e10vq

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: February 29, 2008


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		34-0244000
(State of Incorporation)		(I.R.S. Employer Identification No.)

Highway 50 and Aerojet Road		95742
Rancho Cordova, California		(Zip Code)
(Address of Principal Executive Offices)

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

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, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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 March 24, 2008, there were 57.0 million outstanding shares of our Common Stock, $0.10 par value.

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

GenCorp Inc.
Condensed Consolidated Statements of Operations
(Unaudited)


	Three months ended
	February 29,			February 28,
	2008			2007
	(In millions, except per share amounts)
Net Sales	$	176.6		$	150.8
Costs and Expenses
Cost of products sold		158.8			135.0
Selling, general and administrative		2.2			3.0
Depreciation and amortization		6.5			6.5
Interest expense		7.3			7.2
Interest income		(1.4	)		(1.3	)
Other expense, net		0.1			2.1

Income (loss) from continuing operations before income taxes		3.1			(1.7	)
Income tax (benefit) provision		(0.2	)		0.4

Income (loss) from continuing operations		3.3			(2.1	)
Income (loss) from discontinued operations, net of income taxes		(0.3	)		30.6

Net income	$	3.0		$	28.5

Income (Loss) Per Share of Common Stock
Basic and Diluted:
Income (loss) per share from continuing operations	$	0.06		$	(0.04	)
Income (loss) per share from discontinued operations, net of income taxes		(0.01	)		0.55

Net income per share	$	0.05		$	0.51

Weighted average shares of common stock outstanding		56.7			55.9

Weighted average shares of common stock outstanding, assuming dilution		56.9			55.9

See Notes to Unaudited Condensed Consolidated Financial Statements.

GenCorp Inc.
Condensed Consolidated Balance Sheets
(Unaudited)


	February 29,			November 30,
	2008			2007
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	72.5		$	92.3
Accounts receivable		108.6			99.2
Inventories		75.1			67.5
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		46.2			46.5
Prepaid expenses and other		17.1			17.4
Income tax receivable		7.0			—
Assets of discontinued operations		0.1			0.1

Total Current Assets		326.6			323.0
Noncurrent Assets
Property, plant and equipment, net		137.7			139.8
Real estate held for entitlement and leasing		46.5			45.3
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		177.7			179.0
Prepaid pension asset		103.1			101.0
Goodwill		94.9			94.9
Intangible assets		21.3			21.7
Other noncurrent assets, net		87.8			90.5

Total Noncurrent Assets		669.0			672.2

Total Assets	$	995.6		$	995.2

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Short-term borrowings and current portion of long-term debt	$	1.5		$	1.5
Accounts payable		32.4			28.9
Reserves for environmental remediation costs		67.3			66.1
Income taxes payable		—			6.2
Postretirement medical and life benefits		8.8			8.8
Advance payments on contracts		44.4			49.1
Other current liabilities		80.5			84.3
Liabilities of discontinued operations		1.1			1.0

Total Current Liabilities		236.0			245.9
Noncurrent Liabilities
Convertible subordinated notes		271.4			271.4
Senior subordinated notes		97.5			97.5
Other long-term debt		75.0			75.9
Deferred income taxes		0.2			0.3
Reserves for environmental remediation costs		200.7			203.9
Postretirement medical and life benefits		77.2			78.5
Other noncurrent liabilities		72.6			73.8

Total Noncurrent Liabilities		794.6			801.3

Total Liabilities		1,030.6			1,047.2
Commitments and Contingencies (Note 7)
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; 57.0 million shares issued, 56.9 million shares outstanding as of February 29, 2008; 56.8 million shares issued, 56.6 million shares outstanding as of November 30, 2007		5.7			5.7
Other capital		207.7			205.2
Accumulated deficit		(215.3	)		(227.4	)
Accumulated other comprehensive loss, net of income taxes		(33.1	)		(35.5	)

Total Shareholders’ Deficit		(35.0	)		(52.0	)

Total Liabilities and Shareholders’ Deficit	$	995.6		$	995.2

See Notes to Unaudited Condensed Consolidated Financial Statements.

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


	Three months ended
	February 29,			February 28,
	2008			2007
	(in millions)
Operating Activities
Net income	$	3.0		$	28.5
(Income) loss from discontinued operations, net of income taxes		0.3			(30.6	)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		6.5			6.5
Stock compensation		(0.1	)		0.2
Savings plan expense		2.2			2.2
Changes in assets and liabilities:
Accounts receivable		(9.4	)		(1.5	)
Inventories		(7.6	)		(8.4	)
Prepaid expenses and other		0.6			7.4
Income tax receivable		(6.8	)		—
Real estate held for entitlement and leasing		(1.6	)		(1.3	)
Other noncurrent assets		6.7			0.6
Accounts payable		3.5			(8.6	)
Income taxes payable		3.5			(0.1	)
Postretirement medical and life benefits		(3.0	)		(3.2	)
Advance payments on contracts		(4.7	)		—
Other current liabilities		(3.1	)		(3.0	)
Deferred income taxes		(0.1	)		—
Other noncurrent liabilities		(4.6	)		(2.1	)

Net cash used in continuing operations		(14.7	)		(13.4	)
Net cash used in discontinued operations		(0.2	)		(0.2	)

Net Cash Used In Operating Activities		(14.9	)		(13.6	)
Investing Activities
Capital expenditures		(4.0	)		(3.2	)
Proceeds from discontinued operations		—			29.7

Net Cash (Used in) Provided by Investing Activities		(4.0	)		26.5
Financing Activities
Debt repayments		(0.9	)		(0.4	)
Tax benefit on equity based compensation		—			0.3
Proceeds from shares issued under stock option and equity incentive plans		—			0.1

Net Cash Used in Financing Activities		(0.9	)		—

Net (Decrease) Increase in Cash and Cash Equivalents		(19.8	)		12.9
Cash and Cash Equivalents at Beginning of Period		92.3			61.2

Cash and Cash Equivalents at End of Period	$	72.5		$	74.1


Supplemental Disclosures of Cash Flow Information
Capital expenditure purchased with promissory note	$	—		$	2.8

See Notes to Unaudited Condensed Consolidated Financial Statements.

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, 2007, as filed with the Securities and Exchange Commission (SEC).

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’s fiscal year ends on November 30 of each year. The Company’s subsidiary Aerojet-General Corporation (Aerojet) fiscal year ends on the last Saturday of November. As a result of the 2008 calendar, Aerojet will have 53 weeks of operations in fiscal 2008 compared to 52 weeks of operations in fiscal 2007. The additional week of operations in the first quarter of fiscal 2008 accounted for approximately $19 million in additional net sales.

The Company is a manufacturer of aerospace and defense products and systems with a real estate segment that includes activities related to the re-zoning, entitlement, sale, and leasing of the Company’s excess real estate assets. The Company’s continuing operations are organized into two segments:

Aerospace and Defense — includes the operations of Aerojet which develops and manufactures propulsion systems for defense and space applications, armament systems for precision tactical weapon systems, and munitions applications. Aerojet is one of the largest providers of propulsion systems in the United States (U.S.) and the only U.S. 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 (DoD), and the National Aeronautics and Space Administration.

Real Estate — includes activities related to the entitlement, sale, and leasing of the Company’s 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 approximately 6,400 acres of the Sacramento Land. The Company also owns approximately 580 acres in Chino Hills, California. The Company is currently seeking removal of environmental restrictions. Once completed, the Company will work to maximize the value of the 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 10).

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, 2007.

The Company classifies activities related to the entitlement, sale, and leasing of its excess real estate assets as operating activities on the Unaudited Condensed Consolidated Statement of Cash Flows.

In June 2007, the Financial Standards Accounting Board (FASB) issued Emerging Issue Task Force (EITF) No. 07-03 (EITF 07-03), Accounting for Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities. EITF 07-03 provides guidance on whether non-refundable advance payments for goods that will be used or services that will be performed in future research and development activities should be accounted for as research and development costs or deferred and capitalized until the goods have been delivered or the related services have been rendered. EITF 07-03 is effective for fiscal years beginning after December 15, 2007. The Company does not expect that the adoption of EITF 07-03 will have a material impact on its financial position or results of operations.

