UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: May 31, 2007

or

o 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 1-01520

GenCorp Inc.

(Exact name of registrant as specified in its charter)

Ohio (State of Incorporation)	34-0244000 (I.R.S. Employer Identification No.)
Highway 50 and Aerojet Road Rancho Cordova, California (Address of Principal Executive Offices)	95742 (Zip Code)
P.O. Box 537012 Sacramento, California (Mailing Address)	95853-7012 (Zip Code)

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     As of June 25, 2007, there were 56.3 million outstanding shares of our Common Stock, $0.10 par value.

GenCorp Inc.

Quarterly Report on Form 10-Q
For the Quarterly Period Ended May 31, 2007

Table of Contents

Item
Number		Page
	PART I — FINANCIAL INFORMATION
1 Financial Statements			3
2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
3 Quantitative and Qualitative Disclosures About Market Risk			37
4 Controls and Procedures			38
	PART II – OTHER INFORMATION
1 Legal Proceedings			39
1A Risk Factors			39
2 Unregistered Sales of Equity Securities and Use of Proceeds			39
3 Defaults Upon Senior Securities			39
4 Submission of Matters to Vote of Security Holders			40
5 Other Information			41
6 Exhibits			42
	SIGNATURES
Signatures			42
	EXHIBIT INDEX
Exhibit Index			43
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

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Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

GenCorp Inc.
Condensed Consolidated Statements of Operations
(Unaudited)

	Three months ended May 31,						Six months ended May 31,
	2007			2006			2007			2006
	(in millions, except per share amounts)
Net Sales	$	192.3		$	167.2		$	343.1		$	295.5
Costs and Expenses
Cost of products sold		163.3			151.4			298.3			272.7
Selling, general and administrative		3.7			7.8			6.7			15.8
Depreciation and amortization		6.9			6.6			13.4			13.1
Interest expense		7.0			6.4			14.2			12.7
Interest income		(1.3	)		(0.5	)		(2.5	)		(1.0	)
Other (income) expense, net		0.5			1.4			2.5			1.8
Unusual items:
Unrecoverable portion of settlements and reserves for legal matters		2.6			8.5			2.6			8.5
Income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle		9.6			(14.4	)		7.9			(28.1	)
Income tax benefit		(3.6	)		(4.0	)		(3.2	)		(3.4	)
Income (loss) from continuing operations before cumulative effect of a change in accounting principle		13.2			(10.4	)		11.1			(24.7	)
Income (loss) from discontinued operations, net of income taxes		(0.7	)		3.1			29.9			2.1
Income (loss) before cumulative effect of a change in accounting principle		12.5			(7.3	)		41.0			(22.6	)
Cumulative effect of a change in accounting principle, net of income taxes		—			—			—			(0.7	)
Net income (loss)	$	12.5		$	(7.3	)	$	41.0		$	(23.3	)
Income (Loss) Per Share of Common Stock
Basic
Income (loss) per share from continuing operations before cumulative effect of a change in accounting principle	$	0.23		$	(0.19	)	$	0.20		$	(0.45	)
Income (loss) per share from discontinued operations, net of income taxes		(0.01	)		0.06			0.53			0.04
Loss per share from cumulative effect of a change in accounting principle, net of income taxes		—			—			—			(0.01	)
Net income (loss) per share	$	0.22		$	(0.13	)	$	0.73		$	(0.42	)
Diluted
Income (loss) per share from continuing operations before cumulative effect of a change in accounting principle	$	0.21		$	(0.19	)	$	0.20		$	(0.45	)
Income (loss) per share from discontinued operations, net of income taxes		(0.01	)		0.06			0.53			0.04
Loss per share from cumulative effect of a change in accounting principle, net of income taxes		—			—			—			(0.01	)
Net income (loss) per share	$	0.20		$	(0.13	)	$	0.73		$	(0.42	)
Weighted average shares of common stock outstanding		56.1			55.4			56.0			55.2
Weighted average shares of common stock outstanding, assuming dilution		71.8			55.4			56.3			55.2

See Notes to Unaudited Condensed Consolidated Financial Statements

3

GenCorp Inc.
Condensed Consolidated Balance Sheets

	(Unaudited)
	May 31,			November 30,
	2007			2006
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	82.9		$	61.2
Restricted cash		—			19.8
Accounts receivable		86.1			71.1
Inventories		71.0			69.5
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		38.3			37.6
Prepaid expenses and other		13.5			23.5
Assets of discontinued operations		0.1			0.5
Total Current Assets		291.9			283.2
Noncurrent Assets
Property, plant and equipment, net		134.3			136.8
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		179.7			177.0
Prepaid pension asset		176.8			187.3
Goodwill		101.3			101.3
Intangible assets		23.8			24.6
Other noncurrent assets, net		125.4			111.2
Total Noncurrent Assets		741.3			738.2
Total Assets	$	1,033.2		$	1,021.4
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Short-term borrowings and current portion of long-term debt	$	2.3		$	21.3
Accounts payable		22.1			32.6
Reserves for environmental remediation costs		58.0			55.6
Income taxes payable		8.7			12.2
Postretirement medical and life benefits		9.7			9.7
Advanced payments on contracts		58.1			57.1
Other current liabilities		79.9			88.9
Liabilities of discontinued operations		1.2			1.8
Total Current Liabilities		240.0			279.2
Noncurrent Liabilities
Convertible subordinated notes		271.4			271.4
Senior subordinated notes		97.5			97.5
Other long-term debt		73.5			72.2
Reserves for environmental remediation costs		211.0			210.4
Postretirement medical and life benefits		122.4			127.1
Other noncurrent liabilities		67.1			59.6
Total Noncurrent Liabilities		842.9			838.2
Total Liabilities		1,082.9			1,117.4
Commitments and Contingencies (Note 10)
Shareholders’ Deficit
Preference stock, par value of $1.00; 15 million shares authorized; none issued or outstanding		—			—
Common stock, par value of $0.10; 150 million shares authorized; 56.5 million shares issued, 56.2 million shares outstanding as of May 31, 2007; 56.1 million shares issued, 55.8 million outstanding as of November 30, 2006		5.7			5.6
Other capital		200.0			194.8
Accumulated deficit		(255.4	)		(296.4	)
Total Shareholders’ Deficit		(49.7	)		(96.0	)
Total Liabilities and Shareholders’ Deficit	$	1,033.2		$	1,021.4

See Notes to Unaudited Condensed Consolidated Financial Statements

4

GenCorp Inc.
Condensed Consolidated Statement of Shareholders’ Deficit
(Unaudited)

										Total
	Common Stock				Other		Accumulated			Shareholders’
	Shares		Amount		Capital		Deficit			Deficit
	(In millions, except share and per share amounts)
November 30, 2006		55,815,828	$	5.6	$	194.8	$	(296.4	)	$	(96.0	)
Net income		—		—		—		41.0			41.0
Shares issued under stock option and stock incentive plans, net of income taxes		402,777		0.1		5.2		—			5.3
May 31, 2007		56,218,605	$	5.7	$	200.0	$	(255.4	)	$	(49.7	)

See Notes to Unaudited Condensed Consolidated Financial Statements

5

GenCorp Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Six months ended
	May 31,			May 31,
	2007			2006
	(in millions)
Operating Activities
Net income (loss)	$	41.0		$	(23.3	)
Income from discontinued operations, net of income taxes		(29.9	)		(2.1	)
Cumulative effect of a change in accounting principle, net of income taxes		—			0.7
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		13.4			13.1
Stock compensation and savings plan expense		4.9			5.4
Changes in assets and liabilities:
Accounts receivable		(15.0	)		10.5
Inventories		(1.5	)		(13.3	)
Prepaid income taxes		—			(5.1	)
Prepaid expenses and other		9.3			(22.1	)
Other noncurrent assets		(8.0	)		35.6
Accounts payable		(10.5	)		(30.1	)
Income taxes payable		(3.9	)		6.4
Postretirement medical and life benefits		(4.7	)		(7.4	)
Advanced payments on contracts		1.0			2.5
Other current liabilities		(5.5	)		26.5
Other noncurrent liabilities		8.1			(35.9	)
Net cash used in continuing operations		(1.3	)		(38.6	)
Net cash used in discontinued operations		(1.0	)		(10.7	)
Net Cash Used In Operating Activities		(2.3	)		(49.3	)
Investing Activities
Capital expenditures		(5.7	)		(5.5	)
Decrease in restricted cash		19.8			—
Proceeds from discontinued operation		29.7			—
Net Cash Provided by (Used In) Investing Activities		43.8			(5.5	)
Financing Activities
Debt repayments		(20.5	)		(0.9	)
Debt issuance costs		—			(0.6	)
Tax benefit on equity based compensation		0.3			0.6
Proceeds from shares issued under stock option and equity incentive plans		0.4			2.9
Net Cash (Used In) Provided by Financing Activities		(19.8	)		2.0
Net Increase (Decrease) in Cash and Cash Equivalents		21.7			(52.8	)
Cash and Cash Equivalents at Beginning of Period		61.2			91.7
Cash and Cash Equivalents at End of Period	$	82.9		$	38.9
Supplemental Disclosures of Cash Flow Information
Capital expenditure purchased with promissory note	$	2.8		$	—

See Notes to Unaudited Condensed Consolidated Financial Statements.

6

GenCorp Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation and Nature of Operations

     GenCorp Inc. (GenCorp or the Company) has prepared the accompanying Unaudited Condensed Consolidated Financial Statements, including its accounts and the accounts of its wholly owned and majority-owned subsidiaries, in accordance with the instructions to Form 10-Q. The year-end condensed consolidated balance sheet was derived from audited financial statements but does not include all of the disclosures required by accounting principles generally accepted in the United States of America (GAAP). These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2006, as filed with the Securities and Exchange Commission (SEC). Reclassifications have been made to certain financial information for prior periods to conform to the current year’s presentation.

     The Company believes the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of its financial position, results of operations and cash flows for the periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with 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. In addition, the operating results for interim periods may not be indicative of the results of operations for a full year.

     The Company is a technology-based 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-General Corporation, or Aerojet, which develops and manufactures propulsion systems for defense and space applications, armament systems for precision tactical weapon systems, and munitions applications. The Company is one of the largest providers of propulsion systems in the United States (U.S.) and the only company that provides both solid and liquid propellant based systems. Primary customers served include major prime contractors to the U.S. government, the Department of Defense, and the National Aeronautics and Space Administration.

     Real Estate — includes activities related to the re-zoning, entitlement, sale, and leasing of our excess real estate assets. The Company owns approximately 12,600 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 has filed applications with and submitted information to governmental and regulatory authorities for approvals necessary to re-zone over 6,400 acres of the Sacramento Land.

     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. On November 17, 2006, the Company completed the sale of its Turbo product line. The GDX and Fine Chemicals businesses and the Turbo product line are classified as discontinued operations in these Unaudited Condensed Consolidated Financial Statements and Notes to Unaudited Condensed Consolidated Financial Statements (see Note 13).

     A detailed description of the Company’s significant accounting policies can be found in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended November 30, 2006.

     In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarified the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for the Company as of December 1, 2007. The Company has not determined the effect, if any, the adoption of FIN 48 will have on its results of operations or financial position.

     In September 2006, the FASB issued SFAS No. 158 (SFAS 158), Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements Nos. 87, 88, 106, and 132(R), which requires companies to recognize the

7

overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability on its balance sheet and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. SFAS 158 is effective for the Company as of November 30, 2007. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, which is effective for the Company as of November 30, 2009. Based on the current discount rate and expected rate of return assumptions, the Company estimates the adoption of SFAS 158 in the fourth quarter of fiscal 2007 will increase the shareholders’ deficit by approximately $8 million to $58 million. Due to the valuation allowance on the Company’s net deferred tax assets, no net tax benefit would result from this increase to the postretirement liability.

