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: May 31, 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 (State of Incorporation)		34-0244000 (I.R.S. Employer Identification No.)

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

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

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

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

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

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

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

As of June 27, 2008, there were 57.2 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 May 31,						Six months ended May 31,
	2008			2007			2008			2007
				(in millions, except per share amounts)
Net Sales	$	194.7		$	192.3		$	371.3		$	343.1
Costs and Expenses
Cost of products sold		161.7			163.3			320.5			298.3
Selling, general and administrative		(0.2	)		3.7			0.9			6.7
Depreciation and amortization		6.6			6.9			13.1			13.4
Interest expense		6.8			7.0			14.1			14.2
Interest income		(0.9	)		(1.3	)		(2.3	)		(2.5	)
Other expense, net		0.4			0.5			0.5			2.5
Unusual items:
Shareholder agreement and related costs		12.7			—			13.8			—
Unrecoverable portion of legal matters		1.1			2.6			1.1			2.6

Income from continuing operations before income taxes		6.5			9.6			9.6			7.9
Income tax benefit		(0.4	)		(3.6	)		(0.6	)		(3.2	)

Income from continuing operations		6.9			13.2			10.2			11.1
Income (loss) from discontinued operations, net of income taxes		—			(0.7	)		(0.3	)		29.9

Net income	$	6.9		$	12.5		$	9.9		$	41.0

Income Per Share of Common Stock
Basic
Income per share from continuing operations	$	0.12		$	0.23		$	0.18		$	0.20
Income (loss) per share from discontinued operations, net of income taxes		—			(0.01	)		(0.01	)		0.53

Net income per share	$	0.12		$	0.22		$	0.17		$	0.73

Diluted
Income per share from continuing operations	$	0.12		$	0.22		$	0.18		$	0.20
Income (loss) per share from discontinued operations, net of income taxes		—			(0.01	)		(0.01	)		0.53

Net income per share	$	0.12		$	0.21		$	0.17		$	0.73

Weighted average shares of common stock outstanding		57.1			56.1			56.9			56.0

Weighted average shares of common stock outstanding, assuming dilution		57.1			64.5			57.0			56.3

See Notes to Unaudited Condensed Consolidated Financial Statements.

GenCorp Inc.
Condensed Consolidated Balance Sheets
(Unaudited)


	May 31,			November 30,
	2008			2007
	(In millions, except per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	58.8		$	92.3
Accounts receivable		92.4			99.2
Inventories		74.3			67.5
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		45.5			46.5
Grantor trust		1.9			—
Prepaid expenses and other		18.0			17.4
Income tax receivable		8.0			—
Assets of discontinued operations		0.1			0.1

Total Current Assets		299.0			323.0
Noncurrent Assets
Property, plant and equipment, net		135.8			139.8
Real estate held for entitlement and leasing		45.7			45.3
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		172.7			179.0
Prepaid pension asset		103.1			101.0
Grantor trust		33.3			—
Goodwill		94.9			94.9
Intangible assets		20.9			21.7
Other noncurrent assets, net		88.6			90.5

Total Noncurrent Assets		695.0			672.2

Total Assets	$	994.0		$	995.2

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Short-term borrowings and current portion of long-term debt	$	2.0		$	1.5
Accounts payable		26.9			28.9
Reserves for environmental remediation costs		66.3			66.1
Income taxes payable		—			6.2
Postretirement medical and life insurance benefits		8.8			8.8
Advance payments on contracts		38.0			49.1
Other current liabilities		89.3			84.3
Liabilities of discontinued operations		1.1			1.0

Total Current Liabilities		232.4			245.9
Noncurrent Liabilities
Convertible subordinated notes		271.4			271.4
Senior subordinated notes		97.5			97.5
Other long-term debt		70.0			75.9
Deferred income taxes		0.6			0.3
Reserves for environmental remediation costs		194.3			203.9
Postretirement medical and life insurance benefits		76.7			78.5
Other noncurrent liabilities		75.0			73.8

Total Noncurrent Liabilities		785.5			801.3

Total Liabilities		1,017.9			1,047.2
Commitments and Contingencies (Note 8)
Redeemable common stock, par value of $0.10; 0.8 million shares issued and outstanding as of May 31, 2008 (Note 9)		9.5			—
Shareholders’ Deficit
Preference stock, par value of $1.00; 15 million shares authorized; none issued or outstanding		—			—
Common stock, par value of $0.10; 150 million shares authorized; 56.4 million shares issued and outstanding as of May 31, 2008; 56.8 million shares issued, 56.6 million shares outstanding as of November 30, 2007		5.6			5.7
Other capital		201.3			205.2
Accumulated deficit		(208.4	)		(227.4	)
Accumulated other comprehensive loss, net of income taxes		(31.9	)		(35.5	)

Total Shareholders’ Deficit		(33.4	)		(52.0	)

Total Liabilities and Shareholders’ Deficit	$	994.0		$	995.2

See Notes to Unaudited Condensed Consolidated Financial Statements.

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


	Six months ended
	May 31,			May 31,
	2008			2007
	(in millions)
Operating Activities
Net income	$	9.9		$	41.0
Adjustments to reconcile net income to net cash used in operating activities:
Loss (income) from discontinued operations		0.3			(29.9	)
Depreciation and amortization		13.1			13.4
Stock-based compensation		1.4			0.7
Savings plan expense, net		3.9			4.2
Changes in assets and liabilities:
Accounts receivable		6.8			(15.0	)
Inventories		(6.8	)		(1.5	)
Grantor trust		(35.2	)		—
Prepaid expenses and other		0.4			9.3
Income tax receivable		(7.8	)		—
Real estate held for entitlement and leasing		(4.1	)		(3.5	)
Other noncurrent assets		17.8			(4.5	)
Accounts payable		(2.1	)		(10.5	)
Income taxes payable		3.5			(3.9	)
Postretirement medical and life insurance benefits		(5.3	)		(4.7	)
Advance payments on contracts		(11.1	)		1.0
Other current liabilities		4.8			(5.5	)
Deferred income taxes		0.3			—
Other noncurrent liabilities		(9.4	)		8.1

Net cash used in continuing operations		(19.6	)		(1.3	)
Net cash used in discontinued operations		(0.3	)		(1.0	)

Net Cash Used in Operating Activities		(19.9	)		(2.3	)
Investing Activities
Capital expenditures		(7.6	)		(5.7	)
Proceeds from discontinued operations		—			29.7
Decrease in restricted cash		—			19.8

Net Cash (Used in) Provided by Investing Activities		(7.6	)		43.8
Financing Activities
Debt repayments		(6.0	)		(20.5	)
Tax benefit on stock-based compensation		—			0.3
Proceeds from shares issued under stock option and equity incentive plans		—			0.4

Net Cash Used in Financing Activities		(6.0	)		(19.8	)

Net (Decrease) Increase in Cash and Cash Equivalents		(33.5	)		21.7
Cash and Cash Equivalents at Beginning of Period		92.3			61.2

Cash and Cash Equivalents at End of Period	$	58.8		$	82.9


Supplemental Disclosures of Cash Flow Information
Financing of an environmental remediation settlement with a promissory note	$	0.6		$	—
Capital expenditure purchased with a 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). Reclassifications have been made to certain financial information for prior periods to conform to the current year’s presentation.

The Company believes the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments, including 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 fiscal year of the Company’s subsidiary, Aerojet-General Corporation (Aerojet), 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, which occurred 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 12,200 acres of land adjacent to U.S. Highway 50 between Rancho Cordova and Folsom, California east of Sacramento (Sacramento Land). The Company is currently in the process of seeking zoning changes and other governmental approvals on a portion of the Sacramento Land to optimize its value. The Company has filed applications with, and submitted information to, governmental and regulatory authorities for approvals necessary to re-zone approximately 6,000 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 12).

