GENCORP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 30, 2001 Commission File Number 1-1520

GENCORP INC.
(Exact name of registrant as specified in its charter)

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

HIGHWAY 50 AND AEROJET ROAD
RANCHO CORDOVA, CALIFORNIA 95670
(Address of registrant's principal executive offices) (Zip Code)
P.O. BOX 537012
SACRAMENTO, CALIFORNIA 95853-7012
(Mailing Address) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (916) 355-4000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K section 229.405 is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 11, 2002 was $475,872,320.

As of February 11, 2002, there were 43,108,412 outstanding shares of the
Company's Common Stock, $0.10 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2002 Proxy Statement of GenCorp Inc. are incorporated into
Part III of this Report.

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GENCORP INC.

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2001

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

GenCorp Inc. (hereinafter the Company or GenCorp) was incorporated in Ohio
in 1915 as The General Tire & Rubber Company (General Tire & Rubber). The
Company's continuing operations are organized into three segments: GDX
Automotive, Aerospace and Defense, and Fine Chemicals. The GDX Automotive
segment is a major automotive supplier, engaged in the development, manufacture
and sale of highly-engineered, extruded and molded rubber and plastic sealing
systems for vehicle bodies and windows for automotive original equipment
manufacturers. The Aerospace and Defense segment includes the Company's
wholly-owned subsidiary, Aerojet-General Corporation (Aerojet), which plays a
leading role in the development and production of solid and liquid rocket
propulsion systems and related defense products and services. This segment also
includes the Company's real estate business. The Fine Chemicals segment consists
of the operations of Aerojet Fine Chemicals LLC (Fine Chemicals or AFC), which
supplies special intermediates and active pharmaceutical ingredients primarily
to commercial customers in the pharmaceuticals industry.

In January 2002, the Company became aware of certain potential accounting
issues at two of its GDX Automotive manufacturing plants in North America. The
Company promptly notified both its Audit Committee and its independent
accountants. Under the direction and oversight of the Audit Committee and with
the assistance of outside legal advisors and accounting consultants, the Company
conducted an inquiry into these and related accounting issues as well as a more
complete evaluation of accounting practices and internal control processes
throughout the Company. As a result of this process, due primarily to activities
at one GDX Automotive manufacturing plant, the Company is, by means of this
filing, restating its previously issued financial statements for the years ended
November 30, 2000 and November 30, 1999. See also Note 2 in Notes to
Consolidated Financial Statements in Part II, Item 8 of this report. Unaudited
quarterly financial information for the year ended November 30, 2000 and the
first three quarters of the year ended November 30, 2001, as shown in Note 12 in
the Notes to Consolidated Financial Statements in Part II, Item 8 of this
report, is also being restated by means of this filing.

The effect of the Company's revisions will be to reduce the Company's
income from continuing operations and diluted earnings per share from continuing
operations, respectively, from $55 million and $1.31 to $52 million and $1.23
for the year ended November 30, 2000 and from $46 million and $1.09 to $45
million and $1.07 for the year ended November 30, 1999. The effect of the
revisions on the net income for the nine months ended August 31, 2001 was to
reduce net income from $25 million to $22 million and decrease basic and diluted
EPS from $0.59 to $0.52. The effect of the revisions on the Company's
Consolidated Balance Sheets as of November 30, 2000 resulted in an increase in
assets of $1 million and an increase in liabilities of $10 million and, as of
November 30, 1999, assets were increased $2 million and liabilities increased $6
million. The balance of retained earnings as of December 1, 1998 decreased $5
million. The revisions primarily arise from the correction of (i) certain
balance sheet and income statement items, which among other things, relate to
the accounting for customer-owned tooling, inventories and recognition of
liabilities at one of the Company's GDX Automotive manufacturing plants that the
Company has determined were not properly recorded in the Company's books and
records; and (ii) an oversight in collecting data for the calculation for
certain postretirement benefit liabilities at one of GDX Automotive's non-U.S.
facilities in the year ended November 30, 1996, with no material impact on
fiscal years 1998 and 1997. At the direction of the Audit Committee of the
GenCorp Board of Directors, the Company is in the process of implementing
certain enhancements to its financial organization, systems and controls
primarily at its GDX Automotive segment in response to issues raised by the
restatement and identified by the Company's independent accountants as material
weaknesses.

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

In December 2001, the Company completed the reacquisition of a 40 percent
ownership position in AFC from NextPharma Technologies USA Inc. (NextPharma) for
approximately $25 million, including $13 million in cash and the return of
GenCorp's interest in NextPharma's parent company. The acquisition agreement
also contains a provision for a contingent payment of up to $12 million in the
event of a disposition of AFC within

two years of the reacquisition. NextPharma acquired its 40 percent ownership
position in AFC in June 2000. AFC is now once again a wholly-owned subsidiary of
GenCorp and has reassumed responsibility for sales, marketing and customer
interface activities previously performed by NextPharma. See "Results of
Operations -- Fine Chemicals Segment" under Management's Discussion and Analysis
of Financial Condition and Results of Operations (MD&A) in Part II, Item 7 of
this report, for additional information related to a personal investment by
GenCorp's Chairman and Chief Executive Officer, Robert A. Wolfe, in NextPharma's
parent company, NextPharma Technologies S.A. See also Notes 1(a), 1(o), and 16
under Notes to Consolidated Financial Statements in Part II, Item 8 of this
report for additional information related to this transaction.

In November 2001, Aerojet completed the sale of approximately 1,100 acres
of property in Eastern Sacramento County, California, for $28 million. The
property lies outside of the Aerojet federal Superfund site boundaries and is
not a part of the approximately 2,600 acres of land that are expected to be
carved out of the Superfund site designation under an agreement with federal and
state government regulators (see discussion below). A $23 million pre-tax gain
resulted from the land sale transaction. See also Note 11 in Notes to
Consolidated Financial Statements in Part II, Item 8 of this report.

In October 2001, Aerojet completed the sale of its Electronic and
Information Systems (EIS) business to Northrop Grumman Corporation (Northrop
Grumman) for $315 million in cash, subject to certain working capital
adjustments as defined in the agreement. In December 2001, Northrop Grumman
proposed significant adjustments which would require that Aerojet make a
purchase price reduction of approximately $42 million. Aerojet disagrees with
Northrop Grumman's proposed balance sheet adjustments on the basis that they are
inconsistent with the Asset Purchase Agreement (APA). The proposed adjustments
are subject to arbitration. Included in the sale were EIS operations in Azusa,
California and in Boulder and Colorado Springs, Colorado. The EIS business
employed 1,234 people at these locations. Following the sale, Aerojet retained
pre-closing environmental liabilities for the EIS business, but continues to
recover a portion of these environmental costs in accordance with its agreement
with the U.S. Government. These recoveries will be made for a substantial number
of years as provided in the APA and an advance agreement with the government.

In addition, Aerojet has provided $49 million in cash ($8 million of which
was paid in fiscal 2002) and GenCorp has guaranteed another $25 million toward
remediation of the United States Environmental Protection Agency's (EPA) Baldwin
Park Operable Unit in the San Gabriel Valley where the EIS Azusa facility is
located. The EIS business had revenues of approximately $398 million and pre-tax
income of approximately $30 million for the period December 1, 2000 through
October 19, 2001.

On September 25, 2001, the EPA filed with the United States District Court
in Sacramento an agreement with Aerojet to modify a Partial Consent Decree (PCD)
to carve out a significant quantity of land from the Aerojet Sacramento
Superfund site designation. A public comment period has been completed. On March
1, 2002, the agencies filed the motion to approve the modification to the PCD
carving out approximately 2,600 acres of land, and management expects the United
States District Court to approve the modification in due course. See also Note
9(c) in Notes to Consolidated Financial Statements in Part II, Item 8 of this
report.

In September 2001, in an effort to reduce annual corporate expenses, the
Company announced a restructuring of its corporate headquarters. The
restructuring was accomplished through a Voluntary Enhanced Retirement Program
(VERP) and resulted in a pre-tax charge to expense of $10 million in the fourth
quarter of fiscal year 2001. For additional information see "Executive Officers
of the Registrant" at the end of Part I of this report.

During 2001, as part of a restructuring of its operations, GDX Automotive
opened a new manufacturing facility in New Haven, Missouri and expanded its
facility in St. Nicholas, France. During the same period it closed three of its
manufacturing facilities in Marion, Indiana, Ballina, Ireland, and Gruchet,
France, and consolidated portions of its manufacturing facilities in Chartres,
France, and Viersen, Germany. A fourth facility in Berger, Missouri is scheduled
to be closed in 2002. This restructuring has achieved headcount reductions of
approximately 1,300 people, including temporary employees. During the fourth
quarter of fiscal year 2001, the President of the GDX Automotive business unit
left the Company, and the Company's Chief Operating Officer, Terry L. Hall,
assumed that role on an interim basis.

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In December 2000, the Company completed the acquisition of various
companies comprising the Draftex International Car Body Seals Division of The
Laird Group Public Limited Company (The Laird Group) in the United Kingdom
(Draftex). Draftex recognized revenues of $437 million for the year ended
December 29, 2000. The sales added by the Draftex acquisition are primarily
outside the U.S. At the time of the acquisition, the Draftex business added
5,484 employees for total GDX Automotive employment in December 2000 of 10,584.
The purchase price of the Draftex business was $215 million, including cash of
$209 million and direct acquisition costs of $6 million. Certain adjustments to
the purchase price were in dispute and were decided by an independent arbitrator
in February 2002. However, there are further issues impacting the purchase price
including the effect of the arbitrator's decision, which have yet to be resolved
between the parties. Management believes that resolution of these issues will
not have a material impact on the Company's results of operations, liquidity or
financial condition. The acquisition included Draftex's Germany-based worldwide
headquarters and International European Technical Center, and 11 manufacturing
plants in Germany, France, Czech Republic, Spain, China and the U.S.

In October 1999, the Company completed a spin-off of its decorative &
building products and performance chemicals businesses as a separate,
publicly-traded company named OMNOVA Solutions Inc. (OMNOVA). The spin-off was
approved by GenCorp shareholders at a special meeting on September 8, 1999 and
by GenCorp's Board of Directors on September 17, 1999. The Board of Directors
declared a dividend of one share of OMNOVA common stock for each share of
GenCorp common stock held on the September 27, 1999 record date. The dividend
distribution was made on October 1, 1999. As a result of the spin-off, the
Company moved its corporate headquarters from Fairlawn, Ohio to Sacramento,
California.

The GDX Automotive business traces its origins to the manufacture of
automotive window channels by General Tire & Rubber in the 1940's. In 1993, GDX
Automotive acquired a minority interest in "Henniges," a German vehicle sealing
manufacturer, and in 1994, increased its ownership interest to 100 percent. This
acquisition bolstered GDX Automotive's product line and technological
capabilities, and provided a geographic diversification into the European
markets. The Draftex acquisition, completed in December 2000, further
complements the Company's GDX Automotive vehicle sealing business.

Aerojet was founded in 1942 by Dr. Theodore von Karman and initially
produced Jet Assist Take Off (JATO) rockets for military aircraft. General Tire
& Rubber, GenCorp's predecessor, became Aerojet's major investor. In the 1950's
and 1960's, Aerojet expanded its product line to include small launch vehicles
and spacecraft propulsion. Ground systems, ordnance and certain weapons systems
were also added to Aerojet's portfolio during this time period, but those
products were sold to the Olin Corporation (ordnance) in 1994 and as part of the
recent sale of the EIS business to Northrop Grumman in October 2001. Aerojet
also expanded its product line to include pharmaceutical fine chemicals, which
are now produced by AFC.

A number of design and development centers at GenCorp's businesses focus on
specific areas and each plant has dedicated engineering services. Information
relating to research and development expense is set forth in Note 1(j) in Notes
to Consolidated Financial Statements and incorporated herein by reference.

The Company licenses technology and owns patents, which expire at various
times, relating to its businesses. The loss or expiration of any one or more of
them would not materially affect the business of the Company or any of its
segments. Important trademarks of the Company are registered in its major
marketing areas.

Although GenCorp's business is not seasonal in the traditional sense,
Aerospace and Defense and Fine Chemicals revenues and earnings have tended to
concentrate to some degree in the fourth quarter of each year reflecting
delivery schedules associated with the mix of contracts in those businesses. The
timing of production and certain contract deadlines can affect the reported
results for a quarter. GDX Automotive revenues and earnings have tended to
concentrate to some degree in the second and fourth quarters of the Company's
fiscal year, generally as a consequence of seasonality in the automotive
industry's build schedules and in response to customers' preparation for annual
model changes.

Compliance with laws and regulations relating to the discharge of materials
into the environment or the protection of the environment continues to affect
many of the Company's operating facilities. A discussion of capital and
non-capital environmental expenditures incurred in 2001 and forecasted for 2002
for environmental

3

compliance is included under the heading Environmental Matters in Management's
Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
included in Part II, Item 7 of this report. Environmental and related legal
matters are discussed in MD&A, which is included in Part II, Item 7 of this
report, and in Notes 9(b) and 9(c) in Notes to Consolidated Financial
Statements, incorporated herein by reference.

As of November 30, 2001, the Company employed 10,877 persons. GenCorp's
principal executive offices are located at Highway 50 and Aerojet Road, Rancho
Cordova, California 95670. The Company's mailing address is P.O. Box 537012,
Sacramento, California 95853-7012. Its telephone number is (916) 355-4000.
Financial information relating to the Company's business segments appears in
MD&A included in Part II, Item 7 of this report and incorporated herein by
reference.

Approximately 60 percent of the Company's employees are covered by
collective bargaining or similar agreements. Of the covered employees,
approximately seven percent are covered by collective bargaining agreements that
are due to expire within one year. A protracted work stoppage in the Company's
facilities or those of a major automotive customer could adversely affect the
Company's results of operation, liquidity or financial condition.