In September 2006, FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), to provide enhanced guidance when using fair value to measure assets and liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. The requirements of SFAS 157 are to be applied prospectively, and the Company anticipates that the primary impact of the standard will be related to the measurement of fair value in recurring impairment test calculations (such as the measurement of recorded goodwill). The FASB approved a one-year deferral of the adoption of the standard as it relates to non-financial assets and liabilities with the issuance in February 2008 of FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157. The Company does not presently hold any financial assets or liabilities that would require recognition under SFAS 157 other than investments held by the Company’s pension plan. With the exception of investments held by the Company’s pension plan, this deferral makes SFAS 157 effective for the Company beginning December 1, 2008. The Company’s evaluation of the impact of this standard is ongoing, and it has not yet determined the impact of the standard on its financial position or results of operations.

On December 1, 2007, the Company adopted SFAS No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. The adoption of SFAS 159 did not have a material impact on the Company’s 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 of common stock (EPS) is presented in the following table:


	Three months ended
	February 29,			February 28,
	2008			2007
	(in millions, except per share
	amounts; shares in thousands)
Numerator for Basic and Diluted EPS:
Income (loss) from continuing operations	$	3.3		$	(2.1	)
Income (loss) from discontinued operations, net of income taxes		(0.3	)		30.6

Net income available to common shareholders	$	3.0		$	28.5


Denominator
Basic weighted average shares		56,719			55,930
Effect of:
Employee stock options		107			—
Restricted stock awards		101			—

Diluted weighted average shares		56,927			55,930


Basic and Diluted:
Income (loss) per share from continuing operations	$	0.06		$	(0.04	)
Income (loss) per share from discontinued operations, net of income taxes		(0.01	)		0.55

Net income per share	$	0.05		$	0.51

During the first quarters of fiscal 2008 and 2007, the dilutive impact of the Company’s 2¹/4% Convertible Subordinated Debentures were not included in the computation of diluted income per share because the market price of the common stock did not exceed the conversion price and only the conversion premium for these debentures is settled in common shares. Additionally, the 5³/4% Convertible Subordinated Notes were not included in the computation of diluted income per share in the first quarter of fiscal 2007 because the effect would be antidilutive. Also, during the first quarters of fiscal 2008 and 2007, the dilutive impact of the Company’s 4% Contingent Convertible Subordinated Notes were not included in the computation of diluted income per share because

the effect would be antidilutive. Other potentially dilutive securities that are not included in the diluted EPS calculation, because they would be antidilutive, are 1.6 million employee stock options as of February 28, 2007.

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.

Total stock-based compensation expense (income) by type of award for the first quarter of fiscal 2008 and 2007 was as follows:


	Three months ended
	February 29,			February 28,
	2008			2007
	(in millions, except
	per share amounts)
Stock appreciation rights	$	(0.4	)	$	0.2
Restricted stock, service based		0.1			0.1
Restricted stock, performance based		0.2			(0.1	)
Stock options		—			—

Total stock-based compensation expense		(0.1	)		0.2
Tax effect on stock-based compensation expense		—			—

Net effect on stock-based compensation expense		(0.1	)		0.2

Effect on basic and diluted net income per share	$	—		$	—

The Company anticipates recording a charge of approximately $2 million in the second quarter of fiscal 2008 related to the accelerated vesting of outstanding stock-based payment awards (see Note 13).

4. Income Taxes

On December 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). As of December 1, 2007, the Company had $3.2 million of unrecognized tax benefits, $3.0 million of which would affect our effective tax rate if recognized. The adoption resulted in a reclassification of certain tax liabilities from current to non-current, a reclassification of certain tax indemnification liabilities from income taxes payable to other current liabilities, and a cumulative effect adjustment benefit of $9.1 million that was recorded directly to the Company’s accumulated deficit. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Interest and penalties are immaterial at the date of adoption. As of February 29, 2008, the Company had approximately $0.1 million of accrued interest related to uncertain tax positions. The tax years ended November 30, 2004 through November 30, 2007 remain open to examination for U.S. Federal income tax purposes. For our other major taxing jurisdictions, the tax years ended November 30, 2003 through November 30, 2007 remain open to examination.

There were no significant changes to unrecognized tax benefits including interest and penalties during the first quarter of fiscal 2008, and the Company does not expect any significant changes to our unrecognized tax benefits during the next twelve months.

5. Balance Sheet Accounts

a. Accounts Receivable


	February 29,		November 30,
	2008		2007
	(in millions)
Billed	$	50.6	$	41.5
Unbilled		54.8		54.0

Total receivables under long-term contracts		105.4		95.5

Other receivables, net of $0.3 million of allowance for doubtful accounts as of February 29, 2008 and November 30, 2007		3.2		3.7

Accounts receivable	$	108.6	$	99.2

b. Inventories


	February 29,			November 30,
	2008			2007
	(In millions)
Long-term contracts at average cost	$	198.7		$	181.7
Progress payments		(126.5	)		(117.3	)

Total long-term contract inventories		72.2			64.4

Raw materials		0.1			0.1
Work in progress		2.7			3.0
Finished goods		0.1			—

Total other inventories		2.9			3.1

Inventories	$	75.1		$	67.5

c. Property, Plant and Equipment, net


	February 29,			November 30,
	2008			2007
	(In millions)
Land	$	33.2		$	33.2
Buildings and improvements		144.7			144.7
Machinery and equipment		359.3			355.0
Construction-in-progress		7.7			9.3

		544.9			542.2
Less: accumulated depreciation		(407.2	)		(402.4	)

Property, plant and equipment, net	$	137.7		$	139.8

d. Other Noncurrent Assets, net


	February 29,		November 30,
	2008		2007
	(In millions)
Receivable from Northrop Grumman Corporation (see Note 7(c))	$	39.8	$	39.9
Deferred financing costs		15.1		15.6
Other		32.9		35.0

Other noncurrent assets, net	$	87.8	$	90.5

e. Other Current Liabilities


	February 29,		November 30,
	2008		2007
	(In millions)
Accrued compensation and employee benefits	$	36.5	$	37.0
Legal settlements		4.2		4.7
Interest payable		2.1		5.0
Deferred revenue		2.1		2.1
Contract loss provisions		1.9		1.3
Pension liability		1.3		1.3
Other		32.4		32.9

Other current liabilities	$	80.5	$	84.3

f. Other Noncurrent Liabilities


	February 29,		November 30,
	2008		2007
	(In millions)
Legal settlements	$	22.7	$	25.2
Conditional asset retirement obligations		12.9		13.4
Deferred revenue		12.7		13.2
Deferred compensation		10.1		10.5
Pension liability		9.7		9.8
Uncertain tax positions		3.1		—
Other		1.4		1.7

Other noncurrent liabilities	$	72.6	$	73.8

g. Accumulated Other Comprehensive Loss, Net of Income Taxes


	February 29,			November 30,
	2008			2007
	(In millions)
Net actuarial losses	$	(25.7	)	$	(27.6	)
Prior service costs		(7.4	)		(7.9	)

Accumulated other comprehensive loss, net of income taxes	$	(33.1	)	$	(35.5	)

6. Long-term Debt


	February 29,			November 30,
	2008			2007
	(in millions)
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		271.4			271.4

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		2.1			2.8
Term loan, bearing interest at various rates (rate of 5.34% as of February 29, 2008), payable in quarterly installments of $187,500 plus interest, maturing in 2013		74.4			74.6

Total other debt		76.5			77.4

Total debt		445.4			446.3
Less: Amounts due within one year		(1.5	)		(1.5	)

Total long-term debt	$	443.9		$	444.8

The estimated fair value of the Company’s total debt was $410.9 million as of February 29, 2008 compared to a carrying value of $445.4 million. The fair value of the term loan, convertible subordinated notes, senior subordinated notes, and convertible subordinated debentures was determined based on quoted market prices as of February 29, 2008. The fair value of the remaining debt was determined to approximate carrying value.

The Company’s credit facility (Senior Credit Facility) provides for an $80.0 million revolving credit facility (Revolver) and a $200.0 million credit-linked facility, consisting of a $125.0 million letter of credit subfacility and a $75.0 million term loan subfacility. As of February 29, 2008, the borrowing limit under the Revolver was $80.0 million with all of it available. The Company had $74.4 million outstanding under the term loan subfacility and $72.4 million outstanding letters of credit issued under the $125.0 million letter of credit subfacility at February 29, 2008.

