statements.
These statements present (without limitation) the expectations,
beliefs, plans, and objectives of management and future
financial performance and assumptions underlying, or judgments
concerning, the matters discussed in the statements. The words
“believe,” “estimate,”
“anticipate,” “project” and
“expect,” and similar expressions, are intended to
identify forward-looking statements. Forward-looking statements
involve certain risks, estimates, assumptions, and
uncertainties, including with respect to future sales and
activity levels, cash flows, contract performance, the outcome
of litigation and contingencies, environmental remediation,
availability of capital, and anticipated costs of capital. A
variety of factors could cause actual results or outcomes to
differ materially from those expected and expressed in our
forward-looking statements. Important risk factors that could
cause actual results or outcomes to differ from those expressed
in the forward-looking statements are described in the section
“Risk Factors” in Item 1A of this Report.
Additional risk factors may be described from time to time in
our future filings with the Securities and Exchange Commission
(“SEC”).
We are a manufacturer of aerospace and defense products and
systems with a real estate segment that includes activities
related to the re-zoning, entitlement, sale, and leasing of the
Company’s excess real estate assets. Our continuing
operations are organized into two segments:
Aerospace and Defense
— includes the operations
of Aerojet-General Corporation (“Aerojet”) which
develops and manufactures propulsion systems for defense and
space applications, armament systems for precision tactical
weapon systems and munitions applications. Aerojet is one of the
largest providers of such propulsion systems in the United
States (“U.S.”). Major market segments include space
launch and in-space propulsion systems, missile defense,
tactical missile systems, and force projection and protection
systems. Primary customers served include major prime
contractors to the U.S. government, the Department of
Defense (“DoD”), and the National Aeronautics and
Space Administration (“NASA”).
Real Estate
— includes the activities of Easton
Development Company, LLC (“Easton”) related to the
entitlement, sale, and leasing of the Company’s excess real
estate assets. We own approximately 12,200 acres of land
adjacent to U.S. Highway 50 between Rancho Cordova and
Folsom, California east of Sacramento (“Sacramento
Land”). We are currently in the process of seeking zoning
changes and other governmental approvals on a portion of the
Sacramento Land to optimize its value.
Our fiscal year ends on November 30 of each year. When we refer
to a fiscal year, such as fiscal 2010, we are referring to the
fiscal year ended on November 30 of that year. The fiscal year
of our subsidiary, Aerojet, ends on the last Saturday of
November. As a result of the 2008 calendar, Aerojet had
53 weeks of operations in fiscal 2008 compared to
52 weeks of operations in fiscal 2010 and 2009. The
additional week of operations, which occurred in the first
quarter of fiscal 2008, accounted for $19.1 million in
additional net sales.
Sales, segment performance, total assets, and other financial
data for each segment for fiscal 2010, 2009, and 2008 are set
forth in Note 10 to the Consolidated Financial Statements,
included in Item 8 of this Report.
We were incorporated in Ohio in 1915 and our principal executive
offices are located at Highway 50 and Aerojet Road, Rancho
Cordova, CA 95742. Our mailing address is
P.O. Box 537012, Sacramento, CA
95853-7012
and our telephone number is
916-355-4000.
Our Internet website address is www.GenCorp.com. We have made
available through our Internet website, free of charge, our
Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
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Table of Contents
1934 as soon as reasonably practicable after such materials are
electronically filed with, or furnished to, the SEC. We also
make available on our Internet web site our corporate governance
guidelines and the charters for each of the following committees
of our Board of Directors: Audit; Corporate
Governance & Nominating; and Organization &
Compensation. Our corporate governance guidelines and such
charters are also available in print to anyone who requests them.
Aerospace
and Defense
Aerojet has been an industry leader and pioneer in the
development of critical products and technologies that have
strengthened the U.S. military and enabled the exploration
of space. Aerojet focuses on developing military, civil, and
commercial systems and components that address the needs of the
aerospace and defense industry markets. Due to the diversity of
its propulsion and other technologies and the synergy of its
product lines, we believe Aerojet is in a unique competitive
position to offer its customers the most innovative and advanced
solutions available in the domestic markets in which we operate.
Aerojet has been able to capitalize on its strong technical
capabilities to become a critical provider of components and
systems for major propulsion programs. Aerojet propulsion
systems have flown on human and robotic missions for NASA since
the inception of the U.S. Space Program, and Aerojet has
been a major supplier of propulsion products to the DoD since
the founding of Aerojet. Principal customers include the DoD,
NASA, Raytheon Company (“Raytheon”), Lockheed Martin
Corporation (“Lockheed Martin”), United Launch
Alliance (“ULA”), and The Boeing Company
(“Boeing”).
| • | Defense systems — Our defense system products include liquid, solid, and air-breathing propulsion systems and components. In addition, Aerojet is a supplier of both composite and metallic aerospace structural components, warhead and armament systems for precision tactical weapon applications, and fire suppression systems. Product applications for our defense systems include strategic, tactical and precision strike missiles, missile defense systems, maneuvering propulsion systems, precision war-fighting systems, and specialty metal products. | |
| • | Space systems — Our space systems products include liquid, solid, and electric propulsion systems and components. Product applications for space systems include expendable and reusable launch vehicles, transatmospheric vehicles and spacecraft, separation and maneuvering systems, upper stage engines, satellites, large solid boosters, and integrated propulsion subsystems. |
Industry
Overview
Broad support continues for DoD and NASA funding in the
Government Fiscal Year (“GFY”) ending
September 30, 2011 and beyond. However, these federal
department/agency budgets are under severe pressure due to the
cost impacts of military operations in Iraq and Afghanistan, and
a rising U.S. federal deficit. As a result, the DoD budget
is expected to remain flat or grow at modest levels through
2012. During the same time period the NASA budget is authorized
to grow modestly but may remain flat or decline slightly.
Department
of Defense
While U.S. defense appropriations have increased
substantially since the terrorist attacks of September 11,
2001 and ensuing military actions in Afghanistan and Iraq to
over $549 billion in the GFY 2011 base budget request, the
rate of increase is expected to slow to no more than one percent
real growth per year. Although the ultimate distribution of the
GFY 2011 DoD budget remains uncertain, we believe Aerojet is
well positioned to benefit from DoD investment in: high-priority
transformational systems that address current war fighting
requirements; the re-capitalization of weapon systems and
equipment expended during combat operations; and systems that
meet new threats world-wide.
The Obama Administration (“Administration”) has
indicated a commitment to maintain adequate funding for the DoD
and building defense capabilities for the 21st century.
Areas that impact Aerojet products include: fully equipping
U.S. forces for the missions they face; preserving air
supremacy; maintaining forces at sea; protecting the
U.S. in cyberspace; ensuring freedom of space; and a
pragmatic and cost-effective development of missile defense.
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NASA
In 2010, a new NASA Authorization Act (the “Authorization
Act”) took effect impacting GFY
2011-2013.
The Authorization Act aims to: safely retire the Space Shuttle;
extend the International Space Station through 2020; continue
the development of the Orion multipurpose crew exploration
vehicle; build a new heavy lift launch vehicle; invest in new
space technologies; and sustain and grow the science and
aeronautics programs at NASA. Aerojet is well positioned to
succeed due to our diverse offerings, innovative technologies,
and existing contracts with both traditional and emerging launch
providers. Additionally, Aerojet is the main propulsion provider
for the Orion crew capsule.
While the Authorization Act authorizes modest growth for NASA,
pressures for reduced federal spending could lead to flat or
even reduced funding.
Competition
As the only domestic supplier of all four propulsion
types — solid, liquid, air-breathing, and
electric — we believe that Aerojet is in a unique
competitive position. The basis on which Aerojet competes in the
Aerospace and Defense industry varies by program, but generally
is based upon technology, quality, service, and price. Although
market competition is intense, we believe Aerojet possesses
innovative and advanced propulsion solutions, combined with
adequate resources to continue to compete successfully.
Participation in the defense and space propulsion market can be
capital intensive requiring long research and development
periods that represent significant barriers to entry. Aerojet
may partner on various programs with its major customers or
suppliers, some of whom are, from time to time, competitors on
other programs.
The table below lists primary participants in the propulsion
market:
| Company | Parent | Propulsion Type | Propulsion Application | |||
|
Aerojet
|
GenCorp Inc. |
Solid, liquid, air-
breathing, electric |
Launch, in-space, tactical, strategic, missile defense | |||
|
Alliant Techsystems
|
Alliant Techsystems Inc. | Solid, air-breathing | Launch, tactical, strategic, missile defense | |||
|
American Pacific Corporation
|
American Pacific Corporation | Liquid, electric | In-space | |||
|
Astrium
|
European Aeronautics Defense and Space Company; and BAE Systems | Solid, liquid | In-space | |||
|
Northrop Grumman Space Technology
|
Northrop Grumman Corporation (“Northrop”) | Liquid | In-space | |||
|
Pratt & Whitney Rocketdyne
|
United Technologies Corporation | Liquid, air-breathing, electric | Launch, in-space, missile defense | |||
|
SpaceX
|
SpaceX | Liquid | Launch, in-space | |||
|
Nammo Talley
|
Nammo Talley | Solid | Tactical |
The domestic solid and liquid propulsion markets remained
unchanged in fiscal 2010 with Aerojet in the number two position
in both markets, second to Alliant Techsystems in solid
propulsion (“solids”) and Pratt & Whitney
Rocketdyne in liquid propulsion (“liquids”).
Additionally, we believe we are in the number one position in
the electric propulsion market and the only domestic provider of
both high-speed and low-speed air-breathing propulsion.
Major
Customers
As a merchant supplier to the Aerospace and Defense industry, we
do not align ourselves with any single prime contractor except
on a
project-by-project
basis. We believe that our position as a merchant supplier has
helped us become a trusted partner to our customers, enabling us
to maintain strong long-term relationships with a variety of
prime contractors. Under each of our contracts, we act either as
a prime contractor, where we sell directly to the end user, or
as a subcontractor, where we sell our products to other prime
contractors.
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Table of Contents
The principal end user customers of our products and technology
are agencies of the U.S. government. Since a majority of
Aerojet’s sales are, directly or indirectly, to the
U.S. government, funding for the purchase of Aerojet’s
products and services generally follows trends in
U.S. aerospace and defense spending. However, individual
government agencies, which include the military services, NASA,
the Missile Defense Agency (“MDA”), and the prime
contractors that serve these agencies, exercise independent
purchasing power within “budget top-line” limits.
Therefore, sales to the U.S. government are not regarded as
sales to one customer, but rather each contracting agency is
viewed as a separate customer.
Customers that represented more than 10% of net sales for the
fiscal years presented are as follows:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Raytheon
|
37 | % | 31 | % | 27 | % | ||||||
|
Lockheed Martin
|
27 | 26 | 26 | |||||||||
Direct sales to the U.S. government and its agencies, or
government customers, and indirect sales to U.S. government
customers via direct sales to prime contractors accounted for a
total of approximately 92% of sales, or approximately
$786.1 million, in fiscal 2010. The following are
percentages of net sales by principal end user in fiscal 2010:
|
U.S. Army
|
23 | % | ||
|
MDA
|
22 | |||
|
U.S. Navy
|
16 | |||
|
U.S. Air Force
|
16 | |||
|
NASA
|
15 | |||
|
Total U.S. government customers
|
92 | |||
|
Other customers
|
8 | |||
|
Total
|
100 | % | ||
Major
Programs
Defense Systems
— Aerojet maintained a strong
position in the defense market segment in fiscal 2010 with key
new and follow-on awards. Significant new contract awards
included the Bomb Live Unit — 129B composite case for
MK-82 500 large ballistic missile bombs and the Enhanced
Maneuvering Missile Development program that will develop new
propulsion technologies for the Navy’s Standard Missile.
Significant continuing follow-on contract awards were received
on the Terminal High Altitude Area Defense (“THAAD”),
Guided Multiple Launch Rocket System (“GMLRS”) and
Patriot Advanced Capability-3 (“PAC-3”) production
rocket motors; the Tube-launched Optically Wire-guided
(“TOW”) warhead production; and our Aegis Ballistic
Missile Defense Standard Missile-3 Throttling Divert Attitude
Control System for Block IB production and Block IIA development
programs as part of the Administration’s phased adaptive
approach for missile defense. These successes continue to
strengthen our position as a propulsion leader in missile
defense and tactical systems. We believe Aerojet is in a unique
competitive position due to the diversity of propulsion
technologies, complete warhead capabilities, composites and
metallic structures expertise, and the synergy of its product
lines to offer defense customers the most innovative and
advanced solutions available in the domestic market.
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Table of Contents
A subset of our key defense systems programs are listed below:
|
Primary
|
||||||||
| Program | Customer | End Users | Program Description | Program Status | ||||
|
Standard Missile
|
Raytheon | U.S. Navy, MDA | Tactical solid rocket motors, throttling divert and attitude control systems and warheads | Development/ Production | ||||
|
GMLRS
|
Lockheed Martin | U.S. Army | Tactical solid rocket motors | Production | ||||
|
PAC-3
|
Lockheed Martin | U.S. Army | Tactical solid rocket motors | Development/Production | ||||
|
Ground Based Mid-Course Defense Exoatmospheric Kill Vehicle
Liquid Divert and Attitude Control Systems
|
Raytheon | MDA | Liquid propulsion divert and attitude control propulsion systems | Development/Production | ||||
|
TOW
|
Raytheon | U.S. Army | Tactical missile warheads | Production | ||||
|
Specialty Metal Products
|
General Dynamics and Others | U.S. Army | Specialty metal products | Development/ Production | ||||
|
Tactical Tomahawk
|
Raytheon | U.S. Navy | Tactical solid rocket motors and warheads | Production | ||||
|
THAAD
|
Lockheed Martin | MDA | Tactical solid rocket motors | Development/ Production | ||||
|
F-22 Raptor Aircraft
|
Boeing | U.S. Air Force | Advanced electron beam welding for airframe structures | Production | ||||
|
Large Class Propulsion Application Program
|
U.S. Air Force | U.S. Air Force | Strategic solid rocket motors | Development | ||||
|
Army Tactical Missile System
|
Lockheed Martin | U.S. Army | Tactical solid rocket motors | Production | ||||
|
Minuteman III
|
Northrop | U.S. Air Force | Liquid maneuvering propulsion | Development/Production | ||||
|
Trident D5
|
Lockheed Martin | U.S. Navy | Post boost control system | Production | ||||
|
Javelin
|
Lockheed Martin/Raytheon | U.S. Army | Tactical solid rocket motors | Production | ||||
|
Patriot GEM-T
|
Raytheon | U.S. Army | Tactical solid rocket motors | Production | ||||
|
Joint Air to Ground Missile
|
Lockheed Martin | U.S. Army | Tactical solid rocket motors | Development | ||||
|
Advanced Second and Third Stage Booster
|
U.S. Air Force | U.S. Air Force | Solid booster | Development | ||||
|
Joint Standoff Weapon
|
BAE | U. S. Navy | Tactical warheads | Production | ||||
|
Supersonic Sea Skimming Target
|
Orbital Sciences Corporation (“Orbital”) | U.S. Navy | Variable flow ducted rocket (air-breathing) | Production |
Space Systems
— In fiscal 2010, Aerojet
maintained its strong market position in space systems by
continued performance on existing contracts and capturing
important new propulsion contracts, of which the most
strategically significant new awards are the Vega Reaction
Control System Contract and the NASA Heavy Lift Vehicle Study.
Aerojet’s commitment to quality and excellence in its space
systems programs was reflected in its 100% success rate on
several space exploration and other critical missions during
fiscal 2010 using Aerojet’s products, including the Orion
Pad Abort Test; Mercury Messenger Flyby; Advanced Extremely High
Frequency launch; and launches of Delta II, Delta IV,
Atlas V, and the space shuttle.
These continued space program successes strengthen our legacy of
supplying mission critical propulsion systems to the DoD and
NASA as we have since the inception of the U.S. civil and
military space programs and support our position as a critical
supplier to our space systems customers.
5
Table of Contents
A subset of our key space system programs is listed below:
|
Primary
|
||||||||
| Program | Customer | End Users | Program Description | Program Status | ||||
|
Orion Crew & Service Modules and Abort System
Propulsion
|
Lockheed Martin/Orbital | NASA | Propulsion systems and engines for human spaceflight system | Development/ Qualification | ||||
|
Atlas V
|
United Launch Alliance | U.S. Air Force, Commercial | Solid “strap-on” booster motors, upper stage thrusters, and separation motors | Production | ||||
|
Taurus 2
|
Orbital | NASA, Commercial | Provide booster engines for launch vehicle | Qualification/ Production | ||||
|
Geostationary Satellite Systems
|
Lockheed Martin, Loral, Boeing, Orbital, Astrium | Various | Electric and liquid spacecraft thrusters, propellant tanks and bi-propellant apogee engines | Development/Production | ||||
|
Hydrocarbon Booster
|
Air Force Research Laboratory | U.S. Air Force | Liquid booster | Development | ||||
|
Vega Reaction Attitude Control System
|
European Launch Vehicle Joint Venture | Commercial | Attitude Control Thrusters | Development/ Production | ||||
|
Upper Stage Engine Technology
|
U.S. Air Force Research Laboratory | NASA, U.S. Air Force | Design tools for future upper stage liquid engines | Development | ||||
|
Bigelow Sundancer
|
Bigelow Aerospace | Commercial | Integrated propulsion systems and controls | Development/ Production | ||||
|
H-2 Transfer Vehicle
|
Mitsubishi Heavy Industries | Japan Aerospace Exploration Agency | Liquid spacecraft thrusters | Production | ||||
|
Advanced Extremely High Frequency MilSatCom
|
Lockheed Martin | U.S. Air Force | Electric and liquid spacecraft thrusters | Production | ||||
|
Delta II / Delta IV
|
United Launch Alliance | NASA, U.S. Air Force, Commercial | Upper stage pressure-fed liquid rocket engines and upper stage thrusters | Production | ||||
|
Cygnus Resupply Spacecraft
|
Orbital | NASA, Commercial | Provide liquid spacecraft thrusters | Qualification/ Production | ||||
|
LOX Methane Reaction Control Engine
|
NASA | NASA | Ascent main engine | Development | ||||
|
Global Positioning Systems
|
Boeing | U.S. Air Force | Integrated propulsion systems | Development/ Production |
Contract
Types
Under each of its contracts, Aerojet acts either as a prime
contractor, where it sells directly to the end user, or as a
subcontractor, selling its products to other prime contractors.
Research and development contracts are awarded during the
inception stage of a program’s development. Production
contracts provide for the production and delivery of mature
products for operational use. Aerojet’s contracts are
primarily categorized as either “fixed-price” or
“cost-reimbursable.” During fiscal 2010, approximately
50% of our net sales were from fixed-price contracts, 43% from
cost-reimbursable contracts, and 7% from other sales including
commercial contracts and real estate activities.
Fixed-price contracts are typically (i) fixed-price,
(ii) fixed-price-incentive fee, or (iii) fixed-price
level of effort contracts. For fixed-price contracts, Aerojet
performs work for a fixed price and realizes all of the profit
or loss resulting from variations in costs of performance. For
fixed-price-incentive contracts, Aerojet receives increased or
decreased fees or profits based upon actual performance against
established targets or other criteria. For fixed-price level of
effort contracts, Aerojet generally receives a structured fixed
price per labor hour, dependent upon the customer’s labor
hour needs. All fixed-price contracts present the risk of
unreimbursed cost overruns potentially resulting in losses.
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Table of Contents
Cost-reimbursable contracts are typically (i) cost plus
fixed fee, (ii) cost plus incentive fee, or (iii) cost
plus award fee contracts. For cost plus fixed fee contracts,
Aerojet typically receives reimbursement of its costs, to the
extent the costs are allowable under contractual and regulatory
provisions, in addition to receiving a fixed fee. For cost plus
incentive fee contracts and cost plus award fee contracts,
Aerojet receives adjustments to the contract fee, within
designated limits, based on actual results as compared to
contractual targets for factors such as cost, performance,
quality, and schedule.
Many programs under contract have product life cycles exceeding
10 years, such as the Standard Missile, TOW, and Tomahawk
programs. It is typical for U.S. government propulsion
contracts to be relatively small during development phases that
can last from two to five years, followed by low-rate and then
full-rate production, where annual funding can grow as high as
approximately $30 million to $60 million per year over
many years.
Government
Contracts and Regulations
U.S. government contracts generally are subject to Federal
Acquisition Regulations (“FAR”), agency-specific
regulations that supplement FAR, such as the DoD’s Defense
Federal Acquisition Regulations (“DFAR”) and other
applicable laws and regulations. These regulations impose a
broad range of requirements, many of which are unique to
government contracting, including various procurement, import
and export, security, contract pricing and cost, contract
termination and adjustment, and audit requirements. A
contractor’s failure to comply with these regulations and
requirements could result in reductions of the value of
contracts, contract modifications or termination, inability to
bill and collect receivables from customers, and the assessment
of penalties and fines and could lead to suspension or debarment
from government contracting or subcontracting for a period of
time. In addition, government contractors are also subject to
routine audits and investigations by U.S. government
agencies such as the Defense Contract Audit Agency
(“DCAA”). These agencies review a contractor’s
performance, cost structure, and compliance with applicable
laws, regulations, and standards. The DCAA also reviews the
adequacy of, and a contractor’s compliance with, its
internal control systems and policies, including the
contractor’s purchasing, property, estimating,
compensation, and information systems.
Additionally, our contracts typically permit the
U.S. government to unilaterally modify or terminate a
contract or to discontinue funding for a particular program at
any time. The cancellation of one or more significant contracts
and/or
programs could have a material adverse effect on our ability to
realize anticipated sales and profits. The cancellation of a
contract, if terminated for cause, could also subject us to
liability for the excess costs incurred by the
U.S. government in procuring undelivered items from another
source. If terminated for convenience, our recovery of costs
would be limited to amounts already incurred or committed, and
our profit would be limited to work completed prior to
termination.
Backlog
A summary of our backlog is as follows:
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Funded backlog
|
$ | 804.4 | $ | 811.2 | ||||
|
Unfunded backlog
|
572.9 | 379.6 | ||||||
|
Total contract backlog
|
$ | 1,377.3 | $ | 1,190.8 | ||||
Total backlog includes both funded backlog (the amount for which
money has been directly appropriated by the U.S. Congress,
or for which a purchase order has been received from a
commercial customer) and unfunded backlog (firm orders for which
funding has not been appropriated). Indefinite delivery and
quantity contracts and unexercised options are not reported in
total backlog. Backlog is subject to funding delays or program
restructurings/cancellations which are beyond our control. Of
our November 30, 2010 total contract backlog, approximately
42% is expected to be filled within one year.
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Research
and Development
We view research and development efforts as critical to
maintaining our leadership position in markets in which we
compete. We maintain an active research and development effort
supported primarily by customer funding. We believe that some
customer-funded research and development expenditures that are
subject to contract specifications may become key programs in
the future. We believe customer-funded research and development
activities are vital to our ability to compete for contracts and
to enhance our technology base.
Aerojet’s company-funded research and development efforts
include expenditures for technical activities that are vital to
the development of new products, services, processes or
techniques, as well as those expenses for significant
improvements to existing products or processes.
The following table summarizes Aerojet’s research and
development expenditures during the past three fiscal years:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Customer-funded
|
$ | 284 | $ | 245 | $ | 252 | ||||||
|
Company-funded
|
17 | 15 | 11 | |||||||||
|
Total research and development expenditures
|
$ | 301 | $ | 260 | $ | 263 | ||||||
Suppliers,
Raw Materials and Seasonality
The national aerospace supply base continues to consolidate due
to economic, environmental, and marketplace circumstances beyond
Aerojet’s control. The loss of key qualified suppliers of
technologies, components, and materials can cause significant
disruption to Aerojet program performance and cost.
Availability of raw materials and supplies to Aerojet has been
generally sufficient. Aerojet is sometimes dependent, for a
variety of reasons, upon sole-source or flight qualified
suppliers and has in some instances in the past experienced
difficulties meeting production and delivery obligations because
of delays in delivery or reliance on such suppliers. We closely
monitor sources of supply to ensure adequate raw materials and
other supplies needed in our manufacturing processes are
available. As a U.S. government contractor, we are
frequently limited to procuring materials and components from
sources of supply that meet rigorous customer
and/or
government specifications or socio-economic criteria. In
addition, as business conditions, DoD budgets, and Congressional
allocations change, suppliers of specialty chemicals and
materials sometimes consider dropping low-volume items from
their product lines. This may require us to qualify new
suppliers for raw materials on key programs. To date, Aerojet
has been successful in mitigating any impacts that could occur
through requalifying replacement materials and suppliers. We
continue to monitor this situation carefully and in our
engineering processes, where we have the opportunity, we are
defining materials that are known to be more sustainable and
hence, less prone to obsolescence or disruption.
We are also impacted, as is the rest of the industry, by
increases in the prices and lead-times of raw materials used in
production on various contracts. Prices and lead times for
certain commodity metals, alloy steels, titanium and some
aluminum grades have become more competitive due to available
production capacity world-wide. Unfortunately, prices and lead
times for some chemicals used in solid rocket motor propellants
have seen significant increases in recent years. These are
highly specialized chemicals such as ammonium perchlorate and
LX-14, for example. Where possible, Aerojet has protective price
re-determinable language incorporated into contracts with its
customers. Additionally, we have been able to mitigate some of
these impacts through the establishment of long term volume
agreements that provide for a steady throughput with a
corresponding price benefit to Aerojet. In addition, where
appropriate, we work closely with suppliers to schedule
purchases far enough in advance and in the most economical means
possible to minimize negative program impact.
Aerojet’s business is not subject to predictable
seasonality. Primary factors affecting the timing of
Aerojet’s sales include the timing of government awards,
the availability of U.S. government funding, contractual
product delivery requirements, customer acceptances, and
regulatory issues.
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Intellectual
Property
Where appropriate, Aerojet obtains patents in the U.S. and
other countries covering various aspects of the design and
manufacture of its products. We consider these patents to be
important to Aerojet as they illustrate Aerojet’s
innovative design ability and product development capabilities.
We do not believe the loss or expiration of any single patent
would have a material adverse effect on the business or
financial results of Aerojet or on our business as a whole.
Real
Estate
We own approximately 12,200 acres of land in the Sacramento
metropolitan area which we refer to as the Sacramento Land.
Acquired in the early 1950s for our aerospace and defense
operations, there are large portions used solely to provide safe
buffer zones. Modern changes in propulsion technology coupled
with the relocation of certain of our propulsion operations led
us to determine large portions of the Sacramento Land were no
longer needed for operations in Sacramento. Consequently, our
plan has been to reposition this excess Sacramento Land to
optimize its value.
Approximately 6,000 acres have been deemed excess, and we
are in the process of entitling the excess land for new
development opportunities under the brand name Easton.
Within Easton, we currently have approximately 1,450 acres
entitled, and are seeking entitlements on an additional
4,600 acres. Easton is located 15 miles east of
downtown Sacramento, California along U.S. Highway 50, a
key growth corridor in the region. We believe Easton has several
competitive advantages over other areas, including several miles
of freeway accessible frontage, one of the largest single-owner
land tracts suitable for development in the Sacramento region,
and desirable “in-fill” location surrounded by
residential and business properties. The master plan reflects
our efforts to make Easton one of the finest master-planned
communities in the U.S. Easton will include a broad range
of housing, office, industrial, retail, and recreational uses.
The broad range of land uses will ensure long-term value
enhancement of our excess land.
In 2009, we formed a wholly-owned subsidiary, Easton Development
Company, LLC, to continue to execute entitlement and
pre-development activities, and to explore how to maximize value
from Easton. Value enhancement may include outright sales,
and/or
joint
ventures with real estate developers, residential builders,
and/or
other
third parties. Those parcels of land that have obtained the
necessary entitlements for development or are otherwise suitable
for sale were transferred to this new subsidiary. Additional
land may be transferred in the future as these or other
requirements are achieved.
The housing market in the Sacramento region continued to
struggle in 2010. However, we believe that this downturn does
not change the long-term prospects for the Sacramento region,
which we believe still remains an attractive and affordable
alternative to the San Francisco Bay Area and other large
metropolitan areas of California. We believe the Sacramento area
demographic and real estate market supports our objective of
creating value through new entitlements and the creation of
Easton.
The Sacramento Land, including Easton, is summarized below (in
acres):
|
Environmentally
|
Environmentally
|
|||||||||||||||
|
Easton Projects
|
Unrestricted | Restricted(1) | Total | Entitled(2) | ||||||||||||
|
Glenborough and Easton Place
|
1,043 | 349 | 1,392 | 1,392 | ||||||||||||
|
Rio del Oro
|
1,818 | 491 | 2,309 | — | ||||||||||||
|
Westborough
|
1,387 | 272 | 1,659 | — | ||||||||||||
|
Hillsborough
|
532 | 97 | 629 | — | ||||||||||||
|
Office Park and Auto Mall
|
47 | 8 | 55 | 55 | ||||||||||||
|
Total Easton acreage
|
4,827 | 1,217 | 6,044 | 1,447 | ||||||||||||
|
Operations land(3)
|
24 | 5,179 | 5,203 | |||||||||||||
|
Land available for future entitlement(4)
|
676 | 242 | 918 | |||||||||||||
|
Total Sacramento Land
|
5,527 | 6,638 | 12,165 | |||||||||||||
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| (1) | The environmentally restricted acreage described above is subject to restrictions imposed by state and/or federal regulatory agencies because of our historical propulsion system testing and manufacturing activities. We are actively working with the various regulatory agencies to have the restrictions removed as early as practicable, and the solutions to use these lands within Easton have been accounted for in the various land use plans and granted entitlements. See Note 7(c) in Notes to Consolidated Financial Statements for a discussion of the federal and/or state environmental restrictions affecting portions of the Sacramento Land. | |
| (2) | The term “entitled” is generally used to denote the set of local regulatory approvals required to allow land to be zoned for requested uses. Required regulatory approvals vary with each land zoning proposal and may include permits, general plan amendments, land use master plans, zoning designations, state and federal environmental documentation, and other regulatory approvals unique to the land. The entitlement and development process in California is long and uncertain with approvals required from various authorities, including local jurisdictions, and in select projects, permits required by federal agencies such as the U.S. Army Corps of Engineers and the U.S. Department of Interior, Fish and Wildlife Service (“USFWS”) prior to construction. | |
| (3) | We believe that the operations land is more than adequate for our long-term needs. As we reassess needs in the future, portions of this land may become available for entitlement. | |
| (4) | We believe it will be several years before any of this excess Sacramento Land is available for future change in entitlement. Some of this excess land is outside the current Urban Services Boundary established by the County of Sacramento and all of it is far from existing infrastructure, making it uneconomical to pursue entitlement for this land at this time. |
Leasing &
Other Real Estate
We currently lease approximately 310,000 square feet of
office space in Sacramento to various third parties. These
leasing activities generated $6.8 million in revenue in
fiscal 2010.
We own approximately 580 acres of land in Chino Hills,
California. This property was used for the manufacture and
testing of ordnance. With the sale of our ordnance business in
the mid-1990s, we closed this facility and commenced
clean-up
of
the site. We continue to work with state regulators and the City
of Chino Hills to complete those efforts. Once the remediation
is complete, we will work to maximize the value of the property.
Employees
As of November 30, 2010, 12% of our 3,135 employees
were covered by collective bargaining agreements, which are due
to expire in fiscal 2011. We believe that our relations with our
employees are good.
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| Item 1A. | Risk Factors |
If our
operating subsidiaries do not generate sufficient cash flow or
if they are not able to pay dividends or otherwise distribute
their cash to us, or if we have insufficient funds on hand, we
may not be able to service our debt.
All of the operations of our Aerospace and Defense and Real
Estate segments are conducted through subsidiaries.
Consequently, our cash flow and ability to service our debt
obligations will be largely dependent upon the earnings and cash
flows of our operating subsidiaries and the distribution of
those earnings to us, or upon loans, advances or other payments
made by these subsidiaries to us. The ability of our
subsidiaries to pay dividends or make other payments or advances
to us will depend upon their operating results and cash flows
and will be subject to applicable laws and any contractual
restrictions contained in the agreements governing their debt,
if any.
The
cancellation or material modification of one or more significant
contracts could adversely affect our financial
results.
Sales, directly and indirectly, to the U.S. government and
its agencies accounted for approximately 92% of our total net
sales in fiscal 2010. Our contracts typically permit the
U.S. government to unilaterally modify or terminate a
contract or to discontinue funding for a particular program at
any time. The cancellation of one or more significant contracts
and/or
programs could have a material adverse effect on our ability to
realize anticipated sales and profits. The cancellation of a
contract, if terminated for cause, could also subject us to
liability for the excess costs incurred by the
U.S. government in procuring undelivered items from another
source. If terminated for convenience, our recovery of costs
would be limited to amounts already incurred or committed, and
our profit would be limited to work completed prior to
termination.
Future
reductions or changes in U.S. government spending could
adversely affect our financial results.
Our primary aerospace and defense customers include the DoD, and
its agencies, the government prime contractors that supply
products to these customers, and NASA. As a result, we rely on
particular levels of U.S. government spending on propulsion
systems for defense and space applications and armament systems
for precision tactical weapon systems and munitions
applications, and our backlog depends, in a large part, on
continued funding by the U.S. government for the programs
in which we are involved. These spending levels are not
generally correlated with any specific economic cycle, but
rather follow the cycle of general political support for this
type of spending. Moreover, although our contracts often
contemplate that our services will be performed over a period of
several years, Congress usually must approve funds for a given
program each government fiscal year and may significantly reduce
or eliminate funding for a program. A decrease in DoD
and/or
NASA
expenditures, the elimination or curtailment of a material
program in which we are involved, or changes in payment patterns
of our customers as a result of changes in U.S. government
spending, could have a material adverse effect on our operating
results, financial condition,
and/or
cash
flows.
Our
business could be adversely affected by a negative audit by the
U.S. government.
U.S. government agencies, including the DCAA and various
agency Inspectors General, routinely audit and investigate
government contractors. These agencies review a
contractor’s performance under its contracts, cost
structure, and compliance with applicable laws, regulations, and
standards. The U.S. government also reviews the adequacy
of, and a contractor’s compliance with, its internal
control systems and policies, including the contractor’s
management, purchasing, property, estimating, compensation,
accounting, and information systems. Any costs found to be
misclassified may be subject to repayment. If an audit or
investigation uncovers improper or illegal activities, we may be
subject to civil or criminal penalties and administrative
sanctions, including termination of contracts, forfeiture of
profits, suspension of payments, fines, and suspension or
prohibition from doing business with the U.S. government.
In addition, we could suffer serious reputational harm if
allegations of impropriety were made against us.
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If we
experience cost overruns on our contracts, we would have to
absorb the excess costs which could adversely affect our
financial results and our ability to win new
contracts.
In fiscal 2010, approximately 50% of our net sales was from
fixed-price contracts. Under fixed-price contracts, we agree to
perform specified work for a fixed price and realize all of the
profit or loss resulting from variations in the costs of
performing the contract. As a result, all fixed-price contracts
involve the inherent risk of unreimbursed cost overruns. To the
extent we were to incur unanticipated cost overruns on a program
or platform subject to a fixed-price contract, our profitability
would be adversely affected. Future profitability is subject to
risks including the ability of suppliers to deliver components
of acceptable quality on schedule and the successful
implementation of automated tooling in production processes.
In fiscal 2010, approximately 43% of our net sales was from cost
reimbursable contracts. Under cost reimbursable contracts, we
agree to be reimbursed for allowable costs and be paid a fee. If
our costs are in excess of the final target cost, fees may be
adversely affected. If our costs exceed authorized contract
funding or they do not qualify as allowable costs under
applicable regulations, we will not be reimbursed for those
costs. Cost overruns may adversely affect our financial
performance and our ability to win new contracts.
If our
subcontractors or suppliers fail to perform their contractual
obligations, our contract performance and our ability to win new
contracts may be adversely affected.
We rely on subcontractors to perform a portion of the services
we agree to provide our customers and on suppliers to provide
raw materials and component parts for our contract performance.
A failure by one or more of our subcontractors or suppliers to
satisfactorily provide on a timely basis the
agreed-upon
services or supplies may affect our ability to perform our
contractual obligations. Deficiencies in the performance of our
subcontractors and suppliers could result in our customer
terminating our contract for default. A termination for default
could expose us to liability and adversely affect our financial
performance and our ability to win new contracts.
Our
success and growth in our Aerospace and Defense segment depends
on our ability to secure contracts.
We encounter intense competition in bidding for contracts. Many
of our competitors have financial, technical, production, and
other resources substantially greater than ours. Although the
downsizing of the defense industry in the early 1990s resulted
in a reduction in the aggregate number of competitors, the
consolidation has also strengthened the capabilities of some of
the remaining competitors resulting in an increasingly
competitive environment. The U.S. government also has its
own manufacturing capabilities in some areas. We may be unable
to compete successfully with our competitors and our inability
to do so could result in a decrease in sales, profits, and cash
flows that we historically have generated from certain
contracts. Further, the U.S. government may open to
competition programs on which we are currently the sole
supplier, which could have a material adverse effect on our
operating results, financial condition,
and/or
cash
flows.
Our
Aerospace and Defense segment is subject to procurement and
other related laws and regulations inherent in contracting with
the U.S. government, non-compliance with which could adversely
affect our financial results.
In the performance of contracts with the U.S. government,
we are subject to complex and extensive procurement and other
related laws and regulations. Possible consequences of a failure
to comply, even inadvertently, with these laws and regulations
include civil and criminal fines and penalties including, in
some cases, double or triple damages, and suspension or
debarment from future government contracts and exporting of
goods for a specified period of time.
These laws and regulations provide for ongoing audits and
reviews of incurred costs as well as contract procurement,
performance and administration. The U.S. government may, if
it deems appropriate, conduct an investigation into possible
illegal or unethical activity in connection with these
contracts. Investigations of this nature are common in the
aerospace and defense industry, and lawsuits may result. In
addition, the U.S. government and its principal prime
contractors periodically investigate the financial viability of
its contractors and subcontractors as part of its risk
assessment process associated with the award of new contracts.
If the U.S. government or
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one or more prime contractors were to determine that we were not
financially viable, our ability to continue to act as a
government contractor or subcontractor would be impaired.
We may
expand our operations through acquisitions, which may divert
management’s attention and expose us to unanticipated
liabilities and costs. Also, acquisitions will likely increase
our non-reimbursable interest costs. We may experience
difficulties integrating any acquired operations, and we may
incur costs relating to acquisitions that are never
consummated.
Our business strategy may lead us to expand our Aerospace and
Defense segment through acquisitions. However, our ability to
consummate any future acquisitions on terms that are favorable
to us may be limited by government regulations, the number of
attractive acquisition targets, internal demands on our
resources, and our ability to obtain financing. Our success in
integrating newly acquired businesses will depend upon our
ability to retain key personnel, avoid diversion of
management’s attention from operational matters, integrate
general and administrative services and key information
processing systems and, where necessary, re-qualify our customer
programs. In addition, future acquisitions could result in the
incurrence of additional debt, costs, and contingent
liabilities. We may also incur costs and divert management
attention to acquisitions that are never consummated.
Integration of acquired operations may take longer, or be more
costly or disruptive to our business, than originally
anticipated.
Although we undertake a due diligence investigation of each
business that we have acquired or may acquire, there may be
liabilities of the acquired companies that we fail to, or are
unable to, discover during the due diligence investigation and
for which we, as a successor owner, may be responsible. In
connection with acquisitions, we generally seek to minimize the
impact of these types of potential liabilities through
indemnities and warranties from the seller. However, these
indemnities and warranties, if obtained, may not fully cover the
liabilities due to limitations in scope, amount or duration,
financial limitations of the indemnitor or warrantor, or other
reasons.
Our
inability to adapt to rapid technological changes could impair
our ability to remain competitive.
The aerospace and defense industry continues to undergo rapid
and significant technological development. Our competitors may
implement new technologies before us, allowing them to provide
more effective products at more competitive prices. Future
technological developments could:
| • | adversely impact our competitive position if we are unable to react to these developments in a timely or efficient manner; | |
| • | require us to write-down obsolete facilities, equipment, and technology; | |
| • | require us to discontinue production of obsolete products before we can recover any or all of our related research, development and commercialization expenses; or | |
| • | require significant capital expenditures for research, development, and launch of new products or processes. |
Our
business and operations would be adversely impacted in the event
of a failure of our information technology
infrastructure.
We rely upon the capacity, reliability and security of our
information technology hardware and software infrastructure and
our ability to expand and update this infrastructure in response
to our changing needs. We are constantly updating our
information technology infrastructure. Any failure to manage,
expand and update our information technology infrastructure or
any failure in the operation of this infrastructure could harm
our business.
Despite our implementation of security measures, our systems are
vulnerable to damages from computer viruses, natural disasters,
unauthorized access and other similar disruptions. Any system
failure, accident or security breach could result in disruptions
to our operations. To the extent that any disruptions or
security breach results in a loss or damage to our data, or in
inappropriate disclosure of confidential information, it could
harm our business. In addition, we may be required to incur
significant costs to protect against damage caused by these
disruptions or security breaches in the future.
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We may
experience warranty claims for product failures, schedule delays
or other problems with existing or new products and
systems.
Many of the products we develop and manufacture are
technologically advanced systems that must function under
demanding operating conditions. Even though we believe that we
employ sophisticated and rigorous design, manufacturing and
testing processes and practices, we may not be able to
successfully launch or manufacture our products on schedule or
our products may not perform as intended.
If our products fail to perform adequately, some of our
contracts require us to forfeit a portion of our expected
profit, receive reduced payments, provide a replacement product
or service or reduce the price of subsequent sales to the same
customer. Performance penalties may also be imposed if we fail
to meet delivery schedules or other measures of contract
performance. We do not generally insure against potential costs
resulting from any required remedial actions or costs or loss of
sales due to postponement or cancellation of scheduled
operations or product deliveries.
The
release or explosion of dangerous materials used in our business
could disrupt our operations and could adversely affect our
financial results.
Our business operations involve the handling and production of
potentially explosive materials and other dangerous chemicals,
including materials used in rocket propulsion and explosive
devices. Despite our use of specialized facilities to handle
dangerous materials and intensive employee training programs,
the handling and production of hazardous materials could result
in incidents that temporarily shut down or otherwise disrupt our
manufacturing operations and could cause production delays. It
is possible that a release of these chemicals or an explosion
could result in death or significant injuries to employees and
others. Material property damage to us and third parties could
also occur. The use of these products in applications by our
customers could also result in liability if an explosion or fire
were to occur. Any release or explosion could expose us to
adverse publicity or liability for damages or cause production
delays, any of which could have a material adverse effect on our
operating results, financial condition,
and/or
cash
flows.
Disruptions
in the supply of key raw materials, difficulties in the supplier
qualification process or increases in prices of raw materials
could adversely affect our financial results.
We continue to closely monitor sources of supply to assure that
adequate raw materials and other supplies needed in our
manufacturing processes are available. As a U.S. government
contractor, we are frequently limited to procuring materials and
components from sources of supply that meet rigorous customer
and/or
government specifications. In addition, as business conditions,
DoD budgets, and Congressional allocations change, suppliers of
specialty chemicals and other materials sometimes consider
dropping low-volume items from their product lines, which may
require us to qualify new suppliers for raw materials on key
programs.
Current suppliers of some raw materials used in the
manufacturing of rocket nozzles, composite cases and explosives
have announced plans to relocate, close,
and/or
discontinue certain product lines. These materials are used
industry wide and are key to many of our motor and warhead
programs. We have an obsolescence evaluation process to perform
generic qualifications on alternative or substitute materials.
To date we have been successful in establishing replacement
materials capabilities and having funding provided to address
specific qualification needs of the programs. In some
situations, increased costs related to new suppliers may not be
recoverable under any existing negotiated contracts. In
addition, some of these materials may have to be procured from
offshore suppliers.
The supply of ammonium perchlorate, a principal raw material
used in solid propellant, is limited to a single source that
supplies the entire domestic solid propellant industry with
actual pricing based on the total industry demand. With the
close out of the Space Shuttle Program, further reductions in
the total national demand have occurred, resulting in
significant unit price increases and further risk to
availability We have access to offshore ammonium perchlorate but
potentially would lose our sole domestic source of supply. We
have been working with government and industry industrial base
organizations to monitor this situation and seek solutions.
The industry also currently relies on one primary supplier for
high strength carbon fiber, which is used in the production of
composite materials. This supplier has multiple manufacturing
lines for such material. Although
14
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other sources of carbon fiber exist, the addition of a new
supplier would require us to qualify the new source for use. The
Japanese government has imposed export restrictions on materials
that are to be used in offensive weapons systems, which has
increased the lead times associated with the product as its
export has to be approved by the Japanese Defense Ministry. To
address this issue, we are currently evaluating the use of
domestically produced high strength carbon fiber on a program.
If successful, this would eliminate some of the risk that occurs
due to offshore issues.
We are also impacted, as is the rest of the industry, by
fluctuations in the prices and lead-times of raw materials used
in production on various fixed-price contracts. We continue to
experience volatility in the price and lead-times of certain
commodity metals, primarily steel and aluminum. The schedules
and pricing of titanium mill products have reduced recently but
remain well above historical levels. Additionally, we may not be
able to continue to negotiate with our customers economic
and/or
price
adjustment clauses tied to commodity indices to reduce program
impact. The DoD continues to rigorously enforce the provisions
of the “Berry Amendment” (DFARS
225-7002,
252.225-7014) which imposes a requirement to procure certain
strategic materials critical to national security only from
U.S. sources. While availability has not been a significant
issue, cost remains a concern as this industry continues to
quote “price in effect” at time of shipment terms
increasing the cost risk to our programs.
Prolonged disruptions in the supply of any of our key raw
materials, difficulty qualifying new sources of supply,
implementing use of replacement materials or new sources of
supply,
and/or
a
continuing volatility in the prices of raw materials could have
a material adverse effect on our operating results, financial
condition,
and/or
cash
flows.
Our
pension plan is currently underfunded and we expect to be
required to make cash contributions, which may reduce the cash
available for our businesses.
As of November 30, 2010, our defined benefit pension plan
assets and projected benefit obligations were approximately
$1.4 billion and $1.6 billion, respectively. The
Pension Protection Act (the “PPA”) requires
underfunded pension plans to improve their funding ratios within
prescribed intervals based on the funded status of the plan as
of specified measurement dates. The funded ratio as of
November 30, 2009 under the PPA for our tax-qualified
defined benefit pension plan was 95.6% which was above the 94.0%
ratio required under the PPA. The required ratio to be met as of
the November 30, 2010 measurement date is 96%. The final
calculated PPA funded ratio as of November 30, 2010 is
expected to be completed in the second half of 2011. In general,
the PPA requires companies with underfunded plans to make up the
shortfall over a seven (7) year period. These values are
based on assumptions specified by the Internal Revenue Service,
and are typically not the same as the amounts used for corporate
financial reporting. Companies may prepay contributions, and use
those prepayments to offset otherwise required contributions in
future years. We have accumulated such prepayments, and are
permitted to use these prepayments to meet minimum funding
requirements. For fiscal 2011, we are not expecting to make a
cash contribution to our pension plan.
On June 25, 2010, the President signed the Preservation of
Access to Care for Medicare Beneficiaries and Pension Relief Act
of 2010 (“Pension Relief Act”) into law. The Pension
Relief Act will allow pension plan sponsors to extend the
shortfall amortization period from the seven years required
under the PPA to either nine years (with interest-only payments
for the first two years) or fifteen years for shortfall
amortization bases created during the years for which relief is
elected. This election could be made for any two plan years
during the period 2008 to 2011.
The funded status of the pension plan may be adversely affected
by the investment experience of the plan’s assets, by any
changes in U.S. law and by changes in the statutory
interest rates used by “tax-qualified” pension plans
in the U.S. to calculate funding requirements. Accordingly,
if the performance of our plan’s assets does not meet our
assumptions, if there are changes to the Internal Revenue
Service regulations or other applicable law or if other
actuarial assumptions are modified, our future contributions to
our underfunded pension plan could be higher than we expect. In
addition, changes to the discount rate used to measure pension
liabilities could adversely affect the funded status of the
plan. Significant cash contribution requirements to our pension
plan may adversely affect our ability to meet certain covenants
for our Senior Credit Facility which, absent an amendment or
refinancing,
15
Table of Contents
would result in a default under our Senior Credit Facility and
in certain cases, would cause cross defaults on other debt
instruments.
The
level of returns on retirement benefit plan assets, changes in
interest rates, changes in legislation, and other factors
affects our financial results.
Our earnings are positively or negatively impacted by the amount
of expense or income we record for our employee retirement
benefit plans. We calculate the expense for the plans based on
actuarial valuations. These valuations are based on assumptions
that we make relating to financial market and other economic
conditions. Changes in key economic indicators result in changes
in the assumptions we use. The key assumptions used to estimate
retirement benefit plan expense for the following year are the
discount rate and expected long-term rate of return on plan
assets. Our pension expense or income can also be affected by
legislation and other government regulatory actions.
Our
operations and properties are currently the subject of
significant environmental liabilities, and the numerous
environmental and other government requirements to which we are
subject may become more stringent in the future.
We are subject to federal, state and local laws and regulations
that, among other things, require us to obtain permits to
operate and install pollution control equipment and regulate the
generation, storage, handling, transportation, treatment, and
disposal of hazardous and solid wastes. These requirements may
become more stringent in the future. We may also be subject to
fines and penalties relating to the operation of our existing
and formerly owned businesses. We are subject to toxic tort and
asbestos lawsuits as well as other third-party lawsuits, due to
either our past or present use of hazardous substances or the
alleged
on-site
or
off-site contamination of the environment through past or
present operations. We may incur material costs in defending
these claims and lawsuits and any similar claims and lawsuits
that may arise in the future. Contamination at our major current
and former properties is subject to investigation and
remediation requirements under federal, state and local laws and
regulations, and the full extent of the required remediation has
not yet been determined. Any adverse judgment or cash outlay
could have a significant adverse effect on our operating
results, financial condition,
and/or
cash
flows.
Although
some of our environmental costs may be recoverable and we have
established reserves, given the many uncertainties involved in
assessing liability for environmental claims, our reserves may
not be sufficient, which could adversely affect our financial
results.
As of November 30, 2010, the aggregate range of our
environmental costs was $217.7 million to
$379.9 million and the accrued amount was
$217.7 million, of which $206.0 million relates to
Aerojet sites and $11.7 million relates to non-Aerojet
sites. We believe the accrued amount for future remediation
costs represents the costs that could be incurred by us over the
contractual term, if any, or the next fifteen years of the
estimated remediation, to the extent they are probable and
reasonably estimable. However, in many cases the nature and
extent of the required remediation has not yet been determined.
Given the many uncertainties involved in assessing liability for
environmental claims, our reserves may prove to be insufficient.
We evaluate the adequacy of those reserves on a quarterly basis,
and they could change. In addition, the reserves are based only
on known sites and the known contamination at those sites. It is
possible that additional sites needing remediation may be
identified or that unknown contamination at previously
identified sites may be discovered. It is also possible that the
regulatory agencies may change
clean-up
standards for chemicals of concern such as ammonium perchlorate
and trichloroethylene. This could lead to additional
expenditures for environmental remediation in the future and,
given the uncertainties involved in assessing liability for
environmental claims, our reserves may prove to be insufficient.
Under an agreement with the U.S. government, our
environmental expenses related to our Aerojet Sacramento and
former Azusa sites are allowable for reimbursement through our
government contracts up to 88% of environmental expenses (the
“Global Settlement”). Environmental expenses at other
Aerojet sites are eligible for reimbursement and treated under
the normal rules of cost allowability. Aerojet’s mix of
contracts can affect the actual reimbursement made by the
U.S. government. Because these costs are recovered through
forward pricing arrangements, our ability to continue recovering
these costs from the U.S. government depends on
Aerojet’s sustained business volume under
U.S. government contracts and programs and the relative
size of Aerojet’s
16
Table of Contents
commercial business. Additionally, in conjunction with the sale
of the Electronics and Information Systems business in 2001,
Aerojet entered into an agreement with Northrop (“Northrop
Agreement”) whereby Aerojet is reimbursed by Northrop for a
portion of environmental expenditures eligible for recovery
under the Global Settlement subject to annual and cumulative
limitations. We reached the cumulative limitation under the
Northrop Agreement during the third quarter of fiscal 2010.
While we are currently seeking an arrangement with the
U.S. government to recover environmental expenditures in
excess of the reimbursement ceiling identified in the Northrop
Agreement, there can be no assurances that such a recovery will
be obtained, or if not obtained, that such unreimbursed
environmental expenditures will not have a materially adverse
effect on our operating results, financial condition,
and/or
cash
flows.
Our environmental expenses related to non-Aerojet sites are
generally not recoverable and a significant increase in these
estimated environmental expenses could have a significant
adverse effect on our operating results, financial condition,
and/or
cash
flows.
We are from time to time subject to significant
litigation, the outcome of which could adversely affect our
financial results.
We and our subsidiaries are subject to material litigation. We
may be unsuccessful in defending or pursuing these lawsuits or
claims. Regardless of the outcome, litigation can be very costly
and can divert management’s efforts. Adverse outcomes in
litigation, including toxic tort claims pending against Aerojet,
product liability claims by former customers of our GDX
Automotive business and the appeals of the unfair labor claims
brought by former employees of our Snappon SA subsidiary in
France, could have a significant adverse effect on our operating
results, financial condition,
and/or
cash
flows.