GDX AUTOMOTIVE

Revenues from the Company's GDX Automotive segment are derived principally
from the development, manufacture and sale of highly-engineered, extruded and
molded rubber and plastic products for vehicle bodies and window sealing for the
original equipment automotive market. These products are designed to prevent
air, moisture and noise from penetrating vehicle windows, doors and other
openings. GDX Automotive's North American operations primarily produce extruded
rubber profiles consisting of a roll-formed steel wire or steel frame surrounded
by extruded rubber which is cured, cut and molded to meet customer
specifications, with a focus on light trucks and sport utility vehicles (SUVs).
GDX Automotive's European operations produce similar products for European
automotive assemblers with a focus on the passenger car segment. In addition to
vehicle sealing systems, GDX Automotive Europe designs and produces encapsulated
glass and molded rubber parts, specializing in products that dampen and isolate
vibrations, reduce noise and seal various automotive components.

As previously described, the Company completed in December 2000, the
acquisition of the Draftex business from The Laird Group. The addition of the
Draftex business has provided GDX Automotive with a substantially broadened and
more diversified customer base and the global manufacturing presence necessary
to serve customers around the world. The Company believes that GDX Automotive is
now the largest producer of vehicle sealing systems in North America and the
second largest producer worldwide.

In North America, the business is focused primarily on the production of
components for light trucks such as General Motors' (GM) Silverado and S-10
pick-ups, Ford's F-Series and Ranger pick-ups; sports utility vehicles such as
General Motors' Tahoe, Yukon and Blazer models and Ford's Explorer and
Expedition models; and crossover vehicles such as Ford's Escape and Mazda's
Tribute models as well as the BMW X-5. In Europe, the business focus is on the
production of components for luxury vehicles such as Mercedes' C, E and S
Classes, the BMW 3 and 5 Series, the Audi A4 and A6 models, the Ford
Thunderbird, the Peugeot 206CC, and on higher volume smaller cars such as the
Audi A2 and A3 models, the Volkswagen Golf and Passat models, the SEAT Polo, the
Ford Focus, the Peugeot T-16 and the Skoda A-4. By focusing attention on these
different vehicle segments in North America and Europe, GDX Automotive has
become a primary sealing systems provider on 15 of the top 30 best-selling
passenger, sports utility, crossover and light truck vehicles in the world.

During 2001, as part of a restructuring of its operations, GDX Automotive
opened a new manufacturing facility in New Haven, Missouri and expanded its
facility in St. Nicholas, France. During the same period it closed three of its
manufacturing facilities in Marion, Indiana; Ballina, Ireland and Gruchet,
France, and consolidated portions of its manufacturing facilities in Chartres,
France, and Viersen, Germany. A fourth facility in Berger, Missouri is scheduled
to be closed in 2002. This restructuring has achieved headcount reductions of
approximately 1,300 people, including temporary employees. During the fourth
quarter of fiscal year 2001, the President of the GDX Automotive business unit
left the Company, and the Company's Chief Operating Officer, Terry L. Hall,
assumed that role on an interim basis.
4

Automotive products are sold directly to original equipment manufacturer
customers or their suppliers. Customers include the major domestic automobile
manufacturers, the loss of one or more of which would have a material adverse
effect on the Company's results of operations or financial condition. On a
global basis, sales to GM and Ford in 2001 were approximately 17 percent and 13
percent, respectively, of the Company's net sales. GDX Automotive sales in 2001
were $259 million to GM and $188 million to Ford.

Competition in the vehicle sealing industry is based upon total customer
value, a combination of technology, customer service, quality and price. Based
on estimated sales, the worldwide vehicle sealing market was approximately $3.8
billion in 2001. Four companies, Cooper-Standard, GDX Automotive, BTR/Metzler,
and Hutchinson, account for approximately three-quarters of the total market.
Raw materials required by this segment are generally in good supply.

For additional information related to the Company's operating segments and
geographic areas of operation see Note 11 in Notes to Consolidated Financial
Statements included in Part II, Item 8 of this report.

AEROSPACE AND DEFENSE

Revenues for the Company's Aerospace and Defense segment are derived
principally from the development, manufacture and sale by Aerojet of propulsion
systems for space and defense systems applications, and armament systems for
precision tactical weapons systems and munitions for the government and
commercial markets.

Most of Aerojet's sales are made directly or indirectly to agencies of the
U.S. Government pursuant to contracts or subcontracts which are subject to
termination for convenience (with compensation) by the U.S. Government in
accordance with federal acquisition regulations. Raw materials required by this
segment are generally in adequate supply.

Aerojet's direct and indirect sales to the U.S. Government and its agencies
(principally the Department of Defense) were approximately $574 million in 2001,
$481 million in 2000, and $519 million in 1999, including sales attributable to
Aerojet's former EIS business. Comparable amounts excluding the EIS business
were $176 million in 2001, $154 million in 2000 and $193 million in 1999.

As of November 30, 2001, Aerojet's contract and funded backlogs were
approximately $603 million and $366 million, respectively. As of November 30,
2000, excluding programs that were part of the EIS business, contract and funded
backlogs were $746 million and $383 million, respectively. The inability of a
commercial customer to raise additional required funding accounted for a
decrease of $146 million in contract backlog from 2000 to 2001.

The Aerospace and Defense segment also includes the activities of the
Company's real estate business. See discussion below.

Electronic and Information Systems

As previously described, Aerojet completed in October 2001 the sale of its
EIS business to Northrop Grumman. Included in the sale were EIS operations in
Azusa, California and in Boulder and Colorado Springs, Colorado. With the sale,
Aerojet has exited the ground systems and smart weapons businesses. The EIS
business had revenues of approximately $398 million and pre-tax income of
approximately $30 million for the period December 1, 2000 through October 19,
2001.

Space and Strategic Rocket Propulsion

Aerojet is a leading producer of both liquid and solid propulsion systems
for launch vehicles and strategic systems. Customer applications include liquid
engines for expendable and reusable launch vehicles, upper-stage engines,
satellite propulsion, large solid boosters and integrated propulsion subsystems.
During 2001, Aerojet was awarded research and development contracts for
next-generation propulsion systems and technologies by the National Aeronautics
and Space Administration (NASA), the U.S. Air Force and several prime
contractors.

Significant programs include the Atlas V Solid Rocket Motor (SRM), Delta II
upper stage and post-production support of Titan IV first and second stage
liquid engines. NASA's Space Launch Initiative
5

(SLI) program may provide new opportunities for growth in this business area.
During 2001, Aerojet, in a joint venture with the Pratt & Whitney Space
Propulsion division of United Technology Corporation's Pratt & Whitney Space
Propulsion business unit, was awarded a NASA contract worth $115 million,
including options, for next generation liquid-hydrogen booster engine technology
development. Other new Aerojet SLI contracts include work on advanced nozzle
technology and a peroxide Reaction Control Engine.

Defense Propulsion and Armaments

Aerojet's defense propulsion and armaments business continues to focus on
"smart" propulsion technology and value-added subsystem solutions. This strategy
leverages Aerojet's strength in propulsive controls technology and engineering
excellence and has direct application to the military's post-Cold War and
Anti-Terrorism doctrine. A recent example is Aerojet's key role on the
Ground-Based Midcourse Interceptor program where it is providing critical
control systems for multiple stages of the interceptor missile. Other examples
include the application of Aerojet's explosively-formed penetrator technology on
the U.S. Marine Corps' new shoulder-fired weapon system (Predator) now entering
production and development of precision strike weapons to support the U.S Army's
Future Combat System (FCS).

Aerojet provides the titanium forward boom for the F-22 fighter aircraft.
This program, which is expected to remain in production for several years,
utilizes Aerojet's capability to electron beam weld complex large-scale
structures. In addition, Aerojet is a key contractor on the Joint Standoff
Weapon (JSOW), Tubular Launched Optically Tracked Wire Guided (TOW) program and
the Conventional Air Launched Cruise Missile (CALCM) where it provides the
warhead section for these state of the art weapon systems now in production.
Aerojet's significant expertise in solid rocket motors and related energetic
material chemistry continues to improve its competitive position in the advanced
missile propulsion and warhead markets.

Aerospace and Defense Competition

Competition, based upon price, technology, quality and service, is intense
for all products and services in Aerojet's business and has increased with the
continuing consolidation of the industry. There are several other major
companies with the technology and capacity to produce most of the products
manufactured and sold by Aerojet, and in some areas, the government has its own
manufacturing capabilities. As discussed below, Aerojet believes it remains
competitive in its markets. Raw materials required by this segment are generally
in adequate supply.

Aerojet has concentrated its efforts over the past several years on
obtaining contracts that provide a balance between technology development and
long-term production, as well as between space and strategic rocket propulsion
and defense propulsion and armament programs. Aerojet competes in both the space
and strategic rocket propulsion and the defense propulsion and armaments
business areas. In space and strategic rocket propulsion, cost and technical
strength are the primary discriminators in the marketplace. Many products in the
defense propulsion and armaments market areas tend to be commodities where cost
is the primary discriminator; for this reason, Aerojet has focused on the
high-value portion of these market areas where technology content and technical
performance are predominant.

Major competitors in liquid propulsion include the Rocketdyne Propulsion
and Power unit (Rocketdyne) of the Boeing Space and Communications business, the
liquid propulsion operations of the Pratt & Whitney Space Propulsion business
unit of United Technologies, and the TRW Propulsion Systems business unit of
TRW's Aerospace and Information Systems sector. Major competitors in solid
propulsion include Alliant TechSystems, Chemical Systems Division of Pratt &
Whitney Space Propulsion and Sequa Corporation's Atlantic Research Corporation.
There is a small number of other competitors in both the liquid and solid
propulsion product areas.

Rocketdyne and Alliant TechSystems hold the largest shares of the liquid
and solid propulsion markets, respectively, in part by virtue of their incumbent
roles on NASA's Space Transportation System (Shuttle) program. Alliant
TechSystems acquired this and other programs through the acquisition of the
former Thiokol Propulsion business from Alcoa Corporation in 2001.

6

Aerojet believes it remains competitive in the propulsion market. Aerojet
is successfully developing the world's largest monolithic, solid rocket booster
for Lockheed's Atlas V launch vehicle. Aerojet has roles on various missile
defense programs including both the Navy Theater Wide and Ground-Based Midcourse
Interceptor systems. Also in 2001, through a competitive bidding process,
Aerojet was successful in capturing a significant liquid engine development
contract from NASA as a part of the Space Launch Initiative. In addition,
Aerojet maintains a development role on the Integrated System Test of
Air-breathing Rocket (ISTAR) Hypersonic Propulsion Consortium along with Pratt &
Whitney Space Propulsion and Rocketdyne. Aerojet also continues its sole source
position on the mature Titan IV, Delta II and HAWK programs.

Aerojet's competitive position is enhanced by the diversity of its
technologies and product lines. It is the only company in the propulsion
industry capable of designing, developing and manufacturing both large and small
liquid and solid rocket propulsion systems and components at a single operating
site. These propulsion capabilities are augmented by highly energetic warhead
technologies tested at a remote off-site location. Aerojet is regarded as an
industry leader in the development and manufacture of explosively-formed
projectiles and penetrators.

Aerojet is also competing in a variety of new development and advanced
programs related to defense and space applications, including spacecraft, launch
and armament systems. Aerojet believes that its experience in these areas will
enable it to continue to participate in the future funding of these or similar
programs.

Real Estate

In addition to providing centralized oversight of the Company's worldwide
real estate portfolio, the Company's real estate business is also responsible
for strategic repositioning, development and sale of lands and facilities which
are not needed for continuing core business operations. The primary focus of the
lease and sale activities is the Aerojet Sacramento site which occupies more
than 12,000 acres, approximately 5,000 of which are available for future
development including approximately 2,600 acres that are expected to be carved
out of the Aerojet Sacramento Superfund designation (see discussion above and in
Note 9(c) under Notes to Consolidated Financial Statements included in Part II,
Item 8 of this report). Much of this property is located along a major highway
corridor and is zoned for multiple uses, including office, commercial and light
industrial. Additional lands are being rezoned for residential uses.

As previously discussed, Aerojet completed the sale of approximately 1,100
acres of property in Eastern Sacramento County, California, for $28 million in
November 2001. A $23 million pre-tax gain resulted from the land sale
transaction. For fiscal year 2001, revenues attributable to the Company's real
estate business were $36 million and pre-tax profits were $26 million compared
to revenues of $6 million and pre-tax profits of $2 million in fiscal year 2000.

For additional information related to the Company's operating segments and
geographic areas of operation see Note 11 in Notes to Consolidated Financial
Statements included in Part II, Item 8 of this report.

FINE CHEMICALS

AFC's revenues are derived from the production of difficult to manufacture
chemicals that are sold to pharmaceutical manufacturers for use in therapeutic
products with applications in areas such as oncology, anti-viral, arthritis,
AIDS, neurology and anti-inflammatory treatments. AFC leverages key technologies
developed and refined by Aerojet through years of defense contracting.
Management believes that AFC's position in this market is derived from its
distinctive competencies in handling high energy and toxic chemicals,
implementing commercial standards and practices and operating under current Good
Manufacturing Practices (cGMP).

The markets addressed by AFC reflect a trend in the pharmaceuticals
industry toward greater outsourcing of the development and manufacture of
pharmaceutical chemicals. Further, major pharmaceutical companies are
increasingly relying upon suppliers, such as AFC, that possess more integrated
capabilities and are able to scale-up and rapidly respond to delivery
requirements. AFC's sales are derived primarily from commercial customers in the
pharmaceuticals industry and biotechnology firms.