     In February 2007, the FASB issued SFAS No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure many financial instruments at fair value that are not currently required to be measured at fair value. It also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not anticipate that the adoption of SFAS 159 will have a significant effect on its financial position or results of operations.

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 (EPS) of common stock is presented in the following table:

	Three months ended May 31,						Six months ended May 31,
	2007			2006			2007		2006
	(in millions, except per share amounts; shares in thousands)
Numerator:
Income (loss) from continuing operations before cumulative effect of a change in accounting principle	$	13.2		$	(10.4	)	$	11.1	$	(24.7	)
Income (loss) from discontinued operations, net of income taxes		(0.7	)		3.1			29.9		2.1
Cumulative effect of a change in accounting principle, net of income taxes		—			—			—		(0.7	)
Net income (loss) for basic earnings per share		12.5			(7.3	)		41.0		(23.3	)
Interest on contingent convertible subordinated notes		1.3			—			—		—
Interest on convertible subordinated debentures		0.8			—			—		—
Net income (loss) available to common shareholders, as adjusted for diluted earnings per share	$	14.6		$	(7.3	)	$	41.0	$	(23.3	)
Denominator:
Basic weighted average shares		56,127			55,385			56,029		55,230
Effect of:
Contingent convertible subordinated notes		8,101			—			—		—
Convertible subordinated debentures		7,320			—			—		—
Employee stock options		215			—			226		—
Restricted stock awards		67			—			68		—
Diluted weighted average shares		71,830			55,385			56,323		55,230
Basic EPS:
Income (loss) per share from continuing operations before cumulative effect of a change in accounting principle	$	0.23		$	(0.19	)	$	0.20	$	(0.45	)
Income (loss) per share from discontinued operations, net of income taxes		(0.01	)		0.06			0.53		0.04
Loss per share from cumulative effect of a change in accounting principle, net of income taxes		—			—			—		(0.01	)
Net income (loss) per share	$	0.22		$	(0.13	)	$	0.73	$	(0.42	)
Diluted EPS:
Income (loss) per share from continuing operations before cumulative effect of a change in accounting principle	$	0.21		$	(0.19	)	$	0.20	$	(0.45	)
Income (loss) per share from discontinued operations, net of income taxes		(0.01	)		0.06			0.53		0.04
Loss per share from cumulative effect of a change in accounting principle, net of income taxes		—			—			—		(0.01	)
Net income (loss) per share	$	0.20		$	(0.13	)	$	0.73	$	(0.42	)

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     The following were not included in the computation of diluted income (loss) per share for the second quarter of fiscal 2006 and first half of fiscal 2007 and 2006 because the effect would be antidilutive for the periods:

Description	Conversion Rate
5 3/4% Convertible Subordinated Notes	54.29 Shares per $1,000 outstanding
4% Contingent Convertible Subordinated Notes	64.81 Shares per $1,000 outstanding
2 1/4% Convertible Subordinated Debentures	50.00 Shares per $1,000 outstanding

     The 5 ³/4% Convertible Subordinated Notes, which were retired in April 2007, were not included in the computation of diluted income per share for the second quarter of fiscal 2007 because the effect would be antidilutive. In addition, 1.7 million employee stock options as of May 31, 2006 were not included in the diluted EPS calculation for the second quarter and first half of fiscal 2006, because they would be antidilutive.

3. Stock Based Compensation

     On December 1, 2005, the first day of fiscal 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, (SFAS 123(R)), which required the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors, including employee stock options, restricted stock, and stock appreciation rights based on estimated fair values. The Company adopted SFAS 123(R) using the modified prospective transition method.

     The following table details the impact of adopting SFAS 123(R) during the first half of fiscal 2006:

	Six months
	ended
	May 31,
	2006
	(in millions, except
	per share amounts)
Effect on loss from continuing operations	$	(0.8	)
Cumulative effect of a change in accounting principle, net of income taxes		(0.7	)
Net loss	$	(1.5	)
Effect on basic and diluted net loss per share	$	(0.03	)

     Total stock-based compensation expense by type of award for the second quarter and first half of fiscal 2007 and 2006 was as follows:

	Three months ended May 31,						Six months ended May 31,
	2007			2006			2007			2006
	(in millions, except per share amounts; shares in thousands)
Stock appreciation rights	$	0.3		$	0.4		$	0.5		$	1.4
Restricted stock, service based		—			0.1			0.1			0.2
Restricted stock, performance based		0.2			0.1			0.1			0.2
Stock options		—			—			—			0.1
Total stock-based compensation expense		0.5			0.6			0.7			1.9
Tax effect on stock based compensation expense		—			—			—			—
Net effect on stock-based compensation expense	$	0.5		$	0.6		$	0.7		$	1.9
Effect on basic and diluted per share amounts	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.04	)

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4. Accounts Receivable

	May 31,		November 30,
	2007		2006
	(in millions)
Receivables under long-term contracts:
Billed	$	43.0	$	43.7
Unbilled costs and estimated earnings		39.6		22.1
Other receivables, net of $0.1 million of allowance for doubtful accounts as of November 30, 2006		3.5		5.3
Accounts receivable	$	86.1	$	71.1

5. Inventories

	May 31,			November 30,
	2007			2006
	(in millions)
Raw materials and supplies on commercial products	$	0.1		$	0.1
Work in progress on commercial products		3.2			4.0
Finished goods on commercial products		0.2			0.1
Long-term contracts at average cost		182.8			155.8
Progress payments		(115.3	)		(90.5	)
Inventories	$	71.0		$	69.5

6. Property, Plant and Equipment, Net

	May 31,			November 30,
	2007			2006
	(in millions)
Land	$	33.6		$	29.3
Buildings and improvements		133.2			140.3
Machinery and equipment		357.3			352.6
Construction-in-progress		6.1			9.1
		530.2			531.3
Less: accumulated depreciation		(395.9	)		(394.5	)
Property, plant and equipment, net	$	134.3		$	136.8

7. Other Noncurrent Assets, Net

	May 31,		November 30,
	2007		2006
	(in millions)
Real estate held for entitlement and leasing	$	41.4	$	38.2
Receivable from Northrop Grumman Corporation (see Note 10(c))		39.2		33.0
Note receivable (see Note 13)		—		25.5
Deferred financing costs (see Note 17)		15.1		16.2
Other		29.7		23.8
		125.4		136.7
Less: allowance on note receivable (see Note 13)		—		(25.5	)
Other noncurrent assets, net	$	125.4	$	111.2

8. Other Current Liabilities

	May 31,		November 30,
	2007		2006
	(in millions)
Accrued compensation and employee benefits	$	37.7	$	35.4
Legal settlements		9.9		15.2
Interest payable		4.9		5.0
Contract loss provisions		4.7		4.9
Other		22.7		28.4
Other current liabilities	$	79.9	$	88.9

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9. Long-term Debt

	May 31,			November 30,
	2007			2006
	(in millions)
Convertible subordinated notes, interest at 5.75% per annum, matured April 2007 (5 3/4% Notes)	$	—		$	19.8
Contingent convertible subordinated notes, bearing interest at 4.00% per annum, interest payments due in January and July, maturing in 2024 (4% Notes)		125.0			125.0
Convertible subordinated debentures, bearing interest at 2.25% per annum, interest payments due in May and November, maturing in 2024 (2 1/4% Debentures)		146.4			146.4
Total convertible subordinated notes and debentures		271.4			291.2
Senior subordinated notes, bearing interest at 9.50% per annum, interest payments due in February and August, maturing in 2013 (9 1/2% Notes)		97.5			97.5
Total senior subordinated notes		97.5			97.5
Promissory note, bearing interest at 5% per annum, payable in annual installments of $700,000 plus interest, maturing in 2011		2.8			—
Term loan, bearing interest at various rates (rate of 8.36% as of May 31, 2007), payable in quarterly installments of $386,250 plus interest, maturing in 2010		73.0			73.7
Total other debt		75.8			73.7
Total debt		444.7			462.4
Less: Amounts due within one year		(2.3	)		(21.3	)
Total long-term debt	$	442.4		$	441.1

     The estimated fair value of the Company’s total debt was $446.9 million as of May 31, 2007 compared to a carrying value of $444.7 million. The fair value of the convertible subordinated notes and debentures and the senior subordinated notes was determined based on quoted market prices as of May 31, 2007. The fair value of the remaining debt approximates the carrying value.

     As of May 31, 2007, the Company’s credit facility (Senior Credit Facility) provides for an $80.0 million revolving credit facility (Revolver) and a $154.5 million credit-linked facility, consisting of an $80.0 million letter of credit subfacility and a $74.5 million term loan subfacility. As of May 31, 2007, the borrowing limit under the Revolver was $80.0 million with all of it available. Additionally, the Company had $73.0 million outstanding under the term loan subfacility and $72.4 million in outstanding letters of credit issued under the letter of credit subfacility at May 31, 2007. See Note 17 for recent changes to the Senior Credit Facility.

     In April 2007, the Company retired the outstanding principal of its 5 ³/4% Notes with restricted cash. The outstanding principal on the 5 ³/4% Notes had been cash collateralized during fiscal 2006 in order to prevent the early maturity of the Senior Credit Facility.

     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 annual installments, matures in January 2011, and bears interest at a per annum rate of five percent.

     The Senior Credit Facility is secured by a substantial portion of the Company’s assets, including the stock and assets of our material domestic subsidiaries that are guarantors of this facility. The Company is subject to certain limitations including the ability to: incur additional debt or sell assets, with restrictions on the use of proceeds; make certain investments and acquisitions; grant liens; and make restricted payments. The Company is also subject to financial covenants, as amended, which are as follows:

	Actual Ratios As of	Required Ratios March 1, 2007	Required Ratios December 1,
Financial Covenant	May 31, 2007	Through November 30, 2007	2007 and thereafter
Interest coverage ratio	3.96 to 1.00	Not less than: 2.25 to 1.00	Not less than: 2.25 to 1.00
Fixed charge coverage ratio	10.00 to 1.00	Not less than: 1.20 to 1.00	Not less than: 1.20 to 1.00
Senior leverage ratio	0.70 to 1.00	Not greater than: 2.50 to 1.00	Not greater than: 2.50 to 1.00
Leverage ratio	4.63 to 1.00	Not greater than 8.00 to 1.00 March 1, 2007 — May 31, 2007;	Not greater than: 5.50 to 1.00
		Not greater than 7.50 to 1.00 June 1, 2007 — August 31, 2007;
		Not greater than 7.00 to 1.00 September 1, 2007 — November 30, 2007

     The Company was in compliance with its financial covenants as of May 31, 2007.

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10. Commitments and Contingencies

a. Legal proceedings

     The Company and its subsidiaries are subject to legal proceedings, including litigation in 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 to governmental investigations by state and federal agencies. The Company cannot predict the outcome of such proceedings with any degree of certainty. The Company accounts for litigation losses in accordance with SFAS No. 5 (SFAS 5), Accounting for Contingencies. Under SFAS 5, 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 the estimates are refined each quarterly reporting period, as additional information becomes known. Accordingly, the Company is often initially unable to develop a best estimate of loss, and therefore the minimum amount, which could be zero, is recorded. As information becomes known, either the minimum loss amount is increased, resulting in additional loss provisions, or a best estimate can be made, also resulting in additional loss provisions.