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 Statements of Cash Flows.

In September 2006, the Financial Accounting Standards Board (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.

In June 2007, the 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.

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.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)). Under SFAS 141(R), an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of the provision for taxes. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of SFAS 141(R) will change the Company’s accounting treatment for business combinations on a prospective basis beginning December 1, 2009.

In December 2007, the FASB issued SFAS No. 160 (SFAS 160), Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests and classified as a component of equity. SFAS 160 is effective for the Company on a prospective basis beginning December 1, 2009. As of May 31, 2008, the Company did not have any minority interests. Accordingly, the adoption of SFAS 160 is not expected to impact the Company’s consolidated financial statements.

In May 2008, the FASB issued Staff Position No. Accounting Principles Board 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1), which is effective for fiscal years beginning after December 15, 2008. FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion are not addressed by paragraph 12 of Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. FSP APB 14-1 also specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The Company is currently evaluating the effect of FSP APB 14-1 and it has not yet determined the impact of the standard on its financial position or results of operations.

2. Income (Loss) Per Share of Common Stock

A reconciliation of the numerator and denominator used to calculate basic and diluted income (loss) per share of common stock (EPS) is presented in the following table:


	Three months ended May 31,					Six months ended May 31,
	2008		2007			2008			2007
	(in millions, except per share amounts; shares in thousands)
Numerator:
Income from continuing operations	$	6.9	$	13.2		$	10.2		$	11.1
Income (loss) from discontinued operations, net of income taxes		—		(0.7	)		(0.3	)		29.9

Net income for basic earnings per share		6.9		12.5			9.9			41.0
Interest on contingent convertible subordinated notes		—		1.3			—			—

Net income available to common shareholders, as adjusted for diluted earnings per share	$	6.9	$	13.8		$	9.9		$	41.0

Denominator:
Basic weighted average shares		57,074		56,127			56,902			56,029
Effect of:
Contingent convertible subordinated notes		—		8,101			—			—
Employee stock options		38		215			67			226
Restricted stock awards		—		67			—			68

Diluted weighted average shares		57,112		64,510			56,969			56,323

Basic EPS:
Income per share from continuing operations	$	0.12	$	0.23		$	0.18		$	0.20
Income (loss) per share from discontinued operations, net of income taxes		—		(0.01	)		(0.01	)		0.53

Net income per share	$	0.12	$	0.22		$	0.17		$	0.73

Diluted EPS:
Income per share from continuing operations	$	0.12	$	0.22		$	0.18		$	0.20
Income (loss) per share from discontinued operations, net of income taxes		—		(0.01	)		(0.01	)		0.53

Net income per share	$	0.12	$	0.21		$	0.17		$	0.73

During the second quarter and first half 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 (5³/4% Notes) were not included in the computation of diluted income per share in the second quarter and first half of fiscal 2007 because the effect would be antidilutive. In April 2007, the Company retired the outstanding principal of the 5³/4% Notes. Also, during the second quarter of fiscal 2008 and the first half 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.

3. Stock-Based Compensation

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


	Three months ended May 31,						Six months ended May 31,
	2008			2007			2008			2007
	(in millions, except per share amounts)
Stock appreciation rights	$	0.2		$	0.3		$	(0.2	)	$	0.5
Restricted stock, service based		0.6			—			0.7			0.1
Restricted stock, performance based		0.7			0.2			0.9			0.1
Stock options		—			—			—			—

Total stock-based compensation expense		1.5			0.5			1.4			0.7
Tax effect on stock-based compensation expense		—			—			—			—

Net effect on stock-based compensation expense	$	1.5		$	0.5		$	1.4		$	0.7

Effect on basic and diluted per share amounts	$	(0.03	)	$	(0.01	)	$	(0.02	)	$	(0.01	)

The Company recorded an unusual charge of $2.4 million in the second quarter of fiscal 2008 related to the accelerated vesting of outstanding stock-based payment awards (see Note 4). In addition, subsequent to the accelerated vesting of outstanding stock-based payment awards on March 5, 2008, the Company’s common stock market price declined resulting in a reduction in the fair value of the stock appreciation rights as of May 31, 2008.

4. Unusual Items and Grantor Trust Funding

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 which resulted in a charge of $13.8 million in the first half of fiscal 2008, including the reclassification of $1.1 million of selling, general and administrative expenses incurred in the first quarter of fiscal 2008. The charge was comprised of the following (in millions):


Increases in pension benefits primarily for certain of the Company’s officers	$	5.3
Executive severance agreement		4.1
Accelerated vesting of stock appreciation rights		1.1
Accelerated vesting of restricted stock, service based		0.6
Accelerated vesting of restricted stock, performance based		0.7
Professional fees and other		2.0

	$	13.8

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 liabilities associated with the Benefits Restoration Plan (BRP) and amounts payable to certain officers of the Company party to executive severance agreements in the event of qualifying terminations of employment following a change of control (as defined in the BRP and the executive severance agreements) of the Company. In addition, as a result of the resignation of three additional Board members on May 16, 2008, the Company was required to fund $0.4 million into a grantor trust on May 22, 2008, which primarily represents the amount payable to an officer of the Company party to an executive severance agreement in the event of a qualifying termination of employment following a change of control.

In the second quarter of fiscal 2008, the Company recorded a charge of $1.1 million related to the estimated unrecoverable costs of legal matters, including $0.9 million associated with the failure to register with the SEC the issuance of shares under its defined contribution 401(k) employee benefit plan (see Note 9).

In the first half of fiscal 2007, the Company recorded a $2.6 million charge related to the estimated unrecoverable costs of other legal matters.

5. 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 its 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 were immaterial at the date of adoption. As of May 31, 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 the Company’s 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 second quarter of fiscal 2008, to which the Company does not expect any significant changes during the next twelve months.

6. Balance Sheet Accounts

a. Accounts Receivable


	May 31,		November 30,
	2008		2007
	(in millions)
Billed	$	48.8	$	41.5
Unbilled		39.4		54.0

Total receivables under long-term contracts		88.2		95.5

Other receivables, net of $0.3 million of allowance for doubtful accounts as of November 30, 2007		4.2		3.7

Accounts receivable	$	92.4	$	99.2

b. Inventories


	May 31,			November 30,
	2008			2007
	(In millions)
Long-term contracts at average cost	$	197.5		$	181.7
Progress payments		(126.9	)		(117.3	)

Total long-term contract inventories		70.6			64.4

Raw materials		0.1			0.1
Work in progress		3.6			3.0
Finished goods		—			—

Total other inventories		3.7			3.1

Inventories	$	74.3		$	67.5

c. Property, Plant and Equipment, net


	May 31,			November 30,
	2008			2007
	(In millions)
Land	$	33.2		$	33.2
Buildings and improvements		145.8			144.7
Machinery and equipment		360.8			355.0
Construction-in-progress		7.7			9.3

		547.5			542.2
Less: accumulated depreciation		(411.7	)		(402.4	)

Property, plant and equipment, net	$	135.8		$	139.8

d. Other Noncurrent Assets, net


	May 31,		November 30,
	2008		2007
	(In millions)
Receivable from Northrop Grumman Corporation (see Note 8(c))	$	41.2	$	39.9
Deferred financing costs		14.7		15.6
Other		32.7		35.0