The 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, including dividends. The Company is also subject to financial covenants, which are as follows:


	Actual Ratios as of	Required Ratios March 1, 2008	Required Ratios
Financial Covenant	February 29, 2008	Through November 30, 2009	December 1, 2009 and thereafter
Interest coverage ratio	4.57 to 1.00	Not less than: 2.25 to 1.00	Not less than: 2.25 to 1.00
Leverage ratio	3.43 to 1.00	Not greater than: 5.75 to 1.00	Not greater than: 5.50 to 1.00

The Company was in compliance with its financial covenants as of February 29, 2008.

7. 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 from time to time 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, Accounting for Contingencies (SFAS 5). 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 are refined each quarterly reporting period as additional information becomes known. For legal settlements where there is no stated amount for interest, the Company will estimate an interest factor and discount the liability accordingly.

Groundwater Cases

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.” 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 June 2007, Aerojet was sued by seven individual plaintiffs residing in the vicinity of Aerojet’s former facility in Azusa, California. The case is entitled Gatter et al. v. Aerojet-General Corporation, Case No. K050503R, Los Angeles County (CA) Superior Court and was served June 21, 2007. The plaintiffs allege that Aerojet and unnamed defendants contaminated groundwater, which plaintiffs allegedly consumed, causing illness and economic injury. Discovery is ongoing. Trial is currently set for October 2008.

In December 2007, Aerojet was named as a defendant in a lawsuit brought by six individuals who allegedly resided in the vicinity of Aerojet’s Sacramento facility. Plaintiffs allege that Aerojet contaminated groundwater to which plaintiffs were exposed and which caused plaintiffs illness and economic injury. Plaintiffs filed an amended complaint on February 25, 2008, naming additional plaintiffs. The amended complaint brings the total number of individuals on whose behalf suit has been filed to thirteen. Aerojet has not been served with the complaint or the amended complaint.

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.

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. There were three vinyl chloride cases pending against the Company as of February 29, 2008, all involving employees at VC or PVC facilities owned or operated by others. One of the pending cases is an action seeking class certification and a medical monitoring program for former employees at a PVC facility in New Jersey.

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. There were 169 asbestos cases pending as of February 29, 2008.

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 manufacturing facility in Chartres, France owned by Snappon SA, a subsidiary of the Company, previously involved in the automotive business. In accordance with French law, Snappon SA negotiated with the local works’ council regarding the implementation of a social plan for the employees. Following the implementation of the social plan, approximately 188 of the 249 former Snappon employees sued Snappon SA in the Chartres Labour Court alleging wrongful discharge. The claims were heard in two groups. On 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 $17,000) as damages. After two hearings, the Labour Court rejected the claims filed by the second group of former employees, which group had claimed damages in excess of €12.7 million (approximately $20 million). A total of 175 former employees have appealed these decisions. These appeals are scheduled to be heard in October 2008.

Other Legal Matters

On August 31, 2004, the Company completed the sale of its GDX business to an affiliate of Cerberus Capital Management, L.P. (Cerberus). In accordance with the divestiture agreement, the Company provided customary indemnification to Cerberus for certain liabilities accruing prior to the closing of the transaction (the Closing). Cerberus notified the Company of a claim by a GDX customer that alleges that certain parts manufactured by GDX prior to the Closing failed to meet customer specifications. The Company has assumed the defense of this matter and is investigating the underlying facts to determine what liability, if any, the Company may have for this claim.

In August 2007, along with numerous other companies, the Company received from the United States Department of Interior Fish and Wildlife Service (USFWS) a notice of a Natural Resource Damage Assessment Plan for the Ottawa River and Northern Maumee Bay. The Company previously manufactured products for the automotive industry at a Toledo, Ohio site, which was adjacent to the Ottawa River. This facility was divested in 1990 and the Company indemnified the buyer for claims and liabilities arising out of certain pre-divestiture environmental matters. It is not possible to predict the outcome or timing of these types of assessments, which are typically lengthy processes lasting several years, or the amounts of or responsibility for these damages.

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.

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 period. Factors that could result in changes to the Company’s estimates include completion of current and future soil and groundwater investigations, new claims, future agency demands, discovery of more or less contamination than expected, discovery of new contaminants, modification of planned remedial actions, changes in estimated time required to remediate, new technologies, and changes in laws and regulations.

As of February 29, 2008, the aggregate range of these anticipated environmental costs was $268 million to $474 million and the accrued amount was $268.0 million. See Note 7(c) for a summary of the environmental reserve activity for fiscal 2007. Of these accrued liabilities, approximately 61% relates to the Sacramento, California site and approximately 29% 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 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 will submit a Remedial Investigation/Feasibility Study for the Perimeter Groundwater Operable Unit in 2008 and the US EPA will issue a Record of Decision sometime thereafter. The remaining operable units are under various stages of investigation.

Until March 2008, all of the southern portion of the property known as Rio Del Oro was under state orders issued in the 1990s by the California Department of Toxic Control (DTSC) to investigate and remediate environmental contamination in the soils and the Central Valley RWQCB to investigate and remediate groundwater environmental contamination. On March 14, 2008, the DTSC released all but approximately 400 acres of the Rio Del Oro property from DTSC’s environmental orders regarding soil contamination. Aerojet expects the approximately 400 acres of Rio Del Oro property that remain subject to the DTSC orders to be released once the soil remediation has been completed. The Rio Del Oro property remains subject to the Central Valley RWQCB’s orders to investigate and remediate groundwater environmental contamination emanating offsite from such property. Aerojet leased the Rio Del Oro Property to Douglas Aircraft for rocket assembly and testing from 1957 to 1961 and sold approximately 4,000 acres, including the formerly leased portion, to Douglas Aircraft in 1961. Aerojet reacquired the property in 1984 from McDonnell-Douglas

Corporation (MDC), the successor to Douglas Aircraft. 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 it was initiating the reallocation arbitration process. The matter has been stayed pending further discussions between the parties.

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 the 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, the Main San Gabriel Basin Watermaster, and five water companies. The Project Agreement, which has a term of fifteen years, became effective May 9, 2002. 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 ensure 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

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.

Other Sites

In August 2007, along with numerous other companies, the Company received from the USFWS a notice of a Natural Resource Damage Assessment Plan for the Ottawa River and Northern Maumee Bay. The Company previously manufactured products for the automotive industry at a Toledo, Ohio site, which was adjacent to the Ottawa River. This facility was divested in 1990 and the Company indemnified the buyer for claims and liabilities arising out of certain pre-divestiture environmental matters. It is not possible to predict the outcome or timing of these types of assessments, which are typically lengthy processes lasting several years, or the amounts of or responsibility for these damages.

The Company is currently involved in approximately 36 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 legal staff regarding the status and anticipated results of various administrative and legal proceedings. In most cases, only a range of reasonably possible costs can be estimated. In establishing our reserves, the most probable estimate is used when determinable; otherwise, the minimum is used. 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,		2008		2008			February 29,
	2007		Additions		Expenditures			2008
	(in millions)
Aerojet	$	259.5	$	5.3	$	(7.0	)	$	257.8
Other Sites		10.5		0.3		(0.6	)		10.2

Environmental Reserve	$	270.0	$	5.6	$	(7.6	)	$	268.0

As of February 29, 2008, the Aerojet reserves include $163.0 million for the Sacramento site, $76.9 million for BPOU, and $17.9 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 and continued investigation of new and more cost effective remediation alternatives and associated 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. Under the Global Settlement, Aerojet and the U.S. government resolved disagreements about an appropriate cost-sharing ratio with respect to costs associated with the clean up of the environmental contamination at the Sacramento and Azusa sites. The Global Settlement provides that the cost-sharing ratio will continue for a number of years.

Pursuant to the Global Settlement covering environmental costs associated with Aerojet’s Sacramento site and its former Azusa site, the Company can recover up to 88% of its environmental remediation costs for these sites through the establishment of prices for Aerojet’s products and services sold to the U.S. government. Allowable environmental costs are charged to these contracts as the costs are incurred. Aerojet’s mix of contracts can affect the actual reimbursement made by the U.S. government. Because these costs are recovered through forward-pricing arrangements, the ability of Aerojet to continue recovering these costs from the U.S. government depends on Aerojet’s sustained business volume under U.S. government contracts and programs and the relative size of Aerojet’s commercial business. Annually, we evaluate Aerojet’s forecasted business volume under U.S. government contracts and programs and the relative size of Aerojet’s commercial business as part of our long-term business review.