Groundwater Cases

     Aerojet and other defendants were sued by the Orange County Water District, a public entity with jurisdiction over groundwater resources and water supplies in Orange County, California: Orange County Water District v. Northrop Corporation, et al. Case No. O4CC00715, Orange County (CA) Superior Court, served December 29, 2004. The plaintiff alleges that groundwater in Orange County, California is contaminated with chlorinated solvents that were allegedly released to the environment by Aerojet and other industrial defendants causing it to incur unspecified response costs and other damages. The plaintiff seeks declaratory relief and recovery of past costs in connection with the investigation and remediation of groundwater resources. Discovery is ongoing. Trial is scheduled for March 2008. The Company also received a directive under California Water Code §13267 to investigate the groundwater contamination in and around its former Aerojet Manufacturing Company facility in Fullerton, CA. That investigation is ongoing.

     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 (SEMOU) of the San Gabriel Valley Superfund site. The cases are denominated as follows: The City of Monterey Park v. Aerojet-General Corporation, et al. , (CV-02-5909 ABC (RCx)); San Gabriel Basin Water Quality Authority v. Aerojet-General Corporation, et al. , (CV-02-4565 ABC (RCx)); San Gabriel Valley Water Company v. Aerojet-General Corporation, et al. , (CV-02-6346 ABC (RCx)), and Southern California Water Company v. Aerojet-General Corporation, et al. , (CV-02-6340 ABC (RCx)). 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, as more fully discussed below under the headings “San Gabriel Valley Basin, California Site” — “South El Monte Operable Unit (SEMOU).” The total cost estimate to implement projects under the 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 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 has 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 as well as discovery have been stayed, pending efforts to resolve the litigation through mediation.

     In December 2006, Aerojet was sued by eleven individual plaintiffs residing in the vicinity of Aerojet’s facilities near Sacramento, California. Haynes et al. v. Aerojet-General Corporation, Case No. O6AS04555, Sacramento County (CA) Superior Court (the Sacramento litigation). Additional claims added to the case bring the total number of plaintiffs to fifteen. The plaintiffs allege that Aerojet contaminated groundwater, which plaintiffs consumed causing illness, death and economic injury. Plaintiffs seek judgment against Aerojet for unspecified general, special and punitive damages. The Company has hired counsel and continues to assess this litigation.

Vinyl Chloride Litigation

     Between the early 1950s and 1985, the Company produced polyvinyl chloride (PVC) resin at its former Ashtabula, Ohio facility. PVC is one of the most common forms of plastic currently on the market. A building block compound of PVC is vinyl chloride (VC), now listed as a known carcinogen by several governmental agencies. The Occupational Safety and Health Administration (OSHA) have regulated workplace exposure to VC since 1974.

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Since the mid-1990s, the Company has been named in numerous cases involving alleged exposure to VC. In the majority of such cases, the Company is alleged to be a “supplier/manufacturer” of PVC and/or a civil co-conspirator with other VC and PVC manufacturers as a result of membership in a trade association. Plaintiffs generally allege that the Company and other defendants suppressed information about the carcinogenic risk of VC to industry workers, and placed VC or PVC into commerce without sufficient warnings. A few of these cases alleged VC exposure through various aerosol consumer products, in that VC had been used as an aerosol propellant during the 1960s. Defendants in these “aerosol” cases included numerous consumer product manufacturers, as well as the more than 30 chemical manufacturers. The Company used VC internally, but never supplied VC for aerosol or any other use.

     Of the cases that have been filed, the majority have been dismissed or settled on terms favorable to the Company. One of the six pending cases involves a former employee at the Company’s former Ashtabula, Ohio facility. All other pending cases involve employees at VC or PVC facilities owned or operated by others. One of the pending cases is an action seeking class action certification and a medical monitoring program for former employees at a PVC facility in New Jersey.

     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.

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 have been filed in Madison County, Illinois and San Francisco, California. Since 1998, more than 200 of these asbestos lawsuits have been resolved with the majority being dismissed. There were 152 asbestos cases pending as of May 31, 2007.

     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.

Snappon SA Wrongful Discharge Claims

     In November 2003, the Company announced the closing of a GDX Automotive 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 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. Snappon SA is vigorously defending these claims. The claims were heard in two groups. On April 11, 2006, the Labour Court rejected most of the claims of the first group of 44 former employees and held Snappon SA responsible for €12,000 (approximately $16,000) as damages. This first group of former employees has appealed this decision. After two hearings, the Labour Court dismissed the claims filed by the second group of 136 former employees, which group had claimed damages in excess of €12.7 million (approximately $16.9 million). No hearing date has been set for the remaining eight former employees who have brought wrongful discharge claims.

Other Legal Matters

     On August 31, 2004, the Company completed the sale of its GDX Automotive business (GDX) 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 has 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 is monitoring this situation to determine what potential liability, if any, the Company may have regarding this matter.

     The Company is 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 significant to the statement of operations in any particular reporting period.

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b. Environmental Matters

     The Company is involved in a number of environmental responses 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 United States Environmental Protection Agency (US EPA) or a state agency. 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 estimate environmental remediation costs that are beyond this fifteen year 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 contamination than expected, modification of planned remedial actions, changes in estimated time required to remediate, new technologies, changes in laws and regulations, and the discovery of new contaminants.

     As of May 31, 2007, the aggregate range of these anticipated environmental costs was $266 million to $476 million and the accrued amount was $269.0 million. See Note 10(c) for a summary of the environmental reserve activity for the second quarter of fiscal 2007. Of these accrued liabilities, approximately 61% relates to the Sacramento, California site and approximately 28% 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 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 US 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 US EPA issued a unilateral administrative order (UAO) requiring Aerojet to implement the US 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). Aerojet submitted its Final Draft Remedial Investigation/Feasibility Study for the Perimeter Groundwater Operable Unit to the US EPA and, because of additional sampling requirements, expects that a Final RI/FS will be submitted in late 2007 with a Record of Decision anticipated in 2008. The remaining operable units are under various stages of investigation.

     The southern portion of the property known as Rio Del Oro is under state orders issued in the 1990s by the California Department of Toxic Control (DTSC) and the Central Valley RWQCB to investigate and remediate environmental contamination. Aerojet leased this property to Douglas Aircraft for rocket assembly and testing from 1957 to 1961 and sold approximately 3,500 acres, including the formerly leased portion, to Douglas Aircraft in 1961. Aerojet reacquired the property from MDC, the successor to Douglas Aircraft in 1984. As a result, the state orders referenced above were issued to both MDC and Aerojet. Aerojet and MDC’s parent, Boeing, have entered into an allocation agreement, some of which is subject to reallocation that establishes lead roles and payment obligations. Aerojet and Boeing are actively remediating soil on portions of the property as well as on-site and off-site groundwater contamination. By letter of October 27, 2006, Boeing submitted notice to Aerojet that was initiating the reallocation arbitration process. Aerojet is currently working to release a significant portion of the property from the DTSC order.

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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 US EPA, primarily due to volatile organic compound (VOC) contamination in the area of the San Gabriel Valley Basin superfund site known as BPOU.

     Between 1995 and 1997, the US EPA issued Special Notice Letters to Aerojet and eighteen other companies requesting that they implement a groundwater remedy. Subsequently, additional contaminates were identified, namely: perchlorate, NDMA, and 1,4-dioxane. On June 30, 2000, the US EPA issued a UAO ordering the PRPs to implement a remedy consistent with the 1994 Record of Decision (ROD). 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 (WQA), the Main San Gabriel Basin Watermaster, and five water companies. The Project Agreement, which has a term of fifteen years, became effective on May 9, 2002. 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. Aerojet and the other Cooperating Respondents have 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. A significant amount of public funding is available to offset project costs. To date, Congress has appropriated approximately $71 million (so called Title 16 and Dreier funds), which is potentially available for payment of project costs. Approximately $40 million of the funding has been allocated to costs associated with the Project Agreement and additional funds may follow in later years. All project costs are subject to reallocation among the Cooperating Respondents. Aerojet intends to continue to defend itself vigorously to assure that it is appropriately treated with other PRPs and that costs of any remediation are properly allocated among all PRPs.

     As part of Aerojet’s sale of its Electronics and Information Systems (EIS) business to Northrop Grumman Corporation (Northrop) in October 2001, the US 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 (SEMOU)

     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 US 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 US 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 US 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 US EPA and the water entities is approximately $90 million. The Company is working diligently with the US 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.

     On November 17, 2005, Aerojet notified the Los Angeles RWQCB and the US 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.

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Other Sites

     The Company is currently involved in approximately 37 other environmental remediation actions or claims. 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.

c. 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 whose contractual terms are sufficiently specific to allow reasonable costs estimates to be developed beyond a fifteen year period. 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 the Company’s attorneys 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 is used. Accordingly, such estimates could change as the Company periodically evaluates and revises such estimates as new information becomes available. Management cannot predict whether new information gained as projects progress will affect the estimated liability accrued. The timing of payment for estimated future environmental costs depends on the timing of regulatory approvals for planned remedies and the construction and completion of the remedies.

     A summary of the Company’s environmental reserve activity is shown below:

	November 30,		2007		2007			May 31,
	2006		Additions		Expenditures			2007
			(in millions)
Aerojet	$	256.5	$	23.5	$	(20.1	)	$	259.9
Other Sites		9.5		0.4		(0.8	)		9.1
Environmental Reserve	$	266.0	$	23.9	$	(20.9	)	$	269.0

     As of May 31, 2007, the Aerojet reserves include $164.9 million for the Sacramento site, $74.5 million for BPOU, and $20.5 million for other Aerojet sites.

     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 believes, on the basis of presently available information, that the resolution of environmental matters and the Company’s obligations for environmental remediation and compliance will not have a material adverse effect on the Company’s results of operations, liquidity, or financial condition. The Company will continue its efforts to mitigate past and future costs through pursuit of claims for recoveries from insurance coverage and other PRPs, along with continued investigation of new and more cost effective remediation alternatives and technologies.

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. 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, 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

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depends on Aerojet’s sustained business volume under U.S. government contracts and programs and the relative size of Aerojet’s commercial business.

     In conjunction with the sale of EIS, Aerojet entered into an agreement with Northrop whereby Aerojet is reimbursed by Northrop for a portion of environmental expenditures eligible for recovery under the Global Settlement. Amounts reimbursed are subject to annual limitations, with excess amounts carried over to subsequent periods, the total of which will not exceed $190 million over the term of the agreement, which ends in 2028. As of May 31, 2007, $137.5 million in potential future reimbursements were available over the remaining life of the agreement.

     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 million of costs (Pre-Close Environmental Costs) associated with environmental issues that arose prior to Aerojet’s acquisition of the ARC propulsion business, of which $14.5 million remains as of May 31, 2007. Pursuant to a separate agreement with the U.S. government which was entered into prior to the closing of the ARC acquisition, these Pre-Close Environmental Costs are treated under the normal rules of cost allowability and 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.

     As a result of the ARC acquisition, Aerojet signed a Memorandum of Understanding with the U.S. government agreeing to key assumptions and conditions that preserved the original methodology used in recalculating the percentage split between Aerojet and Northrop. Aerojet presented a proposal to the U.S. government based on the Memorandum of Understanding and expects to complete an agreement in the near term.

     In conjunction with the review of its environmental reserves discussed above, the Company revised its estimate of costs that will be recovered under the Global Settlement based on business expected to be conducted under contracts with the U.S. government and its agencies in the future. In the first half of fiscal 2007, the increase to the reserve of $23.9 million resulted in a corresponding increase to the receivable and a charge to operations of $3.1 million. The expenses and benefits associated with adjustments to the environmental reserves are recorded as a component of other (income) expense, net in the Unaudited Condensed Consolidated Statements of Operations.

d. Conditional Asset Retirement Obligations

     Effective November 30, 2006, the Company adopted FASB Interpretation No. 47 (FIN 47), Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143, Accounting for Asset Retirement Obligations. FIN 47 requires that the fair value of a liability for a conditional asset retirement obligation be recognized in the period in which it is incurred and the settlement date is estimable, and is capitalized as part of the carrying amount of the related tangible long-lived asset.