We
face certain significant risk exposures and potential
liabilities that may not be adequately covered by indemnity or
insurance.
A significant portion of our business relates to developing and
manufacturing propulsion systems for defense and space
applications, armament systems for precision tactical weapon
systems and munitions applications. New technologies may be
untested or unproven. In addition, we may incur significant
liabilities that are unique to our products and services. In
some, but not all, circumstances, we may receive indemnification
from the U.S. government. While we maintain insurance for
certain risks, the amount of our insurance coverage may not be
adequate to cover all claims or liabilities, and it is not
possible to obtain insurance to protect against all operational
risks and liabilities. Accordingly, we may be forced to bear
substantial costs resulting from risks and uncertainties of our
business, which could have a material adverse effect on our
operating results, financial condition,
and/or
cash
flows.
We
have a substantial amount of debt. Our ability to operate and
our financial flexibility is limited by the agreements governing
our debt.
We have a substantial amount of debt for which we are required
to make interest and principal payments. Interest on long-term
financing is not a recoverable cost under our
U.S. government contracts. As of November 30, 2010, we
had $392.7 million of debt. Subject to the limits contained
in some of the agreements governing our outstanding debt, we may
incur additional debt in the future.
Our level of debt places significant demands on our cash
resources, which could:
| • | make it more difficult to satisfy our outstanding debt obligations; | |
| • | require us to dedicate a substantial portion of our cash for payments related to our debt, reducing the amount of cash flow available for working capital, capital expenditures, entitlement of our real estate assets, and other general corporate purposes; | |
| • | limit our flexibility in planning for, or reacting to, changes in the industries in which we compete; | |
| • | place us at a competitive disadvantage with respect to our competitors, some of which have lower debt service obligations and greater financial resources than we do; | |
| • | limit our ability to borrow additional funds; |
17
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| • | limit our ability expand our operations through acquisitions; and | |
| • | increase our vulnerability to general adverse economic and industry conditions. |
If we are unable to generate sufficient cash flow to service our
debt and fund our operating costs, our liquidity may be
adversely affected.
We are
obligated to comply with financial and other covenants outlined
in our debt indentures and agreements that could restrict our
operating activities. A failure to comply could result in a
default under our Senior Credit Facility which would, if not
waived by the lenders which likely would come with substantial
cost, accelerate the payment of our debt. A payment default
under the Senior Credit Facility could result in cross defaults
on our
9
1
/
2
% Senior
Subordinated Notes
(“9
1
/
2
% Notes”),
2
1
/
4
% Convertible
Subordinated Debentures
(“2
1
/
4
% Debentures”),
and 4.0625% Convertible Subordinated Debentures
(“4
1
/
16
% Debentures”).
Our debt instruments generally contain various restrictive
covenants which include, among others, provisions restricting
our ability to:
| • | access the full amount of our revolving credit facility and/or incur additional debt; | |
| • | enter into certain leases; | |
| • | make certain distributions, investments, and other restricted payments; | |
| • | cause our restricted subsidiaries to make payments to us; | |
| • | enter into transactions with affiliates; | |
| • | create certain liens; | |
| • | purchase assets or businesses; | |
| • | sell assets and, if sold, retain excess cash flow from these sales; | |
| • | retain excess cash flow from operations; and | |
| • | consolidate, merge or sell all or substantially all of our assets. |
Our secured debt also contains other customary covenants,
including, among others, provisions:
| • | relating to the maintenance of the property collateralizing the debt; and | |
| • | restricting our ability to pledge assets or create other liens. |
In addition, certain covenants in our bank facility require that
we maintain certain financial ratios.
Based on our existing debt agreements, we were in compliance
with our financial and non-financial covenants as of
November 30, 2010. Any of the covenants described in this
risk factor may restrict our operations and our ability to
pursue potentially advantageous business opportunities. Our
failure to comply with these covenants could also result in an
event of default that, if not cured or waived, could result in
the acceleration of the Senior Credit Facility,
9
1
/
2
% Notes,
2
1
/
4
% Debentures,
and
4
1
/
16
% Debentures.
In addition, our failure to pay principal and interest when due
is a default under the Senior Credit Facility, and in certain
cases, would cause cross defaults on the
9
1
/
2
% Notes,
2
1
/
4
% Debentures,
and
4
1
/
16
% Debentures.
Our indebtedness under the Senior Credit Facility is
collateralized by substantially all of our assets, leaving us
with limited collateral for additional financing.
The
real estate market is inherently risky, which could adversely
affect our financial results.
Our real estate activities involve significant risks, which
could adversely affect our financial results. We are subject to
various risks, including the following:
| • | we may be unable to obtain, or suffer delays in obtaining, necessary re-zoning, land use, building, occupancy, and other required governmental permits and authorizations, which could result in increased costs or our abandonment of these projects; |
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Table of Contents
| • | we may be unable to complete environmental remediation or to have state and federal environmental restrictions on our property lifted, which could cause a delay or abandonment of these projects; | |
| • | we may be unable to obtain sufficient water sources to service our projects, which may prevent us from executing our plans; | |
| • | our real estate activities require significant expenditures and we may not be able to obtain financing on favorable terms, which may render us unable to proceed with our plans; | |
| • | economic and political uncertainties could have an adverse effect on consumer buying habits, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general; | |
| • | our property is subject to federal, state, and local regulations and restrictions that may impose significant limitations on our plans; | |
| • | much of our property is raw land that includes the natural habitats of various endangered or protected wildlife species requiring mitigation; | |
| • | if our land use plans are approved by the appropriate governmental authorities, we may face lawsuits from those who oppose such plans. Such lawsuits and the costs associated with such opposition could be material and have an adverse effect on our ability to sell property or realize income from our projects; and | |
| • | the time frame required for approval of our plans means that we will have to wait years for a significant cash return. |
Substantially
all of our excess real estate, that we are in the process of
entitling for new opportunities, is located in Sacramento
County, California making us vulnerable to changes in economic
and other conditions in that particular market.
As a result of the geographic concentration of our properties,
our long-term real estate performance and the value of our
properties will depend upon conditions in the Sacramento region,
including:
| • | the sustainability and growth of industries located in the Sacramento region; | |
| • | the financial strength and spending of the State of California; | |
| • | local real estate market conditions; | |
| • | changes in neighborhood characteristics; | |
| • | changes in interest rates; and | |
| • | real estate tax rates. |
If unfavorable economic or other conditions occur in the region,
our plans and business strategy could be adversely affected.
We may
incur additional costs related to divestitures, which could
adversely affect our financial results.
In connection with our divestitures of the Fine Chemicals and
GDX Automotive businesses in fiscal 2005 and fiscal 2004,
respectively, we have incurred and may incur additional costs,
including costs related to the closure of a manufacturing
facility in Chartres, France. As part of these and other
divestitures, we have provided customary indemnification to the
purchasers for such matters as claims arising from the operation
of the businesses prior to disposition, including warranty and
income tax matters, and liability to investigate and remediate
certain environmental contamination existing prior to
disposition. These additional costs and the indemnification of
the purchasers of our former businesses may require additional
cash expenditures, which could have a material adverse effect on
our operating results, financial condition,
and/or
cash
flows.
19
Table of Contents
A
strike or other work stoppage, or our inability to renew
collective bargaining agreements on favorable terms, could
adversely affect our financial results.
As of November 30, 2010, 12% of our 3,135 employees
were covered by collective bargaining agreements, which are due
to expire in fiscal 2011. If we are unable to negotiate
acceptable new agreements with the unions, upon expiration of
the existing contracts, we could experience a strike or work
stoppage. Even if we are successful in negotiating new
agreements, the new agreements could call for higher wages or
benefits paid to union members, which would increase our
operating costs and could adversely affect our profitability. If
our unionized workers were to engage in a strike or other work
stoppage, or other non-unionized operations were to become
unionized, we could experience a significant disruption of
operations at our facilities or higher ongoing labor costs. A
strike or other work stoppage in the facilities of any of our
major customers or suppliers could also have similar effects on
us.
In
order to be successful, we must attract and retain key
employees.
Our business has a continuing need to attract large numbers of
skilled personnel, including personnel holding security
clearances, to support the growth of the enterprise and to
replace individuals who have terminated employment due to
retirement or for other reasons. To the extent that the demand
for qualified personnel exceeds supply, we could experience
higher labor, recruiting, or training costs in order to attract
and retain such employees, or could experience difficulties in
performing under our contracts if our needs for such employees
were unmet.
Due to
the nature of our business, our sales levels may fluctuate
causing our quarterly operating results to
fluctuate.
Changes in our operating results from quarter to quarter may
result in volatility in the market price of our common stock.
Our quarterly and annual sales are affected by a variety of
factors that may lead to significant variability in our
operating results. In our Aerospace and Defense segment, sales
earned under long-term contracts are recognized either on a cost
basis, when deliveries are made, or when contractually defined
performance milestones are achieved. The timing of deliveries or
milestones may fluctuate from quarter to quarter. In our Real
Estate segment, sales of property may be made from time to time,
which may result in variability in our operating results and
cash flows.
We use
estimates in accounting for most of our programs. Changes in our
estimates could affect our future financial
results.
Contract accounting requires judgment relative to assessing
risks, estimating contract sales and costs, and making
assumptions for schedule and technical issues. Due to the size
and nature of many of our contracts, the estimation of total
sales and costs at completion is complicated and subject to many
variables. For example, assumptions have to be made regarding
the length of time to complete the contract because costs also
include expected increases in wages and prices for materials.
Similarly, assumptions have to be made regarding the future
impacts of efficiency initiatives and cost reduction efforts.
Incentives or penalties related to performance on contracts are
considered in estimating sales and profit rates, and are
recorded when there is sufficient information for us to assess
anticipated performance. Estimates of award and incentive fees
are also used in estimating sales and profit rates based on
actual and anticipated awards. Because of the significance of
the judgments and estimation processes described above, it is
likely that materially different amounts could be recorded if we
used different assumptions or if the underlying circumstances
were to change. Changes in underlying assumptions,
circumstances, or estimates may adversely affect our future
period operating results, financial condition,
and/or
cash
flows.
New
accounting standards could result in changes to our methods of
quantifying and recording accounting transactions, and could
affect our financial results.
Changes to generally accepted accounting principles in the
United States of America arise from new and revised standards,
interpretations, the potential requirement that
U.S. registrants prepare financial statements in accordance
with International Financial Reporting Standards
(“IFRS”), and other guidance issued by the Financial
Accounting Standards Board (“FASB”), the SEC, and
others. In addition, the U.S. government may issue new or
revised Cost Accounting Standards (“CAS”) or Cost
Principles. The effects of such changes may include
20
Table of Contents
prescribing an accounting method where none had been previously
specified or prescribing a single acceptable method of
accounting from among several acceptable methods that currently
exist. Such changes could result in unanticipated effects on our
operating results, financial condition,
and/or
cash
flows. In addition, should legislation and CAS alignment related
to the PPA not occur, some of our cash contributions required
under the PPA to our defined benefit pension plan may not be
immediately recoverable, which could result in a material
adverse effect on our operating results, financial condition,
and/or
cash
flows. Further, our current Forward Pricing Rates
(“FPRs”) did not yet reflect the full effect of the
PPA requirements at November 30, 2010. The PPA funding
requirements are expected to be incorporated into our FPRs when
the CAS Board revises the applicable standards, as is required
by the PPA.
Failure
to maintain effective internal controls in accordance with the
Sarbanes-Oxley Act of 2002 could negatively impact the market
price of our common stock. Out of period adjustments could
require us to restate or revise previously issued financial
statements.
Effective internal controls are necessary for us to provide
reliable financial reports and to effectively prevent fraud. The
SEC, as directed by Section 404 of the Sarbanes-Oxley Act
of 2002, adopted rules requiring public companies to include a
report by management on the effectiveness of our internal
control over financial reporting in our annual reports on
Form 10-K.
In addition, our independent registered public accounting firm
must report on the effectiveness of the internal control over
financial reporting. Although we review our internal control
over financial reporting in order to ensure compliance with the
Section 404 requirements, if we or our independent
registered public accounting firm is not satisfied with our
internal control over financial reporting or the level at which
these controls are documented, designed, operated or reviewed,
or if our independent registered public accounting firm
interprets the requirements, rules
and/or
regulations differently from our interpretation, then they may
issue a report that is qualified. This could result in an
adverse reaction in the financial marketplace due to a loss of
investor confidence in the reliability of our financial
statements, which ultimately could negatively impact our stock
price.
In addition, we have in the past recorded, and may in the future
record,
“out-of-period”
adjustments to our financial statements. In making such
adjustments we apply the analytical framework of SEC Staff
Accounting Bulletin No. 99, “Materiality”,
(“SAB 99”) to determine whether the effect of any
out-of-period
adjustment to our financial statements is material and whether
such adjustments, individually or in the aggregate, would
require us to restate or revise our financial statements for
previous periods. Under SAB 99, companies are required to
apply quantitative and qualitative factors to determine the
“materiality” of particular adjustments. We recorded
out-of-period
adjustments in the second and third quarter of fiscal 2010
related to our income tax provision and in each instance
determined that such adjustments were not material to the period
in which the error originated or was corrected. In the future we
may identify further
out-of-period
adjustments impacting our interim or annual financial
statements. Depending upon the complete qualitative and
quantitative analysis, this could result in us restating or
revising previously issued financial statements.
| Item 1B. | Unresolved Staff Comments |
None.
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Table of Contents
| Item 2. | Properties |
Significant operating, manufacturing, research, design,
and/or
marketing locations are set forth below.
Facilities
Corporate
Headquarters
GenCorp Inc.
Highway 50 and Aerojet Road
Rancho Cordova, California 95742
Mailing address:
P.O. Box 537012
Sacramento, California
95853-7012
Operating/Manufacturing/Research/Design/Marketing
Locations
|
Aerospace and Defense
Aerojet-General Corporation Sacramento, California |
Design/Manufacturing Facilities:
Camden, Arkansas* Clearfield, Utah* Gainesville, Virginia* Jonesborough, Tennessee** Orange, Virginia Rancho Cordova, California (owned and leased) Redmond, Washington Socorro, New Mexico* Vernon, California* |
Marketing/Sales Offices:
Huntsville, Alabama* Arlington, Virginia* |
||
|
Real Estate
Rancho Cordova, California |
| * | An asterisk next to a facility listed above indicates that it is a leased property. | |
| ** | This facility is owned and operated by Aerojet Ordnance Tennessee, Inc., a wholly-owned subsidiary of Aerojet. |
We believe each of the facilities is adequate for the business
conducted at that facility. The facilities are suitable and
adequate for their intended purpose and taking into account
current and planned future needs. A portion of Aerojet’s
property in California, and its Redmond, Washington and Orange,
Virginia facilities are encumbered by a deed of trust or
mortgage. In addition, we own and lease properties in various
locations for use in the ordinary course of our business.
| Item 3. | Legal Proceedings |
The following information pertains to legal proceedings,
including proceedings relating to environmental matters, which
are discussed in detail in Notes 7(b) and 7(c) in Notes to
Consolidated Financial Statements.
Groundwater
Cases
South
El Monte Operable Unit (“SEMOU”) Related
Cases
In October 2002, Aerojet and approximately 65 other individual
and corporate defendants were served with four civil suits filed
in the U.S. District Court for the Central District of
California that seek recovery of costs allegedly incurred or to
be incurred in response to the contamination present at the
South El Monte Operable Unit of the San Gabriel Valley
Superfund site. The cases served on October 30, 2002 are
denominated as follows:
San Gabriel Valley Water Company v. Aerojet-General
Corporation, et al.
, Case
No. CV-02-6346
ABC (RCx), U.S. District Court, Central District of CA.
San Gabriel Basin Water Quality Authority v.
Aerojet-General Corporation, et al.
, Case
No. CV-02-4565
ABC (RCx), U.S. District Court, Central District of CA.
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Southern California Water Company v. Aerojet-General
Corporation, et al.
, Case
No. CV-02-6340
ABC (RCx), U.S. District Court, Central District of CA.
The City of Monterey Park v. Aerojet-General
Corporation, et al.
, Case
No. CV-02-5909
ABC (RCx), U.S. District Court, Central District of CA.
The cases have been coordinated for ease of administration by
the court. The plaintiffs’ claims against Aerojet are based
upon allegations of discharges from a former site in the El
Monte area. The total cost estimate to implement projects under
a Unilateral Administrative Order (“UAO”) prepared by
the EPA and the water entities is approximately
$90 million. Aerojet investigations do not identify a
credible connection between the contaminants identified by the
plaintiff water entities in the SEMOU and those detected at
Aerojet’s former facility located in El Monte, California,
near the SEMOU (“East Flair Drive site”). Aerojet
filed third-party complaints against several water entities on
the basis that they introduced perchlorate-containing Colorado
River water to the basin. Those water entities have filed
motions to dismiss Aerojet’s complaints. The motions and
discovery have been stayed, pending efforts to resolve the
litigation through mediation. During the period in which the
litigation has been stayed, EPA, the California Department of
Toxic Substances Control (“DTSC”) and the plaintiff
water entities have reached settlements through the mediation
process with various of the parties sued, which have been
brought to the Federal District Court for approval. Certain of
the settlements have been challenged by Aerojet and other
defendants and are not finally resolved.
During fiscal 2010, Aerojet received correspondence from EPA on
behalf of itself, the DTSC and the water entities regarding
settlement. Aerojet participated in mediation with EPA, DTSC and
the water entities to resolve the claims, and reached a
tentative settlement with EPA and DTSC in mid-December 2010
which was accepted by the water entities in January 2011. The
settlement now must be approved by EPA and published for public
comment. Aerojet recorded the impact of the tentative settlement
in the fourth quarter of fiscal 2010. If settlement negotiations
fail, the litigation stay is likely to be lifted and EPA may
refer the matter to the U.S. Department of Justice for
litigation, seeking to hold Aerojet liable for past and future
costs, to recover costs of suit and attorneys’ fees, and as
to any accrued interest, penalties or statutory damages. Should
settlement not be reached, Aerojet intends to vigorously defend
itself. The Company has accrued management’s best estimate
of such contingencies as a component of its environmental
reserves.
Caldwell
In December 2007, Aerojet was named as a defendant in a lawsuit
brought by six individuals who allegedly resided in the vicinity
of Aerojet’s Sacramento facility. The case is entitled
Caldwell et al. v. Aerojet-General Corporation
, Case
No. 34-2000-00884000CU-TT-GDS,
Sacramento County (CA) Superior Court and the complaint was
served on April 3, 2008. Plaintiffs allege that Aerojet
contaminated groundwater to which plaintiffs were exposed and
which caused plaintiffs illness and economic injury. Plaintiffs
filed three subsequent amended complaints, bringing the total
number of individuals on whose behalf suit was filed to
eighteen. Aerojet filed answers to the various complaints
denying liability. During the fourth quarter of fiscal 2010, the
parties entered into a confidential settlement of the
litigation. The settlement, the respective payments, and the
recording of the impact of the settlement was completed in
fiscal 2010.
Sacramento
County Water Agency (collectively,
“SCWA”)
In August 2003, the County of Sacramento, SCWA and Aerojet
entered into a water agreement (“Agreement”). Under
the Agreement, Aerojet agreed to transfer remediated groundwater
to SCWA. This was anticipated to satisfy Aerojet’s water
replacement obligations in eastern Sacramento County. Subject to
various provisions of the Agreement, including approval under
the California Environmental Quality Act, SCWA assumed
Aerojet’s responsibility for providing replacement water to
American States Water Company and other impacted water purveyors
up to the amount of remediated water Aerojet transfers to the
County of Sacramento (“County”). Aerojet also agreed
to pay SCWA approximately $13 million over several years
toward the cost of constructing a replacement water supply
project. If the amount of Aerojet’s transferred water was
in excess of the replacement water provided to the impacted
water purveyors, SCWA committed to make such water available for
the entitlement of Aerojet’s land in an amount equal to the
excess.
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In April 2008, SCWA unilaterally terminated the Agreement.
Subsequent to this unilateral termination of the Agreement, the
Company and The Boeing Company (“Boeing,” successor to
the McDonnell Douglas Corporation (“MDC”)), the former
owner of the Inactive Rancho Cordova Test Site
(“IRCTS”) entered into negotiations with SCWA in an
attempt to resolve matters and reach a new agreement.
Additionally, SCWA and Aerojet entered into a Tolling Agreement
through June 30, 2009 tolling any suits or claims arising
from environmental contamination or conditions on the former
IRCTS property.
On June 30, 2009, SCWA notified Aerojet and Boeing that it
was not prepared to extend the tolling period and intended to
file suit. On July 1, 2009, the County and SCWA filed a
complaint against Aerojet and Boeing in the U.S. District
Court for the Eastern District of California, in Sacramento,
County of Sacramento; Sacramento County Water Agency v.
Aerojet-General Corporation and The Boeing Corporation [sic],
Civ.
No. 2:09-at-1041.
In the complaint, the County and SCWA alleged that because
groundwater contamination from various sources including
Aerojet, Boeing/MDC, and the former Mather Air Force Base, was
continuing, the County and SCWA should be awarded unspecified
monetary damages as well as declaratory and equitable relief.
The complaint was served, but the parties entered into joint
stipulations staying the proceedings to allow for settlement
negotiations. The current stay is in effect to May 30,
2011. The Company cannot reasonably estimate the outcome of this
proceeding at this time.
M&H
Realty/Fullerton case
On July 7, 2008, Aerojet was served with a complaint
brought by the owner of property in Fullerton, California at
which Aerojet had operated for over twenty years. Aerojet sold
the property in 1984 to MDC, also a defendant in the lawsuit,
which redeveloped and subsequently sold the property. The
complaint, entitled
M&H Realty Partners V, L.P. v
Aerojet-General Corporation, Boeing Realty Corporation and
McDonnell Douglas Corporation, et al. Case
No. 30-2008-00080378-CU-TT-CXC
,
is pending in the Superior Court for Orange County, California.
The property owner alleges Aerojet and Boeing, the successor to
MDC, are responsible for soil contamination that has increased
the costs of further redevelopment of the property. The parties
have entered settlement negotiations. The trial date has been
rescheduled to August 15, 2011 to allow for these
settlement negotiations. Should settlement not be reached,
Aerojet intends to vigorously defend itself. The Company has
accrued management’s best estimate of such contingencies as
a component of its environmental reserves.
Natural
Resource Damage (“NRD”) Assessment Plan
In August 2007, the Company, along with numerous other
companies, received from the USFWS a notice of a NRD Assessment
Plan for the Ottawa River and Northern Maumee Bay. The Company
previously manufactured products for the automotive industry at
a Toledo, Ohio site, which was adjacent to the Ottawa River.
This facility was divested in 1990 and the Company indemnified
the buyer for claims and liabilities arising out of certain
pre-divestiture environmental matters. A group of potentially
responsible parties (“PRP”), including GenCorp, was
formed to respond to the NRD assessment and to pursue funding
from the Great Lakes Legacy Act for primary restoration. The
group has undertaken a restoration scoping study. Early data
collection indicates that the primary restoration project total
cost may be in the range of approximately $47 to
$49 million. The group has received a commitment for
matching federal funds for the restoration project, which will
consist of river dredging and land-filling river sediments. The
actual dredging of the river was completed in late 2010. Based
on a review of the current facts and circumstances with counsel,
management has provided for what is believed to be a reasonable
estimate of the loss exposure for this matter as a component of
its environmental reserves. Still unresolved at this time is the
actual NRD Assessment itself. It is not possible to predict the
outcome or timing of these types of assessments, which are
typically lengthy processes lasting several years, or the
amounts of or responsibility for these damages.
Textileather,
Inc. (“Textileather”)
In 2008, Textileather, the current owner of the former Toledo,
Ohio site, filed a lawsuit against the Company claiming, among
other things, that the Company failed to indemnify and defend
Textileather for certain contractual environmental obligations.
A second suit related to past and future Resource Conservation
Recovery Act closure
24
Table of Contents
costs was filed in late 2009. The Company prevailed on a motion
for summary judgment in the first action in the second quarter
of fiscal 2010, and Textileather appealed. The parties engaged
in court-supervised mediation after the appeal was filed, but to
date the mediation has been unsuccessful. If no settlement is
reached, the Company will continue to vigorously defend against
both actions. Based on a review of the current facts and
circumstances, management has provided for what is believed to
be a reasonable estimate of the loss exposure for this matter as
a component of its environmental reserves.
Asbestos
Litigation
The Company has been, and continues to be, named as a defendant
in lawsuits alleging personal injury or death due to exposure to
asbestos in building materials, products, or in manufacturing
operations. The majority of cases are pending in Texas and
Pennsylvania. There were 141 cases pending as of
November 30, 2010.
Given the lack of any significant consistency to claims (i.e.,
as to product, operational site, or other relevant assertions)
filed against the Company, the Company is unable to make a
reasonable estimate of the future costs of pending or unasserted
claims. Accordingly, no estimate of future liability has been
accrued for such contingencies.
The following table sets forth information related to asbestos
litigation:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Claims filed
|
27 | ** | 27 | * | 33 | * | ||||||
|
Claims consolidated
|
— | 23 | — | |||||||||
|
Claims dismissed
|
15 | 25 | 31 | |||||||||
|
Claims settled
|
5 | 2 | 5 | |||||||||
|
Claims pending
|
141 | 134 | 157 | |||||||||
|
Aggregate settlement costs
|
$ | 105 | $ | 35 | $ | 246 | ||||||
|
Average settlement costs
|
$ | 21 | $ | 17 | $ | 49 | ||||||
| * | This number is net of two cases tendered to a third party under a contractual indemnity obligation. | |
| ** | This number is net of six cases tendered to a third party under a contractual indemnity obligation. |
Legal and administrative fees for the asbestos cases for fiscal
2010, 2009 and 2008 were $0.4 million, $0.4 million,
and $0.5 million, respectively.
Subpoenas
Duces Tecum
On January 6, 2010, the Company received a subpoena duces
tecum from the Defense Criminal Investigative Service of the
Office of the Inspector General of the DoD requesting that the
Company produce a variety of documents pertaining to the
allowability of certain costs under its contracts with the DoD
from October 1, 2003 to the present. On September 23,
2010, the Company received a subpoena duces tecum from the
U.S. Army Criminal Investigation Command, acting on behalf
of the Office of the Inspector General of the DoD, requesting
that the Company produce a variety of documents pertaining to
the use of certain estimating factors under its contracts with
the DoD. The Company is currently unable to reasonably estimate
what the outcome of these civil investigations will be or the
impact, if any, the investigations may have on the
Company’s operating results, financial condition,
and/or
cash
flows. Accordingly, no estimate of future liability has been
accrued for such contingencies. The Company has and continues to
cooperate fully with the investigations and is responding to the
subpoenas.
Snappon
SA Wrongful Discharge Claims
In November 2003, the Company announced the closing of a
manufacturing facility in Chartres, France owned by Snappon SA,
a subsidiary of the Company, previously involved in the
automotive business. In accordance with French law, Snappon SA
negotiated with the local works’ council regarding the
implementation of a social plan for the employees. Following the
implementation of the social plan, approximately 188 of the 249
former Snappon employees sued Snappon SA in the Chartres Labour
Court alleging wrongful discharge. The claims were heard in
25
Table of Contents
two groups. On February 19, 2009, the Versailles Court of
Appeal issued a decision in favor of Group 2 plaintiffs and
based on this, the Court awarded €1.9 million plus
interest. On April 7, 2009, the Versailles Court of Appeal
issued a decision in favor of Group 1 plaintiffs and based on
this, the Court awarded €1.0 million plus interest.
During the second quarter of fiscal 2009, Snappon SA filed for
declaration of suspensions of payments with the clerk’s
office of the Paris Commercial Court, and the claims will likely
be discharged through those proceedings. The Company has accrued
a loss contingency of €2.9 million ($3.8 million)
plus interest for this matter.
GDX
Automotive
On August 31, 2004, the Company completed the sale of its
GDX business to an affiliate of Cerberus Capital Management,
L.P. (“Cerberus”). In accordance with the divestiture
agreement, the Company provided customary indemnification to
Cerberus for certain liabilities accruing prior to the closing
of the transaction (“the Closing”). Cerberus notified
the Company of a claim by a GDX customer that alleges that
certain parts manufactured by GDX prior to the Closing failed to
meet customer specifications. The Company has assumed the
defense of this matter and based on its investigation of the
facts and defenses available under the contract and local law,
and in November 2008 denied all liability for this claim. On
January 23, 2009, GenCorp received correspondence from the
GDX customer requesting that the Company provide it with a
settlement proposal by February 6, 2009, threatening that
it would initiate legal proceedings otherwise. GenCorp neither
responded nor otherwise tolled the statute of limitations with
negotiations. Nothing further has been received since then and
no legal proceedings have been initiated. Accordingly, no
estimate of future liability has been accrued for such
contingencies.
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholders’ Matters and Issuer Purchases of Equity Securities |
As of January 24, 2011, there were 8,118 holders of record
of the common stock. On January 24, 2011, the last reported
sale price of our common stock on the New York Stock Exchange
was $5.13 per share.
Our Senior Credit Facility and
9
1
/
2
% Notes
(described in Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations under the caption “Liquidity and Capital
Resources”) restrict the payment of dividends and we do not
anticipate paying cash dividends in the foreseeable future.
Information concerning long-term debt, including material
restrictions relating to payment of dividends on our common
stock appears in Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations under the caption “Liquidity and Capital
Resources” and in Part II, Item 8. Consolidated
Financial Statements and Supplementary Data at Note 5 in
Notes to Consolidated Financial Statements, which is
incorporated herein by reference. Information concerning
securities authorized for issuance under our equity compensation
plans appears in Part III, Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related
Stockholder Matters under the caption “Equity Compensation
Plan Information,” which is incorporated herein by
reference.
26
Table of Contents
Common
Stock
Our common stock is quoted on the New York Stock Exchange under
the trading symbol “GY.” The following table lists, on
a per share basis for the periods indicated, the high and low
sale prices for the common stock as reported by the New York
Stock Exchange:
|
Common Stock
|
||||||||
| Price | ||||||||
|
Year Ended November 30,
|
High | Low | ||||||
|
2010
|
||||||||
|
First Quarter
|
$ | 8.55 | $ | 3.45 | ||||
|
Second Quarter
|
$ | 6.74 | $ | 4.30 | ||||
|
Third Quarter
|
$ | 5.72 | $ | 4.20 | ||||
|
Fourth Quarter
|
$ | 5.46 | $ | 4.45 | ||||
|
2009
|
||||||||
|
First Quarter
|
$ | 3.99 | $ | 2.39 | ||||
|
Second Quarter
|
$ | 3.00 | $ | 1.84 | ||||
|
Third Quarter
|
$ | 4.87 | $ | 1.83 | ||||
|
Fourth Quarter
|
$ | 9.12 | $ | 4.05 | ||||
27
Table of Contents
Stock
Performance Graph
The following graph compares the cumulative total shareholder
returns on $100 invested in our Common Stock in November 2005
with the cumulative total return of (i) the
Standard & Poor’s 500 Composite Stock Price Index
(“S&P 500 Index”), and (ii) the
Standard & Poor’s 500 Aerospace &
Defense Index. The stock price performance shown on the graph is
not necessarily indicative of future performance.
Comparison
of Cumulative Total Shareholder Return
Among GenCorp, S&P 500 Index, and the S&P 500 Aerospace & Defense Index,
November 2005 through November 2010
Among GenCorp, S&P 500 Index, and the S&P 500 Aerospace & Defense Index,
November 2005 through November 2010
Comparison
of Cumulative Five Year Total Return
|
Base
|
||||||||||||||||||||||||||||||
|
Period
|
As of November 30, | |||||||||||||||||||||||||||||
| Company/Index | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||||||
|
GenCorp Inc.
|
$ | 100.00 | $ | 75.63 | $ | 66.27 | $ | 15.66 | $ | 42.77 | $ | 26.89 | ||||||||||||||||||
|
S&P 500 Index
|
100.00 | 114.23 | 123.05 | 76.18 | 95.52 | 105.01 | ||||||||||||||||||||||||
|
S&P 500 Aerospace & Defense
|
100.00 | 128.21 | 155.15 | 90.19 | 118.72 | 134.61 | ||||||||||||||||||||||||
28
Table of Contents
| Item 6. | Selected Financial Data |
The following selected financial data is qualified by reference
to and should be read in conjunction with the Consolidated
Financial Statements, including the Notes thereto in
Item 8. Consolidated Financial Statements and Supplementary
Data, and Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
| Year Ended | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||||||
|
Net sales
|
$ | 857.9 | $ | 795.4 | $ | 742.3 | $ | 745.4 | $ | 621.1 | ||||||||||
|
Net income (loss):
|
||||||||||||||||||||
|
Income (loss) from continuing operations, net of income taxes
|
$ | 6.0 | $ | 58.9 | $ | (5.1 | ) | $ | 34.9 | $ | (44.7 | ) | ||||||||
|
Income (loss) from discontinued operations, net of income taxes
|
0.8 | (6.7 | ) | (0.1 | ) | 27.9 | 2.4 | |||||||||||||
|
Cumulative effect of changes in accounting principles, net of
income taxes(1)
|
— | — | — | — | (1.9 | ) | ||||||||||||||
|
Net income (loss)
|
$ | 6.8 | $ | 52.2 | $ | (5.2 | ) | $ | 62.8 | $ | (44.2 | ) | ||||||||
|
Basic earnings (loss) per share of Common Stock
|
||||||||||||||||||||
|
Income (loss) from continuing operations, net of income taxes
|
$ | 0.11 | $ | 1.00 | $ | (0.09 | ) | $ | 0.62 | $ | (0.81 | ) | ||||||||
|
Income (loss) from discontinued operations, net of income taxes
|
0.01 | (0.11 | ) | — | 0.50 | 0.04 | ||||||||||||||
|
Cumulative effect of changes in accounting principles, net of
income taxes(1)
|
— | — | — | — | (0.03 | ) | ||||||||||||||
|
Total
|
$ | 0.12 | $ | 0.89 | $ | (0.09 | ) | $ | 1.12 | $ | (0.80 | ) | ||||||||
|
Diluted earnings (loss) per share of Common Stock
|
||||||||||||||||||||
|
Income (loss) from continuing operations, net of income taxes
|
$ | 0.11 | $ | 0.96 | $ | (0.09 | ) | $ | 0.62 | $ | (0.81 | ) | ||||||||
|
Income (loss) from discontinued operations, net of income taxes
|
0.01 | (0.10 | ) | — | 0.43 | 0.04 | ||||||||||||||
|
Cumulative effect of changes in accounting principles, net of
income taxes(1)
|
— | — | — | — | (0.03 | ) | ||||||||||||||
|
Total
|
$ | 0.12 | $ | 0.86 | $ | (0.09 | ) | $ | 1.05 | $ | (0.80 | ) | ||||||||
|
Other financial data:
|
||||||||||||||||||||
|
Total assets
|
$ | 991.5 | $ | 934.9 | $ | 1,004.5 | $ | 993.8 | $ | 1,019.8 | ||||||||||
|
Long-term debt, including current maturities
|
$ | 392.7 | $ | 421.6 | $ | 416.1 | $ | 414.9 | $ | 424.6 | ||||||||||
| (1) | During fiscal 2006, we adopted new accounting standards related to stock compensation and conditional asset retirement obligations. |
29
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Unless otherwise indicated or required by the context, as
used in this Annual Report on
Form 10-K,
the terms “we,” “our” and “us”
refer to GenCorp Inc. and all of its subsidiaries that are
consolidated in conformity with accounting principles generally
accepted in the United States of America (“GAAP”).
We begin Management’s Discussion and Analysis of Financial
Condition and Results of Operations with an overview of our
business and operations, followed by a discussion of our results
of operations, including results of our operating segments, for
the past three fiscal years. We then provide an analysis of our
liquidity and capital resources, including discussions of our
cash flows, debt arrangements, sources of capital, and
contractual obligations. In the next section, we discuss the
critical accounting policies that we believe are important to
understanding the assumptions and judgments incorporated in our
reported financial results.
The following discussion should be read in conjunction with the
other sections of this Report, including the Consolidated
Financial Statements and Notes thereto appearing in Item 8.
Consolidated Financial Statements and Supplementary Data of this
Report, the risk factors appearing in Item 1A. Risk Factors
of this Report, and the disclaimer regarding forward-looking
statements appearing at the beginning of Item 1. Business
of this Report. Historical results set forth in Item 6.
Selected Financial Data and Item 8. Consolidated Financial
Statements and Supplementary Data of this Report should not be
taken as indicative of our future operations.
Overview
We are a manufacturer of aerospace and defense products and
systems with a real estate segment that includes activities
related to the re-zoning, entitlement, sale, and leasing of our
excess real estate assets. Our continuing operations are
organized into two segments:
Aerospace and Defense
— includes the operations
of Aerojet which develops and manufactures propulsion systems
for defense and space applications, armament systems for
precision tactical weapon systems and munitions applications.
Aerojet is one of the largest providers of such propulsion
systems in the U.S. Major market segments include space
launch and in space propulsion systems, missile defense,
tactical missile systems, and force projection and protection
systems. Primary customers served include major prime
contractors to the U.S. government, DoD, and NASA.
Real Estate —
includes the activities of Easton
related to the entitlement, sale, and leasing of our excess real
estate assets. We own approximately 12,200 acres of land
adjacent to U.S. Highway 50 between Rancho Cordova and
Folsom, California east of Sacramento (“Sacramento
Land”). We are currently in the process of seeking zoning
changes and other governmental approvals on a portion of the
Sacramento Land to optimize its value.
30
Table of Contents
Results
of Operations
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Net sales
|
$ | 857.9 | $ | 795.4 | $ | 742.3 | ||||||
|
Operating costs and expenses:
|
||||||||||||
|
Cost of sales (exclusive of items shown separately below)
|
753.9 | 674.0 | 645.4 | |||||||||
|
Selling, general and administrative
|
26.7 | 10.2 | 1.9 | |||||||||
|
Depreciation and amortization
|
27.9 | 25.7 | 25.5 | |||||||||
|
Other expense, net
|
8.5 | 2.9 | 7.6 | |||||||||
|
Unusual items
|
||||||||||||
|
Shareholder agreement and related costs
|
— | — | 16.8 | |||||||||
|
Executive severance agreements
|
1.4 | 3.1 | — | |||||||||
|
Defined benefit pension plan amendment
|
— | — | 14.6 | |||||||||
|
Loss on legal matters and settlements
|
2.8 | 1.3 | 2.9 | |||||||||
|
Loss on bank amendment
|
0.7 | 0.2 | — | |||||||||
|
Loss on debt repurchased
|
1.2 | — | — | |||||||||
|
Gain on legal settlement and insurance recoveries
|
(2.7 | ) | — | (1.2 | ) | |||||||
|
Total operating costs and expenses
|
820.4 | 717.4 | 713.5 | |||||||||
|
Operating income
|
37.5 | 78.0 | 28.8 | |||||||||
|
Non-operating (income) expense
|
||||||||||||
|
Interest expense
|
37.0 | 38.6 | 37.2 | |||||||||
|
Interest income
|
(1.6 | ) | (1.9 | ) | (4.2 | ) | ||||||
|
Total non-operating expense, net
|
35.4 | 36.7 | 33.0 | |||||||||
|
Income (loss) from continuing operations before income taxes
|
2.1 | 41.3 | (4.2 | ) | ||||||||
|
Income tax (benefit) provision
|
(3.9 | ) | (17.6 | ) | 0.9 | |||||||
|
Income (loss) from continuing operations
|
6.0 | 58.9 | (5.1 | ) | ||||||||
|
Income (loss) from discontinued operations, net of income taxes
|
0.8 | (6.7 | ) | (0.1 | ) | |||||||
|
Net income (loss)
|
$ | 6.8 | $ | 52.2 | $ | (5.2 | ) | |||||
Net
Sales
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Net sales
|
$ | 857.9 | $ | 795.4 | $ | 62.5 | $ | 795.4 | $ | 742.3 | $ | 53.1 | ||||||||||||
| * | Primary reason for change. The increase in net sales in fiscal 2010 compared to fiscal 2009 was primarily due to the following: (i) an increase of $46.6 million in the various Standard Missile programs primarily related to awards received in fiscal 2009 on the divert and attitude control system contracts; (ii) increased deliveries on the GMLRS program generating $19.9 million of additional net sales; and (iii) the release of NASA funding constraints on the Orion crew module and service module propulsion program generating $18.0 million of additional net sales. The increase in net sales was partially offset by a decline in deliveries of rocket motors under the Atlas V program in the current year of $21.4 million compared to the prior year. | |
| ** | Primary reason for change. The increase in net sales in fiscal 2009 compared to fiscal 2008 was primarily the result of growth in the various Standard Missile programs generating $60.1 million of additional net sales and increased deliveries on the PAC — 3 program generating $13.6 million of additional net sales, partially offset by $15.8 million in lower sales volume on the Orion program as a result of NASA funding constraints, sale of a |
31
Table of Contents
| parcel of our Sacramento Land for $10.0 million in the second quarter of fiscal 2008, and an additional week of operations in the first quarter of fiscal 2008 resulting in $19.1 million in sales (see Note 1 in Notes to Consolidated Financial Statements). |
Customers that represented more than 10% of net sales for the
fiscal years presented are as follows:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Raytheon
|
37 | % | 31 | % | 27 | % | ||||||
|
Lockheed Martin
|
27 | 26 | 26 | |||||||||
Sales in fiscal 2010, 2009, and 2008 directly and indirectly to
the U.S. government and its agencies, including sales to
our significant customers discussed above, totaled
$786.1 million, $701.3 million, and
$641.7 million, respectively. The Standard Missile program,
which is included in the U.S. government sales, represented
26%, 22%, and 16% of net sales for fiscal 2010, 2009, and 2008,
respectively. The demand for certain of our services and
products is directly related to the level of funding of
government programs.
During fiscal 2010, approximately 50% of our net sales were from
fixed-price contracts, 43% from cost reimbursable contracts, and
7% from other sales including commercial contracts and real
estate activities.
Operating
Income
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions, except percentage amounts) | ||||||||||||||||||||||||
|
Operating income
|
$ | 37.5 | $ | 78.0 | $ | (40.5 | ) | $ | 78.0 | $ | 28.8 | $ | 49.2 | |||||||||||
|
Percentage of net sales
|
4.4 | % | 9.8 | % | 9.8 | % | 3.9 | % | ||||||||||||||||
| * | Primary reason for change. The decrease in the fiscal 2010 operating income margin of 5.4 points, compared to the comparable prior year, was driven by the increase in retirement benefit expense of $53.8 million which represented a 6.3 point decrease in operating margin, partially offset by higher sales and lower overhead costs contributing 2.3 points to the operating margin. Additionally, we had an increase in environmental remediation costs that represented 0.5 of a point decrease in operating margin and an increase in other operating costs represented the remaining 0.9 point decrease in operating margin. See additional information below. | |
| ** | Primary reason for change. The increase in the fiscal 2009 operating income margin of 5.9 points, compared to the comparable prior year, was driven by the following: (i) decrease in unusual items of $28.5 million which represented a 3.9 point increase in operating margin; (ii) lower retirement benefit expenses of $19.9 million which represented a 2.5 point increase in operating margin; and (iii) decrease in environmental remediation costs of $6.6 million which represented a 1.0 increase in operating margin. The increase in operating margin was partially offset by a land sale resulting in a gain of $6.8 million which represented a 0.9 decrease in operating margin and an increase in other operating costs which represented 0.6 of a point decrease in operating margin. See additional information below. |
Cost
of Sales (exclusive of items shown separately
below)
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions, except percentage amounts) | ||||||||||||||||||||||||
|
Cost of sales (exclusive of items shown separately below)
|
$ | 753.9 | $ | 674.0 | $ | 79.9 | $ | 674.0 | $ | 645.4 | $ | 28.6 | ||||||||||||
|
Percentage of net sales
|
87.9 | % | 84.7 | % | 84.7 | % | 86.9 | % | ||||||||||||||||
| * | Primary reason for change. The increase in costs of sales as a percentage of net sales was primarily due to an increase of $37.2 million of non-cash aerospace and defense retirement benefit plan expense in the current period compared to the prior period. See discussion of “Retirement Benefit Plans” below. The increase in retirement benefit plan expense was partially offset by overall improvement in contract performance due to |
32
Table of Contents
| lower overhead expenses and higher sales. The decrease in overhead costs in fiscal 2010 is a result of cost saving initiatives implemented by management. | ||
| ** | Primary reason for change. The decrease in the cost of sales as a percentage of net sales was primarily due to the following: (i) a decrease of $23.6 million of non-cash aerospace and defense retirement benefit plan expense and (ii) favorable contract performance and lower non-reimbursable overhead spending in fiscal 2009 compared to fiscal 2008, partially offset by the recognition of a $6.8 million gain on the sale of 400 acres of our Sacramento Land in the second quarter of fiscal 2008. |
Selling,
general and administrative (“SG&A”)
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions, except percentage amounts) | ||||||||||||||||||||||||
|
Selling, general and administrative
|
$ | 26.7 | $ | 10.2 | $ | 16.5 | $ | 10.2 | $ | 1.9 | $ | 8.3 | ||||||||||||
|
Percentage of net sales
|
3.1 | % | 1.3 | % | 1.3 | % | 0.3 | % | ||||||||||||||||
| * | Primary reason for change. The increase in SG&A expense was primarily due to an increase of $16.6 million of non-cash corporate retirement benefit plan expense. See discussion of “Retirement Benefit Plans” below. | |
| ** | Primary reason for change. The increase in SG&A expense in fiscal 2009 compared to fiscal 2008 was primarily the result of the following: (i) an increase of $5.1 million in stock-based compensation due to the increase in the fair value of stock appreciation rights in 2009 and (ii) an increase of $3.7 million in non-cash corporate retirement benefit plan expense, partially offset by a decrease of $0.5 million in other net SG&A costs. |
Depreciation
and amortization
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Depreciation and amortization
|
$ | 27.9 | $ | 25.7 | $ | 2.2 | $ | 25.7 | $ | 25.5 | $ | 0.2 | ||||||||||||
| * | Primary reason for change. The increase was primarily due to an increase in capital expenditures in the current period. | |
| ** | Primary reason for change. Depreciation and amortization was essentially unchanged. |
Other
expense, net
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Other expense, net
|
$ | 8.5 | $ | 2.9 | $ | 5.6 | $ | 2.9 | $ | 7.6 | $ | (4.7 | ) | |||||||||||
| * | Primary reason for change. The increase in other expense, net was primarily due to higher environmental remediation costs. See additional information for environmental remediation provision adjustments under the caption “Environmental Matters” below. | |
| ** | Primary reason for change. The decrease in other expense, net was primarily due to lower estimated future environmental remediation obligations in fiscal 2009 compared to fiscal 2008. See additional information for environmental remediation provision adjustments under the caption “Environmental Matters” below. |
Unusual
Items
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change* | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Unusual items
|
$ | 3.4 | $ | 4.6 | $ | (1.2 | ) | $ | 4.6 | $ | 33.1 | $ | (28.5 | ) | ||||||||||
33
Table of Contents
| * | Primary reason for change. A summary of the unusual charges is shown below: |
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Aerospace and Defense:
|
||||||||||||
|
Loss on legal matters and settlements
|
$ | 2.8 | $ | 1.3 | $ | 2.9 | ||||||
|
Defined benefit pension plan amendment
|
— | — | 13.6 | |||||||||
|
Aerospace and defense unusual items
|
2.8 | 1.3 | 16.5 | |||||||||
|
Corporate:
|
||||||||||||
|
Executive severance agreements
|
1.4 | 3.1 | — | |||||||||
|
Loss on debt repurchased
|
1.2 | — | — | |||||||||
|
Loss on bank amendment
|
0.7 | 0.2 | — | |||||||||
|
Gain on legal settlement and insurance recoveries
|
(2.7 | ) | — | (1.2 | ) | |||||||
|
Defined benefit pension plan amendment
|
— | — | 1.0 | |||||||||
|
Shareholder agreement and related costs
|
— | — | 16.8 | |||||||||
|
Corporate unusual items
|
0.6 | 3.3 | 16.6 | |||||||||
|
Total unusual items
|
$ | 3.4 | $ | 4.6 | $ | 33.1 | ||||||
Fiscal
2010
In fiscal 2010, we recorded $1.4 million associated with
executive severance. In addition, we recorded a charge of
$1.9 million related to the estimated unrecoverable costs
of legal matters and $0.9 million for realized losses and
interest associated with the failure to register with the SEC
the issuance of certain of its common shares under the defined
contribution 401(k) employee benefit plan. Further, we recorded
a $2.7 million gain related to a legal settlement.
In addition, during fiscal 2010, we recorded $0.7 million
of losses related to an amendment to the Senior Credit Facility.
During fiscal 2010, we repurchased $77.8 million principal
amount of our
2
1
/
4
% Debentures
at various prices ranging from 93.0% of par to 98.975% of par,
plus accrued and unpaid interest using a portion of the net
proceeds of our
4
1
/
16
% Debentures
issued in December 2009. A summary of our losses on the
2
1
/
4
% Debentures
repurchased during fiscal 2010 is as follows (in millions):
|
Principal amount repurchased
|
$ | 77.8 | ||
|
Cash repurchase price
|
(74.3 | ) | ||
| 3.5 | ||||
|
Write-off of the associated debt discount
|
(6.3 | ) | ||
|
Portion of the
2
1
/
4
% Debentures
repurchased attributed to the equity component
|
2.9 | |||
|
Write-off of the deferred financing costs
|
(0.4 | ) | ||
|
Loss on
2
1
/
4
% Debentures
repurchased
|
$ | (0.3 | ) | |
34
Table of Contents
During fiscal 2010, we repurchased $22.5 million principal
amount of our
9
1
/
2
% Notes
at 102% of par, plus accrued and unpaid interest using a portion
of the net proceeds of our
4
1
/
16
% Debentures
issued in December 2009. A summary of our losses on the
9
1
/
2
% Notes
repurchased during fiscal 2010 is as follows (in millions):
|
Principal amount repurchased
|
$ | 22.5 | ||
|
Cash repurchase price
|
(23.0 | ) | ||
|
Write-off of the deferred financing costs
|
(0.4 | ) | ||
|
Loss on
9
1
/
2
% Notes
repurchased
|
$ | (0.9 | ) | |
Fiscal
2009
In fiscal 2009, we recorded a charge of $1.3 million for
realized losses and interest associated with its failure to
register with the SEC the issuance of certain of the
Company’s common shares under its defined contribution
401(k) employee benefit plan. During fiscal 2009, we also
incurred a charge of $3.1 million associated with executive
severance agreements. Additionally, we recorded costs of
$0.2 million related to a bank amendment.
Fiscal
2008
On November 25, 2008, we decided to amend our defined
benefit pension and benefits restoration plans to freeze future
accruals under such plans. Effective February 1, 2009 and
July 31, 2009, future benefit accruals for all current
salaried employees and collective bargaining unit employees were
discontinued, respectively. As a result of the defined benefit
pension plan amendment and freeze, we incurred a curtailment
charge of $14.6 million in the fourth quarter of fiscal
2008 primarily due to the immediate recognition of unrecognized
prior service costs.
On March 5, 2008, we entered into a second amended and
restated shareholder agreement (“Shareholder
Agreement”) which resulted in a charge of
$13.8 million in the first half of fiscal 2008.
Additionally, during the fourth quarter of fiscal 2008, we
incurred a charge of $3.0 million associated with two
executive severance agreements. The charges were comprised of
the following (in millions):
|
Increases in pension benefits
|
$ | 5.3 | ||
|
Executive severance charges
|
7.1 | |||
|
Accelerated vesting of stock appreciation rights
|
1.1 | |||
|
Accelerated vesting of restricted stock, service-based
|
0.6 | |||
|
Accelerated vesting of restricted stock, performance-based
|
0.7 | |||
|
Professional fees and other
|
2.0 | |||
| $ | 16.8 | |||
In fiscal 2008, we also recorded a charge of $2.9 million
related to the estimated unrecoverable costs of legal matters,
including $1.7 million associated with the failure to
register with the SEC the issuance of certain of its common
shares under its defined contribution 401(k) employee benefit
plan and $1.2 million related to a legal settlement and
other legal matters. The Company recorded a $1.2 million
gain related to an insurance settlement for an environmental
claim.