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 February 29, 2008, $129.5 million in potential future reimbursements were available over the remaining life of the agreement. The amount billable to Northrop in excess of the annual limitation is $39.8 million and is included as a component of other noncurrent assets, net in the Unaudited Condensed Consolidated Balance Sheet.

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 $6.9 million has been spent through February 29, 2008. Pursuant to a separate agreement with the U.S. government which was entered into prior to the completion of the ARC acquisition, these Pre-Close Environmental Costs are not subject to the 88% limitation under the Global Settlement, and are recovered through the establishment of prices for Aerojet’s products and services sold to the U.S. government.

As a part 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. In the fourth quarter of fiscal 2007, Aerojet presented an updated proposal to the U.S. government based on the Memorandum of Understanding and expects to complete an agreement in the near term. As a result of the revised proposal, the Company incurred a charge of $1.5 million to cost of sales in the fourth quarter of fiscal 2007 related to the retroactive adjustment to the allocation split going back to fiscal 2005.

Environmental reserves and recoveries impact to Statement of Operations

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 quarter of fiscal 2008, the increase to the reserve of $5.6 million resulted in a charge to operations of $1.0 million. The expenses and benefits associated with adjustments to the environmental reserves are recorded as a component of other 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 changes in the carrying amount of asset retirement obligations since November 30, 2007 were as follows (in millions):


Balance as of November 30, 2007	$	13.4
Adjustments and other, net		(0.8	)
Accretion		0.3

Balance as of February 29, 2008	$	12.9

8. Arrangements with Off-Balance Sheet Risk

As of February 29, 2008, 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 within the next thirteen months, 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.

— Up to $2.3 million of reimbursements to Granite Construction Company (Granite) if the Company requests Granite to cease mining operations on certain portions of the Sacramento Land.

— Guarantees, jointly and severally, by the Company’s material domestic subsidiaries of its obligations under its Senior Credit Facility and its 9¹/2% 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 (AICPA) Statement of Position No. 81-1, Accounting for Performance Construction-Type and Certain Production-Type Contracts, for that particular contract.

9. Retirement Benefits

Pension Benefits — 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. The Company also sponsors an unfunded non-qualified Benefits Restoration Plan (BRP), which restores benefits that can not be paid under the GenCorp qualified pension plan due to IRS limitations (see Note 13).

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.

Defined Contribution 401(k) Benefits — The Company sponsors defined contribution 401(k) plans and participation in these plans is available to all employees. Company contributions to these plans generally are based on a percentage of employee contributions. The Company’s contribution to the plans is invested entirely in the GenCorp Stock Fund, and may be funded with cash or shares of GenCorp common stock. There are no restrictions on participants re-allocating all or a part of their accounts in the GenCorp Stock Fund to other investment choices.

BRP Savings Plan — The Company sponsors an unfunded non-qualified defined contribution plan designed to enable participants to continue to defer their compensation on a pre-tax basis when such compensation or the participants’ deferrals to tax-qualified plans exceed applicable Internal Revenue Code of 1986 (IRC) limits. Under the BRP Savings Plan, employees who are projected to be impacted by the IRC limits, may, on an annual basis, elect to defer compensation earned in the current year such as salary and certain other incentive compensation. The Company makes a matching contribution in an amount equal to 100% of the participant’s contribution not to exceed 4.5% of the participant’s eligible compensation. Participants indicate how they wish their deferred compensation and the Company matching contributions to be notionally invested among the same investment options available through the GenCorp defined contribution 401(k) plan (See Note 13).

SFAS 158 Adoption — Effective November 30, 2007, the Company adopted SFAS 158 which required that the Unaudited Condensed Consolidated Balance Sheets reflect the funded status of the pension and postretirement plans. The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit obligation. The Company has recognized the aggregate of all overfunded plans in prepaid pension assets; and the aggregate of all unfunded plans in either postretirement medical and life benefits, or other current and noncurrent liabilities.

At November 30, 2007, previously unrecognized actuarial (gains)/losses and the prior services (credits)/costs were included in accumulated other comprehensive loss in the Unaudited Condensed Consolidated Balance Sheets as required by SFAS 158 (see Note 5(g)). Effective November 30, 2009, the Company will adopt the measurement provision of SFAS 158 which requires measurement of the assets and benefit obligations at the fiscal year end. The Company currently performs this measurement as of August 31 of each fiscal year.

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


	Pension Benefits						Postretirement Benefits
	Three months ended
	February 29,			February 28,			February 29,			February 28,
	2008			2007			2008			2007
	(in millions)
Service cost	$	4.9		$	4.3		$	0.1		$	0.1
Interest cost on benefit obligation		24.1			24.1			1.3			1.4
Assumed return on plan assets		(30.9	)		(30.7	)		—			—
Amortization of prior service costs		0.5			0.5			—			(0.1	)
Recognized net actuarial (gains) losses		3.6			7.4			(1.7	)		(1.7	)

Net periodic benefit (income) expense	$	2.2		$	5.6		$	(0.3	)	$	(0.3	)

10. 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 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. Also, 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. For operating segment reporting, the Fine Chemicals business was previously reported as a separate operating segment.

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 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
	February 29,			February 28,
	2008			2007
	(in millions)
Net sales	$	—		$	—
Income (loss) before income taxes		(0.4	)		30.9
Income tax (benefit) provision		(0.1	)		0.3
Income (loss) from discontinued operations, net of income taxes		(0.3	)		30.6

As of February 29, 2008 and November 30, 2007, the components of assets and liabilities of discontinued operations in the consolidated balance sheets are as follows:


	February 29,		November 30,
	2008		2007
	(in millions)
Assets of discontinued operations, consisting of other assets	$	0.1	$	0.1

Accounts payable	$	0.4	$	0.5
Other liabilities		0.7		0.5

Liabilities of discontinued operations	$	1.1	$	1.0

11. 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 its operating segments based on several factors, of which the primary financial measure is segment performance. Segment performance represents net sales from continuing operations less applicable costs, expenses and provisions for unusual items relating to the segment operations. Segment performance excludes corporate income and expenses, legacy income or expenses, provisions for unusual items not related to the segment operations, interest expense, interest income, and income taxes.

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


	Three Months ended
	February 29,			February 28,
	2008			2007
Raytheon		31	%		21	%
Lockheed Martin		24	%		38	%

Sales in the first quarter of fiscal 2008 and fiscal 2007 directly and indirectly to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, totaled 88% and 90%, respectively, of net sales.

Selected financial information for each reportable segment is as follows:


	Three Months ended
	February 29,			February 28,
	2008			2007
	(in millions)
Net Sales:
Aerospace and Defense	$	174.5		$	149.1
Real Estate		2.1			1.7

Total	$	176.6		$	150.8

Segment Performance:
Aerospace and Defense	$	14.9		$	14.3
Environmental remediation provision adjustments		(0.7	)		(1.2	)
Retirement benefit plan expense		(3.8	)		(5.9	)

Aerospace and Defense Total		10.4			7.2

Real Estate		1.3			0.8

Total	$	11.7		$	8.0

Reconciliation of segment performance to income (loss) from continuing operations before income taxes:
Segment Performance	$	11.7		$	8.0
Interest expense		(7.3	)		(7.2	)
Interest income		1.4			1.3
Corporate retirement benefit plan income		1.9			0.6
Corporate and other expenses		(4.6	)		(4.4	)

Income (loss) from continuing operations before income taxes	$	3.1		$	(1.7	)

12. Condensed Consolidating Financial Information

The Company is providing condensed consolidating financial information for its material domestic subsidiaries that have guaranteed the Senior Subordinated Notes, and for those subsidiaries that have not guaranteed the Senior Subordinated Notes. These wholly owned subsidiary guarantors have, jointly and severally, fully and unconditionally guaranteed the Senior Subordinated 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 Senior Subordinated 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.