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AFC competes in a very fragmented business area. The total market for the
custom manufacture of bulk chemicals for the pharmaceutical industry is
estimated at approximately $10 billion. The largest manufacturer has an eight
percent market share, 12 companies have a two percent market share and over 53
percent of the revenues are shared by companies, such as AFC, with less than a
one percent market share. The business area has a service component as well as a
manufacturing component. Once validated on a particular product line, the work
tends to be very stable. Approvals and applications to the U.S. Food and Drug
Administration often require the chemical contractor to be named. Therefore, the
costs of switching contractors can be high. The key performance measurement is
on-time delivery. Quality is paramount and is mandated by strict regulatory
requirements. AFC competes in several market niche areas, which are all
technology driven. AFC has a particular strength in the hazardous chemistry
area, an area in which AFC has a limited number of competitors. AFC is the sole
supplier at the present time on a number of oncology products that involve
handling highly toxic compounds. A majority of AFC's revenues are derived from
contracts with a small number of customers, the loss of any one of which could
have a material adverse effect on the segment's results of operations.

In December 2001, the Company completed the reacquisition of a 40 percent
ownership position in AFC from NextPharma for approximately $13 million in cash
and the return of GenCorp's interest in NextPharma's parent company. The
acquisition agreement also contains a provision for a contingent payment of up
to $12 million in the event of a disposition of AFC within two years of the
reacquisition. NextPharma acquired its 40 percent ownership position in AFC in
June 2000. AFC is now once again a wholly-owned subsidiary of GenCorp and has
reassumed responsibility for sales, marketing and customer interface activities
previously performed by NextPharma. See "Results of Operations -- Fine Chemicals
Segment" under MD&A in Part II, Item 7 of this report, for additional
information related to a personal investment by GenCorp's Chairman and Chief
Executive Officer, Robert A. Wolfe, in NextPharma's parent company, NextPharma
Technologies S.A. See also Notes 1(a), 1(o) and 16 under Notes to Consolidated
Financial Statements in Part II, Item 8 of this report for additional
information related to this transaction. Another significant event was the
completion in November 2001 of a restructuring and "right-sizing" of the AFC
workforce to increase operational efficiency and reduce its overhead costs to a
level commensurate with its current volume levels. During 2001, AFC reduced its
workforce by almost 100 positions or approximately 40 percent of its total
workforce.

For additional information related to the Company's operating segments and
geographic areas of operation see Note 11 in Notes to Consolidated Financial
Statements included in Part II, Item 8 of this report.

8

ITEM 2. PROPERTIES

Significant operating, manufacturing, research, design and/or marketing
facilities of the Company are set forth below.

FACILITIES

CORPORATE HEADQUARTERS
GenCorp Inc.
Highway 50 and Aerojet Road
Rancho Cordova, California 95670
Mailing address:
P.O. Box 537012
Sacramento, California 95853-7012

MANUFACTURING/RESEARCH/DESIGN/MARKETING LOCATIONS
GDX AUTOMOTIVE
World Headquarters: Manufacturing Facilities: Sales/Marketing/Design and
34975 West 12 Mile Road Batesville, AR Engineering Facilities:
Farmington Hills, MI 48331 Beijing, China* Farmington Hills, MI*
New Haven, MO* Moenchengladbach,
Chartres, France Germany*
Corvol, France Rehburg, Germany
Grefrath, Germany Wabash, IN
European Headquarters: St. Nicholas, France
Erkelenzer Strasse 50 Odry, Czech Republic*
41179 Moenchengladbach Palau, Spain
Germany Pribor, Czech Republic*
Rehburg, Germany
Salisbury, NC
Valls, Spain
Viersen, Germany
Wabash, IN
Welland, Ontario, Canada
AEROSPACE AND DEFENSE
Aerojet-General Corporation Design/Manufacturing Marketing/Sales Offices:
P.O. Box 13222 Facilities: Huntsville, AL*
Sacramento, CA 95813-6000 Jonesborough, TN Tokyo, Japan*
916/355-1000 Sacramento, CA Washington, DC*
Socorro, NM*
FINE CHEMICALS
Aerojet Fine Chemicals LLC Process Development/ Marketing/Sales
P.O. Box 1718 Manufacturing Facilities: Offices:
Rancho Cordova, CA 95741 Sacramento, CA Sacramento, CA
916/355-1000

- ---------------

* An asterisk next to a facility listed above indicates that it is a leased
property.

In addition, the Company and its businesses own and lease properties
(primarily machinery, warehouse and office facilities) in various locations for
use in the ordinary course of its business. Information appearing in Note 9(a)
in Notes to Consolidated Financial Statements is incorporated herein by
reference.

During 2001, the Company undertook various restructuring actions that
included closing several manufacturing facilities. See MD&A in Part II, Item 7
of this report for additional information.

9

ITEM 3. LEGAL PROCEEDINGS

Information concerning legal proceedings, including proceedings relating to
environmental matters, which appears in Notes 9(b) and 9(c) in Notes to
Consolidated Financial Statements, is incorporated herein by reference.

A. TABLE OF TOXIC TORT LEGAL PROCEEDINGS
(*footnotes are listed following the table)

(table continued on following page)
10

A. TABLE OF TOXIC TORT LEGAL PROCEEDINGS (CONTINUED)
(*footnotes are listed following the table)

(table continued on following page)
11

A. TABLE OF TOXIC TORT LEGAL PROCEEDINGS (CONTINUED)
(*footnotes are listed following the table)

(table continued on following page)
12

A. TABLE OF TOXIC TORT LEGAL PROCEEDINGS (CONTINUED)
(*footnotes are listed following the table)

(table continued on following page)
13

A. TABLE OF TOXIC TORT LEGAL PROCEEDINGS (CONTINUED)
(*footnotes are listed following the table)

(table continued on following page)
14

B. TABLE OF VINYL CHLORIDE LEGAL PROCEEDINGS
(*footnotes are listed following the table)

(table continued on following page)
15

C. TABLE OF OTHER LEGAL PROCEEDINGS
(*footnotes are listed following the table)

(footnotes on following page)

16

(footnotes relate to table on preceding page)
- ---------------

1. Relief Sought: Plaintiffs seek judgment against defendants for unspecified
general, special and punitive damages, diminution in value of plaintiffs'
real property, medical monitoring, a constructive trust against defendants'
properties to pay for plaintiffs' injuries, an order compelling defendants
to disgorge profits acquired through unlawful business practices, and
injunctive relief.

2. Current Status: These cases are stayed pending California Public Utilities
Commission (PUC) investigation. The California Supreme Court allowed an
appeal and issued its ruling on February 4, 2002, which found the stays
should be rescinded as to non-PUC regulated defendants. PUC regulated
defendants could be sued if the supplied drinking water violated state or
federal standards. Assuming the Court does not reconsider its ruling, the
stays in these cases will be rescinded and discovery will commence in March
or April, 2002. The Austin case has not been stayed and is in discovery.

3. Relief Sought: Plaintiffs seek judgment against defendants for unspecified
general, special and punitive damages, and diminution in value of
plaintiffs' property.

4. Current Status: These cases are beginning discovery in early 2002.

5. Relief Sought: Plaintiffs seek judgment against defendants for unspecified
general, special damages, and injunctive relief.

6. Current Status: The Los Angeles area cases are expected to be resolved if a
Definitive Agreement is reached in the Baldwin Park Operable Unit matter.
The Sacramento case is proceeding with trial expected in the fall of 2002.

7. Relief Sought: Plaintiffs seek to reinstate benefits of prior GenCorp Hourly
Retiree Medical Plan.

8. Current Status: The Court has ordered the parties to mediate, which is
ongoing.

9. Relief Sought: Plaintiff seeks monetary damages and punitive damages for
personal injury based on negligence, fraud, strict liability and conspiracy
grounds.

10. Current Status: Discovery pending; comprehensive motion to dismiss to be
filed, or is pending.

11. Relief Sought: Plaintiff seeks reinstatement of all strikers and back pay
with interest (since 1981).

12. Current Status: The NLRB, in a split decision, held that unsafe working
conditions existed, and therefore, the strike constituted an unfair labor
practice, entitling the strikers to reinstatement with back pay and
interest. TNS appealed the ruling to the U.S. Court of Appeals, 6th Circuit,
and oral argument was held in September 2001. A ruling is expected in the
near future.

13. Relief Sought: Plaintiff seeks declaratory relief and specific performance
requiring Aerojet to pay 50 percent of the remediation expenses.

14. Current Status: Aerojet disputes plaintiff's allegations and believes
plaintiff is itself in breach of the 1999 settlement agreement which
resolved litigation brought by Aerojet against plaintiff. Aerojet plans a
vigorous defense.

15. Relief Sought: Plaintiff seeks a declaratory judgment from the Court and an
award of damages plus interest.

16. Current Status: Court has found GenCorp 30 -- 40 percent liable for total
remediation costs. A decision on allowability of submitted costs is expected
in 2002. GenCorp expects to appeal finding of liability when a final
judgment is rendered.

+ Designates Baldwin Park Operable Unit (BPOU) related litigation.
- ---------------

Additional information related to certain of the proceedings listed above
is contained in Notes 9(b) and 9(c) in Notes to Consolidated Financial
Statements contained in Part II, Item 8 of this report and incorporated herein
by reference.

In connection with the restatement of the Company's Consolidated Financial
Statements discussed in Item 1 above, the Company contacted the Securities and
Exchange Commission and intends to cooperate in any inquiry relating to the
restatement.

While there can be no certainty regarding the outcome of any litigation, in
the opinion of management, after reviewing the information currently available
with respect to the matters discussed above and consulting with the Company's
counsel, the Company believes that any liability that may ultimately be incurred
will not materially

17

affect the consolidated financial condition of the Company. The effect of
resolution of these matters on the Company's financial condition and results of
operations cannot be predicted because any such effect depends on future results
of operations, the Company's liquidity position and available financial
resources, and the amount and timing of the resolution of any such matter. In
addition, it is possible that amounts incurred could be significant in any
particular reporting period.

The U.S. Government frequently conducts investigations into allegedly
illegal or unethical activity in the performance of defense contracts.
Investigations of this nature are common to the aerospace and defense industries
in which Aerojet participates and lawsuits may result; possible consequences may
include civil and criminal fines and penalties, and in some cases, double or
treble damages, and suspension or debarment from future government contracting.
Aerojet currently is not aware that it is the subject of any U.S. government
investigations. If such an investigation were to occur, legal or administrative
proceedings could result.

The Company and its subsidiaries are presently engaged in other litigation,
and additional litigation has been threatened. However, based upon information
presently available, none of such other litigation is believed to constitute a
"material pending legal proceeding" within the meaning of Item 103 of Regulation
S-K (17 CFR Reg. 229.103) and the Instructions thereto.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended November 30,
2001.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following information is given as of February 11, 2002, and except as
otherwise indicated, each individual has held the same office during the
preceding five-year period.

Robert A. Wolfe, age 63: Chairman, Chief Executive Officer and President of
the Company (since October 1999); formerly Vice President of the Company and
President of Aerojet (from September 1997 to October 1999); previously Executive
Vice President of the Pratt & Whitney Group, a division of United Technologies
(during 1997), President, Pratt & Whitney Aircraft's Large Commercial Engines
business (from 1994 to 1997), and Senior Vice President, Pratt & Whitney's
Commercial Engine Management for Latin and North America (from 1992 to 1994).
Mr. Wolfe has executed an Employment Retention Agreement dated November 30,
2001, a copy of which is attached as Exhibit 10.9 to this report.

Robert C. Anderson, age 52: Vice President and Deputy General Counsel;
Assistant Secretary (since October 1999); formerly Vice President, Law of
Aerojet (from September 1996 to October 1999); previously, Counsel, General
Electric Aircraft Engines (from June 1986 to September 1996), and Senior Counsel
(from 1985 to 1986) and Counsel (from 1978 to 1985) for TRW Inc. Mr. Anderson
has elected to retire under the 2001 GenCorp Voluntary Enhanced Retirement
Program (VERP) and will be placed on salary continuation status effective April
1, 2002 (at which time he will no longer be an officer of the Company) with a
designated retirement date of September 30, 2003.

Joseph Carleone, age 56: Vice President of the Company and President of
Aerojet Fine Chemicals LLC (since September 2000); formerly Vice President and
General Manager, Remote Sensing Systems and Vice President, Operations at
Aerojet (from 1999 to 2000); previously Vice President, Operations (from 1997 to
2000), Vice President, Tactical Product Sector (from 1994 to 1997), and Vice
President, Armament Systems; Director, Warhead Systems and Chief Scientist,
Warheads (from 1982 to 1994).

Chris W. Conley, age 43: Vice President, Environmental, Health & Safety
(since October 1999); formerly Director Environmental, Health & Safety (from
March 1996 to October 1999); previously Environmental Consultant (from 1994 to
1996), Manager, Environmental for GenCorp Automotive (from 1990 to 1994), and
various environmental management positions at Aerojet Ordnance Tennessee (from
1982 to 1990).

Linda B. Cutler, age 48: Vice President, Communications (as of March 11,
2002); formerly, Strategic Market Manager, Telecommunications and Video Services
of Output Technology Solutions (from September 2000 to March 2002), and Vice
President, Marketing and Corporate Communications of Output Technology Solutions
(from January 2000 to September 2000); previously Vice President, Investor
Relations and Corporate Communications of USCS International (from April 1996 to
December 1999).