Interest
expense
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Interest expense
|
$ | 37.0 | $ | 38.6 | $ | (1.6 | ) | $ | 38.6 | $ | 37.2 | $ | 1.4 | |||||||||||
|
Components of interest expense:
|
||||||||||||||||||||||||
|
Contractual interest and other
|
26.5 | 25.9 | 0.6 | 25.9 | 27.7 | (1.8 | ) | |||||||||||||||||
|
Debt discount amortization
|
6.7 | 7.5 | (0.8 | ) | 7.5 | 6.9 | 0.6 | |||||||||||||||||
|
Amortization of deferred financing costs
|
3.8 | 5.2 | (1.4 | ) | 5.2 | 2.6 | 2.6 | |||||||||||||||||
35
Table of Contents
| * | Primary reason for change. The decrease in interest expense was primarily due to lower amortization of deferred financing costs on the 4% Notes in fiscal 2010 compared to fiscal 2009. In January 2010, we redeemed $124.7 million principal amount of our 4% Notes which were presented for payment. In March 2010, we redeemed the remaining $0.3 million principal amount of our 4% Notes. | |
| ** | Primary reason for change. The increase in interest expense was primarily due to an increase of $2.6 million in amortization of deferred financing costs as a result of a change in the fourth quarter of fiscal 2008 in the estimated life of deferred financing costs for the 4% Notes and 2 1 / 4 % Debentures. The increase in interest expense was partially offset by lower average interest rates on variable rate debt. |
Interest
income
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Interest income
|
$ | 1.6 | $ | 1.9 | $ | (0.3 | ) | $ | 1.9 | $ | 4.2 | $ | (2.3 | ) | ||||||||||
| * | Primary reason for change. The decrease in interest income was primarily due to lower average market interest rates partially offset by higher average cash balances in fiscal 2010 compared to fiscal 2009. | |
| ** | Primary reason for change. The decline in interest income was primarily due to lower average market interest rates partially offset by higher average cash balances in fiscal 2009 compared to fiscal 2008. |
Income
tax (benefit) provision
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Income tax (benefit) provision
|
$ | (3.9 | ) | $ | (17.6 | ) | $ | 0.9 | ||||
The income tax benefit of $3.9 million in fiscal 2010 is
primarily related to a Private Letter Ruling (“PLR”)
from the Internal Revenue Service (“IRS”) allowing us
to revoke our election made on the fiscal 2003 income tax return
to capitalize and amortize certain research expenditures. As a
result of the PLR, an income tax benefit of $6.3 million
was recorded. This is offset by current federal alternative
minimum tax (“AMT”) expense of $1.1 million and
current state tax expense of $3.1 million. Additionally, we
recorded a deferred tax benefit of $1.9 million relating to
prior years offset by $0.1 million of deferred tax expense
for the current period.
The income tax benefit of $17.6 million in fiscal 2009 was
primarily related to new guidance that was published by the
Chief Counsel’s Office of the IRS in December 2008
clarifying which costs qualify for ten-year carryback of tax net
operating losses for refund of prior years’ taxes. As a
result of the clarifying language, during the first quarter of
fiscal 2009, we recorded an income tax benefit of
$19.7 million, of which $14.5 million was for the
release of the valuation allowance associated with the
utilization of the qualifying tax net operating losses and
$5.2 million was for the recognition of affirmative claims
related to previous uncertain tax positions associated with
prior years refund claims related to the qualifying costs.
The income tax provision of $0.9 million in fiscal 2008 was
primarily related to the impact of a fiscal 2008 change in tax
method of accounting adopted for unbilled receivables. The new
tax method of accounting adopted in fiscal 2008 in accordance
with guidance published by the IRS defers such revenue until the
all events test is met for tax purposes. The fiscal 2008 tax net
operating loss from continuing operations resulted in an income
tax benefit of $9.5 million for carryback to prior years
and a refund of previously paid taxes. Due to the tightening of
the credit market in the fourth quarter of fiscal 2008, a tax
planning strategy relied on for realizability of a portion of
the deferred tax assets ceased to be prudent and feasible,
resulting in a charge to deferred income tax expense of
$8.0 million and a corresponding increase to the valuation
allowance.
36
Table of Contents
Discontinued
Operations:
On August 31, 2004, we completed the sale of our GDX
Automotive business. On November 30, 2005, we completed the
sale of our Fine Chemicals business. The remaining subsidiaries
after the sale of GDX Automotive, including Snappon SA, and the
Fine Chemicals business are classified as discontinued
operations in the Notes to Consolidated Financial Statements.
In November 2003, we announced the closing of a GDX
manufacturing facility in Chartres, France owned by Snappon SA,
a subsidiary of the Company. The decision resulted primarily
from declining sales volumes with French automobile
manufacturers. In June 2004, we completed the legal process for
closing the facility and establishing a social plan. In fiscal
2004, an expense of approximately $14.0 million related to
employee social costs was recorded. An expense of
$1.0 million was recorded during fiscal 2005 primarily
related to employee social costs that became estimable in fiscal
2005. During fiscal 2009, an expense of approximately
€2.9 million ($3.8 million) was recorded related
to legal judgments rendered against Snappon SA under French law,
related to wrongful discharge claims by certain former employees
of Snappon SA. During the second quarter of fiscal 2009, Snappon
SA filed for declaration of suspensions of payments with the
clerk’s office of the Paris Commercial Court (see
Note 7(b) in Notes to Consolidated Financial Statements).
Summarized financial information for discontinued operations is
set forth below:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Net sales
|
$ | — | $ | — | $ | — | ||||||
|
Foreign currency gains (losses)
|
1.7 | (1.6 | ) | 0.6 | ||||||||
|
Income (loss) before income taxes
|
0.7 | (6.7 | ) | (0.2 | ) | |||||||
|
Income tax benefit
|
(0.1 | ) | — | (0.1 | ) | |||||||
|
Income (loss) from discontinued operations
|
0.8 | (6.7 | ) | (0.1 | ) | |||||||
Retirement
Benefit Plans:
Components of retirement benefit expense (benefit) are:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Service cost(1)
|
$ | 4.6 | $ | 6.5 | $ | 20.0 | ||||||
|
Interest cost on benefit obligation
|
90.1 | 94.3 | 101.8 | |||||||||
|
Assumed return on plan assets
|
(107.8 | ) | (103.8 | ) | (123.8 | ) | ||||||
|
Amortization of prior service costs
|
0.1 | 0.1 | 2.1 | |||||||||
|
Amortization of net losses (gains)
|
54.9 | (9.0 | ) | 7.9 | ||||||||
|
Net retirement benefit expense (benefit)
|
$ | 41.9 | $ | (11.9 | ) | $ | 8.0 | |||||
| (1) | On November 25, 2008, the Company decided to amend the defined benefit pension and benefits restoration plans to freeze future accruals under such plans. Effective February 1, 2009 and July 31, 2009, future benefit accruals for all current salaried employees and collective bargaining unit employees were discontinued, respectively. Accordingly, for fiscal 2010, service cost for pension benefits represents the administrative costs of the pension plan. For fiscal 2009, service cost for pension benefits include administrative costs and service cost for all current salaried employees until February 1, 2009 and collective bargaining unit employees until July 31, 2009. For fiscal 2008, service cost for pension benefits is the actuarial present value of benefits attributed by the defined benefit pension plans’ benefit formulas for services rendered by participants during the period, including the administrative costs. |
The increase in retirement benefit expense was primarily due to
higher actuarial losses recognized in fiscal 2010 compared to
fiscal 2009. The increase in actuarial losses was primarily the
result of: (i) a decrease in the
37
Table of Contents
discount rate due to lower market interest rates used to
determine our retirement benefit obligation to 5.65% as of
November 30, 2009 compared to 7.10% as of August 31,
2008 and (ii) an increase in the impact of amortization of
prior years’ net investment losses.
We estimate that our retirement benefit expense will be
approximately $46 million in fiscal 2011 compared to
$41.9 million in fiscal 2010.
Market conditions and interest rates significantly affect assets
and liabilities of our pension plans. Pension accounting permits
market gains and losses to be deferred and recognized over a
period of years. This “smoothing” results in the
creation of other accumulated income or losses which will be
amortized to retirement benefit expense or benefit in future
years. The accounting method we utilize recognizes one-fifth of
the unamortized gains and losses in the market-related value of
pension assets and all other gains and losses, including changes
in the discount rate used to calculate benefit costs each year.
Investment gains or losses for this purpose are the difference
between the expected return and the actual return on the
market-related value of assets which smoothes asset values over
three years. Although the smoothing period mitigates some
volatility in the calculation of annual retirement benefit
expense, future expenses are impacted by changes in the market
value of pension plan assets and changes in interest rates.
Additionally, we sponsor a defined contribution 401(k) plan and
participation in the plan is available to all employees.
Effective January 15, 2009, we discontinued the employer
matching component to the defined contribution 401(k) plan for
non-union employees. Effective April 15, 2009, all future
contribution investment elections directed into the GenCorp
Stock Fund were redirected to other investment options and our
union employee matching contributions are being made in cash.
Effective the first full payroll commencing in July 2010, for
non-union employees, matching contributions were reinstated in
cash at the same level in effect prior to January 15, 2009
and invested according to participants’ investment
elections in effect at the time of contribution. The cost of the
401(k) plan was $3.7 million in fiscal 2010,
$2.0 million in fiscal 2009, and $9.2 million in
fiscal 2008.
Operating
Segment Information:
We evaluate our operating segments based on several factors, of
which the primary financial measure is segment performance.
Segment performance, which is a non-GAAP financial measure,
represents net sales from continuing operations less applicable
costs, expenses and provisions for unusual items relating to the
segment. Excluded from segment performance are: corporate income
and expenses, interest expense, interest income, income taxes,
legacy income or expenses, and provisions for unusual items not
related to the segment. We believe that segment performance
provides information useful to investors in understanding our
underlying operational performance. Specifically, we believe the
exclusion of the items listed above permits an evaluation and a
comparison of results for ongoing business operations, and it is
on this basis that management internally assesses operational
performance.
38
Table of Contents
Aerospace
and Defense Segment
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions, except percentage amounts) | ||||||||||||||||||||||||
|
Net Sales
|
$ | 850.7 | $ | 787.2 | $ | 63.5 | $ | 787.2 | $ | 725.5 | $ | 61.7 | ||||||||||||
|
Segment Performance
|
67.3 | 90.3 | (23.0 | ) | 90.3 | 40.8 | 49.5 | |||||||||||||||||
|
Segment performance as a percentage of net sales
|
7.9 | % | 11.5 | % | 11.5 | % | 5.6 | % | ||||||||||||||||
|
Components of segment performance:
|
||||||||||||||||||||||||
|
Aerospace and Defense
|
$ | 99.6 | $ | 84.4 | $ | 15.2 | $ | 84.4 | $ | 78.0 | $ | 6.4 | ||||||||||||
|
Environmental remediation provision adjustments
|
(0.2 | ) | (0.7 | ) | 0.5 | (0.7 | ) | (5.0 | ) | 4.3 | ||||||||||||||
|
Retirement benefit plan (expense) benefit (discussed above)
|
(29.3 | ) | 7.9 | (37.2 | ) | 7.9 | (15.7 | ) | 23.6 | |||||||||||||||
|
Unusual items (discussed above)
|
(2.8 | ) | (1.3 | ) | (1.5 | ) | (1.3 | ) | (16.5 | ) | 15.2 | |||||||||||||
|
Aerospace and Defense total
|
$ | 67.3 | $ | 90.3 | $ | (23.0 | ) | $ | 90.3 | $ | 40.8 | $ | 49.5 | |||||||||||
| * | Primary reason for change. The increase in net sales in fiscal 2010 compared to fiscal 2009 was primarily due to the following: (i) an increase of $46.6 million in the various Standard Missile programs primarily related to awards received in fiscal 2009 on the divert and attitude control system contracts; (ii) increased deliveries on the GMLRS program generating $19.9 million of additional net sales; and (iii) the release of NASA funding constraints on the Orion crew module and service module propulsion program generating $18.0 million of additional net sales. The increase in net sales was partially offset by a decline in deliveries of rocket motors under the Atlas V program in the current year of $21.4 million compared to the prior year. |
The decrease in the fiscal 2010 segment margin of 3.6 points,
compared to the comparable prior year, was driven by the
increase in retirement benefit expense of $37.2 million
which represented a 4.4 point decrease in segment margin,
partially offset by higher sales and lower overhead costs
contributing 1.2 points to the segment margin. Additionally, we
had an increase in other operating costs represented the
remaining 0.4 point decrease in segment margin.
| ** | Primary reason for change. The increase in net sales in fiscal 2009 compared to fiscal 2008 was primarily the result of growth in the various Standard Missile programs and increased deliveries on the Patriot Advanced Capability — 3 program, partially offset by lower sales volume on the Orion program as a result of NASA funding constraints and an additional week of operations in the first quarter of fiscal 2008 resulting in $19.1 million in sales. |
The increase in the fiscal 2009 segment margin of 5.9 points,
compared to the comparable prior year, was driven primarily by
the following: (i) lower retirement benefit expenses of
$23.6 million which represented a 3.2 point increase in
segment margin (ii) decrease in unusual items of
$15.2 million which represented a 2.1 point increase in
segment margin; and (iii) decrease in environmental
remediation costs of $4.3 million which represented a 0.6
increase in segment margin.
Real
Estate Segment
| Year Ended | Year Ended | |||||||||||||||||||||||
| 2010 | 2009 | Change* | 2009 | 2008 | Change** | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Net Sales
|
$ | 7.2 | $ | 8.2 | $ | (1.0 | ) | $ | 8.2 | $ | 16.8 | $ | (8.6 | ) | ||||||||||
|
Segment Performance
|
5.3 | 4.4 | 0.9 | 4.4 | 10.3 | (5.9 | ) | |||||||||||||||||
| * | Primary reason for change. Net sales and segment performance consist primarily of rental property operations. Fiscal 2009 results included a $1.8 million land sale resulting in a gain of $0.6 million. |
39
Table of Contents
| ** | Primary reason for change. The decreases in net sales and segment performance in fiscal 2009 compared to fiscal 2008 were primarily due to the sale of 400 acres of our Sacramento Land for $10.0 million in fiscal 2008 resulting in a gain of $6.8 million, partially offset by a $1.8 million land sale in fiscal 2009 resulting in a gain of $0.6 million. |
Environmental
Matters
Our policy is to conduct our businesses with due regard for the
preservation and protection of the environment. We devote a
significant amount of resources and management attention to
environmental matters and actively manage our ongoing processes
to comply with environmental laws and regulations. We are
involved in the remediation of environmental conditions that
resulted from generally accepted manufacturing and disposal
practices at certain plants in the 1950s and 1960s. In addition,
we have been designated a potentially responsible party with
other companies at third party sites undergoing investigation
and remediation.
Estimating environmental remediation costs is difficult due to
the significant uncertainties inherent in these activities,
including the extent of remediation required, changing
governmental regulations and legal standards regarding
liability, evolving technologies and the long period of time
over which most remediation efforts take place. We:
| • | accrue for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and when our proportionate share of the costs can be reasonably estimated; and | |
| • | record related estimated recoveries when such recoveries are deemed probable. |
In addition to the costs associated with environmental
remediation discussed above, we incur expenditures for recurring
costs associated with managing hazardous substances or
pollutants in ongoing operations which totaled $8.8 million
in fiscal 2010, $8.4 million in fiscal 2009, and
$13.5 million in fiscal 2008.
Reserves
We review on a quarterly basis estimated future remediation
costs that could be incurred over the contractual term or next
fifteen years of the expected remediation. We have an
established practice of estimating environmental remediation
costs over a fifteen year period, except for those environmental
remediation costs with a specific contractual term. As the
period for which estimated environmental remediation costs
increases, the reliability of such estimates decrease. These
estimates consider the investigative work and analysis of
engineers, outside environmental consultants, and the advice of
legal staff regarding the status and anticipated results of
various administrative and legal proceedings. In most cases,
only a range of reasonably possible costs can be estimated. In
establishing our reserves, the most probable estimate is used
when determinable; otherwise, the minimum amount is used when no
single amount in the range is more probable. Accordingly, such
estimates can change as we periodically evaluate and revise such
estimates as new information becomes available. We cannot
predict whether new information gained as projects progress will
affect the estimated liability accrued. The timing of payment
for estimated future environmental costs is influenced by a
number of factors such as the regulatory approval process, the
time required to design the process, the time to construct the
process, and the time required to conduct the remedy itself.
40
Table of Contents
A summary of our environmental reserve activity is shown below:
|
Total
|
||||||||||||
|
Environmental
|
||||||||||||
| Aerojet | Other | Reserve | ||||||||||
| (In millions) | ||||||||||||
|
November 30, 2007
|
$ | 259.5 | $ | 10.5 | $ | 270.0 | ||||||
|
Fiscal 2008 additions
|
39.8 | 5.8 | 45.6 | |||||||||
|
Fiscal 2008 expenditures
|
(54.1 | ) | (3.3 | ) | (57.4 | ) | ||||||
|
November 30, 2008
|
245.2 | 13.0 | 258.2 | |||||||||
|
Fiscal 2009 additions
|
19.9 | 3.6 | 23.5 | |||||||||
|
Fiscal 2009 expenditures
|
(54.0 | ) | (5.0 | ) | (59.0 | ) | ||||||
|
November 30, 2009
|
211.1 | 11.6 | 222.7 | |||||||||
|
Fiscal 2010 additions
|
27.9 | 8.6 | 36.5 | |||||||||
|
Fiscal 2010 expenditures
|
(33.0 | ) | (8.5 | ) | (41.5 | ) | ||||||
|
November 30, 2010
|
$ | 206.0 | $ | 11.7 | $ | 217.7 | ||||||
As of November 30, 2010, the Aerojet reserves include
$139.8 million for the Sacramento site, $46.1 million
for Baldwin Park Operable Unit (“BPOU”), and
$20.1 million for other Aerojet reserves.
The effect of the final resolution of environmental matters and
our obligations for environmental remediation and compliance
cannot be accurately predicted due to the uncertainty concerning
both the amount and timing of future expenditures and due to
regulatory or technological changes. We believe, on the basis of
presently available information, that the resolution of
environmental matters and our obligations for environmental
remediation and compliance will not have a material adverse
effect on our results of operations, liquidity or financial
condition. We will continue our efforts to mitigate past and
future costs through pursuit of claims for recoveries from
insurance coverage and other PRPs and continued investigation of
new and more cost effective remediation alternatives and
associated technologies.
As part of the acquisition of the Atlantic Research Corporation
(“ARC”) propulsion business in October 2003, Aerojet
entered into an agreement with ARC pursuant to which Aerojet is
responsible for up to $20.0 million of costs
(“Pre-Close Environmental Costs”) associated with
environmental issues that arose prior to Aerojet’s
acquisition of the ARC propulsion business. Pursuant to a
separate agreement with the U.S. government which was
entered into prior to the completion of the ARC acquisition,
these Pre-Close Environmental Costs are not subject to the 88%
limitation under the Global Settlement, and are recovered
through the establishment of prices for Aerojet’s products
and services sold to the U.S. government. A summary of the
Pre-Close Environmental Costs is shown below (in millions):
|
Pre-Close Environmental Costs
|
$ | 20.0 | ||
|
Amount spent through November 30, 2010
|
(10.6 | ) | ||
|
Amount included as a component of reserves for environmental
remediation costs in the consolidated balance sheet as of
November 30, 2010
|
(1.3 | ) | ||
|
Remaining Pre-Close Environmental Costs
|
$ | 8.1 | ||
Estimated
Recoveries
On January 12, 1999, Aerojet and the U.S. government
implemented the October 1997 Agreement in Principle
(“Global Settlement”) resolving certain prior
environmental and facility disagreements, with retroactive
effect to December 1, 1998. Under the Global Settlement,
Aerojet and the U.S. government resolved disagreements
about an appropriate cost-sharing ratio with respect to the
cleanup costs of the environmental contamination at the
Sacramento and Azusa sites. The Global Settlement provides that
the cost-sharing ratio will continue for a number of years.
Additionally, in conjunction with the sale of the EIS business
in 2001, Aerojet entered into an agreement with Northrop (the
“Northrop Agreement”) whereby Aerojet is reimbursed by
Northrop for a portion of
41
Table of Contents
environmental expenditures eligible for recovery under the
Global Settlement, subject to annual and cumulative limitations.
The current annual billing limitation to Northrop is
$8.0 million, which will be reduced to $6.0 million
beginning in fiscal 2011.
Pursuant to the Global Settlement covering environmental costs
associated with Aerojet’s Sacramento site and its former
Azusa site, the Company can recover up to 88% of its
environmental remediation costs for these sites through the
establishment of prices for Aerojet’s products and services
sold to the U.S. government. Allowable environmental costs
are charged to these contracts as the costs are incurred.
Aerojet’s mix of contracts can affect the actual
reimbursement made by the U.S. government. Because these
costs are recovered through forward-pricing arrangements, the
ability of Aerojet to continue recovering these costs from the
U.S. government depends on Aerojet’s sustained
business volume under U.S. government contracts and
programs and the relative size of Aerojet’s commercial
business. Annually, the Company evaluates Aerojet’s
forecasted business volume under U.S. government contracts
and programs and the relative size of Aerojet’s commercial
business as part of its long-term business review. In the third
quarter of fiscal 2010, as a result of a forecasted increase in
U.S. government contracts and programs volume, future
recoverable amounts from the U.S. government increased;
accordingly, we recorded a benefit of $2.6 million in the
third quarter of fiscal 2010.
Pursuant to the Northrop Agreement, environmental expenditures
to be reimbursed are subject to annual limitations and the total
reimbursements are limited to a ceiling of $189.7 million.
A summary of the Northrop Agreement activity is shown below (in
millions):
|
Total reimbursable costs under the Northrop Agreement
|
$ | 189.7 | ||
|
Amount reimbursed to the Company through November 30, 2010
|
(82.2 | ) | ||
|
Potential future cost reimbursements available
|
107.5 | |||
|
Receivable from Northrop in excess of the annual limitation
included as a component of other noncurrent assets in the
Consolidated Balance Sheet as of November 30, 2010
|
(58.6 | ) | ||
|
Amounts recoverable from Northrop in future periods included as
a component of recoverable from the U.S. government and other
third parties for environmental remediation costs in the
Consolidated Balance Sheet as of November 30, 2010
|
(48.9 | ) | ||
|
Potential future recoverable amounts available under the
Northrop Agreement
|
$ | — | ||
We reached the cumulative limitation under the Northrop
Agreement during the third quarter of fiscal 2010. Accordingly,
in future periods, we will incur a higher percentage of expense
related to additions to the Sacramento site and BPOU site
environmental reserve until an arrangement is reached with the
U.S. government. While we are currently seeking an
arrangement with the U.S. government to recover
environmental expenditures in excess of the reimbursement
ceiling identified in the Northrop Agreement, there can be no
assurances that such a recovery will be obtained, or if not
obtained, that such unreimbursed environmental expenditures will
not have a materially adverse effect on our operating results,
financial condition,
and/or
cash
flows.
Environmental
reserves and recoveries impact to the Consolidated Statements of
Operations
The expenses and benefits associated with adjustments to the
environmental reserves are recorded as a component of other
expense, net in the Consolidated Statements of Operations.
Summarized financial information for the impact of environmental
reserves and recoveries to the Consolidated Statements of
Operations is set forth below:
|
Total
|
||||||||||||||||||||
|
Estimated
|
||||||||||||||||||||
|
Estimated
|
Estimated
|
Recoverable
|
Charge to
|
Total
|
||||||||||||||||
|
Recoverable
|
Recoverable
|
Amounts Under
|
Consolidated
|
Environmental
|
||||||||||||||||
|
Amounts from
|
Amounts from
|
U.S. Government
|
Statement of
|
Reserve
|
||||||||||||||||
| Northrop | U.S. Government | Contracts | Operations | Additions | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Fiscal 2010
|
$ | 2.8 | $ | 24.9 | $ | 27.7 | $ | 8.8 | $ | 36.5 | ||||||||||
|
Fiscal 2009
|
4.8 | 14.6 | 19.4 | 4.1 | 23.5 | |||||||||||||||
|
Fiscal 2008
|
9.7 | 25.2 | 34.9 | 10.7 | 45.6 | |||||||||||||||
42
Table of Contents
Adoption
of New Accounting Principles
As of December 1, 2009, we adopted the accounting standard
which requires additional disclosures for plan assets of defined
benefit pension or other postretirement plans. The required
disclosures include a description of our investment policies and
strategies, the fair value of each major category of plan
assets, the inputs and valuation techniques used to measure the
fair value of plan assets, the effect of fair value measurements
using significant unobservable inputs on changes in plan assets,
and the significant concentrations of risk within plan assets.
As the accounting standard only impacts disclosures, the new
standard did not have an impact on our financial position,
results of operations, or cash flows.
As of December 1, 2009, we adopted the accounting standard
that provides that unvested share-based payment awards that
contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings
per share pursuant to the two-class method. Upon adoption, we
retrospectively adjusted our earnings per share data (including
any amounts related to interim periods, summaries of earnings
and selected financial data) to conform to the new standard. The
adoption of the new standard did not change previously reported
earnings per share amounts.
As of December 1, 2009, we adopted the accounting standard
which applies to convertible debt securities that, upon
conversion, may be settled by the issuer, fully or partially, in
cash (see Note 5 of the Notes to Consolidated Financial
Statements).
Liquidity
and Capital Resources
Cash and cash equivalents increased by $55.2 million during
the year ended November 30, 2010. The change in cash and
cash equivalents is summarized as follows:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Net Cash Provided by Operating Activities
|
$ | 148.1 | $ | 50.3 | $ | 28.0 | ||||||
|
Net Cash Used in Investing Activities
|
(43.5 | ) | (14.3 | ) | (21.3 | ) | ||||||
|
Net Cash Used in Financing Activities
|
(49.4 | ) | (2.4 | ) | (6.3 | ) | ||||||
|
Increase in cash and cash equivalents
|
$ | 55.2 | $ | 33.6 | $ | 0.4 | ||||||
Net
Cash Provided by Operating Activities
The $148.1 million of cash provided by operating activities
in fiscal 2010 was primarily due to a $69.1 million
increase in cash provided by working capital (defined as
accounts receivable, inventories, accounts payable, contract
advances, income tax related, and other current assets and
liabilities). The increase in working capital is due to the
following: (i) an increase in contract advances of
$44.0 million from prior year; (ii) a decrease in
inventories of $10.5 million primarily due to an increase
in customer progress payments; and (iii) an increase in
collections on billed accounts receivables, resulting in a
decrease in receivables days outstanding. Additionally, net
income adjusted for non-cash expenses (defined as depreciation,
amortization, stock compensation, and retirement benefits
expense) generated $87.5 million in operating cash in
fiscal 2010.
Operating activities generated cash of $50.3 million in
fiscal 2009 compared to cash generated of $28.0 million in
fiscal 2008. The improvement in cash from operations is
primarily due to the following: (i) $30.9 million of
net funding of a grantor trust during fiscal 2008, which
represents the liabilities associated with our benefit
restoration plan and the amounts that would be payable to
officers who are party to executive severance agreements in the
event of qualifying terminations of employment;
(ii) receipt of $26.3 million in tax refunds in fiscal
2009; and (iii) receipt of $10.7 million from the
grantor trust in fiscal 2009; partially offset by the sale of
400 acres of our Sacramento Land for a cash price of
$10.0 million in the second quarter of fiscal 2008 and
$35.6 million of net cash used from
43
Table of Contents
other changes in our working capital, including an increase of
$19.0 million in accounts receivable and a
$14.3 million decrease in accounts payable from
November 30, 2008.
Net
Cash Used In Investing Activities
During fiscal 2010, 2009, and 2008, we had capital expenditures
of $16.9 million, $14.3 million, and
$21.3 million, respectively. The majority of our capital
expenditures directly supports our contract and customer
requirements and is primarily made for asset replacement,
capacity expansion, development of new projects, and safety and
productivity improvements.
During fiscal 2010, we made a net cash investment of
$26.6 million in marketable securities.
Net
Cash Used in Financing Activities
During fiscal 2010, cash of $200.0 million was generated
reflecting the issuance of the
4
1
/
16
% Debentures
in December 2009, offset by $240.2 million in debt
repayments (see table below). In addition, we incurred
$7.7 million in debt issuance costs and had vendor
financing repayments of $1.5 million.
During fiscal 2009, net cash used for debt principal payments
was $2.0 million. Additionally, we incurred
$0.4 million in debt issuance costs in fiscal 2009.
During fiscal 2008, cash of $6.3 million was used for debt
principal payments, $5.0 million of which was required to
be repaid in conjunction with a real estate sale. Under the
terms of the Senior Credit Facility, we were required to use 50%
of the net cash proceeds, as defined therein, from the
$10.0 million sale of 400 acres of our Sacramento Land
in the second quarter of fiscal 2008, or $5.0 million, to
repay outstanding principal on the term loan subfacilty.
Borrowing
Activity and Senior Credit Facility:
Our borrowing activity in fiscal 2010 and our debt balances as
of November 30, 2009 and 2010 were as follows:
|
Debt
|
Non-cash
|
|||||||||||||||||||||||
|
November 30,
|
Discount
|
Cash
|
Repurchase
|
November 30,
|
||||||||||||||||||||
| 2009 | Additions | Amortization | Payments | Activity | 2010 | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Term loan
|
$ | 68.3 | $ | — | $ | — | $ | (17.2 | ) | $ | — | $ | 51.1 | |||||||||||
|
9
1
/
2
% Notes
|
97.5 | — | — | (23.0 | ) | 0.5 | 75.0 | |||||||||||||||||
|
4% Notes
|
125.0 | — | — | (125.0 | ) | — | — | |||||||||||||||||
|
4
1
/
16
% Debentures
|
— | 200.0 | — | — | — | 200.0 | ||||||||||||||||||
|
2
1
/
4
% Debentures
|
146.4 | — | — | (74.3 | ) | (3.5 | ) | 68.6 | ||||||||||||||||
|
Debt discount on
2
1
/
4
%
Debentures
|
(17.0 | ) | — | 6.7 | — | 6.3 | (4.0 | ) | ||||||||||||||||
|
Other debt
|
1.4 | 1.3 | — | (0.7 | ) | — | 2.0 | |||||||||||||||||
|
Total Debt and Borrowing Activity
|
$ | 421.6 | $ | 201.3 | $ | 6.7 | $ | (240.2 | ) | $ | 3.3 | $ | 392.7 | |||||||||||
During the first quarter of fiscal 2010, we made a required
principal payment of $16.6 million on the term loan
subfacility due to the excess cash flow prepayment provisions of
the Credit Agreement.
On March 17, 2010, we executed an amendment (the
“Second Amendment”) to our existing Amended and
Restated Credit Agreement, originally entered into as of
June 21, 2007, by and among the Company, as borrower, the
subsidiaries of the Company from time to time party thereto, as
guarantors, the lenders from time to time party thereto and
Wachovia Bank, National Association, as administrative agent for
the lenders, as amended to date (the “Credit
Agreement”). The Second Amendment, among other things,
(i) permits us to repurchase our outstanding convertible
subordinated notes and senior subordinated notes, subject to
certain conditions; (ii) permits us to incur additional
senior unsecured or subordinated indebtedness, subject to
specified limits and other conditions;
44
Table of Contents
(iii) permits us to conduct a rescission offer, using stock
and/or
cash
up to $15.0 million, with respect to certain units issued
under the GenCorp Savings Plan; (iv) permits us to
repurchase our stock, subject to certain conditions;
(v) limits the circumstances under which we would have to
mandatorily prepay loans under the Senior Credit Facility with
the proceeds from equity issuances; and (vi) amends the
definitions of the leverage ratio and net cash proceeds from
permitted real estate sales. The Second Amendment reduces the
Revolver capacity from $80.0 million to $65.0 million
and the letter of credit subfacility capacity from
$125.0 million to $100.0 million. Under the Second
Amendment, the interest rate on LIBOR rate borrowings is LIBOR
plus 325 basis points, an increase of 100 basis
points, and the letter of credit subfacility commitment fee has
been similarly amended. The Second Amendment also provides for a
commitment fee on the unused portion of the Revolver in the
amount of 62.5 basis points, an increase of 12.5 basis
points.
As of November 30, 2010, the borrowing limit under the
Revolver was $65.0 million with all of it available. Also
as of November 30, 2010, we had $69.4 million
outstanding letters of credit under the $100.0 million
letter of credit subfacility and had permanently reduced the
amount of our term loan subfacility to the $51.1 million
outstanding.
The Senior Credit Facility is collateralized by a substantial
portion of our real property holdings and substantially all of
our other assets, including the stock and assets of our material
domestic subsidiaries that are guarantors of the facility. We
are subject to certain limitations including the ability to:
incur additional senior debt; release collateral, retain
proceeds from asset sales, retain proceeds from operations and
issuances of debt or equity, make certain investments and
acquisitions, grant additional liens, and make restricted
payments, including stock repurchases and dividends. In
addition, the Credit Agreement contains certain restrictions
surrounding the ability to refinance our subordinated debt,
including provisions that, except on terms no less favorable to
the Credit Agreement, our subordinated debt cannot be refinanced
prior to maturity. Furthermore, provided that we have cash and
cash equivalents of at least $25.0 million after giving
effect thereto, we may redeem (with funds other than Senior
Credit Facility proceeds) the subordinated notes to the extent
required by the mandatory redemption provisions of the
subordinated note indenture. We are also subject to the
following financial covenants:
|
Actual Ratios as of
|
Required Ratios
|
|||||
|
Financial Covenant
|
November 30, 2010 | December 1, 2009 and thereafter | ||||
|
Interest coverage ratio, as defined under the Credit Agreement
|
4.56 to 1.00 | Not less than: 2.25 to 1.00 | ||||
|
Leverage ratio, as defined under the Credit Agreement(1)
|
1.67 to 1.00 | Not greater than: 5.50 to 1.00 | ||||
| (1) | As a result of the March 17, 2010 amendment, the leverage ratio calculation was amended to allow for all cash and cash equivalents to reduce funded debt as long as there are no loans outstanding under the Revolver. |
We were in compliance with our financial and non-financial
covenants as of November 30, 2010.
Outlook
Short-term liquidity requirements consist primarily of recurring
operating expenses, including but not limited to costs related
to our retirement benefit plans, capital and environmental
expenditures, and debt service requirements. We believe that our
existing cash and cash equivalents, marketable securities, and
existing credit facilities will provide sufficient funds to meet
our operating plan for the next twelve (12) months. The
operating plan for this period provides for full operation of
our businesses, and interest and principal payments on our debt.
Subsequent to November 30, 2010, the Company repurchased
$6.5 million principal amount of its
2
1
/
4
% Debentures
at various prices ranging from 99.0% of par to 99.1% of par,
plus accrued and unpaid interest.
As of November 30, 2010, our defined benefit pension plan
assets and projected benefit obligations were approximately
$1.4 billion and $1.6 billion, respectively. The PPA
requires underfunded pension plans to improve their funding
ratios within prescribed intervals based on the funded status of
the plan as of specified measurement dates. The funded ratio as
of November 30, 2009 under the PPA for our tax-qualified
defined benefit pension plan was 95.6% which was above the 94.0%
ratio required under the PPA. The required ratio to be met as of
the November 30, 2010 measurement date is 96%. The final
calculated PPA funded ratio as of November 30, 2010 is
expected to be completed in the second half of 2011. In general,
the PPA requires companies with underfunded
45
Table of Contents
plans to make up the shortfall over a seven (7) year
period. These values are based on assumptions specified by the
Internal Revenue Service, and are typically not the same as the
amounts used for corporate financial reporting. Companies may
prepay contributions and, under certain circumstances, use those
prepayment credits to satisfy the required funding of the
pension plan’s annual required contribution thereby
allowing the Company to defer cash payments into the pension
plan. We have accumulated $62.7 million in such prepayment
credits as of November 30, 2010. For fiscal 2011, we are
not expecting to make a cash contribution to our pension plan.
The value of the unfunded accrued benefits and amount of
required contribution each year are based on a number of
factors, including plan investment experience and interest rate
environment, and as such can fluctuate significantly from year
to year.
As disclosed in Notes 7(b) and 7(c) of Notes to
Consolidated Financial Statements, we have exposure for certain
legal and environmental matters. We believe that it is currently
not possible to estimate the impact, if any, that the ultimate
resolution of certain of these matters will have on our
financial position, results of operations,
and/or
cash
flows.
Major factors that could adversely impact our forecasted
operating cash flows and our financial condition are described
in Part I, Item 1A. Risk Factors. In addition, our
liquidity and financial condition will continue to be affected
by changes in prevailing interest rates on the portion of debt
that bears interest at variable interest rates.
Contractual
Obligations
We have contractual obligations and commitments in the form of
debt obligations, operating leases, certain other liabilities,
and purchase commitments. The following table summarizes our
contractual obligations as of November 30, 2010 and their
expected effect on our liquidity and cash flows in future
periods:
| Payments due by Period | ||||||||||||||||||||
|
Less than
|
1-3
|
3-5
|
After
|
|||||||||||||||||
| Total | 1 year | years | years | 5 years | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Contractual Obligations:
|
||||||||||||||||||||
|
Long-term debt:
|
||||||||||||||||||||
|
Term loan
|
$ | 51.1 | $ | 0.5 | $ | 50.6 | $ | — | $ | — | ||||||||||
|
9
1
/
2
% Notes
|
75.0 | — | 75.0 | — | — | |||||||||||||||
|
4
1
/
16
% Debentures
|
200.0 | — | — | 200.0 | — | |||||||||||||||
|
2
1
/
4
% Debentures(1)
|
68.6 | 68.6 | — | — | — | |||||||||||||||
|
Other debt
|
2.0 | 0.8 | 0.4 | 0.4 | 0.4 | |||||||||||||||
|
Interest on long-term debt(2)
|
69.3 | 22.6 | 38.4 | 8.2 | 0.1 | |||||||||||||||
|
Postretirement medical and life benefits(3)
|
72.4 | 7.2 | 15.3 | 16.1 | 33.8 | |||||||||||||||
|
Operating leases
|
32.5 | 9.9 | 13.9 | 5.5 | 3.2 | |||||||||||||||
|
Conditional asset retirement obligations
|
15.3 | — | — | 2.6 | 12.7 | |||||||||||||||
|
Liabilities associated with legal settlements
|
24.4 | 10.6 | 12.2 | 1.6 | — | |||||||||||||||
|
Total
|
$ | 610.6 | $ | 120.2 | $ | 205.8 | $ | 234.4 | $ | 50.2 | ||||||||||
| (1) | Represents the $68.6 million of principal 2 1 / 4 % Debentures due November 2024 that can be put to us in November 2011 at a price equal to 100% of the principal amount plus accrued and unpaid interest, including liquidated damages, if any, payable in cash, to but not including the repurchase date, plus, in certain circumstances, a make-whole premium, payable in common stock. | |
| (2) | Includes interest on variable debt calculated based on interest rates at November 30, 2010. | |
| (3) | The payments presented above are expected payments for the next 10 years. The payments for postretirement medical and life benefits reflect the estimated benefit payments of the plans using the provisions currently in effect. The obligation related to postretirement medical and life benefits is actuarially determined on an annual basis. The estimated payments have been reduced to reflect the provisions of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. |
46
Table of Contents
As of November 30, 2010, the liability for uncertain income
tax positions was $1.5 million. Due to the uncertainty
regarding the timing of potential future cash flows associated
with these liabilities, we are unable to make a reasonably
reliable estimate of the amount and period in which these
liabilities might be paid.
The PPA, as discussed above, will require underfunded pension
plans to improve their funding ratios within prescribed
intervals based on the level of their underfunding. We may be
required to make significant cash contributions in the future to
fund our defined benefit pension plan, a portion of which we may
not be able to immediately recover from our government contracts.
We also issue purchase orders and make other commitments to
suppliers for equipment, materials, and supplies in the normal
course of business. These purchase commitments are generally for
volumes consistent with anticipated requirements to fulfill
purchase orders or contracts for product deliveries received, or
expected to be received, from customers and would be subject to
reimbursement if a cost-plus contract was terminated.
Arrangements
with Off-Balance Sheet Risk
As of November 30, 2010, arrangements with off-balance
sheet risk, consisted of:
— $69.4 million in outstanding commercial letters
of credit expiring within the next twelve months, the majority
of which may be renewed, primarily to collateralize obligations
for environmental remediation and insurance coverage.
— Up to $120.0 million aggregate in guarantees by
GenCorp of Aerojet’s obligations to U.S. government
agencies for environmental remediation activities (see
Note 7(c) in Notes to Consolidated Financial Statements for
additional information).
— Guarantees, jointly and severally, by our material
domestic subsidiaries of our obligations under our Senior Credit
Facility and its
9
1
/
2
% Notes.
In addition to the items discussed above, we will from time to
time enter into certain types of contracts that require us to
indemnify parties against potential third-party and other
claims. These contracts primarily relate to:
(i) divestiture agreements, under which we may provide
customary indemnification to purchasers of our businesses or
assets including, for example, claims arising from the operation
of the businesses prior to disposition, liability to investigate
and remediate environmental contamination existing prior to
disposition; (ii) certain real estate leases, under which
we may be required to indemnify property owners for claims
arising from the use of the applicable premises; and
(iii) certain agreements with officers and directors, under
which we may be required to indemnify such persons for
liabilities arising out of their relationship with us. The terms
of such obligations vary. Generally, a maximum obligation is not
explicitly stated.
Warranties
We provide product warranties in conjunction with certain
product sales. The majority of our warranties are a one-year
standard warranty for parts, workmanship, and compliance with
specifications. On occasion, we have made commitments beyond the
standard warranty obligation. While we have contracts with
warranty provisions, there is not a history of any significant
warranty claims experience. A reserve for warranty exposure is
made on a product by product basis when it is both estimable and
probable. These costs are included in the program’s
estimate at completion and are expensed in accordance with our
revenue recognition methodology.
Critical
Accounting Policies
Our financial statements are prepared in accordance with GAAP
that offer acceptable alternative methods for accounting for
certain items affecting our financial results, such as
determining inventory cost, depreciating long-lived assets, and
recognizing revenues.
The preparation of financial statements requires the use of
estimates, assumptions, judgments, and interpretations that can
affect the reported amounts of assets, liabilities, revenues,
and expenses, the disclosure of contingent assets and
liabilities and other supplemental disclosures. The development
of accounting estimates is the responsibility of our management.
Management discusses those areas that require significant
judgment with the audit
47
Table of Contents
committee of our board of directors. All of our financial
disclosures in our filings with the SEC have been reviewed with
the audit committee. Although we believe that the positions we
have taken with regard to uncertainties are reasonable, others
might reach different conclusions and our positions can change
over time as more information becomes available. If an
accounting estimate changes, its effects are accounted for
prospectively and, if significant, disclosed in the Notes to
Consolidated Financial Statements.
The areas most affected by our accounting policies and estimates
are revenue recognition, other contract considerations,
goodwill, retirement benefit plans, litigation, environmental
remediation costs and recoveries, and income taxes. Except for
income taxes and litigation matters related to discontinued
operations, which are not allocated to our operating segments,
these areas affect the financial results of our business
segments.
For a discussion of all of our accounting policies, including
the accounting policies discussed below, see Note 1 in
Notes to Consolidated Financial Statements.
Revenue
Recognition
In our Aerospace and Defense segment, recognition of profit on
long-term contracts requires the use of assumptions and
estimates related to the contract value or total contract
revenue, the total cost at completion and the measurement of
progress towards completion. Due to the nature of the programs,
developing the estimated total cost at completion requires the
use of significant judgment. Estimates are continually evaluated
as work progresses and are revised as necessary. Factors that
must be considered in estimating the work to be completed
include labor productivity, the nature and technical complexity
of the work to be performed, availability and cost volatility of
materials, subcontractor and vendor performance, warranty costs,
volume assumptions, anticipated labor agreements and
inflationary trends, schedule and performance delays,
availability of funding from the customer, and the
recoverability of costs incurred outside the original contract
included in any estimates to complete. We review contract
performance and cost estimates for some contracts at least
monthly and for others at least quarterly and more frequently
when circumstances significantly change. When a change in
estimate is determined to have an impact on contract earnings,
we record a positive or negative adjustment to earnings when
identified. Changes in estimates and assumptions related to the
status of certain long-term contracts may have a material effect
on the amounts reported for net sales and segment performance.
We consider the nature of the individual underlying contract and
the type of products and services provided in determining the
proper accounting for a particular contract. Each method is
applied consistently to all contracts having similar
characteristics, as described below. We typically account for
these contracts using the
percentage-of-completion
method, and progress is measured on a
cost-to-cost
or
units-of-delivery
basis. Sales are recognized using various measures of progress
depending on the contractual terms and scope of work of the
contract. We recognize revenue on a
units-of-delivery
basis when contracts require unit deliveries on a frequent and
routine basis. Sales using this measure of progress are
recognized at the contractually agreed upon unit price. Where
the scope of work on contracts principally relates to research
and/or
development efforts, or the contract is predominantly a
development effort with few deliverable units, we recognize
revenue on a
cost-to-cost
basis. In this case, sales are recognized as costs are incurred
and include estimated earned fees or profits calculated on the
basis of the relationship between costs incurred and total
estimated costs at completion. Revenue on service or time and
material contracts is recognized when performed. If at any time
expected costs exceed the value of the contract, the loss is
recognized immediately.
Certain government contracts contain cost or performance
incentive provisions that provide for increased or decreased
fees or profits based upon actual performance against
established targets or other criteria. Incentive and award fees,
which are generally awarded at the discretion of the customer,
are considered in estimating profit rates at the time the
amounts can be reasonably determined and are reasonably assured
based on historical experience and anticipated performance. We
continually evaluate our performance and incorporate any
anticipated changes in penalties and cost incentives into our
revenue and earnings calculations. Performance incentives, which
increase or decrease earnings based solely on a single
significant event, generally are not recognized until an event
occurs.
Revenue from real estate asset sales is recognized when a
sufficient down-payment has been received, financing has been
arranged and title, possession and other attributes of ownership
have been transferred to the buyer. The allocation to cost of
sales on real estate asset sales is based on a relative fair
market value computation of
48
Table of Contents
the land sold which includes the basis on our books, capitalized
entitlement costs, and an estimate of our continuing financial
commitment.
Revenue that is not derived from long-term development and
production contracts, or real estate asset transactions, is
recognized when persuasive evidence of a final agreement exists,
delivery has occurred, the selling price is fixed or
determinable and payment from the customer is reasonably
assured. Sales are recorded net of provisions for customer
pricing allowances.
Other
Contract Considerations
Our sales are driven by pricing based on costs incurred to
produce products or perform services under contracts with the
U.S. government. Cost-based pricing is determined under the
FAR and CAS. The FAR and CAS provide guidance on the types of
costs that are allowable and allocable in establishing prices
for goods and services under U.S. government contracts. For
example, costs such as those related to pension contributions in
accordance with the PPA that are in excess of CAS allowable
pension costs, charitable contributions, advertising, interest
expense, and public relations are unallowable, and therefore not
recoverable through sales. In addition, we may enter into
agreements with the U.S. government that address the
subjects of allowability and allocability of costs to contracts
for specific matters.
We closely monitor compliance with and the consistent
application of our critical accounting policies related to
contract accounting. We review the status of contracts through
periodic contract status and performance reviews. Also, regular
and recurring evaluations of contract cost, scheduling and
technical matters are performed by management personnel
independent from the business segment performing work under the
contract. Costs incurred and allocated to contracts with the
U.S. government are reviewed for compliance with regulatory
standards by our personnel, and are subject to audit by the
Defense Contract Audit Agency.
Goodwill
Goodwill represents the excess of the purchase price of an
acquired enterprise or assets over the fair values of the
identifiable assets acquired and liabilities assumed. Tests for
impairment of goodwill are performed on an annual basis, or at
any other time, if events occur or circumstances indicate that
the carrying amount of goodwill may not be recoverable. We
performed the impairment test for goodwill as of
September 1, 2010 and determined that goodwill was not
impaired.
Circumstances that could trigger an impairment test include but
are not limited to: a significant adverse change in the business
climate or legal factors; adverse cash flow trends; an adverse
action or assessment by a regulator; unanticipated competition;
loss of key personnel; decline in stock price; and results of
testing for recoverability of a significant asset group within a
reporting unit. If the carrying amount of the reporting
unit’s goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recorded.
All of our recorded goodwill resides in the Aerospace and
Defense reporting unit. To determine the fair value of our
Aerospace and Defense reporting unit, we primarily relied upon a
discounted cash flow analysis which requires significant
assumptions and estimates about future operations, including
judgments about expected revenue growth and operating margins,
and timing and amounts of expected future cash flows. The cash
flows employed in the discounted cash flow analysis are based on
ten-year financial forecasts developed internally by management.
The analysis also involves discounting the future cash flows to
a present value using a discount rate that properly accounts for
the risk and nature of the reporting unit cash flows and the
rates of return debt and equity holders would require to invest
their capital in the Aerospace and Defense reporting unit. In
assessing the reasonableness of our estimated fair value of the
Aerospace and Defense reporting unit, we evaluate the results of
the discounted cash flow analysis in light of what investors are
paying for similar interests in comparable aerospace and defense
companies as of the valuation date. We also ensure that the
reporting unit fair value is reasonable given the market value
of the entire Company as of the valuation date.
There can be no assurance that our estimates and assumptions
made for purposes of our goodwill impairment testing as of
September 1, 2010 will prove to be accurate predictions of
the future. If our assumptions regarding forecasted revenue or
margin growth rates are not achieved, we may be required to
record goodwill impairment
49
Table of Contents
charges in future periods, whether in connection with our next
annual impairment testing on September 1, 2011 or prior to
that, if any such change constitutes a triggering event outside
of the quarter from when the annual goodwill impairment test is
performed. Although the fair value of our Aerospace and Defense
reporting unit substantially exceeded the carrying value at
September 1, 2010, it is not possible at this time to
determine if any such future impairment charge would result or,
if it does, whether such charge would be material.
Retirement
Benefit Plans
Retirement benefit plans include defined benefit pension plans
and postretirement benefit plans (“medical and life
benefits”). Retirement benefits are a significant cost of
doing business and represent obligations that will be ultimately
settled far in the future and therefore are subject to
estimates. Our pension and medical and life benefit obligations
and related costs are calculated using actuarial concepts in
accordance with GAAP. We are required to make assumptions
regarding such variables as the expected long-term rate of
return on assets and the discount rate applied to determine
service cost and interest cost to arrive at pension income or
expense for the year.
The discount rate represents the current market interest rate
used to determine the present value of future cash flows
currently expected to be required to settle pension obligations.
Based on market conditions discount rates can experience
significant variability. Changes in discount rates can
significantly change the liability and accordingly the funded
status of the pension plan. The discount rate was determined at
November 30, 2010 for our pension plans, and is subject to
change each year based on changes in overall market interest
rates. The assumed discount rate represents the market rate
available for investments in high-quality fixed income
instruments with maturities matched to the expected benefit
payments for pension and medical and life benefit plans. For
fiscal 2010 pension benefit obligations, the discount rate was
decreased by 44 basis points to 5.21% for the qualified
pension plan and decreased by 26 basis points to 5.34% for
the non qualified benefit restoration plan, and for medical and
life benefit obligations the discount rate was decreased by
44 basis points to 4.65%.
The expected long-term rate of return on plan assets represents
the rate of earnings expected in the funds invested to provide
for anticipated benefit payments. With input from our investment
advisors and actuaries, we analyzed the expected rates of return
on assets and determined that a long term rate of 8.00% is
reasonable based on the current and expected asset allocations
and on the plans’ historical investment performance and
best estimates for future investment performance. Our asset
managers regularly review actual asset allocations and
periodically rebalance investments to targeted allocations when
considered appropriate.
Market conditions and interest rates significantly affect assets
and liabilities of our pension plans. Pension accounting permits
market gains and losses to be deferred and recognized over a
period of years. This “smoothing” results in the
creation of other accumulated income or loss which will be
amortized to pension costs in future years. The accounting
method we utilize recognizes one-fifth of the unamortized gains
and losses in the market-related value of pension assets and all
other gains and losses including changes in the discount rate
used to calculate benefit costs each year. Investment gains or
losses for this purpose are the difference between the expected
return and the actual return on the market-related value of
assets which smoothes asset values over three years. Although
the smoothing period mitigates some volatility in the
calculation of annual pension costs, future pension costs are
impacted by changes in the market value of pension plan assets
and changes in interest rates.
In addition, we maintain medical and life benefits other than
pensions that are not funded.
A one percentage point change in the key assumptions would have
the following effects on the projected benefit obligations as of
November 30, 2010 and on expense for fiscal 2011:
|
Pension Benefits and
|
||||||||||||||||||||
|
Medical and Life Benefits
|
Expected Long-term
|
Assumed Healthcare
|
||||||||||||||||||
| Discount Rate | Rate of Return | Cost Trend Rate | ||||||||||||||||||
|
Projected
|
Net Periodic
|
Accumulated
|
||||||||||||||||||
|
Net Periodic
|
Benefit
|
Net Periodic Pension
|
Medical and Life
|
Benefit
|
||||||||||||||||
| Benefit Expense | Obligation | Benefit Expense | Benefit Expense | Obligation | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
1% decrease
|
$ | 21.3 | $ | 153.4 | $ | 12.8 | $ | (0.1 | ) | $ | (2.0 | ) | ||||||||
|
1% increase
|
(20.9 | ) | (140.3 | ) | (12.8 | ) | 0.1 | 2.2 | ||||||||||||
50
Table of Contents
Contingencies
and Litigation
We are currently involved in certain legal proceedings and, as
required, have accrued our estimate of the probable costs for
resolution of these claims. These estimates are based upon an
analysis of potential results, assuming a combination of
litigation and settlement strategies. It is possible, however,
that future results of operations for any particular quarterly
or annual period could be materially affected by changes in
assumptions or the effectiveness of strategies related to these
proceedings. See Notes 7(b) and 7(c) in Notes to
Consolidated Financial Statements for more detailed information
on litigation exposure.
Reserves
for Environmental Remediation and Recoverable from the U.S.
Government and Other Third Parties for Environmental Remediation
Costs
For a discussion of our accounting for environmental remediation
obligations and costs and related legal matters, see
“Environmental Matters” above and Notes 7(c) and
7(d) in Notes to Consolidated Financial Statements.