Other noncurrent assets, net	$	88.6	$	90.5

e. Other Current Liabilities


	May 31,		November 30,
	2008		2007
	(In millions)
Accrued compensation and employee benefits	$	43.2	$	37.0
Interest payable		5.3		5.0
Legal settlements		5.0		4.7
Deferred revenue		2.1		2.1
Contract loss provisions		1.8		1.3
Pension liability		1.1		1.3
Other		30.8		32.9

Other current liabilities	$	89.3	$	84.3

f. Other Noncurrent Liabilities


	May 31,		November 30,
	2008		2007
	(In millions)
Legal settlements	$	23.1	$	25.2
Conditional asset retirement obligations		12.9		13.4
Deferred revenue		12.2		13.2
Deferred compensation		7.8		10.5
Pension liability		14.4		9.8
Uncertain tax positions		3.1		—
Other		1.5		1.7

Other noncurrent liabilities	$	75.0	$	73.8

g. Accumulated Other Comprehensive Loss, Net of Income Taxes


	May 31,			November 30,
	2008			2007
	(In millions)
Net actuarial losses	$	(24.9	)	$	(27.6	)
Prior service costs		(7.0	)		(7.9	)

Accumulated other comprehensive loss, net of income taxes	$	(31.9	)	$	(35.5	)

7. Long-term Debt


	May 31,			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


Term loan, bearing interest at various rates (rate of 4.90% as of May 31, 2008), payable in quarterly installments of $0.2 million plus interest, maturing in 2013		69.3			74.6
Promissory note, bearing interest at 5% per annum, payable in annual installments of $0.7 million plus interest, maturing in 2011		2.1			2.8
Promissory note, bearing no interest through maturity in 2009		0.6			—

Total other debt		72.0			77.4

Total debt		440.9			446.3
Less: Amounts due within one year		(2.0	)		(1.5	)

Total long-term debt	$	438.9		$	444.8

The estimated fair value of the Company’s total debt was $396.2 million as of May 31, 2008 compared to a carrying value of $440.9 million. The fair value of the convertible subordinated notes, convertible subordinated debentures, senior subordinated notes, and term loans was determined based on quoted market prices as of May 31, 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 May 31, 2008, the borrowing limit under the Revolver was $80.0 million with all of it available. The Company had $69.3 million outstanding under the term loan subfacility and $74.0 million outstanding letters of credit issued under the $125.0 million letter of credit subfacility at May 31, 2008.

During the second quarter of fiscal 2008, the Company sold 400 acres of its Rio Del Oro property to Elliott Homes Inc. (Elliott) for a cash price of $10 million, a transaction that resulted from an option granted as part of a 2001 land transaction. Under the terms of the Senior Credit Facility, the Company was required to use 50% of the net sale proceeds, or $5 million, to repay outstanding principal on the term loan subfacilty.

In March 2008, the Company settled an environmental remediation matter for $1.2 million. Under the terms of the settlement, the Company paid half of the settlement in cash in the second quarter of fiscal 2008 and the remaining amount, secured by a promissory note, is due in one year.

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 June 1, 2008	Required Ratios
Financial Covenant	May 31, 2008	Through November 30, 2009	December 1, 2009 and thereafter
Interest coverage ratio	4.88 to 1.00	Not less than: 2.25 to 1.00	Not less than: 2.25 to 1.00
Leverage ratio	3.30 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 May 31, 2008.

8. 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 has been rescheduled and is now set for February 2009.

In December 2007, Aerojet was named as a defendant in a lawsuit brought by six individuals who allegedly resided in the vicinity of Aerojet’s Sacramento facility. The case is entitled Caldwell, et al. v. Aerojet-General Corporation, Case No. 34-2000-

00884000CU-TT-GDS, Sacramento County (CA) Superior Court and was served April 3, 2008. 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 filed a demurrer to the complaint and is scheduled for hearing on July 24, 2008.

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 are three vinyl chloride cases pending against the Company as of May 31, 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 167 asbestos cases pending as of May 31, 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 $19,000) 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 continues to investigate the underlying facts to determine what liability, if any, the Company may have for this claim.

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 May 31, 2008, the aggregate range of these anticipated environmental costs was $260.6 million to $470.0 million and the accrued amount was $260.6 million. See Note 8(c) for a summary of the environmental reserve activity for the first half of fiscal 2008. Of these accrued liabilities, approximately 61% relates to the Sacramento, California site and approximately 28% to the Baldwin Park Operable Unit of the San Gabriel Valley, California site. Each of those two sites is discussed below. The balance of the accrued liabilities relates to other sites for which the Company’s obligations are probable and estimable.

Sacramento, California Site

In 1989, a federal district court in California approved a Partial Consent Decree (PCD) requiring Aerojet, among other things, to conduct a Remedial Investigation and Feasibility Study (RI/FS) to determine the nature and extent of impacts due to the release of chemicals from the site, monitor the American River and offsite public water supply wells, operate Groundwater Extraction and Treatment facilities (GETs) that collect groundwater at the site perimeter, and pay certain government oversight costs. The primary chemicals of concern for both on-site and off-site groundwater are trichloroethylene (TCE), perchlorate, and n-nitrosodimethylamine (NDMA). The PCD has been revised several times, most recently in 2002. The 2002 PCD revision (a) separated the Sacramento site into multiple operable units to allow quicker implementation of remedy for critical areas; (b) required the Company to guarantee up to $75 million (in addition to a prior $20 million guarantee) to assure that Aerojet’s Sacramento remediation activities are fully funded; and (c) removed approximately 2,600 acres of non-contaminated land from the US EPA superfund designation.

Aerojet is involved in various stages of soil and groundwater investigation, remedy selection, design, and remedy construction associated with the operable units. In 2002, the US EPA issued a 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 final Remedial Investigation/Feasibility Study for the Perimeter Groundwater Operable Unit in 2008 and the US EPA will issue a Record of Decision sometime thereafter. Aerojet will submit a draft Remedial Investigation/Feasibility Study for the Boundary Operable Unit in 2008. The remaining operable units are under various stages of investigation.

Until March 2008, the entire 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 United States Department of Interior Fish and Wildlife Service (USFWS) a notice of a Natural Resource Damage (NRD) Assessment Plan for the Ottawa River and Northern Maumee Bay. The Company previously manufactured products for the automotive industry at a Toledo, Ohio site, which was adjacent to the Ottawa River. This facility was divested in 1990 and the Company indemnified the buyer for claims and liabilities arising out of certain pre-divestiture environmental matters. A group of Potentially Responsible Parties, including GenCorp, was formed to respond to the NRD assessment and to pursue funding from the Great Lakes Legacy Act for primary restoration. 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 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			May 31,
	2007		Additions		Expenditures			2008
	(in millions)
Aerojet	$	259.5	$	11.5	$	(20.3	)	$	250.7
Other Sites		10.5		0.4		(1.0	)		9.9

Environmental Reserve	$	270.0	$	11.9	$	(21.3	)	$	260.6

As of May 31, 2008, the Aerojet reserves include $160.1 million for the Sacramento site, $74.0 million for BPOU, and $16.6 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 May 31, 2008, $127.5 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 $41.2 million and is included as a component of other noncurrent assets, net in the Unaudited Condensed Consolidated Balance Sheet as of May 31, 2008.