Condensed Consolidating Statements of Operations
(Unaudited)


				Guarantor			Non-guarantor
Three Months Ended February 29, 2008 (in millions)	Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	176.6		$	—	$	—		$	176.6
Cost of products sold		—			158.8			—		—			158.8
Selling, general and administrative		(0.7	)		2.9			—		—			2.2
Depreciation and amortization		0.5			6.0			—		—			6.5
Interest expense		5.9			1.4			—		—			7.3
Other, net		(1.1	)		(0.2	)		—		—			(1.3	)

Income (loss) from continuing operations before income taxes		(4.6	)		7.7			—		—			3.1
Income tax (benefit) provision		(4.2	)		4.0			—		—			(0.2	)

Income (loss) from continuing operations		(0.4	)		3.7			—		—			3.3
Loss from discontinued operations		(0.3	)		—			—		—			(0.3	)

Income (loss) before equity income of subsidiaries		(0.7	)		3.7			—		—			3.0
Equity income of subsidiaries		3.7			—			—		(3.7	)		—

Net income	$	3.0		$	3.7		$	—	$	(3.7	)	$	3.0


				Guarantor		Non-guarantor
Three Months Ended February 28, 2007 (in millions)	Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	150.8	$	—	$	—		$	150.8
Cost of products sold		—			135.0		—		—			135.0
Selling, general and administrative		0.6			2.4		—		—			3.0
Depreciation and amortization		0.6			5.9		—		—			6.5
Interest expense		6.5			0.7		—		—			7.2
Other, net		(1.1	)		1.9		—		—			0.8

Income (loss) from continuing operations before income taxes		(6.6	)		4.9		—		—			(1.7	)
Income tax (benefit) provision		(0.2	)		0.6		—		—			0.4

Income (loss) from continuing operations		(6.4	)		4.3		—		—			(2.1	)
Income from discontinued operations		30.6			—		—		—			30.6

Income before equity income of subsidiaries		24.2			4.3		—		—			28.5
Equity income of subsidiaries		4.3			—		—		(4.3	)		—

Net income	$	28.5		$	4.3	$	—	$	(4.3	)	$	28.5

Condensed Consolidating Balance Sheets
(Unaudited)


				Guarantor			Non-guarantor
February 29, 2008 (In millions):	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	81.9		$	(9.8	)	$	0.4		$	—		$	72.5
Accounts receivable		—			108.6			—			—			108.6
Inventories		—			75.1			—			—			75.1
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			46.2			—			—			46.2
Prepaid expenses and other		30.5			(6.4	)		—			—			24.1
Assets of discontinued operations		(0.1	)		—			0.2			—			0.1

Total current assets		112.3			213.7			0.6			—			326.6
Property, plant and equipment, net		0.5			137.2			—			—			137.7
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			177.7			—			—			177.7
Prepaid pension asset		104.3			(1.2	)		—			—			103.1
Goodwill		—			94.9			—			—			94.9
Intercompany receivable (payable), net		31.6			(15.3	)		(16.3	)		—			—
Other noncurrent assets and intangibles, net		274.5			140.3			9.8			(269.0	)		155.6

Total assets	$	523.2		$	747.3		$	(5.9	)	$	(269.0	)	$	995.6

Short-term borrowings and current portion of long-term debt	$	1.5		$	—		$	—		$	—		$	1.5
Accounts payable		1.4			31.0			—			—			32.4
Reserves for environmental remediation costs		5.0			62.3			—			—			67.3
Other current liabilities, advance payments on contracts, and postretirement medical and life benefits		31.9			101.8			—			—			133.7
Liabilities of discontinued operations		—			—			1.1			—			1.1

Total current liabilities		39.8			195.1			1.1			—			236.0
Long-term debt		443.9			—			—			—			443.9
Reserves for environmental remediation costs		5.2			195.5			—			—			200.7
Other noncurrent liabilities		69.3			80.7			—			—			150.0

Total liabilities		558.2			471.3			1.1			—			1,030.6
Commitments and contingencies (Note 7)
Total shareholders’ (deficit) equity		(35.0	)		276.0			(7.0	)		(269.0	)		(35.0	)

Total liabilities and shareholders’ equity (deficit)	$	523.2		$	747.3		$	(5.9	)	$	(269.0	)	$	995.6


				Guarantor			Non-guarantor
November 30, 2007 (In millions):	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	98.4		$	(6.7	)	$	0.6		$	—		$	92.3
Accounts receivable		—			99.2			—			—			99.2
Inventories		—			67.5			—			—			67.5
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			46.5			—			—			46.5
Prepaid expenses and other		9.8			7.5			0.1			—			17.4
Assets of discontinued operations		(0.1	)		—			0.2			—			0.1

Total current assets		108.1			214.0			0.9			—			323.0
Property, plant and equipment, net		0.5			139.3			—			—			139.8
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			179.0			—			—			179.0
Prepaid pension asset		102.1			(1.1	)		—			—			101.0
Goodwill		—			94.9			—			—			94.9
Intercompany receivable (payable), net		24.1			(8.2	)		(15.9	)		—			—
Other noncurrent assets and intangibles, net		267.9			141.8			9.8			(262.0	)		157.5

Total assets	$	502.7		$	759.7		$	(5.2	)	$	(262.0	)	$	995.2

Short-term borrowings and current portion of long-term debt	$	1.5		$	—		$	—		$	—		$	1.5
Accounts payable		0.3			28.6			—			—			28.9
Reserves for environmental remediation costs		5.4			60.7			—			—			66.1
Income taxes (receivable) payable		(5.7	)		11.9			—			—			6.2
Other current liabilities, advance payments on contracts, and postretirement medical and life benefits		35.0			107.1			0.1			—			142.2
Liabilities of discontinued operations		—			—			1.0			—			1.0

Total current liabilities		36.5			208.3			1.1			—			245.9
Long-term debt		444.8			—			—			—			444.8
Reserves for environmental remediation costs		5.1			198.8			—			—			203.9
Other noncurrent liabilities		68.3			84.3			—			—			152.6

Total liabilities		554.7			491.4			1.1			—			1,047.2
Commitments and contingencies (Note 7)
Total shareholders’ (deficit) equity		(52.0	)		268.3			(6.3	)		(262.0	)		(52.0	)

Total liabilities and shareholders’ equity (deficit)	$	502.7		$	759.7		$	(5.2	)	$	(262.0	)	$	995.2

Condensed Consolidating Statements of Cash Flows
(Unaudited)


				Guarantor			Non-guarantor
Three months ended February 29, 2008 (in millions):	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash used in operating activities	$	(10.6	)	$	(3.9	)	$	(0.4	)	$	—	$	(14.9	)
Cash flows from investing activities:
Capital expenditures		—			(4.0	)		—			—		(4.0	)

Net cash used in investing activities		—			(4.0	)		—			—		(4.0	)
Cash flows from financing activities:
Net transfers (to) from parent		(5.0	)		4.8			0.2			—		—
Repayments on notes payable and long-term debt, net		(0.9	)		—			—			—		(0.9	)

Net cash (used in) provided by financing activities		(5.9	)		4.8			0.2			—		(0.9	)

Net decrease in cash and cash equivalents		(16.5	)		(3.1	)		(0.2	)		—		(19.8	)
Cash and cash equivalents at beginning of year		98.4			(6.7	)		0.6			—		92.3

Cash and cash equivalents at end of period	$	81.9			(9.8	)	$	0.4		$	—	$	72.5


				Guarantor			Non-guarantor
Three months ended February 28, 2007 (in millions):	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash used in operating activities	$	(2.1	)	$	(0.1	)	$	(11.4	)	$	—	$	(13.6	)
Cash flows from investing activities:
Proceeds from business disposition		—			—			29.7			—		29.7
Capital expenditures		(3.2	)		—			—			—		(3.2	)

Net cash provided by (used in) investing activities		(3.2	)		—			29.7			—		26.5
Cash flows from financing activities:
Net transfers (to) from parent		4.9			0.1			(5.0	)		—		—
Repayments on notes payable and long-term debt, net		—			—			(0.4	)		—		(0.4	)
Other financing activities		—			—			0.4			—		0.4

Net cash provided by (used in) financing activities		4.9			0.1			(5.0	)		—		—

Net increase (decrease) in cash and cash equivalents		(0.4	)		—			13.3			—		12.9
Cash and cash equivalents at beginning of year		(9.8	)		0.5			70.5			—		61.2

Cash and cash equivalents at end of period	$	(10.2	)	$	0.5		$	83.8		$	—	$	74.1

13. Subsequent Events

On March 5, 2008, the Company entered into a second amended and restated shareholder agreement (Shareholder Agreement) with Steel Partners II L.P. with respect to the election of Directors for the 2008 Annual Meeting and certain other related matters. The Company expects to incur a charge in the range of $11 million to $15 million in the second quarter of fiscal 2008. The charge includes costs associated with Terry L. Hall’s executive severance agreement, increases in pension benefits primarily for the Company’s officers, and accelerated vesting of outstanding stock-based payment awards.