We accrue for costs associated with the remediation of
environmental contamination when it becomes probable that a
liability has been incurred, and when our costs can be
reasonably estimated. Management has a well-established process
in place to identify and monitor our environmental exposures. In
most cases, only a range of reasonably probable costs can be
estimated. In establishing the reserves, the most probable
estimated amount is used when determinable, and the minimum
amount is used when no single amount in the range is more
probable. Environmental reserves include the costs of completing
remedial investigation and feasibility studies, remedial and
corrective actions, regulatory oversight costs, the cost of
operation and maintenance of the remedial action plan, and
employee compensation costs for employees who are expected to
devote a significant amount of time to remediation efforts.
Calculation of environmental reserves is based on the evaluation
of currently available information with respect to each
individual environmental site and considers factors such as
existing technology, presently enacted laws and regulations, and
prior experience in remediation of contaminated sites. Such
estimates are based on the expected costs of investigation and
remediation and the likelihood that other potentially
responsible parties will be able to fulfill their commitments at
sites where we may be jointly or severally liable.
As of November 30, 2010, the aggregate range of our
environmental costs was $217.7 million to
$379.9 million and the accrued amount was
$217.7 million, of which $206.0 million relates to
Aerojet sites and $11.7 million relates to non-Aerojet
sites. Environmental remediation cost estimation involves
significant uncertainties, including the extent of the
remediation required, changing governmental regulations and
legal standards regarding liability, evolving technologies and
the long periods of time over which most remediation efforts
take place. A number of factors could substantially change
environmental remediation cost estimates, examples of which
include: regulatory changes reducing the allowable levels of
contaminants such as perchlorate, nitrosodimethylamine or
others; enhanced monitoring and testing technology or protocols
which could result in the discovery of previously undetected
contaminants; and the implementation of new remediation
technologies which could reduce future remediation costs.
On January 12, 1999, Aerojet and the U.S. government
implemented the Global Settlement resolving certain prior
environmental and facility disagreements, with retroactive
effect to December 1, 1998. The Global Settlement covered
all environmental contamination at the Sacramento and Azusa
sites. Under the Global Settlement, Aerojet and the
U.S. government resolved disagreements about an appropriate
cost-sharing ratio. The Global Settlement provides that the
cost-sharing ratio will continue for a number of years.
Pursuant to the Global Settlement covering environmental costs
associated with Aerojet’s Sacramento site and its former
Azusa site, Aerojet can recover up to 88% of its environmental
remediation costs for these sites through the establishment of
prices for Aerojet’s products and services sold to the
U.S. government. Allowable environmental costs are charged
to these contracts as the costs are incurred. Aerojet’s mix
of contracts can affect the actual reimbursement made by the
U.S. government. Because these costs are recovered through
forward-pricing arrangements, the ability to continue recovering
these costs depends on Aerojet’s sustained business volume
under U.S. government contracts and programs and the
relative size of Aerojet’s commercial business.
Based on Aerojet’s projected business volume and the
proportion of its business expected to be covered by the Global
Settlement, Aerojet currently believes that, as of
November 30, 2010, approximately $172.8 million of its
estimated recorded future environmental costs will be
recoverable. Significant estimates and assumptions that could
51
Table of Contents
affect the future recovery of environmental remediation costs
include: the proportion of Aerojet’s future business base
and total business volume which will be subject to the Global
Settlement; limitations on the amount of recoveries available
under the Northrop Agreement; the ability of Aerojet to
competitively bid and win future government contracts if
estimated environmental costs significantly increase; the
relative size of Aerojet’s commercial business base; the
timing of environmental expenditures; and uncertainties inherent
in long-term cost projections of environmental remediation
projects.
Our environmental expenses related to non-Aerojet sites are
generally not recoverable and a significant increase in the
estimated environmental expenses for our non-Aerojet sites could
have a material adverse effect on our operating results,
financial condition,
and/or
cash
flows.
Income
Taxes
We file a consolidated U.S. federal income tax return for
the Company and our wholly-owned consolidated subsidiaries. The
deferred tax assets
and/or
liabilities are determined by multiplying the differences
between the financial reporting and tax reporting bases for
assets and liabilities by the enacted tax rates expected to be
in effect when such differences are recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized
in the period of the enactment date of the change.
The carrying value of our deferred tax assets is dependent upon
our ability to generate sufficient taxable income in the future.
We have established a valuation allowance against a substantial
portion of our net deferred tax assets to reflect the
uncertainty of realizing the deferred tax benefits, given
historical losses including accumulated other comprehensive
losses. A valuation allowance is required when it is
more-likely-than-not that all or a portion of a deferred tax
asset will not be realized. A review of all available positive
and negative evidence is considered, including our past and
future performance, the market environment in which we operate,
the utilization of tax attributes in the past, the length of
carryback and carryforward periods, and evaluation of potential
tax planning strategies.
Despite our belief that our tax return positions are consistent
with applicable tax laws, we believe that certain positions are
likely to be challenged by taxing authorities. Settlement of any
challenge can result in no change, a complete disallowance, or
some partial adjustment reached through negotiations or
litigation. Our tax reserves reflect the difference between the
tax benefit claimed on tax returns and the amount recognized in
the financial statements. The accounting standards provide
guidance for the recognition and measurement in financial
statements for uncertain tax positions taken or expected to be
taken in a tax return. The evaluation of a tax position is a
two-step process, the first step being recognition. We determine
whether it is more-likely-than-not that a tax position will be
sustained upon tax examination, including resolution of any
related appeals or litigation, based on only the technical
merits of the position. The technical merits of a tax position
are derived from both statutory and judicial authority
(legislation and statutes, legislative intent, regulations,
rulings, and case law) and their applicability to the facts and
circumstances of the tax position. If a tax position does not
meet the more-likely-than-not recognition threshold, the benefit
of that position is not recognized in the financial statements.
The second step is measurement. A tax position that meets the
more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognize in the financial
statements. The tax position is measured as the largest amount
of benefit that is greater than 50% likely of being realized
upon ultimate resolution with a taxing authority. As the
examination process progresses with tax authorities, adjustments
to tax reserves may be necessary to reflect taxes payable upon
settlement. Tax reserve adjustments related to positions
impacting the effective tax rate affect the provision for income
taxes. Tax reserve adjustments related to positions impacting
the timing of deductions impact deferred tax assets and
liabilities.
Recently
Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board
(“FASB”) issued updated guidance to improve
disclosures regarding fair value measurements. This update
requires entities to (i) disclose separately the amounts of
significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons
for the transfers and (ii) present separately (i.e., on a
gross basis rather than as one net number), information about
purchases, sales, issuances, and settlements in the roll forward
of changes in Level 3 fair value measurements. The update
requires fair value disclosures by class of assets and
liabilities rather than by major category or line item in
52
Table of Contents
the statement of financial position. Disclosures regarding the
valuation techniques and inputs used to measure fair value for
both recurring and nonrecurring fair value measurements for
assets and liabilities in both Level 2 and Level 3 are
also required. For all portions of the update except the gross
presentation of activity in the Level 3 roll forward, this
standard was effective for us on March 1, 2010. For the gross
presentation of activity in the Level 3 roll forward, the
new disclosures will be presented in our quarterly financial
statements for the period ending February 28, 2012.
In April 2010, the FASB issued updated guidance on the use of
the milestone method of revenue recognition that applies to
research or development transactions in which one or more
payments are contingent upon achieving uncertain future events
or circumstances. This update provides guidance on the criteria
that should be met for determining whether the milestone method
of revenue recognition is appropriate. This guidance is
effective on a prospective basis for milestones achieved in
fiscal years beginning on or after June 15, 2010. We are
currently evaluating the impact of this guidance on our
financial statements.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Policies
and Procedures
As an element of our normal business practice, we have
established policies and procedures for managing our exposure to
changes in interest rates.
The objective in managing exposure to interest rate changes is
to limit the impact of interest rate changes on earnings and
cash flow and to make overall borrowing costs more predictable.
To achieve this objective, we may use interest rate hedge
transactions or other interest rate hedge instruments to manage
the net exposure to interest rate changes related to our
portfolio of borrowings and to balance our fixed rate compared
to floating rate debt. We did not enter into any interest rate
hedge transactions or instruments during the past three fiscal
years.
Interest
Rate Risk
We are exposed to market risk principally due to changes in
interest rates. Debt with interest rate risk includes borrowings
under our Senior Credit Facility. Other than pension assets and
liabilities, we do not have any significant exposure to interest
rate risk related to our investments.
As of November 30, 2010, our debt totaled
$392.7 million: $341.6 million, or 87%, was at an
average fixed rate of 4.86%; and $51.1 million, or 13%, was
at a variable rate of 3.55%.
The estimated fair value and principal amount for the
Company’s debt are presented below:
| Fair Value | Principal Amount | |||||||||||||||
|
November 30,
|
November 30,
|
November 30,
|
November 30,
|
|||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In millions) | ||||||||||||||||
|
Term loan
|
$ | 49.8 | $ | 62.8 | $ | 51.1 | $ | 68.3 | ||||||||
|
9
1
/
2
% Notes
|
75.9 | 96.0 | 75.0 | 97.5 | ||||||||||||
|
4% Notes
|
— | 124.7 | — | 125.0 | ||||||||||||
|
2
1
/
4
% Debentures(1)
|
67.6 | 131.0 | 68.6 | 146.4 | ||||||||||||
|
4
1
/
16
% Debentures
|
183.8 | — | 200.0 | — | ||||||||||||
|
Other debt
|
2.0 | 1.4 | 2.0 | 1.4 | ||||||||||||
| $ | 379.1 | $ | 415.9 | $ | 396.7 | $ | 438.6 | |||||||||
| (1) | Excludes the unamortized debt discount of $4.0 million and $17.0 million as of November 30, 2010 and November 30, 2009, respectively. |
The fair values of the term loan,
9
1
/
2
% Notes,
4% Notes,
2
1
/
4
% Debentures,
and
4
1
/
16
% Debentures
were determined using broker quotes that are based on open
markets of our debt securities as of November 30, 2010 and
November 30, 2009, respectively. The fair value of the
other debt was determined to approximate carrying value.
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Table of Contents
| Item 8. | Consolidated Financial Statements and Supplementary Data |
To the Board of Directors and Shareholders of GenCorp Inc.:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of GenCorp Inc.
and its subsidiaries at November 30, 2010 and 2009, and the
results of their operations and their cash flows for each of the
three years in the period ended November 30, 2010 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under
Item 15(a)(2) presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
November 30, 2010, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Management’s Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedule, and on the Company’s internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 1 to the consolidated financial
statements, during 2010 the Company changed its method of
accounting for certain convertible debt instruments, adopted the
guidance providing additional disclosures for plan assets of the
defined benefit pension plan, adopted the guidance providing
additional fair value measurement disclosures, and adopted the
guidance for including unvested share-based payment awards in
the computation of earnings per share. During 2009, the Company
adopted a new measurement date for pension and retirement plan
assets and benefit obligations, and adopted new guidance for
fair value measurements related to non-financial assets and
liabilities. During 2008, the Company adopted new fair value
measurement and disclosure accounting principles, and changed
its method of accounting for uncertainty in income taxes.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Sacramento, California
February 2, 2011
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Table of Contents
GENCORP
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions, except per share amounts) | ||||||||||||
|
Net sales
|
$ | 857.9 | $ | 795.4 | $ | 742.3 | ||||||
|
Operating costs and expenses:
|
||||||||||||
|
Cost of sales (exclusive of items shown separately below)
|
753.9 | 674.0 | 645.4 | |||||||||
|
Selling, general and administrative
|
26.7 | 10.2 | 1.9 | |||||||||
|
Depreciation and amortization
|
27.9 | 25.7 | 25.5 | |||||||||
|
Other expense, net
|
8.5 | 2.9 | 7.6 | |||||||||
|
Unusual items
|
||||||||||||
|
Shareholder agreement and related costs
|
— | — | 16.8 | |||||||||
|
Executive severance agreements
|
1.4 | 3.1 | — | |||||||||
|
Defined benefit pension plan amendment
|
— | — | 14.6 | |||||||||
|
Loss on legal matters and settlements
|
2.8 | 1.3 | 2.9 | |||||||||
|
Loss on bank amendment
|
0.7 | 0.2 | — | |||||||||
|
Loss on debt repurchased
|
1.2 | — | — | |||||||||
|
Gain on legal settlement and insurance recoveries
|
(2.7 | ) | — | (1.2 | ) | |||||||
|
Total operating costs and expenses
|
820.4 | 717.4 | 713.5 | |||||||||
|
Operating income
|
37.5 | 78.0 | 28.8 | |||||||||
|
Non-operating (income) expense
|
||||||||||||
|
Interest expense
|
37.0 | 38.6 | 37.2 | |||||||||
|
Interest income
|
(1.6 | ) | (1.9 | ) | (4.2 | ) | ||||||
|
Total non-operating expense, net
|
35.4 | 36.7 | 33.0 | |||||||||
|
Income (loss) from continuing operations before income taxes
|
2.1 | 41.3 | (4.2 | ) | ||||||||
|
Income tax (benefit) provision
|
(3.9 | ) | (17.6 | ) | 0.9 | |||||||
|
Income (loss) from continuing operations
|
6.0 | 58.9 | (5.1 | ) | ||||||||
|
Income (loss) from discontinued operations, net of income taxes
|
0.8 | (6.7 | ) | (0.1 | ) | |||||||
|
Net income (loss)
|
$ | 6.8 | $ | 52.2 | $ | (5.2 | ) | |||||
|
Income (loss) per share of common stock
|
||||||||||||
|
Basic:
|
||||||||||||
|
Income (loss) per share from continuing operations
|
$ | 0.11 | $ | 1.00 | $ | (0.09 | ) | |||||
|
Income (loss) from discontinued operations, net of income taxes
|
0.01 | (0.11 | ) | — | ||||||||
|
Net income (loss) per share
|
$ | 0.12 | $ | 0.89 | $ | (0.09 | ) | |||||
|
Diluted:
|
||||||||||||
|
Income (loss) per share from continuing operations
|
$ | 0.11 | $ | 0.96 | $ | (0.09 | ) | |||||
|
Income (loss) from discontinued operations, net of income taxes
|
0.01 | (0.10 | ) | — | ||||||||
|
Net income (loss) per share
|
$ | 0.12 | $ | 0.86 | $ | (0.09 | ) | |||||
|
Weighted average shares of common stock outstanding
|
58.5 | 58.4 | 57.2 | |||||||||
|
Weighted average shares of common stock outstanding, assuming
dilution
|
58.6 | 66.5 | 57.2 | |||||||||
See Notes to Consolidated Financial Statements.
55
Table of Contents
GENCORP
INC.
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
|
November 30,
|
November 30,
|
|||||||
| 2010 | 2009 | |||||||
| (In millions, except per share amounts) | ||||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 181.5 | $ | 126.3 | ||||
|
Marketable securities
|
26.7 | — | ||||||
|
Accounts receivable
|
106.7 | 116.3 | ||||||
|
Inventories
|
51.1 | 61.8 | ||||||
|
Recoverable from the U.S. government and other third parties for
environmental remediation costs and other
|
32.0 | 30.6 | ||||||
|
Grantor trust
|
1.8 | 2.4 | ||||||
|
Other receivables, prepaid expenses and other
|
25.3 | 32.8 | ||||||
|
Income taxes
|
7.5 | 2.4 | ||||||
|
Total Current Assets
|
432.6 | 372.6 | ||||||
|
Noncurrent Assets
|
||||||||
|
Property, plant and equipment, net
|
126.4 | 129.9 | ||||||
|
Real estate held for entitlement and leasing
|
59.9 | 55.3 | ||||||
|
Recoverable from the U.S. government and other third parties for
environmental remediation costs and other
|
151.5 | 154.3 | ||||||
|
Grantor trust
|
14.5 | 17.8 | ||||||
|
Goodwill
|
94.9 | 94.9 | ||||||
|
Intangible assets
|
16.9 | 18.5 | ||||||
|
Other noncurrent assets, net
|
94.8 | 91.6 | ||||||
|
Total Noncurrent Assets
|
558.9 | 562.3 | ||||||
|
Total Assets
|
$ | 991.5 | $ | 934.9 | ||||
| LIABILITIES, REDEEMABLE COMMON STOCK, AND SHAREHOLDERS’ DEFICIT | ||||||||
|
Current Liabilities
|
||||||||
|
Short-term borrowings and current portion of long-term debt
|
$ | 66.0 | $ | 17.8 | ||||
|
Accounts payable
|
27.1 | 18.4 | ||||||
|
Reserves for environmental remediation costs
|
40.7 | 44.5 | ||||||
|
Postretirement medical and life benefits
|
7.1 | 7.2 | ||||||
|
Advance payments on contracts
|
110.0 | 66.0 | ||||||
|
Other current liabilities
|
110.3 | 107.5 | ||||||
|
Total Current Liabilities
|
361.2 | 261.4 | ||||||
|
Noncurrent Liabilities
|
||||||||
|
Senior debt
|
50.6 | 51.2 | ||||||
|
Senior subordinated notes
|
75.0 | 97.5 | ||||||
|
Convertible subordinated notes
|
200.0 | 254.4 | ||||||
|
Other debt
|
1.1 | 0.7 | ||||||
|
Deferred income taxes
|
7.6 | 9.6 | ||||||
|
Reserves for environmental remediation costs
|
177.0 | 178.2 | ||||||
|
Pension benefits
|
175.5 | 210.3 | ||||||
|
Postretirement medical and life benefits
|
71.8 | 75.7 | ||||||
|
Other noncurrent liabilities
|
66.8 | 68.8 | ||||||
|
Total Noncurrent Liabilities
|
825.4 | 946.4 | ||||||
|
Total Liabilities
|
1,186.6 | 1,207.8 | ||||||
|
Commitments and Contingencies (Note 7)
|
||||||||
|
Redeemable common stock, par value of $0.10; 0.5 million
shares issued and outstanding as of November 30, 2010;
0.6 million shares issued and outstanding as of
November 30, 2009 (Note 8)
|
5.1 | 6.0 | ||||||
|
Shareholders’ Deficit
|
||||||||
|
Preference stock, par value of $1.00; 15.0 million shares
authorized; none issued or outstanding
|
— | — | ||||||
|
Common stock, par value of $0.10; 150.0 million shares
authorized; 58.1 million shares issued and outstanding as
of November 30, 2010; 57.9 million shares issued and
outstanding as of November 30, 2009
|
5.9 | 5.9 | ||||||
|
Other capital
|
257.3 | 258.0 | ||||||
|
Accumulated deficit
|
(182.2 | ) | (189.0 | ) | ||||
|
Accumulated other comprehensive loss, net of income taxes
|
(281.2 | ) | (353.8 | ) | ||||
|
Total Shareholders’ Deficit
|
(200.2 | ) | (278.9 | ) | ||||
|
Total Liabilities, Redeemable Common Stock and
Shareholders’ Deficit
|
$ | 991.5 | $ | 934.9 | ||||
See Notes to Consolidated Financial Statements.
56
Table of Contents
GENCORP
INC.
COMPREHENSIVE
INCOME (LOSS)
|
Accumulated
|
||||||||||||||||||||||||||||
|
Comprehensive
|
Other
|
Total
|
||||||||||||||||||||||||||
|
Income
|
Common Stock |
Other
|
Accumulated
|
Comprehensive
|
Shareholders’
|
|||||||||||||||||||||||
| (Loss) | Shares | Amount | Capital | Deficit | Loss | Deficit | ||||||||||||||||||||||
| (In millions, except share amounts) | ||||||||||||||||||||||||||||
|
November 30, 2007
|
56,586,720 | $ | 5.7 | $ | 252.5 | $ | (244.7 | ) | $ | (35.5 | ) | $ | (22.0 | ) | ||||||||||||||
|
Net loss
|
$ | (5.2 | ) | — | — | — | (5.2 | ) | — | (5.2 | ) | |||||||||||||||||
|
Amortization of net actuarial losses
|
7.9 | — | — | — | — | 7.9 | 7.9 | |||||||||||||||||||||
|
Actuarial losses arising during the period, net
|
(51.8 | ) | — | — | — | — | (51.8 | ) | (51.8 | ) | ||||||||||||||||||
|
Amortization of prior service costs
|
2.1 | — | — | — | — | 2.1 | 2.1 | |||||||||||||||||||||
|
Prior service costs arising during the period, net
|
(5.3 | ) | — | — | — | — | (5.3 | ) | (5.3 | ) | ||||||||||||||||||
|
Curtailment
|
50.9 | — | — | — | — | 50.9 | 50.9 | |||||||||||||||||||||
|
Cumulative effect adjustment related to the adoption of new
income tax accounting standard
|
— | — | — | — | 9.1 | — | 9.1 | |||||||||||||||||||||
|
Reclassification to redeemable common stock
|
— | (754,863 | ) | (0.1 | ) | (7.5 | ) | — | — | (7.6 | ) | |||||||||||||||||
|
Stock-based compensation
|
— | — | — | 1.6 | — | — | 1.6 | |||||||||||||||||||||
|
Shares issued under stock option and stock incentive plans, net
|
— | 1,421,544 | 0.1 | 8.4 | — | — | 8.5 | |||||||||||||||||||||
|
November 30, 2008
|
$ | (1.4 | ) | 57,253,401 | 5.7 | 255.0 | (240.8 | ) | (31.7 | ) | (11.8 | ) | ||||||||||||||||
|
Net income
|
$ | 52.2 | — | — | — | 52.2 | — | 52.2 | ||||||||||||||||||||
|
Amortization of net actuarial gains
|
(9.0 | ) | — | — | — | — | (9.0 | ) | (9.0 | ) | ||||||||||||||||||
|
Actuarial losses arising during the period, net
|
(313.4 | ) | — | — | — | — | (313.4 | ) | (313.4 | ) | ||||||||||||||||||
|
Amortization of prior service costs
|
0.1 | — | — | — | — | 0.1 | 0.1 | |||||||||||||||||||||
|
Reclassification from redeemable common stock
|
— | 183,105 | 0.1 | 1.5 | — | — | 1.6 | |||||||||||||||||||||
|
Stock-based compensation
|
— | — | — | 0.1 | — | — | 0.1 | |||||||||||||||||||||
|
Cumulative effect adjustment related to the adoption of new
defined benefit pension plan accounting standard
|
— | — | — | — | (0.4 | ) | 0.2 | (0.2 | ) | |||||||||||||||||||
|
Shares issued under stock option and stock incentive plans, net
|
— | 487,257 | 0.1 | 1.4 | — | — | 1.5 | |||||||||||||||||||||
|
November 30, 2009
|
$ | (270.1 | ) | 57,923,763 | 5.9 | 258.0 | (189.0 | ) | (353.8 | ) | (278.9 | ) | ||||||||||||||||
|
Net income
|
$ | 6.8 | — | — | — | 6.8 | — | 6.8 | ||||||||||||||||||||
|
Amortization of net actuarial losses
|
54.9 | — | — | — | — | 54.9 | 54.9 | |||||||||||||||||||||
|
Actuarial gains arising during the period, net
|
17.6 | — | — | — | — | 17.6 | 17.6 | |||||||||||||||||||||
|
Amortization of prior service costs
|
0.1 | — | — | — | — | 0.1 | 0.1 | |||||||||||||||||||||
|
Reclassification from redeemable common stock
|
— | 88,833 | — | 0.9 | — | — | 0.9 | |||||||||||||||||||||
|
Repurchase of convertible debt
|
— | — | — | (2.9 | ) | — | — | (2.9 | ) | |||||||||||||||||||
|
Stock-based compensation
|
— | 81,847 | — | 1.3 | — | — | 1.3 | |||||||||||||||||||||
|
November 30, 2010
|
$ | 79.4 | 58,094,443 | $ | 5.9 | $ | 257.3 | $ | (182.2 | ) | $ | (281.2 | ) | $ | (200.2 | ) | ||||||||||||
See Notes to Consolidated Financial Statements.
57
Table of Contents
GENCORP
INC.
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Operating Activities
|
||||||||||||
|
Net income (loss)
|
$ | 6.8 | $ | 52.2 | $ | (5.2 | ) | |||||
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
||||||||||||
|
(Income) loss from discontinued operations, net of income taxes
|
(0.8 | ) | 6.7 | 0.1 | ||||||||
|
Depreciation and amortization
|
27.9 | 25.7 | 25.5 | |||||||||
|
Amortization of debt discount and financing costs
|
10.5 | 12.7 | 9.5 | |||||||||
|
Stock-based compensation
|
0.4 | 2.9 | 0.2 | |||||||||
|
Savings plan expense, non-cash
|
— | 1.5 | 9.2 | |||||||||
|
Net recognized gain on marketable securities
|
(0.1 | ) | — | — | ||||||||
|
Impairment of long-lived asset
|
1.6 | — | — | |||||||||
|
Loss on debt repurchased
|
1.2 | — | — | |||||||||
|
Loss on bank amendment
|
0.7 | 0.2 | — | |||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
9.6 | (19.0 | ) | 1.9 | ||||||||
|
Inventories
|
10.7 | 8.6 | (2.9 | ) | ||||||||
|
Grantor trust
|
3.9 | 10.7 | (30.9 | ) | ||||||||
|
Other receivables, prepaid expenses and other
|
5.4 | 0.2 | 1.1 | |||||||||
|
Income tax receivable
|
(5.1 | ) | 8.2 | (10.5 | ) | |||||||
|
Real estate held for entitlement and leasing
|
(5.2 | ) | (5.9 | ) | (8.0 | ) | ||||||
|
Other noncurrent assets
|
1.8 | 10.1 | 7.4 | |||||||||
|
Accounts payable
|
8.7 | (14.3 | ) | 3.8 | ||||||||
|
Pension benefits
|
39.4 | (29.0 | ) | 24.0 | ||||||||
|
Postretirement medical and life benefits
|
(5.6 | ) | (10.7 | ) | (9.7 | ) | ||||||
|
Advance payments on contracts
|
44.0 | 19.3 | (2.4 | ) | ||||||||
|
Other current liabilities
|
(2.2 | ) | (17.9 | ) | 14.8 | |||||||
|
Deferred income taxes
|
(2.0 | ) | 1.3 | 8.0 | ||||||||
|
Other noncurrent liabilities and other
|
(2.4 | ) | (12.0 | ) | (7.1 | ) | ||||||
|
Net cash provided by continuing operations
|
149.2 | 51.5 | 28.8 | |||||||||
|
Net cash used in discontinued operations
|
(1.1 | ) | (1.2 | ) | (0.8 | ) | ||||||
|
Net Cash Provided by Operating Activities
|
148.1 | 50.3 | 28.0 | |||||||||
|
Investing Activities
|
||||||||||||
|
Capital expenditures
|
(16.9 | ) | (14.3 | ) | (21.3 | ) | ||||||
|
Purchases of marketable securities
|
(154.2 | ) | — | — | ||||||||
|
Sales of marketable securities
|
127.6 | — | — | |||||||||
|
Purchases of restricted cash investments
|
(195.0 | ) | — | — | ||||||||
|
Sales of restricted cash investments
|
195.0 | — | — | |||||||||
|
Net Cash Used in Investing Activities
|
(43.5 | ) | (14.3 | ) | (21.3 | ) | ||||||
|
Financing Activities
|
||||||||||||
|
Proceeds from the issuance of debt
|
200.0 | — | — | |||||||||
|
Repayments on debt
|
(240.2 | ) | (2.0 | ) | (6.3 | ) | ||||||
|
Debt issuance costs
|
(7.7 | ) | (0.4 | ) | — | |||||||
|
Vendor financing repayments
|
(1.5 | ) | — | — | ||||||||
|
Net Cash Used in Financing Activities
|
(49.4 | ) | (2.4 | ) | (6.3 | ) | ||||||
|
Net increase in cash and cash equivalents
|
55.2 | 33.6 | 0.4 | |||||||||
|
Cash and cash equivalents at beginning of year
|
126.3 | 92.7 | 92.3 | |||||||||
|
Cash and Cash Equivalents at End of Year
|
$ | 181.5 | $ | 126.3 | $ | 92.7 | ||||||
|
Supplemental Disclosures of Cash Flow Information
|
||||||||||||
|
Capital expenditure purchased with a note payable
|
$ | 4.4 | $ | — | $ | — | ||||||
|
Capital leases
|
1.3 | — | — | |||||||||
|
Financing of an environmental remediation settlement with a
promissory note
|
— | — | 0.6 | |||||||||
|
Cash paid for income taxes
|
3.5 | 3.3 | 0.5 | |||||||||
|
Cash paid for interest
|
23.6 | 23.7 | 25.3 | |||||||||
See Notes to Consolidated Financial Statements.
58
Table of Contents
GENCORP
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Summary of Significant Accounting Policies |
a. Basis
of Presentation and Nature of Operations
The 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. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain
reclassifications have been made to financial information for
prior years to conform to the current year’s presentation.
The Company is a manufacturer of aerospace and defense products
and systems with a real estate segment that includes activities
related to the re-zoning, entitlement, sale, and leasing of the
Company’s excess real estate assets. The Company’s
continuing operations are organized into two segments:
Aerospace and Defense —
includes the operations
of Aerojet which develops and manufactures propulsion systems
for defense and space applications, armament systems for
precision tactical weapon systems and munitions applications.
Aerojet is one of the largest providers of such propulsion
systems in the United States (“U.S.”). Major market
segments include space launch and in space propulsion systems,
missile defense, tactical missile systems, and force projection
and protection systems. Primary customers served include major
prime contractors to the U.S. government, the Department of
Defense (“DoD”), and the National Aeronautics and
Space Administration (“NASA”).
Real Estate —
includes the activities of Easton
Development Company, LLC related to the entitlement, sale, and
leasing of the Company’s excess real estate assets. The
Company owns approximately 12,200 acres of land adjacent to
U.S. Highway 50 between Rancho Cordova and Folsom,
California east of Sacramento (“Sacramento Land”). The
Company is currently in the process of seeking zoning changes
and other governmental approvals on a portion of the Sacramento
Land to optimize its value.
The Company’s fiscal year ends on November 30 of each year.
The fiscal year of the Company’s subsidiary, Aerojet, ends
on the last Saturday of November. As a result of the 2008
calendar, Aerojet had 53 weeks of operations in fiscal 2008
compared to 52 weeks of operations in fiscal 2010 and 2009.
The additional week of operations, which occurred in the first
quarter of fiscal 2008, accounted for $19.1 million in
additional net sales.
On August 31, 2004, the Company completed the sale of its
GDX Automotive (“GDX”) business. On November 30,
2005, the Company completed the sale of its Fine Chemicals
business. The remaining subsidiaries of GDX, including Snappon
SA, and the Fine Chemicals business are classified as
discontinued operations (see Note 12).
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America (“GAAP”) requires the Company
to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those
estimates.
Out of
Period Adjustments
For fiscal 2010, the Company recorded out of period adjustments
to the income tax benefit and related balance sheet accounts.
The Company incorrectly recorded a valuation allowance on its
U.S. federal alternative minimum tax credits and California
research credits. The out of period adjustments resulted in the
Company reporting $1.9 million in additional net income in
fiscal 2010. Management believes that such amounts are not
material to the current or previously reported financial
statements. These adjustments increased diluted net income per
share by $0.03 for fiscal 2010.
59
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
b. Cash
and Cash Equivalents
All highly liquid debt instruments purchased with a remaining
maturity at the date of purchase of three months or less are
considered to be cash equivalents. The Company aggregates its
cash balances by bank, and reclassifies any negative balances,
if applicable, to accounts payable.
c. Fair
Value of Financial Instruments
The accounting standards use a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value. These
tiers include: Level 1, defined as observable inputs such
as quoted prices in active markets; Level 2, defined as
inputs other than quoted prices in active markets that are
either directly or indirectly observable; and Level 3,
defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions. The following are measured at fair value:
| Fair value measurement at November 30, 2010 | ||||||||||||||||
|
Quoted Prices in
|
Significant
|
|||||||||||||||
|
Active Markets
|
Other
|
Significant
|
||||||||||||||
|
for Identical
|
Observable
|
Unobservable
|
||||||||||||||
|
Assets
|
Inputs
|
Inputs
|
||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| (In millions) | ||||||||||||||||
|
Money market funds
|
$ | 154.2 | $ | 154.2 | $ | — | $ | — | ||||||||
|
Commercial paper
|
63.4 | — | 63.4 | — | ||||||||||||
|
Total
|
$ | 217.6 | $ | 154.2 | $ | 63.4 | $ | — | ||||||||
As of November 30, 2009, the estimated fair value and
carrying value of the Company’s Level 1 investments in
money market funds was $136.2 million, including
$20.2 million net money market funds in the grantor trust,
as of November 30, 2009. As of November 30, 2009, the
Company did not have any Level 2 or Level 3
investments.
As of November 30, 2010, a summary of cash and cash
equivalents, marketable securities, and grantor trust by
investment type is as follows:
|
Cash and
|
Money Market
|
Commercial
|
||||||||||||||
| Total | Cash Equivalents | Funds | Paper | |||||||||||||
| (In millions) | ||||||||||||||||
|
Cash and cash equivalents
|
$ | 181.5 | $ | 7.2 | $ | 137.6 | $ | 36.7 | ||||||||
|
Marketable securities
|
26.7 | — | — | 26.7 | ||||||||||||
|
Grantor trust(1)
|
16.6 | — | 16.6 | — | ||||||||||||
| $ | 224.8 | $ | 7.2 | $ | 154.2 | $ | 63.4 | |||||||||
| (1) | Includes $0.3 million in accrued amounts reimbursable to the Company which are reflected in other current and noncurrent assets. |
60
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The estimated fair value and principal amount for the
Company’s debt is presented below:
| Fair Value | Principal Amount | |||||||||||||||
|
November 30,
|
November 30,
|
November 30,
|
November 30,
|
|||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In millions) | ||||||||||||||||
|
Term loan
|
$ | 49.8 | $ | 62.8 | $ | 51.1 | $ | 68.3 | ||||||||
|
9
1
/
2
% Senior
Subordinated Notes
(“9
1
/
2
% Notes”)
|
75.9 | 96.0 | 75.0 | 97.5 | ||||||||||||
|
4% Contingent Convertible Subordinated Notes
(“4% Notes”)
|
— | 124.7 | — | 125.0 | ||||||||||||
|
2
1
/
4
% Convertible
Subordinated Debentures
(“2
1
/
4
% Debentures”)(1)
|
67.6 | 131.0 | 68.6 | 146.4 | ||||||||||||
|
4
1
/
16
% Convertible
Subordinated Debentures
(“4
1
/
16
% Debentures”)
|
183.8 | — | 200.0 | — | ||||||||||||
|
Other debt
|
2.0 | 1.4 | 2.0 | 1.4 | ||||||||||||
| $ | 379.1 | $ | 415.9 | $ | 396.7 | $ | 438.6 | |||||||||
| (1) | Excludes the unamortized debt discount of $4.0 million and $17.0 million as of November 30, 2010 and November 30, 2009, respectively. |
The fair values of the term loan,
9
1
/
2
% Notes,
4% Notes,
2
1
/
4
% Debentures,
and
4
1
/
16
% Debentures
were determined using broker quotes that are based on open
markets of the Company’s debt securities as of
November 30, 2010 and November 30, 2009, respectively.
The fair value of the other debt was determined to approximate
carrying value.
d. Accounts
Receivable
Accounts receivable associated with long-term contracts consist
of billed and unbilled amounts. Billed amounts include invoices
presented to customers that have not been paid. Unbilled amounts
relate to revenues that have been recorded and billings that
have not been presented to customers. Amounts for overhead
disallowances are reflected in unbilled receivables and
primarily represent estimates of potential overhead costs which
may not be successfully negotiated and collected.
Other receivables represent amounts billed where revenues were
not derived from long-term contracts.
e. Inventories
Inventories are stated at the lower of cost or market, generally
using the average cost method. Costs on long-term contracts and
programs in progress represent recoverable costs incurred for
production, contract-specific facilities and equipment,
allocable operating overhead, advances to suppliers,
environmental expenses and, in the case of contracts with the
U.S. government, bid and proposal, research and
development, and general and administrative expenses. Pursuant
to contract provisions, agencies of the U.S. government and
certain other customers have title to, or a security interest
in, inventories related to such contracts as a result of
performance-based and progress payments. Such progress payments
are reflected as an offset against the related inventory
balances.
f. Income
Taxes
The Company files a consolidated U.S. federal income tax
return with its consolidated wholly-owned subsidiaries. The
deferred tax assets
and/or
liabilities are determined by multiplying the differences
between the financial reporting and tax reporting bases for
assets and liabilities by the enacted tax rates expected to be
in
61
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
effect when such differences are recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized
in the period of the enactment date of the change.
The carrying value of the Company’s deferred tax assets is
dependent upon its ability to generate sufficient taxable income
in the future. The Company has established a valuation allowance
against a substantial portion of its net deferred tax assets to
reflect the uncertainty of realizing the deferred tax benefits,
given historical losses including accumulated other
comprehensive losses. A valuation allowance is required when it
is more-likely-than-not that all or a portion of a deferred tax
asset will not be realized. A review of all available positive
and negative evidence is considered, including the
Company’s past and future performance, the market
environment in which it operates, the utilization of tax
attributes in the past, the length of carryback and carryforward
periods, and evaluation of potential tax planning strategies.
Despite the Company’s belief that its tax return positions
are consistent with applicable tax laws, the Company believes
that certain positions are likely to be challenged by taxing
authorities. Settlement of any challenge can result in no
change, a complete disallowance, or some partial adjustment
reached through negotiations or litigation. The Company’s
tax reserves reflect the difference between the tax benefit
claimed on tax returns and the amount recognized in the
financial statements. The accounting standards provide guidance
for the recognition and measurement in financial statements for
uncertain tax positions taken or expected to be taken in a tax
return. The evaluation of a tax position is a two-step process,
the first step being recognition. The Company determines whether
it is more-likely-than-not that a tax position will be sustained
upon tax examination, including resolution of any related
appeals or litigation, based on only the technical merits of the
position. The technical merits of a tax position are derived
from both statutory and judicial authority (legislation and
statutes, legislative intent, regulations, rulings, and case
law) and their applicability to the facts and circumstances of
the tax position. If a tax position does not meet the
more-likely-than-not recognition threshold, the benefit of that
position is not recognized in the financial statements. The
second step is measurement. A tax position that meets the
more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognize in the financial
statements. The tax position is measured as the largest amount
of benefit that is greater than 50% likely of being realized
upon ultimate resolution with a taxing authority. As the
examination process progresses with tax authorities, adjustments
to tax reserves may be necessary to reflect taxes payable upon
settlement. Tax reserve adjustments related to positions
impacting the effective tax rate affect the provision for income
taxes. Tax reserve adjustments related to positions impacting
the timing of deductions impact deferred tax assets and
liabilities.
g. Property,
Plant and Equipment, net
Property, plant and equipment are recorded at cost.
Refurbishment costs are capitalized in the property accounts,
whereas ordinary maintenance and repair costs are expensed as
incurred. Depreciation is computed principally by accelerated
methods based on the following useful lives:
|
Buildings and improvements
|
6 — 40 years | |||
|
Machinery and equipment
|
3 — 19 years |
h. Real
Estate Held for Entitlement and Leasing
The Company capitalizes all costs associated with the real
estate entitlement and leasing process. The Company classifies
activities related to the entitlement, sale, and leasing of its
excess real estate assets as operating activities in the
consolidated statements of cash flows.
i. Goodwill
Goodwill represents the excess of the purchase price of an
acquired enterprise or assets over the fair values of the
identifiable assets acquired and liabilities assumed. Tests for
impairment of goodwill are performed on an annual basis, or at
any other time, if events occur or circumstances indicate that
the carrying amount of goodwill
62
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
may not be recoverable. The Company performed the impairment
test for goodwill as of September 1, 2010 and determined
that goodwill was not impaired.
Circumstances that could trigger an impairment test include but
are not limited to: a significant adverse change in the business
climate or legal factors; adverse cash flow trends; an adverse
action or assessment by a regulator; unanticipated competition;
loss of key personnel; decline in stock price; and results of
testing for recoverability of a significant asset group within a
reporting unit. If the carrying amount of the reporting
unit’s goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recorded.
All of the Company’s recorded goodwill resides in the
Aerospace and Defense reporting unit. To determine the fair
value of the Company’s Aerospace and Defense reporting
unit, the Company primarily relies upon a discounted cash flow
analysis which requires significant assumptions and estimates
about future operations, including judgments about expected
revenue growth and operating margins, and timing and amounts of
expected future cash flows. The cash flows employed in the
discounted cash flow analysis are based on ten-year financial
forecasts developed internally by management. The analysis also
involves discounting the future cash flows to a present value
using a discount rate that properly accounts for the risk and
nature of the reporting unit cash flows and the rates of return
debt and equity holders would require to invest their capital in
the Aerospace and Defense reporting unit. In assessing the
reasonableness of the Company’s estimated fair value of the
Aerospace and Defense reporting unit, the Company evaluates the
results of the discounted cash flow analysis in light of what
investors are paying for similar interests in comparable
aerospace and defense companies as of the valuation date. The
Company also ensures that the reporting unit fair value is
reasonable given the market value of the entire Company as of
the valuation date.
There can be no assurance that the Company’s estimates and
assumptions made for purposes of its goodwill impairment testing
as of September 1, 2010 will prove to be accurate
predictions of the future. If the Company’s assumptions
regarding forecasted revenue or margin growth rates are not
achieved, the Company may be required to record goodwill
impairment charges in future periods, whether in connection with
the Company’s next annual impairment testing on
September 1, 2011 or prior to that, if any such change
constitutes a triggering event outside of the quarter from when
the annual goodwill impairment test is performed. Although the
fair value of the Aerospace and Defense reporting unit
substantially exceeded the carrying value at September 1,
2010, it is not possible at this time to determine if any such
future impairment charge would result or, if it does, whether
such charge would be material.
j. Intangible
Assets
Identifiable intangible assets, such as patents, trademarks, and
licenses are recorded at cost or when acquired as part of a
business combination at estimated fair value. Identifiable
intangible assets are amortized based on when they provide the
Company economic benefit, or using the straight-line method,
over their estimated useful life. Amortization periods for
identifiable intangible assets range from 20 years to
27 years.
k. Environmental
Remediation
The Company expenses, on a current basis, recurring costs
associated with managing hazardous substances and contamination
in ongoing operations. The Company accrues for costs associated
with the remediation of environmental contamination when it
becomes probable that a liability has been incurred, and the
amount can be reasonably estimated. In most cases only a range
of reasonably probable costs can be estimated. In establishing
the Company’s reserves, the most probable estimated amount
is used when determinable, and the minimum amount is used when
no single amount in the range is more probable. The
Company’s environmental reserves include the costs of
completing remedial investigation and feasibility studies,
remedial and corrective actions, regulatory oversight costs, the
cost of operation and maintenance of the remedial action plan,
and employee compensation costs for employees who are expected
to devote a significant amount of time to remediation efforts.
Calculation of environmental reserves is based on the evaluation
of currently available information with respect to each
individual
63
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
environmental site and considers factors such as existing
technology, presently enacted laws and regulations, and prior
experience in remediation of contaminated sites. Such estimates
are based on the expected costs of investigation and remediation
and the likelihood that other potentially responsible parties
will be able to fulfill their commitments at sites where the
Company may be jointly or severally liable. The Company
recognizes amounts recoverable from insurance carriers, the
U.S. government or other third parties, when the collection
of such amounts is probable (see Notes 7(c) and (d)).
l. Retirement
Benefits
The Company has a frozen defined benefit pension plan that
previously covered substantially all salaried and hourly
employees. In addition, the Company provides medical and life
insurance benefits (“postretirement benefits”) to
certain eligible retired employees, with varied coverage by
employee group. Annual charges are made for the cost of the
plans, including administrative costs, interest costs on benefit
obligations, and net amortization and deferrals, increased or
reduced by the return on assets. The Company also sponsors a
defined contribution 401(k) plan and participation in the plan
is available to all employees. See Note 6.
m. Conditional
Asset Retirement Obligations
Conditional asset retirement obligations (“CAROs”) are
legal obligations associated with the retirement of long-lived
assets. These liabilities are initially recorded at fair value
and the related asset retirement costs are capitalized by
increasing the carrying amount of the related assets by the same
amount as the liability. Asset retirement costs are subsequently
depreciated over the useful lives of the related assets.
Subsequent to initial recognition, the Company records
period-to-period
changes in the CARO liability resulting from the passage of time
and revisions to either the timing or the amount of the estimate
of the undiscounted cash flows.
The Company’s estimate of CAROs associated with owned
properties relates to estimated costs necessary for the legally
required removal or remediation of various regulated materials,
primarily asbestos disposal and radiological decontamination of
an ordnance manufacturing facility. For CAROs that are not
expected to be retired in the next fifteen (15) years, the
Company estimated the retirement date of such asset retirement
obligations to be thirty (30) years from the date of
adoption. For leased properties, such obligations relate to the
estimated cost of contractually required property restoration.
The changes in the carrying amount of CAROs since
November 30, 2008 were as follows (in millions):
|
Balance as of November 30, 2008
|
$ | 13.5 | ||
|
Additions and other, net
|
(1.0 | ) | ||
|
Accretion
|
1.1 | |||
|
Balance as of November 30, 2009
|
13.6 | |||
|
Additions and other, net
|
0.6 | |||
|
Accretion
|
1.1 | |||
|
Balance as of November 30, 2010
|
$ | 15.3 | ||
n. Advance
Payments on Contracts
The Company receives advances from customers which may exceed
costs incurred on certain contracts. Such advances, other than
those reflected as a reduction of inventories as progress
payments, are classified as current liabilities.
64
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
o. Loss
Contingencies
The Company is currently involved in certain legal proceedings
and, as required, has accrued its estimate of the probable costs
for resolution of these claims. These estimates are based upon
an analysis of potential results, assuming a combination of
litigation and settlement strategies. It is possible, however,
that future results of operations or cash flows for any
particular period could be materially affected by changes in
estimates or the effectiveness of strategies related to these
proceedings.
p. Warranties
The Company provides product warranties in conjunction with
certain product sales. The majority of the Company’s
warranties are a one-year standard warranty for parts,
workmanship, and compliance with specifications. On occasion,
the Company has made commitments beyond the standard warranty
obligation. While the Company has contracts with warranty
provisions, there is not a history of any significant warranty
claims experience. A reserve for warranty exposure is made on a
product by product basis when it is both estimable and probable.
These costs are included in the program’s estimate at
completion and are expensed in accordance with the
Company’s revenue recognition methodology as allowed under
GAAP for that particular contract.
q. Revenue
Recognition
The Company considers the nature of the individual underlying
contract and the type of products and services provided in
determining the proper accounting for a particular contract.
Each method is applied consistently to all contracts having
similar characteristics, as described below. The Company
typically accounts for these contracts using the
percentage-of-completion
method, and progress is measured on a
cost-to-cost
or
units-of-delivery
basis. Sales are recognized using various measures of progress
depending on the contractual terms and scope of work of the
contract. The Company recognizes revenue on a
units-of-delivery
basis when contracts require unit deliveries on a frequent and
routine basis. Sales using this measure of progress are
recognized at the contractually agreed upon unit price. Where
the scope of work on contracts principally relates to research
and/or
development efforts, or the contract is predominantly a
development effort with few deliverable units, the Company
recognizes revenue on a
cost-to-cost
basis. In this case, sales are recognized as costs are incurred
and include estimated earned fees or profits calculated on the
basis of the relationship between costs incurred and total
estimated costs at completion. Revenue on service or time and
material contracts is recognized when performed. If at any time
expected costs exceed the value of the contract, the loss is
recognized immediately.
Certain government contracts contain cost or performance
incentive provisions that provide for increased or decreased
fees or profits based upon actual performance against
established targets or other criteria. Incentive and award fees,
which are generally awarded at the discretion of the customer,
are included in estimated contract revenue at the time the
amounts can be reasonably determined and are reasonably assured
based on historical experience and anticipated performance. The
Company continually evaluates its performance and incorporates
any anticipated changes in penalties and cost incentives into
its revenue and earnings calculations. Performance incentives,
which increase or decrease earnings based solely on a single
significant event, generally are not recognized until an event
occurs.
Revenue from real estate asset sales is recognized when a
sufficient down-payment has been received, financing has been
arranged and title, possession and other attributes of ownership
have been transferred to the buyer. The allocation to cost of
sales on real estate asset sales is based on a relative fair
market value computation of the land sold which includes the
basis on the Company’s book value, capitalized entitlement
costs, and an estimate of the Company’s continuing
financial commitment.
Revenue that is not derived from long-term development and
production contracts, or real estate asset transactions, is
recognized when persuasive evidence of a final agreement exists,
delivery has occurred, the selling
65
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
price is fixed or determinable and payment from the customer is
reasonably assured. Sales are recorded net of provisions for
customer pricing allowances.
r. Research
and Development
Company-sponsored research and development
(“R&D”) expenses were $17.4 million in
fiscal 2010, $15.4 million in fiscal 2009, and
$11.4 million in fiscal 2008. Company-sponsored R&D
expenses include the costs of technical activities that are
useful in developing new products, services, processes, or
techniques, as well as expenses for technical activities that
may significantly improve existing products or processes. These
expenses are generally allocated among all contracts and
programs in progress under U.S. government contractual
arrangements.
Customer-sponsored R&D expenditures, which are funded under
government contracts, totaled $283.7 million in fiscal
2010, $245.3 million in fiscal 2009, and
$252.4 million in fiscal 2008. Expenditures under
customer-sponsored R&D funded government contracts are
accounted for as sales and cost of products sold.
s. Stock-based
Compensation
The Company recognizes stock-based compensation in the statement
of operations at the grant-date fair value of stock awards
issued to employees and directors over the vesting period. The
Company elected to use the short-cut method for determining the
historical pool of windfall tax benefits and the tax law
ordering approach for purposes of determining whether an excess
tax benefit has been realized.
t. Impairment
or Disposal of Long-Lived Assets
Impairment of long-lived assets is recognized when events or
circumstances indicate that the carrying amount of the asset, or
related groups of assets, may not be recoverable. Circumstances
which could trigger a review include, but are not limited to:
significant decreases in the market price of the asset;
significant adverse changes in the business climate or legal
factors; accumulation of costs significantly in excess of the
amount originally expected for the acquisition or construction
of the asset; current period cash flow or operating losses
combined with a history of losses or a forecast of continuing
losses associated with the use of the asset; or a current
expectation that the asset will more likely than not be sold or
disposed of significantly before the end of its estimated useful
life. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
asset. If the Company determines that an asset is not
recoverable, then the Company would record an impairment charge
if the carrying value of the asset exceeds its fair value.
During the fourth quarter of fiscal 2010, the Company recorded a
$1.6 million impairment charge associated with the
write-down of a long-lived asset.
A long-lived asset classified as “held for sale” is
initially measured at the lower of its carrying amount or fair
value less costs to sell. In the period that the “held for
sale” criteria are met, the Company recognizes an
impairment charge for any initial adjustment of the long-lived
asset amount. Gains or losses not previously recognized
resulting from the sale of a long-lived asset is recognized on
the date of sale.
u. Foreign
Currency Transactions
Foreign currency transaction gains and (losses) were
$1.7 million in fiscal 2010, ($1.6) million in fiscal
2009, and $0.6 million in fiscal 2008 which are reported as
a component of discontinued operations. The Company’s
foreign currency transactions were associated with the
Company’s former GDX business, including Snappon SA, which
is classified as discontinued operations in these consolidated
financial statements and notes to consolidated financial
statements.
66
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
v. Concentrations
Dependence
upon government programs and contracts
Sales in fiscal 2010, 2009, and 2008 directly and indirectly to
the U.S. government and its agencies, including sales to
the Company’s significant customers discussed below,
totaled $786.1 million, $701.3 million, and
$641.7 million, respectively. The Standard Missile program,
which is included in the U.S. government sales, represented
26%, 22%, and 16% of net sales for fiscal 2010, 2009, and 2008,
respectively. The demand for certain of the Company’s
services and products is directly related to the level of
funding of government programs.
Major
customers
Customers that represented more than 10% of net sales for the
fiscal years presented are as follows:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Raytheon
|
37 | % | 31 | % | 27 | % | ||||||
|
Lockheed Martin
|
27 | 26 | 26 | |||||||||
Credit
Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of cash
equivalents, marketable securities, and trade receivables. The
Company’s cash, cash equivalents, and marketable securities
are held and managed by recognized financial institutions that
follow the Company’s investment policy. The investment
policy limits the amount of credit exposure to any one security
issue or issuer and the Company does not believe significant
concentration of credit risk exists with respect to these
investments. The Company performs ongoing credit evaluations of
its customers’ financial condition and maintains an
appropriate allowance for uncollectable accounts receivable
based upon the expected collectability of all accounts
receivable. The Company’s accounts receivables are
generally not backed by collateral from its customers. Customers
that represented more than 10% of accounts receivable for the
periods presented are as follows:
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
|
Lockheed Martin
|
31 | % | 38 | % | ||||
|
Raytheon
|
35 | 29 | ||||||
Dependence
on Single Source and Other Third Party Suppliers
The Company depends on a single or limited number of outside
suppliers for raw materials. The Company closely monitors
sources of supply to assure that adequate raw materials and
other supplies needed in its manufacturing processes are
available. As a U.S. government contractor, the Company is
frequently limited to procuring materials and components from
sources of supply that meet rigorous customer
and/or
government specifications. In addition, as business conditions,
DoD budgets, and Congressional allocations change, suppliers of
specialty chemicals and other materials sometime consider
dropping low-volume items from their product lines, which may
require us to qualify new suppliers for raw materials on key
programs. Current suppliers of some raw materials used in the
manufacturing of rocket nozzles, composite cases and explosives
have announced plans to relocate, close,
and/or
discontinue certain product lines. The Company continues its
efforts at qualifying new suppliers and products for these
materials and expects that materials will be available in time
to meet future production needs. In some situations, increased
costs related to new suppliers may not be recoverable under
government contracts. In addition, some of these materials may
have to be procured from offshore suppliers.