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 $7.5 million has been spent through May 31, 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 the first half of fiscal 2008, the increase to the reserve of $11.9 million resulted in a charge to operations of $1.9 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		(1.0	)
Accretion		0.5

Balance as of May 31, 2008	$	12.9

9. Redeemable Common Stock

The Company inadvertently failed to register with the SEC the issuance of certain of its common shares in its defined contribution 401(k) employee benefit plan (the Plan). As a result, certain Plan participants who purchased such securities pursuant to the Plan may have the right to rescind certain of their purchases for an amount equal to the purchase price paid for the securities (or if such security has been sold, to receive damages with respect to any loss incurred on such sale) plus interest from the date of purchase. As of May 31, 2008, the Company has classified 0.8 million shares as redeemable common stock, because the redemption features are not within the control of the Company. The Company may also be subject to civil and other penalties by regulatory authorities as a result of the failure to register. These shares have always been treated as outstanding for financial reporting purposes. The Company intends to make a registered rescission offer to eligible Plan participants in the third quarter of fiscal 2008. The Company also intends to seek an amendment to its credit facility in order to make such rescission offer. During the second quarter of fiscal 2008, the Company recorded a charge of $0.9 million associated with this matter.

10. Arrangements with Off-Balance Sheet Risk

As of May 31, 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:



	•		$74.0 million in outstanding commercial letters of credit expiring within the next twelve 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 $2.2 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.

11. 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 a non-qualified BRP, which restores benefits that cannot be paid under the GenCorp qualified pension plan due to IRS limitations. The Company recorded a charge of $5.3 million in the second quarter of fiscal 2008 related to the increases in pension benefits primarily for certain officers of the Company associated with the March 2008 Shareholder Agreement (see Note 4).

Medical and Life Insurance 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 (see Note 9). The Company also sponsors a 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 (see Note 4).

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 6(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
	May 31,			May 31,			May 31,			May 31,
	2008			2007			2008			2007
	(in millions)
Service cost	$	4.9		$	4.3		$	0.1		$	0.1
Interest cost on benefit obligation		24.2			24.1			1.3			1.3
Assumed return on plan assets		(31.0	)		(30.7	)		—			—
Amortization of prior service costs		0.5			0.5			(0.1	)		—
Recognized net actuarial (gains) losses		3.8			7.4			(1.7	)		(1.7	)

Net periodic benefit (income) expense	$	2.4		$	5.6		$	(0.4	)	$	(0.3	)


	Pension Benefits						Postretirement Benefits
	Six months ended
	May 31,			May 31,			May 31,			May 31,
	2008			2007			2008			2007
	(in millions)
Service cost	$	9.8		$	8.6		$	0.2		$	0.2
Interest cost on benefit obligation		48.3			48.1			2.6			2.7
Assumed return on plan assets		(61.9	)		(61.4	)		—			—
Amortization of prior service costs		1.0			1.0			(0.1	)		(0.1	)
Recognized net actuarial (gains) losses		7.4			14.9			(3.4	)		(3.4	)

Net periodic benefit (income) expense	$	4.6		$	11.2		$	(0.7	)	$	(0.6	)

12. 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. Please refer to Note 8(a) for a discussion of legal matters associated with the closing of the manufacturing facility in Chartres, France.

Summarized financial information for discontinued operations is set forth below:


	Three months ended May 31,					Six months ended May 31,
	2008		2007			2008			2007
			(in millions)
Net sales	$	—	$	—		$	—		$	—
Income (loss) before income taxes		0.1		(0.7	)		(0.3	)		30.2
Income tax provision		0.1		—			—			0.3
Net income (loss) from discontinued operations		—		(0.7	)		(0.3	)		29.9

As of May 31, 2008 and November 30, 2007, the components of assets and liabilities of discontinued operations in the consolidated balance sheets are as follows:


	May 31,		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

13. 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 May 31,						Six months ended May 31,
	2008			2007			2008			2007
Lockheed Martin		26	%		35	%		25	%		36	%
Raytheon		26	%		30	%		28	%		26	%

Sales during the three and six months ended May 31, 2008 directly and indirectly to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, totaled 85% and 86% of net sales, respectively. Sales during the three and six months ended May 31, 2007 directly and indirectly to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, totaled 91% and 90% of net sales, respectively.

Selected financial information for each reportable segment is as follows:


	Three months ended May 31,						Six months ended May 31,
	2008			2007			2008			2007
				(in millions)
Net Sales:
Aerospace and Defense	$	183.1		$	190.7		$	357.6		$	339.8
Real Estate		11.6			1.6			13.7			3.3

Total Net Sales	$	194.7		$	192.3		$	371.3		$	343.1

Segment Performance:
Aerospace and Defense	$	23.5		$	29.4		$	38.4		$	43.7
Environmental remediation provision adjustments		(0.7	)		(1.5	)		(1.4	)		(2.7	)
Retirement benefit plan expense		(3.9	)		(6.0	)		(7.7	)		(11.9	)
Unusual items — unrecoverable portion of settlements and reserves for legal matters		(1.1	)		(2.6	)		(1.1	)		(2.6	)

Aerospace and Defense Total		17.8			19.3			28.2			26.5
Real Estate		7.1			0.6			8.4			1.4

Total Segment Performance	$	24.9		$	19.9		$	36.6		$	27.9

Reconciliation of segment performance to income from continuing operations before income taxes:
Segment performance	$	24.9		$	19.9		$	36.6		$	27.9
Interest expense		(6.8	)		(7.0	)		(14.1	)		(14.2	)
Interest income		0.9			1.3			2.3			2.5
Corporate and other		(1.7	)		(5.3	)		(5.2	)		(9.6	)
Corporate retirement benefit plan income		1.9			0.7			3.8			1.3
Unusual items — shareholder agreement and related costs		(12.7	)		—			(13.8	)		—

Income from continuing operations before income taxes	$	6.5		$	9.6		$	9.6		$	7.9

14. Condensed Consolidating Financial Information

The Company is providing condensed consolidating financial information for its material domestic subsidiaries that have guaranteed the 9¹/2% Notes, and for those subsidiaries that have not guaranteed the 9¹/2% Notes. These wholly owned subsidiary guarantors have, jointly and severally, fully and unconditionally guaranteed the 9 ¹/2% Notes. The subsidiary guarantees are senior subordinated obligations of each subsidiary guarantor and rank (i) junior in right of payment with all senior indebtedness, (ii) equal in right of payment with all senior subordinated indebtedness, and (iii) senior in right of payment to all subordinated indebtedness, in each case, of that subsidiary guarantor. The subsidiary guarantees will also be effectively subordinated to any secured indebtedness of the subsidiary guarantor with respect to the assets securing that indebtedness. Absent both default and notice as specified in the Company’s Senior Credit Facility and agreements governing the Company’s outstanding convertible notes and the 9¹/2% Notes, there are no restrictions on the Company’s ability to obtain funds from its wholly owned subsidiary guarantors by dividend or loan.

The Company has not presented separate financial and narrative information for each of the subsidiary guarantors, because it believes that such financial and narrative information would not provide investors with any additional information that would be material in evaluating the sufficiency of the guarantees. Therefore, the following condensed consolidating financial information summarizes the financial position, results of operations, and cash flows for the Company’s guarantor and non-guarantor subsidiaries.