18

Terry L. Hall, age 48: Senior Vice President and Chief Operating Officer of
the Company (since September 2001); formerly Senior Vice President and Chief
Financial Officer of the Company (from March 2001 to September 2001); previously
Senior Vice President and Chief Financial Officer and Treasurer of the Company
(from October 1999 to March 2001); on special assignment as Chief Financial
Officer of Aerojet (from May 1999 to October 1999), Senior Vice President and
Chief Financial Officer of US Airways Group, Inc. (during 1998), Chief Financial
Officer of Apogee Enterprise Inc. (from 1995 to 1997), Chief Financial Officer
of Tyco International Ltd. (from 1994 to 1995), Vice President and Treasurer of
UAL Corp. (from 1990 to 1993) and President/General Manager of Northwest
Aircraft Inc. (from 1986 to 1990).

Samuel W. Harmon, age 51: Senior Vice President, Administration (from
October 1999 until December 2001); formerly Senior Vice President, Human
Resources (from February 1996 to October 1999) and Vice President, Human
Resources (from October 1995 until February 1996); previously Vice President,
Human Resources, AlliedSignal, Inc., for its European operations (from 1995 to
February 1996) and for its Automotive Sector (from 1993 to 1995). Mr. Harmon has
elected to retire under the VERP effective December 1, 2001 and has been placed
on salary continuation status with a designated retirement date of November 30,
2003. He is no longer an officer of the Company.

Michael F. Martin, age 55: Vice President of the Company and President of
Aerojet (since October 2001); formerly Acting President of Aerojet (from April
2001 to October 2001) and Vice President and Controller of GenCorp (from October
1999 to April 2001); previously Vice President and Controller of Aerojet (from
September 1993 to October 1999), and Controller of Aerojet's ElectroSystems
Division (from 1991 to 1993).

Thomas E. Peoples, age 53: Senior Vice President, International and
Washington Operations (from October 1999 until December 2001); formerly Vice
President, International and Washington Operations for Aerojet (from August 1996
to October 1999); Vice President, Strategic Business Development for Aerojet
(from July 1994 to August 1996). Vice President of Business Development for
Aerojet's Electronics Division (from February 1994 to July 1994), Director of
Business Development for Aerojet's Tactical Systems and Advanced Programs (from
May 1992 to July 1994) and Manager of Business Development for Raytheon's Smart
Munitions Programs (from March 1987 to April 1992). Mr. Peoples has elected to
retire under the VERP effective December 1, 2001 and has been placed on salary
continuation status with a designated retirement date of May 31, 2003. He is no
longer an officer of the Company.

William R. Phillips, age 59: Senior Vice President, Law; General Counsel
(since September 1996) and Secretary (since October 1999); formerly Vice
President, Law of Aerojet (from 1990 to 1996); previously General Counsel, Group
Counsel and Manager Legal Operations, General Electric Aircraft Engines (from
1986 to 1989). Mr. Phillips has elected to retire under the VERP and will be
placed on salary continuation status effective December 1, 2002 (at which time
he will no longer be an officer of the Company) with a designated retirement
date of November 30, 2004.

William J. Purdy, Jr. age 57: Vice President of the Company and President,
Real Estate (as of March 15, 2002); formerly, Managing Director, Development of
Transwestern Development Company (from January 1997 to March 2002); previously
Chief Financial Officer of American Health Care Providers Inc. (from April 1996
to January 1997) and President and Chief Executive Officer of Metropolitan
Structures (from December 1992 to December 1995).

Charles G. Salter, age 52: Vice President of Compensation and Benefits of
the Company (from April 2000 until December 2001); formerly Corporate Vice
President, Benefits for AutoNation (from 1998 to 2000); previously
Director/Employee Benefits of Allied Signal Aerospace (from 1995 to 1998),
corporate Director, Human Resource Policies & Practices and Director, Employee
Benefits, as well as other management positions within GenCorp (from 1978 to
1995). Mr. Salter has elected to retire under the VERP effective January 1, 2002
and has been placed on salary continuation status with a designated retirement
date of June 30, 2003. He is no longer an officer of the Company.

Yasmin R. Seyal, age 44: Senior Vice President, Finance; Acting Chief
Financial Officer of the Company and Treasurer of the Company (since September
2001); formerly Treasurer of the Company (from July 2000 to September 2001);
previously Assistant Treasurer and Director of Tax of the Company (from April
2000 to July 2000), Director of Treasury and Taxes of the Company (from October
1999 to April 2000), Director of Taxes

19

as well as other management positions within Aerojet (from 1989 to April 1999),
Manager with Price Waterhouse LLP (from 1982 to 1989).

Rosemary Younts, age 46: Senior Vice President, Communications (since
February 1996); formerly Vice President, Communications (from January 1995 to
February 1996); previously Director of Communications (from 1993 to 1995) and
held various communications positions with Aerojet (from 1984 to 1993). Ms.
Younts has elected to retire under the VERP and will be placed on salary
continuation status effective April 1, 2002 (at which time she will no longer be
an officer of the Company) with a designated retirement date of March 31, 2004.

The Company's executive officers generally hold terms of office of one year
and/or until their successors are elected.

Of the 25 GenCorp headquarters employees eligible to retire under the VERP,
18 employees accepted the offer, including six of the executive officers of the
Company listed in Part I of this report. The Company has hired a replacement for
Ms. Younts and is actively recruiting a replacement for Mr. Phillips. The
Company does not anticipate replacing the other executive officers that accepted
the VERP offer. Enhanced retirement benefits for the officers and former
officers referenced above will be paid under the non-qualified 2001 Supplemental
Retirement Plan For GenCorp Executives which incorporates the items and
conditions of the VERP and is filed as Exhibit 10.29 to this report.

20

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS

The Company's common stock, $0.10 par value (Common Stock) is listed on the
New York and Chicago Stock Exchanges. As of February 11, 2002, there were 11,759
holders of record of the Company's Common Stock. During the first three quarters
of 1999, the Company paid quarterly cash dividends of $0.15 per share. During
each quarter in 2001 and 2000 and the fourth quarter of 1999, following the
spin-off of OMNOVA, the Company paid a quarterly cash dividend on its Common
Stock of $0.03 per share. Information concerning long-term debt, including
material restrictions relating to payment of dividends on the Company's Common
Stock appears in Part II, Item 7 under the caption "Liquidity and Capital
Resources" and at Note 7 in Notes to Consolidated Financial Statements and is
incorporated herein by reference.

The high and low sales prices of the Company's Common Stock as reported on
the New York Stock Exchange Composite Tape were:

21

ITEM 6. SELECTED FINANCIAL DATA

As described in Item 1, the Company has restated its previously issued
financial statements for the years ended November 30, 2000 and November 30,
1999. See Note 2 in Notes to Consolidated Financial Statements for further
information regarding the restatement (dollars in millions, except per share
amounts).

- ---------------

(1) See Note 1(a) in Notes to Consolidated Financial Statements for additional
information related to discontinued operations and business acquisition and
disposition activities.

(2) See Notes 13 and 14 in Notes to Consolidated Financial Statements for
information on restructuring and unusual items included in the Company's
financial results.

(3) See Note 8(a) in Notes to Consolidated Financial Statements.

Note: Comparable, discrete financial information is not available for the Fine
Chemicals segment for 1998 or 1997. Results for the Fine Chemicals segment
are included in the results for the Aerospace and Defense segment for
those years.

22

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain information contained in this report should be considered
"forward-looking statements" as defined by the Private Securities Litigation
Reform Act of 1995. These statements present (without limitation) the
expectations, beliefs, plans and objectives of management and future financial
performance and/or assumptions underlying or judgments concerning matters
discussed in this document. The words "believe," "estimate," "anticipate,"
"project," and "expect," and similar expressions are intended to identify
forward-looking statements. All forward-looking statements involve certain
risks, estimates, assumptions and uncertainties with respect to future revenues
and activity levels, cash flows, contract performance, the outcome of
contingencies including environmental remediation, and anticipated costs of
capital. In particular, this pertains to management's comments on financial
resources, capital spending and the outlook for each of the Company's business
segments.

Some important risk factors that could cause the Company's actual results
or outcomes to differ from those expressed in its forward-looking statements
include, but are not limited to, the following:

- The reaction of the Company's employees, shareholders, customers and
lenders to the restatement of certain of the Company's financial
statements as described below (see "Results of Operations"),
including any litigation arising out of such restatement;

- The ability of the Company to secure additional financing (see
"Liquidity and Capital Resources");

- General economic conditions and trends affecting the Company's
markets and product offerings;

- Changes in the short-term and long-term plans of major customers and
potential customers;

- Governmental and regulatory policies, including environmental
regulations, and increases in the amount or timing of environmental
remediation and compliance costs (see "Other Information -
Environmental Matters");

- An unexpected adverse result in the toxic tort or other litigation,
proceeding or investigation pending against the Company (see Notes
9(b) and 9(c), "Legal Proceedings" and "Environmental Matters");

- The Company's acquisition, disposition and joint venture activities;

- Vehicle sales and production rates of major automotive programs in
the U.S. and abroad, particularly vehicles for which the Company
supplies components;

- Department of Defense, NASA and other funding for certain aerospace
programs;

- Future funding for commercial launch vehicles;

- The ability of the Company to achieve the anticipated savings from
restructuring and other financial management programs;

- The ability of the Company to successfully complete the entitlement
process and related pre-development activities for its real estate
in Northern California;

- The market for the Company's real estate in Northern California;

- Fluctuations in exchange rates of foreign currencies and other risks
associated with foreign operations;

- The ability of the Company to satisfy contract performance criteria,
including due dates;

- The ability of the Company to maintain a high level of product
performance, particularly related to the continued success of the
Company's launch vehicle platforms;

- An adverse decision in any patent infringement suit, or settlement
of a patent infringement suit impacting Aerojet Fine Chemicals'
right to utilize new technology;

- Intensified competition from the Company's competitors;

- Pricing pressures from the Company's major customers, particularly
in the GDX Automotive segment;

23

- The ability of the Company to successfully defend its position that
there are no purchase price adjustments for Aerojet's EIS business,
a business which was sold to Northrop Grumman in 2001;

- Potential liabilities which could arise from any release or
explosion of dangerous materials;

- Work stoppages at a Company facility or in the facility of one of
the Company's significant customers; and,

- Cost escalation and availability of power in Northern California.

Additional risk factors may be described from time to time in the Company's
filings with the U.S. Securities and Exchange Commission. All such risk factors
are difficult to predict, contain material uncertainties that may affect actual
results, and may be beyond the Company's control.

RESULTS OF OPERATIONS

The following section pertains to activity included in the Company's
Consolidated Statements of Operations, which are contained in Part II, Item 8 of
this report, and focuses on the Company's continuing operations. This section
also includes information related to unusual items included in the Company's
financial results as well as information related to discontinued operations.

Restatement of Previously Issued Financial Statements

In January 2002, the Company became aware of certain potential accounting
issues at two of its GDX Automotive manufacturing plants in North America. The
Company promptly notified both its Audit Committee and its independent
accountants. Under the direction and oversight of the Audit Committee and with
the assistance of outside legal advisors and accounting consultants, the Company
conducted an inquiry into these and related accounting issues as well as a more
complete evaluation of accounting practices and internal control processes
throughout the Company. As a result of this process, due primarily to activities
at one GDX Automotive manufacturing plant, the Company is, by means of this
filing, restating its previously issued financial statements for the years ended
November 30, 2000 and November 30, 1999. See also Note 2 in Notes to
Consolidated Financial Statements in Part II, Item 8 of this report. Unaudited
quarterly financial information for the year ended November 30, 2000 and the
first three quarters of the year ended November 30, 2001, as shown in Note 12 in
the Notes to Consolidated Financial Statements in Part II, Item 8 of this
report, is also being restated by means of this filing.

The effect of the Company's revisions will be to reduce the Company's
income from continuing operations and diluted earnings per share from continuing
operations, respectively, from $55 million and $1.31 to $52 million and $1.23
for the year ended November 30, 2000 and from $46 million and $1.09 to $45
million and $1.07 for the year ended November 30, 1999. The effect of the
revisions on the net income for the nine months ended August 31, 2001 was to
reduce net income from $25 million to $22 million and decrease basic and diluted
EPS from $0.59 to $0.52. The effect of the revisions on the Company's
Consolidated Balance Sheets as of November 30, 2000 resulted in an increase in
assets of $1 million and an increase in liabilities of $10 million and, as of
November 30, 1999, assets were increased $2 million and liabilities increased $6
million. The balance of retained earnings as of December 1, 1998 decreased $5
million. The revisions primarily arise from the correction of (i) certain
balance sheet and income statement items, which among other things, relate to
the accounting for customer-owned tooling, inventories and recognition of
liabilities at one of the Company's GDX Automotive manufacturing plants that the
Company has determined were not properly recorded in the Company's books and
records; and (ii) an oversight in collecting data for the calculation for
certain postretirement benefit liabilities at one of GDX Automotive's non-U.S.
facilities in the year ended November 30, 1996 with no material impact on fiscal
years 1998 and 1997. At the direction of the Audit Committee of the GenCorp
Board of Directors, the Company is in the process of implementing certain
enhancements to its financial organization, systems and controls primarily at
its GDX Automotive segment in response to issues raised by the restatement and
identified by the Company's independent accountants as material weaknesses.

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

24

GDX Automotive Segment

In December 2000, the Company completed the acquisition of the Draftex
business of The Laird Group. Draftex recognized revenues of $437 million for the
year ended December 29, 2000. The sales added by the Draftex acquisition are
primarily outside the U.S. At the time of the acquisition, the Draftex business
added 5,484 employees for total GDX Automotive employment of 10,584. The
purchase price of the Draftex business was $215 million, including cash of $209
million and direct acquisition costs of $6 million. Certain adjustments to the
purchase price were in dispute and were decided by an independent arbitrator in
February 2002. However, there are further issues impacting the purchase price
including the effect of the arbitrator's decision, which have yet to be resolved
between the parties. Management believes that resolution of these issues will
not have a material impact on the Company's results of operations, liquidity or
financial condition. The acquisition included Draftex's Germany-based worldwide
headquarters and International European Technical Center, and 11 manufacturing
plants in Germany, France, Czech Republic, Spain, China and the U.S.