     The Company performed an analysis of such obligations associated with all real property owned or leased, including plants, warehouses, and offices. The Company’s estimate of conditional asset retirement obligations associated with owned properties relate to costs estimated to be necessary for the legally required removal or remediation of various regulated materials, primarily asbestos disposal and radiological decontamination of an ordnance manufacturing facility. For conditional asset retirement obligations that are not expected to be retired in the next fifteen years, the Company estimated the retirement date of such asset retirement obligations to be thirty years from the date of adoption. For leased properties, such obligations relate to the estimated cost of contractually required property restoration.

     The initial application of FIN 47 as of November 30, 2006 resulted in the Company recording conditional asset retirement obligations in the amount of $10.2 million, which is a component of other noncurrent liabilities on the Unaudited Condensed Consolidated Balance Sheet. Of this amount, $1.4 million was recorded as an incremental cost of the underlying property, plant and equipment, less $0.8 million of accumulated depreciation. The Company also recorded an asset of $8.4 million which represents the amount of the conditional asset retirement obligation that is estimated to be recoverable under U.S. government contracts. As of November 30, 2006, the cumulative effect related to the accretion of the liability and depreciation of the asset net of the amount recoverable under U.S. government contracts was $1.2 million, all attributable to the Aerospace and Defense segment.

     The impact to the Unaudited Condensed Consolidated Statement of Operations for the first half of fiscal 2006 adjusted for the adoption of FIN 47, net of the amount estimated to be recovered under U.S. government contracts, would have been less than $0.1 million.

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     The changes in the carrying amount of conditional asset retirement obligations since November 30, 2006 were as follows (in millions):

Balance as of November 30, 2006	$	10.2
Additions and other		0.2
Accretion		0.4
Balance as of May 31, 2007	$	10.8

11. Arrangements with Off-Balance Sheet Risk

     As of May 31, 2007, obligations required to be disclosed in accordance with FASB Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others, consisted of:

     — $72.4 million in outstanding commercial letters of credit expiring in 2007 and 2008, the majority of which may be renewed, and securing 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.

     — 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 from time to time enters into certain types of contracts that require the Company to indemnify parties against third-party and other claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnification to purchasers of the Company’s 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 Company’s use of the applicable premises; and, (iii) certain agreements with the Company’s 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. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated.

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 in accordance with SFAS 5. 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 American Institute of Certified Public Accountants Statement of Position No. 81-1, Accounting for Performance of Construction-Type and Certain Production Type Contracts, for that particular contract.

12. Retirement Benefits

     Pension Benefits — As of May 31, 2007, the Company has a defined benefit pension plan covering substantially all salaried and hourly employees. Normal retirement age is 65, but certain plan provisions allow for earlier retirement. Pension benefits are calculated under formulas based on average earnings and length of service for salaried employees and under negotiated non-wage based formulas for hourly employees.

     Postretirement Medical and Life Benefits — The Company provides medical and life insurance benefits (postretirement benefits) to certain eligible retired employees, with varied coverage by employee group. Medical and life benefit obligations are unfunded.

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     Components of net periodic retirement benefit plan (income) expense for continuing operations are as follows:

	Pension Benefits						Postretirement Benefits
	Three months ended
	May 31,			May 31,			May 31,			May 31,
	2007			2006			2007			2006
	(in millions)
Service cost	$	4.3		$	4.6		$	0.1		$	0.1
Interest cost on benefit obligation		24.0			28.2			1.3			1.4
Assumed return on plan assets		(30.7	)		(34.8	)		—			—
Amortization of unrecognized prior service costs (credits)		0.5			0.5			—			(0.8	)
Amortization of unrecognized net (gains) losses		7.5			13.2			(1.7	)		(1.6	)
Net periodic retirement benefit plan (income) expense	$	5.6		$	11.7		$	(0.3	)	$	(0.9	)

	Pension Benefits						Postretirement Benefits
	Six months ended
	May 31,			May 31,			May 31,			May 31,
	2007			2006			2007			2006
	(in millions)
Service cost	$	8.6		$	9.1		$	0.2		$	0.2
Interest cost on benefit obligation		48.1			56.4			2.7			2.9
Assumed return on plan assets		(61.4	)		(69.5	)		—			—
Amortization of unrecognized prior service costs (credits)		1.0			1.1			(0.1	)		(1.6	)
Amortization of unrecognized net (gains) losses		14.9			26.4			(3.4	)		(3.2	)
Net periodic retirement benefit plan (income) expense	$	11.2		$	23.5		$	(0.6	)	$	(1.7	)

13. Discontinued Operations

  Turbo Product Line

     During the third quarter of fiscal 2006, the Company classified its Turbo product line as a discontinued operation as a result of its plans to sell the product line. The product line was not core to the Aerospace and Defense segment and required increased management oversight and costs because of increased competition and investments for on-going maintenance of the product line. On November 17, 2006, the Company completed the sale of its Turbo product line to Aerosource Inc. for $1.1 million, subject to adjustment. The loss on the sale of the Turbo product line during fiscal 2006 was $0.4 million. An additional loss of $0.1 million was recorded in the first half of fiscal 2007 to reflect the net assets of the Turbo product line and management’s estimate of the net proceeds from the sale. For operating segment reporting, the Turbo product line was previously reported as a part of the Aerospace and Defense segment.

  Fine Chemicals business

     On November 30, 2005, the Company sold its Fine Chemicals business to American Pacific Corporation (AMPAC) for $88.5 million of cash paid at closing, an unsecured subordinated seller note of $25.5 million delivered at closing, an earn-out provision of up to $6.0 million contingent upon the business’ achieving certain earnings targets, and the assumption by the buyer of certain liabilities. The Company recorded a full allowance on both the $25.5 million unsecured subordinated seller note in fiscal 2005 and $6.0 million earnings targets receivable in fiscal 2006. During the first quarter of fiscal 2007, the Company entered into an earn-out and seller note repayment agreement (Repayment Agreement) with AMPAC under which AMPAC was required to pay $29.7 million in consideration for the early retirement of the seller note (including interest due thereunder), the full payment of the earn-out amount and the release of the Company from certain liabilities. During the first quarter of fiscal 2007, the Company recorded a gain from discontinued operations of $31.2 million as a result of receiving $29.7 million of cash from AMPAC and being released from certain liabilities in accordance with the Repayment Agreement.

  GDX Automotive business

     In November 2003, the Company announced the closing of a GDX manufacturing facility in Chartres, France. The decision resulted primarily from declining sales volumes with French automobile manufacturers. In June 2004, the Company 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 in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. An expense of $1.0 million was recorded during fiscal 2005 primarily related to employee social costs that became

19

estimable in fiscal 2005. The Company has not yet recorded expenses associated with other social benefits due to the uncertainty of these costs which could total up to a pre-tax expense of $2.0 million and may be incurred within the next few years.

     Summarized financial information for discontinued operations is set forth below:

	Three months ended May 31,						Six months ended May 31,
	2007			2006			2007		2006
	(in millions)
Net sales	$	—		$	0.2		$	—	$	0.6
Income (loss) before income taxes		(0.7	)		0.2			30.2		(0.7	)
Income tax provision (benefit)		—			(2.9	)		0.3		(2.8	)
Net income (loss) from discontinued operations		(0.7	)		3.1			29.9		2.1

     As of May 31, 2007 and November 30, 2006, the components of assets and liabilities of discontinued operations in the consolidated balance sheets are as follows:

	May 31,		November 30,
	2007		2006
	(in millions)
Assets of discontinued operations, consisting of other assets	$	0.1	$	0.5
Accounts payable	$	0.4	$	0.6
Other liabilities		0.8		1.2
Liabilities of discontinued operations	$	1.2	$	1.8

14. 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 Company evaluates it 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. Excluded from segment performance are: corporate income and expenses, legacy income or expenses, provisions for unusual items not related to the segment, interest expense, interest income, and income taxes.

     Customers that represented more than 10% of net sales for the periods presented are as follows:

	Three months ended May 31,						Six months ended May 31,
	2007			2006			2007			2006
Lockheed Martin		35	%		41	%		36	%		40	%
Raytheon		30	%		18	%		26	%		18	%
Boeing		*			12	%		*			11	%

* Less than 10% of net sales

     Sales during the three and six months ended May 31, 2007 directly and indirectly to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, totaled 91% and 90% of net sales, respectively. Sales during the three and six months ended May 31, 2006, directly and indirectly to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, totaled 79% and 80% of net sales, respectively.

20

     Selected financial information for each reportable segment is as follows:

	Three months ended May 31,						Six months ended May 31,
	2007			2006			2007			2006
	(in millions)
Net Sales:
Aerospace and Defense	$	190.7		$	165.5		$	339.8		$	292.3
Real Estate		1.6			1.7			3.3			3.2
Total Net Sales	$	192.3		$	167.2		$	343.1		$	295.5
Segment Performance:
Aerospace and Defense	$	29.4		$	17.2		$	43.7		$	25.5
Environmental remediation provision adjustments		(1.5	)		(0.4	)		(2.7	)		(0.6	)
Retirement benefit plan expense		(6.0	)		(8.7	)		(11.9	)		(17.4	)
Unusual items — unrecoverable portion of settlements and reserves for legal matters		(2.6	)		(8.5	)		(2.6	)		(8.5	)
Aerospace and Defense Total		19.3			(0.4	)		26.5			(1.0	)
Real Estate		0.6			0.8			1.4			1.6
Total Segment Performance	$	19.9		$	0.4		$	27.9		$	0.6
Reconciliation of segment performance to income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle:
Segment performance	$	19.9		$	0.4		$	27.9		$	0.6
Interest expense		(7.0	)		(6.4	)		(14.2	)		(12.7	)
Interest income		1.3			0.5			2.5			1.0
Corporate and other expenses		(5.3	)		(6.8	)		(9.6	)		(12.6	)
Corporate retirement benefit plan income (expense)		0.7			(2.1	)		1.3			(4.4	)
Income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle	$	9.6		$	(14.4	)	$	7.9		$	(28.1	)

15. Unusual Items

     In the first half of fiscal 2007, the Company recorded a charge of $2.6 million related to estimated costs associated with legal matters. In the second quarter of fiscal 2006, the Company recorded a charge of $8.5 million related to an agreement to settle a group of environmental toxic tort cases that had been pending in Sacramento Superior Court since 1997.

16. 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. The wholly 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 secured indebtedness of the subsidiary guarantor with respect to the assets securing 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 wholly 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.