Condensed Consolidating Statements of Operations
(Unaudited)


				Guarantor		Non-guarantor
Three Months Ended May 31, 2008 (in millions)	Parent			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	194.7	$	—		$	—		$	194.7
Cost of products sold		—			161.7		—			—			161.7
Selling, general and administrative		(6.1	)		5.9		—			—			(0.2	)
Depreciation and amortization		0.5			6.1		—			—			6.6
Interest expense		5.4			1.4		—			—			6.8
Other, net		12.2			1.1		—			—			13.3

Income (loss) from continuing operations before income taxes		(12.0	)		18.5		—			—			6.5
Income tax (benefit) provision		(3.7	)		3.3		—			—			(0.4	)

Income (loss) from continuing operations		(8.3	)		15.2		—			—			6.9
Income (loss) from discontinued operations		0.1			—		(0.1	)		—			—

Income (loss) before equity income of subsidiaries		(8.2	)		15.2		(0.1	)		—			6.9
Equity earnings of subsidiaries		15.1			—		—			(15.1	)		—

Net income (loss)	$	6.9		$	15.2	$	(0.1	)	$	(15.1	)	$	6.9


				Guarantor		Non-guarantor
Three Months Ended May 31, 2007 (in millions)	Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	192.3	$	—	$	—		$	192.3
Cost of products sold		—			163.3		—		—			163.3
Selling, general and administrative		1.3			2.4		—		—			3.7
Depreciation and amortization		0.5			6.4		—		—			6.9
Interest expense		6.2			0.8		—		—			7.0
Other, net		(1.0	)		2.8		—		—			1.8

Income (loss) from continuing operations before income taxes		(7.0	)		16.6		—		—			9.6
Income tax (benefit) provision		(11.3	)		7.7		—		—			(3.6	)

Income from continuing operations		4.3			8.9		—		—			13.2
Loss from discontinued operations		(0.7	)		—		—		—			(0.7	)

Income before equity income of subsidiaries		3.6			8.9		—		—			12.5
Equity earnings of subsidiaries		8.9			—		—		(8.9	)		—

Net income	$	12.5		$	8.9	$	—	$	(8.9	)	$	12.5


				Guarantor		Non-guarantor
Six Months Ended May 31, 2008 (in millions)	Parent			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	371.3	$	—		$	—		$	371.3
Cost of products sold		—			320.5		—			—			320.5
Selling, general and administrative		(7.9	)		8.8		—			—			0.9
Depreciation and amortization		0.9			12.2		—			—			13.1
Interest expense		11.4			2.7		—			—			14.1
Other, net		12.2			0.9		—			—			13.1

Income (loss) from continuing operations before income taxes		(16.6	)		26.2		—			—			9.6
Income tax (benefit) provision		(7.9	)		7.3		—			—			(0.6	)

Income (loss) from continuing operations		(8.7	)		18.9		—			—			10.2
Loss from discontinued operations		(0.2	)		—		(0.1	)		—			(0.3	)

Income (loss) before equity income of subsidiaries		(8.9	)		18.9		(0.1	)		—			9.9
Equity earnings of subsidiaries		18.8			—		—			(18.8	)		—

Net income (loss)	$	9.9		$	18.9	$	(0.1	)	$	(18.8	)	$	9.9


				Guarantor		Non-guarantor
Six Months Ended May 31, 2007 (in millions)	Parent			Subsidiaries		Subsidiaries		Eliminations			Consolidated
Net sales	$	—		$	343.1	$	—	$	—		$	343.1
Cost of products sold		—			298.3		—		—			298.3
Selling, general and administrative		1.9			4.8		—		—			6.7
Depreciation and amortization		1.1			12.3		—		—			13.4
Interest expense		12.7			1.5		—		—			14.2
Other, net		(2.1	)		4.7		—		—			2.6

Income (loss) from continuing operations before income taxes		(13.6	)		21.5		—		—			7.9
Income tax (benefit) provision		(11.5	)		8.3		—		—			(3.2	)

Income (loss) from continuing operations		(2.1	)		13.2		—		—			11.1
Income from discontinued operations		29.9			—		—		—			29.9

Income before equity income of subsidiaries		27.8			13.2		—		—			41.0
Equity earnings of subsidiaries		13.2			—		—		(13.2	)		—

Net income	$	41.0		$	13.2	$	—	$	(13.2	)	$	41.0

Condensed Consolidating Balance Sheets
(Unaudited)


				Guarantor			Non-guarantor
May 31, 2008 (In millions):	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	65.8		$	(7.4	)	$	0.4		$	—		$	58.8
Accounts receivable		—			92.4			—			—			92.4
Inventories		—			74.3			—			—			74.3
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			45.5			—			—			45.5
Grantor trust		1.5			0.4			—			—			1.9
Prepaid expenses and other		9.7			8.3			—			—			18.0
Income tax receivable		24.7			(16.7	)		—			—			8.0
Assets of discontinued operations		—			—			0.1			—			0.1

Total current assets		101.7			196.8			0.5			—			299.0
Property, plant and equipment, net		0.4			135.4			—			—			135.8
Recoverable from the U.S. government and other third parties for environmental remediation costs and other		—			172.7			—			—			172.7
Prepaid pension asset		104.8			(1.7	)		—			—			103.1
Grantor Trust		23.8			9.5			—			—			33.3
Goodwill		—			94.9			—			—			94.9
Intercompany receivable (payable), net		11.7			5.0			(16.7	)		—			—
Other noncurrent assets and intangibles, net		290.0			140.4			9.9			(285.1	)		155.2

Total assets	$	532.4		$	753.0		$	(6.3	)	$	(285.1	)	$	994.0

Short-term borrowings and current portion of long-term debt	$	1.4		$	0.6		$	—		$	—		$	2.0
Accounts payable		1.4			25.5			—			—			26.9
Reserves for environmental remediation costs		4.9			61.4			—			—			66.3
Other current liabilities, advance payments on contracts, and postretirement medical and life insurance benefits		34.4			101.7			—			—			136.1
Liabilities of discontinued operations		—			—			1.1			—			1.1

Total current liabilities		42.1			189.2			1.1			—			232.4
Long-term debt		438.9			—			—			—			438.9
Reserves for environmental remediation costs		5.0			189.3			—			—			194.3
Other noncurrent liabilities		70.3			82.0			—			—			152.3

Total liabilities		556.3			460.5			1.1			—			1,017.9
Commitments and contingencies (Note 8)
Redeemable common stock (Note 9)		9.5			—			—			—			9.5
Total shareholders’ (deficit) equity		(33.4	)		292.5			(7.4	)		(285.1	)		(33.4	)

Total liabilities and shareholders’ equity (deficit)	$	532.4		$	753.0		$	(6.3	)	$	(285.1	)	$	994.0


				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 insurance 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 8)
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
Six Months Ended May 31, 2008 (in millions):	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(43.2	)	$	24.2		$	(0.9	)	$	—	$	(19.9	)
Cash flows from investing activities:
Capital expenditures		—			(7.6	)		—			—		(7.6	)

Net cash used in investing activities		—			(7.6	)		—			—		(7.6	)
Cash flows from financing activities:
Net transfers (to) from parent		16.6			(17.3	)		0.7			—		—
Repayments on notes payable and long-term debt, net		(6.0	)		—			—			—		(6.0	)

Net cash provided by (used in) financing activities		10.6			(17.3	)		0.7			—		(6.0	)

Net decrease in cash and cash equivalents		(32.6	)		(0.7	)		(0.2	)		—		(33.5	)
Cash and cash equivalents at beginning of period		98.4			(6.7	)		0.6			—		92.3

Cash and cash equivalents at end of period	$	65.8		$	(7.4	)	$	0.4		$	—	$	58.8


				Guarantor			Non-guarantor
Six Months Ended May 31, 2007 (in millions):	Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash used in (provided by) operating activities	$	(17.6	)	$	15.8		$	(0.5	)	$	—	$	(2.3	)
Cash flows from investing activities:
Proceeds from business disposition		29.7			—			—			—		29.7
Other investing activities		19.8			—			—			—		19.8
Capital expenditures		—			(5.7	)		—			—		(5.7	)

Net cash provided by (used in) investing activities		49.5			(5.7	)		—			—		43.8
Cash flows from financing activities:
Net transfers (to) from parent		6.3			(6.8	)		0.5			—		—
Repayments on notes payable and long-term debt, net		(20.5	)		—			—			—		(20.5	)
Other financing activities		0.7			—			—			—		0.7

Net cash (used in) provided by financing activities		(13.5	)		(6.8	)		0.5			—		(19.8	)

Net increase in cash and cash equivalents		18.4			3.3			—			—		21.7
Cash and cash equivalents at beginning of period		70.5			(9.8	)		0.5			—		61.2

Cash and cash equivalents at end of period	$	88.9		$	(6.5	)	$	0.5		$	—	$	82.9

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 12,200 acres of land adjacent to U.S. Highway 50 between Rancho Cordova and Folsom, California, east of Sacramento (Sacramento Land). We are currently in the process of seeking zoning changes, 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 6,000 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 12 of the Unaudited Condensed Consolidated Financial Statements).