As a result of the Shareholder Agreement, the Company was required to fund into a grantor trust on March 12, 2008, from cash on hand, an amount equal to $34.8 million, which represents the liabilities associated with the BRP (see Note 9) and the amounts that would be payable to certain officers of the Company who are party to the executive severance agreements in the event of qualifying terminations of employment following a change of control (as defined in the BRP and the executive severance agreements) of the Company.

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, 2007, and periodic reports subsequently filed with the Securities and Exchange Commission (SEC).

Overview

We are a manufacturer of aerospace and defense systems with a real estate segment that includes activities related to the 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 (U.S.) and the only U.S. 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 (DoD), and the National Aeronautics and Space Administration (NASA).

Real Estate — includes activities related to the entitlement, sale, and leasing of our excess real estate assets. We own approximately 12,600 acres of land adjacent to U.S. Highway 50 between Rancho Cordova and Folsom, California, east of Sacramento (Sacramento Land). We are currently in the process of seeking zoning changes, removal of environmental restrictions 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 approximately 6,400 acres of the Sacramento Land. We also own approximately 580 acres in Chino Hills, California. We are currently seeking removal of environmental restrictions. Once completed, we will work to maximize the value of the 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 10 of the Unaudited Condensed Consolidated Financial Statements).

In June 2007, the Financial Accounting Standards Board (FASB) issued Emerging Issues Task Force (EITF) No. 07-03 (EITF 07-03), Accounting for Non-Refundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities. EITF 07-03 provides guidance on whether non-refundable advance payments for goods that will be used or services that will be performed in future research and development activities should be accounted for as research and development costs or deferred and capitalized until the goods have been delivered or the related services have been rendered. EITF 07-03 is effective for fiscal years beginning after December 15, 2007. We do not expect that the adoption of EITF 07-03 will have a material impact on our financial position or results of operations.

In September 2006, FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), to provide enhanced guidance when using fair value to measure assets and liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. The requirements of SFAS 157 are to be applied prospectively, and we anticipate that the primary impact of the standard will be related to the measurement of fair value in recurring impairment test calculations (such as the measurement of recorded goodwill). The FASB approved a one-year deferral of the adoption of the standard as it relates to non-financial assets and liabilities with the issuance in February 2008 of FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157. We do not presently hold any financial assets or liabilities that would require recognition under SFAS 157 other than investments held

by our pension plan. With the exception of investments held by our pension plan, this deferral makes SFAS 157 effective for us beginning December 1, 2008. Our evaluation of the impact of this standard is ongoing, and we have not yet determined the impact of the standard on our financial position or results of operations.

Business Outlook

Real Estate — We continue to work with governmental authorities to effect entitlement changes and to lift environmental restrictions for approximately 6,400 acres of our excess Sacramento Land as soon as practicable. In conjunction with these efforts, we will continue to explore, depending on market conditions, 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.

Corporate — On March 5, 2008, we entered into a second amended and restated shareholder agreement (Shareholder Agreement) with Steel Partners II L.P. with respect to the election of Directors for the 2008 Annual Meeting and certain other related matters. We expect to incur a charge in the range of $11 million to $15 million in the second quarter of fiscal 2008. The charge includes costs associated with Terry L. Hall’s executive severance agreement, increases in pension benefits primarily for our officers, and accelerated vesting of outstanding stock-based payment awards (see Note 13 of the Unaudited Condensed Consolidated Financial Statements).

Results of Operations

Net Sales:


	Three months ended
	February 29,		February 28,
	2008		2007		Change*
	(in millions)
Net Sales	$	176.6	$	150.8	$	25.8


*		Primary reason for change. The increase reflects higher sales on numerous space and defense programs including Standard Missile, Tube-launched Optically-tracked Wire-guided Missile (TOW), and Orion which were partially offset by the close-out activities of the Titan program in fiscal 2007. The increase in the Standard Missile program was primarily due to deliveries associated with awards received in fiscal 2006 and the award of a new contract in fiscal 2007 to develop and qualify the Throttling Divert Attitude Control Systems for the Standard Missile 3 program. Increased deliveries under the TOW and Orion programs were additional factors driving the increase in net sales. In addition, the first quarter of fiscal 2008 includes one additional week of operations from Aerojet compared to the first quarter of fiscal 2007 (see Note 1 of the Unaudited Condensed Consolidated Financial Statements).

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


	Three Months ended
	February 29,			February 28,
	2008			2007
Raytheon		31	%		21	%
Lockheed Martin		24	%		38	%

Sales in the first quarter of fiscal 2008 and fiscal 2007 directly and indirectly to the U.S. government and its agencies, including sales to our significant customers discussed above, totaled 88% and 90%, respectively, of net sales.

Cost of Products Sold:


	Three months ended
	February 29,			February 28,
	2008			2007			Change*
	(in millions, except percentage amounts)
Costs of products sold:	$	158.8		$	135.0		$	23.8
Percentage of net sales		90	%		90	%


*		Primary reason for change. The costs of products sold as a percentage of net sales was unchanged primarily due to lower retirement benefit plan expense in the first quarter of fiscal 2008 offset by the favorable performance on the Titan program close-out activities in the first quarter of fiscal 2007.

Selling, General and Administrative (SG&A):


	Three months ended
	February 29,			February 28,
	2008			2007			Change*
	(in millions, except percentage amounts)
Selling, General and Administrative:	$	2.2		$	3.0		$	(0.8	)
Percentage of net sales		1	%		2	%


*		Primary reason for change. The decrease in SG&A spending is primarily due to a decrease of $1.3 million in retirement benefit plan expense 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, partially offset by higher expenses associated with the annual election of the Board of Directors in fiscal 2008.

Depreciation and Amortization:


	Three months ended
	February 29,			February 28,
	2008			2007			Change*
	(in millions, except percentage amounts)
Depreciation and amortization:	$	6.5		$	6.5		$	—
Percentage of net sales		4	%		4	%


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

Interest Expense:


	Three months ended
	February 29,		February 28,
	2008		2007		Change*
	(in millions)
Interest expense	$	7.3	$	7.2	$	0.1


*		Primary reason for change. Interest expense was essentially unchanged for the periods presented.

Interest Income:


	Three months ended
	February 29,			February 28,
	2008			2007			Change*
	(in millions)
Interest income	$	(1.4	)	$	(1.3	)	$	(0.1	)


*		Primary reason for change. Interest income was essentially unchanged for the periods presented.

Other expense, net:


	Three months ended
	February 29,		February 28,
	2008		2007		Change*
	(in millions)
Other expense, net	$	0.1	$	2.1	$	(2.0	)


*		Primary reason for change. The decrease is primarily due to lower costs associated with our environmental clean-up and related activities in the first quarter of fiscal 2008.

Income Tax (Benefit) Provision:


	Three months ended
	February 29,			February 28,
	2008			2007		Change*
	(in millions)
Income tax (benefit) provision	$	(0.2	)	$	0.4	$	(0.6	)


*		Primary reason for change. The income tax benefit for the first quarter of fiscal 2008 is primarily related to the forecasted federal refund associated with the fiscal 2008 tax net operating loss eligible for carryback net of state tax expense. The income tax provision in the first quarter of fiscal 2007 is primarily related to state tax expenses. The difference between book earnings at the statutory rate and the income tax benefit reflected is primarily due to the realization of certain deferred tax assets.

As of February 29, 2008, the liability for uncertain income tax positions was $3.1 million. Due to the high degree of uncertainty regarding the timing of potential future cash flows associated with these liabilities, we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid.