Net sales for the Company's GDX Automotive segment totaled $808 million for
fiscal year 2001, an increase of 67 percent compared with 2000 net sales of $485
million. The increase is due primarily to the acquisition of the Draftex
business from The Laird Group in December 2000. Revenues attributable to the
Draftex business for fiscal year 2001 were $357 million for the eleven months in
fiscal 2001 that the Company owned this business. The decrease in revenues from
the $437 million recorded by Draftex as an independent entity for its fiscal
year 2000 (prior to being acquired by the Company), reflects activity for one
less month and the loss of several contracts with Ford, Renault and Volkswagen.
The remainder of the GDX Automotive segment experienced decreased revenues
year-over-year of $34 million from $485 million in fiscal year 2000 to $451
million in fiscal year 2001 primarily related to the loss of contracts to supply
components for the General Motors (GM) Grand Am and S-10 truck platforms. The
decrease in revenues from the loss of those contracts was partially offset by an
increase in revenues principally related to the GM full-size pick-up and sport
utility vehicles and the Ford full-size pick-up and redesigned Explorer.

Excluding unusual items (see discussion below), operating loss for the GDX
Automotive segment was $4 million for 2001 compared with operating profit of $29
million in 2000. Operating profit margin decreased to negative one percent in
2001 from six percent in 2000. Operating profit margin in 2001 was negatively
affected by initial production start-up costs (launch costs), particularly with
the redesigned Ford Explorer and GM SUVs. The loss of business not otherwise
replaced, as discussed above, and an increase in health care costs and certain
period costs associated with restructuring activities also contributed to the
segment's decreased financial performance in 2001 as compared to 2000. Although
the Company has not yet achieved the synergies and other costs savings
originally anticipated from the Draftex acquisition, the addition of the Draftex
business has provided GDX Automotive with a substantially broadened and more
diversified customer base and the global manufacturing presence necessary to
serve customers around the world. The Company expects to achieve the anticipated
synergies longer-term following final integration of the Draftex business and
certain restructuring activities that have been undertaken (see below). During
the fourth quarter of fiscal year 2001, the President of the GDX Automotive
business unit left the Company, and the Company's Chief Operating Officer, Terry
L. Hall, assumed that role on an interim basis.

The Company believes the GDX Automotive segment is well positioned in the
marketplace with a strong mix of popular passenger car, SUV and light truck
platforms. With the acquisition of the Draftex business, the Company's GDX
Automotive segment strengthens its sales position to number one in North America
and number two world-wide. The acquisition of Draftex has also helped broaden
and diversify the segment's customer and platform base and has created
opportunities to rationalize production capacity in both North America and
Europe to achieve better resource utilization and operational profitability.

Net sales for the segment for fiscal year 2000 totaled $485 million, which
represented a six percent increase compared with sales of $456 million for 1999.
The sales increase was due primarily to higher production volumes on the GM and
Ford full-size pickup truck platforms. Initial shipments to Ford began during
the third quarter of fiscal year 2000 on the Excursion, a vehicle platform
previously supplied by one of the Company's competitors. Operating profit for
the segment improved to $29 million for 2000 compared with $16 million for 1999.
Operating profit margin improved to six percent for 2000 from four percent for
1999. Operating profit margins steadily improved throughout 2000 as anticipated
model run rates were achieved and launch support efforts

25

subsided on product launches initiated in 1999. Fiscal year 2000 operating
results were also favorably impacted by increased pension income partially
offset by launch support and coordination costs for the Explorer Sport Trac,
Escape and the newly redesigned Explorer.

Aerospace and Defense Segment

In fiscal year 2001, net sales for the Company's Aerospace and Defense
segment reached $640 million, an increase of $106 million over net sales in 2000
of $534 million. The increase is primarily the result of an increase in revenues
from the Space Based Infrared System (SBIRS) program, the Advanced Technology
Microwave Sounder (ATMS) program, and subcontract work performed on the F-22
fighter aircraft. Programs with decreased revenues year-over-year included the
Titan IV launch vehicle and the Seek-And-Destroy-Armor (SADARM) program. The
Titan IV program is nearing conclusion and the SADARM weapon was rejected by the
U.S. Army in 2001. The SBIRS, ATMS and SADARM programs were part of the
Company's EIS business, which was sold to Northrop Grumman in October 2001 (see
discussion below). Excluding the results of the EIS business, revenues for the
segment increased marginally year-over-year.

Operating profit for the Aerospace and Defense segment was $131 million for
fiscal year 2001, excluding unusual items. The comparable amount for 2000 was
$104 million. Profitability in 2001 was favorably impacted by the results of the
Company's real estate business, higher pension income and the SBIRS program.
These favorable impacts were partially offset by a lower contribution from the
Titan IV program and a $9 million reserve recorded during fiscal 2001 related to
the Atlas V launch vehicle program. Excluding the results of the EIS business,
operating profit for the segment increased $19 million year-over-year,
reflecting the results for the real estate business (see below).

In November 2001, Aerojet completed the sale of approximately 1,100 acres
of property in Eastern Sacramento County, California, for $28 million. The
property lies outside of the Aerojet Superfund site boundaries and is not a part
of the approximately 2,600 acres of land expected to be carved out of the
Superfund site designation under an agreement with federal and state government
regulators (see also Note 9(c) under Notes to Consolidated Financial
Statements). A $23 million pre-tax gain resulted from the land sale transaction.
For fiscal year 2001, revenues attributable to the Company's real estate
business unit were $36 million and pre-tax profits were $26 million compared to
revenues of $6 million and pre-tax profits of $2 million in fiscal year 2000.

Aerojet finalized the sale of its EIS business to Northrop Grumman for $315
million in cash on October 19, 2001, subject to certain working capital
adjustments as defined in the agreement. In December 2001, Northrop Grumman
proposed significant adjustments which would require that Aerojet make a
purchase price reduction of approximately $42 million. Aerojet disagrees with
Northrop Grumman's proposed balance sheet adjustments on the basis that they are
inconsistent with the Asset Purchase Agreement (APA). The proposed adjustments
are subject to arbitration. The pre-tax gain on the transaction was $206
million. The EIS business had revenues of approximately $398 million and pre-tax
income of approximately $30 million for the period December 1, 2000 through
October 19, 2001. The results of operations for this business are included in
the discussion of the results of operations for the Company's Aerospace and
Defense segment for all periods presented in this report through the sale date.
See Note 1(a) in Notes to Consolidated Financial Statements for additional
information related to this transaction.

As of November 30, 2001, Aerojet's contract backlog was $603 million. The
comparable amount as of November 30, 2000 (excluding those programs that were
part of the former EIS business) was approximately $746 million. The inability
of a commercial customer to raise additional required funding accounted for a
decrease of $146 million in contract backlog from 2000 to 2001. Funded backlog,
which includes only the amount of those contracts for which money has been
directly authorized by the U.S. Congress, or for which a firm purchase order has
been received by a commercial customer, was approximately $366 million as of
November 30, 2001. As of November 30, 2000, the comparable amount (excluding
those programs that were part of the EIS business) was $383 million.

Net sales for the Company's Aerospace and Defense segment in fiscal year
2000 were $534 million versus 1999 sales of $570 million, down six percent. The
majority of the decline is the result of the completion and sale of the final
Special Sensor Microwave Imager/Sounder (SSMIS) unit in 1999. Lower revenues on
a mix of propulsion programs and the Integrated Advanced Microwave Sounding Unit
(AMSU) program contributed to the

26

decline in sales, partially offset by higher volume on the SBIRS, SADARM, and
the Japanese Hope X programs. Segment operating profit for 2000 of $104 million
represented a substantial improvement over the 1999 level of $67 million.
Operating profit margins were 19 percent in 2000 compared with 12 percent for
1999. Operating profit margins in 2000 were favorably impacted by the segment's
performance on the Delta II launch vehicle and Titan IV contracts, award fees on
the Atlas V and SADARM programs, 100 percent award fees recognized on the AMSU
program and the Defense Support Program Consolidation and increased pension
income.

Fine Chemicals Segment

The Fine Chemicals segment consists of the operations of AFC, which
supplies special intermediates and active pharmaceutical ingredients primarily
to commercial customers in the pharmaceuticals industry.

In June 2000, the Company sold a 20 percent equity interest in AFC to
NextPharma for approximately $25 million in cash and exchanged an additional 20
percent equity interest in AFC for an approximate 35 percent equity interest in
NextPharma's parent company. GenCorp continued to manage, operate, and
consolidate AFC as majority owner after the transaction. In connection with the
transaction, the Company recorded a pre-tax gain on the sale of a minority
interest in its subsidiary of approximately $5 million. In addition, the Company
initially recorded minority interest of approximately $26 million, included in
other long-term liabilities, and an investment in NextPharma's parent company of
approximately $6 million.

In December 2001, the Company reacquired the 40 percent minority interest
in AFC held by NextPharma. As part of the transaction, other agreements between
the two companies were terminated, including a comprehensive sales and marketing
agreement. With the termination of these agreements, AFC has reassumed
responsibility for sales, marketing and customer interface. As noted above, the
Company sold an equity interest in AFC to NextPharma in June 2000. Following
review and approval by the Audit Committee of the GenCorp Board of Directors,
GenCorp Chairman and Chief Executive Officer, Robert A. Wolfe, subscribed for
25,000 Ordinary Shares of NextPharma's parent company, NextPharma Technologies
S.A., in August 2000 at an aggregate purchase price of $250,000. Mr. Wolfe did
not receive record title to the Ordinary Shares until December 18, 2000. Because
of his personal NextPharma Technologies S.A. investment, with prior notice to
the Audit Committee of the Board of Directors, Mr. Wolfe was recused from all
negotiations and all discussions and approvals of the reacquisition of
NextPharma's minority ownership interest in AFC with senior GenCorp management,
with the GenCorp Board of Directors and with NextPharma and its affiliates. Mr.
Wolfe still holds the Ordinary Shares he purchased in NextPharma Technologies
S.A. as a personal investment.

The segment operating results for the Fine Chemicals segment include the
results of AFC before considering NextPharma's 40 percent minority interest. The
minority ownership is reflected in the consolidated results for GenCorp
beginning in June 2000 as part of Corporate and other expenses.

Before considering the minority ownership interest, AFC recognized revenues
of $38 million in fiscal year 2001, compared with $28 million for 2000. AFC
began producing several new products in 2001, building on a major investment in
new facilities and equipment in 2000 and 1999. A majority of AFC's revenues for
2001 were recognized in the fourth quarter and stemmed from products
manufactured in prior quarters. Before considering the minority interest,
operating loss for fiscal year 2001 and 2000 was $14 million. Before considering
the minority ownership interest, AFC's operating margin for fiscal year 2001
decreased as compared to the 2000 performance reflecting an increase in the
number of new products in 2001. The launch of new products includes various
start-up activities and typically a period of production inefficiency before
certain efficiencies are realized. AFC is expected to realize benefits resulting
from a restructuring program completed in November 2001 (see discussion of
restructuring charges below).

Before considering minority interest, AFC recognized net sales of $28
million and an operating loss of $14 million in fiscal year 2000, compared with
net sales of $45 million and an operating loss of $5 million in 1999. The
decrease in revenues and profitability in fiscal year 2000 as compared with
fiscal year 1999 reflects the absence of one contract that represented
approximately 70 percent of AFC's revenues in fiscal year 1999.

Interest and Other Expenses

Interest expense increased to $33 million in 2001 from $18 million in 2000
and $6 million in 1999. The increase in 2001 is due to higher average debt
levels due to debt obtained to finance the Draftex acquisition in December 2000.
Interest expense in 1999 is not comparable to 2001 and 2000 due to allocation
criteria used to
27

allocate interest expense between OMNOVA and GenCorp at the time of the
spin-off. Corporate and other expenses increased in 2001 to $15 million compared
to $10 million in 2000 and 1999. The 2001 increase is attributable to higher
amortization expense as a result of acquired goodwill and other intangible
assets. The foreign exchange gain in 2001 and loss in 2000 were both the result
of foreign currency contracts entered into to hedge against market fluctuation
in anticipation of the Draftex acquisition.

Restructuring Charges and Unusual Items, Net

During 2001, the Company incurred certain restructuring charges (in
millions):

In the second quarter of fiscal year 2001, the Company recorded a pre-tax
charge of $19 million related to a restructuring and consolidation of its GDX
Automotive segment. The restructuring program included the closure of the
Marion, Indiana and Ballina, Ireland manufacturing facilities and resulted in
the elimination of approximately 760 employee positions. The decision to close
these facilities was precipitated by excess capacity and deterioration of
performance and losses at these sites. The decision to close the Ballina,
Ireland plant was also due to difficulty in retaining plant personnel in light
of record employment levels in the region. Remaining programs from these
facilities were transferred to other facilities. In the fourth quarter of 2001,
the Company recorded an additional pre-tax charge of $10 million related to this
program primarily to reflect a change in estimate for the anticipated
disposition values of the idled facilities and assets and benefits costs. This
restructuring program was substantially complete by the end of the Company's
fiscal year 2001. There was an additional restructuring program directed at the
Draftex business, which resulted in the elimination of more than 500 employee
positions and an adjustment of the goodwill recorded as part of the Draftex
acquisition.

In the fourth quarter of 2001, the Company implemented a restructuring of
its corporate headquarters. The program included a Voluntary Enhanced Retirement
Program (VERP) which was offered to certain eligible employees. The program
resulted in a $10 million pre-tax charge to expense.