67
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The supply of ammonium perchlorate, a principal raw material
used in solid propellant, is limited to a single source that
supplies the entire domestic solid propellant industry with
actual pricing based on the total industry demand. Significant
reductions in the total national demand will likely result in
significant unit price increases. Where possible, Aerojet has
protective price re-determinable language incorporated into
contracts with its customers. The industry also currently relies
on one primary supplier for high-strength carbon fiber, which is
used in the production of composite materials. This supplier has
multiple manufacturing lines for such material. Although other
sources of carbon fiber exist, the addition of a new supplier
would require the Company to qualify the new source for use.
The Company is also impacted, as is the rest of the industry, by
increases in the prices and lead-times of raw materials used in
production on various fixed-price contracts. Additionally, where
possible, the Company has negotiated with its customers economic
and/or
price
adjustment clauses tied to commodity indices. The Company’s
past success in negotiating these terms is no indication of its
ability to continue to do so. The U.S. DoD continues to
rigorously enforce the provisions of the “Berry
Amendment” (Defense Federal Acquisition Regulations
225-7002,
252.225-7014)
which imposes a requirement to procure certain strategic
materials critical to national security from U.S. sources.
Due to limited U.S. supply of these materials and the
requirement to use domestic sources, lead times, and cost
impacts have been significant.
Prolonged disruptions in the supply of any of the Company’s
key raw materials, difficulty qualifying new sources of supply,
implementing use of replacement materials or new sources of
supply,
and/or
a
continuing increase in the prices of raw materials could have a
material adverse effect on the Company’s operating results,
financial condition,
and/or
cash
flows.
Workforce
As of November 30, 2010, 12% of the Company’s
3,135 employees were covered by collective bargaining
agreements which are due to expire in fiscal 2011.
w. Recently
Adopted Accounting Pronouncements
On December 1, 2007, the Company adopted the new standards
that specified the accounting for uncertainty in income taxes.
As of December 1, 2007, the Company had $3.2 million
of unrecognized tax benefits, $3.0 million of which would
impact their effective tax rate if recognized. The adoption
resulted in a reclassification of certain tax liabilities from
current to non-current, a reclassification of certain tax
indemnification liabilities from income taxes payable to other
current liabilities, and a cumulative effect adjustment benefit
of $9.1 million that was recorded directly to the
accumulated deficit. The Company recognizes interest and
penalties related to uncertain tax positions in income tax
expense. Interest and penalties are immaterial at the date of
adoption and are included in unrecognized tax benefits. As of
November 30, 2010, the Company had approximately
$0.3 million of accrued interest and penalties related to
uncertain tax positions. The tax years ended November 30,
2007 through November 30, 2010 remain open to examination
for U.S. federal income tax purposes. For the
Company’s other major taxing jurisdictions, the tax years
ended November 30, 2006 through November 30, 2010
remain open to examination.
On December 1, 2007, the Company adopted new standards that
specified fair value measurements for financial instruments.
Although the adoption of the new standards did not materially
impact the Company’s financial condition, results of
operations, or cash flows, the Company is now required to
provide additional disclosures in the notes to consolidated
financial statements.
On December 1, 2007, the Company adopted the new standards
related to accounting for the fair value option for financial
assets and liabilities. At the date of adoption, the Company did
not elect to use the fair value option for any of its
outstanding financial assets or liabilities. Accordingly, the
adoption of the new standards did not have an impact on the
Company’s financial position, results of operations, or
cash flows.
68
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of December 1, 2008, the Company adopted the new
standards related to accounting for non-refundable advance
payments for goods or services to be used in future research and
development activities. The new standards provides guidance on
whether non-refundable advance payments for goods that will be
used or services that will be performed in future research and
development activities should be accounted for as research and
development costs or deferred and capitalized until the goods
have been delivered or the related services have been rendered.
The adoption of the new standards did not have a material impact
on the Company’s financial position, results of operations,
or cash flows.
As of December 1, 2008, the Company adopted new standards
that specified fair value measurements as it relates to
non-financial assets and liabilities.
As of August 31, 2009, the Company adopted new standards
which provides authoritative accounting literature related to
subsequent events, which was previously addressed only in the
auditing literature. The new guidance is largely similar to the
current guidance in the auditing literature with some exceptions
that are not intended to result in significant changes in
practice. The adoption of the new standards did not have a
material impact on the Company’s financial position,
results of operations, or cash flows.
As of November 30, 2009, the Company adopted Financial
Accounting Standards Board (“FASB”) Accounting
Standards Codification (“Codification”) which became
the single source of authoritative non-governmental GAAP,
superseding various existing authoritative accounting
pronouncements. The Codification establishes one level of
authoritative GAAP. All other literature is considered
non-authoritative. There were no changes to the Company’s
consolidated financial statements due to the implementation of
the Codification other than changes in reference to various
authoritative accounting pronouncements in the consolidated
financial statements.
As of November 30, 2009, the Company adopted the accounting
standards which require the measurement of the pension and
postretirement plans assets and benefit obligations at the
Company’s fiscal year end. Previously, the Company
performed the measurement as of August 31 of each fiscal year.
As a result of implementing the measurement date provision, the
Company recorded an additional quarter of pension and other
postretirement benefit costs as of November 30, 2009 as a
$0.4 million increase to accumulated deficit and a
$0.2 million decrease to accumulated other comprehensive
loss.
As of December 1, 2009, the Company adopted the accounting
standard which requires additional disclosures for plan assets
of defined benefit pension or other postretirement plans. The
required disclosures include a description of the Company’s
investment policies and strategies, the fair value of each major
category of plan assets, the inputs and valuation techniques
used to measure the fair value of plan assets, the effect of
fair value measurements using significant unobservable inputs on
changes in plan assets, and the significant concentrations of
risk within plan assets. As the accounting standard only impacts
disclosures, the new standard did not have an impact the
Company’s financial position, results of operations, or
cash flows.
As of December 1, 2009, the Company adopted the accounting
standard that provides that unvested share-based payment awards
that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings
per share pursuant to the two-class method. Upon adoption, the
Company retrospectively adjusted its earnings per share data
(including any amounts related to interim periods, summaries of
earnings and selected financial data) to conform to the new
standard. The adoption of the new standard did not change
previously reported earnings per share amounts.
As of December 1, 2009, the Company adopted the accounting
standard related to convertible debt securities that, upon
conversion, may be settled by the issuer, fully or partially, in
cash (See Note 5).
x. New
Accounting Pronouncements
In January 2010, the FASB issued updated guidance to improve
disclosures regarding fair value measurements. This update
requires entities to (i) disclose separately the amounts of
significant transfers in and out of Level 1 and
69
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Level 2 fair value measurements and describe the reasons
for the transfers and (ii) present separately (i.e., on a
gross basis rather than as one net number), information about
purchases, sales, issuances, and settlements in the roll forward
of changes in Level 3 fair value measurements. The update
requires fair value disclosures by class of assets and
liabilities rather than by major category or line item in the
statement of financial position. Disclosures regarding the
valuation techniques and inputs used to measure fair value for
both recurring and nonrecurring fair value measurements for
assets and liabilities in both Level 2 and Level 3 are
also required. For all portions of the update except the gross
presentation of activity in the Level 3 roll forward, this
standard was effective for the Company on March 1, 2010.
For the gross presentation of activity in the Level 3 roll
forward, the new disclosures will be presented in the
Company’s quarterly financial statements for the period
ending February 28, 2012.
In April 2010, the FASB issued updated guidance on the use of
the milestone method of revenue recognition that applies to
research or development transactions in which one or more
payments are contingent upon achieving uncertain future events
or circumstances. This update provides guidance on the criteria
that should be met for determining whether the milestone method
of revenue recognition is appropriate. This guidance is
effective on a prospective basis for milestones achieved in
fiscal years, and interim periods within those years, beginning
on or after June 15, 2010. The Company is currently
evaluating the impact of this guidance on its financial
statements.
y. Subsequent
Events
The Company evaluates events or transactions that occur after
the balance sheet date but before financial statements are
issued for potential recognition or disclosure in the financial
statements. The issuance of financial statements is the earlier
of when the financial statements are widely distributed to all
shareholders and other financial statements users or filed with
the Securities Exchange Commission (“SEC”) (See
Note 15).
70
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 2. | Income (Loss) Per Share of Common Stock |
A reconciliation of the numerator and denominator used to
calculate basic and diluted income (loss) per share of common
stock (“EPS”) is presented in the following table:
| Year Ended(1) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions, except per share amounts; shares in thousands) | ||||||||||||
|
Numerator for Basic and Diluted EPS
|
||||||||||||
|
Income (loss) from continuing operations
|
$ | 6.0 | $ | 58.9 | $ | (5.1 | ) | |||||
|
Income (loss) from discontinued operations, net of income taxes
|
0.8 | (6.7 | ) | (0.1 | ) | |||||||
|
Net income (loss) for basic earnings per share
|
6.8 | 52.2 | (5.2 | ) | ||||||||
|
Interest on contingent convertible subordinated notes
|
— | 5.0 | — | |||||||||
|
Net income (loss) available to common shareholders, as adjusted
for diluted earnings per share
|
$ | 6.8 | $ | 57.2 | $ | (5.2 | ) | |||||
|
Denominator
|
||||||||||||
|
Basic weighted average shares
|
58,547 | 58,429 | 57,230 | |||||||||
|
Effect of:
|
||||||||||||
|
Contingent convertible subordinated notes
|
— | 8,101 | — | |||||||||
|
Employee stock options
|
17 | — | — | |||||||||
|
Diluted weighted average shares
|
58,564 | 66,530 | 57,230 | |||||||||
|
Basic EPS:
|
||||||||||||
|
Income (loss) per share from continuing operations
|
$ | 0.11 | $ | 1.00 | $ | (0.09 | ) | |||||
|
Income (loss) per share from discontinued operations, net of
income taxes
|
0.01 | (0.11 | ) | — | ||||||||
|
Net income (loss) per share
|
$ | 0.12 | $ | 0.89 | $ | (0.09 | ) | |||||
|
Diluted EPS:
|
||||||||||||
|
Income (loss) per share from continuing operations
|
$ | 0.11 | $ | 0.96 | $ | (0.09 | ) | |||||
|
Income (loss) per share from discontinued operations, net of
income taxes
|
0.01 | (0.10 | ) | — | ||||||||
|
Net income (loss) per share
|
$ | 0.12 | $ | 0.86 | $ | (0.09 | ) | |||||
| (1) | The undistributed income allocated to participating securities was less than $0.1 million for all years presented. |
71
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth the potentially dilutive
securities excluded from the computation because their effect
would have been anti-dilutive:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
|
4% Notes(1)
|
1,148 | — | 8,101 | |||||||||
|
4
1
/
16
% Debentures
|
20,922 | — | — | |||||||||
|
Unvested restricted shares
|
652 | 167 | 16 | |||||||||
|
Employee stock options
|
934 | 1,291 | 1,326 | |||||||||
|
Total potentially dilutive securities
|
23,656 | 1,458 | 9,443 | |||||||||
| (1) | In January 2010, the Company redeemed $124.7 million principal amount of the 4% Notes which were presented to the Company for payment. The Company redeemed the remaining $0.3 million of the 4% Notes in March 2010. |
| 3. | Balance Sheet Accounts and Supplemental Disclosures |
| a. | Marketable Securities |
As of November 30, 2010, the Company’s short-term
available-for-sale
investments were as follows:
|
Gross
|
Gross
|
Estimated
|
||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| (In millions) | ||||||||||||||||
|
Commercial paper
|
$ | 63.4 | $ | — | $ | — | $ | 63.4 | ||||||||
As of November 30, 2010, of the total estimated fair value,
$36.7 million was classified as cash and cash equivalents
as the remaining maturity at date of purchase was less than
three months and $26.7 million was classified as marketable
securities. At November 30, 2010, the contractual
maturities of the Company’s
available-for-sale
marketable securities were less than one year.
| b. | Accounts Receivable |
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Billed
|
$ | 58.0 | $ | 83.0 | ||||
|
Unbilled
|
46.9 | 29.9 | ||||||
|
Total receivables under long-term contracts
|
104.9 | 112.9 | ||||||
|
Other receivables
|
1.8 | 3.4 | ||||||
|
Accounts receivable
|
$ | 106.7 | $ | 116.3 | ||||
The unbilled receivable amounts as of November 30, 2010
expected to be collected after one year is $0.1 million.
Such amounts are billed either upon delivery of completed units
or settlement of contracts.
72
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| c. | Inventories |
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Long-term contracts at average cost
|
$ | 230.3 | $ | 212.2 | ||||
|
Progress payments
|
(180.2 | ) | (153.6 | ) | ||||
|
Total long-term contract inventories
|
50.1 | 58.6 | ||||||
|
Raw materials
|
0.5 | 0.3 | ||||||
|
Work in progress
|
0.5 | 2.9 | ||||||
|
Total other inventories
|
1.0 | 3.2 | ||||||
|
Inventories
|
$ | 51.1 | $ | 61.8 | ||||
As of November 30, 2010 and 2009, long-term contract
inventories included $7.8 million and $8.7 million,
respectively, of deferred qualification costs. Realization of
the deferred costs at November 30, 2010 is dependent upon
receipt of future firm orders. The Company believes recovery of
these costs to be probable and specifically identifiable to
future contracts. In addition, long-term contract inventories
included an allocation of general and administrative costs
incurred throughout fiscal 2010 and fiscal 2009 to be
$126.6 million and $110.3 million, respectively, and
the cumulative amount of general and administrative costs in
long-term contract inventories is estimated to be
$4.3 million and $6.6 million at November 30,
2010 and 2009, respectively.
| d. | Property, Plant and Equipment, net |
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Land
|
$ | 33.2 | $ | 33.2 | ||||
|
Buildings and improvements
|
154.7 | 148.9 | ||||||
|
Machinery and equipment
|
359.3 | 376.6 | ||||||
|
Construction-in-progress
|
11.8 | 7.4 | ||||||
| 559.0 | 566.1 | |||||||
|
Less: accumulated depreciation
|
(432.6 | ) | (436.2 | ) | ||||
|
Property, plant and equipment, net
|
$ | 126.4 | $ | 129.9 | ||||
Depreciation expense for fiscal 2010, 2009, and 2008 was
$25.2 million, $23.0 million, and $22.9 million,
respectively.
| e. | Intangible Assets |
|
Gross
|
||||||||||||
|
Carrying
|
Accumulated
|
Net Carrying
|
||||||||||
|
As of November 30, 2010
|
Amount | Amortization | Amount | |||||||||
| (In millions) | ||||||||||||
|
Customer related
|
$ | 10.7 | $ | 4.1 | $ | 6.6 | ||||||
|
Acquired technology
|
18.3 | 8.0 | 10.3 | |||||||||
|
Intangible assets
|
$ | 29.0 | $ | 12.1 | $ | 16.9 | ||||||
73
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
Gross
|
||||||||||||
|
Carrying
|
Accumulated
|
Net Carrying
|
||||||||||
|
As of November 30, 2009
|
Amount | Amortization | Amount | |||||||||
| (In millions) | ||||||||||||
|
Customer related
|
$ | 10.7 | $ | 3.6 | $ | 7.1 | ||||||
|
Acquired technology
|
18.3 | 6.9 | 11.4 | |||||||||
|
Intangible assets
|
$ | 29.0 | $ | 10.5 | $ | 18.5 | ||||||
Amortization expense related to intangible assets was
$1.6 million per year in fiscal 2010, 2009, and 2008.
Amortization expense for fiscal 2011 through 2013 related to
intangible assets is estimated to be approximately
$1.5 million annually. Amortization expense for fiscal 2014
and 2015 related to intangible assets is estimated to be
approximately $1.4 million annually.
| f. | Other Noncurrent Assets, net |
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Receivable from Northrop Grumman Corporation
(“Northrop”)
|
$ | 58.6 | $ | 53.4 | ||||
|
Deferred financing costs
|
8.5 | 6.1 | ||||||
|
Other
|
27.7 | 32.1 | ||||||
|
Other noncurrent assets, net
|
$ | 94.8 | $ | 91.6 | ||||
During the first quarter of fiscal 2010, the Company began
classifying the amortization of deferred financing costs as a
component of interest expense and all prior periods have been
conformed to the current presentation. Amortization of deferred
financing costs was previously reported as a component of
amortization expense. The Company amortizes deferred financing
costs over the estimated life of the related debt. Amortization
of deferred financing costs was $3.8 million,
$5.2 million, and $2.6 million in fiscal 2010, 2009,
and 2008, respectively.
| g. | Other Current Liabilities |
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Accrued compensation and employee benefits
|
$ | 49.4 | $ | 47.8 | ||||
|
Legal settlements
|
10.6 | 11.4 | ||||||
|
Interest payable
|
7.4 | 6.1 | ||||||
|
Contract loss provisions
|
3.3 | 3.0 | ||||||
|
Deferred revenue
|
1.5 | 2.2 | ||||||
|
Other
|
38.1 | 37.0 | ||||||
|
Other current liabilities
|
$ | 110.3 | $ | 107.5 | ||||
74
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| h. | Other Noncurrent Liabilities |
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Legal settlements
|
$ | 13.8 | $ | 18.9 | ||||
|
Conditional asset retirement obligations
|
15.3 | 13.6 | ||||||
|
Deferred revenue
|
9.8 | 10.4 | ||||||
|
Deferred compensation
|
7.0 | 7.1 | ||||||
|
Pension benefits, non-qualified
|
15.6 | 14.7 | ||||||
|
Other
|
5.3 | 4.1 | ||||||
|
Other noncurrent liabilities
|
$ | 66.8 | $ | 68.8 | ||||
| i. | Accumulated Other Comprehensive Loss, Net of Income Taxes |
The components of accumulated other comprehensive loss, net of
income taxes, related to the Company’s retirement benefit
plans are presented in the following table:
| As of November 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Actuarial losses, net
|
$ | (285.9 | ) | $ | (358.4 | ) | $ | (35.7 | ) | |||
|
Prior service credits
|
4.7 | 4.6 | 4.0 | |||||||||
|
Accumulated other comprehensive loss
|
$ | (281.2 | ) | $ | (353.8 | ) | $ | (31.7 | ) | |||
The estimated amounts that will be amortized from accumulated
other comprehensive loss into net periodic benefit (income)
expense in fiscal 2011 are as follows:
|
Pension
|
Medical and
|
|||||||
| Benefits | Life Benefits | |||||||
| (In millions) | ||||||||
|
Recognized actuarial losses (gains), net
|
$ | 66.5 | $ | (3.6 | ) | |||
|
Amortization of prior service costs
|
— | 0.1 | ||||||
| $ | 66.5 | $ | (3.5 | ) | ||||
75
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | Income Taxes |
The Company files a consolidated U.S. federal income tax
return with its wholly-owned subsidiaries. The components of the
Company’s income tax (benefit) provision from continuing
operations are as follows:
| As of November 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Current
|
||||||||||||
|
U.S. federal
|
$ | (5.2 | ) | $ | (21.3 | ) | $ | (7.3 | ) | |||
|
State and local
|
3.1 | 2.4 | 0.2 | |||||||||
| (2.1 | ) | (18.9 | ) | (7.1 | ) | |||||||
|
Deferred
|
||||||||||||
|
U.S. federal
|
(0.8 | ) | 1.1 | 6.5 | ||||||||
|
State and local
|
(1.0 | ) | 0.2 | 1.5 | ||||||||
| (1.8 | ) | 1.3 | 8.0 | |||||||||
|
Income tax (benefit) provision
|
$ | (3.9 | ) | $ | (17.6 | ) | $ | 0.9 | ||||
A reconciliation of the U.S. federal statutory income tax
rate to the Company’s effective income tax rate on earnings
from continuing operations is as follows:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Statutory U.S. federal income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State and local income taxes, net of U.S. federal income tax
effect
|
93.7 | 2.3 | (3.1 | ) | ||||||||
|
Tax settlements and refund claims, including interest
|
(295.2 | ) | (41.3 | ) | 9.1 | |||||||
|
Reserve adjustments
|
(0.6 | ) | (10.0 | ) | (59.4 | ) | ||||||
|
Valuation allowance adjustments
|
(146.3 | ) | (32.9 | ) | 22.0 | |||||||
|
Unregistered stock rescission
|
13.8 | 1.1 | (13.7 | ) | ||||||||
|
Non-deductible convertible debt interest
|
124.5 | — | — | |||||||||
|
Other, net
|
(6.2 | ) | 3.3 | (9.9 | ) | |||||||
|
Effective income tax rate
|
(181.3 | )% | (42.5 | )% | (20.0 | )% | ||||||
The income tax benefit of $3.9 million in fiscal 2010 is
primarily related to the Company obtaining a Private Letter
Ruling (“PLR”) from the Internal Revenue Service
(“IRS”) allowing the Company to revoke its election
made on the fiscal 2003 income tax return to capitalize and
amortize certain research expenditures. The revocation is
effective as of the fiscal 2007 income tax return, allowing a
deduction on an amended fiscal 2007 tax return of the remaining
unamortized balance. As a result of the PLR, an income tax
benefit of $6.3 million was recorded. This is offset by
current federal alternative minimum tax (“AMT”)
expense of $1.1 million and current state tax expense of
$3.1 million. Additionally, the Company recorded a deferred
tax benefit of $1.9 million relating to prior years offset
by $0.1 million of deferred tax expense recorded for the
current year.
The income tax benefit of $17.6 million in fiscal 2009 is
primarily related to new guidance that was published by the
Chief Counsel’s Office of the IRS in December 2008
clarifying which costs qualify for ten-year carryback of tax net
operating losses for refund of prior years’ taxes. As a
result of the clarifying language, the Company recorded during
the first quarter of fiscal 2009 an income tax benefit of
$19.7 million, of which $14.5 million was for the
release of the valuation allowance associated with the
utilization of the qualifying tax net operating losses
76
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and $5.2 million was for the recognition of affirmative
claims related to previous uncertain tax positions associated
with prior years refund claims related to the qualifying costs.
The income tax provision of $0.9 million in fiscal 2008 was
primarily related to the impact of the fiscal 2008 change in tax
method of accounting adopted for unbilled receivables. The new
tax method of accounting adopted in fiscal 2008 in accordance
with guidance published by the IRS defers such revenue until the
all events test is met for tax purposes. The fiscal 2008 tax net
operating loss from continuing operations resulted in an income
tax benefit of $9.5 million for carryback to prior years
and a refund of previously paid taxes. Due to the tightening of
the credit market in the fourth quarter of fiscal 2008, a tax
planning strategy relied on for realizability of a portion of
the deferred tax assets ceased to be prudent and feasible,
resulting in a charge to deferred income tax expense of
$8.0 million and a corresponding increase to the valuation
allowance.
A valuation allowance has been recorded to offset a substantial
portion of the net deferred tax assets at November 30, 2010
and 2009 to reflect the uncertainty of realization. A valuation
allowance is required when it is more-likely-than-not that all
or a portion of deferred tax assets may not be realized. A
review of all available positive and negative evidence is
considered, including past and future performance, the market
environment in which the Company operates, utilization of tax
attributes in the past, length of carryback and carryforward
periods, and evaluation of potential tax planning strategies
when evaluating the realizability of deferred tax assets.
Forming a conclusion that a valuation allowance is not required
is difficult when there is negative evidence such as cumulative
losses in recent years. The Company determines cumulative losses
on a rolling twelve-quarter basis and the analysis includes the
retirement benefit plan losses in accumulated other
comprehensive loss. Accordingly, the Company has maintained a
full valuation allowance on all of its net deferred tax assets
except for the indefinite lived deferred tax assets relating to
federal AMT credits and California research credits.
The Company is routinely examined by domestic and foreign tax
authorities. While it is difficult to predict the outcome or
timing of a particular tax matter, the Company believes it has
adequately provided reserves for any reasonable foreseeable
outcome related to these matters.
A reconciliation of the change in unrecognized tax benefits from
December 1, 2008 to November 30, 2010 is as follows
(in millions):
|
Unrecognized tax benefits at December 1, 2008
|
$ | 5.8 | ||
|
Gross increases for tax positions taken during the year
|
1.9 | |||
|
Gross decreases for resolved tax positions during the year
|
(5.2 | ) | ||
|
Unrecognized tax benefits at November 30, 2009
|
2.5 | |||
|
Interest accrual on reserves
|
0.1 | |||
|
Gross decreases for tax positions taken in prior year
|
(0.1 | ) | ||
|
Unrecognized tax benefits at November 30, 2010
|
$ | 2.5 | ||
As of November 30, 2010, the total amount of unrecognized
tax benefits that, if recognized, would affect the effective tax
rate was $1.5 million.
The increase in reserves during fiscal 2009 is primarily related
to potential for double taxed income in certain states; and
state deferred tax liabilities, the current period recognition
of which is uncertain. The decrease in the reserve balance is
the result of new guidance published by the IRS clarifying which
costs qualify for ten-year carryback. The reserve was reduced by
$5.2 million for the recognition of affirmative claims
related to uncertain tax positions associated with prior years
refund claims related to such qualifying costs. Due to the high
degree of uncertainty regarding the timing of potential future
cash flows associated with these liabilities, the Company is
unable to make a reasonably reliable estimate of the amount and
period in which these liabilities might be paid.
77
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Deferred tax assets and liabilities are as follows:
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Deferred Tax Assets
|
||||||||
|
Accrued estimated costs
|
$ | 48.3 | $ | 55.4 | ||||
|
Basis difference in assets and liabilities
|
9.3 | — | ||||||
|
Tax losses and credit carryforwards
|
67.9 | 94.8 | ||||||
|
Net cumulative defined benefit pension plan losses
|
75.5 | 89.2 | ||||||
|
Retiree medical and life benefits
|
34.3 | 33.9 | ||||||
|
Valuation allowance
|
(212.5 | ) | (245.1 | ) | ||||
|
Total deferred tax assets
|
22.8 | 28.2 | ||||||
|
Deferred Tax Liabilities
|
||||||||
|
Basis difference in assets and liabilities
|
— | 8.5 | ||||||
|
U.S. federal effect of state deferred taxes
|
17.4 | 17.9 | ||||||
|
Other
|
13.0 | 11.4 | ||||||
|
Total deferred tax liabilities
|
30.4 | 37.8 | ||||||
|
Total net deferred tax liabilities
|
(7.6 | ) | (9.6 | ) | ||||
|
Less: deferred tax assets (liabilities) expected to be realized
within one year
|
— | — | ||||||
|
Total long-term deferred tax liabilities
|
$ | (7.6 | ) | $ | (9.6 | ) | ||
The year of expiration for the Company’s state and
U.S. federal net operating loss carryforwards as of
November 30, 2010 were as follows:
|
Year Ending November 30,
|
State | Federal | ||||||
| (In millions) | ||||||||
|
2015
|
$ | 121.6 | $ | — | ||||
|
2016
|
28.9 | — | ||||||
|
2017
|
29.9 | — | ||||||
|
2018
|
50.3 | — | ||||||
|
2019
|
8.7 | — | ||||||
|
2024
|
— | 4.9 | ||||||
|
2025
|
— | 74.6 | ||||||
| $ | 239.4 | $ | 79.5 | |||||
Approximately $9.2 million of the state and
U.S. federal net operating loss carryforwards relate to the
exercise of stock options, the benefit of which will be credited
to equity when realized. In addition, the Company has
U.S. federal and state capital loss carryforwards of
approximately $9.1 million and $2.2 million,
respectively, which begins expiring in fiscal 2011.
The Company also has a U.S. federal research credit
carryforward of $7.2 million which begins expiring in
fiscal 2021, and a California research credit carryforward of
$3.3 million which has an indefinite carryforward period.
Additionally, the Company has a foreign tax credit carryforward
of $2.6 million which begin expiring in fiscal 2011, if not
utilized. These tax carryforwards are subject to examination by
the tax authorities.
78
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 5. | Long-Term Debt |
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Senior debt
|
$ | 51.1 | $ | 68.3 | ||||
|
Senior subordinated notes
|
75.0 | 97.5 | ||||||
|
Convertible subordinated notes, net of $4.0 million and
$17.0 million of debt discount as of November 30, 2010
and 2009, respectively
|
264.6 | 254.4 | ||||||
|
Other debt
|
2.0 | 1.4 | ||||||
|
Total debt, carrying amount
|
392.7 | 421.6 | ||||||
|
Less: Amounts due within one year
|
||||||||
|
Senior debt
|
0.5 | 17.1 | ||||||
|
Other debt
|
65.5 | 0.7 | ||||||
|
Total long-term debt, carrying amount
|
$ | 326.7 | $ | 403.8 | ||||
As of November 30, 2010, the Company’s annual fiscal
year debt contractual principal maturities are summarized as
follows (in millions):
|
2011(1)
|
$ | 69.9 | ||
|
2012
|
0.7 | |||
|
2013
|
125.3 | |||
|
2014
|
200.2 | |||
|
2015
|
0.2 | |||
|
Thereafter
|
0.4 | |||
|
Total debt
|
$ | 396.7 | ||
| (1) | Includes the $68.6 million of principal 2 1 / 4 % Debentures due November 2024 that can be put to us in November 2011 at a price equal to 100% of the principal amount plus accrued and unpaid interest, including liquidated damages, if any, payable in cash, to but not including the repurchase date, plus, in certain circumstances, a make-whole premium, payable in common stock. |
| a. | Senior Debt: |
|
As of
|
||||||||
| November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Term loan, bearing interest at various rates (rate of 3.55% as
of November 30, 2010), payable in quarterly installments of
$0.1 million plus interest, maturing in April 2013
|
$ | 51.1 | $ | 68.3 | ||||
Senior
Credit Facility
The Company’s Senior Credit Facility provides for a
$65.0 million revolving credit facility
(“Revolver”) and a $175.0 million credit-linked
facility, consisting of a $100.0 million letter of credit
subfacility and a $75.0 million term loan subfacility. On
March 17, 2010, the Company executed an amendment (the
“Second Amendment”) to the Company’s existing
Amended and Restated Credit Agreement, originally entered into
as of June 21, 2007, by and among the Company, as borrower,
the subsidiaries of the Company from time to time party thereto,
as guarantors,
79
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the lenders from time to time party thereto and Wachovia Bank,
National Association, as administrative agent for the lenders,
as amended to date (the “Credit Agreement”). The
Second Amendment, among other things, (i) permits the
Company to repurchase its outstanding convertible subordinated
notes and senior subordinated notes, subject to certain
conditions; (ii) permits the Company to incur additional
senior unsecured or subordinated indebtedness, subject to
specified limits and other conditions; (iii) permits the
Company to conduct a rescission offer, using stock
and/or
cash
up to $15.0 million, with respect to certain units issued
under the GenCorp Savings Plan; (iv) permits the Company to
repurchase its stock, subject to certain conditions;
(v) limits the circumstances under which the Company would
have to mandatorily prepay loans under the Senior Credit
Facility with the proceeds from equity issuances; and
(vi) amends the definitions of the leverage ratio and net
cash proceeds from permitted real estate sales. The Second
Amendment reduced the Revolver capacity from $80.0 million
to $65.0 million and the letter of credit subfacility
capacity from $125.0 million to $100.0 million. Under
the Second Amendment, the interest rate on LIBOR rate borrowings
is LIBOR plus 325 basis points, an increase of
100 basis points, and the letter of credit subfacility
commitment fee has been similarly amended. The Second Amendment
also provides for a commitment fee on the unused portion of the
Revolver in the amount of 62.5 basis points, an increase of
12.5 basis points.
As of November 30, 2010, the borrowing limit under the
Revolver was $65.0 million, of which $50.0 million can
be utilized for letters of credit, with all of it available.
Also, as of November 30, 2010, the Company had
$69.4 million outstanding letters of credit under the
$100.0 million letter of credit subfacility and had
permanently reduced the amount of its term loan subfacility to
the $51.1 million outstanding.
During the first quarter of fiscal 2010, the Company made a
required principal payment of $16.6 million on the term
loan subfacility due to the excess cash flow prepayment
provisions of the Credit Agreement.
The Senior Credit Facility is collateralized by a substantial
portion of the Company’s real property holdings and
substantially all of the Company’s other assets, including
the stock and assets of its material domestic subsidiaries that
are guarantors of the facility. The Company is subject to
certain limitations including the ability to: incur additional
senior debt, release collateral, retain proceeds from asset
sales and issuances of debt or equity, make certain investments
and acquisitions, grant additional liens, and make restricted
payments, including stock repurchases and dividends. In
addition, the Credit Agreement contains certain restrictions
surrounding the ability of the Company to refinance its
subordinated debt, including provisions that, except on terms no
less favorable to the Credit Agreement, the Company’s
subordinated debt cannot be refinanced prior to maturity.
Furthermore, provided that the Company has cash and cash
equivalents of at least $25.0 million after giving effect
thereto, the Company may redeem (with funds other than Senior
Credit Facility proceeds) the subordinated notes to the extent
required by the mandatory redemption provisions of the
subordinated note indenture. The Company is also subject to the
following financial covenants:
|
Actual Ratios as of
|
Required Ratios
|
|||
|
Financial Covenant
|
November 30, 2010 | December 1, 2009 and thereafter | ||
|
Interest coverage ratio, as defined under the Credit Agreement
|
4.56 to 1.00 | Not less than: 2.25 to 1.00 | ||
|
Leverage ratio, as defined under the Credit Agreement(1)
|
1.67 to 1.00 | Not greater than: 5.50 to 1.00 |
| (1) | As a result of the March 17, 2010 amendment, the leverage ratio calculation was amended to allow for all cash and cash equivalents to reduce funded debt in the calculation as long as there are no loans outstanding under the Revolver. |
The Company was in compliance with its financial and
non-financial covenants as of November 30, 2010.
80
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| b. | Senior Subordinated Notes: |
|
As of
|
||||||||
| November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Senior subordinated notes, bearing interest at 9.50% per annum,
interest payments due in February and August, maturing in August
2013
|
$ | 75.0 | $ | 97.5 | ||||
9
1
/
2
% Senior
Subordinated Notes
In August 2003, the Company issued $150.0 million aggregate
principal amount of its
9
1
/
2
% Notes
due 2013 in a private placement pursuant to Section 4(2)
and Rule 144A under the Securities Act of 1933. The
9
1
/
2
% Notes
have been exchanged for registered, publicly tradable notes with
substantially identical terms. The
9
1
/
2
% Notes
mature in August 2013. All or any portion of the
9
1
/
2
% Notes
may be redeemed by the Company at any time on or after
August 15, 2008 at redemption prices beginning at 104.75%
of the principal amount and reducing to 100% of the principal
amount by August 15, 2011.
In February 2005, the Company redeemed $52.5 million
principal amount of its
9
1
/
2
% Notes,
representing 35% of the $150 million aggregate principal
outstanding. In accordance with the indenture governing the
notes, the redemption price was 109.5% of the principal amount
of the
9
1
/
2
% Notes
redeemed, plus accrued and unpaid interest.
During fiscal 2010, the Company repurchased $22.5 million
principal amount of its
9
1
/
2
% Notes
at 102% of par, plus accrued and unpaid interest using a portion
of the net proceeds of its
4
1
/
16
% Debentures
issued in December 2009 (See Note 13).
If the Company undergoes a change of control (as defined in the
9
1
/
2
% Notes
indenture) or sells assets, it may be required to offer to
purchase the
9
1
/
2
% Notes
from the holders of such notes.
The
9
1
/
2
% Notes
are non-collateralized and subordinated to all of the
Company’s existing and future senior indebtedness,
including borrowings under its Senior Credit Facility. The
9
1
/
2
% Notes
rank senior to the
4
1
/
16
% Debentures
and the
2
1
/
4
% Debentures.
The
9
1
/
2
% Notes
are guaranteed by the Company’s material domestic
subsidiaries. Each subsidiary guarantee is non-collateralized
and subordinated to the respective subsidiary’s existing
and future senior indebtedness, including guarantees of
borrowings under the Senior Credit Facility. The
9
1
/
2
% Notes
and related guarantees are effectively subordinated to the
Company’s and the subsidiary guarantors’
collateralized debt and to any and all debt and liabilities,
including trade debt of the Company’s non-guarantor
subsidiaries.
The indenture governing the
9
1
/
2
% Notes
limits the Company’s ability and the ability of the
Company’s restricted subsidiaries, as defined in the
indenture, to incur or guarantee additional indebtedness, make
restricted payments, pay dividends or distributions on, or
redeem or repurchase, its capital stock, make investments, issue
or sell capital stock of restricted subsidiaries, create liens
on assets to secure indebtedness, enter into transactions with
affiliates and consolidate, merge or transfer all or
substantially all of the assets of the Company. The indenture
also contains customary events of default, including failure to
pay principal or interest when due, cross-acceleration to other
specified indebtedness, failure of any of the guarantees to be
in full force and effect, failure to comply with covenants and
certain events of bankruptcy, insolvency, and reorganization,
subject in some cases to notice and applicable grace periods.
Issuance of the
9
1
/
2
% Notes
generated net proceeds of approximately $145.0 million. The
Company used a portion of the net proceeds to repay outstanding
revolving loans under the Company’s prior credit facility,
and the balance of the net proceeds to finance a portion of the
purchase price of the acquisition of substantially all of the
assets of the propulsion business of Atlantic Research
Corporation and to pay related fees and expenses.
81
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In October 2004, the Company entered into a supplemental
indenture to amend the indenture dated August 11, 2003 to
(i) permit the refinancing of its outstanding
5
3
/
4
% Notes
with new subordinated debt having a final maturity or redemption
date later than the final maturity or redemption date of the
5
3
/
4
% Notes
being refinanced, and (ii) provide that the Company will
have up to ten (10) business days to apply the proceeds of
refinancing indebtedness toward the redemption or repurchase of
outstanding indebtedness. The supplemental indenture also
amended the definition of refinancing indebtedness to include
indebtedness, the proceeds of which are used to pay a premium
necessary to accomplish a refinancing.
In June 2006, the Company entered into a second supplemental
indenture for the
9
1
/
2
% Notes
to amend the indenture dated August 11, 2003, as amended in
October 2004, to permit the Company to incur additional
indebtedness under its previous credit facility.
On November 24, 2009, the Company entered into a third
supplemental indenture for the
9
1
/
2
% Notes
to amend the indenture dated August 11, 2003, as amended in
October 2004 and June 2006, to add Easton Development Company,
LLC as a guarantor party to the indenture.
| c. | Convertible Subordinated Notes: |
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Convertible subordinated debentures, bearing interest at 2.25%
per annum, interest payments due in May and November, maturing
in November 2024
|
$ | 68.6 | $ | 146.4 | ||||
|
Debt discount on 2.25% convertible subordinated debentures,
maturing in November 2024
|
(4.0 | ) | (17.0 | ) | ||||
|
Convertible subordinated debentures, bearing interest at 4.0625%
per annum, interest payments due in June and December, maturing
in December 2039
|
200.0 | — | ||||||
|
Contingent convertible subordinated notes, bearing interest at
4.00% per annum
|
— | 125.0 | ||||||
|
Total convertible subordinated notes
|
$ | 264.6 | $ | 254.4 | ||||
2
1
/
4
% Convertible
Subordinated Debentures
As of November 30, 2010, the Company had $68.6 million
outstanding of principal amount of its
2
1
/
4
% Debentures.
Interest on the
2
1
/
4
% Debentures
accrues at a rate of 2.25% per annum and is payable in May and
November. The
2
1
/
4
% Debentures
are general unsecured obligations and rank equal in right of
payment to all of the Company’s other existing and future
subordinated indebtedness, including the
4
1
/
16
% Debentures.
The
2
1
/
4
% Debentures
rank junior in right of payment to all of the Company’s
existing and future senior indebtedness, including all of its
obligations under its Senior Credit Facility and all of its
existing and future senior subordinated indebtedness, including
the Company’s outstanding
9
1
/
2
% Notes.
In addition, the
2
1
/
4
% Debentures
are effectively subordinated to any of the Company’s
collateralized debt and to any and all debt and liabilities,
including trade debt of its subsidiaries.
Each $1,000 principal of the
2
1
/
4
% Debentures
is convertible at each holder’s option, into cash and, if
applicable, the Company’s common stock at an initial
conversion price of $20 per share (subject to adjustment as
provided in the indenture governing the
2
1
/
4
% Debentures)
only if: (i) during any fiscal quarter the closing price of
the common stock for at least twenty (20) trading days in
the thirty (30) consecutive trading day period ending on
the last trading day of the preceding fiscal quarter exceeds
130% of the conversion price; (ii) the Company has called
the
2
1
/
4
% Debentures
for redemption and redemption has not yet occurred;
(iii) subject to certain exceptions, during the five
(5) business days after any five (5) consecutive
trading day period in which the trading price per $1,000
principal amount of the
2
1
/
4
% Debentures
for each day of such period is less than 95% of the product of
the common stock price on that day multiplied by the conversion
rate then in effect; (iv) specified corporate transactions
have occurred; or (v) occurrence of a transaction or event
constituting a designated event. The Company may be
82
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
required to pay a make-whole premium in shares of common stock
and accrued but unpaid interest if the
2
1
/
4
% Debentures
are converted in connection with certain specified designated
events occurring on or prior to November 20, 2011. The
initial conversion rate of 50 shares for each $1,000
principal amount of the
2
1
/
4
% Debentures
is equivalent to a conversion price of $20 per share, subject to
certain adjustments. None of these events has occurred
subsequent to the issuance of the debentures.
In the event of conversion of the
2
1
/
4
% Debentures,
the Company will deliver, in respect of each $1,000 principal
amount of
2
1
/
4
% Debentures
tendered for conversion, (1) an amount in cash
(“principal return”) equal to the lesser of
(a) the principal amount of the converted
2
1
/
4
% Debentures
and (b) the conversion value (such value equal to the
conversion rate multiplied by the average closing price of
common shares over a ten
(10) consecutive-day
trading period beginning on the second trading day following the
day the Debentures are tendered) and (2) if the conversion
value is greater than the principal return, an amount in common
shares, with a value equal to the difference between the
conversion value and the principal return. Fractional shares
will be paid in cash.
The Company may, at its option, redeem some or all of its
2
1
/
4
% Debentures
for cash on or after November 15, 2014, at a redemption
price equal to 100% of the principal amount to be redeemed, plus
accrued and unpaid interest, including liquidated damages, if
any, to but not including the redemption date. In addition, the
Company may, at its option, redeem some or all of its
2
1
/
4
% Debentures
on or after November 20, 2011 and prior to
November 15, 2014, if the closing price of its common stock
for at least twenty (20) trading days in any thirty
(30) consecutive
trading-day
period is more than 140% of the conversion price, at a
redemption price equal to 100% of the principal amount to be
redeemed, plus accrued and unpaid interest, including liquidated
damages, if any, payable in cash. If the Company so redeems the
2
1
/
4
% Debentures,
it will make an additional payment in cash, Company common stock
or a combination thereof, at its option, equal to the present
value of all remaining scheduled payments of interest on the
redeemed debentures through November 15, 2014.
Each holder may require the Company to repurchase all or part of
their
2
1
/
4
% Debentures
on November 20, 2011, November 15, 2014, and
November 15, 2019, or upon the occurrence of certain
events, at a price equal to 100% of the principal amount of the
2
1
/
4
%
Debentures plus accrued and unpaid interest, including
liquidated damages, if any, payable in cash, to but not
including the repurchase date, plus, in certain circumstances, a
make-whole premium, payable in Company common stock.
The indenture governing the
2
1
/
4
% Debentures
limits the Company’s ability to, among other things,
consolidate with or merge into any other person, or convey,
transfer or lease its properties and assets substantially as an
entirety to any other person unless certain conditions are
satisfied. The indenture also contains customary events of
default, including failure to pay principal or interest when
due, cross-acceleration to other specified indebtedness, failure
to deliver cash or shares of common stock as required, failure
to comply with covenants and certain events of bankruptcy,
insolvency and reorganization, subject in some cases to notice
and applicable grace periods.
During fiscal 2010, the Company repurchased $77.8 million
principal amount of its
2
1
/
4
% Debentures
at various prices ranging from 93.0% of par to 98.975% of par,
plus accrued and unpaid interest using a portion of the net
proceeds of its
4
1
/
16
% Debentures
issued in December 2009 (See Note 13).
As of December 1, 2009 the Company adopted the new
accounting standards related to convertible debt securities
that, upon conversion, may be settled by the issuer fully or
partially in cash. The Company’s adoption of this guidance
affects its
2
1
/
4
% Debentures
and requires the issuer of convertible debt instruments to
separately account for the liability (debt) and equity
(conversion option) components of such instruments and
retrospectively adjust the financial statements for all periods
presented. The fair value of the liability component shall be
determined based on the market rate for similar debt instruments
without the conversion feature and the residual between the
proceeds and the fair value of the liability component is
recorded as equity at the time of issuance. Additionally, the
pronouncement requires transaction costs to be allocated on the
same percentage as the liability and equity components. The
Company adjusted its prior year disclosures in a
Form 8-K
filed with the SEC on April 9, 2010.
83
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company calculated the carrying value of the liability
component at issuance as the present value of its cash flows
using a discount rate of 8.86%. The carrying value of the
liability component was determined to be $97.5 million. The
equity component, or debt discount, of the
2
1
/
4
% Debentures
was determined to be $48.9 million. The debt discount is
being amortized as a non-cash charge to interest expense over
the period from the issuance date through November 20, 2011
which is the date holders can require the Company to repurchase
all or part of the
2
1
/
4
% Debentures.
The $4.9 million of costs incurred in connection with the
issuance of the
2
1
/
4
% Debentures
were capitalized and bifurcated into deferred financing costs of
$3.3 million and equity issuance costs of
$1.6 million. The deferred financing costs are being
amortized to interest expense from the issuance date through
November 20, 2011. As of November 30, 2010, the
unamortized portion of the deferred financing costs related to
the
2
1
/
4
% Debentures
was $0.4 million and was included in other current assets
on the consolidated balance sheets.
The following table presents the carrying amounts of the
liability and equity components:
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Carrying amount of equity component, net of equity issuance costs
|
$ | 44.4 | $ | 47.3 | ||||
|
Principal amount of
2
1
/
4
% Debentures
|
$ | 68.6 | $ | 146.4 | ||||
|
Unamortized debt discount
|
(4.0 | ) | (17.0 | ) | ||||
|
Carrying amount of liability component
|
$ | 64.6 | $ | 129.4 | ||||
The following table presents the interest expense components for
the
2
1
/
4
% Debentures:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Interest expense-contractual interest
|
$ | 2.6 | $ | 3.3 | $ | 3.3 | ||||||
|
Interest
expense-amortization
of debt discount
|
6.7 | 7.5 | 6.9 | |||||||||
|
Interest
expense-amortization
of deferred financing costs
|
0.7 | 0.8 | 0.4 | |||||||||
|
Effective interest rate
|
8.9 | % | 8.9 | % | 8.9 | % | ||||||
4
1
/
16
% Convertible
Subordinated Debentures
In December 2009, the Company issued $200.0 million in
aggregate principal amount of
4
1
/
16
% Debentures
in a private placement to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933. The
4
1
/
16
% Debentures
mature on December 31, 2039, subject to earlier redemption,
repurchase, or conversion. Interest on the
4
1
/
16
% Debentures
accrues at 4.0625% per annum and is payable semiannually in
arrears on June 30 and December 31 of each year, beginning
June 30, 2010 (or if any such day is not a business day,
payable on the following business day), and the Company may
elect to pay interest in cash or, generally on any interest
payment that is at least one year after the original issuance
date of the
4
1
/
16
% Debentures,
in shares of the Company’s common stock or a combination of
cash and shares of the Company’s common stock, at the
Company’s option, subject to certain conditions.
The
4
1
/
16
% Debentures
are general unsecured obligations of the Company and rank equal
in right of payment to all of the Company’s other existing
and future unsecured subordinated indebtedness, including the
2
1
/
4
% Debentures.
The
4
1
/
16
% Debentures
rank junior in right of payment to all of the Company’s
existing and future senior indebtedness, including all of its
obligations under its Senior Credit Facility and all of its
existing and future senior subordinated indebtedness, including
the Company’s outstanding
9
1
/
2
% Notes.
In addition, the
84
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
4
1
/
16
% Debentures
are effectively subordinated to any of the Company’s
collateralized debt, to the extent of such collateral, and to
any and all debt and liabilities including trade debt of its
subsidiaries.
Each holder of the
4
1
/
16
% Debentures
may convert its
4
1
/
16
% Debentures
into shares of the Company’s common stock at a conversion
rate of 111.0926 shares per $1,000 principal amount,
representing a conversion price of approximately $9.00 per
share, subject to adjustment. In addition, if the holders elect
to convert their
4
1
/
16
% Debentures
in connection with the occurrence of certain fundamental changes
to the Company as described in the indenture, the holders will
be entitled to receive additional shares of common stock upon
conversion in some circumstances. Upon any conversion of the
4
1
/
16
% Debentures,
subject to certain exceptions, the holders will not receive any
cash payment representing accrued and unpaid interest.
The Company may at any time redeem any
4
1
/
16
% Debentures
for cash (except as described below with respect to any
make-whole premium that may be payable) if the last reported
sale price of the Company’s common stock has been at least
150% of the conversion price then in effect for at least twenty
(20) trading days during any thirty (30) consecutive
trading day period ending within five (5) trading days
prior to the date on which the Company provides the notice of
redemption.
The Company may redeem the
4
1
/
16
% Debentures
either in whole or in part at a redemption price equal to
(i) 100% of the principal amount of the
4
1
/
16
% Debentures
to be redeemed, plus (ii) accrued and unpaid interest, if
any, up to, but excluding, the redemption date, plus
(iii) if the Company redeems the
4
1
/
16
% Debentures
prior to December 31, 2014, a “make-whole
premium” equal to the present value of the remaining
scheduled payments of interest that would have been made on the
4
1
/
16
% Debentures
to be redeemed had such
4
1
/
16
% Debentures
remained outstanding from the redemption date to
December 31, 2014. Any make-whole premium is payable in
cash, shares of the Company’s common stock or a combination
of cash and shares, at the Company’s option, subject to
certain conditions.
Each holder may require the Company to repurchase all or part of
its
4
1
/
16
% Debentures
on December 31, 2014, 2019, 2024, 2029 and 2034 (each, an
“optional repurchase date”) at an optional repurchase
price equal to (1) 100% of their principal amount plus
(2) accrued and unpaid interest, if any, up to, but
excluding, the date of repurchase. The Company may elect to pay
the optional repurchase price in cash, shares of the
Company’s common stock, or a combination of cash and shares
of the Company’s common stock, at the Company’s
option, subject to certain conditions.
If a fundamental change to the Company, as described in the
indenture governing the
4
1
/
16
% Debentures,
occurs prior to maturity, each holder will have the right to
require the Company to purchase all or part of its
4
1
/
16
% Debentures
for cash at a repurchase price equal to 100% of their principal
amount, plus accrued and unpaid interest, if any, up to, but
excluding, the repurchase date.
If the Company elects to deliver shares of its common stock as
all or part of any interest payment, any make-whole premium or
any optional repurchase price, such shares will be valued at the
product of (x) the price per share of the Company’s
common stock determined during: (i) in the case of any
interest payment, the twenty (20) consecutive trading days
ending on the second trading day immediately preceding the
record date for such interest payment; (ii) in the case of
any make-whole premium payable as part of the redemption price,
the twenty (20) consecutive trading days ending on the
second trading day immediately preceding the redemption date;
and (iii) in the case of any optional repurchase price, the
forty (40) consecutive trading days ending on the second
trading day immediately preceding the optional repurchase date;
(in each case, the “averaging period” with respect to
such date) using the sum of the daily price fractions (where
“daily price fraction” means, for each trading day
during the relevant averaging period, 5% in the case of any
interest payment or any make-whole premium or 2.5% in the case
of any optional repurchase, multiplied by the daily volume
weighted average price per share of the Company’s common
stock for such day), multiplied by (y) 97.5%. The Company
will notify holders at least five (5) business days prior
to the start of the relevant averaging period of the extent to
which the Company will pay any portion of the related payment
using shares of common stock.
85
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Effective December 21, 2010, in accordance with the terms
of the indenture, the restrictive legend on the
4
1
/
16
% Debentures
was removed and the
4
1
/
16
% Debentures
are freely tradable pursuant to Rule 144 under the
Securities Act of 1933 without volume restrictions by any holder
that is not an affiliate of the Company at the time of sale and
has not been an affiliate during the preceding three months.
Issuance of the
4
1
/
16
% Debentures
generated net proceeds of $194.1 million, which were used
to repurchase long-term debt and other debt related costs.
| 4% | Contingent Convertible Subordinated Notes |
In January 2010, the Company redeemed $124.7 million
principal amount of its 4% Notes which were presented to
the Company for payment. In March 2010, the Company redeemed the
remaining $0.3 million principal amount of its
4% Notes.
| d. | Other Debt: |
|
As of
|
||||||||
| November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Promissory note, bearing interest at 5.00% per annum, payable in
annual installments of $0.7 million plus interest, maturing
in January 2011
|
$ | 0.7 | $ | 1.4 | ||||
|
Capital lease, payable in monthly installments, maturing in
March 2017
|
1.3 | — | ||||||
|
Total other debt
|
$ | 2.0 | $ | 1.4 | ||||
In January 2007, the Company purchased, for $4.3 million,
approximately 180 acres of land which had been previously
leased by the Company. The purchase was financed with
$1.5 million of cash and a $2.8 million promissory
note. The promissory note is payable in four equal annual
installments, matures in January 2011, and bears interest at a
per annum rate of 5.00%.
| 6. | Retirement Benefits |
| a. | Plan Descriptions |
Pension
Benefits
On November 25, 2008, the Company decided to amend the
defined benefit pension and benefits restoration plans to freeze
future accruals under such plans. Effective February 1,
2009 and July 31, 2009, future benefit accruals for all
current salaried employees and collective bargaining unit
employees were discontinued, respectively. No employees lost
their previously earned pension benefits.