In September 2006, the Financial Accounting Standards Board (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.

In June 2007, the 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 December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)). Under SFAS 141(R), an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of the provision for taxes. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of SFAS 141(R) will change our accounting treatment for business combinations on a prospective basis beginning December 1, 2009.

In December 2007, the FASB issued SFAS No. 160 (SFAS 160), Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as non-controlling interests and classified as a component of equity. SFAS 160 is effective on a prospective basis beginning December 1, 2009. As of May 31, 2008, we did not have any minority interests. Accordingly, the adoption of SFAS 160 is not expected to impact our consolidated financial statements.

In May 2008, the FASB issued Staff Position No. Accounting Principles Board 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement (FSP APB 14-1), which is effective for fiscal years beginning after December 15, 2008. FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion are not addressed by paragraph 12 of Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. FSP APB 14-1 also specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. We are currently evaluating the effect of FSP APB 14-1, and we have not yet determined the impact of the standard on our financial position or results of operations.

Results of Operations


	Three months ended						Six months ended
	May 31,		May 31,				May 31,		May 31,
	2008		2007		Change*		2008		2007		Change*
					(in millions)
Net Sales	$	194.7	$	192.3	$	2.4	$	371.3	$	343.1	$	28.2


*		Primary reason for change. The increase in net sales for the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was the result of the sale of 400 acres of our Rio Del Oro property to Elliott Homes Inc. (Elliott) for a cash price of $10 million in the second quarter of fiscal 2008 partially offset by the close-out activities of the Titan program in fiscal 2007.

The increase in sales volume for the first half of fiscal 2008 compared to the first half of fiscal 2007 was the result of the sale of 400 acres of our Sacramento Land and higher sales volume on numerous space and defense programs including Standard Missile, Tube-launched Optically-tracked Wire-guided Missile (TOW), and Orion partially offset by the close-out activities of the Titan program in fiscal 2007. In addition, the first quarter and the first half of fiscal 2008 includes one additional week of net sales of approximately $19 million from Aerojet compared to the comparable periods in 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 May 31,						Six months ended May 31,
	2008			2007			2008			2007
Lockheed Martin		26	%		35	%		25	%		36	%
Raytheon		26	%		30	%		28	%		26	%

Cost of Products Sold:


	Three months ended									Six months ended
	May 31,			May 31,						May 31,			May 31,
	2008			2007			Change*			2008			2007			Change*
				(in millions, except percentage amounts)
Cost of products sold	$	161.7		$	163.3		$	(1.6	)	$	320.5		$	298.3		$	22.2
Percentage of net sales		83	%		85	%					86	%		87	%


*		Primary reason for change. The costs of products sold as a percentage of net sales improvement in the second quarter and first half of fiscal 2008 compared to second quarter and first half of fiscal 2007 was primarily due to lower retirement benefit plan expense


		in the current periods and the recognition of a $6.8 million gain on the sale of 400 acres of our Rio Del Oro property in the second quarter of fiscal 2008, partially offset by the favorable performance on the Titan program close-out activities in fiscal 2007. Additionally, the cost of products sold in the first half of fiscal 2008 included favorable contract performance on the Atlas V^® program offset by declines in other programs.

Selling, General and Administrative (SG&A):


	Three months ended									Six months ended
	May 31,			May 31,						May 31,			May 31,
	2008			2007			Change*			2008			2007			Change*
				(in millions, except percentage amounts)
Selling, General and Administrative	$	(0.2	)	$	3.7		$	(3.9	)	$	0.9		$	6.7		$	(5.8	)
Percentage of net sales		—	%		2	%					—	%		2	%


*		Primary reason for change. The decrease in SG&A spending in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 is primarily the result of the following: (i) reversal of previously recognized stock-based compensation in the second quarter of fiscal 2008 due to the lower fair value of the stock appreciation rights as of May 31, 2008; and (ii) increase in retirement benefit plan income as a result of an increase in the discount rate used to determine benefit obligations and a reduction in the impact of amortizing prior year actuarial losses.

The decrease in SG&A spending in the first half of fiscal 2008 compared to the first half of fiscal 2007 is primarily the result of the following (i) increase in retirement benefit plan income as a result of an increase in the discount rate used to determine benefit obligations; and (ii) lower stock-based compensation and management incentive expenses.

Depreciation and Amortization:


	Three months ended									Six months ended
	May 31,			May 31,						May 31,			May 31,
	2008			2007			Change*			2008			2007			Change*
				(in millions, except percentage amounts)
Depreciation and amortization	$	6.6		$	6.9		$	(0.3	)	$	13.1		$	13.4		$	(0.3	)
Percentage of net sales		3	%		4	%					4	%		4	%


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

Interest Expense:


	Three months ended							Six months ended
	May 31,		May 31,					May 31,		May 31,
	2008		2007		Change*			2008		2007		Change*
					(in millions)
Interest expense	$	6.8	$	7.0	$	(0.2	)	$	14.1	$	14.2	$	(0.1	)


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

Interest Income:


	Three months ended								Six months ended
	May 31,			May 31,					May 31,			May 31,
	2008			2007			Change*		2008			2007			Change*
							(in millions)
Interest income	$	(0.9	)	$	(1.3	)	$	0.4	$	(2.3	)	$	(2.5	)	$	0.2


*		Primary reason for change. The decrease is primarily due to lower rates on our interest-bearing cash and trust accounts during the first half of fiscal 2008 compared to the first half of fiscal 2007.

Other expense, net:


	Three months ended							Six months ended
	May 31,		May 31,					May 31,		May 31,
	2008		2007		Change*			2008		2007		Change*
					(in millions)
Other expense, net	$	0.4	$	0.5	$	(0.1	)	$	0.5	$	2.5	$	(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 half of fiscal 2008.

Unusual items:


	Three months ended						Six months ended
	May 31,		May 31,				May 31,		May 31,
	2008		2007		Change*		2008		2007		Change*
					(in millions)
Unusual items	$	13.8	$	2.6	$	11.2	$	14.9	$	2.6	$	12.3


*		Primary reason for change. 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 which resulted in a charge of $13.8 million in the first half of fiscal 2008, including the reclassification of $1.1 million of selling, general and administrative expenses incurred in the first quarter of fiscal 2008. The charge was comprised of the following (in millions):


Increases in pension benefits primarily for the Company’s officers	$	5.3
Executive severance agreement		4.1
Accelerated vesting of stock appreciation rights		1.1
Accelerated vesting of restricted stock, service based		0.6
Accelerated vesting of restricted stock, performance based		0.7
Professional fees and other		2.0

	$	13.8

In the second quarter of fiscal 2008, we also recorded a charge of $1.1 million related to estimated costs associated with legal matters, including $0.9 million associated with the failure to register with the SEC the issuance of shares under our defined contribution 401(k) employee benefit plan.