A restructuring plan implemented at AFC during the fourth quarter of fiscal
year 2001 included the elimination of 50 employee positions and resulted in a
pre-tax charge to expense of $1 million. This program was designed to
"right-size" AFC's workforce.

In addition to the restructuring charges discussed above, the Company
recognized certain unusual items in its financial results for fiscal year 2001
(in millions):

The gain on the sale of the EIS business relates to the Company's sale of
this business to Northrop Grumman in October 2001. The transaction is discussed
above under the discussion of results of operations for the Aerospace and
Defense segment.

In the fourth quarter of 2001, Aerojet recorded an inventory write-down of
$46 million related to its participation as a propulsion supplier to a
commercial launch vehicle program and also recorded a $2 million accrual for
outstanding obligations connected with this effort. Aerojet's inventory consists
of program-unique rocket engines and propulsion systems primarily intended for
use in commercial reusable launch vehicles. The

28

inventory write-down reflects the following: inability of a commercial customer
to secure additional funding, no alternative purchasers willing to acquire
inventory held by Aerojet and no market value.

During the first quarter of 2001, the Company reached a settlement with the
State of California on an outstanding tax claim. The benefit of the tax refund,
$9 million on an after tax basis, was recorded in the income tax provision in
the first quarter. The portion of the tax refund that will be repaid to the
Company's defense customers is reflected as an unusual expense item of $7
million in segment income ($4 million after tax). Accordingly, after repayment
to the Company's defense customers, the Company will retain $5 million of the
claims settled in the first quarter.

Similarly, during the second quarter of 2001, the Company settled
additional outstanding claims with the Internal Revenue Service and the State of
California. The benefit of the tax refunds, $4 million on an after tax basis,
was recorded in the income tax provision in the second quarter. The portion of
the tax refunds that will be repaid to the Company's defense customers is
reflected as an unusual expense item of $2 million in segment income ($1 million
after tax). Accordingly, after repayment to the Company's defense customers, the
Company will retain $3 million of the claims settled in the second quarter.

In the first quarter of 2001, the Company received a $2 million insurance
settlement for an environmental claim related to discontinued operations.

During fiscal year 2000, the Company incurred unusual items resulting in a
net pre-tax gain of $4 million. Unusual items included a gain of $5 million from
the sale of an equity interest in AFC to NextPharma; a $3 million gain from an
environmental settlement related to a discontinued operation, offset by a $3
million charge related to the pension settlement of a discontinued Canadian
operation; and a $1 million loss on the disposition of property related to a
discontinued operation.

During fiscal year 1999, the Company incurred unusual items resulting in
net pre-tax income before taxes of $12 million. Unusual items included a gain of
$59 million on settlements covering certain environmental claims with certain of
the Company's insurance carriers; a provision of $33 million for environmental
remediation costs associated principally with the Company's initial estimate of
its probable share as a Potentially Responsible Party (PRP) in the portion of
the San Gabriel Valley Basin Superfund Site known as the Baldwin Park Operable
Unit (BPOU); a provision for environmental remediation costs at the Company's
Lawrence, Massachusetts site of $6 million; a provision for environmental
remediation costs associated with other Company sites of $2 million; a charge of
$4 million related to a pricing dispute with a major vehicle sealing customer; a
charge of $1 million for the write-down of certain GDX Automotive assets to net
realizable value; and a charge of $1 million related to relocation/retention
costs associated with the spin-off of OMNOVA (see below). See discussion below
for additional information related to environmental matters.

Spin-Off of OMNOVA and Discontinued Operations

In 1999, the Company disposed of its Polymer Products segment through the
spin-off of OMNOVA and the sale of its Penn Racquet Sports Division. Earnings
from discontinued operations totaled $26 million for 1999. Results in 1999
included pre-tax costs related to the spin-off of approximately $25 million.

Change in Accounting Principle

In the first quarter of fiscal year 2000, the Company implemented a change
in accounting principle to reflect more appropriately investment returns and
actuarial assumptions related to pension assets and postretirement health care
and life insurance liabilities. The changes to pension assets include: adjusting
to a three year smoothing period from a five year smoothing period; changing the
amortization period to a maximum of five years from 11 years; and eliminating
the use of a ten percent corridor for gain/loss recognition. The changes to
post-retirement health care and life insurance liabilities include changing the
amortization period to a maximum of five years from 11 years and eliminating the
use of a ten percent corridor for gain/loss recognition. The changes were
effective December 1, 1999 and resulted in a one-time after-tax gain of
approximately $74 million in the first quarter of fiscal year 2000. The changes
have no effect on the funded status of the pension or other postretirement
benefit plans, and the employee and retiree benefit plans remain unchanged.

29

Outlook for Fiscal Year 2002

As discussed under "Forward-Looking Statements" at the beginning of this
section, the forward-looking statements contained herein involve certain risks,
estimates, assumptions and uncertainties with respect to future revenues and
activity levels, cash flows, contract performance, the outcome of contingencies
including environmental remediation and anticipated costs of capital. Some of
the important factors that could cause the Company's actual results or outcomes
to differ from those discussed herein are listed above under "Forward-Looking
Statements."

The year 2001 was a year of transition for the Company. The year was
highlighted by the completion of a number of important strategic initiatives
including: the sale of Aerojet's EIS business; the acquisition of Draftex;
restructuring of GDX Automotive, Aerojet Fine Chemicals and the Company's
corporate headquarters; and, federal and state agreements to carve out land from
the Aerojet Superfund site designation, returning this land to beneficial use,
pending approval by the United States District Court. In addition, in December
2001, the Company repurchased the minority interest in AFC from NextPharma. The
Company expects that its results of operations for fiscal year 2002 will be
impacted by the direction of economic and market conditions in the United States
and in Europe. The Company's financial performance will also be affected by the
success of the various restructuring activities undertaken in fiscal year 2001,
which included personnel reductions and closing certain manufacturing facilities
at GDX Automotive, personnel reductions at AFC and an early retirement program
directed at reducing corporate staff.

The GDX Automotive segment expects to begin realizing production
efficiencies from its continuing consolidation and integration efforts in fiscal
year 2002, and resolution of the Ford Explorer launch issues. However, results
for the segment are largely dependent on vehicle sales and production rates
associated with platforms for which the segment provides parts. Many in the
automobile industry are predicting a decrease in vehicle sales and production
rates in 2002 as compared with 2001, which may have a negative effect on the
segment's revenues. The Company believes that its restructuring and other
cost-savings efforts, including personnel reduction and closing of several
manufacturing facilities, will have a favorable effect on the profitability of
GDX Automotive. The addition of the Draftex business has provided GDX Automotive
with a substantially broadened and more diversified customer base and the global
manufacturing presence necessary to serve customers around the world.

The Company's Aerospace and Defense segment has been relatively unaffected
by recent economic events and the repercussions of the September 2001 terrorist
attacks in the United States. Continuing technical innovation and successful new
product design and development - core Aerojet strengths - led to the receipt of
an unprecedented number of new contract awards in 2001, including key positions
on important space launch and missile defense programs that provide significant
momentum for growth in the future. The financial results for the segment for
fiscal year 2002 will be materially affected by the sale of the EIS business on
October 19, 2001. As mentioned above, the EIS business had revenues of
approximately $398 million and pre-tax income of approximately $30 million for
the period December 1, 2000 through October 19, 2001. In December 2001, federal
and state agencies agreed to carve out approximately 2,600 acres of land from
the Superfund site designation. Management expects the United States District
Court to approve the Partial Consent Decree modifications in due course. This is
a major step forward in the Company's strategy to maximize the value of its real
estate holdings.

The financial performance of the Company's Fine Chemicals segment is
expected to improve in fiscal year 2002. During fiscal year 2001, AFC's
workforce was reduced by almost 100 positions, or by 40 percent, and management
continued its focus on improving operational and manufacturing efficiencies. In
December 2001, the Company reacquired the minority interest held by NextPharma
and reassumed responsibility for the sales, marketing and customer interface.
AFC's focus on operational efficiency, improving relationships with its current
customers and increasing marketing efforts are expected to provide substantial
benefits in the future.

OTHER INFORMATION

Environmental matters

GenCorp's policy is to conduct its businesses with due regard for the
preservation and protection of the environment. The Company devotes a
significant amount of resources and management attention to environmen-

30

tal matters and actively manages its ongoing processes to comply with extensive
environmental laws and regulations. The Company is involved in the remediation
of environmental conditions that resulted from generally accepted manufacturing
and disposal practices in the 1950's and 1960's followed at certain GenCorp
plants. In addition, the Company has been designated a PRP with other companies
at third party sites undergoing investigation and remediation.

In 2001, capital expenditures for projects related to the environment were
approximately $1 million, compared to $1 million in 2000 and $5 million in 1999.
The Company currently forecasts that capital expenditures for environmental
projects will approximate $2 million in 2002 and $1 million in 2003.

During 2001, noncapital expenditures for environmental compliance and
protection totaled $75 million, of which $11 million was for recurring costs
associated with managing hazardous substances and pollution abatement in ongoing
operations and $64 million was for investigation and remediation efforts at
other sites. Of the $64 million, $40 million was for an irrevocable escrow for
the BPOU project to implement an EPA Unilateral Administrative Order. The
majority of GenCorp's environmental liabilities relate to its Aerojet business
and Aerojet has executed agreements for substantial cost recovery from the U. S.
Government. In addition, Aerojet will be reimbursed for allowable site
restoration costs via a pass through recovery agreement with Northrop Grumman.
The company currently estimates that noncapital expenditures for environmental
compliance and protection will range between $48 million and $74 million in
2002. Actual expenditures will depend upon the 1) timing of signing of the BPOU
agreement in the San Gabriel Valley 2) issuance of a Western Groundwater
Operable Unit Consent Decree in Sacramento and 3) finalization of the Partial
Consent Decree modifications in Sacramento. The range of expenditures will also
depend upon the timing of government approvals for remediation projects,
contractor mobilization ability and the receipt of anticipated government
funding for the San Gabriel Valley BPOU.

Similar noncapital expenditures were $30 million and $40 million in 2000
and 1999, respectively.

The nature of environmental investigation and cleanup activities often
makes it difficult to determine the timing and amount of any estimated future
costs that may be required for remedial measures. The Company reviews these
matters and accrues for costs associated with the remediation of environmental
pollution when it becomes probable that a liability has been incurred and the
amount of the liability (usually based upon proportionate sharing) can be
reasonably estimated. The Company's Consolidated Balance Sheet (included in Part
II, Item 8 of this report) as of November 30, 2001 reflects accruals of $279
million and amounts recoverable of $158 million from the U.S. Government and
other third parties for such costs. Pursuant to U.S. Government procurement
regulations and a "global" settlement agreement covering environmental
contamination at the Company's Sacramento and Azusa, California sites, the
Company can recover a substantial portion of its environmental costs for its
Aerospace and Defense segment through the establishment of prices for the
Company's products and services sold to the U.S. Government. The ability of the
Company to continue recovering these costs from the U.S. Government depends on
Aerojet's sustained business volume under U.S. Government contracts and
programs. The Company is in the process of negotiating a settlement of certain
claims related to the BPOU in San Gabriel Valley Basin, California. The
Company's forecast of capital and noncapital expenses in 2002 related to
environmental matters provided above includes provisions for the settlement of
the BPOU claims discussed in Note 9(c) in Notes to Consolidated Financial
Statements.

The effect of the resolution of environmental matters and the Company's
obligations for environmental remediation and compliance cannot be predicted due
to the uncertainty concerning both the amount and timing of future expenditures
and future results of operations. Based on information available to management
at issuance of this Form 10-K and assuming final judicial and/or PRP allocation
approvals, GenCorp believes its approximate allocated share of liability for the
following sites is or will be as follows; Azusa, CA Site (100%), Baldwin Park
Operable Unit, Los Angeles, CA (50%-60%), Lawrence, MA (100%), McDonnell Douglas
Site, Rancho Cordova, CA (10-20%), Olin Site, Ashtabula, OH (0% to 35%) and
Sacramento, CA Site (100%). However, management 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 competitive position,
results of operations, liquidity or financial condition. The Company will
continue its efforts to mitigate past and future costs through pursuit of claims
for insurance

31

coverage and continued investigation of new and more cost effective remediation
alternatives and associated technologies.

For additional discussion of environmental and related legal matters, see
Notes 9(b) and 9(c) in Notes to Consolidated Financial Statements incorporated
herein by reference.

Critical Accounting Policies

There are certain accounting policies that the Company believes are
critical to its business and the understanding of its financial statements.
These policies are discussed below. In addition, the preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires the Company's management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements. The amounts recorded in the Company's consolidated financial
statements for pension and postretirement benefit plans, environmental matters
and other contingencies, for example, depend substantially on estimates and
assumptions. For a discussion of other significant accounting policies used by
the Company in the preparation of its financial statements see Note 1 in
Consolidated Financial Statements contained in Part II, Item 8 of this report.

Revenue recognition -- Generally, sales are recorded when products are
shipped or customer acceptance has occurred, all other significant customer
obligations have been met and collection is reasonably assured. Sales and income
under most government fixed-price and fixed-price-incentive production type
contracts are recorded as deliveries are made. For contracts where relatively
few deliverable units are produced over a period of more than two years, revenue
and income are recognized at the completion of measurable tasks, rather than
upon delivery of the individual units. Sales under cost reimbursement contracts
are recorded as costs are incurred, and include estimated earned fees in the
proportion that costs incurred to date bear to total estimated costs.