As of November 30, 2010, the Company’s defined benefit
pension plan assets and projected benefit obligations were
approximately $1.4 billion and $1.6 billion,
respectively. The Pension Protection Act (the “PPA”)
requires underfunded pension plans to improve their funding
ratios within prescribed intervals based on the funded status of
the plan as of specified measurement dates. The funded ratio as
of November 30, 2009 under the PPA for our tax-qualified
defined benefit pension plan was 95.6% which was above the 94.0%
ratio required under the PPA. The required ratio to be met as of
the November 30, 2010 measurement date is 96%. The final
calculated PPA funded ratio as of November 30, 2010 is
expected to be completed in the second half of 2011.
In general, the PPA requires companies with underfunded plans to
make up the shortfall over a seven year period. These values are
based on assumptions specified by the IRS, and are typically not
the same as the amounts used for corporate financial reporting.
On June 25, 2010, the president signed the Preservation of
Access to Care for Medicare Beneficiaries and Pension Relief Act
of 2010 (“Pension Relief Act”) into law. The Pension
Relief Act will allow pension plan sponsors to extend the
shortfall amortization period from the seven years required
under the PPA
86
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
to either nine years (with interest-only payments for the first
two years) or 15 years for shortfall amortization bases
created during the years for which relief is elected. This
election could be made for any two plan years during the period
2008-2011.
The Company expects to elect the funding relief for plan years
beginning 2010 and 2011 using the
15-year
alternative amortization.
The value of the unfunded accrued benefits and amount of
required contribution each year are based on a number of
factors, including plan investment experience and interest rate
environment and, as such, can fluctuate significantly from year
to year. Companies may prepay contributions and, under certain
circumstances, use those prepayment credits to satisfy the
required funding of the pension plan’s annual required
contribution thereby allowing the Company to defer cash payments
into the pension plan. The Company has accumulated
$62.7 million in such prepayment credits as of
November 30, 2010. For fiscal 2011, the Company is not
expecting to make a cash contribution to the pension plan.
The funded status of the pension plan may be adversely affected
by the investment experience of the plan’s assets, by any
changes in U.S. law, and by changes in the statutory
interest rates used by “tax-qualified” pension plans
in the U.S. to calculate funding requirements or other plan
experience. Accordingly, if the performance of the
Company’s plan assets does not meet our assumptions, if
there are changes to the IRS regulations or other applicable law
or if other actuarial assumptions are modified, the future
contributions to the Company’s underfunded pension plan
could be higher.
Medical
and Life Benefits
The Company provides medical and life insurance benefits to
certain eligible retired employees, with varied coverage by
employee group. Generally, employees hired after January 1,
1997 are not eligible for medical and life insurance benefits.
The medical benefit plan provides for cost sharing between the
Company and its retirees in the form of retiree contributions,
deductibles, and coinsurance. Medical and life benefit
obligations are unfunded.
Defined
Contribution 401(k) Benefits
The Company sponsors a defined contribution 401(k) plan and
participation in the plan is available to all employees. Company
contributions to the plan generally have been based on a
percentage of employee contributions and, prior to
April 15, 2009, the Company’s contributions to the
plan had been directed entirely in the GenCorp Stock Fund.
Effective January 15, 2009, the Company discontinued the
employer matching component to the defined contribution 401(k)
plan for non-union employees. Effective March 15, 2009,
transfers into the GenCorp Stock Fund were no longer permitted.
Effective April 15, 2009, all future contribution
investment elections directed into the GenCorp Stock Fund were
redirected to other investment options and the Company’s
union employee matching contributions are being made in cash.
Effective the first full payroll commencing in July 2010, for
non-union employees, the Company reinstated in cash its matching
contributions at the same level in effect prior to
January 15, 2009 and invested according to
participants’ investment elections in effect at the time of
contribution. The cost of the 401(k) plan was $3.7 million
in fiscal 2010, $2.0 million in fiscal 2009, and
$9.2 million in fiscal 2008.
87
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| b. | Plan Results |
Summarized below is the balance sheet impact of the
Company’s pension benefits and medical and life benefits.
Pension benefits include the consolidated qualified plan and the
unfunded non-qualified plan for benefits provided to employees
beyond those provided by the Company’s qualified plans.
Plan assets, benefit obligations, and the funded status of the
plans were determined at November 30, 2010 and 2009 for
fiscal 2010 and 2009, respectively.
|
Medical and
|
||||||||||||||||
| Pension Benefits | Life Benefits | |||||||||||||||
| As of November 30, | ||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In millions) | ||||||||||||||||
|
Change in fair value of plan assets:
|
||||||||||||||||
|
Fair value — beginning of year
|
$ | 1,335.5 | $ | 1,543.3 | $ | — | $ | — | ||||||||
|
Gain (loss) on plan assets
|
172.3 | (46.6 | ) | — | — | |||||||||||
|
Employer contributions(1)
|
1.2 | 5.8 | 5.9 | 10.1 | ||||||||||||
|
Benefits paid(2)
|
(134.7 | ) | (167.0 | ) | (5.9 | ) | (10.1 | ) | ||||||||
|
Fair Value — end of year
|
$ | 1,374.3 | $ | 1,335.5 | $ | — | $ | — | ||||||||
|
Change in benefit obligation:
|
||||||||||||||||
|
Benefit obligation — beginning of year
|
$ | 1,561.6 | $ | 1,481.7 | $ | 82.9 | $ | 76.1 | ||||||||
|
Service cost(3)
|
4.4 | 10.8 | 0.2 | 0.2 | ||||||||||||
|
Interest cost
|
86.1 | 113.1 | 4.0 | 6.2 | ||||||||||||
|
Actuarial losses (gains)
|
49.2 | 123.0 | (2.3 | ) | 10.5 | |||||||||||
|
Benefits paid
|
(134.7 | ) | (167.0 | ) | (5.9 | ) | (10.1 | ) | ||||||||
|
Benefit obligation — end of year(4)
|
$ | 1,566.6 | $ | 1,561.6 | $ | 78.9 | $ | 82.9 | ||||||||
|
Funded status of the plans
|
$ | (192.3 | ) | $ | (226.1 | ) | $ | (78.9 | ) | $ | (82.9 | ) | ||||
|
Amounts Recognized in the Consolidated Balance Sheets:
|
||||||||||||||||
|
Postretirement medical and life benefits, current
|
$ | (7.1 | ) | $ | (7.2 | ) | ||||||||||
|
Postretirement medical and life benefits, noncurrent
|
(71.8 | ) | (75.7 | ) | ||||||||||||
|
Pension liability, current (component of other current
liabilities)
|
$ | (1.2 | ) | $ | (1.1 | ) | ||||||||||
|
Pension liability, non-qualified (component of other non-current
liabilities)
|
(15.6 | ) | (14.7 | ) | ||||||||||||
|
Pension benefits, noncurrent
|
(175.5 | ) | (210.3 | ) | ||||||||||||
|
Net Liability Recognized in the Consolidated Balance Sheets
|
$ | (192.3 | ) | $ | (226.1 | ) | $ | (78.9 | ) | $ | (82.9 | ) | ||||
| (1) | During the fourth quarter of fiscal 2009, the Company made a voluntary contribution of $4.4 million. | |
| (2) | Benefits paid for medical and life benefits is net of the Medicare Part D Subsidy of $0.6 million and $0.7 million received in fiscal 2010 and 2009, respectively. | |
| (3) | For fiscal 2010, service cost for pension benefits represents the administrative costs of the pension plan. For fiscal 2009, service cost for pension benefits include administrative costs and service cost for all current salaried employees until February 1, 2009 and collective bargaining unit employees until July 31, 2009. | |
| (4) | Pension amounts include $16.8 million in fiscal 2010 and $15.8 million in fiscal 2009 for unfunded plans. |
Due to freezing of the plan benefits in fiscal 2009, the
accumulated benefit obligation for the defined benefit pension
plans was equal to the benefit obligation as of the
November 30, 2010 and 2009 measurement dates.
88
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Components of net periodic benefit expense (income) for
continuing operations are as follows:
|
Medical and
|
||||||||||||||||||||||||
| Pension Benefits | Life Benefits | |||||||||||||||||||||||
| Year Ended | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Service cost(1)
|
$ | 4.4 | $ | 6.3 | $ | 19.7 | $ | 0.2 | $ | 0.2 | $ | 0.3 | ||||||||||||
|
Interest cost on benefit obligation
|
86.1 | 89.3 | 96.5 | 4.0 | 5.0 | 5.3 | ||||||||||||||||||
|
Assumed return on plan assets(2)
|
(107.8 | ) | (103.8 | ) | (123.8 | ) | — | — | — | |||||||||||||||
|
Amortization of prior service costs
|
— | — | 2.0 | 0.1 | 0.1 | 0.1 | ||||||||||||||||||
|
Amortization of net losses (gains)
|
58.8 | (1.0 | ) | 14.7 | (3.9 | ) | (8.0 | ) | (6.8 | ) | ||||||||||||||
|
Net periodic benefit expense (income)
|
$ | 41.5 | $ | (9.2 | ) | $ | 9.1 | $ | 0.4 | $ | (2.7 | ) | $ | (1.1 | ) | |||||||||
| (1) | For fiscal 2010, service cost for pension benefits represents the administrative costs of the pension plan. For fiscal 2009, service cost for pension benefits include administrative costs and service cost for all current salaried employees until February 1, 2009 and collective bargaining unit employees until July 31, 2009. For fiscal 2008, service cost for pension benefits is the actuarial present value of benefits attributed by the defined benefit pension plans’ benefit formulas for services rendered by participants during the period, including the administrative costs. | |
| (2) | The actual return (loss) and rate of return (loss) on plan assets are as follows: |
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Actual return (loss) on plan assets
|
$ | 172.3 | $ | (46.6 | ) | $ | (29.5 | ) | ||||
|
Actual rate of return (loss) on plan assets
|
13.7 | % | (1.9 | )% | (2.0 | )% | ||||||
Market conditions and interest rates significantly affect assets
and liabilities of the pension plans. Pension accounting permits
market gains and losses to be deferred and recognized over a
period of years. This “smoothing” results in the
creation of other accumulated income or loss which will be
amortized to pension costs in future years. The accounting
method the Company utilizes recognizes one-fifth of the
unamortized gains and losses in the market-related value of
pension assets and all other gains and losses including changes
in the discount rate used to calculate benefit costs each year.
Investment gains or losses for this purpose are the difference
between the expected return and the actual return on the
market-related value of assets which smoothes asset values over
three years. Although the smoothing period mitigates some
volatility in the calculation of annual retirement benefit
expense, future expenses are impacted by changes in the market
value of pension plan assets and changes in interest rates.
89
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| c. | Plan Assumptions |
The Company used the following assumptions, calculated based on
a weighted-average, to determine the benefit obligations and net
periodic benefit expense for the applicable fiscal year.
|
Pension
|
Medical and
|
|||||||||||||||
| Benefits | Life Benefits | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Discount rate (benefit obligations)
|
5.21 | % | 5.65 | % | 4.65 | % | 5.09 | % | ||||||||
|
Discount rate (benefit restoration plan benefit obligations)
|
5.34 | % | 5.60 | % | * | * | ||||||||||
|
Discount rate (net periodic benefit expense)
|
5.65 | % | 7.60 | % | 5.09 | % | 6.85 | % | ||||||||
|
Expected long-term rate of return on plan assets
|
8.00 | % | 8.00 | % | * | * | ||||||||||
|
Ultimate healthcare trend rate
|
* | * | 5.00 | % | 4.50 | % | ||||||||||
|
Initial healthcare trend rate (pre-65)
|
* | * | 9.00 | % | 10.60 | % | ||||||||||
|
Year ultimate rate attained (pre-65)
|
* | * | 2021 | 2028 | ||||||||||||
|
Initial healthcare trend rate (post 65)
|
* | * | 9.00 | % | 9.00 | % | ||||||||||
|
Year ultimate rate attained (post 65)
|
* | * | 2021 | 2028 | ||||||||||||
| * | Not applicable. |
Certain actuarial assumptions, such as assumed discount rate,
long-term rate of return, and assumed healthcare cost trend
rates can have a significant effect on amounts reported for
periodic cost of pension benefits and medical and life benefits,
as well as respective benefit obligation amounts. The assumed
discount rate represents the market rate available for
investments in high-quality fixed income instruments with
maturities matched to the expected benefit payments for pension
and medical and life benefit plans.
The expected long-term rate of return on plan assets represents
the rate of earnings expected in the funds invested to provide
for anticipated benefit payments. With input from the
Company’s investment advisors and actuaries, the Company
has analyzed the expected rates of return on assets and
determined that a long term rate of 8.00% is reasonable based on
the current and expected asset allocations and on the
plans’ historical investment performance and best estimates
for future investment performance. The Company’s asset
managers regularly review actual asset allocations and
periodically rebalance investments to targeted allocations when
considered appropriate.
The Company reviews external data and its own historical trends
for healthcare costs to determine the healthcare cost trend
rates for the medical benefit plans. For fiscal 2010 medical
benefit obligations, the Company assumed a 9.0% annual rate of
increase for pre and post 65 participants in the per capita cost
of covered healthcare claims with the rate decreasing over
10 years until reaching 5.0%.
A one percentage point change in the key assumptions would have
the following effects on the projected benefit obligations as of
November 30, 2010 and on expense for fiscal 2011:
|
Pension Benefits and
|
||||||||||||||||||||
|
Medical and Life Benefits
|
Expected Long-term
|
Assumed Healthcare
|
||||||||||||||||||
| Discount Rate | Rate of Return | Cost Trend Rate | ||||||||||||||||||
|
Projected
|
Net Periodic
|
Accumulated
|
||||||||||||||||||
|
Net Periodic
|
Benefit
|
Net Periodic Pension
|
Medical and Life
|
Benefit
|
||||||||||||||||
| Benefit Expense | Obligation | Benefit Expense | Benefit Expense | Obligation | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
1% decrease
|
$ | 21.3 | $ | 153.4 | $ | 12.8 | $ | (0.1 | ) | $ | (2.0 | ) | ||||||||
|
1% increase
|
(20.9 | ) | (140.3 | ) | (12.8 | ) | 0.1 | 2.2 | ||||||||||||
90
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| d. | Plan Assets and Investment Policy |
The Company’s investment strategy consists of a long-term,
risk-controlled approach using diversified investment options.
Plan assets are invested in asset classes that are expected to
produce a sufficient level of diversification and investment
return over the long term. The investment goals are to achieve
the long term rate of return within reasonable and prudent
levels of risk and to preserve the value of assets to meet
future obligations. Alternative investments include hedge funds,
venture capital funds, and other investments. Within each type
of investment the allocation may change as a result of changing
market conditions and dynamic tactical investment opportunities.
The Company’s pension plans weighted average asset
allocation and the investment policy asset allocation targets at
November 30, 2010, by asset category, are as follows:
| 2010 | ||||||||
| Actual | Target(1) | |||||||
|
Cash and cash equivalents
|
17 | % | — | % | ||||
|
Equity securities
|
34 | 32 | ||||||
|
Fixed income
|
31 | 50 | ||||||
|
Real estate investments
|
2 | 2 | ||||||
|
Private equity holdings
|
6 | — | ||||||
|
Alternative investments
|
10 | 16 | ||||||
| 100 | % | 100 | % | |||||
| (1) | Assets rebalanced periodically to remain within a reasonable range of the target. The Company is in the process of evaluating and updating its overall investment strategy and asset allocation targets. |
91
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of the Company’s pension plan assets by
asset category and by level at November 30, 2010 is as
follows:
|
Quoted Prices in
|
Significant
|
|||||||||||||||
|
Active Markets
|
Other
|
Significant
|
||||||||||||||
|
for Identical
|
Observable
|
Unobservable
|
||||||||||||||
|
Assets
|
Inputs
|
Inputs
|
||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| (In millions) | ||||||||||||||||
|
Cash and cash equivalents
|
$ | 238.7 | $ | 127.1 | $ | 111.6 | $ | — | ||||||||
|
Equity securities:
|
||||||||||||||||
|
Domestic equity securities
|
376.7 | 310.9 | 65.8 | — | ||||||||||||
|
International equity securities
|
174.8 | 36.7 | 138.1 | — | ||||||||||||
|
Derivatives
|
(77.7 | ) | (77.7 | ) | — | — | ||||||||||
|
Fixed income:
|
||||||||||||||||
|
U.S. government securities
|
5.7 | — | 5.7 | — | ||||||||||||
|
Foreign government securities
|
0.2 | — | — | 0.2 | ||||||||||||
|
Corporate debt securities
|
170.1 | 2.0 | 168.1 | — | ||||||||||||
|
Asset-backed securities
|
247.0 | — | 245.6 | 1.4 | ||||||||||||
|
Derivatives
|
(1.7 | ) | — | (1.7 | ) | — | ||||||||||
|
Real estate investments
|
21.6 | — | — | 21.6 | ||||||||||||
|
Private equity holdings
|
83.1 | — | — | 83.1 | ||||||||||||
|
Alternative investments
|
137.1 | — | — | 137.1 | ||||||||||||
|
Total
|
1,375.6 | $ | 399.0 | $ | 733.2 | $ | 243.4 | |||||||||
|
Receivables
|
13.1 | |||||||||||||||
|
Payables
|
(14.4 | ) | ||||||||||||||
|
Total
|
$ | 1,374.3 | ||||||||||||||
The following is a description of the significant investment
strategies and valuation methodologies used for the investments
measured at fair value, including the general classification of
such investments pursuant to the valuation hierarchy.
Cash and
cash equivalents
Cash and cash equivalents are held in money market accounts or
invested in Short-Term Investment Funds (“STIFs”).
Cash and cash equivalents held in money market accounts are
classified as Level 1 investments. STIFs are not traded on
an exchange and active market, and therefore are classified as
Level 2 investments.
Equity
securities
Equity securities are invested broadly in U.S. and
non-U.S. companies
which are in various industries and through a range of market
capitalization in common stocks and Common Collective Trusts
(“CCTs”). Common stocks are stated at fair value as
quoted on a recognized securities exchange and are valued at the
last reported sales price on the last business day of the Plan
year and are classified as Level 1 investments. CCTs are
not traded on an exchange and active market, however, the fair
value is determined based on the underlying investments as
traded in an exchange and active market, and therefore are
classified as Level 2 investments. Derivatives primarily
include options and short equity positions, which are all listed
on an exchange and active market and classified as Level 1
investments.
92
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Fixed
income securities
Fixed income securities are invested in a variety of instruments
including but not limited to government securities, corporate
debt securities, and asset-backed securities.
U.S. government securities are valued at bid evaluations
which are evaluated prices using observable and market-based
inputs and are classified as Level 2 investments. Foreign
government securities are priced by investment managers using
unobservable inputs such as extrapolated data, proprietary
models, or indicative quotes and are classified as Level 3
investments.
Corporate debt securities are invested in corporate bonds and
CCTs. Corporate bonds that are actively traded in a robust and
visible market are classified as Level 1 investments.
Corporate bonds that are valued at bid evaluations using
observable and market-based inputs are classified as
Level 2 investments. CCTs are priced by investment managers
using observable inputs of the underlying bond securities and
are classified as Level 2 investments.
Asset-backed securities, including government-backed mortgage
securities, non-government-backed collateralized mortgage
obligations, asset-backed securities, and commercial
mortgage-backed securities, are valued at bid evaluations which
are evaluated prices using observable or unobservable inputs.
These securities are classified as Level 2 investments if
the evaluated prices are calculated using observable and
market-based inputs and are classified as Level 3
investments if the evaluated prices are calculated using
unobservable inputs such as extrapolated data, proprietary
models, or indicative quotes.
Derivatives are the short fixed income positions which are
priced using observable inputs and are classified as
Level 2 investments.
Real
estate investments
Real estate investments include but not limited to investments
in office, retail, residential and industrial properties and are
valued based on either cash flows from future rents or sales of
comparable properties, which are estimated based on information
provided by the Company to local independent appraisers and are
classified as Level 3 investments.
Private
equity holdings
Private equity holdings are primarily limited partnerships and
fund-of-funds
that mainly invest in U.S. and
non-U.S. leveraged
buyout, venture capital and special situation strategies.
Generally, the holdings are valued at public market, private
market, or appraised value. Private equity holdings are valued
at total market value or Net Asset Value (“NAV”),
which are estimated by investment managers using unobservable
inputs such as extrapolated data, proprietary data, or
indicative quotes and are classified as Level 3 investments.
Alternative
investments
Alternative investments primarily consist of multi-strategy
hedge funds that invest across a range of equity and debt
securities in a variety of industry sectors. Generally, the
holdings are valued at public market, private market, or
appraised value. Alternative investments are valued at NAV
calculated by investment managers using unobservable inputs such
as extrapolated data, proprietary data, or indicative quotes and
are classified as Level 3 investments.
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Changes in the fair value of the Level 3 investments during
the year ended November 30, 2010 were as follows:
|
Unrealized
|
Realized
|
Purchases,
|
Transfers
|
|||||||||||||||||||||
|
November 30
|
Gains(Losses)
|
Gains
|
Issuances, and
|
out of
|
November 30
|
|||||||||||||||||||
| 2009 | on Plan Assets | on Plan Assets | Settlements | Level 3 | 2010 | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
|
Fixed income:
|
||||||||||||||||||||||||
|
Foreign government securities
|
$ | 0.4 | $ | — | $ | — | $ | (0.2 | ) | $ | — | $ | 0.2 | |||||||||||
|
Corporate securities
|
0.2 | — | — | (0.2 | ) | — | — | |||||||||||||||||
|
Asset-backed securities
|
5.3 | (0.6 | ) | 1.2 | (3.5 | ) | (1.0 | ) | 1.4 | |||||||||||||||
|
Real estate investments
|
26.8 | (5.2 | ) | — | — | — | 21.6 | |||||||||||||||||
|
Private equity holdings
|
71.2 | 11.1 | — | 0.8 | — | 83.1 | ||||||||||||||||||
|
Alternative investments
|
128.8 | 0.8 | 13.5 | (6.0 | ) | — | 137.1 | |||||||||||||||||
|
Total
|
$ | 232.7 | $ | 6.1 | $ | 14.7 | $ | (9.1 | ) | $ | (1.0 | ) | $ | 243.4 | ||||||||||
| e. | Benefit Payments |
The following presents estimated future benefit payments:
|
Pension
|
Medical and Life Benefits | |||||||||||||||
|
Benefit
|
Gross Benefit
|
Medicare D
|
Net Benefit
|
|||||||||||||
|
Year Ending November 30,
|
Payments | Payments | Subsidy | Payments | ||||||||||||
| (In millions) | ||||||||||||||||
|
2011
|
$ | 130.5 | $ | 7.9 | $ | 0.7 | $ | 7.2 | ||||||||
|
2012
|
128.4 | 7.7 | 0.7 | 7.0 | ||||||||||||
|
2013
|
125.8 | 9.0 | 0.7 | 8.3 | ||||||||||||
|
2014
|
122.8 | 8.7 | 0.7 | 8.0 | ||||||||||||
|
2015
|
119.8 | 8.4 | 0.3 | 8.1 | ||||||||||||
|
Years 2016 — 2020
|
550.0 | 35.2 | 1.4 | 33.8 | ||||||||||||
| 7. | Commitments and Contingencies |
| a. | Lease Commitments and Income |
The Company and its subsidiaries lease certain facilities,
machinery and equipment, and office buildings under long-term,
non-cancelable operating leases. The leases generally provide
for renewal options ranging from one to ten years and require
the Company to pay for utilities, insurance, taxes, and
maintenance. Rent expense was $11.3 million in fiscal 2010,
$11.6 million in fiscal 2009, and $10.3 million in
fiscal 2008.
The Company also leases certain surplus facilities to third
parties. The Company recorded lease income of $6.8 million
in fiscal 2010, $6.4 million in fiscal 2009, and
$6.1 million in fiscal 2008 related to these arrangements,
which have been included in net sales.
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The future minimum rental commitments under non-cancelable
operating leases with initial or remaining terms of one year or
more and lease revenue in effect as of November 30, 2010
were as follows:
|
Future Minimum
|
Future Minimum
|
|||||||
|
Year Ending November 30,
|
Rental Commitments | Rental Income | ||||||
| (In millions) | ||||||||
|
2011
|
$ | 9.9 | $ | 5.7 | ||||
|
2012
|
8.3 | 4.4 | ||||||
|
2013
|
5.6 | 4.2 | ||||||
|
2014
|
3.5 | 4.4 | ||||||
|
2015
|
2.0 | 4.5 | ||||||
|
Thereafter
|
3.2 | 2.3 | ||||||
| $ | 32.5 | $ | 25.5 | |||||
| b. | Legal Matters |
The Company and its subsidiaries are subject to legal
proceedings, including litigation in U.S. federal and state
courts, which arise out of, and are incidental to, the ordinary
course of the Company’s on-going and historical businesses.
The Company is also subject from time to time to governmental
investigations by federal and state agencies. The Company cannot
predict the outcome of such proceedings with any degree of
certainty. Loss contingency provisions are recorded for probable
losses at management’s best estimate of a loss, or when a
best estimate cannot be made, a minimum loss contingency amount
is recorded. These estimates are often initially developed
substantially earlier than when the ultimate loss is known, and
are refined each quarterly reporting period as additional
information becomes known. For legal settlements where there is
no stated amount for interest, the Company will estimate an
interest factor and discount the liability accordingly.
Groundwater
Cases
South El
Monte Operable Unit (“SEMOU”) Related Cases
In October 2002, Aerojet and approximately 65 other individual
and corporate defendants were served with four civil suits filed
in the U.S. District Court for the Central District of
California that seek recovery of costs allegedly incurred or to
be incurred in response to the contamination present at the
South El Monte Operable Unit of the San Gabriel Valley
Superfund site. The cases served on October 30, 2002 are
denominated as follows:
San Gabriel Valley Water Company v. Aerojet-General
Corporation, et al.
, Case
No. CV-02-6346
ABC (RCx), U.S. District Court, Central District of CA.
San Gabriel Basin Water Quality Authority v.
Aerojet-General Corporation, et al.
, Case
No. CV-02-4565
ABC (RCx), U.S. District Court, Central District of CA.
Southern California Water Company v. Aerojet-General
Corporation, et al.
, Case
No. CV-02-6340
ABC (RCx), U.S. District Court, Central District of CA.
The City of Monterey Park v. Aerojet-General
Corporation, et al.
, Case
No. CV-02-5909
ABC (RCx), U.S. District Court, Central District of CA.
The cases have been coordinated for ease of administration by
the court. The plaintiffs’ claims against Aerojet are based
upon allegations of discharges from a former site in the El
Monte area. The total cost estimate to implement projects under
a Unilateral Administrative Order (“UAO”) prepared by
the EPA and the water entities is approximately
$90 million. Aerojet investigations do not identify a
credible connection between the contaminants identified by the
plaintiff water entities in the SEMOU and those detected at
Aerojet’s former facility located in El Monte, California,
near the SEMOU (“East Flair Drive site”). Aerojet
filed third-party complaints against several
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
water entities on the basis that they introduced
perchlorate-containing Colorado River water to the basin. Those
water entities have filed motions to dismiss Aerojet’s
complaints. The motions and discovery have been stayed, pending
efforts to resolve the litigation through mediation. During the
period in which the litigation has been stayed, EPA, the
California Department of Toxic Substances Control
(“DTSC”) and the plaintiff water entities have reached
settlements through the mediation process with various of the
parties sued, which have been brought to the Federal District
Court for approval. Certain of the settlements have been
challenged by Aerojet and other defendants and are not finally
resolved.
During fiscal 2010, Aerojet received correspondence from EPA on
behalf of itself, the DTSC and the water entities regarding
settlement. Aerojet participated in mediation with EPA, DTSC and
the water entities to resolve the claims, and reached a
tentative settlement with EPA and DTSC in mid-December 2010
which was accepted by the water entities in January 2011. The
settlement now must be approved by EPA and published for public
comment. Aerojet recorded the impact of the tentative settlement
in the fourth quarter of fiscal 2010. If settlement negotiations
fail, the litigation stay is likely to be lifted and EPA may
refer the matter to the U.S. Department of Justice for
litigation, seeking to hold Aerojet liable for past and future
costs, to recover costs of suit and attorneys’ fees, and as
to any accrued interest, penalties or statutory damages. Should
settlement not be reached, Aerojet intends to vigorously defend
itself. The Company has accrued management’s best estimate
of such contingencies as a component of its environmental
reserves.
Caldwell
In December 2007, Aerojet was named as a defendant in a lawsuit
brought by six individuals who allegedly resided in the vicinity
of Aerojet’s Sacramento facility. The case is entitled
Caldwell et al. v. Aerojet-General Corporation
, Case
No. 34-2000-00884000CU-TT-GDS,
Sacramento County (CA) Superior Court and the complaint was
served on April 3, 2008. Plaintiffs allege that Aerojet
contaminated groundwater to which plaintiffs were exposed and
which caused plaintiffs illness and economic injury. Plaintiffs
filed three subsequent amended complaints, bringing the total
number of individuals on whose behalf suit was filed to
eighteen. Aerojet filed answers to the various complaints
denying liability. During the fourth quarter of fiscal 2010, the
parties entered into a confidential settlement of the
litigation. The settlement, the respective payments, and the
recording of the impact of the settlement was completed in
fiscal 2010.
Sacramento
County Water Agency (collectively, “SCWA”)
In August 2003, the County of Sacramento, SCWA and Aerojet
entered into a water agreement (“Agreement”). Under
the Agreement, Aerojet agreed to transfer remediated groundwater
to SCWA. This was anticipated to satisfy Aerojet’s water
replacement obligations in eastern Sacramento County. Subject to
various provisions of the Agreement, including approval under
the California Environmental Quality Act, SCWA assumed
Aerojet’s responsibility for providing replacement water to
American States Water Company and other impacted water purveyors
up to the amount of remediated water Aerojet transfers to the
County of Sacramento (“County”). Aerojet also agreed
to pay SCWA approximately $13 million over several years
toward the cost of constructing a replacement water supply
project. If the amount of Aerojet’s transferred water was
in excess of the replacement water provided to the impacted
water purveyors, SCWA committed to make such water available for
the entitlement of Aerojet’s land in an amount equal to the
excess.
In April 2008, SCWA unilaterally terminated the Agreement.
Subsequent to this unilateral termination of the Agreement, the
Company and The Boeing Company (“Boeing,” successor to
the McDonnell Douglas Corporation (“MDC”)), the former
owner of the Inactive Rancho Cordova Test Site
(“IRCTS”) entered into negotiations with SCWA in an
attempt to resolve matters and reach a new agreement.
Additionally, SCWA and Aerojet entered into a Tolling Agreement
through June 30, 2009 tolling any suits or claims arising
from environmental contamination or conditions on the former
IRCTS property.
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INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On June 30, 2009, SCWA notified Aerojet and Boeing that it
was not prepared to extend the tolling period and intended to
file suit. On July 1, 2009, the County and SCWA filed a
complaint against Aerojet and Boeing in the U.S. District
Court for the Eastern District of California, in Sacramento,
County of Sacramento; Sacramento County Water Agency v.
Aerojet-General Corporation and The Boeing Corporation [sic],
Civ.
No. 2:09-at-1041.
In the complaint, the County and SCWA alleged that because
groundwater contamination from various sources including
Aerojet, Boeing/MDC, and the former Mather Air Force Base, was
continuing, the County and SCWA should be awarded unspecified
monetary damages as well as declaratory and equitable relief.
The complaint was served, but the parties entered into joint
stipulations staying the proceedings to allow for settlement
negotiations. The current stay is in effect to May 30,
2011. The Company cannot reasonably estimate the outcome of this
proceeding at this time.
M&H
Realty/Fullerton case
On July 7, 2008, Aerojet was served with a complaint
brought by the owner of property in Fullerton, California at
which Aerojet had operated for over twenty years. Aerojet sold
the property in 1984 to MDC, also a defendant in the lawsuit,
which redeveloped and subsequently sold the property. The
complaint, entitled
M&H Realty Partners V, L.P. v
Aerojet-General Corporation, Boeing Realty Corporation and
McDonnell Douglas Corporation, et al. Case
No. 30-2008-00080378-CU-TT-CXC
,
is pending in the Superior Court for Orange County, California.
The property owner alleges Aerojet and Boeing, the successor to
MDC, are responsible for soil contamination that has increased
the costs of further redevelopment of the property. The parties
have entered settlement negotiations. The trial date has been
rescheduled to August 15, 2011 to allow for these
settlement negotiations. Should settlement not be reached,
Aerojet intends to vigorously defend itself. The Company has
accrued management’s best estimate of such contingencies as
a component of its environmental reserves.
Asbestos
Litigation
The Company has been, and continues to be, named as a defendant
in lawsuits alleging personal injury or death due to exposure to
asbestos in building materials, products, or in manufacturing
operations. The majority of cases are pending in Texas and
Pennsylvania. There were 141 asbestos cases pending as of
November 30, 2010.
Given the lack of any significant consistency to claims (i.e.,
as to product, operational site, or other relevant assertions)
filed against the Company, the Company is unable to make a
reasonable estimate of the future costs of pending claims or
unasserted claims. Accordingly, no estimate of future liability
has been accrued for such contingencies.
Subpoenas
Duces Tecum
On January 6, 2010, the Company received a subpoena duces
tecum from the Defense Criminal Investigative Service of the
Office of the Inspector General of the DoD, working in
conjunction with the Civil Division of the United States
Attorneys’ office in Sacramento, California, requesting
that the Company produce a variety of documents pertaining to
the allowability of certain costs under its contracts with the
DoD from October 1, 2003 to the present. On
September 23, 2010, the Company received a subpoena duces
tecum from the U.S. Army Criminal Investigation Command,
acting on behalf of the Office of the Inspector General of the
DoD, requesting that the Company produce a variety of documents
pertaining to the use of certain estimating factors under its
contracts with the DoD. The Company is currently unable to
reasonably estimate what the outcome of these civil
investigations will be or the impact, if any, the investigations
may have on the Company’s operating results, financial
condition,
and/or
cash
flows. Accordingly, no estimate of future liability has been
accrued for such contingencies. The Company has and continues to
cooperate fully with these investigations and is responding to
the subpoenas.
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Snappon
SA Wrongful Discharge Claims
In November 2003, the Company announced the closing of a
manufacturing facility in Chartres, France owned by Snappon SA,
a subsidiary of the Company, previously involved in the
automotive business. In accordance with French law, Snappon SA
negotiated with the local works’ council regarding the
implementation of a social plan for the employees. Following the
implementation of the social plan, approximately 188 of the 249
former Snappon employees sued Snappon SA in the Chartres Labour
Court alleging wrongful discharge. The claims were heard in two
groups. On February 19, 2009, the Versailles Court of
Appeal issued a decision in favor of Group 2 plaintiffs and
based on this, the Court awarded €1.9 million plus
interest. On April 7, 2009, the Versailles Court of Appeal
issued a decision in favor of Group 1 plaintiffs and based on
this, the Court awarded €1.0 million plus interest.
During the second quarter of fiscal 2009, Snappon SA filed for
declaration of suspensions of payments with the clerk’s
office of the Paris Commercial Court, and the claims will likely
be discharged through those proceedings. The Company has accrued
a loss contingency of €2.9 million ($3.8 million)
plus interest for this matter.
GDX
Automotive
On August 31, 2004, the Company completed the sale of its
GDX business to an affiliate of Cerberus Capital Management,
L.P. (“Cerberus”). In accordance with the divestiture
agreement, the Company provided customary indemnification to
Cerberus for certain liabilities accruing prior to the closing
of the transaction (“the Closing”). Cerberus notified
the Company of a claim by a GDX customer that alleges that
certain parts manufactured by GDX prior to the Closing failed to
meet customer specifications. Based on the Company’s
investigation of the facts and defenses available under the
contract and local law, the Company has denied all liability for
this claim in November 2008. On January 23, 2009, GenCorp
received correspondence from the GDX customer requesting that
the Company provide it with a settlement proposal by
February 6, 2009, threatening that it would initiate legal
proceedings otherwise. GenCorp neither responded nor otherwise
tolled the statute of limitations with negotiations. Nothing
further has been received since then and no legal proceedings
have been initiated. Accordingly, no estimate of future
liability has been accrued for such contingencies.
The Company and its subsidiaries are subject to other legal
actions, governmental investigations, and proceedings relating
to a wide range of matters in addition to those discussed above.
While there can be no certainty regarding the outcome of any
litigation, investigation or proceeding, after reviewing the
information that is currently available with respect to such
matters, any liability that may ultimately be incurred with
respect to these matters is not expected to materially affect
the Company’s consolidated financial condition. It is
possible that amounts could be material to the Company’s
results of operations or cash flows in any particular reporting
period.
| c. | Environmental Matters |
The Company is involved in over forty environmental matters
under the Comprehensive Environmental Response Compensation and
Liability Act (“CERCLA”), the Resource Conservation
Recovery Act (“RCRA”), and other federal, state,
local, and foreign laws relating to soil and groundwater
contamination, hazardous waste management activities, and other
environmental matters at some of its current and former
facilities. The Company is also involved in a number of remedial
activities at third party sites, not owned by the Company, where
it is designated a potentially responsible party
(“PRP”) by either the U.S. EPA or a state agency.
In many of these matters, the Company is involved with other
PRPs. 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 and costs are generally made
based on relative contributions of waste or contamination.
Anticipated costs associated with environmental remediation that
are probable and estimable are accrued. In cases where a date to
complete remedial activities at a particular site cannot be
determined by reference to agreements or otherwise, the Company
projects costs over an appropriate time period not exceeding
fifteen years; in such cases, generally the Company does not
have the ability to reasonably
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
estimate environmental remediation costs that are beyond this
period. Factors that could result in changes to the
Company’s estimates include completion of current and
future soil and groundwater investigations, new claims, future
agency demands, discovery of more or less contamination than
expected, discovery of new contaminants, modification of planned
remedial actions, changes in estimated time required to
remediate, new technologies, and changes in laws and regulations.
As of November 30, 2010, the aggregate range of these
anticipated environmental costs was $217.7 million to
$379.9 million and the accrued amount was
$217.7 million. See Note 7(d) for a summary of the
environmental reserve activity for fiscal year 2010. Of these
accrued liabilities, approximately 64% relates to the
Sacramento, California site and approximately 21% to the Baldwin
Park Operable Unit of the San Gabriel Valley, California
site. Each of those two sites is discussed below. The balance of
the accrued liabilities relates to other sites for which the
Company’s obligations are probable and estimable.
Sacramento,
California Site
In 1989, a federal district court in California approved a
Partial Consent Decree (“PCD”) requiring Aerojet,
among other things, to conduct a Remedial Investigation and
Feasibility Study (“RI/FS”) to determine the nature
and extent of impacts due to the release of chemicals from the
Sacramento, California site, monitor the American River and
offsite public water supply wells, operate Groundwater
Extraction and Treatment facilities (“GETs”) that
collect groundwater at the site perimeter, and pay certain
government oversight costs. The primary chemicals of concern for
both
on-site
and off-site groundwater are trichloroethylene
(“TCE”), perchlorate, and n-nitrosodimethylamine
(“NDMA”). The PCD has been revised several times, most
recently in 2002. The 2002 PCD revision (a) separated the
Sacramento site into multiple operable units to allow quicker
implementation of remedy for critical areas; (b) required
the Company to guarantee up to $75 million (in addition to
a prior $20 million guarantee) to assure that
Aerojet’s Sacramento remediation activities are fully
funded; and (c) removed approximately 2,600 acres of
non-contaminated land from the U.S. EPA superfund
designation.
Aerojet is involved in various stages of soil and groundwater
investigation, remedy selection, design, and remedy construction
associated with the operable units. In 2002, the U.S. EPA
issued a UAO requiring Aerojet to implement the
U.S. EPA-approved remedial action in the Western
Groundwater Operable Unit. An identical order was issued by the
California Regional Water Quality Control Board, Central Valley
(“Central Valley RWQCB”). Construction of the remedy
specified in the UAO is anticipated to be completed in fiscal
2011. Aerojet submitted a final Remedial
Investigation/Feasibility Study for the Perimeter Groundwater
Operable Unit in 2008, for which the U.S. EPA will issue a
record of decision sometime in the future. Aerojet submitted a
final Remedial Investigation Report for the Boundary Operable
Unit in 2010 and anticipates submittal of the final Feasibility
Study for this operable unit in 2011. The remaining operable
units are under various stages of investigation.
Until March 2008, the entire southern portion of the site known
as Rio Del Oro was under state orders issued in the 1990s from
the DTSC to investigate and remediate environmental
contamination in the soils and the Central Valley RWQCB to
investigate and remediate groundwater environmental
contamination. On March 14, 2008, the DTSC released all but
approximately 400 acres of the Rio Del Oro property from
DTSC’s environmental orders regarding soil contamination.
Aerojet expects the approximately 400 acres of Rio Del Oro
property that remain subject to the DTSC orders to be released
once the soil remediation has been completed. The Rio Del Oro
property remains subject to the Central Valley RWQCB’s
orders to investigate and remediate groundwater environmental
contamination emanating offsite from such property. Pursuant to
a settlement agreement entered into in 2009, Aerojet and Boeing
have defined responsibilities with respect to future costs and
environmental projects relating to this property.
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NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
San Gabriel
Valley Basin, California Site
Baldwin Park Operable Unit (“BPOU”)
As a result of its former Azusa, California operations, in 1994
Aerojet was named a PRP by the U.S. EPA in the area of the
San Gabriel Valley Basin superfund site known as the BPOU.
Between 1995 and 1997, the U.S. EPA issued Special Notice
Letters to Aerojet and eighteen other companies requesting that
they implement a groundwater remedy. On June 30, 2000, the
U.S. EPA issued a UAO ordering the PRPs to implement a
remedy consistent with the 1994 record of decision. Aerojet,
along with seven other PRPs (“the Cooperating
Respondents”) signed a Project Agreement in late March 2002
with the San Gabriel Basin Water Quality Authority, the
Main San Gabriel Basin Watermaster, and five water
companies. The Project Agreement, which has a term of fifteen
years, became effective May 9, 2002 and will terminate May
2017. It is uncertain as to what remedial actions will be
required beyond 2017. However, the Project Agreement stipulates
that the Parties agree to negotiate in good faith in an effort
to reach agreement as to the terms and conditions of an
extension of the term in the event that a Final Record of
Decision anticipates, or any of the parties desire, the
continued operation of all or a substantial portion of the
project facilities.
Pursuant to the Project Agreement, the Cooperating Respondents
fund through an escrow account: the capital, operational,
maintenance, and administrative costs of certain treatment and
water distribution facilities to be owned and operated by the
water companies. There are also provisions in the Project
Agreement for maintaining financial assurance in the form of
cash or letters of credit. A significant amount of public
funding is available to offset project costs. To date, Congress
has appropriated approximately $80 million (so called
Title 16 and Dreier funds), a portion of which is
potentially available for payment of project costs.
Approximately $41 million of the funding has been allocated
to costs associated with the Project Agreement and additional
funds may follow in later years.
Aerojet and the other Cooperating Respondents entered into an
interim allocation agreement that establishes the interim
payment obligations of the Cooperating Respondents for the costs
incurred pursuant to the Project Agreement. Under the interim
allocation, Aerojet is responsible for approximately two-thirds
of all project costs, including government oversight costs. All
project costs are subject to reallocation among the Cooperating
Respondents. The interim allocation agreement expired, but until
recently all Cooperating Respondents were paying in accordance
with their interim allocations. In July 2008, Fairchild Holding
Corporation sued Aerojet and the other Cooperating Respondents
in Federal District Court in Los Angeles in the action
Fairchild Holding Corp et al v. Aerojet-General
Corp, et al SA 08CV
722-ABC
claiming that it did not have any liability and that it
should recover amounts paid of approximately $2.6 million
and should — as between the Cooperating
Respondents — have no further obligation to pay
project costs.
Fairchild stopped making payments to the escrow account under
the Project Agreement and claimed that it would not do so in the
future unless ordered to do so by a court. Fairchild had been
paying approximately 2.5% of the project costs as its allocation
until it stopped paying. At the request of one of the
Cooperating Respondents, the Court stayed all actions until
mid-December 2008 to allow the parties an opportunity to
participate in mediation. The mediation occurred in December
2008 and was not successful. Aerojet and the other Cooperating
Respondents answered Fairchild’s complaint and many
(including Aerojet) filed counterclaims against Fairchild
Holding and third-party complaints against entities affiliated
with Fairchild. Fairchild subsequently filed a First Amended
Complaint adding the third-party affiliated entities as
Plaintiffs in the litigation and Aerojet answered and filed
counterclaims. To date, no other Cooperating Respondent has
filed a claim against any non-Fairchild Cooperating Respondents
to seek a reallocation. On March 18th, 2009, Fairchild
filed for voluntary chapter 11 bankruptcy reorganization in
the District of Delaware and as a result, the Federal District
Court in Los Angeles has stayed the Fairchild litigation. In
light of Fairchild’s insolvency, the other Cooperating
Respondents, including Aerojet, must make up Fairchild’s
share of Project costs and its interim share of financial
assurances required by the Project Agreement, although the
amounts each Cooperating Respondent would be required to fund or
pay has not been resolved.
100
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On June 24, 2010, Aerojet filed a complaint against Chubb
Custom Insurance Company in Los Angeles County Superior Court,
Aerojet-General Corporation v. Chubb Custom Insurance
Company Case No. BC440284,
seeking declaratory relief
and damages regarding Chubb’s failure to pay certain
project modification costs and failure to issue an endorsement
to add other water sources that may require treatment as
required under insurance policies issued to Aerojet and the
other Cooperating Respondents. Aerojet agreed to dismiss the
case without prejudice and settlement negotiations are ongoing.
As part of Aerojet’s sale of its Electronics and
Information Systems (“EIS”) business to Northrop in
October 2001, the U.S. EPA approved a Prospective Purchaser
Agreement with Northrop to absolve it of pre-closing liability
for contamination caused by the Azusa, California operations,
which liability remains with Aerojet. As part of that agreement,
the Company agreed to provide a $25 million guarantee of
Aerojet’s obligations under the Project Agreement.
South El
Monte Operable Unit
Aerojet previously owned and operated manufacturing facilities
located on East Flair Drive in El Monte, California. On
December 21, 2000, Aerojet received an order from the Los
Angeles RWQCB requiring a work plan for investigation of this
former site. On January 22, 2001, Aerojet filed an appeal
of the order with the Los Angeles RWQCB asserting selective
enforcement. The appeal had been held in abeyance pending
negotiations with the Los Angeles RWQCB, but due to a two-year
limitation on the abeyance period, the appeal was dismissed
without prejudice. In September 2001, Aerojet submitted a
limited work plan to the Los Angeles RWQCB.
On February 21, 2001, Aerojet received a General Notice
Letter from the U.S. EPA naming Aerojet as a PRP with
regard to the SEMOU of the San Gabriel Valley Basin,
California Superfund site. On April 1, 2002, Aerojet
received a Special Notice Letter from the U.S. EPA that
requested Aerojet enter into negotiations with it regarding the
performance of a remedial design and remedial action for the
SEMOU. In light of this letter, Aerojet performed a limited site
investigation of the East Flair Drive site. The data collected
and summarized in the report showed that chemicals including TCE
and PCE were present in the soil and groundwater at, and near,
the El Monte location. Site investigations are ongoing.
On August 29, 2003, the U.S. EPA issued a UAO against
Aerojet and approximately 40 other parties requiring them to
conduct the remedial design and remedial action in the SEMOU.
The impact of the UAO on the recipients is not clear as much of
the remedy is already being implemented by the water entities.
The cost estimate to implement projects under the UAO prepared
by the U.S. EPA and the water entities is approximately
$90 million. The Company is working diligently with the
U.S. EPA and the other PRPs to resolve this matter and
ensure compliance with the UAO. The Company’s share of
responsibility has not yet been determined. The status of the
negotiations with the U.S. EPA is further described in
Note 7(a).
On November 17, 2005, Aerojet notified the Los Angeles
RWQCB and the U.S. EPA that Aerojet was involved in
research and development at the East Flair Drive site that
included the use of 1,4-dioxane. Aerojet’s investigation of
that issue is continuing. Oversight of the East Flair Drive site
was transferred from the RWQCB to the DTSC in 2007 and Aerojet
has entered into a Voluntary Cleanup Agreement with DTSC.
Toledo,
Ohio Site
In August 2007, the Company, along with numerous other
companies, received from the United States Department of
Interior Fish and Wildlife Service a notice of a Natural
Resource Damage (“NRD”) Assessment Plan for the Ottawa
River and Northern Maumee Bay. The Company previously
manufactured products for the automotive industry at a Toledo,
Ohio site, which was adjacent to the Ottawa River. This facility
was divested in 1990 and the Company indemnified the buyer for
claims and liabilities arising out of certain pre-divestiture
environmental matters. A group of PRPs, including GenCorp, was
formed to respond to the NRD assessment and to pursue funding
from the Great Lakes Legacy Act for primary restoration. The
restoration project to be performed by the group consists of
river dredging and land-filling river sediments with a total
project cost in the range of
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
approximately $47 to $49 million, one half of which is
being funded through the Great Lakes Legacy Act and the net
project costs to the PRP group is estimated at $23.5 to
$24.5 million. The actual dredging of the river, begun in
December 2009, has been completed. During January 2011, the
parties reached a tentative agreement on allocation. Based on a
review of the current facts and circumstances with counsel,
management has provided for what is believed to be a reasonable
estimate of the loss exposure for this matter as a component of
its environmental reserves. Still unresolved at this time is the
actual NRD Assessment itself. It is not possible to predict the
outcome or timing of these types of assessments, which are
typically lengthy processes lasting several years, or the
amounts for these damages.
In 2008, Textileather, Inc. (“Textileather”), the
current owner of the former Toledo, Ohio site, filed a lawsuit
against the Company claiming, among other things, that the
Company failed to indemnify and defend Textileather for certain
contractual environmental obligations. A second suit related to
past and future RCRA closure costs was filed in late 2009. On
May 5, 2010, the District Court granted the Company’s
Motion for Summary Judgment, thereby dismissing the claims in
the initial action. Textileather has appealed to the Sixth
Circuit Court of Appeal and the briefing schedule has been
extended. The parties are discussing settlement as part of the
Sixth Circuit’s mandatory mediation program. There are no
District Court ordered dates in the second Textileather suit,
but the parties are conducting informal discovery. Based on a
review of the current facts and circumstances, management has
provided for what is believed to be a reasonable estimate of the
loss exposure for this matter as a component of its
environmental reserves.
| d. | Environmental Reserves and Estimated Recoveries |
Reserves
The Company reviews on a quarterly basis estimated future
remediation costs that could be incurred over the contractual
term or next fifteen years of the expected remediation. The
Company has an established practice of estimating environmental
remediation costs over a fifteen year period, except for those
environmental remediation costs with a specific contractual
term. As the period for which estimated environmental
remediation costs increases, the reliability of such estimates
decrease. These estimates consider the investigative work and
analysis of engineers, outside environmental consultants, and
the advice of legal staff regarding the status and anticipated
results of various administrative and legal proceedings. In most
cases, only a range of reasonably possible costs can be
estimated. In establishing the Company’s reserves, the most
probable estimate is used when determinable; otherwise, the
minimum amount is used when no single amount in the range is
more probable. Accordingly, such estimates can change as the
Company periodically evaluates and revises such estimates as new
information becomes available. The Company cannot predict
whether new information gained as projects progress will affect
the estimated liability accrued. The timing of payment for
estimated future environmental costs is influenced by a number
of factors such as the regulatory approval process, the time
required to design the process, the time to construct the
process, and the time required to conduct the remedy itself.
102
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of the Company’s environmental reserve activity
is shown below:
|
Total
|
||||||||||||
|
Environmental
|
||||||||||||
| Aerojet | Other | Reserve | ||||||||||
| (In millions) | ||||||||||||
|
November 30, 2007
|
$ | 259.5 | $ | 10.5 | $ | 270.0 | ||||||
|
Fiscal 2008 additions
|
39.8 | 5.8 | 45.6 | |||||||||
|
Fiscal 2008 expenditures
|
(54.1 | ) | (3.3 | ) | (57.4 | ) | ||||||
|
November 30, 2008
|
245.2 | 13.0 | 258.2 | |||||||||
|
Fiscal 2009 additions
|
19.9 | 3.6 | 23.5 | |||||||||
|
Fiscal 2009 expenditures
|
(54.0 | ) | (5.0 | ) | (59.0 | ) | ||||||
|
November 30, 2009
|
211.1 | 11.6 | 222.7 | |||||||||
|
Fiscal 2010 additions
|
27.9 | 8.6 | 36.5 | |||||||||
|
Fiscal 2010 expenditures
|
(33.0 | ) | (8.5 | ) | (41.5 | ) | ||||||
|
November 30, 2010
|
$ | 206.0 | $ | 11.7 | $ | 217.7 | ||||||
As of November 30, 2010, the Aerojet reserves include
$139.8 million for the Sacramento site, $46.1 million
for BPOU, and $20.1 million for other Aerojet reserves.