In the first half of fiscal 2007, we recorded a charge of $2.6 million related to estimated costs associated with legal matters.

Income Tax Benefit:


	Three months ended								Six months ended
	May 31,			May 31,					May 31,			May 31,
	2008			2007			Change*		2008			2007			Change*
							(in millions)
Income tax benefit	$	(0.4	)	$	(3.6	)	$	3.2	$	(0.6	)	$	(3.2	)	$	2.6


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

As of May 31, 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 May 31,					Six months ended May 31,
	2008		2007			2008			2007
	(in millions)
Net sales	$	—	$	—		$	—		$	—
Income (loss) before income taxes		0.1		(0.7	)		(0.3	)		30.2
Income tax provision		0.1		—			—			0.3
Net income (loss) from discontinued operations		—		(0.7	)		(0.3	)		29.9

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 6(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 May 31, 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							Six months ended
	May 31,		May 31,					May 31,		May 31,
	2008		2007		Change*			2008		2007		Change*
	(in millions)
Net Sales	$	183.1	$	190.7	$	(7.6	)	$	357.6	$	339.8	$	17.8
Segment Performance		17.8		19.3		(1.5	)		28.2		26.5		1.7


*		Primary reason for change. The decrease in sale volume for the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was the result of the close-out activities of the Titan program in fiscal 2007 partially offset by increases in numerous space and defense programs including the Orion and Standard Missile programs.

Segment performance was income of $17.8 million in the second quarter of fiscal 2008 compared to income of $19.3 million in the second quarter of fiscal 2007. Significant factors impacting segment performance were as follows: (i) favorable performance on the Titan program close-out activities in the second quarter of fiscal 2007; (ii) decreased retirement benefit plan expense in the second quarter of fiscal 2008; and (iii) higher expenses in the second quarter of fiscal 2007 related to legal matters.

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 half of fiscal 2008, or one more week than as reported in the first half of fiscal 2007. Sales of $357.6 million for the first half of fiscal 2008 increased 5% over $339.8 million in the first half of fiscal 2007, reflecting the additional week of net sales of approximately $19 million and growth in the Standard Missile, Orion, and Tube-launched Optically-tracked Wire-guided Missile (TOW) programs 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 Orion and TOW programs were additional factors driving the increase in net sales.

Segment performance was income of $28.2 million in the first half of fiscal 2008 compared to income of $26.5 million in the first half of fiscal 2007. The increase in segment performance during the first half of fiscal 2008 as compared to the first half of fiscal 2007 period is primarily the result of: (i) decreased retirement benefit plan expense; (ii) lower costs associated with our environmental clean-up and related activities; (iii) higher expenses in the second quarter of fiscal 2007 related to legal matters; and (iv) higher sales including the additional week of sales; partially offset by the favorable performance on the Titan program close-out activities in the first half of fiscal 2007. Additionally, segment performance in the first half of fiscal 2008 included favorable contract performance on the Atlas V program offset by declines in other programs.

As of May 31, 2008, our total backlog was approximately $1.0 billion 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 $687 million and $566 million at May 31, 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						Six months ended
	May 31,		May 31,				May 31,		May 31,
	2008		2007		Change*		2008		2007		Change*
	(in millions)
Net Sales	$	11.6	$	1.6	$	10.0	$	13.7	$	3.3	$	10.4
Segment Performance		7.1		0.6		6.5		8.4		1.4		7.0


*		Primary reason for change. The increase in sales and segment performance is primarily due to the sale of 400 acres of our Rio Del Oro property to Elliott for $10 million in the second quarter of fiscal 2008 resulting in a gain of $6.8 million.

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

— $74.0 million in outstanding commercial letters of credit expiring within the next twelve months, the majority of which may be renewed, and securing obligations for environmental remediation closure and insurance coverage.

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

— Up to $2.2 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; debt service requirements; and rescission obligations on shares sold under our defined contribution 401(k) employee benefit plan. 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 May 31, 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 $33.5 million during the first half of fiscal 2008. The change in cash and cash equivalents is as follows:


	Six Months Ended
	May 31,			May 31,
	2008			2007
	(in millions)
Net Cash Used in Operating Activities	$	(19.9	)	$	(2.3	)
Net Cash (Used in) Provided by Investing Activities		(7.6	)		43.8
Net Cash Used in Financing Activities		(6.0	)		(19.8	)

Net (Decrease) Increase in Cash and Cash Equivalents	$	(33.5	)	$	21.7

Net Cash Used In Operating Activities

Operating activities used cash of $19.9 million in the first half of fiscal 2008 compared to cash usage of $2.3 million in the first half of fiscal 2007. During the second quarter of fiscal 2008, we funded into a trust an amount of $35.2 million, which represents the liabilities associated with the our Benefits Restoration Plan and the amounts that would be payable to officers who are party to executive severance agreements in the event of qualifying terminations of employment after a change of control of the Company (see Note 4 of the Unaudited Condensed Consolidated Financial Statements). Under the terms of the trust agreement, the assets of the trust are available to our general creditors in the event of our bankruptcy or insolvency. The funding of the Grantor Trust was partially

offset by (i) improved operating performance and net working capital from the Aerospace and Defense segment and (ii) sale of 400 acres of our Rio Del Oro property for a cash price of $10 million in the second quarter of fiscal 2008.

Net Cash (Used In) Provided by Investing Activities

During the first half of fiscal 2007, we received $29.7 million from AMPAC in consideration for the cancellation and termination of an unsecured subordinated note receivable from AMPAC, including any interest due thereunder, and AMPAC’s obligation to make an earnings target payment associated with the sale of the Fine Chemicals business.

Restricted cash decreased by $19.8 million as a result of our repayment of our 5³/4% Convertible Subordinated Notes (5³/4% Notes) in April 2007.

During the first half of fiscal 2008 and fiscal 2007, we invested $7.6 million and $5.7 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.

Net Cash Used in Financing Activities

First Half of Fiscal 2008 — During the first half of fiscal 2008, cash of $6.0 million was used for debt principal payments (see table below).

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

Borrowing Activity and Senior Credit Facility:

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


	November 30,							May 31,
	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		—		(5.3	)		69.3
Promissory notes		2.8		0.6		(0.7	)		2.7

Total Debt and Borrowing Activity	$	446.3	$	0.6	$	(6.0	)	$	440.9

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 May 31, 2008, the borrowing limit under the Revolver was $80.0 million with all of it available. We had $69.3 million outstanding under the term loan subfacility and $74.0 million outstanding letters of credit issued under the letter of credit subfacility at May 31, 2008.

During the second quarter of fiscal 2008, we sold 400 acres of our Rio Del Oro property to Elliott for a cash price of $10 million. Under the terms of the Senior Credit Facility, we were required to use 50% of the net sale proceeds, or $5 million, to repay outstanding principal on the term loan subfacilty.

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	May 31, 2008	Through November 30, 2009	December 1, 2009 and thereafter
Interest coverage ratio	4.88 to 1.00	Not less than: 2.25 to 1.00	Not less than: 2.25 to 1.00
Leverage ratio	3.30 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 covenants as of May 31, 2008.

Outlook

As disclosed in Notes 8(a) and 8(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 and the registered rescission offer discussed below. The operating plan for this period provides for full operation of our businesses, and interest and projected principal payments on our debt.