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 quarter 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 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. For operating segment reporting, the Fine Chemicals business was previously reported as a separate operating segment.

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
	February 29,			February 28,
	2008			2007
	(in millions)
Net sales	$	—		$	—
Income (loss) before income taxes		(0.4	)		30.9
Income tax (benefit) provision		(0.1	)		0.3
Income (loss) from discontinued operations, net of income taxes		(0.3	)		30.6

Adoption of New Accounting Principles

As of November 30, 2007, we adopted SFAS No. 158 (SFAS 158), Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which requires that the Unaudited Condensed Consolidated Balance Sheets reflect the funded status of the pension and postretirement plans. The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit obligation. We have recognized the aggregate of all overfunded plans in prepaid pension assets and the aggregate of all unfunded plans in either postretirement medical and life benefits or accrued pension benefits. At November 30, 2007, previously unrecognized actuarial (gains)/losses and the prior services (credits)/costs are included in accumulated other comprehensive loss in the Unaudited Condensed Consolidated Balance Sheets as required by SFAS 158 (see Note 5(g) of the Unaudited Condensed Consolidated Financial Statements). In future periods, the additional actuarial (gains)/losses and prior service (credits)/costs will be recognized in accumulated other comprehensive loss in the period in which they occur.

On December 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). As of December 1, 2007, we had $3.2 million of unrecognized tax benefits all of which would affect our effective tax rate if recognized. The adoption resulted in a reclassification of certain tax liabilities from current to non-current, a reclassification of certain tax indemnification liabilities from income taxes payable to other current liabilities, and a cumulative effect adjustment benefit of $9.1 million that was recorded directly to our accumulated deficit. We recognize interest and penalties related to uncertain tax positions in income tax expense. Interest and penalties are immaterial at the date of adoption and are included in unrecognized tax benefits. As of February 29, 2008, we had approximately $0.1 million of accrued interest related to uncertain tax positions. The tax years ended November 30, 2004 through November 30, 2007 remain open to examination for U.S. Federal income tax purposes. For our other major taxing jurisdictions, the tax years ended November 30, 2003 through November 30, 2007 remain open to examination.

On December 1, 2007, we adopted SFAS No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115. The adoption of SFAS 159 did not have a material impact on our financial position or results of operations.

Operating Segment Information:

We evaluate our operating segments based on several factors, of which the primary financial measure is segment performance. Segment performance, which is a non-GAAP financial measure, represents net sales from continuing operations less applicable costs, expenses and provisions for unusual items relating to the segment. Excluded from segment performance are: corporate income and expenses, interest expense, interest income, income taxes, legacy income or expenses, and provisions for unusual items not related to the segment. We believe that segment performance provides information useful to investors in understanding our underlying operational performance. Specifically, we believe the exclusion of the items listed above permits an evaluation and a comparison of results for ongoing business operations, and it is on this basis that management internally assesses operational performance.

Aerospace and Defense Segment


	Three months ended
	February 29,		February 28,
	2008		2007		Change*
	(in millions)
Net Sales	$	174.5	$	149.1	$	25.4
Segment performance — Income	$	10.4	$	7.2	$	3.2


*		Primary reason for change. Aerojet reports its fiscal year sales and income under a 52/53 week accounting convention. Fiscal 2008 is a 53 week year with the extra week accounted for in the first quarter of fiscal 2008, or one more week than as reported in the first quarter of 2007. Sales of $174.5 million for the first quarter of 2008 increased 17% over $149.1 million in the first quarter of fiscal 2007, reflecting the additional week and growth in the Standard Missile, TOW, and Orion programs partially offset by the close-out activities of the Titan program in fiscal 2007.

Segment performance was income of $10.4 million in the first quarter of fiscal 2008 compared to income of $7.2 million in the first quarter of fiscal 2007. The improved segment performance during the first quarter of fiscal 2008 as compared to the comparable fiscal 2007 period is primarily the result of: (i) decreased retirement benefit plan expense; and (ii) lower costs associated with our environmental clean-up and related activities; partially offset by the favorable performance on the Titan program close-out activities in the first quarter of fiscal 2007. Additionally, segment performance in the first quarter of fiscal 2008 included favorable contract performance on the Atlas V^® program offset by declines in other programs.

As of February 29, 2008, our total backlog was $980 million compared with $912 million as of November 30, 2007. Total backlog includes both funded backlog (the amount for which money has been directly authorized by the U.S. Congress, or for which a purchase order has been received from a commercial customer) and unfunded backlog (firm orders for which funding has not been appropriated). Indefinite delivery and quantity contracts and unexercised options are not reported in total backlog. Backlog is subject to delivery delays or program cancellations which are beyond our control. Funded backlog was $621 million and $566 million at February 29, 2008 and November 30, 2007, respectively.

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. The actions covered such items as environmental remediation, land planning, traffic, wetlands, endangered species mitigation, and water supplies.


	Three months ended
	February 29,		February 28,
	2008		2007		Change*
	(in millions)
Net Sales	$	2.1	$	1.7	$	0.4
Segment performance	$	1.3	$	0.8	$	0.5


*		Primary reason for change. The increase in sales and segment performance reflects completion of negotiations with the Sacramento Region Transit District for the October 2004 property usage agreement relating to its existing Light Rail station.

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, recognizing pension benefits, 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, 2007.

Arrangements with Off-Balance Sheet Risk

— Up to $120.0 million aggregate in guarantees by GenCorp of Aerojet’s obligations to U.S. government agencies for environmental remediation activities.

— Up to $2.3 million of reimbursements to Granite Construction Company (Granite) if the Company requests Granite to cease mining operations on certain portions of the Sacramento Land.

— Guarantees, jointly and severally, by the Company’s material domestic subsidiaries of its obligations under the Senior Credit Facility and the 9¹/2% 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 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 Senior Credit Facility.

As of February 29, 2008, 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 decreased by $19.8 million during the first quarter of fiscal 2008. The change in cash and cash equivalents is as follows:


	Three Months Ended
	February 29,			February 28,
	2008			2007
	(in millions)
Net Cash Used in Operating Activities
Continuing operations	$	(14.7	)	$	(13.4	)
Discontinued operations		(0.2	)		(0.2	)

Total		(14.9	)		(13.6	)
Net Cash (Used in) Provided by Investing Activities
Continuing operations		(4.0	)		(3.2	)
Proceeds from sale of discontinued operations		—			29.7

Total		(4.0	)		26.5
Net Cash Used in Financing Activities		(0.9	)		—

Net (Decrease) Increase in Cash and Cash Equivalents	$	(19.8	)	$	12.9

Net Cash Used In Operating Activities

Continuing Operations

First Quarter Fiscal 2008 versus First Quarter Fiscal 2007 — Continuing operations used cash of $14.7 million in the first quarter of fiscal 2008 compared to cash usage of $13.4 million in the first quarter of fiscal 2007. The change in the cash usage is primarily due to the increased working capital needs of Aerojet due to the growth in business volume.

Net Cash (Used In) Provided by Investing Activities

During the first quarter of fiscal 2008 and fiscal 2007, we invested $4.0 million and $3.2 million, respectively, in capital expenditures. The majority of our capital expenditures directly supports our contract and customer requirements and are primarily made for asset replacement, capacity expansion, development of new projects, and safety and productivity improvements.

Proceeds from sale of Discontinued Operations

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.

Net Cash Used in Financing Activities

During the first quarter of fiscal 2008, net cash of $0.9 million was used for debt principal payments.

Borrowing Activity and Senior Credit Facility:

Our borrowing activity during the first quarter of fiscal 2008 was as follows:


	November 30,							February 29,
	2007		Additions		(Payments)			2008
	(In millions)
4% Contingent Convertible Subordinated Notes	$	125.0	$	—	$	—		$	125.0
2¹/4% Convertible Subordinated Debentures		146.4		—		—			146.4
9¹/2% Senior Subordinated Notes		97.5		—		—			97.5
Term loan		74.6		—		(0.2	)		74.4
Promissory note		2.8		—		(0.7	)		2.1

Total Debt and Borrowing Activity	$	446.3	$	—	$	(0.9	)	$	445.4

Our credit facility (Senior Credit Facility) provides for an $80.0 million revolving credit facility (Revolver) and a $200.0 million credit-linked facility, consisting of a $125.0 million letter of credit subfacility and a $75.0 million term loan subfacility. As of February 29, 2008, the borrowing limit under the Revolver was $80.0 million with all of it available. We had $74.4 million outstanding under the term loan subfacility and $72.4 million outstanding letters of credit issued under the letter of credit subfacility at February 29, 2008.