21

Condensed Consolidating Statements of Operations
(Unaudited)

				Guarantor		Non-guarantor
Three Months Ended May 31, 2007 (in millions)	Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	192.3	$	—	$	—		$	192.3
Cost of products sold		—			163.3		—		—			163.3
Selling, general and administrative		1.3			2.4		—		—			3.7
Depreciation and amortization		0.5			6.4		—		—			6.9
Interest expense		6.2			0.8		—		—			7.0
Other, net		(1.0	)		2.8		—		—			1.8
Income (loss) from continuing operations before income taxes		(7.0	)		16.6		—		—			9.6
Income tax (benefit) provision		(11.3	)		7.7		—		—			(3.6	)
Income from continuing operations		4.3			8.9		—		—			13.2
Loss from discontinued operations		(0.7	)		—		—		—			(0.7	)
Income before equity income of subsidiaries		3.6			8.9		—		—			12.5
Equity earnings of subsidiaries		8.9			—		—		(8.9	)		—
Net income	$	12.5		$	8.9	$	—	$	(8.9	)	$	12.5

				Guarantor			Non-guarantor
Three Months Ended May 31, 2006 (in millions)	Parent			Subsidiaries			Subsidiaries		Eliminations		Consolidated
Net sales	$	—		$	167.2		$	—	$	—	$	167.2
Cost of products sold		—			151.4			—		—		151.4
Selling, general and administrative		4.6			3.2			—		—		7.8
Depreciation and amortization		0.5			6.1			—		—		6.6
Interest expense		5.3			1.1			—		—		6.4
Other, net		(0.1	)		9.5			—		—		9.4
Loss from continuing operations before income taxes		(10.3	)		(4.1	)		—		—		(14.4	)
Income tax (benefit) provision		(7.0	)		3.0			—		—		(4.0	)
Loss from continuing operations		(3.3	)		(7.1	)		—		—		(10.4	)
Income from discontinued operations		3.1			—			—		—		3.1
Loss before equity loss of subsidiaries		(0.2	)		(7.1	)		—		—		(7.3	)
Equity losses of subsidiaries		(7.1	)		—			—		7.1		—
Net loss	$	(7.3	)	$	(7.1	)	$	—	$	7.1	$	(7.3	)

22

				Guarantor		Non-guarantor
Six Months Ended May 31, 2007 (in millions)	Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	343.1	$	—	$	—		$	343.1
Cost of products sold		—			298.3		—		—			298.3
Selling, general and administrative		1.9			4.8		—		—			6.7
Depreciation and amortization		1.1			12.3		—		—			13.4
Interest expense		12.7			1.5		—		—			14.2
Other, net		(2.1	)		4.7		—		—			2.6
Income (loss) from continuing operations before income taxes		(13.6	)		21.5		—		—			7.9
Income tax (benefit) provision		(11.5	)		8.3		—		—			(3.2	)
Income (loss) from continuing operations		(2.1	)		13.2		—		—			11.1
Income from discontinued operations		29.9			—		—		—			29.9
Income before equity income of subsidiaries		27.8			13.2		—		—			41.0
Equity earnings of subsidiaries		13.2			—		—		(13.2	)		—
Net income	$	41.0		$	13.2	$	—	$	(13.2	)	$	41.0

				Guarantor			Non-guarantor
Six Months Ended May 31, 2006 (in millions)	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net sales	$	—		$	295.5		$	—		$	—	$	295.5
Cost of products sold		—			272.7			—			—		272.7
Selling, general and administrative		10.2			5.6			—			—		15.8
Depreciation and amortization		1.0			12.1			—			—		13.1
Interest expense		10.6			2.1			—			—		12.7
Other, net		(0.7	)		10.0			—			—		9.3
Loss from continuing operations before income taxes and cumulative effect of a change in accounting principle		(21.1	)		(7.0	)		—			—		(28.1	)
Income tax (benefit) provision		(12.2	)		8.8			—			—		(3.4	)
Loss from continuing operations before the cumulative effect of a change in accounting principle		(8.9	)		(15.8	)		—			—		(24.7	)
Income (loss) from discontinued operations		2.3			(0.1	)		(0.1	)		—		2.1
Cumulative effect of a change in accounting principle, net of income taxes		(0.7	)		—			—			—		(0.7	)
Loss before equity losses of subsidiaries		(7.3	)		(15.9	)		(0.1	)		—		(23.3	)
Equity losses of subsidiaries		(16.0	)		—			—			16.0		—
Net loss	$	(23.3	)	$	(15.9	)	$	(0.1	)	$	16.0	$	(23.3	)

23

Condensed Consolidating Balance Sheets
(Unaudited)

				Guarantor			Non-guarantor
May 31, 2007 (In millions):	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	88.9		$	(6.5	)	$	0.5		$	—		$	82.9
Accounts receivable		—			86.1			—			—			86.1
Inventories		—			71.0			—			—			71.0
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			38.3			—			—			38.3
Prepaid expenses and other		1.7			11.4			0.4			—			13.5
Assets of discontinued operations		0.4			—			(0.3	)		—			0.1
Total current assets		91.0			200.3			0.6			—			291.9
Property, plant and equipment, net		0.5			133.8			—			—			134.3
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			179.7			—			—			179.7
Prepaid pension asset		116.9			59.9			—			—			176.8
Goodwill		—			101.3			—			—			101.3
Intercompany (payable) receivable, net		17.5			(2.6	)		(14.9	)		—			—
Other noncurrent assets and intangibles, net		274.4			133.2			9.8			(268.2	)		149.2
Total assets	$	500.3		$	805.6		$	(4.5	)	$	(268.2	)	$	1,033.2
Short-term borrowings and current portion of long-term debt	$	2.3		$	—		$	—		$	—		$	2.3
Accounts payable		0.2			21.9			—			—			22.1
Reserves for environmental remediation costs		4.9			53.1			—			—			58.0
Income taxes payable (receivable)		(15.8	)		24.5			—			—			8.7
Other current liabilities, advanced payments on contracts, and postretirement medical and life benefits		25.1			122.6			—			—			147.7
Liabilities of discontinued operations		—			—			1.2			—			1.2
Total current liabilities		16.7			222.1			1.2			—			240.0
Long-term debt		442.4			—			—			—			442.4
Reserves for environmental remediation costs		4.2			206.8			—			—			211.0
Other noncurrent liabilities		86.7			102.8			—			—			189.5
Total liabilities		550.0			531.7			1.2			—			1,082.9
Commitments and contingencies (Note 10)
Total shareholders’ (deficit) equity		(49.7	)		273.9			(5.7	)		(268.2	)		(49.7	)
Total liabilities and shareholders’ (deficit) equity	$	500.3		$	805.6		$	(4.5	)	$	(268.2	)	$	1,033.2

24

				Guarantor			Non-guarantor
November 30, 2006 (In millions):	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	70.5		$	(9.8	)	$	0.5		$	—		$	61.2
Restricted cash		19.8			—			—			—			19.8
Accounts receivable		—			71.1			—			—			71.1
Inventories		—			69.5			—			—			69.5
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			37.6			—			—			37.6
Prepaid expenses and other		3.7			19.6			0.2			—			23.5
Assets of discontinued operations		—			—			0.5			—			0.5
Total current assets		94.0			188.0			1.2			—			283.2
Property, plant and equipment, net		0.5			136.3			—			—			136.8
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			177.0			—			—			177.0
Prepaid pension asset		116.6			70.7			—			—			187.3
Goodwill		—			101.3			—			—			101.3
Intercompany (payable) receivable, net		(434.2	)		448.7			(14.5	)		—			—
Other noncurrent assets and intangibles, net		713.6			126.0			9.8			(713.6	)		135.8
Total assets	$	490.5		$	1,248.0		$	(3.5	)	$	(713.6	)	$	1,021.4
Short-term borrowings and current portion of long-term debt	$	21.3		$	—		$	—		$	—		$	21.3
Accounts payable		0.6			32.0			—			—			32.6
Reserves for environmental remediation costs		4.9			50.7			—			—			55.6
Income taxes payable (receivable)		(4.4	)		16.6			—			—			12.2
Other current liabilities, advanced payments on contracts, and postretirement medical and life benefits		27.2			128.5			—			—			155.7
Liabilities of discontinued operations		—			—			1.8			—			1.8
Total current liabilities		49.6			227.8			1.8			—			279.2
Long-term debt		441.1			—			—			—			441.1
Reserves for environmental remediation costs		4.6			205.8			—			—			210.4
Other noncurrent liabilities		91.2			95.5			—			—			186.7
Total liabilities		586.5			529.1			1.8			—			1,117.4
Commitments and contingencies (Note 10)
Total shareholders’ (deficit) equity		(96.0	)		718.9			(5.3	)		(713.6	)		(96.0	)
Total liabilities and shareholders’ (deficit) equity	$	490.5		$	1,248.0		$	(3.5	)	$	(713.6	)	$	1,021.4

25

Condensed Consolidating Statements of Cash Flows
(Unaudited)

				Guarantor			Non-guarantor
Six Months Ended May 31, 2007 (in millions):	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash used in (provided by) operating activities	$	(17.6	)	$	15.8		$	(0.5	)	$	—	$	(2.3	)
Cash flows from investing activities:
Proceeds from business disposition		29.7			—			—			—		29.7
Other investing activities		19.8			—			—			—		19.8
Capital expenditures		—			(5.7	)		—			—		(5.7	)
Net cash provided by (used in) investing activities		49.5			(5.7	)		—			—		43.8
Cash flows from financing activities:
Net transfers (to) from parent		6.3			(6.8	)		0.5			—		—
Repayments on notes payable and long-term debt, net		(20.5	)		—			—			—		(20.5	)
Other financing activities		0.7			—			—			—		0.7
Net cash (used in) provided by financing activities		(13.5	)		(6.8	)		0.5			—		(19.8	)
Net increase in cash and cash equivalents		18.4			3.3			—			—		21.7
Cash and cash equivalents at beginning of period		70.5			(9.8	)		0.5			—		61.2
Cash and cash equivalents at end of period	$	88.9		$	(6.5	)	$	0.5		$	—	$	82.9

				Guarantor			Non-guarantor
Six Months Ended May 31, 2006 (in millions):	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash used in operating activities	$	(30.6	)	$	(17.4	)	$	(1.3	)	$	—	$	(49.3	)
Cash flows from investing activities:
Capital expenditures		—			(5.5	)		—			—		(5.5	)
Net cash used in investing activities		—			(5.5	)		—			—		(5.5	)
Cash flows from financing activities:
Net transfers (to) from parent		(18.3	)		18.7			(0.4	)		—		—
Repayments on notes payable and long-term debt, net		(1.5	)		—			—			—		(1.5	)
Other financing activities		3.3			0.2			—			—		3.5
Net cash (used in) provided by financing activities		(16.5	)		18.9			(0.4	)		—		2.0
Net decrease in cash and cash equivalents		(47.1	)		(4.0	)		(1.7	)		—		(52.8	)
Cash and cash equivalents at beginning of period		97.3			(8.5	)		2.9			—		91.7
Cash and cash equivalents at end of period	$	50.2		$	(12.5	)	$	1.2		$	—	$	38.9

17. Subsequent Events

     On June 21, 2007, the Company entered into an amended and restated $280.0 million credit facility (Amended Senior Credit Facility) with Wachovia Bank, National Association as Administrative Agent, JP Morgan Chase Bank, N.A. as Syndication Agent, and a syndicate of lenders. The Amended Senior Credit Facility provides for an $80.0 million revolving credit facility maturing on June 21, 2012, and a $200.0 million credit-linked facility maturing on April 15, 2013. The credit-linked facility consists of a $75.0 million term loan subfacility and a $125.0 million letter of credit subfacility. The interest rate on the revolving credit facility is LIBOR plus 225 basis points, subject to adjustment downwards if leverage is reduced, and the interest rate on the term loan is LIBOR plus 225 basis points. Letters of credit under the credit-linked facility will be charged a fee of 225 basis points per annum plus a fronting fee of 10 basis points per annum plus other customary charges applicable to facilities of this type. The revolver has an unused commitment fee of 50 basis points per annum, subject to adjustment downwards if leverage is reduced.

     The Amended Senior Credit Facility is secured 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.

     The Company is also subject to maximum total leverage and minimum interest coverage covenants throughout the term of the facility commencing with the period ending August 31, 2007 and measured at each fiscal quarter end through the maturity of the facility. For fiscal 2007 through 2009 the financial covenants are: a maximum total leverage ratio of 5.75 to 1.0 and a minimum interest coverage ratio of 2.25 to 1.00. As of May 31, 2007, the Company met the financial covenants on a pro forma basis. The

26

financial covenants in the Amended Senior Credit Facility have different definitions than those in the existing Senior Credit Facility and are not directly comparable.