The effect of the final resolution of environmental matters and
the Company’s obligations for environmental remediation and
compliance cannot be accurately predicted due to the uncertainty
concerning both the amount and timing of future expenditures and
due to regulatory or technological changes. The Company will
continue its efforts to mitigate past and future costs through
pursuit of claims for recoveries from insurance coverage and
other PRPs and continued investigation of new and more cost
effective remediation alternatives and associated technologies.
As part of the acquisition of the Atlantic Research Corporation
(“ARC”) propulsion business, Aerojet entered into an
agreement with ARC pursuant to which Aerojet is responsible for
up to $20.0 million of costs (“Pre-Close Environmental
Costs”) associated with environmental issues that arose
prior to Aerojet’s acquisition of the ARC propulsion
business. Pursuant to a separate agreement with the
U.S. government which was entered into prior to the
completion of the ARC acquisition, these Pre-Close Environmental
Costs are not subject to the 88% limitation under the Global
Settlement, and are recovered through the establishment of
prices for Aerojet’s products and services sold to the
U.S. government. A summary of the Pre-Close Environmental
Costs is shown below (in millions):
|
Pre-Close Environmental Costs
|
$ | 20.0 | ||
|
Amount spent through November 30, 2010
|
(10.6 | ) | ||
|
Amount included as a component of reserves for environmental
remediation costs in the consolidated balance sheet as of
November 30, 2010
|
(1.3 | ) | ||
|
Remaining Pre-Close Environmental Costs
|
$ | 8.1 | ||
Estimated
Recoveries
On January 12, 1999, Aerojet and the U.S. government
implemented the October 1997 Agreement in Principle
(“Global Settlement”) resolving certain prior
environmental and facility disagreements, with retroactive
effect to December 1, 1998. Under the Global Settlement,
Aerojet and the U.S. government resolved disagreements
about an appropriate cost-sharing ratio with respect to the
cleanup costs of the environmental contamination at the
Sacramento and Azusa sites. The Global Settlement provides that
the cost-sharing ratio will continue for a number of years.
Additionally, in conjunction with the sale of the EIS business
in 2001, Aerojet entered into an agreement with Northrop (the
“Northrop Agreement”) whereby Aerojet is reimbursed by
Northrop for a portion of
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
environmental expenditures eligible for recovery under the
Global Settlement, subject to annual and cumulative limitations.
The current annual billing limitation to Northrop is
$8.0 million, which will be reduced to $6.0 million
beginning in fiscal 2011.
Pursuant to the Global Settlement covering environmental costs
associated with Aerojet’s Sacramento site and its former
Azusa site, the Company can recover up to 88% of its
environmental remediation costs for these sites through the
establishment of prices for Aerojet’s products and services
sold to the U.S. government. Allowable environmental costs
are charged to these contracts as the costs are incurred.
Aerojet’s mix of contracts can affect the actual
reimbursement made by the U.S. government. Because these
costs are recovered through forward-pricing arrangements, the
ability of Aerojet to continue recovering these costs from the
U.S. government depends on Aerojet’s sustained
business volume under U.S. government contracts and
programs and the relative size of Aerojet’s commercial
business. Annually, the Company evaluates Aerojet’s
forecasted business volume under U.S. government contracts
and programs and the relative size of Aerojet’s commercial
business as part of its long-term business review. In the third
quarter of fiscal 2010, as a result of a forecasted increase in
U.S. government contracts and programs volume, future
recoverable amounts from the U.S. government increased;
accordingly, the Company recorded a benefit of $2.6 million
in the third quarter of fiscal 2010.
Pursuant to the Northrop Agreement, environmental expenditures
to be reimbursed are subject to annual limitations and the total
reimbursements are limited to a ceiling of $189.7 million.
A summary of the Northrop Agreement activity is shown below (in
millions):
|
Total reimbursable costs under the Northrop Agreement
|
$ | 189.7 | ||
|
Amount reimbursed to the Company through November 30, 2010
|
(82.2 | ) | ||
|
Potential future cost reimbursements available
|
107.5 | |||
|
Receivable from Northrop in excess of the annual limitation
included as a component of other noncurrent assets in the
Consolidated Balance Sheet as of November 30, 2010
|
(58.6 | ) | ||
|
Amounts recoverable from Northrop in future periods included as
a component of recoverable from the U.S. government and other
third parties for environmental remediation costs in the
Consolidated Balance Sheet as of November 30, 2010
|
(48.9 | ) | ||
|
Potential future recoverable amounts available under the
Northrop Agreement
|
$ | — | ||
The Company’s applicable cost estimates reached the
cumulative limitation under the Northrop Agreement during the
third quarter of fiscal 2010. Accordingly, in future periods,
the Company will incur a higher percentage of expense related to
additions to the Sacramento site and BPOU site environmental
reserve until an arrangement is reached with the
U.S. government. While the Company is currently seeking an
arrangement with the U.S. government to recover
environmental expenditures in excess of the reimbursement
ceiling identified in the Northrop Agreement, there can be no
assurances that such a recovery will be obtained, or if not
obtained, that such unreimbursed environmental expenditures will
not have a materially adverse effect on the Company’s
operating results, financial condition,
and/or
cash
flows.
104
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Environmental
reserves and estimated recoveries impact to the Consolidated
Statements of Operations
The expenses and benefits associated with adjustments to the
environmental reserves are recorded as a component of other
expense, net in the consolidated statements of operations.
Summarized financial information for the impact of environmental
reserves and recoveries to the consolidated statements of
operations is set forth below:
|
Total
|
||||||||||||||||||||
|
Estimated
|
||||||||||||||||||||
|
Estimated
|
Estimated
|
Recoverable
|
Charge to
|
Total
|
||||||||||||||||
|
Recoverable
|
Recoverable
|
Amounts Under
|
Consolidated
|
Environmental
|
||||||||||||||||
|
Amounts from
|
Amounts from
|
U.S. Government
|
Statement of
|
Reserve
|
||||||||||||||||
| Northrop | U.S. Government | Contracts | Operations | Additions | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Fiscal 2010
|
$ | 2.8 | $ | 24.9 | $ | 27.7 | $ | 8.8 | $ | 36.5 | ||||||||||
|
Fiscal 2009
|
4.8 | 14.6 | 19.4 | 4.1 | 23.5 | |||||||||||||||
|
Fiscal 2008
|
9.7 | 25.2 | 34.9 | 10.7 | 45.6 | |||||||||||||||
| e. | Arrangements with Off-Balance Sheet Risk |
As of November 30, 2010, arrangements with off-balance
sheet risk consisted of:
— $69.4 million in outstanding commercial letters
of credit expiring within the next twelve months, the majority
of which may be renewed, primarily to collateralize obligations
for environmental remediation and insurance coverage.
— Up to $120.0 million aggregate in guarantees by
GenCorp of Aerojet’s obligations to U.S. government
agencies for environmental remediation activities (See
Note 7(c) for additional information).
— Guarantees, jointly and severally, by the
Company’s material domestic subsidiaries of its obligations
under its Senior Credit Facility and its
9
1
/
2
% Notes.
In addition to the items discussed above, the Company will from
time to time enter into certain types of contracts that require
us to indemnify parties against potential third-party and other
claims. These contracts primarily relate to:
(i) divestiture agreements, under which the Company may
provide customary indemnification to purchasers of its
businesses or assets including, for example, claims arising from
the operation of the businesses prior to disposition, liability
to investigate and remediate environmental contamination
existing prior to disposition; (ii) certain real estate
leases, under which the Company may be required to indemnify
property owners for claims arising from the use of the
applicable premises; and (iii) certain agreements with
officers and directors, under which the Company may be required
to indemnify such persons for liabilities arising out of their
relationship with the Company. The terms of such obligations
vary. Generally, a maximum obligation is not explicitly stated.
The Company also issues purchase orders and makes other
commitments to suppliers for equipment, materials, and supplies
in the normal course of business. These purchase commitments are
generally for volumes consistent with anticipated requirements
to fulfill purchase orders or contracts for product deliveries
received, or expected to be received, from customers and would
be subject to reimbursement if a cost-plus contract were
terminated.
| 8. | Redeemable Common Stock |
The Company inadvertently failed to register with the SEC the
issuance of certain of its common shares in its defined
contribution 401(k) employee benefit plan (the
“Plan”). As a result, certain Plan participants who
purchased such securities pursuant to the Plan may have the
right to rescind certain of their purchases for consideration
equal to the purchase price paid for the securities (or if such
security has been sold, to receive consideration with respect to
any loss incurred on such sale) plus interest from the date of
purchase. As of November 30, 2010 and 2009, the Company has
classified 0.5 million and 0.6 million shares,
respectively, as redeemable common stock because the
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
redemption features are not within the control of the Company.
The Company may also be subject to civil and other penalties by
regulatory authorities as a result of the failure to register
these shares. These shares have always been treated as
outstanding for financial reporting purposes. In June 2008, the
Company filed a registration statement on
Form S-8
to register future transactions in the GenCorp Stock Fund in the
Plan. During fiscal 2010, 2009, and 2008, the Company recorded a
charge of $0.9 million, $1.3 million, and
$1.7 million, respectively, for realized losses and
interest associated with this matter.
| 9. | Shareholders’ Deficit |
| a. | Preference Stock |
As of November 30, 2010 and 2009, 15.0 million shares
of preferred stock were authorized and none were issued or
outstanding.
| b. | Common Stock |
As of November 30, 2010, the Company had 150.0 million
authorized shares of common stock, par value $0.10 per share, of
which 58.1 million shares were issued and outstanding, and
40.5 million shares were reserved for future issuance for
discretionary payments of the Company’s portion of
retirement savings plan contributions, exercise of stock options
(seven and ten year contractual life) and restricted stock (no
maximum contractual life), payment of awards under stock-based
compensation plans, and conversion of the Company’s Notes.
See Note 8 for information about the Company’s
redeemable common stock.
| c. | Stock-based Compensation |
Total stock-based compensation expense by type of award was as
follows:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Stock appreciation rights (“SARS”)
|
$ | (0.9 | ) | $ | 2.8 | $ | (1.4 | ) | ||||
|
Stock options
|
0.2 | — | — | |||||||||
|
Restricted stock, service-based
|
1.0 | 0.1 | 0.7 | |||||||||
|
Restricted stock, performance-based
|
0.1 | — | 0.9 | |||||||||
|
Total stock-based compensation expense
|
$ | 0.4 | $ | 2.9 | $ | 0.2 | ||||||
The Company recorded an unusual charge of $2.4 million in
the second quarter of fiscal 2008 related to the accelerated
vesting of outstanding stock-based payment awards as a result of
the Shareholder Agreement (see Note 13).
Stock Appreciation Rights:
As of
November 30, 2010, a total of 1,246,968 SARS was
outstanding under the 1999 Equity and Performance Incentive Plan
(“1999 Plan”) and 2009 Equity and Performance
Incentive Plan (“2009 Plan”). SARS granted to
employees generally vest in one-third increments at one year,
two years, and three years from the date of grant and have a ten
year contractual life under the 1999 Plan and a seven year
contractual life under the 2009 Plan. SARS granted to directors
of the Company typically vest over a one year service period
(half after six months and half after one year) and have a ten
year contractual life under the 1999 Plan and a seven year
contractual life under the 2009 Plan. These awards are similar
to the Company’s employee stock options, but are settled in
cash rather than in shares of common stock, and are classified
as liability awards. Compensation cost for these awards is
determined using a fair-value method and remeasured at each
reporting date until the date of settlement. Stock-based
compensation expense recognized is based on SARS ultimately
expected to vest, and therefore it has been reduced for
estimated forfeitures.
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of the status of the Company’s SARS as of
November 30, 2010 and changes during fiscal 2010 is
presented below:
|
Weighted
|
||||||||||||||||
|
Weighted
|
Average
|
Aggregate
|
||||||||||||||
|
Average
|
Remaining
|
Intrinsic
|
||||||||||||||
|
SARS
|
Exercise
|
Contractual
|
Value
|
|||||||||||||
| (In thousands) | Price | Life (years) | (In millions) | |||||||||||||
|
Outstanding at November 30, 2009
|
1,054 | $ | 13.03 | |||||||||||||
|
Granted
|
198 | 4.63 | ||||||||||||||
|
Cancelled
|
(5 | ) | 2.30 | |||||||||||||
|
Outstanding at November 30, 2010
|
1,247 | $ | 11.74 | 6.1 | $ | 0.2 | ||||||||||
|
Exercisable at November 30, 2010
|
1,134 | $ | 12.46 | 6.1 | $ | 0.2 | ||||||||||
|
Expected to vest at November 30, 2010
|
112 | $ | 4.38 | 6.6 | $ | 0.1 | ||||||||||
The weighted average grant date fair value for SARS granted in
fiscal 2010, 2009, and 2008 was $3.15, $3.85, and $5.20,
respectively. None of the SARS were exercised in fiscal 2010,
2009, and 2008. As of November 30, 2010, there was
$0.2 million of total stock-based compensation related to
nonvested SARS. That cost is expected to be recognized over an
estimated weighted-average amortization period of six months.
Restricted Stock, service-based:
As of
November 30, 2010, a total of 426,813 shares of
service-based restricted stock was outstanding which vest based
on years of service under the 1999 Plan and 2009 Plan.
Restricted shares are granted to key employees and directors of
the Company. The fair value of the restricted stock awards was
based on the closing market price of the Company’s common
stock on the date of award and is being amortized on a straight
line basis over the service period. Stock-based compensation
expense recognized is based on service-based restricted stock
ultimately expected to vest, and therefore it has been reduced
for estimated forfeitures.
The following is summary of the status of the Company’s
service-based restricted stock as of November 30, 2010 and
changes during fiscal 2010:
|
Service
|
||||||||
|
Based
|
Weighted
|
|||||||
|
Restricted
|
Average
|
|||||||
|
Stock
|
Grant Date
|
|||||||
| (In thousands) | Fair Value | |||||||
|
Outstanding at November 30, 2009
|
30 | $ | 6.55 | |||||
|
Granted
|
404 | 5.89 | ||||||
|
Vested
|
(8 | ) | 4.63 | |||||
|
Outstanding and expected to vest at November 30, 2010
|
426 | $ | 5.96 | |||||
As of November 30, 2010, there was $1.8 million of
total stock-based compensation related to nonvested
service-based restricted stock. That cost is expected to be
recognized over an estimated weighted-average amortization
period of twenty-four months. The intrinsic value of the
service-based restricted stock outstanding and expected to vest
at November 30, 2010 was $2.1 million. Additionally,
the intrinsic value of the service-based restricted stock vested
during fiscal 2008 was $1.1 million. The weighted average
grant date fair values for service-based restricted stock
granted in fiscal 2009 and 2008 was $2.39 and $10.84,
respectively.
Restricted Stock, performance-based:
As of
November 30, 2010, a total of 224,865 shares of
performance-based restricted shares was outstanding under the
1999 Plan and 2009 Plan. The performance-based restricted stock
vests if the Company meets various operations and earnings
targets set by the Organization & Compensation
Committee of the Board. The fair value of the performance-based
restricted stock awards was based on the closing market price of
the Company’s common stock on the date of award and is
being amortized over the estimated
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GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
service period to achieve the operations and earnings targets.
If certain operations and earnings targets are exceeded,
additional restricted stock may be required to be granted to
individuals up to a maximum additional grant of 25% of the
initial grant. Stock-based compensation expense recognized for
all years presented is based on performance-based restricted
stock ultimately expected to vest, and therefore it has been
reduced for estimated forfeitures.
The following is a summary of the status of the Company’s
performance-based restricted stock as of November 30, 2010
and changes during fiscal 2010:
|
Performance
|
||||||||
|
Based
|
Weighted
|
|||||||
|
Restricted
|
Average
|
|||||||
|
Stock
|
Grant Date
|
|||||||
| (In thousands) | Fair Value | |||||||
|
Outstanding at November 30, 2009
|
137 | $ | 4.54 | |||||
|
Granted
|
93 | 4.91 | ||||||
|
Cancelled
|
(5 | ) | 4.54 | |||||
|
Outstanding at November 30, 2010
|
225 | $ | 4.69 | |||||
|
Expected to vest at November 30, 2010
|
139 | $ | 4.79 | |||||
As of November 30, 2010, there was $1.0 million of
total stock-based compensation related to nonvested
performance-based restricted stock. That cost is expected to be
recognized over an estimated weighted-average amortization
period of nineteen months. The intrinsic value of the
performance-based restricted stock outstanding and expected to
vest at November 30, 2010 was $1.1 million and
$0.7 million, respectively. The intrinsic value of the
performance-based restricted stock vested during fiscal 2008 was
$1.4 million. The weighted average grant date fair value
for performance-based restricted stock granted in fiscal 2009
was $4.54.
Stock Options:
As of November 30, 2010, a
total of 1,479,533 stock options was outstanding under the 1999
Plan and 2009 Plan. The 2009 stock option grants are
performance-based and vest if the Company meets various
operations and earnings targets set by the
Organization & Compensation Committee of the Board.
The fair value is being amortized over the estimated service
period to achieve the operations and earnings targets. If
certain operations and earnings targets are exceeded, additional
stock options may be required to be granted to individuals up to
a maximum additional grant of 25% of the initial grant.
A summary of the status of the Company’s stock options as
of November 30, 2010 and changes during fiscal 2010 is
presented below:
|
Weighted
|
||||||||||||||||
|
Weighted
|
Average
|
|||||||||||||||
|
Stock
|
Average
|
Remaining
|
Intrinsic
|
|||||||||||||
|
Options
|
Exercise
|
Contractual
|
Value
|
|||||||||||||
| (In thousands) | Price | Life | (In millions) | |||||||||||||
|
Outstanding at November 30, 2009
|
1,291 | $ | 9.28 | |||||||||||||
|
Granted
|
456 | 5.40 | ||||||||||||||
|
Cancelled
|
(267 | ) | 9.38 | |||||||||||||
|
Outstanding at November 30, 2010
|
1,480 | $ | 8.07 | 3.9 | $ | 0.1 | ||||||||||
|
Exercisable at November 30, 2010
|
834 | $ | 10.33 | 1.3 | $ | — | ||||||||||
|
Expected to vest at November 30, 2010
|
522 | $ | 5.29 | 7.0 | $ | — | ||||||||||
As of November 30, 2010, there was $1.7 million of
total stock-based compensation related to nonvested stock
options. That cost is expected to be recognized over an
estimated weighted-average amortization period of nineteen
108
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
months. The weighted average grant date fair value for stock
options granted in fiscal 2010 and fiscal 2009 was $3.11 and
$2.77, respectively.
The following table summarizes the range of exercise prices and
weighted-average exercise prices for options outstanding as of
November 30, 2010 under the Company’s stock option
plans:
| Outstanding | |||||||||||||
|
Weighted
|
|||||||||||||
|
Stock
|
Weighted
|
Average
|
|||||||||||
|
Options
|
Average
|
Remaining
|
|||||||||||
|
Year
|
Range of Exercise
|
Outstanding
|
Exercise
|
Contractual
|
|||||||||
|
Granted
|
Prices | (In thousands) | Price | Life (years) | |||||||||
|
2001
|
$10.44 – $12.30 | 322 | $ | 10.85 | 0.2 | ||||||||
|
2002
|
$ 9.77 – $15.43 | 201 | $ | 12.62 | 1.5 | ||||||||
|
2003
|
$ 7.73 – $ 9.29 | 282 | $ | 8.04 | 2.3 | ||||||||
|
2004
|
$10.92 | 28 | $ | 10.92 | 3.2 | ||||||||
|
2009
|
$ 4.54 | 191 | $ | 4.54 | 8.6 | ||||||||
|
2010
|
$ 4.91 – $ 7.14 | 456 | $ | 5.40 | 6.8 | ||||||||
| 1,480 | |||||||||||||
Valuation
Assumptions
The fair value of the stock options granted in fiscal 2010 and
2009 were estimated using a Black-Scholes Model with the
following weighted average assumptions:
| Year Ended | ||||||||
| 2010 | 2009 | |||||||
|
Expected life (in years)
|
7.0 | 8.0 | ||||||
|
Volatility
|
55.43 | % | 53.93 | % | ||||
|
Risk-free interest rate
|
2.44 | % | 3.24 | % | ||||
|
Dividend yield
|
0.00 | % | 0.00 | % | ||||
The fair value of SARS were estimated using a Black-Scholes
Model with the following weighted average assumptions:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Expected life (in years)
|
5.1 | 6.1 | 5.9 | |||||||||
|
Volatility
|
66.53 | % | 58.83 | % | 43.25 | % | ||||||
|
Risk-free interest rate
|
1.56 | % | 2.47 | % | 2.44 | % | ||||||
|
Dividend yield
|
0.00 | % | 0.00 | % | 0.00 | % | ||||||
Expected Term:
The Company’s expected
term represents the period that the Company’s stock-based
awards are expected to be outstanding and was determined based
on historical experience of similar awards, giving consideration
to the contractual terms of the stock-based awards and vesting
schedules.
Expected Volatility:
The fair value of
stock-based payments were valued using the Black-Scholes Model
with a volatility factor based on the Company’s historical
stock prices. The range of expected volatility used in the
Black-Scholes Model was 55% to 89% as of November 30, 2010.
Expected Dividend:
The Black-Scholes Model
requires a single expected dividend yield as an input. The
Senior Credit Facility and
9
1
/
2
% Notes
restrict the payment of dividends and the Company does not
anticipate paying cash dividends in the foreseeable future.
109
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Risk-Free Interest Rate:
The Company bases the
risk-free interest rate used in the Black-Scholes Model on the
implied yield currently available on U.S. Treasury
zero-coupon issues with an equivalent remaining term. The range
of risk-free interest rates used in the Black-Scholes Model was
0.6% to 2.5% as of November 30, 2010.
Estimated Pre-vesting Forfeitures:
When
estimating forfeitures, the Company considers historical
terminations as well as anticipated retirements.
| 10. | Operating Segments and Related Disclosures |
The Company’s operations are organized into two operating
segments based on different products and customer bases:
Aerospace and Defense, and Real Estate. The accounting policies
of the operating segments are the same as those described in the
summary of significant accounting policies (see Note 1).
The Company evaluates its operating segments based on several
factors, of which the primary financial measure is segment
performance. Segment performance represents net sales from
continuing operations less applicable costs, expenses and
provisions for unusual items relating to the segment operations.
Segment performance excludes corporate income and expenses,
legacy income or expenses, provisions for unusual items not
related to the segment operations, interest expense, interest
income, and income taxes.
110
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Selected financial information for each reportable segment was
as follows:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Net Sales:
|
||||||||||||
|
Aerospace and Defense
|
$ | 850.7 | $ | 787.2 | $ | 725.5 | ||||||
|
Real Estate
|
7.2 | 8.2 | 16.8 | |||||||||
|
Total
|
$ | 857.9 | $ | 795.4 | $ | 742.3 | ||||||
|
Segment Performance:
|
||||||||||||
|
Aerospace and Defense
|
$ | 99.6 | $ | 84.4 | $ | 78.0 | ||||||
|
Environmental remediation provision adjustments
|
(0.2 | ) | (0.7 | ) | (5.0 | ) | ||||||
|
Retirement benefit plan (expense) benefit
|
(29.3 | ) | 7.9 | (15.7 | ) | |||||||
|
Unusual items (see Note 13)
|
(2.8 | ) | (1.3 | ) | (16.5 | ) | ||||||
|
Aerospace and Defense Total
|
67.3 | 90.3 | 40.8 | |||||||||
|
Real Estate
|
5.3 | 4.4 | 10.3 | |||||||||
|
Total
|
$ | 72.6 | $ | 94.7 | $ | 51.1 | ||||||
|
Reconciliation of segment performance to income (loss) from
continuing operations before income taxes:
|
||||||||||||
|
Segment Performance
|
$ | 72.6 | $ | 94.7 | $ | 51.1 | ||||||
|
Interest expense
|
(37.0 | ) | (38.6 | ) | (37.2 | ) | ||||||
|
Interest income
|
1.6 | 1.9 | 4.2 | |||||||||
|
Stock-based compensation
|
(0.4 | ) | (2.9 | ) | (0.2 | ) | ||||||
|
Corporate retirement benefit plan (expense) benefit
|
(12.6 | ) | 4.0 | 7.7 | ||||||||
|
Corporate and other expenses
|
(21.5 | ) | (14.5 | ) | (13.2 | ) | ||||||
|
Corporate unusual items (see Note 13)
|
(0.6 | ) | (3.3 | ) | (16.6 | ) | ||||||
|
Income (loss) from continuing operations before income
taxes
|
$ | 2.1 | $ | 41.3 | $ | (4.2 | ) | |||||
|
Aerospace and Defense
|
$ | 18.2 | $ | 14.3 | $ | 21.3 | ||||||
|
Real Estate
|
— | — | — | |||||||||
|
Corporate
|
4.4 | — | — | |||||||||
|
Capital Expenditures, cash and non-cash
|
$ | 22.6 | $ | 14.3 | $ | 21.3 | ||||||
|
Aerospace and Defense
|
$ | 27.6 | $ | 25.1 | $ | 24.7 | ||||||
|
Real Estate
|
0.3 | 0.6 | 0.8 | |||||||||
|
Corporate
|
— | — | — | |||||||||
|
Depreciation and Amortization
|
$ | 27.9 | $ | 25.7 | $ | 25.5 | ||||||
111
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| As of November 30, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Aerospace and Defense(1)
|
$ | 647.0 | $ | 663.0 | ||||
|
Real Estate
|
76.2 | 70.9 | ||||||
|
Identifiable assets
|
723.2 | 733.9 | ||||||
|
Corporate
|
268.3 | 201.0 | ||||||
|
Assets
|
$ | 991.5 | $ | 934.9 | ||||
| (1) | The Aerospace and Defense operating segment had $94.9 million of goodwill as of November 30, 2010 and 2009. In addition, as of November 30, 2010 and 2009 intangible assets balances were $16.9 million and $18.5 million, respectively, for the Aerospace and Defense operating segment. |
The Company’s continuing operations are located in the
United States. Inter-area sales are not significant to the total
sales of any geographic area. Unusual items included in segment
performance pertained only to the United States.
112
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 11. | Quarterly Financial Data (Unaudited) |
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||
|
2010
|
||||||||||||||||
|
Net sales
|
$ | 186.8 | $ | 234.1 | $ | 210.7 | $ | 226.3 | ||||||||
|
Cost of sales (exclusive of items shown separately on Statement
of Operations)
|
169.7 | 205.5 | 180.8 | 197.9 | ||||||||||||
|
Unusual items
|
1.6 | 2.1 | 2.0 | (2.3 | ) | |||||||||||
|
(Loss) income from continuing operations before income taxes
|
(5.7 | ) | 3.0 | 4.0 | 0.8 | |||||||||||
|
(Loss) income from continuing operations
|
(9.9 | ) | 12.9 | 3.5 | (0.5 | ) | ||||||||||
|
Income (loss) from discontinued operations, net of income taxes
|
1.0 | 0.6 | (0.7 | ) | (0.1 | ) | ||||||||||
|
Net (loss) income
|
(8.9 | ) | 13.5 | 2.8 | (0.6 | ) | ||||||||||
|
Basic (loss) income per share from continuing operations
|
(0.17 | ) | 0.22 | 0.06 | (0.01 | ) | ||||||||||
|
Basic income (loss) per share from discontinued operations, net
of income taxes
|
0.02 | 0.01 | (0.01 | ) | — | |||||||||||
|
Basic net (loss) income per share
|
(0.15 | ) | 0.23 | 0.05 | (0.01 | ) | ||||||||||
|
Diluted (loss) income per share from continuing operations
|
(0.17 | ) | 0.18 | 0.06 | (0.01 | ) | ||||||||||
|
Diluted income (loss) per share from discontinued operations,
net of income taxes
|
0.02 | 0.01 | (0.01 | ) | — | |||||||||||
|
Diluted net (loss) income per share
|
$ | (0.15 | ) | $ | 0.19 | $ | 0.05 | $ | (0.01 | ) | ||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||
|
2009
|
||||||||||||||||
|
Net sales
|
$ | 170.9 | $ | 183.0 | $ | 201.4 | $ | 240.1 | ||||||||
|
Cost of sales (exclusive of items shown separately on Statement
of Operations)
|
148.9 | 152.7 | 172.2 | 200.2 | ||||||||||||
|
Unusual items
|
2.2 | 0.4 | 1.8 | 0.2 | ||||||||||||
|
Income from continuing operations before income taxes
|
2.7 | 12.1 | 10.1 | 16.4 | ||||||||||||
|
Income from continuing operations
|
23.2 | 10.6 | 10.8 | 14.3 | ||||||||||||
|
Loss from discontinued operations, net of income taxes
|
(3.8 | ) | (1.4 | ) | (0.5 | ) | (1.0 | ) | ||||||||
|
Net income
|
19.4 | 9.2 | 10.3 | 13.3 | ||||||||||||
|
Basic income per share from continuing operations
|
0.40 | 0.18 | 0.18 | 0.24 | ||||||||||||
|
Basic loss per share from discontinued operations, net of income
taxes
|
(0.07 | ) | (0.02 | ) | (0.01 | ) | (0.01 | ) | ||||||||
|
Basic net income per share
|
0.33 | 0.16 | 0.17 | 0.23 | ||||||||||||
|
Diluted income per share from continuing operations
|
0.37 | 0.18 | 0.18 | 0.23 | ||||||||||||
|
Diluted loss per share from discontinued operations, net of
income taxes
|
(0.06 | ) | (0.02 | ) | (0.01 | ) | (0.01 | ) | ||||||||
|
Diluted net income per share
|
$ | 0.31 | $ | 0.16 | $ | 0.17 | $ | 0.22 | ||||||||
| 12. | Discontinued Operations |
In November 2003, the Company announced the closing of a GDX
manufacturing facility in Chartres, France owned by Snappon SA,
a subsidiary of the Company. The decision resulted primarily
from declining sales volumes with French automobile
manufacturers. During the first quarter of fiscal 2009, Snappon
SA had legal judgments rendered against it under French law,
aggregating €2.9 million ($3.8 million) plus
interest related to wrongful discharge claims by certain former
employees of Snappon SA. During the second quarter of fiscal
2009, Snappon
113
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
SA filed for declaration of suspensions of payments with the
clerk’s office of the Paris Commercial Court (See
Note 7(b)).
Summarized financial information for discontinued operations is
set forth below:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Net sales
|
$ | — | $ | — | $ | — | ||||||
|
Foreign currency gains (losses)
|
1.7 | (1.6 | ) | 0.6 | ||||||||
|
Income (loss) before income taxes
|
0.7 | (6.7 | ) | (0.2 | ) | |||||||
|
Income tax benefit
|
(0.1 | ) | — | (0.1 | ) | |||||||
|
Income (loss) from discontinued operations
|
0.8 | (6.7 | ) | (0.1 | ) | |||||||
| 13. | Unusual Items |
Charges and gains associated with unusual items are summarized
as follows:
| Year Ended | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Aerospace and Defense:
|
||||||||||||
|
Loss on legal matters and settlements
|
$ | 2.8 | $ | 1.3 | $ | 2.9 | ||||||
|
Defined benefit pension plan amendment
|
— | — | 13.6 | |||||||||
|
Aerospace and defense unusual items
|
2.8 | 1.3 | 16.5 | |||||||||
|
Corporate:
|
||||||||||||
|
Executive severance agreements
|
1.4 | 3.1 | — | |||||||||
|
Loss on debt repurchased
|
1.2 | — | — | |||||||||
|
Loss on bank amendment
|
0.7 | 0.2 | — | |||||||||
|
Gain on legal settlement and insurance recoveries
|
(2.7 | ) | — | (1.2 | ) | |||||||
|
Defined benefit pension plan amendment
|
— | — | 1.0 | |||||||||
|
Shareholder agreement and related costs
|
— | — | 16.8 | |||||||||
|
Corporate unusual items
|
0.6 | 3.3 | 16.6 | |||||||||
|
Total unusual items
|
$ | 3.4 | $ | 4.6 | $ | 33.1 | ||||||
In fiscal 2010, the Company recorded $1.4 million
associated with executive severance. In addition, the Company
recorded a charge of $1.9 million related to the estimated
unrecoverable costs of legal matters and $0.9 million for
realized losses and interest associated with the failure to
register with the SEC the issuance of certain of its common
shares under the defined contribution 401(k) employee benefit
plan. Further, the Company recorded a $2.7 million gain
related to a legal settlement.
In addition, during fiscal 2010, the Company recorded
$0.7 million of losses related to an amendment to the
Senior Credit Facility.
114
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of the Company’s losses on the
2
1
/
4
% Debentures
repurchased during fiscal 2010 is as follows (in millions):
|
Principal amount repurchased
|
$ | 77.8 | ||
|
Cash repurchase price
|
(74.3 | ) | ||
| 3.5 | ||||
|
Write-off of the associated debt discount
|
(6.3 | ) | ||
|
Portion of the
2
1
/
4
% Debentures
repurchased attributed to the equity component
|
2.9 | |||
|
Write-off of the deferred financing costs
|
(0.4 | ) | ||
|
Loss on
2
1
/
4
% Debentures
repurchased
|
$ | (0.3 | ) | |
A summary of the Company’s losses on the
9
1
/
2
% Notes
repurchased during fiscal 2010 is as follows (in millions):
|
Principal amount repurchased
|
$ | 22.5 | ||
|
Cash repurchase price
|
(23.0 | ) | ||
|
Write-off of the deferred financing costs
|
(0.4 | ) | ||
|
Loss on
9
1
/
2
% Notes
repurchased
|
$ | (0.9 | ) | |
In fiscal 2009, the Company recorded a charge of
$1.3 million for realized losses and interest associated
with its failure to register with the SEC the issuance of
certain of the Company’s common shares under its defined
contribution 401(k) employee benefit plan. During fiscal 2009,
the Company also incurred a charge of $3.1 million
associated with executive severance agreements. Additionally,
the Company recorded costs of $0.2 million related to a
bank amendment.
On November 25, 2008, the Company decided to amend the
defined benefit pension and benefits restoration plans to freeze
future accruals under such plans. Effective February 1,
2009 and July 31, 2009, future benefit accruals for all
current salaried employees and collective bargaining unit
employees were discontinued, respectively. No employees lost
their previously earned pension benefits. As a result of the
amendment and freeze, the Company incurred a curtailment charge
of $14.6 million in the fourth quarter of fiscal 2008
primarily due to the immediate recognition of unrecognized prior
service costs.
On March 5, 2008, the Company entered the Shareholder
Agreement which resulted in a charge of $16.8 million in
fiscal 2008 comprised of the following (in millions):
|
Increases in pension benefits
|
$ | 5.3 | ||
|
Executive severance charges
|
7.1 | |||
|
Accelerated vesting of stock appreciation rights
|
1.1 | |||
|
Accelerated vesting of restricted stock, service-based
|
0.6 | |||
|
Accelerated vesting of restricted stock, performance-based
|
0.7 | |||
|
Professional fees and other
|
2.0 | |||
| $ | 16.8 | |||
As a result of the Shareholder Agreement, the executive
severance agreements required the Company to fund into a grantor
trust on March 12, 2008, an amount equal to
$34.8 million, which represents liabilities associated with
the benefits restoration plans and amounts payable to certain
officers of the Company party to executive severance agreements
in the event of qualifying terminations of employment following
a change in control (as defined in the benefits restoration plan
and the executive severance agreements) of the Company. In
addition, as a result of the resignation of three additional
Board members on May 16, 2008, the Company was required to
fund $0.4 million
115
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
into a grantor trust on May 22, 2008, which primarily
represents the amount payable to an officer party to an
executive severance agreement in the event of a qualifying
termination of employment.
In fiscal 2008, the Company recorded a charge of
$2.9 million related to the estimated unrecoverable costs
of legal matters, including $1.7 million associated with
the failure to register with the SEC the issuance of certain of
its common shares under its defined contribution 401(k) employee
benefit plan and $1.2 million related to a legal settlement
and other legal matters. The Company recorded a
$1.2 million gain related to an insurance settlement for an
environmental claim.
| 14. | Condensed Consolidating Financial Information |
The Company is providing condensed consolidating financial
information for its material domestic subsidiaries that have
guaranteed the
9
1
/
2
% Notes,
and for those subsidiaries that have not guaranteed the
9
1
/
2
% Notes.
These 100% owned subsidiary guarantors have, jointly and
severally, fully and unconditionally guaranteed the
9
1
/
2
% Notes.
The subsidiary guarantees are senior subordinated obligations of
each subsidiary guarantor and rank (i) junior in right of
payment with all senior indebtedness, (ii) equal in right
of payment with all senior subordinated indebtedness, and
(iii) senior in right of payment to all subordinated
indebtedness, in each case, of that subsidiary guarantor. The
subsidiary guarantees will also be effectively subordinated to
any collateralized indebtedness of the subsidiary guarantor with
respect to the assets collateralizing that indebtedness. Absent
both default and notice as specified in the Company’s
Senior Credit Facility and agreements governing the
Company’s outstanding convertible notes and the
9
1
/
2
% Notes,
there are no restrictions on the Company’s ability to
obtain funds from its 100% owned subsidiary guarantors by
dividend or loan.
The Company has not presented separate financial and narrative
information for each of the subsidiary guarantors, because it
believes that such financial and narrative information would not
provide investors with any additional information that would be
material in evaluating the sufficiency of the guarantees.
Therefore, the following condensed consolidating financial
information summarizes the financial position, results of
operations, and cash flows for the Company’s guarantor and
non-guarantor subsidiaries.
116
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statements of Operations
|
Guarantor
|
Non-guarantor
|
|||||||||||||||||||
|
November 30, 2010 (In millions):
|
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
|
Net sales
|
$ | — | $ | 857.9 | $ | — | $ | — | $ | 857.9 | ||||||||||
|
Cost of sales (exclusive of items shown separately below)
|
— | 753.9 | — | — | 753.9 | |||||||||||||||
|
Selling, general and administrative
|
13.0 | 13.7 | — | — | 26.7 | |||||||||||||||
|
Depreciation and amortization
|
— | 27.9 | — | — | 27.9 | |||||||||||||||
|
Interest expense
|
31.7 | 5.3 | — | — | 37.0 | |||||||||||||||
|
Other, net
|
8.8 | 1.5 | — | — | 10.3 | |||||||||||||||
|
(Loss) income from continuing operations before income taxes
|
(53.5 | ) | 55.6 | — | — | 2.1 | ||||||||||||||
|
Income tax (benefit) provision
|
(9.2 | ) | 5.3 | — | — | (3.9 | ) | |||||||||||||
|
(Loss) income from continuing operations
|
(44.3 | ) | 50.3 | — | — | 6.0 | ||||||||||||||
|
Income from discontinued operations
|
0.8 | — | — | — | 0.8 | |||||||||||||||
|
(Loss) income before equity earnings of subsidiaries
|
(43.5 | ) | 50.3 | — | — | 6.8 | ||||||||||||||
|
Equity earnings of subsidiaries
|
50.3 | — | — | (50.3 | ) | — | ||||||||||||||
|
Net income
|
$ | 6.8 | $ | 50.3 | $ | — | $ | (50.3 | ) | $ | 6.8 | |||||||||
|
Guarantor
|
Non-guarantor
|
|||||||||||||||||||
|
November 30, 2009 (In millions):
|
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
|
Net sales
|
$ | — | $ | 795.4 | $ | — | $ | — | $ | 795.4 | ||||||||||
|
Cost of sales (exclusive of items shown separately below)
|
— | 674.0 | — | — | 674.0 | |||||||||||||||
|
Selling, general and administrative
|
(2.2 | ) | 12.4 | — | — | 10.2 | ||||||||||||||
|
Depreciation and amortization
|
— | 25.7 | — | — | 25.7 | |||||||||||||||
|
Interest expense
|
33.1 | 5.5 | — | — | 38.6 | |||||||||||||||
|
Other, net
|
7.2 | (1.6 | ) | — | — | 5.6 | ||||||||||||||
|
(Loss) income from continuing operations before income taxes
|
(38.1 | ) | 79.4 | — | — | 41.3 | ||||||||||||||
|
Income tax (benefit) provision
|
(63.0 | ) | 45.4 | — | — | (17.6 | ) | |||||||||||||
|
Income from continuing operations
|
24.9 | 34.0 | — | — | 58.9 | |||||||||||||||
|
Loss from discontinued operations
|
(2.9 | ) | — | (3.8 | ) | — | (6.7 | ) | ||||||||||||
|
Income (loss) before equity earnings (losses) of subsidiaries
|
22.0 | 34.0 | (3.8 | ) | — | 52.2 | ||||||||||||||
|
Equity earnings (losses) of subsidiaries
|
30.2 | — | — | (30.2 | ) | — | ||||||||||||||
|
Net income (loss)
|
$ | 52.2 | $ | 34.0 | $ | (3.8 | ) | $ | (30.2 | ) | $ | 52.2 | ||||||||
117
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
Guarantor
|
Non-guarantor
|
|||||||||||||||||||
|
November 30, 2008 (In millions):
|
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
|
Net sales
|
$ | — | $ | 742.3 | $ | — | $ | — | $ | 742.3 | ||||||||||
|
Cost of sales (exclusive of items shown separately below)
|
— | 645.4 | — | — | 645.4 | |||||||||||||||
|
Selling, general and administrative
|
(19.8 | ) | 21.7 | — | — | 1.9 | ||||||||||||||
|
Depreciation and amortization
|
— | 25.5 | — | — | 25.5 | |||||||||||||||
|
Interest expense
|
31.7 | 5.5 | — | — | 37.2 | |||||||||||||||
|
Other, net
|
18.7 | 17.8 | — | — | 36.5 | |||||||||||||||
|
(Loss) income from continuing operations before income taxes
|
(30.6 | ) | 26.4 | — | — | (4.2 | ) | |||||||||||||
|
Income tax (benefit) provision
|
(8.6 | ) | 9.5 | — | — | 0.9 | ||||||||||||||
|
(Loss) income from continuing operations
|
(22.0 | ) | 16.9 | — | — | (5.1 | ) | |||||||||||||
|
Income (loss) from discontinued operations
|
0.2 | — | (0.3 | ) | — | (0.1 | ) | |||||||||||||
|
(Loss) income before equity earnings (losses) of subsidiaries
|
(21.8 | ) | 16.9 | (0.3 | ) | — | (5.2 | ) | ||||||||||||
|
Equity earnings (losses) of subsidiaries
|
16.6 | — | — | (16.6 | ) | — | ||||||||||||||
|
Net (loss) income
|
$ | (5.2 | ) | $ | 16.9 | $ | (0.3 | ) | $ | (16.6 | ) | $ | (5.2 | ) | ||||||
118
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Balance Sheets
|
Guarantor
|
Non-guarantor
|
|||||||||||||||||||
|
November 30, 2010 (In millions):
|
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
|
Cash and cash equivalents
|
$ | 197.3 | $ | (15.8 | ) | $ | — | $ | — | $ | 181.5 | |||||||||
|
Marketable securities
|
26.7 | — | — | — | 26.7 | |||||||||||||||
|
Accounts receivable
|
— | 106.7 | — | — | 106.7 | |||||||||||||||
|
Inventories
|
— | 51.1 | — | — | 51.1 | |||||||||||||||
|
Recoverable from the U.S. government and other third parties for
environmental remediation costs and other
|
0.1 | 31.9 | — | — | 32.0 | |||||||||||||||
|
Grantor trust
|
1.4 | 0.4 | — | — | 1.8 | |||||||||||||||
|
Other receivables, prepaid expenses and other
|
11.5 | 13.8 | — | — | 25.3 | |||||||||||||||
|
Income taxes
|
9.9 | (2.4 | ) | — | — | 7.5 | ||||||||||||||
|
Total current assets
|
246.9 | 185.7 | — | — | 432.6 | |||||||||||||||
|
Property, plant and equipment, net
|
4.8 | 121.6 | — | — | 126.4 | |||||||||||||||
|
Recoverable from the U.S. government and other third parties for
environmental remediation costs and other
|
0.2 | 151.3 | — | — | 151.5 | |||||||||||||||
|
Grantor trust
|
10.1 | 4.4 | — | — | 14.5 | |||||||||||||||
|
Goodwill
|
— | 94.9 | — | — | 94.9 | |||||||||||||||
|
Intercompany (payable) receivable, net
|
(178.5 | ) | 198.2 | (19.7 | ) | — | — | |||||||||||||
|
Other noncurrent assets and intangibles, net
|
242.0 | 162.9 | 9.9 | (243.2 | ) | 171.6 | ||||||||||||||
|
Total assets
|
$ | 325.5 | $ | 919.0 | $ | (9.8 | ) | $ | (243.2 | ) | $ | 991.5 | ||||||||
|
Short-term borrowings and current portion of long-term debt
|
$ | 65.8 | $ | 0.2 | $ | — | $ | — | $ | 66.0 | ||||||||||
|
Accounts payable
|
0.6 | 26.5 | — | — | 27.1 | |||||||||||||||
|
Reserves for environmental remediation costs
|
3.3 | 37.4 | — | — | 40.7 | |||||||||||||||
|
Other current liabilities, advance payments on contracts, and
postretirement medical and life insurance benefits
|
36.8 | 190.6 | — | — | 227.4 | |||||||||||||||
|
Total current liabilities
|
106.5 | 254.7 | — | — | 361.2 | |||||||||||||||
|
Long-term debt
|
325.6 | 1.1 | — | — | 326.7 | |||||||||||||||
|
Reserves for environmental remediation costs
|
8.3 | 168.7 | — | — | 177.0 | |||||||||||||||
|
Pension benefits
|
17.0 | 158.5 | — | — | 175.5 | |||||||||||||||
|
Other noncurrent liabilities
|
63.2 | 83.0 | — | — | 146.2 | |||||||||||||||
|
Total liabilities
|
520.6 | 666.0 | — | — | 1,186.6 | |||||||||||||||
|
Commitments and contingencies (Note 7)
|
||||||||||||||||||||
|
Redeemable common stock (Note 8)
|
5.1 | — | — | — | 5.1 | |||||||||||||||
|
Total shareholders’ (deficit) equity
|
(200.2 | ) | 253.0 | (9.8 | ) | (243.2 | ) | (200.2 | ) | |||||||||||
|
Total liabilities, redeemable common stock, and
shareholders’ equity (deficit)
|
$ | 325.5 | $ | 919.0 | $ | (9.8 | ) | $ | (243.2 | ) | $ | 991.5 | ||||||||
119
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
Guarantor
|
Non-guarantor
|
|||||||||||||||||||
|
November 30, 2009 (In millions):
|
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
|
Cash and cash equivalents
|
$ | 166.0 | $ | (39.8 | ) | $ | 0.1 | $ | — | $ | 126.3 | |||||||||
|
Accounts receivable
|
— | 116.3 | — | — | 116.3 | |||||||||||||||
|
Inventories
|
— | 61.8 | — | — | 61.8 | |||||||||||||||
|
Recoverable from the U.S. government and other third parties for
environmental remediation costs and other
|
0.1 | 30.5 | — | — | 30.6 | |||||||||||||||
|
Grantor trust
|
1.5 | 0.9 | — | — | 2.4 | |||||||||||||||
|
Other receivables, prepaid expenses and other
|
12.7 | 20.1 | — | — | 32.8 | |||||||||||||||
|
Income taxes
|
43.2 | (40.8 | ) | — | — | 2.4 | ||||||||||||||
|
Total current assets
|
223.5 | 149.0 | 0.1 | — | 372.6 | |||||||||||||||
|
Property, plant and equipment, net
|
0.4 | 129.5 | — | — | 129.9 | |||||||||||||||
|
Recoverable from the U.S. government and other third parties for
environmental remediation costs and other
|
0.2 | 154.1 | — | — | 154.3 | |||||||||||||||
|
Grantor trust
|
11.6 | 6.2 | — | — | 17.8 | |||||||||||||||
|
Goodwill
|
— | 94.9 | — | — | 94.9 | |||||||||||||||
|
Intercompany (payable) receivable, net
|
(77.4 | ) | 97.1 | (19.7 | ) | — | — | |||||||||||||
|
Other noncurrent assets and intangibles, net
|
116.9 | 159.3 | 9.9 | (120.7 | ) | 165.4 | ||||||||||||||
|
Total assets
|
$ | 275.2 | $ | 790.1 | $ | (9.7 | ) | $ | (120.7 | ) | $ | 934.9 | ||||||||
|
Short-term borrowings and current portion of long-term debt
|
$ | 17.8 | $ | — | $ | — | $ | — | $ | 17.8 | ||||||||||
|
Accounts payable
|
0.4 | 18.0 | — | — | 18.4 | |||||||||||||||
|
Reserves for environmental remediation costs
|
7.2 | 37.3 | — | — | 44.5 | |||||||||||||||
|
Other current liabilities, advance payments on contracts, and
postretirement medical and life insurance benefits
|
38.9 | 141.8 | — | — | 180.7 | |||||||||||||||
|
Total current liabilities
|
64.3 | 197.1 | — | — | 261.4 | |||||||||||||||
|
Long-term debt
|
403.8 | — | — | — | 403.8 | |||||||||||||||
|
Reserves for environmental remediation costs
|
4.4 | 173.8 | — | — | 178.2 | |||||||||||||||
|
Pension benefits
|
11.3 | 199.0 | — | — | 210.3 | |||||||||||||||
|
Other noncurrent liabilities
|
64.3 | 89.8 | — | — | 154.1 | |||||||||||||||
|
Total liabilities
|
548.1 | 659.7 | — | — | 1,207.8 | |||||||||||||||
|
Commitments and contingencies (Note 7)
|
||||||||||||||||||||
|
Redeemable common stock (Note 8)
|
6.0 | — | — | — | 6.0 | |||||||||||||||
|
Total shareholders’ (deficit) equity
|
(278.9 | ) | 130.4 | (9.7 | ) | (120.7 | ) | (278.9 | ) | |||||||||||
|
Total liabilities, redeemable common stock, and
shareholders’ equity (deficit)
|
$ | 275.2 | $ | 790.1 | $ | (9.7 | ) | $ | (120.7 | ) | $ | 934.9 | ||||||||
120
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statements of Cash Flows
|
Guarantor
|
Non-guarantor
|
|||||||||||||||||||
|
November 30, 2010 (In millions):
|
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
|
Net cash provided by (used in) operating activities
|
$ | 4.7 | $ | 143.5 | $ | (0.1 | ) | $ | — | $ | 148.1 | |||||||||
|
Net transfers from (to) parent
|
101.0 | (101.0 | ) | — | — | — | ||||||||||||||
|
Net cash provided by (used in) operating activities
|
105.7 | 42.5 | (0.1 | ) | — | 148.1 | ||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Capital expenditures
|
— | (16.9 | ) | — | — | (16.9 | ) | |||||||||||||
|
Other investing activities
|
(26.6 | ) | — | — | — | (26.6 | ) | |||||||||||||
|
Net cash used in investing activities
|
(26.6 | ) | (16.9 | ) | — | — | (43.5 | ) | ||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Repayments on debt
|
(240.1 | ) | (0.1 | ) | — | — | (240.2 | ) | ||||||||||||
|
Proceeds from issuance of debt, net of issuance costs
|
192.3 | — | — | — | 192.3 | |||||||||||||||
|
Other financing activities
|
— | (1.5 | ) | — | — | (1.5 | ) | |||||||||||||
|
Net cash used in financing activities
|
(47.8 | ) | (1.6 | ) | — | — | (49.4 | ) | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
31.3 | 24.0 | (0.1 | ) | — | 55.2 | ||||||||||||||
|
Cash and cash equivalents at beginning of year
|
166.0 | (39.8 | ) | 0.1 | — | 126.3 | ||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 197.3 | $ | (15.8 | ) | $ | — | $ | — | $ | 181.5 | |||||||||
|
Guarantor
|
Non-guarantor
|
|||||||||||||||||||
|
November 30, 2009 (In millions):
|
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
|
Net cash (used in) provided by operating activities
|
$ | (0.2 | ) | $ | 55.3 | $ | (4.8 | ) | $ | — | $ | 50.3 | ||||||||
|
Net transfers from (to) parent
|
64.3 | (69.0 | ) | 4.7 | — | — | ||||||||||||||
|
Net cash provided by (used in) operating activities
|
64.1 | (13.7 | ) | (0.1 | ) | — | 50.3 | |||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Capital expenditures
|
— | (14.3 | ) | — | — | (14.3 | ) | |||||||||||||
|
Net cash used in investing activities
|
— | (14.3 | ) | — | — | (14.3 | ) | |||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Repayments on debt
|
(1.4 | ) | (0.6 | ) | — | — | (2.0 | ) | ||||||||||||
|
Other financing activities
|
(0.4 | ) | — | — | — | (0.4 | ) | |||||||||||||
|
Net cash used in financing activities
|
(1.8 | ) | (0.6 | ) | — | — | (2.4 | ) | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
62.3 | (28.6 | ) | (0.1 | ) | — | 33.6 | |||||||||||||
|
Cash and cash equivalents at beginning of year
|
103.7 | (11.2 | ) | 0.2 | — | 92.7 | ||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 166.0 | $ | (39.8 | ) | $ | 0.1 | $ | — | $ | 126.3 | |||||||||
121
Table of Contents
GENCORP
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
Guarantor
|
Non-guarantor
|
|||||||||||||||||||
|
November 30, 2008 (In millions):
|
Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
|
Net cash (used in) provided by operating activities
|
$ | (36.1 | ) | $ | 63.7 | $ | 0.4 | $ | — | $ | 28.0 | |||||||||
|
Net transfers from (to) parent
|
47.7 | (46.9 | ) | (0.8 | ) | — | — | |||||||||||||
|
Net cash provided by (used in) operating activities
|
11.6 | 16.8 | (0.4 | ) | — | 28.0 | ||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Capital expenditures
|
— | (21.3 | ) | — | — | (21.3 | ) | |||||||||||||
|
Net cash used in investing activities
|
— | (21.3 | ) | — | — | (21.3 | ) | |||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Repayments on debt
|
(6.3 | ) | — | — | — | (6.3 | ) | |||||||||||||
|
Net cash used in financing activities
|
(6.3 | ) | — | — | — | (6.3 | ) | |||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
5.3 | (4.5 | ) | (0.4 | ) | — | 0.4 | |||||||||||||
|
Cash and cash equivalents at beginning of year
|
98.4 | (6.7 | ) | 0.6 | — | 92.3 | ||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 103.7 | $ | (11.2 | ) | $ | 0.2 | $ | — | $ | 92.7 | |||||||||
| 15. | Subsequent Events |
Subsequent to November 30, 2010, the Company repurchased
$6.5 million principal amount of its
2
1
/
4
% Debentures
at various prices ranging from 99.0% of par to 99.1% of par,
plus accrued and unpaid interest.