Certain government contracts contain cost or performance incentive
provisions that provide for increased or decreased fees or profits based upon
actual performance against established targets or other criteria. Penalties and
cost incentives are considered in estimated sales and profit rates. Performance
incentives are recorded when earned or measurable. Provisions for estimated
losses on contracts are recorded when such losses become evident. The Company
uses the full absorption costing method for government contracts which includes
direct costs, allocated overhead and general and administrative expense.
Work-in-process on fixed-price contracts includes full cost absorption, less the
average estimated cost of units or items delivered. Changes in estimates and
assumptions related to the status of certain long-term contracts may have a
material effect on the amounts reported by the Company for revenues and
profitability.

For additional discussion of Company policies relating to revenue
recognition, see Note 1(i) in Notes to Consolidated Financial Statements
incorporated herein by reference.

Environmental costs - The Company accounts for identified or potential
environmental remediation liabilities in accordance with the American Institute
of Certified Public Accountants' Statement of Position 96-1, "Environmental
Remediation Liabilities" (SOP 96-1) and Staff Accounting Bulletin No. 92.
"Accounting and Disclosures Relating to Loss Contingencies". Under this
guidance, the Company expenses, on a current basis, recurring costs associated
with managing hazardous substances and pollution in ongoing operations. The
Company accrues for costs associated with the remediation of environmental
pollution when it becomes probable that a liability has been incurred, and its
proportionate share of the amount can be reasonably estimated. See the
discussion above under "Environmental matters" for additional information
regarding significant estimates and other factors involving the Company's
obligations for environmental remediation costs.

Business combinations -- The Company acquired the Draftex business in
December 2000. As part of the acquisition, which was accounted for under the
"purchase method," the Company was required to record acquired tangible and
intangible assets and assumed liabilities at fair value. Although the Company
obtained the services of appraisers to assist with the valuation process, the
valuation of acquired assets and the resulting goodwill required certain
estimates and assumptions that affect amounts reported in the Company's
financial statements. Amounts recorded for tangible and intangible assets affect
future results of operations through depreciation and amortization expense. In
addition, all acquired assets, including goodwill, are subject to tests for
impairment. Under SFAS No. 142 "Goodwill and Other Intangible Assets", goodwill
must be tested for impairment at least annually, or more frequently if
indications of possible impairment exist, by comparing the net
32

assets of each "reporting unit" (an organizational grouping) with the current
fair value of the reporting unit. If the current fair value of the reporting
unit is less than its carrying amount, then a second test must be performed.
Under the second test, the current fair value of the reporting unit is allocated
to the assets and liabilities of the reporting unit, including an amount for any
"implied" goodwill. If implied goodwill exceeds the net carrying amount of
goodwill, no impairment loss is recorded. Otherwise, an impairment loss is
recognized for the difference.

Recently Issued Accounting Standards

Effective July 1, 2001, the Company adopted the provisions of SFAS No. 141,
"Business Combinations" (SFAS 141), which is effective for all business
combinations initiated after June 30, 2001. SFAS 141 prohibits the use of the
pooling-of-interest method for business combinations and establishes the
accounting and financial reporting requirements for business combinations
accounted for by the purchase method. SFAS 141 also changes the criteria to
recognize intangible assets apart from goodwill. The Company adopted the
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142)
effective December 1, 2001. Under SFAS 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually, or more
frequently if indications of possible impairment exist, for impairment. The
Company has performed the requisite transitional impairment tests for goodwill
and other intangible assets as of December 1, 2001 and has determined that these
assets are not impaired as of that date. The adoption of SFAS 142 results in a
reduction of annual amortization expenses of approximately $4 million related to
goodwill and other indefinite lived intangible assets. The adoption of these
standards will not have a material impact on the Company's results of
operations, liquidity or financial condition.

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143) that provides
accounting guidance for the costs of retiring long-lived assets. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. The Company is
currently assessing the impact adoption of this standard will have on its
financial statements, but a preliminary review indicates that it will not have a
material effect on the Company's results of operations, liquidity or financial
condition.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144) that provides accounting
guidance for financial accounting and reporting for the impairment or disposal
of long-lived assets. The statement supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed
Of." SFAS 144 also supersedes the accounting and reporting provisions of
Accounting Principal Board's Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
related to the disposal of a segment of a business. SFAS 144 is effective for
fiscal years beginning after December 15, 2001, with early adoption encouraged.
The Company has adopted the provisions of SFAS 144 as of December 1, 2001. The
adoption of SFAS 144 is not expected to have a material effect on the Company's
results of operations, liquidity or financial condition.

LIQUIDITY AND CAPITAL RESOURCES

The Company broadly defines liquidity as its ability to generate sufficient
operating cash flows to meet its obligations and commitments. Liquidity also
includes the Company's ability to obtain appropriate debt and equity financing
and to convert into cash those assets that are no longer required to meet its
strategic and financial objectives. Accordingly, liquidity cannot be considered
separately from capital resources consisting of current or potentially available
funds for use in meeting capital expenditure and debt service requirements and
long-range business objectives.

As of November 30, 2001, the Company's cash and cash equivalents totaled
$44 million and the ratio of current assets to current liabilities (current
ratio) was 0.90. As of November 30, 2000, the Company's cash and cash
equivalents were $17 million and the current ratio was 1.04. The primary reasons
for the decrease in the current ratio are: an increase in cash used in operating
activities, the effects of the Draftex acquisition and the underperformance of
the Company's GDX Automotive and Fine Chemicals segments. The Draftex
acquisition resulted in the Company purchasing primarily long-term assets and
assuming short-term obligations. Gross proceeds in the amount of $315 million
from the sale of Aerojet's EIS business were used to pay down $264 million of
long-term debt, fund the $40 million irrevocable escrow for the BPOU project and
remit
33

$9 million to the EPA for past costs ($8 million of which was remitted in
December 2001). A substantial portion of the payment for the BPOU project is
reimbursable by the U.S. Government (see related information above under "Other
Information-Environmental matters").

The Company currently believes that its existing cash and cash equivalents
($31 million as of January 31, 2002), forecasted operating cash flows for fiscal
year 2002, available bank lines, including the $25 million Term Loan C discussed
below, and its ability to raise debt or equity financing or, if such financing
cannot be arranged, to generate additional funds from the sources described
below, will provide the Company with sufficient funds to meet its operating plan
for fiscal year 2002. This operating plan provides for full operations of the
Company's three business segments, capital expenditures of approximately $47
million, interest and principal payments on the Company's debt and anticipated
dividend payments.

The Company is currently considering accessing the capital markets to raise
debt or equity financing, and would anticipate using the proceeds of any such
financing to help fund its 2002 liquidity requirements and to repay debt. 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 the Company
will be able to obtain any such financing. As discussed below, under its Credit
Facility, if the Company raises at least $35 million in equity or subordinated
debt prior to March 28, 2002, the Company will have access to an additional $25
million of Term Loan C borrowings.

If the Company is not able to raise debt or equity financing in the capital
markets or to obtain additional bank borrowings, the Company believes that it
can generate additional funds to help fund its 2002 liquidity requirements by
reducing working capital requirements, deferring capital expenditures, cost
reduction initiatives in addition to those already included in the Company's
operating plan and asset sales, or through a combination of these means.

Major factors that could adversely impact the Company's forecasted
operating cash flows for fiscal year 2002 and its financial condition are
described in "Forward-Looking Statements" and "Outlook for fiscal year 2002"
above. In addition, the Company's liquidity and financial condition will
continue to be affected by changes in prevailing interest rates because
substantially all of its debt bears interest at variable interest rates.

Net cash used in continuing operations for fiscal year 2001 was $69
million. Cash provided by continuing operations was $23 million in 2000 and $100
million in 1999. The decrease in cash provided by continuing operations reflects
the payment of certain current liabilities assumed as part of the Draftex
acquisition, the cash flow impact of the Company's restructuring activities
(e.g., severance payments), increased environmental expenditures (net of
reimbursements) and decreased financial performance of the GDX Automotive and
Fine Chemicals segments. The decrease in operating cash in fiscal year 2000
compared with fiscal year 1999 primarily reflects the absence of certain
environmental insurance settlements received in 1999, offset by other expected
working capital changes and the timing of income tax payments.

In fiscal year 2001, capital expenditures totaled $49 million, compared to
$82 million and $97 million in fiscal years 2000 and 1999, respectively. Capital
expenditures in 2001 were favorably affected by management initiatives to reduce
capital outlays where practical. The Company's capital expenditures directly
support the Company's contract and customer requirements and are primarily made
for asset replacement and capacity expansion, cost reduction initiatives, safety
and productivity improvements and environmental remediation and compliance.
Capital expenditures in fiscal 2000 and 1999 included significant investments in
support of the SBIRS program and new manufacturing facilities at AFC. Capital
expenditures for fiscal year 2002 are currently projected to be approximately
$47 million. Investing activities in fiscal year 2001 also included proceeds
from the sale of the EIS business and amounts paid for the purchase of Draftex.
Both of these transactions are discussed above.

Net cash provided by financing activities for fiscal year 2001 was $2
million compared with $28 million in fiscal year 2000. Net cash used in
financing activities was $29 million in fiscal year 1999. Net cash provided by
financing activities for fiscal year 2001 reflects the debt incurred as part of
the Draftex acquisition, partially offset by the use of gross proceeds from the
sale of the EIS business to reduce debt. The Company paid dividends of $5
million in both 2001 and 2000. Cash provided by financing activities in 2000
included a net increase in long-term debt of $37 million primarily used to fund
capital expenditures, offset by payments of short-term debt and

34

dividends. Cash flows used in financing activities in fiscal year 1999 included
a net $210 million decrease in long-term debt and $20 million in dividends
offset by a $200 million dividend payment received from OMNOVA related to the
spin-off of the Company's Polymer Products segment.

As of November 30, 2000, the Company had a five year, $250 million
Revolving Credit Facility Agreement (Former Credit Facility) that was scheduled
to expire in 2004. The Former Credit Facility was paid-off on December 28, 2000.

On December 28, 2000, the Company entered into a new, five year, $500
million senior credit facility (Credit Facility). The Credit Facility was used
to finance the acquisition of the Draftex business (see Note 1(a)) and replaced
the Former Credit Facility. The Credit Facility consisted of a $150 million
revolving loan (Revolver) and a $150 million term loan (Term Loan A), expiring
December 28, 2005, and a $200 million term loan (Term Loan B), expiring December
28, 2006. Effective August 31, 2001 the Company executed Amendment Number 2 to
the Credit Facility providing for transfer of $13 million of the Revolver and
$52 million of the Term Loan A to Term Loan B. The outstanding balance of Term
Loan B on October 19, 2001 of $264 million (balance of $265 million after
transfer of $13 million of the Revolver and $52 million of Term Loan A, less
repayment of approximately $1 million in September 2001) was repaid with the
proceeds from the sale of Aerojet's EIS business (see Note 1(a)). The Company
obtained waivers in October 2001, November 2001, December 2001 and February 2002
waiving reduction of the Revolver from $150 million to $137 million until March
8, 2002. On February 28, 2002 the Company executed Amendment Number 4 to the
Credit Facility, which provides an additional $25 million term loan (Term Loan
C) with the ability to request an additional $25 million under Term Loan C,
subject to the satisfaction of certain conditions and the Company issuing $35
million of equity or subordinated debt prior to March 28, 2002. Amendment Number
4 also extended the reduction of the Revolver from March 8, 2002 to March 28,
2002. The initial $25 million Term Loan C has a term which matures on December
28, 2002, but in the event the Company obtains $35 million of equity or
subordinated debt prior to March 28, 2002, the term for the total Term Loan C
matures December 28, 2004. As of February 28, 2002 the Company did draw-down $25
million of Term Loan C, which the Company intends to use to fund working capital
requirements or to pay down debt.

As of November 30, 2001 and February 28, 2002 the outstanding Term Loan A
balances were approximately $88 million and $86 million, respectively. Pursuant
to Amendment Number 2, the Term Loan A scheduled repayments remaining as of
February 28, 2002 are: twelve equal quarterly principal payments of
approximately $5 million through December 2004, and four equal quarterly
payments of approximately $7 million through December 2005. Term Loan C
scheduled repayments for the initial $25 million Term Loan C are quarterly
principal payments of $625,000, commencing June 2002, with a balloon payment of
approximately $24 million, if the maturity is December 28, 2002 and $19 million
if the maturity is December 28, 2004. In the event the additional $25 million
Term Loan C is funded, the repayment schedule on the total Term Loan C of $50
million commences June 2002, with ten equal quarterly principal payments of
$1.25 million and a balloon payment of $38 million on December 28, 2004. The
quarterly principal repayment dates for Term Loans A and C are: March 28, June
28, September 28, and December 28 along with associated interest payments.

The Company pays a commitment fee between 0.375 percent and 0.50 percent
(based on the most recent leverage ratio) on the unused balance. Borrowings
under the Credit Facility bear interest at the borrower's option, at various
rates of interest, based on an adjusted base rate (prime lending rate or federal
funds rate plus 0.50 percent) or Eurodollar rate, plus, in each case, an
incremental margin. For the Revolver and Term Loan A borrowings the incremental
margin is based on the most recent leverage ratio, for base rate loans the
margin ranges between 0.75 percent and 2.0 percent and for Eurodollar rate
borrowings the margin ranges between 1.75 percent and 3.00 percent. For Term
Loan C borrowings the initial margins for base rate loans and Eurodollar rate
based loans are 3.50 percent and 4.50 percent, respectively. The margins for
Term Loan C borrowings increase quarterly by 0.50 percent each quarter beginning
after June 28, 2002. Increases to the margins are cumulative, but shall not
exceed, in the aggregate, 4.00 percent. Cash paid for interest was $34 million,
$17 million and $20 million in 2001, 2000 and 1999, respectively.