     The Amended Senior Credit Facility replaced the existing Senior Credit Facility on June 21, 2007. The Company is currently evaluating the impact of the replacement of the existing Senior Credit Facility and expects to record a charge in the third quarter of fiscal 2007.

27

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

     Unless otherwise indicated or required by the context, as used in this Quarterly Report on Form 10-Q, 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.

     The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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. In addition, our operating results for interim periods may not be indicative of the results of operations for a full year. This section contains a number of forward-looking statements, all of which are based on current expectations and are subject to risks and uncertainties including those described in this Quarterly Report under the heading “Forward-Looking Statements.” Actual results may differ materially. This section should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended November 30, 2006, and periodic reports subsequently filed with the U.S. Securities and Exchange Commission (SEC).

Overview

     We are a technology-based 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-General Corporation, or Aerojet, which develops and manufactures propulsion systems for defense and space applications, armament systems for precision tactical weapon systems and munitions applications. We are one of the largest providers of propulsion systems in the United States and the only company that provides both Solid and Liquid propellant based systems. Primary customers served include major prime contractors to the United States (U.S.) government, the Department of Defense, and the National Aeronautics and Space Administration.

     Real Estate — includes activities related to the re-zoning, entitlement, sale, and leasing of our excess real estate assets. Through our Aerojet subsidiary, we own approximately 12,600 acres of land adjacent to U.S. Highway 50 between Rancho Cordova and Folsom, California just 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. We have filed applications with and submitted information to governmental and regulatory authorities for approvals necessary to re-zone over 6,400 acres of the Sacramento Land.

     On August 31, 2004, we completed the sale of our GDX Automotive (GDX) business. On November 30, 2005, we completed the sale of our Fine Chemicals business. On November 17, 2006, we completed the sale of our Turbo product line. The GDX and Fine Chemicals businesses and the Turbo product line are classified as discontinued operations in these Unaudited Condensed Consolidated Financial Statements and Notes to Unaudited Condensed Consolidated Financial Statements (see Note 13 of the Unaudited Condensed Consolidated Financial Statements).

     In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarified the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for us as of December 1, 2007. We have not determined the effect, if any, the adoption of FIN 48 will have on our results of operations or financial position.

     In September 2006, the FASB issued SFAS No. 158 (SFAS 158), Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements Nos. 87, 88, 106, and 132(R), which requires companies to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability on its balance sheet and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. SFAS 158 is effective as of November 30, 2007. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, which is effective as of November 30, 2009. Based on the current discount rate and expected rate of return assumptions, we estimate the adoption of SFAS 158 in the fourth quarter of fiscal 2007 will increase our shareholders’ deficit by approximately $8 million to $58 million. Due to the valuation allowance on our net deferred tax assets, no net tax benefit would result from this increase to the postretirement liability.

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     In February 2007, the FASB issued SFAS No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. SFAS 159 permits entities to choose to measure many financial instruments at fair value that are not currently required to be measured at fair value. It also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. We do not anticipate that the adoption of SFAS 159 will have a significant effect on our financial position or results of operations.

Business Outlook

     Aerospace and Defense — Overall, sales are anticipated to grow during the second half of fiscal 2007 compared to fiscal 2006, with awards in space exploration and solid booster motors for missile defense and tactical missiles driving the growth.

     Real Estate — We continue to work with governmental authorities to effect entitlement changes and to lift environmental restrictions for approximately 6,400 acres of the Sacramento Land as soon as practicable. In conjunction with these efforts, we will continue to explore real estate structures (or transactions) that may further enhance the value of our real estate assets, including outright sales, and/or joint ventures with real estate developers, residential builders or other third parties.

     Other — We believe it is reasonably possible there will be a favorable adjustment to the tax reserve of $8.0 to $10.0 million in the third quarter of fiscal 2007.

Results of Operations

Net Sales:

	Three months ended						Six months ended
	May 31,		May 31,				May 31,		May 31,
	2007		2006		Change*		2007		2006		Change*
	(in millions)
Net Sales	$	192.3	$	167.2	$	25.1	$	343.1	$	295.5	$	47.6

* Primary reason for change. The increase in sales during the second quarter and first half of fiscal 2007 is primarily the result of higher sales on numerous space and defense programs including Standard Missile, Orion, and Titan.

     Customers that represented more than 10% of net sales for the periods presented are as follows:

	Three months ended May 31,						Six months ended May 31,
	2007			2006			2007			2006
Lockheed Martin		35	%		41	%		36	%		40	%
Raytheon		30	%		18	%		26	%		18	%
Boeing		*			12	%		*			11	%

* Less than 10% of net sales

     Sales during the three and six months ended May 31, 2007 directly and indirectly to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, totaled 91% and 90% of net sales, respectively. Sales during the three and six months ended May 31, 2006, directly and indirectly to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, totaled 79% and 80% of net sales, respectively.

Cost of Products Sold:

	Three months ended								Six months ended
	May 31,			May 31,					May 31,			May 31,
	2007			2006			Change*		2007			2006			Change*
	(in millions, except percentage amounts)
Cost of products sold	$	163.3		$	151.4		$	11.9	$	298.3		$	272.7		$	25.6
Percentage of net sales		85	%		91	%				87	%		92	%

* Primary reason for change. The decrease in costs of products sold as a percentage of net sales was primarily due to the following: (i) high margin contribution on the Titan program as the result of favorable performance on close-out activities; and (ii) lower

29

retirement benefit plan expenses as a result of an increase in the discount rate used to determine benefit obligations, due to higher market interest rates, and a reduction in the impact of amortizing prior year actuarial losses.

Selling, General and Administrative (SG&A):

	Three months ended									Six months ended
	May 31,			May 31,						May 31,			May 31,
	2007			2006			Change*			2007			2006			Change*
	(in millions, except percentage amounts)
Selling, General and Administrative	$	3.7		$	7.8		$	(4.1	)	$	6.7		$	15.8		$	(9.1	)
Percentage of net sales		2	%		5	%					2	%		5	%

* Primary reason for change. The decrease in SG&A spending is primarily due to the following: (i) a decrease in retirement benefit plan expenses as a result of an increase in the discount rate used to determine benefit obligations, due to higher market interest rates, and a reduction in the impact of amortizing prior year actuarial losses; and (ii) higher expenses associated with the annual election of the Board of Directors in fiscal 2006.

Depreciation and Amortization:

	Three months ended								Six months ended
	May 31,			May 31,					May 31,			May 31,
	2007			2006			Change*		2007			2006			Change*
	(in millions, except percentage amounts)
Depreciation and amortization	$	6.9		$	6.6		$	0.3	$	13.4		$	13.1		$	0.3
Percentage of net sales		4	%		4	%				4	%		4	%

* Primary reason for change. Depreciation and amortization expense was essentially unchanged for all periods presented.

Interest Expense:

	Three months ended						Six months ended
	May 31,		May 31,				May 31,		May 31,
	2007		2006		Change*		2007		2006		Change*
					(in millions)
Interest expense	$	7.0	$	6.4	$	0.6	$	14.2	$	12.7	$	1.5

* Primary reason for change. The increase is primarily due to higher average debt and letters of credit levels during fiscal 2007 compared to fiscal 2006.

Interest Income:

	Three months ended									Six months ended
	May 31,			May 31,						May 31,			May 31,
	2007			2006			Change*			2007			2006			Change*
							(in millions)
Interest income	$	(1.3	)	$	(0.5	)	$	(0.8	)	$	(2.5	)	$	(1.0	)	$	(1.5	)

* Primary reason for change. The increase is primarily due to higher average cash levels and rates during fiscal 2007 compared to fiscal 2006.

Unusual items:

	Three months ended							Six months ended
	May 31,		May 31,					May 31,		May 31,
	2007		2006		Change*			2007		2006		Change*
					(in millions)
Unusual items	$	2.6	$	8.5	$	(5.9	)	$	2.6	$	8.5	$	(5.9	)

* Primary reason for change. In the first half of fiscal 2007, the Company recorded a charge of $2.6 million related estimated costs associated with legal matters. In the second quarter of fiscal 2006, we recorded a charge of $8.5 million related to an agreement to settle a group of environmental toxic tort cases that had been pending in Sacramento Superior Court since 1997.

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Income Tax Benefit:

	Three months ended								Six months ended
	May 31,			May 31,					May 31,			May 31,
	2007			2006			Change*		2007			2006			Change*
							(in millions)
Income tax benefit	$	(3.6	)	$	(4.0	)	$	0.4	$	(3.2	)	$	(3.4	)	$	0.2

* Primary reason for change. The difference between book earnings at the statutory rate and the income tax benefit reflected is primarily due to an increase in fiscal 2007 and a decrease in fiscal 2006 in the valuation allowance on the deferred taxes. The income tax benefit in the first half of fiscal 2007 and fiscal 2006 is primarily related to the fiscal forecasted tax net operating loss eligible for carryback refunds for each respective fiscal year.

Discontinued Operations:

  Turbo Product Line

     During the third quarter of fiscal 2006, we classified our Turbo product line as a discontinued operation as a result of our plans to sell the product line. The product line was not core to the Aerospace and Defense segment and required increased management oversight and costs because of increased competition and investments for on-going maintenance of the product line. On November 17, 2006, we completed the sale of our Turbo product line to Aerosource Inc. for $1.1 million, subject to adjustment. The loss on the sale of the Turbo product line during fiscal 2006 was $0.4 million. An additional loss of $0.1 million was recorded in the first half of fiscal 2007 to reflect the net assets of the Turbo product line and management’s estimate of the net proceeds from the sale.

  Fine Chemicals business

     On November 30, 2005, we sold our Fine Chemicals business to American Pacific Corporation (AMPAC) for $88.5 million of cash paid at closing, an unsecured subordinated seller note of $25.5 million delivered at closing, an earn-out provision of up to $6.0 million contingent upon the business’ achieving certain earnings targets, and the assumption by the buyer of certain liabilities. We recorded a full allowance on both the $25.5 million unsecured subordinated seller note in fiscal 2005 and $6.0 million earnings targets receivable in fiscal 2006. During the first quarter of fiscal 2007, we entered into an earn-out and seller note repayment agreement (Repayment Agreement) with AMPAC under which AMPAC was required to pay $29.7 million in consideration for the early retirement of the seller note (including interest due thereunder), the full payment of the earn-out amount and the release of the Company from certain liabilities. During the first quarter of fiscal 2007, we recorded a gain from discontinued operations of $31.2 million as a result of receiving $29.7 million of cash from AMPAC and being released from certain liabilities in accordance with the Repayment Agreement.

  GDX Automotive business

     In November 2003, we announced the closing of a GDX manufacturing facility in Chartres, France. 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 in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. An expense of $1.0 million was recorded during fiscal 2005 primarily related to employee social costs that became estimable in fiscal 2005. We have not yet recorded expenses associated with other social benefits due to the uncertainty of these costs which could total up to a pre-tax expense of $2.0 million and may be incurred within the next few years.

     Summarized financial information for discontinued operations is set forth below:

	Three months ended May 31,						Six months ended May 31,
	2007			2006			2007		2006
	(in millions)
Net sales	$	—		$	0.2		$	—	$	0.6
Income (loss) before income taxes		(0.7	)		0.2			30.2		(0.7	)
Income tax provision (benefit)		—			(2.9	)		0.3		(2.8	)
Net income (loss) from discontinued operations		(0.7	)		3.1			29.9		2.1

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Cumulative Effect of a Change in Accounting Principle:

     As of December 1, 2005, we adopted SFAS 123(R), which requires companies to recognize in the statement of operations the grant-date fair value of stock awards issued to employees and directors. We adopted SFAS 123(R) using the modified prospective transition method. Accordingly, we recorded a charge of $0.7 million associated with the cumulative effect of adopting SFAS 123(R) in the first quarter of fiscal 2006 (see Note 3 of the Unaudited Condensed Consolidated Financial Statements).