We inadvertently failed to register with the SEC the issuance of shares under our defined contribution 401(k) employee benefit plan (the Plan). As a result, certain purchasers of securities pursuant to the Plan may have the right to rescind their purchases for an amount equal to the purchase price paid for the securities (or if such security has been disposed of, to receive damages with respect to any loss on such disposition) plus interest from the date of purchase. We intend to make a registered rescission offer to eligible plan participants in the third quarter of fiscal 2008 which could result in the purchase of approximately 0.8 million shares of common stock (see Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements). We currently estimate the cash cost of the rescission will be in the range of $8 million to $14 million. We also intend to seek an amendment to our Senior Credit Facility in order to make such rescission offer. There can be no assurance that we will be able to obtain the consent of lenders under our Senior Credit Facility or that, as a condition to consent, the lenders will not require that the terms of the Senior Credit Facility be amended in a manner that is unfavorable to us, including a possible increase in interest and fees.

We may 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 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 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;

	•		the Company’s plans to effect a rescission offer relating to its 401(k) employee benefit plan; 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 May 31, 2008, our debt totaled $440.9 million: $371.6 million, or 84% was at an average fixed rate of 4.75%; and $69.3 million or 16% was at a variable rate of 4.90%.

The estimated fair value of our total debt was $396.2 million as of May 31, 2008 compared to a carrying value of $440.9 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 May 31, 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 the three months ended May 31, 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 8 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.


	Six Months		Year		Year
	Ended		Ended,		Ended
	May 31,		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 half 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.


	Six Months			Year			Year
	Ended			Ended,			Ended
	May 31,			Nov. 30,			Nov. 30,
	2008			2007			2006
	(dollars in thousands)
Claims filed		23	*		57	**		62
Claims dismissed		13			43			55
Claims settled		3			8			5
Claims pending		167			160			154
Aggregate settlement costs	$	226		$	72		$	67
Average settlement costs	$	75		$	9		$	14


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

**		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 half of fiscal 2008 were $0.3 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 and in Item 1A of our Quarterly Report to the SEC on Form 10-Q for the first quarter of fiscal 2008, 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 significant change in the composition of our Board of Directors and the resignation of our former Chief Executive Officer. Failure of any 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. On May 15, 2008, Timothy A. Wicks, Chairman of the Board, Todd R. Snyder and Sheila E. Widnall resigned as Directors of the Company. On May 16, 2008, our Board of Directors appointed James H. Perry as a new Director. As a result of these changes in our Board, two of our Directors have been on the Board since March of 2006, and the remaining four Directors have been elected or appointed to the Board on or after March 5, 2008.

Some of our new Directors do not have previous experience with us and we cannot assure 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.

We sponsor a defined contribution 401(k) employee benefit plan (the Plan) and participation in the Plan is available to all employees. Company contributions to the Plan are based on a percentage of employee contributions. The Company’s contributions to the Plan are invested entirely in the GenCorp Stock Fund, and in accordance with the terms of the Plan, may be funded with cash or shares of GenCorp common stock. Since 2003, the Company’s contributions to the Plan have been funded entirely by shares of GenCorp common stock issued by the Company. There are no restrictions on participants reallocating all or a part of their accounts in the GenCorp Stock Fund to other investment choices.

Other GenCorp common stock held in the GenCorp Stock Fund (i.e. by virtue of employee contributions into the stock fund or by transfers from other of the Plan’s investment funds into the GenCorp Stock Fund) is purchased by the Plan trustee who accumulates the Plan contributions that are directed to the GenCorp Stock Fund and purchases for the GenCorp Stock Fund shares of GenCorp common stock in open market transactions. Nevertheless, because the Company sponsors the Plan, the Company may have been required to register certain transactions in the Plan related to shares of GenCorp common stock. We discovered that we may be deemed to have been required to file a Form S-8 several years ago to register additional share transactions in the Plan. Consequently, over the last twelve months, we may have inadvertently failed to register transactions in the Plan relating to approximately 0.8 million shares.

In June 2008, we filed a registration statement on Form S-8 to register future transactions in the GenCorp Stock Fund in the Plan.

The failure to file the registration statements noted above was inadvertent, and we have always treated the shares issued under the GenCorp Stock Fund under the Plan as outstanding for financial reporting purposes. Consequently, these unregistered transactions do not represent any additional dilution. We believe that we have always provided the employee-participants in this Plan with the same information they would have received had the registration statements been filed. Nonetheless, we may be subject to civil and other penalties by regulatory authorities as a result of the failure to register.

As a result, certain Plan participants who purchased such securities pursuant to the Plan may have the right to rescind certain of their purchases for an amount equal to the purchase price paid for the securities (or if such security has been sold, to receive damages with respect to any loss incurred on such sale) plus interest from the date of purchase. We intend to make a registered rescission offer to eligible plan participants in the third quarter of fiscal 2008 (see Note 9 of the Notes to Unaudited Condensed Consolidated Financial Statements). The outstanding shares subject to potential rescission rights (representing approximately 0.8 million shares outstanding as of May 31, 2008) are reflected as redeemable common stock on our Unaudited Condensed Consolidated Financial Statements.

Item 3. Defaults upon Senior Securities

None.

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

At our Annual Meeting of Shareholders on March 26, 2008, holders of GenCorp Common Stock elected James R. Henderson; Warren G. Lichtenstein; David A. Lorber; Todd R. Snyder; Martin Turchin; Timothy A. Wicks; Sheila E. Widnall; and Robert C. Woods as directors to serve one-year terms expiring in 2009. Shareholders also ratified the Audit Committee’s appointment of PricewaterhouseCoopers LLP as our independent auditors for 2008.

Following is the final result of the votes cast:

A) Election of Directors:


Nominee	For		Withheld		Abstain
James R. Henderson		32,920,484		13,254,857		—
Warren G. Lichtenstein		32,926,856		13,248,484		—
David A. Lorber		40,146,788		6,028,553		—
Todd R. Snyder		40,243,741		5,931,599		—
Martin Turchin		40,306,735		5,868,606		—
Timothy A. Wicks		40,246,161		5,929,179		—
Shelia E. Widnall		40,124,783		6,050,557		—
Robert C. Woods		40,246,311		5,929,030		—

B) Ratification of the Audit Committee’s appointment of PricewaterhouseCoopers LLP as independent auditors:


For		Against		Abstain
	40,591,240		184,455		5,399,645

Item 5. Other Information

None.

Item 6. Exhibits


No.		Description
10.1		Second Amended and Restated Shareholder Agreement dated as of March 5, 2008, by and between GenCorp Inc. and Steel Partners II L.P.

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.


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


															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	$	9.9		—			—			—			9.9			—			9.9
Recognized net actuarial losses		2.7		—			—			—			—			2.7			2.7
Amortization of prior service costs		0.9		—			—			—			—			0.9			0.9
Cumulative effect to adjustment related to the adoption of FIN 48		—		—			—			—			9.1			—			9.1
Reclassification to redeemable common stock		—		(842,222	)		(0.1	)		(9.4	)		—			—			(9.5	)
Stock-based compensation		—		—			—			1.6			—			—			1.6
Shares issued under stock option and stock incentive plans		—		638,433			—			3.9			—			—			3.9

May 31, 2008	$	13.5		56,382,931		$	5.6		$	201.3		$	(208.4	)	$	(31.9	)	$	(33.4	)


	GenCorp Inc.
Date: July 2, 2008	By:	/s/ J. Scott Neish
		J. Scott Neish
		Interim President and Interim Chief Executive Officer (Principal Executive Officer)

Date: July 2, 2008	By:	/s/ Yasmin R. Seyal
		Yasmin R. Seyal
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Date: July 2, 2008	By:	/s/ R. Leon Blackburn
		R. Leon Blackburn
		Vice President and Controller (Principal Accounting Officer)


Exhibit No.		Exhibit Description

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.