The Senior Credit Facility is secured by a substantial portion of our real property holdings and substantially all of our other assets, including the stock and assets of our material domestic subsidiaries that are guarantors of the facility. We are subject to certain limitations including the ability to: incur additional senior debt, release collateral, retain proceeds from asset sales and issuances of debt or equity, make certain investments and acquisitions, grant additional liens, and make restricted payments. We are also subject to the following financial covenants:


	Actual Ratios as of	Required Ratios March 1, 2008	Required Ratios
Financial Covenant	February 29, 2008	Through November 30, 2009	December 1, 2009 and thereafter
Interest coverage ratio	4.57 to 1.00	Not less than: 2.25 to 1.00	Not less than: 2.25 to 1.00
Leverage ratio	3.43 to 1.00	Not greater than: 5.75 to 1.00	Not greater than: 5.50 to 1.00

We were in compliance with our financial and non-financial covenants as of February 29, 2008.

Outlook

As disclosed in Notes 7(a) and 7(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 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. During the second quarter of fiscal 2008, we funded into a trust an amount of $34.8 million, which represents the liabilities associated with the our Benefits Restoration Plan and the amounts that would be payable to certain officers who are party to executive severance agreements as a result of qualifying terminations of employment after a change of control of the Company (see Note 13 of the Unaudited Condensed Consolidated Financial Statements). Under the terms of the trust agreement, the assets of the trust are available to the general creditors in the event of bankruptcy or insolvency.

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, 2007.

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, 2007 include, but are not limited to, the following:

	•		effects of recent changes in management and board membership on the Company’s operations and/or business strategy;

	•		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;

	•		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 sales 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 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;

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

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

	•		occurrence of liabilities that are inadequately covered by indemnity or insurance;

	•		changes in the Company’s contract-related accounting estimates;

	•		new accounting standards that could result in changes to our methods of quantifying and recording accounting transactions;

	•		effects of changes in discount rates and returns on plan assets of defined benefit pension plans;

	•		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, 2007, except as noted below.

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 February 29, 2008, our debt totaled $445.4 million: $371.0 million, or 83% was at an average fixed rate of 4.76%; and $74.4 million or 17% was at a variable rate of 5.34%.

The estimated fair value of our total debt was $410.9 million as of February 29, 2008 compared to a carrying value of $445.4 million. The fair value of the term loan, convertible subordinated notes, senior subordinated notes, and convertible subordinated debentures was determined based on quoted market prices as of February 29, 2008. The fair value of the remaining debt was determined to approximate carrying value.

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 our first quarter of fiscal 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Except as disclosed in Note 7 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, 2007.

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


	Three Months		Year		Year
	Ended		Ended,		Ended
	Feb. 29,		Nov. 30,		Nov. 30,
	2008		2007		2006
	(dollars in thousands)
Claims filed		—		2		1
Claims dismissed		—		1		1
Claims settled		—		6		2
Claims pending		3		3		8
Aggregate settlement costs	$	—	$	849	$	76
Average settlement costs	$	—	$	141	$	38

Legal and administrative fees for the vinyl chloride cases for the first quarter of fiscal 2008 were $0.1 million. Legal and administrative fees for the vinyl chloride cases for fiscal 2007 and fiscal 2006 were $0.3 million and $0.4 million, respectively.

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


	Three Months		Year			Year
	Ended		Ended,			Ended
	Feb. 29,		Nov. 30,			Nov. 30,
	2008		2007			2006
	(dollars in thousands)
Claims filed		17		57	*		62
Claims dismissed		7		43			55
Claims settled		1		8			5
Claims pending		169		160			154
Aggregate settlement costs	$	95	$	72		$	67
Average settlement costs	$	95	$	9		$	14


*		This number is net of two cases tendered to a third party under a contractual indemnity obligation.

Legal and administrative fees for the asbestos cases for the first quarter of fiscal 2008 were $0.2 million. Legal and administrative fees for the asbestos cases for fiscal years 2007 and 2006 were $0.9 million and $0.5 million, respectively.

Item 1A. Risk Factors.

Except as disclosed below, 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, 2007.

We have recently experienced a change in the composition of our Board of Directors and the resignation of our former Chief Executive Officer. Failure of new management and Board members to integrate themselves into, and effectively manage, our business, including any new strategies they may adopt, could result in material harm to the Company.

On March 5, 2008, Terry L. Hall resigned as a Director and as our Chief Executive Officer and President and our Board appointed three new Directors. The Board appointed J. Scott Neish, Vice President and President of Aerojet-General Corporation, to serve as our interim Chief Executive Officer and President, pending the results of a search to identify qualified candidates to fill this position on a permanent basis. Some of our new

Directors do not have previous experience with us, the aerospace and defense industry, or the real estate business, and we cannot assure you that they will fully integrate themselves into our business or that they will effectively manage our business affairs. The failure of our Directors or any new members of management to perform effectively or the loss of any of the Directors or members of management could have a significant negative impact on our business, financial condition and results of operations. In addition, our Board and management may institute strategies that differ from those we are applying currently. If any new strategies are adopted, it may take management a significant amount of time to fully implement such new strategies. If any new strategies are unsuccessful or if we are unable to execute them, there could be a significant negative impact on our business, financial condition, and results of operations.

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

None.

Item 3. Defaults upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits


No.		Description
10.1*†		Letter Agreement by and between the Company and Terry L. Hall dated March 5, 2008.

10.2*†		Letter Agreement by and between the Company and J. Scott Neish dated March 5, 2008.

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.

†		Management contract or compensatory plan or arrangement.


Item
Number	Page
PART I — FINANCIAL INFORMATION
1 Financial Statements		3
2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
3 Quantitative and Qualitative Disclosures About Market Risk		36
4 Controls and Procedures		36
PART II — OTHER INFORMATION
1 Legal Proceedings		37
1A Risk Factors		37
2 Unregistered Sales of Equity Securities and Use of Proceeds		38
3 Defaults Upon Senior Securities		38
4 Submission of Matters to Vote of Security Holders		38
5 Other Information		38
6 Exhibits		38
SIGNATURES
Signatures		39
EXHIBIT INDEX
Exhibit Index		40
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

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												Accumulated
												Other			Total
	Comprehensive		Common Stock				Other		Accumulated			Comprehensive			Shareholders’
	Income		Shares		Amount		Capital		Deficit			Loss			Deficit
					(In millions, except share and per share amounts)
November 30, 2007				56,586,720	$	5.7	$	205.2	$	(227.4	)	$	(35.5	)	$	(52.0	)
Net income	$	3.0		—		—		—		3.0			—			3.0
Recognized net actuarial losses		1.9		—		—		—		—			1.9			1.9
Amortization of prior service costs		0.5		—		—		—		—			0.5			0.5
Cumulative effect adjustment related to the adoption of FIN 48		—		—		—		—		9.1			—			9.1
Stock-based compensation		—		—		—		0.3		—			—			0.3
Shares issued under stock option and stock incentive plans		—		271,784		—		2.2		—			—			2.2

February 29, 2008	$	5.4		56,858,504	$	5.7	$	207.7	$	(215.3	)	$	(33.1	)	$	(35.0	)


	GenCorp Inc.
Date: March 26, 2008	By:	/s/ J. Scott Neish
		J. Scott Neish
		Interim President and Interim Chief Executive Officer (Principal Executive Officer)


Date: March 26, 2008	By:	/s/ Yasmin R. Seyal
		Yasmin R. Seyal
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)


Date: March 26, 2008	By:	/s/ R. Leon Blackburn
		R. Leon Blackburn
		Vice President and Controller (Principal Accounting Officer)


Exhibit No.		Exhibit Description

10.1		Letter Agreement by and between the Company and Terry L. Hall dated March 5, 2008.

10.2		Letter Agreement by and between the Company and J. Scott Neish dated March 5, 2008.

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.