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, legacy income or expenses, provisions for unusual items not related to the segment, interest expense, interest income, and income taxes. 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.

Aerospace and Defense Segment

	Three months ended							Six months ended
	May 31,		May 31,					May 31,		May 31,
	2007		2006			Change*		2007		2006			Change*
	(in millions)
Net Sales	$	190.7	$	165.5		$	25.2	$	339.8	$	292.3		$	47.5
Segment Performance — Income (loss)		19.3		(0.4	)		19.7		26.5		(1.0	)		27.5

* Primary reason for change. Higher sales volume on a variety space and defense system programs generated the improvement during the current period. Individual programs with increases of greater than $15.0 million during the first half of fiscal 2007 compared to the first half of fiscal 2006 were Standard Missile, Orion, and Titan. The improved segment performance during fiscal 2007 is the result of the following: (i) higher sales volume; (ii) improved margin on the Titan program as the result of favorable performance on close-out activities; (iii) lower retirement benefit plan expenses (iv) higher expenses in fiscal 2006 related to legal matters.

     As of May 31, 2007, contract backlog was $973 million as compared to $718 million as of November 30, 2006. The increase in contract backlog reflects a $109 million award in a multiyear new liquid engine technology demonstration program for military launch systems and continued growth in solid booster motors for missile defense and tactical missiles. Funded backlog, which includes only those contracts for which money has been directly authorized by the U.S. Congress, or for which a firm purchase order has been received by a commercial customer, was $713 million at May 31, 2007 compared to $565 million as of November 30, 2006.

  Real Estate Segment

     Our actions continued to move us forward on the entitlement process for Rio Del Oro, Glenborough and Easton Place, Westborough, and Hillsborough, formerly referred to as the Folsom Sphere of Influence. The actions covered such items as environmental remediation, land planning, traffic, wetlands, endangered species mitigation, and water supplies.

	Three months ended							Six months ended
	May 31,		May 31,					May 31,		May 31,
	2007		2006		Change*			2007		2006		Change*
	(in millions)
Net Sales	$	1.6	$	1.7	$	(0.1	)	$	3.3	$	3.2	$	0.1
Segment Performance		0.6		0.8		(0.2	)		1.4		1.6		(0.2	)

* Primary reason for change. There were no real asset sales during the first half of fiscal 2007 or fiscal 2006. Net sales for the first half of fiscal 2007 and fiscal 2006 consist of rental property operations.

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Other Information

  Key Accounting Policies and Estimates

     Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America that offers acceptable alternative methods for accounting for certain items affecting our financial results, such as determining inventory cost, deferring certain costs, 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 committee of our board of directors. The audit committee has reviewed all financial disclosures in our filings with the SEC. Although we believe 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 Unaudited Condensed Consolidated Financial Statements.

     The areas most affected by our accounting policies and estimates are revenue recognition for long-term contracts, other contract considerations, goodwill, retirement benefit plans, litigation reserves, environmental remediation costs and recoveries, and income taxes. Except for income taxes, which are not allocated to our operating segments, these areas affect the financial results of our business segments.

     A detailed description of our significant accounting policies can be found in our most recent Annual Report on Form 10-K for the fiscal year ended November 30, 2006.

  Arrangements with Off-Balance Sheet Risk

     As of May 31, 2007, obligations required to be disclosed in accordance with FASB Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others, consisted of:

     — $72.4 million in outstanding commercial letters of credit expiring in 2007 and 2008, the majority of which may be renewed, and securing obligations for environmental remediation closure 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.

     — Guarantees, jointly and severally, by the Company’s material domestic subsidiaries of its obligations under the Senior Credit Facility and the 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 the Company. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated.

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 in accordance with SFAS No. 5, Accounting for Contingencies. These costs are included in the program’s estimate at completion and are expensed in accordance with our revenue recognition methodology as allowed under American Institute of Certified Public

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Accountants Statement of Position 81-1, Accounting for Performance Construction-Type and Certain Production-Type Contracts, for that particular contract.

Liquidity and Capital Resources

  Liquidity Requirements

     Short-term liquidity requirements consist primarily of recurring operating expenses; costs associated with legacy business matters, including costs related to our retirement benefit plans; capital expenditures; and debt service requirements. We expect to meet these requirements through available cash, generation of cash from our Aerospace and Defense segment, and our New Senior Credit Facility.

     As of May 31, 2007, long-term liquidity requirements consist primarily of our long-term debt obligations. We expect to meet long-term liquidity requirements through cash provided from operations and, if necessary, with long-term borrowings and other financing alternatives. The availability and terms of any such financing will depend upon market and other conditions at the time.

Net Cash Provided by (Used in) Operating, Investing, and Financing Activities

     Cash and cash equivalents increased by $21.7 million during the first half of fiscal 2007. The change in cash and cash equivalents is as follows:

	Six Months Ended
	May 31,			May 31,
	2007			2006
	(in millions)
Net Cash Used in Operating Activities
Continuing operations	$	(1.3	)	$	(38.6	)
Discontinued operations		(1.0	)		(10.7	)
Total		(2.3	)		(49.3	)
Net Cash Provided by (Used in) Investing Activities		43.8			(5.5	)
Net Cash (Used in) Provided by Financing Activities		(19.8	)		2.0
Net Increase (Decrease) in Cash and Cash Equivalents	$	21.7		$	(52.8	)

Net Cash Used In Operating Activities

Continuing Operations

     Continuing operations used cash of $1.3 million in the first half of fiscal 2007 compared to cash usage of $38.6 million in the first half of fiscal 2006. The improvement is primarily due to (i) improved operating performance and net working capital from the Aerospace and Defense segment; and (ii) lower costs associated with legacy business matters.

Discontinued Operations

     Discontinued operations used $10.7 million of cash in the first half of fiscal 2006 primarily for the payment of liabilities accrued as of November 30, 2005 related to the sale of the Fine Chemicals business.

Net Cash Provided by (Used In) Investing Activities

     During the first quarter of fiscal 2007, we received $29.7 million from AMPAC in consideration for the cancellation and termination of an unsecured subordinated note receivable from AMPAC, including any interest due thereunder, and AMPAC’s obligation to make an earnings target payment associated with the sale of the Fine Chemicals business. Restricted cash decreased by $19.8 million as a result of our repayment of our 5 ³/4% Convertible Subordinated Notes (5 ³/4% Notes) in April 2007. During the first half of fiscal 2007 and fiscal 2006, we invested $5.7 million and $5.5 million, respectively, in capital expenditures. The capital expenditures for the first half of fiscal 2007 include the purchase of 180 acres of land which had been previously leased. The majority of our capital expenditures directly support our contract and customer requirements and are primarily made for asset replacement, capacity expansion, development of new projects, and safety and productivity improvements.

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Net Cash (Used In) Provided by Financing Activities

     First Half of Fiscal 2007 — Cash of $19.8 million was used primarily for the retirement of our 5 ³/4% Notes with restricted cash in April 2007. The outstanding principal on the 5 ³/4% Notes had been cash collateralized during fiscal 2006 in order to prevent the early maturity of the Senior Credit Facility.

     First Half of Fiscal 2006 — Cash of $2.0 million was generated primarily from employee stock options, partially offset by activities related to our borrowings including debt repayments.

Borrowing Activity and Senior Credit Facility:

     Our borrowing activity during the first half of fiscal 2007 was as follows:

	November 30,							May 31,
	2006		Additions		(Payments)			2007
			(In millions)
5 3/4% Convertible Subordinated Notes	$	19.8	$	—	$	(19.8	)	$	—
4% Contingent Convertible Subordinated Notes		125.0		—		—			125.0
2 1/4% Convertible Subordinated Debentures		146.4		—		—			146.4
9 1/2% Senior Subordinated Notes		97.5		—		—			97.5
Term loan		73.7		—		(0.7	)		73.0
Promissory note		—		2.8		—			2.8
Total Debt and Borrowing Activity	$	462.4	$	2.8	$	(20.5	)	$	444.7

     Our credit facility (Senior Credit Facility) provides for an $80.0 million revolving credit facility (Revolver) and a $154.5 million credit-linked facility, consisting of an $80.0 million letter of credit subfacility and a $74.5 million term loan subfacility. As of May 31, 2007, the borrowing limit under the Revolver was $80.0 million with all of it available. We had $73.0 million outstanding under the term loan subfacility and $72.4 million outstanding letters of credit issued under the letter of credit subfacility at May 31, 2007.

     In January 2007, we purchased, for $4.3 million, approximately 180 acres of land which had been previously leased. The purchase was financed with $1.5 million of cash and a $2.8 million promissory note. The promissory note is payable in four annual installments, matures in January 2011, and bears interest at a per annum rate of five percent.

     The Senior Credit Facility is secured by a substantial portion of our assets, including the stock and assets of our material domestic subsidiaries that are guarantors of this facility. We are subject to certain limitations including the ability to: incur additional debt or sell assets, with restrictions on the use of proceeds; make certain investments and acquisitions; grant liens; and make restricted payments. We are also subject to financial covenants, as amended, which are as follows:

	Actual Ratios As of	Required Ratios March 1, 2007	Required Ratios December 1,
Financial Covenant	May 31, 2007	Through November 30, 2007	2007 and thereafter
Interest coverage ratio	3.96 to 1.00	Not less than: 2.25 to 1.00	Not less than: 2.25 to 1.00
Fixed charge coverage ratio	10.00 to 1.00	Not less than: 1.20 to 1.00	Not less than: 1.20 to 1.00
Senior leverage ratio	0.70 to 1.00	Not greater than: 2.50 to 1.00	Not greater than: 2.50 to 1.00
Leverage ratio	4.63 to 1.00	Not greater than 8.0 to 1.00 March 1, 2007 — May 31, 2007;	Not greater than: 5.50 to 1.00
		Not greater than 7.50 to 1.00 June 1, 2007 — August 31, 2007;
		Not greater than 7.00 to 1.00 September 1, 2007 — November 30, 2007

     We were in compliance with our financial covenants as of May 31, 2007.

     On June 21, 2007, we entered into an amended and restated $280.0 million credit facility (Amended Senior Credit Facility) with Wachovia Bank, National Association as Administrative Agent, JP Morgan Chase Bank, N.A. as Syndication Agent, and a syndicate of lenders. The Amended Senior Credit Facility provides for an $80.0 million revolving credit facility maturing on June 21, 2012, and a $200.0 million credit-linked facility maturing on April 15, 2013. The credit-linked facility consists of a $75.0 million term loan subfacility and a $125.0 million letter of credit subfacility. The interest rate on the revolving credit facility is LIBOR plus 225 basis points, subject to adjustment downwards if leverage is reduced, and the interest rate on the term loan is LIBOR plus 225 basis points. Letters of credit under the credit-linked facility will be charged a fee of 225 basis points per annum plus a fronting fee of 10 basis points per annum plus other customary charges applicable to facilities of this type. The revolver has an unused commitment fee of 50 basis points per annum, subject to adjustment downwards if leverage is reduced.

     The Amended Senior Credit Facility is secured by a substantial portion 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

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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.

     We are also subject to maximum total leverage and minimum interest coverage covenants throughout the term of the facility commencing with the period ending August 31, 2007 and measured at each fiscal quarter end through the maturity of the facility. For fiscal 2007 through fiscal 2009 the financial covenants are: a maximum total leverage ratio of 5.75 to 1.0 and a minimum interest coverage ratio of 2.25 to 1.00. As of May 31, 2007, we met the financial covenants on a pro forma basis. The financial covenants in the Amended Senior Credit Facility have different definitions than those in the existing Senior Credit Facility and are not directly comparable.