122
Table of Contents
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
Disclosure
Controls and Procedures
As of November 30, 2010, we conducted an evaluation under
the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. The term “disclosure
controls and procedures,” as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities and Exchange Act of 1934, as amended
(“Exchange Act”), means controls and other procedures
of a company that are designed to provide reasonable assurance
that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls
and procedures are also designed to provide reasonable assurance
that such information is accumulated and communicated to the
Company’s management, including its principal executive and
principal financial officers, or persons performing similar
functions, as appropriate, to allow timely decisions regarding
required disclosure. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded as of
November 30, 2010 that our disclosure controls and
procedures were effective at the reasonable assurance level.
Management’s
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate “internal control over financial reporting,”
as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. This rule defines internal control over
financial reporting as a process designed by, or under the
supervision of, the Company’s Chief Executive Officer and
Chief Financial Officer, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our
internal control over financial reporting includes those
policies and procedures that:
| • | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
| • | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principals in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and | |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
With the participation of the Chief Executive Officer and the
Chief Financial Officer, our management conducted an evaluation
of the effectiveness of our internal control over financial
reporting based on the criteria established in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
this evaluation, our management has concluded that our internal
control over financial reporting was effective as of
November 30, 2010.
The effectiveness of our internal control over financial
reporting as of November 30, 2010 has been audited by
PricewaterhouseCoopers LLP, our independent registered public
accounting firm. Their report appears in Item 8.
Changes
In Internal Control Over Financial Reporting
There was no change in the Company’s internal controls over
financial reporting during the fourth quarter of fiscal 2010
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
123
Table of Contents
| Item 9B. | Other Information |
None.
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
Directors
of the Registrant
Information with respect to directors of the Company who will
stand for election at the 2011 Annual Meeting of Shareholders is
set forth under the heading “PROPOSAL 1 —
ELECTION OF DIRECTORS” in our 2011 Proxy Statement for our
2011 Annual Meeting (“2011 Proxy Statement”), which
will be filed with the Securities and Exchange Commission within
120 days after the close of our fiscal year. Such
information is incorporated herein by reference.
The information in our 2011 Proxy Statement set forth under the
caption “Section 16(a) Beneficial Ownership Reporting
Compliance” is incorporated herein by reference.
Information regarding shareholder communications with our Board
of Directors may be found under the caption “Communications
with Directors” in our 2010 Proxy Statement and is
incorporated herein by reference.
Executive
Officers of the Registrant
The following information is given as of December 31, 2010.
|
Name
|
Title
|
Other Business Experience
|
Age
|
|||||
|
Scott J. Seymour
|
President and Chief Executive Officer of the Company and President of Aerojet (since January 2010) | Consultant to Northrop Grumman Corporation (“Northrop”) March 2008 — January 2010; Corporate Vice President and President of Integrated Systems Sector of Northrop 2002 — March 2008; Vice President, Air Combat Systems of Northrop 1998 — 2001; Vice President and B-2 Program Manager of Northrop 1996 — 1998; and Vice President, Palmdale Operations, of Northrop 1993 — 1996. | 60 | |||||
|
Kathleen E. Redd
|
Vice President, Chief Financial Officer (since January 2009), and Secretary (since February 2009) | Vice President, Controller and Acting Chief Financial Officer September 2008 — January 2009; Vice President, Finance 2006 — 2008; Assistant Corporate Controller, 2002 — 2006; Acting Vice President Controller GDX Automotive, 2003 — 2004 (concurrent with Assistant Corporate Controller position during divestiture activities); Vice President, Finance, for Grass Valley Group, 2001 — 2002; Vice President, Finance for JOMED, Inc., 2000 — 2001; Controller for EndoSonics Corporation, 1996 — 2000. | 49 | |||||
|
Richard W. Bregard
|
Deputy to the President (since June 2010) | Vice President, Defense Programs 2007 — 2010; Executive Director, Missile Defense Programs 2004 — 2007 and President, Aerojet Ordnance Tennessee, Inc. 2004 — 2007. | 68 | |||||
|
Chris W. Conley
|
Vice President Environmental, Health and Safety (since October 1999) | Director Environmental, Health and Safety, March 1996 — October 1999; Environmental Manager, 1990 — 1996. | 52 | |||||
124
Table of Contents
The Company’s executive officers generally hold terms of
office of one year
and/or
until
their successors are elected.
Code of
Ethics and Corporate Governance Guidelines
The Company has adopted a code of ethics known as the Code of
Business Conduct that applies to the Company’s employees
including the principal executive officer and principal
financial officer. Copies of the Code of Business Conduct and
the Company’s Corporate Governance Guidelines are available
on the Company’s web site at
www.GenCorp.com
(copies
are available in print to any shareholder or other interested
person who requests them by writing to Secretary, GenCorp Inc.,
P.O. Box 537012, Sacramento, California
95853-7012
(if by overnight courier, then Highway 50 & Aerojet Road,
Rancho Cordova, California 95742)).
Audit
Committee and Audit Committee Financial Expert
Information regarding the Audit Committee and the Audit
Committee’s Financial Expert is set forth under the heading
“Board Committees” in our 2011 Proxy Statement and is
incorporated herein by reference.
| Item 11. | Executive Compensation |
Information concerning executive compensation may be found under
the captions “Executive Compensation,”
“2010 Director Compensation Table,”
“Compensation Discussion and Analysis,” “Summary
Compensation Table,” “2010 Grants of Plan-Based
Awards,” “Outstanding Equity Awards at 2010 Fiscal
Year End,” “2010 Option/SAR Exercises and Stock
Vested,” “2010 Pension Benefits,” “2010
Non-Qualified Deferred Compensation,” “Potential
Payments upon Termination of Employment or Change in
Control,” “Employment Agreements and Indemnity
Agreements,” “Director Compensation,”
“Organization & Compensation Committee
Report” and “Compensation Committee Interlocks and
Insider Participation” of our 2011 Proxy Statement. Such
information is incorporated herein by reference.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information under the headings “Security Ownership of
Certain Beneficial Owners” and “Security Ownership of
Officers and Directors” in our 2011 Proxy Statement is
incorporated herein by reference.
Equity
Compensation Plan Information
The table below sets forth certain information regarding the
following equity compensation plans of the Company, pursuant to
which we have made equity compensation available to eligible
persons, as of November 30, 2010: (i) GenCorp Inc.
1999 Equity and Performance Incentive Plan; and
(ii) GenCorp Inc. 2009 Equity and Performance Incentive
Plan. Both plans have been approved by our shareholders.
|
Number of Securities
|
||||||||||||
|
Remaining Available for
|
||||||||||||
|
Future Issuance Under
|
||||||||||||
|
Number of Securities to be
|
Weighted-Average
|
Equity Compensation
|
||||||||||
|
Issued Upon Exercise of
|
Exercise Price of
|
Plans (Excluding
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
Securities Reflected in
|
||||||||||
| Plan Category | Warrants and Rights | Warrants and Rights | Column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
|
Equity compensation plans approved by shareholders
|
2,131,211 | $ | 5.60 | 763,861 | (1)(2) | |||||||
|
Equity compensation plans not approved by shareholders(3)
|
— | N/A | — | |||||||||
|
Total
|
2,131,211 | $ | 5.60 | 763,861 | ||||||||
| (1) | As of November 30, 2010, there are no more shares available to be issued under any type of incentive award under the GenCorp Inc. 1999 Equity and Performance Incentive Plan. The maximum number of shares available for issuance to participants under the GenCorp Inc. 2009 Equity and Performance Incentive Plan is 2,000,000 shares, all of which may be awarded as incentive stock options. Subject to the total shares available to be issued under the plan, the following specific limits apply: (A) no more than 1,000,000 shares may be issued |
125
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| pursuant to awards other than stock options or stock appreciation rights; (B) no more than 200,000 shares may be issued to nonemployee directors and no nonemployee director may receive more than 150,000 shares in any fiscal year; (C) no more than 200,000 shares subject to stock options, including incentive stock options, may be granted to any participant in any fiscal year; (D) no more than 200,000 shares subject to stock appreciation rights may be granted to any participant in any fiscal year; (E) no more than 200,000 shares may be granted to any participant in any fiscal year pursuant to an award of restricted stock or restricted stock units; (F) no more than 200,000 shares may be granted to any participant in any fiscal year pursuant to an award of performance shares or performance units; and (G) no more than 100,000 shares may be granted to any participant in any fiscal year pursuant to a stock-based award other than described above. | ||
| (2) | The number of securities in Column (c) is net of the maximum 192,654 shares that may be issued pursuant to additional stock options and restricted stock awards that will be granted in 2012 and 2013 if the Company attains performance goals specified in equity awards made during 2009 and 2010. | |
| (3) | The Company also maintains the GenCorp Inc. and Participating Subsidiaries Deferred Bonus Plan. This plan allows participating employees to defer a portion of their compensation for future distribution. All or a portion of such deferrals made prior to November 30, 2009 could be allocated to an account based on the Company’s common stock and does permit limited distributions in the form of Company common shares. However, distributions in the form of common shares are permitted only at the election of the Organization & Compensation Committee of the Board of Directors and, according to the terms of the plan, individuals serving as officers or directors of the Company are not permitted to receive distributions in the form of Company common shares until at least six months after such individual ceases to be an officer or director of the Company. The table does not include information about this plan because no options, warrants or rights are available under this plan and no specific number of shares is set aside under this plan as available for future issuance. Based upon the price of Company common shares on November 30, 2010, the maximum number of shares that could be distributed to employees not subject to the restrictions on officers and directors (if permitted by the Organization & Compensation Committee) would be 23,548. This plan was amended effective November 30, 2009 to prevent the application of future deferrals to the Company common stock investment program. |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Information regarding certain transactions and employment
agreements with management is set under the headings
“Employment Agreements and Indemnity Agreements,”
“Related Person Transaction Policy” and
“Potential Payments upon Termination of Employment or
Change in Control” in our 2011 Proxy Statement and is
incorporated herein by reference. Information regarding director
independence is set forth under the heading “Determination
of Independence of Directors” in our 2011 Proxy Statement
and is incorporated herein by reference.
| Item 14. | Principal Accountant Fees and Services |
The information in our 2011 Proxy Statement set forth under the
captions “Proposal 5 — Ratification of the
Appointment of Independent Auditors,” “Audit
Fees,” “Audit-Related Fees,” “Tax
Fees,” “All Other Fees,” and “Policy on
Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of the Company’s Independent Auditors” is
incorporated herein by reference.
126
PART IV
| Item 15. | Exhibits and Financial Statement Schedules |
(a) The following documents are filed as part of this
report:
(1) FINANCIAL STATEMENTS
|
Page
|
||||
| Number | ||||
| 54 | ||||
| 55 | ||||
| 56 | ||||
| 57 | ||||
| 58 | ||||
| 59 | ||||
(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as part of
this Annual Report on
Form 10-K.
All other financial statement schedules have been omitted
because they are either not applicable, not required by the
instructions, or because the required information is either
incorporated herein by reference or included in the financial
statements or notes thereto included in this report.
127
Table of Contents
GENCORP
INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(In millions)
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(In millions)
|
Tax
|
Tax
|
|||||||||||||||||||
|
Valuation
|
Valuation
|
|||||||||||||||||||
|
Allowance
|
Allowance
|
|||||||||||||||||||
|
Charged to
|
Credited to
|
|||||||||||||||||||
|
Balance at
|
Income
|
Charged
|
Income
|
Balance at
|
||||||||||||||||
|
Beginning of
|
Tax
|
to Other
|
Tax
|
End of
|
||||||||||||||||
| Period | Provision | Accounts | Provision | Period | ||||||||||||||||
|
Tax Valuation Allowance:
|
||||||||||||||||||||
|
Year ended November 30, 2010
|
$ | 245.1 | $ | 16.7 | $ | (8.0 | ) | $ | (41.3 | ) | $ | 212.5 | ||||||||
|
Year ended November 30, 2009
|
187.7 | 155.8 | (0.4 | ) | (98.0 | ) | 245.1 | |||||||||||||
|
Year ended November 30, 2008
|
190.6 | 19.7 | (1.0 | ) | (21.6 | ) | 187.7 | |||||||||||||
(b) EXHIBITS
|
Table
|
||||
|
Item No.
|
Exhibit Description
|
|||
| 2 | .1 | Purchase Agreement, dated May 2, 2003, between Atlantic Research Corporation and Aerojet-General Corporation was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2003 (File No. 1-1520) and is incorporated herein by reference.** | ||
| 2 | .2 | First Amendment to Purchase Agreement, dated August 29, 2003, between Aerojet-General Corporation and Atlantic Research Corporation was filed as Exhibit 2.2 to GenCorp’s Form S-4 Registration Statement dated October 6, 2003 (File No. 333-109518) and is incorporated herein by reference.** | ||
| 2 | .3 | Second Amendment to Purchase Agreement, dated September 30, 2003, between Aerojet-General Corporation and Atlantic Research Corporation was filed as Exhibit 2.2 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2003 (File No. 1-1520) and is incorporated herein by reference.** | ||
| 2 | .4 | Third Amendment to Purchase Agreement, dated October 16, 2003, between Aerojet-General Corporation and Atlantic Research Corporation was filed as Exhibit 2.4 to GenCorp’s Amendment No. 1 to Form S-4 Registration Statement dated December 15, 2003 (file no. 333-109518) and is incorporated herein by reference.** | ||
| 2 | .5 | Stock and Asset Purchase Agreement by and between GDX Holdings LLC and GenCorp Inc. dated July 16, 2004 was filed as Exhibit 2.1 to GenCorp Inc.’s Current Report on Form 8-K dated September 7, 2004 (File No. 1-1520) and incorporated herein by reference.** | ||
| 2 | .6 | First Amendment to Stock and Asset Purchase Agreement by and between GenCorp Inc. and GDX Holdings LLC dated as of August 31, 2004 was filed as Exhibit 2.2 to GenCorp Inc.’s Current Report on Form 8-K dated September 7, 2004 (File No. 1-1520) and incorporated herein by reference.** | ||
| 2 | .7 | Second Amendment to Stock and Asset Purchase Agreement by and between GenCorp Inc. and GDX Holdings LLC dated as of October 14, 2004 was filed as Exhibit 2.3 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2004 (File No. 1-1520), as amended, and incorporated herein by reference.** | ||
| 2 | .8 | Asset Purchase Agreement, dated as of July 12, 2005, by and among Aerojet Fine Chemicals LLC, Aerojet-General Corporation and American Pacific Corporation was filed as Exhibit 2.1 to GenCorp Inc.’s Current Report on Form 8-K filed on July 18, 2005 (File No. 1-1520), and is incorporated herein by reference.** | ||
| 2 | .9 | First Amendment to Asset Purchase Agreement by and among American Pacific Corporation, Aerojet Fine Chemicals LLC and Aerojet-General Corporation dated as of November 30, 2005 was filed as Exhibit 2.1 to GenCorp Inc.’s Current Report on Form 8-K filed on December 1, 2005 (File No. 1-1520) and incorporated herein by reference.** | ||
| 3 | .1 | Amended Articles of Incorporation of GenCorp filed with the Secretary of State of Ohio on March 28, 2007 was filed as Exhibit 3.1 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007 (File No. 1-1520) and incorporated herein by reference. | ||
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|
Table
|
||||
|
Item No.
|
Exhibit Description
|
|||
| 3 | .2 | The Amended Code of Regulations of GenCorp, as amended on March 28, 2007 was filed as Exhibit 3.2 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007 (File No. 1-1520) and incorporated herein by reference. | ||
| 3 | .3* | Certificate of Amendment to Amended Articles of Incorporation of GenCorp Inc. filed with the Secretary of State of Ohio on March 29, 2010. | ||
| 4 | .1 | Indenture, dated as of August 11, 2003, between GenCorp Inc., the Guarantors named therein and The Bank of New York as trustee relating to GenCorp’s 9 1 / 2 % Senior Subordinated Notes was filed as Exhibit 4.1 to GenCorp’s Form S-4 Registration Statement dated October 6, 2003 (File No. 333-109518) and is incorporated herein by reference. | ||
| 4 | .2 | Form of 9 1 / 2 % Senior Subordinated Notes was filed as Exhibit 4.4 to GenCorp’s Form S-4 Registration Statement dated October 6, 2003 (File No. 333-109518) and is incorporated herein by reference. | ||
| 4 | .3 | First Supplemental Indenture dated as of October 29, 2004 to the Indenture between GenCorp Inc. and The Bank of New York, as trustee relating to GenCorp’s 9 1 / 2 % Senior Subordinated Notes due 2013 was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated November 1, 2004 (File No. 1-1520) and incorporated herein by reference. | ||
| 4 | .4 | Second Supplemental Indenture dated as of June 27, 2006 to Indenture dated as of August 11, 2003, as amended, between GenCorp Inc. as Issuer, the Guarantors party thereto as Guarantors, and The Bank of New York Trust Company, N.A., as trustee, relating to GenCorp’s 9 1 / 2 % Senior Subordinated Notes due 2013, was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on June 28, 2006 (File No. 1-1520), and is incorporated herein by reference. | ||
| 4 | .5 | Indenture dated January 16, 2004 between GenCorp and The Bank of New York, as trustee, relating to GenCorp’s 4% Contingent Convertible Subordinated Notes due 2024 was filed as Exhibit 4.11 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2003 (File No. 1-1520) and is incorporated herein by reference. | ||
| 4 | .6 | Registration Rights Agreement dated January 16, 2004 by and among GenCorp, Deutsche Bank Securities Inc., Wachovia Capital Markets, LLC, Scotia Capital (USA) Inc., BNY Capital Markets, Inc., NatCity Investments, Inc. and Wells Fargo Securities, LLC was filed as Exhibit 4.12 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2003 (File No. 1-1520) and is incorporated herein by reference. | ||
| 4 | .7 | Form of 4% Contingent Convertible Subordinated Notes was filed as Exhibit 4.13 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2003 (File No. 1-1520) and is incorporated herein by reference. | ||
| 4 | .8 | Indenture, dated as of November 23, 2004, between GenCorp Inc. and The Bank of New York Trust Company, N.A., as trustee relating to GenCorp Inc.’s 2 1 / 4 % Convertible Subordinated Debentures due 2024 was filed as Exhibit 4.01 to GenCorp Inc.’s Current Report on Form 8-K dated November 23, 2004 (File No. 1-1520), as amended, and incorporated herein by reference. | ||
| 4 | .9 | Registration Rights Agreement, dated as of November 23, 2004, by and between GenCorp Inc. and Wachovia Capital Markets, LLC, as representative for the several initial purchasers of the 2 1 / 4 % Convertible Subordinated Debentures due 2024 was filed as Exhibit 4.14 to GenCorp Inc.’s Form S-3 Registration Statement dated January 11, 2005 (File No. 333-121948) and incorporated herein by reference. | ||
| 4 | .10 | Form of 2 1 / 4 % Convertible Subordinated Debenture was filed as Exhibit 4.02 to GenCorp Inc.’s Current Report on Form 8-K dated November 23, 2004 (File No. 1-1520), as amended, and incorporated herein by reference. | ||
| 4 | .11 | GenCorp Retirement Savings Plan was filed as Exhibit 4.1 to GenCorp Inc.’s Registration Statement on Form S-8 filed on June 30, 2008 (File No. 333-152032) and incorporated herein by reference. | ||
| 4 | .12 | GenCorp Inc. 2009 Equity and Performance Incentive Plan was filed as Exhibit 4.1 to GenCorp Inc.’s Form S-8 Registration Statement dated April 28, 2009 (File No. 333-158870), and is incorporated herein by reference. | ||
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|
Table
|
||||
|
Item No.
|
Exhibit Description
|
|||
| 4 | .13 | Indenture, dated as of December 21, 2009, between GenCorp Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to GenCorp’s 4.0625% Convertible Subordinated Debentures due 2039 was filed as Exhibit 4.1 to GenCorp Inc.’s Current Report on Form 8-K filed on December 21, 2009 (File 1-1520) and is incorporated herein by reference. | ||
| 4 | .14 | Form of 4.0625% Convertible Subordinated Debenture due 2039 was filed as Exhibit 4.2 to GenCorp Inc.’s Current Report on Form 8-K dated December 21, 2009 (File No. 1-1520), as amended, and incorporated herein by reference. | ||
| 4 | .15 | Third Supplemental Indenture dated as of November 24, 2009, by and among GenCorp Inc., Easton Development Company, LLC, and The Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A. and successor to The Bank of New York), to the Indenture dated as of August 11, 2003, as amended, between GenCorp Inc. as Issuer, the Guarantors party thereto as Guarantors, and The Bank of New York Mellon Trust Company, N.A., as Trustee was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 4 | .16 | GenCorp Inc. Amended and Restated 2009 Equity and Performance Incentive Plan was filed as Exhibit 4.1 to GenCorp Inc.’s Form S-8 Registration Statement dated April 9, 2010 (File No. 333-165978), and is incorporated herein by reference. | ||
| 10 | .1 | Distribution Agreement dated September 30, 1999 between GenCorp Inc. and OMNOVA Solutions Inc. (OMNOVA) was filed as Exhibit B to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 19, 1999 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .2 | Amended and Restated Environmental Agreement by and between Aerojet and Northrop Grumman, dated October 19, 2001 was filed as Exhibit 2.4 to the Company’s Current Report on Form 8-K dated November 5, 2001 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .3† | GenCorp 1996 Supplemental Retirement Plan for Management Employees effective March 1, 1996 was filed as Exhibit B to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1996 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .4† | 2009 Benefit Restoration Plan for the GenCorp Inc. Pension Plan was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on January 7, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .5† | 2009 Benefit Restoration Plan for the GenCorp Inc. 401(k) Plan was filed as Exhibit 10.2 to GenCorp Inc.’s Current Report on Form 8-K filed on January 7, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .6† | Deferred Bonus Plan of GenCorp Inc. and Participating Subsidiaries was filed as Exhibit 10.6 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .7† | GenCorp Inc. Deferred Compensation Plan for Nonemployee Directors, as amended was filed as Exhibit 10.7 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .8† | GenCorp Inc. 1993 Stock Option Plan effective March 31, 1993 was filed as Exhibit 4.1 to Form S-8 Registration Statement No. 33-61928 dated April 30, 1993 and is incorporated herein by reference. | ||
| 10 | .9† | GenCorp Inc. 1997 Stock Option Plan effective March 26, 1997 was filed as Exhibit 4.1 to Form S-8 Registration Statement No. 333-35621 dated September 15, 1997 and is incorporated herein by reference. | ||
| 10 | .10† | GenCorp Inc. 1999 Equity and Performance Incentive Plan as amended was filed as Exhibit 10.11 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .11† | GenCorp Inc. Executive Incentive Compensation Program, amended September 8, 1995 to be effective for the 1996 fiscal year was filed as Exhibit E to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (File No. 1-1520), and is incorporated herein by reference. | ||
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|
Table
|
||||
|
Item No.
|
Exhibit Description
|
|||
| 10 | .12† | 2001 Supplemental Retirement Plan For GenCorp Executives effective December 1, 2001, incorporating GenCorp Inc.’s Voluntary Enhanced Retirement Program was filed as Exhibit 10.29 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2001 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .13† | Form of Restricted Stock Agreement between the Company and Nonemployee Directors providing for payment of part of Directors’ compensation for service on the Board of Directors in Company stock was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1998 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .14† | Form of Restricted Stock Agreement between the Company and Nonemployee Directors providing for payment of part of Directors’ compensation for service on the Board of Directors in Company stock was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1999 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .15† | Form of Restricted Stock Agreement between the Company and Directors or Employees for grants of time-based vesting of restricted stock under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.26 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .16† | Form of Stock Appreciation Rights Agreement between the Company and Employees for grants of stock appreciation rights under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.27 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .17† | Form of Stock Appreciation Rights Agreement between the Company and Directors for grants of stock appreciation rights under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.28 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .18† | Form of Restricted Stock Agreement between the Company and Employees for grants of performance-based vesting of restricted stock under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.29 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .19† | Form of Director Nonqualified Stock Option Agreement between the Company and Nonemployee Directors providing for annual grant of nonqualified stock options prior to February 28, 2002, valued at $30,000 was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2002 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .20† | Form of Director Nonqualified Stock Option Agreement between the Company and Nonemployee Directors providing for an annual grant of nonqualified stock options on or after February 28, 2002, valued at $30,000 in lieu of further participation in Retirement Plan for Nonemployee Directors was filed as Exhibit 10.2 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2002 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .21† | Form of Director and Officer Indemnification Agreement. was filed as Exhibit 10.21 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .22† | Form of Director Indemnification Agreement was filed as Exhibit M to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .23† | Form of Officer Indemnification Agreement was filed as Exhibit N to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .24† | Form of Severance Agreement granted to certain executive officers of the Company was filed as Exhibit D to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .25 | Amended and Restated Shareholder Agreement by and between GenCorp Inc. and Steel Partners II L.P. dated February 16, 2007 was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on February 21, 2007 (File No. 1-1520) and is incorporated herein by reference. | ||
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Table
|
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|
Item No.
|
Exhibit Description
|
|||
| 10 | .26† | Employment Letter Agreement dated April 12, 2005 by and between GenCorp Inc. and Philip W. Cyburt was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on April 14, 2005 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .27 | American Pacific Corporation Subordinated Promissory Note, dated November 30, 2005, in the principal amount of $25,500,000 was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated November 30, 2005 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .28† | Employment Offer Letter dated January 11, 2006 by and between GenCorp Inc. and R. Leon Blackburn was filed as Exhibit 10.32 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2006 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .29† | Form of Restricted Stock Agreement Version 2 between the Company and Employees for grants of performance-based vesting of restricted stock under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.33 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2005 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .30† | Consulting Agreement dated February 28, 2006 by and between Joseph Carleone and GenCorp Inc. was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the first quarter ended February 28, 2006 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .31† | Form of Director and Officer Indemnification Agreement was filed as Exhibit 10.1 to GenCorp, Inc.’s Current Report on Form 8-K filed on May 23, 2006 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .32† | Form of Severance Agreement for executive officers of the Company was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on August 11, 2006 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .33† | Agreement and Release by and between GenCorp Inc. and William A. Purdy Jr. dated January 29, 2007 was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the first quarter ended February 28, 2007 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .34 | Credit Agreement, dated as of June 21, 2007, among GenCorp, as the Borrower, each of those Material Domestic Subsidiaries of the Borrower identified as a “Guarantor” on the signature pages thereto and such other Material Domestic Subsidiaries of the Borrower as may from time to time become a party thereto, the several banks and other financial institutions from time to time parties to such Credit Agreement, and Wachovia Bank, National Association, a national banking association, as Administrative Agent, was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the second quarter ended May 31, 2007 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .35 | Second Amended and Restated Shareholder Agreement dated as of March 5, 2008, by and between GenCorp Inc. and Steel Partners II L.P. was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on March 10, 2008 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .36† | Letter Agreement dated as of March 5, 2008 by and between GenCorp Inc. and Terry L. Hall was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the first quarter ended February 28, 2008 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .37† | Letter Agreement dated as of March 5, 2008 by and between GenCorp Inc. and J. Scott Neish was filed as Exhibit 10.2 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the first quarter ended February 28, 2008 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .38† | Retention Agreement dated April 15, 2009 between Chris W. Conley and GenCorp Inc. was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the second quarter ended May 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .39 | Joinder Agreement dated as of November 24, 2009, by and among GenCorp Inc., Easton Development Company, LLC, and Wachovia Bank, National Association, a national banking association, as Administrative Agent in its capacity as administrative agent under the Amended Credit Agreement dated as of June 27, 2006, among GenCorp Inc., as the Borrower, each of those Material Domestic Subsidiaries of the Borrower identified as a ‘Guarantor’ on the signature pages thereto and Wachovia Bank, National Association, a national banking association, as Administrative Agent was filed as Exhibit 10.2 to GenCorp Inc.’s Current Report on Form 8-K filed November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
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| 10 | .40 | First Amendment and Consent to Credit Agreement, dated as of May 1, 2009, by and among, GenCorp Inc., as borrower, the subsidiaries of the Borrower from time to time party thereto, as guarantors, the lenders from time to time party thereto and Wachovia Bank, National Association, as administrative agent for the lenders, was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated May 6, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .41† | Employment Agreement dated July 2, 2009 between John Joy and GenCorp Inc. was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .42† | Amendment to the GenCorp Inc. 1999 Equity and Performance Incentive Plan, effective October 6, 2009 was filed as Exhibit 10.2 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .43† | Amendment to the GenCorp Inc. 2009 Equity and Performance Incentive Plan, effective October 6, 2009 was filed as Exhibit 10.3 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .44† | Director Stock Appreciation Rights Agreement between GenCorp Inc. and Directors for grants of stock appreciation rights under the GenCorp Inc. 2009 Equity and Performance Incentive Plan was filed as Exhibit 10.4 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .45† | Amendment to the Benefits Restoration Plan for Salaried Employees of GenCorp Inc. and Certain Subsidiary Companies, effective October 6, 2009 was filed as Exhibit 10.5 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .46† | Amendment to the 2009 Benefit Restoration Plan for the GenCorp Inc. 401(k) Plan, effective October 6, 2009 was filed as Exhibit 10.6 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .47† | Amendment to the 2009 Benefits Restoration Plan for the GenCorp Inc. Pension Plan, effective October 6, 2009 was filed as Exhibit 10.7 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .48† | Amendment to the Deferred Bonus Plan of GenCorp Inc. and Participating Subsidiaries, effective October 6, 2009 was filed as Exhibit 10.8 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .49† | Amendment to the GenCorp Inc. Deferred Compensation Plan for Nonemployee Directors, as amended, effective October 6, 2009 was filed as Exhibit 10.9 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .50† | Amendment to the GenCorp Inc. 1996 Supplemental Retirement Plan for Management Employees, effective October 6, 2009 was filed as Exhibit 10.10 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .51† | Employment Agreement dated January 6, 2010 by and between Scott Seymour and GenCorp Inc. was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated January 6, 2010 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .52 | Settlement Agreement by and between Aerojet and United States of America, dated November 29, 1992, was filed as Exhibit 10.52 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .53 | Modification No. 1 to the November 29, 1992 Settlement Agreement by and between Aerojet and United States of America, dated October 27, 1998, was filed as Exhibit 10.53 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
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| 10 | .54 | Second Amendment to Credit Agreement by and among GenCorp Inc., as borrower, the subsidiaries of GenCorp Inc. from time to time party thereto, as guarantors, and Wachovia Bank, National Association, as Administrative Agent for the lenders, dated as of March 17, 2010, was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated March 19, 2010 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .55 | Purchase Agreement dated March 18, 2010 between GenCorp Inc. and Beach Point Capital Management LP, on behalf of certain funds and accounts it manages was filed as Exhibit 10.2 to GenCorp Inc.’s Current Report on Form 8-K filed on March 19, 2010 (File No. 1-1520), and is incorporated herein by reference. | ||
| 21 | .1* | Subsidiaries of the Company. | ||
| 23 | .1* | Consent of Independent Registered Public Accounting Firm. | ||
| 24 | .1* | Power of Attorney. | ||
| 31 | .1* | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | ||
| 31 | .2* | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | ||
| 32 | .1* | Certification of Principal Executive Officer and Principal Accounting Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 as amended, and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| * | Filed herewith. All other exhibits have been previously filed. | |
| ** | Schedules and Exhibits have been omitted, but will be furnished to the SEC upon request. | |
| † | Management contract or compensatory plan or arrangement. |
| (c) | See Item 15(a)2. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
February 2, 2011
GENCORP INC.
| By: |
/s/
SCOTT
J. SEYMOUR
|
Scott J. Seymour
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
||||
|
/s/
SCOTT
J. SEYMOUR
|
President, Chief Executive Officer and Director (Principal Executive Officer) | February 2, 2011 | ||||
|
/s/
KATHLEEN
E. REDD
|
Vice President, Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer) | February 2, 2011 | ||||
|
*
|
Chairman of the Board of Directors | February 2, 2011 | ||||
|
*
|
Director | February 2, 2011 | ||||
|
*
|
Director | February 2, 2011 | ||||
|
*
|
Director | February 2, 2011 | ||||
|
*
|
Director | February 2, 2011 | ||||
|
*
|
Director | February 2, 2011 | ||||
|
*
|
Director | February 2, 2011 | ||||
| * By: |
/s/
KATHLEEN
E. REDD
|
Attorney-in-Fact pursuant to Power of Attorney | February 2, 2011 | |||
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| 2 | .1 | Purchase Agreement, dated May 2, 2003, between Atlantic Research Corporation and Aerojet-General Corporation was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2003 (File No. 1-1520) and is incorporated herein by reference.** | ||
| 2 | .2 | First Amendment to Purchase Agreement, dated August 29, 2003, between Aerojet-General Corporation and Atlantic Research Corporation was filed as Exhibit 2.2 to GenCorp’s Form S-4 Registration Statement dated October 6, 2003 (File No. 333-109518) and is incorporated herein by reference.** | ||
| 2 | .3 | Second Amendment to Purchase Agreement, dated September 30, 2003, between Aerojet-General Corporation and Atlantic Research Corporation was filed as Exhibit 2.2 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2003 (File No. 1-1520) and is incorporated herein by reference.** | ||
| 2 | .4 | Third Amendment to Purchase Agreement, dated October 16, 2003, between Aerojet-General Corporation and Atlantic Research Corporation was filed as Exhibit 2.4 to GenCorp’s Amendment No. 1 to Form S-4 Registration Statement dated December 15, 2003 (file no. 333-109518) and is incorporated herein by reference.** | ||
| 2 | .5 | Stock and Asset Purchase Agreement by and between GDX Holdings LLC and GenCorp Inc. dated July 16, 2004 was filed as Exhibit 2.1 to GenCorp Inc.’s Current Report on Form 8-K dated September 7, 2004 (File No. 1-1520) and incorporated herein by reference.** | ||
| 2 | .6 | First Amendment to Stock and Asset Purchase Agreement by and between GenCorp Inc. and GDX Holdings LLC dated as of August 31, 2004 was filed as Exhibit 2.2 to GenCorp Inc.’s Current Report on Form 8-K dated September 7, 2004 (File No. 1-1520) and incorporated herein by reference.** | ||
| 2 | .7 | Second Amendment to Stock and Asset Purchase Agreement by and between GenCorp Inc. and GDX Holdings LLC dated as of October 14, 2004 was filed as Exhibit 2.3 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2004 (File No. 1-1520), as amended, and incorporated herein by reference.** | ||
| 2 | .8 | Asset Purchase Agreement, dated as of July 12, 2005, by and among Aerojet Fine Chemicals LLC, Aerojet-General Corporation and American Pacific Corporation was filed as Exhibit 2.1 to GenCorp Inc.’s Current Report on Form 8-K filed on July 18, 2005 (File No. 1-1520), and is incorporated herein by reference.** | ||
| 2 | .9 | First Amendment to Asset Purchase Agreement by and among American Pacific Corporation, Aerojet Fine Chemicals LLC and Aerojet-General Corporation dated as of November 30, 2005 was filed as Exhibit 2.1 to GenCorp Inc.’s Current Report on Form 8-K filed on December 1, 2005 (File No. 1-1520) and incorporated herein by reference.** | ||
| 3 | .1 | Amended Articles of Incorporation of GenCorp filed with the Secretary of State of Ohio on March 28, 2007 was filed as Exhibit 3.1 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007 (File No. 1-1520) and incorporated herein by reference. | ||
| 3 | .2 | The Amended Code of Regulations of GenCorp, as amended on March 28, 2007 was filed as Exhibit 3.2 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007 (File No. 1-1520) and incorporated herein by reference. | ||
| 3 | .3* | Certificate of Amendment to Amended Articles of Incorporation of GenCorp Inc. filed with the Secretary of State of Ohio on March 29, 2010. | ||
| 4 | .1 | Indenture, dated as of August 11, 2003, between GenCorp Inc., the Guarantors named therein and The Bank of New York as trustee relating to GenCorp’s 9 1 / 2 % Senior Subordinated Notes was filed as Exhibit 4.1 to GenCorp’s Form S-4 Registration Statement dated October 6, 2003 (File No. 333-109518) and is incorporated herein by reference. | ||
| 4 | .2 | Form of 9 1 / 2 % Senior Subordinated Notes was filed as Exhibit 4.4 to GenCorp’s Form S-4 Registration Statement dated October 6, 2003 (File No. 333-109518) and is incorporated herein by reference. | ||
| 4 | .3 | First Supplemental Indenture dated as of October 29, 2004 to the Indenture between GenCorp Inc. and The Bank of New York, as trustee relating to GenCorp’s 9 1 / 2 % Senior Subordinated Notes due 2013 was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated November 1, 2004 (File No. 1-1520) and incorporated herein by reference. | ||
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| 4 | .4 | Second Supplemental Indenture dated as of June 27, 2006 to Indenture dated as of August 11, 2003, as amended, between GenCorp Inc. as Issuer, the Guarantors party thereto as Guarantors, and The Bank of New York Trust Company, N.A., as trustee, relating to GenCorp’s 9 1 / 2 % Senior Subordinated Notes due 2013, was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on June 28, 2006 (File No. 1-1520), and is incorporated herein by reference. | ||
| 4 | .5 | Indenture dated January 16, 2004 between GenCorp and The Bank of New York, as trustee, relating to GenCorp’s 4% Contingent Convertible Subordinated Notes due 2024 was filed as Exhibit 4.11 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2003 (File No. 1-1520) and is incorporated herein by reference. | ||
| 4 | .6 | Registration Rights Agreement dated January 16, 2004 by and among GenCorp, Deutsche Bank Securities Inc., Wachovia Capital Markets, LLC, Scotia Capital (USA) Inc., BNY Capital Markets, Inc., NatCity Investments, Inc. and Wells Fargo Securities, LLC was filed as Exhibit 4.12 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2003 (File No. 1-1520) and is incorporated herein by reference. | ||
| 4 | .7 | Form of 4% Contingent Convertible Subordinated Notes was filed as Exhibit 4.13 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2003 (File No. 1-1520) and is incorporated herein by reference. | ||
| 4 | .8 | Indenture, dated as of November 23, 2004, between GenCorp Inc. and The Bank of New York Trust Company, N.A., as trustee relating to GenCorp Inc.’s 2 1 / 4 % Convertible Subordinated Debentures due 2024 was filed as Exhibit 4.01 to GenCorp Inc.’s Current Report on Form 8-K dated November 23, 2004 (File No. 1-1520), as amended, and incorporated herein by reference. | ||
| 4 | .9 | Registration Rights Agreement, dated as of November 23, 2004, by and between GenCorp Inc. and Wachovia Capital Markets, LLC, as representative for the several initial purchasers of the 2 1 / 4 % Convertible Subordinated Debentures due 2024 was filed as Exhibit 4.14 to GenCorp Inc.’s Form S-3 Registration Statement dated January 11, 2005 (File No. 333-121948) and incorporated herein by reference. | ||
| 4 | .10 | Form of 2 1 / 4 % Convertible Subordinated Debenture was filed as Exhibit 4.02 to GenCorp Inc.’s Current Report on Form 8-K dated November 23, 2004 (File No. 1-1520), as amended, and incorporated herein by reference. | ||
| 4 | .11 | GenCorp Retirement Savings Plan was filed as Exhibit 4.1 to GenCorp Inc.’s Registration Statement on Form S-8 filed on June 30, 2008 (File No. 333-152032) and incorporated herein by reference. | ||
| 4 | .12 | GenCorp Inc. 2009 Equity and Performance Incentive Plan was filed as Exhibit 4.1 to GenCorp Inc.’s Form S-8 Registration Statement dated April 28, 2009 (File No. 333-158870), and is incorporated herein by reference. | ||
| 4 | .13 | Indenture, dated as of December 21, 2009, between GenCorp Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to GenCorp’s 4.0625% Convertible Subordinated Debentures due 2039 was filed as Exhibit 4.1 to GenCorp Inc.’s Current Report on Form 8-K filed on December 21, 2009 (File 1-1520) and is incorporated herein by reference. | ||
| 4 | .14 | Form of 4.0625% Convertible Subordinated Debenture due 2039 was filed as Exhibit 4.2 to GenCorp Inc.’s Current Report on Form 8-K dated December 21, 2009 (File No. 1-1520), as amended, and incorporated herein by reference. | ||
| 4 | .15 | Third Supplemental Indenture dated as of November 24, 2009, by and among GenCorp Inc., Easton Development Company, LLC, and The Bank of New York Mellon Trust Company, N.A. (formerly known as The Bank of New York Trust Company, N.A. and successor to The Bank of New York), to the Indenture dated as of August 11, 2003, as amended, between GenCorp Inc. as Issuer, the Guarantors party thereto as Guarantors, and The Bank of New York Mellon Trust Company, N.A., as Trustee was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 4 | .16 | GenCorp Inc. Amended and Restated 2009 Equity and Performance Incentive Plan was filed as Exhibit 4.1 to GenCorp Inc.’s Form S-8 Registration Statement dated April 9, 2010 (File No. 333-165978), and is incorporated herein by reference. | ||
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| 10 | .1 | Distribution Agreement dated September 30, 1999 between GenCorp Inc. and OMNOVA Solutions Inc. (OMNOVA) was filed as Exhibit B to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 19, 1999 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .2 | Amended and Restated Environmental Agreement by and between Aerojet and Northrop Grumman, dated October 19, 2001 was filed as Exhibit 2.4 to the Company’s Current Report on Form 8-K dated November 5, 2001 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .3† | GenCorp 1996 Supplemental Retirement Plan for Management Employees effective March 1, 1996 was filed as Exhibit B to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1996 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .4† | 2009 Benefit Restoration Plan for the GenCorp Inc. Pension Plan was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on January 7, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .5† | 2009 Benefit Restoration Plan for the GenCorp Inc. 401(k) Plan was filed as Exhibit 10.2 to GenCorp Inc.’s Current Report on Form 8-K filed on January 7, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .6† | Deferred Bonus Plan of GenCorp Inc. and Participating Subsidiaries was filed as Exhibit 10.6 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .7† | GenCorp Inc. Deferred Compensation Plan for Nonemployee Directors, as amended was filed as Exhibit 10.7 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2008 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .8† | GenCorp Inc. 1993 Stock Option Plan effective March 31, 1993 was filed as Exhibit 4.1 to Form S-8 Registration Statement No. 33-61928 dated April 30, 1993 and is incorporated herein by reference. | ||
| 10 | .9† | GenCorp Inc. 1997 Stock Option Plan effective March 26, 1997 was filed as Exhibit 4.1 to Form S-8 Registration Statement No. 333-35621 dated September 15, 1997 and is incorporated herein by reference. | ||
| 10 | .10† | GenCorp Inc. 1999 Equity and Performance Incentive Plan as amended was filed as Exhibit 10.11 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .11† | GenCorp Inc. Executive Incentive Compensation Program, amended September 8, 1995 to be effective for the 1996 fiscal year was filed as Exhibit E to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .12† | 2001 Supplemental Retirement Plan For GenCorp Executives effective December 1, 2001, incorporating GenCorp Inc.’s Voluntary Enhanced Retirement Program was filed as Exhibit 10.29 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2001 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .13† | Form of Restricted Stock Agreement between the Company and Nonemployee Directors providing for payment of part of Directors’ compensation for service on the Board of Directors in Company stock was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1998 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .14† | Form of Restricted Stock Agreement between the Company and Nonemployee Directors providing for payment of part of Directors’ compensation for service on the Board of Directors in Company stock was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1999 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .15† | Form of Restricted Stock Agreement between the Company and Directors or Employees for grants of time-based vesting of restricted stock under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.26 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .16† | Form of Stock Appreciation Rights Agreement between the Company and Employees for grants of stock appreciation rights under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.27 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004 (File No. 1-1520), and is incorporated herein by reference. | ||
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| 10 | .17† | Form of Stock Appreciation Rights Agreement between the Company and Directors for grants of stock appreciation rights under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.28 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .18† | Form of Restricted Stock Agreement between the Company and Employees for grants of performance-based vesting of restricted stock under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.29 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2004 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .19† | Form of Director Nonqualified Stock Option Agreement between the Company and Nonemployee Directors providing for annual grant of nonqualified stock options prior to February 28, 2002, valued at $30,000 was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2002 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .20† | Form of Director Nonqualified Stock Option Agreement between the Company and Nonemployee Directors providing for an annual grant of nonqualified stock options on or after February 28, 2002, valued at $30,000 in lieu of further participation in Retirement Plan for Nonemployee Directors was filed as Exhibit 10.2 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2002 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .21† | Form of Director and Officer Indemnification Agreement. was filed as Exhibit 10.21 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .22† | Form of Director Indemnification Agreement was filed as Exhibit M to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .23† | Form of Officer Indemnification Agreement was filed as Exhibit N to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1999 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .24† | Form of Severance Agreement granted to certain executive officers of the Company was filed as Exhibit D to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 1997 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .25 | Amended and Restated Shareholder Agreement by and between GenCorp Inc. and Steel Partners II L.P. dated February 16, 2007 was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on February 21, 2007 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .26† | Employment Letter Agreement dated April 12, 2005 by and between GenCorp Inc. and Philip W. Cyburt was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on April 14, 2005 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .27 | American Pacific Corporation Subordinated Promissory Note, dated November 30, 2005, in the principal amount of $25,500,000 was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated November 30, 2005 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .28† | Employment Offer Letter dated January 11, 2006 by and between GenCorp Inc. and R. Leon Blackburn was filed as Exhibit 10.32 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2006 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .29† | Form of Restricted Stock Agreement Version 2 between the Company and Employees for grants of performance-based vesting of restricted stock under the GenCorp Inc. 1999 Equity and Performance Incentive Plan was filed as Exhibit 10.33 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2005 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .30† | Consulting Agreement dated February 28, 2006 by and between Joseph Carleone and GenCorp Inc. was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the first quarter ended February 28, 2006 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .31† | Form of Director and Officer Indemnification Agreement was filed as Exhibit 10.1 to GenCorp, Inc.’s Current Report on Form 8-K filed on May 23, 2006 (File No. 1-1520) and is incorporated herein by reference. | ||
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| 10 | .32† | Form of Severance Agreement for executive officers of the Company was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on August 11, 2006 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .33† | Agreement and Release by and between GenCorp Inc. and William A. Purdy Jr. dated January 29, 2007 was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the first quarter ended February 28, 2007 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .34 | Credit Agreement, dated as of June 21, 2007, among GenCorp, as the Borrower, each of those Material Domestic Subsidiaries of the Borrower identified as a “Guarantor” on the signature pages thereto and such other Material Domestic Subsidiaries of the Borrower as may from time to time become a party thereto, the several banks and other financial institutions from time to time parties to such Credit Agreement, and Wachovia Bank, National Association, a national banking association, as Administrative Agent, was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the second quarter ended May 31, 2007 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .35 | Second Amended and Restated Shareholder Agreement dated as of March 5, 2008, by and between GenCorp Inc. and Steel Partners II L.P. was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K filed on March 10, 2008 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .36† | Letter Agreement dated as of March 5, 2008 by and between GenCorp Inc. and Terry L. Hall was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the first quarter ended February 28, 2008 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .37† | Letter Agreement dated as of March 5, 2008 by and between GenCorp Inc. and J. Scott Neish was filed as Exhibit 10.2 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the first quarter ended February 28, 2008 (File No. 1-1520) and is incorporated herein by reference. | ||
| 10 | .38† | Retention Agreement dated April 15, 2009 between Chris W. Conley and GenCorp Inc. was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the second quarter ended May 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .39 | Joinder Agreement dated as of November 24, 2009, by and among GenCorp Inc., Easton Development Company, LLC, and Wachovia Bank, National Association, a national banking association, as Administrative Agent in its capacity as administrative agent under the Amended Credit Agreement dated as of June 27, 2006, among GenCorp Inc., as the Borrower, each of those Material Domestic Subsidiaries of the Borrower identified as a ‘Guarantor’ on the signature pages thereto and Wachovia Bank, National Association, a national banking association, as Administrative Agent was filed as Exhibit 10.2 to GenCorp Inc.’s Current Report on Form 8-K filed November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .40 | First Amendment and Consent to Credit Agreement, dated as of May 1, 2009, by and among, GenCorp Inc., as borrower, the subsidiaries of the Borrower from time to time party thereto, as guarantors, the lenders from time to time party thereto and Wachovia Bank, National Association, as administrative agent for the lenders, was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated May 6, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .41† | Employment Agreement dated July 2, 2009 between John Joy and GenCorp Inc. was filed as Exhibit 10.1 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .42† | Amendment to the GenCorp Inc. 1999 Equity and Performance Incentive Plan, effective October 6, 2009 was filed as Exhibit 10.2 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .43† | Amendment to the GenCorp Inc. 2009 Equity and Performance Incentive Plan, effective October 6, 2009 was filed as Exhibit 10.3 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .44† | Director Stock Appreciation Rights Agreement between GenCorp Inc. and Directors for grants of stock appreciation rights under the GenCorp Inc. 2009 Equity and Performance Incentive Plan was filed as Exhibit 10.4 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
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| 10 | .45† | Amendment to the Benefits Restoration Plan for Salaried Employees of GenCorp Inc. and Certain Subsidiary Companies, effective October 6, 2009 was filed as Exhibit 10.5 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .46† | Amendment to the 2009 Benefit Restoration Plan for the GenCorp Inc. 401(k) Plan, effective October 6, 2009 was filed as Exhibit 10.6 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .47† | Amendment to the 2009 Benefits Restoration Plan for the GenCorp Inc. Pension Plan, effective October 6, 2009 was filed as Exhibit 10.7 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .48† | Amendment to the Deferred Bonus Plan of GenCorp Inc. and Participating Subsidiaries, effective October 6, 2009 was filed as Exhibit 10.8 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .49† | Amendment to the GenCorp Inc. Deferred Compensation Plan for Nonemployee Directors, as amended, effective October 6, 2009 was filed as Exhibit 10.9 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .50† | Amendment to the GenCorp Inc. 1996 Supplemental Retirement Plan for Management Employees, effective October 6, 2009 was filed as Exhibit 10.10 to GenCorp Inc.’s Quarterly Report on Form 10-Q for the third quarter ended August 31, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .51† | Employment Agreement dated January 6, 2010 by and between Scott Seymour and GenCorp Inc. was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated January 6, 2010 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .52 | Settlement Agreement by and between Aerojet and United States of America, dated November 29, 1992, was filed as Exhibit 10.52 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .53 | Modification No. 1 to the November 29, 1992 Settlement Agreement by and between Aerojet and United States of America, dated October 27, 1998, was filed as Exhibit 10.53 to GenCorp Inc.’s Annual Report on Form 10-K for the fiscal year ended November 30, 2009 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .54 | Second Amendment to Credit Agreement by and among GenCorp Inc., as borrower, the subsidiaries of GenCorp Inc. from time to time party thereto, as guarantors, and Wachovia Bank, National Association, as Administrative Agent for the lenders, dated as of March 17, 2010, was filed as Exhibit 10.1 to GenCorp Inc.’s Current Report on Form 8-K dated March 19, 2010 (File No. 1-1520), and is incorporated herein by reference. | ||
| 10 | .55 | Purchase Agreement dated March 18, 2010 between GenCorp Inc. and Beach Point Capital Management LP, on behalf of certain funds and accounts it manages was filed as Exhibit 10.2 to GenCorp Inc.’s Current Report on Form 8-K filed on March 19, 2010 (File No. 1-1520), and is incorporated herein by reference. | ||
| 21 | .1* | Subsidiaries of the Company. | ||
| 23 | .1* | Consent of Independent Registered Public Accounting Firm. | ||
| 24 | .1* | Power of Attorney. | ||
| 31 | .1* | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | ||
| 31 | .2* | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | ||
| 32 | .1* | Certification of Principal Executive Officer and Principal Accounting Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 as amended, and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| * | Filed herewith. All other exhibits have been previously filed. | |
| ** | Schedules and Exhibits have been omitted, but will be furnished to the SEC upon request. | |
| † | Management contract or compensatory plan or arrangement. |
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TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholders Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Consolidated Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement SchedulesprintItem No. Exhibit Descriptionprint