     In June 2002, we filed a $300 million shelf registration statement with the SEC of which approximately $162 million remains available for issuance. We may use the shelf to issue debt securities, shares of common stock, or preferred stock.

Outlook

     As disclosed in Notes 10(a) and 10(b) of the Notes to Unaudited Condensed 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, or cash flows.

     We believe that our existing cash and cash equivalents and credit facilities will provide sufficient funds to meet our operating plan for the next twelve months. The operating plan for this period provides for full operation of our businesses, and interest and projected principal payments on our debt.

     We may also access capital markets to raise debt or equity financing for various business reasons, including required debt payments and acquisitions or partnerships that make both strategic and economic sense. The timing, terms, size, and pricing of any such financing will depend on investor interest and market conditions, and there can be no assurance that we will be able to obtain any such financing.

     Major factors that could adversely impact our forecasted operating cash and our financial condition are described in the section “Risk Factors” in Item 1A of our Annual Report to the SEC on Form 10-K for the fiscal year ended November 30, 2006.

Forward-Looking Statements

     Certain information contained in this report 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 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. Some 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 our Annual Report to the SEC on Form 10-K for the fiscal year ended November 30, 2006 include, but are not limited to, the following:

• cancellation or material modification of one or more significant contracts;

• future reductions or changes in U.S. government spending;

• failure to comply with regulations applicable to contracts with the U.S. government;

• significant competition and the Company’s inability to adapt to rapid technological changes;

• product failures, schedule delays or other problems with existing or new products and systems or cost-overruns on the Company’s fixed-price contracts;

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• the possibility that environmental and other government regulations that impact the Company become more stringent or subject the Company to material liability in excess of its established reserves;

• requirements to provide guarantees and/or letters of credit to financially assure the Company’s environmental obligations;

• environmental claims related to the Company’s current and former businesses and operations;

• the release or explosion of dangerous materials used in the Company’s businesses;

• reduction in airbag propellant volume;

• disruptions in the supply of key raw materials and difficulties in the supplier qualification process, as well as raw materials price increases;

• changes in economic and other conditions in the Sacramento metropolitan area, California real estate market or changes in interest rates affecting real estate values in that market;

• the Company’s limited experience in real estate activities and the ability to execute its real estate business plan, including the Company’s ability to obtain or caused to be obtained, the necessary final governmental zoning, land use and environmental approvals and building permits;

• the Company’s property being subject to federal, state and local regulations and restrictions that may impose significant limitations on the Company’s plans, with much of the Company’s property being raw land located in areas that include the natural habitats of various endangered or protected wildlife species;

• the cost of servicing the Company’s debt and compliance with financial and other covenants;

• the results of significant litigation;

• costs and time commitment related to acquisition and partnership activities;

• additional costs related to the Company’s recent divestitures;

• a strike or other work stoppage or the Company’s inability to renew collective bargaining agreements on favorable terms;

• fluctuations in sales levels causing the Company’s quarterly operating results to fluctuate;

• effects of changes in discount rates and returns on plan assets of defined benefit pension plans that may require the Company to increase its shareholders’ deficit;

• the loss of key employees and shortage of available skilled employees to achieve anticipated growth;

• failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act; and

• those risks detailed from time to time in the Company’s reports filed with the SEC.

     This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but by no means exhaustive. Additional risk factors may be described from time to time in our future filings with the SEC. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All such risk factors are difficult to predict, contain material uncertainties that may affect actual results and may be beyond our control.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     There have been no material changes to our disclosures related to certain market risks as reported under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report to the SEC on Form 10-K for the fiscal year ended November 30, 2006, except as noted below.

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Interest Rate Risk

     We are exposed to market risk principally due to changes in domestic interest rates. Debt with interest rate risk includes borrowings under our Senior Credit Facility. Other than pension assets, we do not have any significant exposure to interest rate risk related to our investments.

     As of May 31, 2007, our debt totaled $444.7 million: $371.7 million, or 84% was at an average fixed rate of 4.76%; and $73.0 million or 16% was at a variable rate of 8.36%.

     The estimated fair value of our total debt was $446.9 million as of May 31, 2007 compared to a carrying value of $444.7 million. The fair value of the convertible subordinated notes and the senior subordinated notes was determined based on quoted market prices as of May 31, 2007. The fair value of the remaining debt was determined to approximate carrying value as the interest rates are generally variable, based on market interest rates, and reflect current market rates available to us.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first half of fiscal 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     Except as disclosed in Note 10 of the Notes to Unaudited Condensed Consolidated Financial Statements, which is incorporated herein by reference, there have been no significant developments in the pending legal proceedings as previously reported in Part 1 Item 3, Legal Proceedings in our Annual Report on Form 10-K for the fiscal year ended November 30, 2006.

     Vinyl Chloride Cases. The following table sets forth information related to our historical product liability costs associated with our vinyl chloride litigation cases.

	Six Months		Year		Year
	Ended		Ended,		Ended
	May 31,		Nov. 30,		Nov. 30,
	2007		2006		2005
	(dollars in thousands)
Claims filed		2		1		4
Claims dismissed		—		1		9
Claims settled		4		2		9
Claims pending		6		8		10
Aggregate settlement costs	$	74	$	76	$	18
Average settlement costs	$	19	$	38	$	2

     Legal and administrative fees for the vinyl chloride cases for the first half of fiscal 2007 were $0.2 million. Legal and administrative fees for the vinyl chloride cases for fiscal 2006 and fiscal 2005 were $0.4 million for each period.

     Asbestos Cases. The following table sets forth information related to our historical product liability costs associated with our asbestos litigation cases.

	Six Months			Year		Year
	Ended			Ended,		Ended
	May 31,			Nov. 30,		Nov. 30,
	2007			2006		2005
	(dollars in thousands)
Claims filed		32			62		149	*
Claims dismissed		27	**		55		65
Claims settled		7			5		2
Claims pending		152			154		152
Aggregate settlement costs	$	26		$	67	$	50
Average settlement costs	$	4		$	14	$	25

*	Includes 30 cases tendered to the Company by PCC Flow Technologies, Inc. and its affiliates (PCC). PCC had originally tendered 57 cases, but 27 of these cases were dismissed prior to the Company’s and PCC’s August 31, 2005 settlement agreement.
**	Includes one case originally tendered to the Company by PCC that was tendered back to PCC.

     Legal and administrative fees for the asbestos cases for the first half of fiscal 2007 were $0.3 million. Legal and administrative fees for the asbestos cases for fiscal 2006 and fiscal 2005 were $0.5 million for each period.

Item 1A. Risk Factors.

     There have been no material changes from our risk factors as previously reported in our Annual Report to the SEC on Form 10-K for the fiscal year ended November 30, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     None.

Item 3. Defaults upon Senior Securities

     None.

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Item 4. Submission of Matters to a Vote of Security Holders

          The Company held its Annual Meeting of Shareholders on March 28, 2007. The shareholders voted on the following:

1.	To consider amending the Company’s Amended Articles of Incorporation and the Company’s Amended Code of Regulations to declassify the Board of Directors to provide that the Company’s Directors are each elected on an annual basis for a term of one year;
2.	To consider amending the Company’s Amended Articles of Incorporation to provide that Ohio’s Control Share Acquisitions Act (O.R.C. Section 1701.831) does not apply to the Company;
3.	To consider amending the Company’s Amended Articles of Incorporation to provide that Ohio’s Interested Shareholders Transactions Law (O.R.C. Section 1704) does not apply to the Company;
4.	To consider amending the Company’s Amended Code of Regulations to formally provide for the appointment of a non-executive Chairman;
5.	To elect three Directors to serve until (i) the 2010 annual meeting of shareholders if shareholders do not approve Proposal 1 amending the Company’s Amended Articles of Incorporation to provide that the Company’s Directors are each elected on an annual basis for a term of one year or (ii) the 2008 annual meeting of shareholders if shareholders approve amending the Company’s Amended Articles of Incorporation to provide that the Company’s Directors are each elected on an annual basis for a term of one;
6.	To elect six additional Directors to serve until the 2008 annual meeting of shareholders if shareholders approve amending the Company’s Amended Articles of Incorporation to provide that the Company’s Directors are each elected on an annual basis for a term of one year; and
7.	To ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as independent auditors of the Company for fiscal year 2007.

Voting Results

1. The vote on the proposal to amend the Company’s Amended Articles of Incorporation and the Company’s Amended Code of Regulations to declassify the Board of Directors to provide that the Company’s Directors are each elected on an annual basis for a term of one year was as follows:

For	Against	Abstain
50,372,207	792,824	313,206

2. The vote on the proposal to amend the Company’s Amended Articles of Incorporation to provide that Ohio’s Control Share Acquisitions Act (O.R.C. Section 1701.831) does not apply to the Company was as follows:

For	Against	Abstain
48,367,107	2,923,647	187,483

3. The vote on the proposal to amend the Company’s Amended Articles of Incorporation to provide that Ohio’s Interested Shareholders Transactions Law (O.RC. Section 1704) does not apply to the Company was as follows:

For	Against	Abstain
48,341,187	2,943,026	194,024

4. The vote on the proposal to amend the Company’s Amended Code of Regulations to formally provide for the appointment of a non-executive Chairman was as follows:

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For	Against	Abstain
50,752,087	585,373	140,777

5. The vote to elect three Directors to serve until (i) the 2010 annual meeting of shareholders if shareholders do not approve Proposal 1 amending the Company’s Amended Articles of Incorporation to provide that the Company’s Directors are each elected on an annual basis for a term of one year or (ii) the 2008 annual meeting of shareholders if shareholders approve amending the Company’s Amended Articles of Incorporation to provide that the Company’s Directors are each elected on an annual basis for a term of one year was as follows:

Nominee	For		Withhold
Charles F. Bolden Jr.		45,230,607		6,247,630
Terry L. Hall		45,196,786		6,281,451
Timothy A. Wicks		44,979,211		6,499,026

6. The vote to elect six additional Directors to serve until the 2008 annual meeting of shareholders if shareholders approve amending the Company’s Amended Articles of Incorporation to provide that the Company’s Directors are each elected on an annual basis for a term of one year was as follows:

Nominee	For		Withhold
James J. Didion		50,745,140		733,097
David A. Lorber		48,376,111		3,102,126
James M. Osterhoff		50,408,938		1,069,299
Todd R. Snyder		50,696,359		781,878
Sheila E. Widnall		50,218,706		1,259,531
Robert C. Woods		50,376,006		1,102,231

     7. The vote on a proposal to ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as independent auditors of the Company for fiscal year 2007 was as follows:

For	Against	Abstain
50,807,245	268,268	402,724

Item 5. Other Information

     None.

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Item 6. Exhibits

Exhibit No.	Exhibit Description
10.1*	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.**
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 Financial Officer pursuant to Rule 13a – 14(b) of the Securities and 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.

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GenCorp Inc.
Date: June 27, 2007	By:	/s/ Yasmin R. Seyal
		Yasmin R. Seyal
		Senior Vice President, Chief Financial Officer (Principal Financial Officer)
Date: June 27, 2007	By:	/s/ Terry L. Hall
		Terry L. Hall
		President and Chief Executive Officer (Principal Executive Officer)

Date: June 27, 2007	By:	/s/ R. Leon Blackburn
		R. Leon Blackburn
		Vice President and Controller (Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Exhibit Description
10.1	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.
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 Financial Officer pursuant to Rule 13a – 14(b) of the Securities and 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.

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