The Credit Facility, as executed on December 28, 2000, was secured by stock
of certain subsidiaries of the Company and certain real property of the GDX
Automotive segment of the Company. Execution of Amendment Number 4 to the Credit
Facility and the provision of Term Loan C required the Company to pledge
additional

35

collateral consisting of: the assets of, and the Company's interest in, AFC,
non-Superfund property located in California, real estate in Nevada and a $21
million note receivable.

As of November 30, 2001, the available borrowing limit under the Credit
Facility was $241 million, of which the Company had drawn-down $208 million
(excluding letters of credit), and the average interest rate on the outstanding
balance of the Credit Facility was 5.4 percent. At November 30, 2001,
outstanding letters of credit totaled $9 million. As of February 28, 2002 the
available borrowing limit under the Revolver was $150 million, of which the
Company had drawn-down $125 million (excluding outstanding letters of credit in
the amount of $8 million).

The Credit Facility contains certain restrictive covenants that require the
Company to meet specific financial ratios and restrict capital expenditures, the
ability to incur additional debt and certain other transactions. The Credit
Facility permits dividend payments as long as there is no event of default. The
Credit Facility's four financial covenants are: an interest coverage ratio, a
leverage ratio, a fixed charge coverage ratio and a consolidated net worth test,
all as defined in the amended Credit Facility. Effective August 31, 2001 the
interest coverage and the leverage ratios for the quarter ended August 31, 2001
and the interest coverage ratio for the quarter ended November 30, 2001 were
amended as a result of the decreased financial performance of the GDX Automotive
and Fine Chemicals segments. As presented in the table below, the Company was in
compliance with all financial ratios as of November 30, 2001:

Giving effect to Amendment Number 4 to the Credit Facility, the required
financial covenants for fiscal 2002 are summarized in the table below:

On the last day of any fiscal quarter, minimum consolidated net worth is
required to be equal to the sum of $170 million, plus an amount equal to 50
percent of the aggregate consolidated net income of the Company for all fiscal
quarters ended on or after February 28, 2001.

Based on current forecasted financial results, the Company expects to be in
compliance with all of the above financial covenants for fiscal year 2002,
although no assurance can be given in this regard.

As of November 30, 2001, the Company's debt maturities (Revolver of $120
million, Term Loan A of $88 million and other debt of $6 million) are summarized
as follows (in millions):

Term Loan C in the amount of $25 million, drawn as of February 28, 2002,
currently matures on December 28, 2002 (see discussion above).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company is exposed to market risk from changes in interest rates on
long-term debt obligations. The Company's policy is to manage interest rates
through the use of a combination of fixed and variable rate debt. The Company is
currently evaluating the use of derivative financial instruments to manage its
interest rate risk.

36

The interest rates on substantially all of the Company's outstanding long-term
debt are variable. The interest rates are based on the London InterBank Offering
Rate (LIBOR). As of November 30, 2001, the Company's long-term debt totaled $197
million and had an average variable interest rate of 5.4 percent. A one point
change of the interest rate on the Company's long-term debt would have affected
interest expense in 2001 by approximately $4 million. The interest rates on the
Company's long-term debt reflect market rates and therefore, the carrying value
of long-term debt approximates its fair value.

Foreign Currency Exchange Rate Risk

The Company has foreign currency exchange rate risk resulting from
operations in foreign countries, including Canada, four countries in Europe and
in China. The Company currently does not comprehensively hedge its exposure to
foreign currency rate changes, although it may choose to selectively hedge
exposure to foreign currency rate change risk. In the fourth quarter of fiscal
year 2000, the Company entered into a foreign currency option contract to
purchase a specified number of Euros at a specified exchange rate, in order to
hedge against market fluctuations during negotiations to acquire Draftex. In
connection with the option contract that expired on November 30, 2000, the
Company expensed approximately $8 million. The Company entered into several
foreign currency exchange contracts related to the Draftex acquisition in
December 2000. Settlement of the contracts, which occurred in the first quarter
of 2001, resulted in a gain of $11 million. Besides these transactions, the
Company has not entered into any significant foreign currency forward exchange
contracts or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange rates.

Commodity Price Risk

The operations of the Company's GDX Automotive segment are dependent on the
availability of rubber and related raw materials. Because of this dependence,
significant increases in the price of these raw materials could have a material
adverse impact on the Company's results of operations and financial condition.
The Company employs a diversified supplier base as part of its efforts to
mitigate the risk of a supply interruption. For 2001 and 2000, rubber and
rubber-related raw materials accounted for 11 percent and 9 percent,
respectively, of the GDX Automotive segment's cost of goods sold (as adjusted to
exclude unusual items). Based on 2001 activity levels, a 10 percent increase in
the average annual cost of these raw materials would increase the GDX Automotive
segment's cost of goods sold by approximately $8 million.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information called for by this item is set forth beginning on the next page
of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

37

REPORT OF ERNST & YOUNG LLP, INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of GenCorp Inc.:

We have audited the accompanying consolidated balance sheets of GenCorp
Inc. as of November 30, 2001 and 2000, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended November 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GenCorp Inc. at
November 30, 2001 and 2000, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended November 30,
2001, in conformity with accounting principles generally accepted in the United
States.

The accompanying consolidated financial statements for the years ended
November 30, 2000 and 1999 have been restated as discussed in Note 2.

Ernst & Young LLP

Sacramento, California
February 28, 2002

38

GENCORP INC.

CONSOLIDATED STATEMENTS OF INCOME

See notes to consolidated financial statements.
39

GENCORP INC.

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.
40

GENCORP INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

See notes to consolidated financial statements.
41

GENCORP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.
42

GENCORP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The consolidated financial statements of GenCorp Inc. (GenCorp or the
Company) include the accounts of the parent company and its wholly-owned and
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to financial information for prior years to conform to the
current year's presentation.

The Company is a multinational manufacturing company operating primarily in
the United States and Europe. The Company's continuing operations are organized
into three segments: GDX Automotive, Aerospace and Defense and Fine Chemicals.
The Company's GDX Automotive segment is a major automotive supplier, engaged in
the development, manufacture and sale of highly engineered extruded and molded
rubber and plastic sealing systems for vehicle bodies and windows for automotive
original equipment manufacturers. The Aerospace and Defense segment includes the
operations of Aerojet-General Corporation (Aerojet). Aerojet's business
primarily serves high technology markets that include Space and Strategic Rocket
Propulsion and Tactical Weapons. Primary customers served include major prime
contractors to the U.S. Government, the Department of Defense (DoD) and the
National Aeronautics and Space Administration (NASA). In addition, the Company
also has significant undeveloped real estate holdings in Sacramento, California.
The Company's real estate business is a component of its Aerospace and Defense
segment. The Company's Fine Chemicals segment consists of the operations of
Aerojet Fine Chemicals LLC (AFC). AFC supplies special intermediates and active
pharmaceutical ingredients primarily to commercial customers in the
pharmaceutical industry. Information on the Company's operations by segment and
geographic area is provided in Note 11. Also, see Notes 9(c) and 11 for
additional information related to the Company's real estate holdings.

Management currently believes that its existing cash, forecasted operating
cash flows for fiscal year 2002, available bank lines, including $25 million
available from Term Loan C as of February 28, 2002, and its ability to generate
additional funds from the sources described below will provide the Company with
sufficient funds to meet its operating plan for fiscal year 2002. The operating
plan provides for full operations of the Company's three business segments,
anticipated capital expenditures of approximately $47 million, interest and
principal payments on the Company's debt and anticipated dividend payments.

The Company is currently considering accessing the capital markets to raise
debt or equity financing, and would anticipate using the proceeds of any such
financing to help fund its 2002 liquidity requirements and to repay debt. 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 the Company
will be able to obtain any such financing. As discussed in Note 7, if the
Company raises at least $35 million in equity or subordinated debt prior to
March 28, 2002, the Company will have access to an additional $25 million of
Term Loan C borrowings.

If the Company is not able to raise debt or equity financing in the capital
markets or to obtain additional bank borrowings, the Company believes that it
can generate additional funds to help fund its 2002 liquidity requirements by
reducing working capital requirements, deferring capital expenditures, cost
reduction initiatives in addition to those already included in the Company's
operating plan and asset sales, or through a combination of these means. The
Company's liquidity and financial condition will continue to be affected by
changes in prevailing interest rates because substantially all of its debt bears
interest at variable interest rates.

Aerojet finalized the sale of its Electronics and Information Systems (EIS)
business to Northrop Grumman Corporation (Northrop Grumman) for $315 million in
cash on October 19, 2001, subject to certain working capital adjustments as
defined in the agreement. In December 2001, Northrop Grumman proposed
significant adjustments which would require that Aerojet make a purchase price
reduction of approximately $42 million. Aerojet disagrees with Northrop
Grumman's proposed balance sheet adjustments on the basis that they are
inconsistent with the Asset Purchase Agreement (APA). The proposed adjustments
are subject to arbitration. The pre-tax gain on the transaction was $206
million. The EIS business had revenues of approximately $398 million

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

and pre-tax income of approximately $30 million for the period December 1, 2000
through October 19, 2001. The results of operations for EIS are included in the
Company's Aerospace and Defense segment for all periods presented in the
Consolidated Statements of Income through the sale date.

On December 29, 2000, the Company acquired The Laird Group Public Limited
Company's (The Laird Group) Draftex International Car Body Seals Division (the
Draftex business or Draftex) at an estimated purchase price of $215 million,
including cash of $209 million and direct acquisition costs of $6 million.
Certain adjustments to the purchase price were in dispute and were decided by an
independent arbitrator in February 2002. However, there are further issues
impacting the purchase price which have yet to be resolved between the parties.
Management believes that resolution of these issues will not have a material
impact on the Company's results of operations, liquidity or financial condition.
Draftex is now included as part of the Company's GDX Automotive segment. As part
of the transaction, 11 manufacturing plants in Spain, France, Germany, Czech
Republic, China, and the U.S. were acquired. The acquisition was accounted for
under the purchase method of accounting and the excess of costs over the fair
value of the net assets acquired is being amortized over a 20-year period. The
allocation of purchase price includes a reserve for certain anticipated exit
costs, including involuntary employee terminations and associated benefits and
facility closure costs of approximately $17 million (see Note 13).

In connection with the acquisition of Draftex, the Company entered into a
new, $500 million credit facility (see Note 7).

The pro forma unaudited results of operations assuming the acquisition of
Draftex occurred as of December 1, 1999, are as follows (in millions, except per
share amounts):

These pro forma results are not necessarily indicative of the actual
results of operations had the acquisition taken place as of December 1, 1999 or
the results of future operations of the Company. Furthermore, the pro forma
results do not give effect to the disposition of the EIS business or incremental
costs or savings that may occur as a result of restructuring, integration and
consolidation of the Draftex business.

On June 5, 2000, the Company sold a 20 percent equity interest in AFC to
NextPharma Technologies USA Inc. (NextPharma) for approximately $25 million in
cash and exchanged an additional 20 percent equity interest in AFC for an
approximate 35 percent equity interest in NextPharma's parent company. As part
of the agreement, GenCorp continued to manage, operate, and consolidate AFC as
the majority owner. In connection with the transaction, the Company recorded a
pre-tax gain on the sale of the minority interest of approximately $5 million.
In addition, the Company initially recorded a minority interest of approximately
$26 million, included in other long-term liabilities, and an investment in
NextPharma's parent of approximately $6 million. In December 2001, as discussed
in Note 16, the Company reacquired the minority interest from NextPharma and
certain agreements between the two companies were terminated.

On October 1, 1999, in a tax-free transaction, the Company spun-off its
Performance Chemicals and Decorative & Building Products businesses (OMNOVA
Solutions Inc. or OMNOVA) to GenCorp shareholders as a separate, publicly traded
company. The spin-off was effected by the Company's issuance of a dividend of
one

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

share of OMNOVA common stock for each share of GenCorp common stock held by
GenCorp's shareholders on the September 27, 1999, record date for the dividend.

On April 30, 1999, the Company sold its Penn Racquet Sports division (Penn)
to HTM Sports-und Freizeitgeraete AG, an Austrian company and HTM USA Holdings
Inc., for aggregate consideration of approximately $42 million. The Company
recognized a pre-tax gain of $16 million on this transaction.

GenCorp has disposed of its Polymer Products segment as a result of the
spin-off and sale of Penn, and the Company's financial statements now reflect
OMNOVA and Penn as discontinued operations. Discontinued operations also include
certain other operations of the Company's Polymer Products segment, which were
previously sold and expenses related to the spin-off totaling approximately $25
million. Interest expense allocated to the business segments by GenCorp
management, based on the use of the borrowings, amounted to $14 million in 1999.

The Company has also completed or undertaken several restructuring actions
as discussed in Note 13. These actions included the involuntary severance of
certain employees at two of the Company's operating segments, the closing of
several manufacturing facilities and a Voluntary Enhanced Retirement Program
(VERP) aimed at reducing corporate overhead expenses.

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management 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.

b. OPERATING ENVIRONMENT

As of November 30, 2001, approximately 60 percent of the Company's
employees are covered by collective bargaining or similar agreements. Of the
covered employees, approximately seven percent are covered by collective
bargaining agreements that are due to expire within one year.

The operations of the Company's GDX Automotive segment are dependent on the
availability of rubber and related raw materials. Because of this dependence,
significant increases in the price of these raw materials could have a material
adverse impact on the Company's results of operations and financial condition.
The Company employs a diversified supplier base as part of its efforts to
mitigate the risk of a supply interruption.

c. CASH EQUIVALENTS

All highly liquid debt instruments purchased with an original maturity of
three months or less are considered to be cash equivalents. The Company
classifies securities underlying its cash equivalents as "available-for-sale" in
accordance with the Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115). Cash equivalents are
stated at cost, which approximates fair value due to the highly liquid nature
and short maturities of the underlying securities.

d. INVENTORIES

The GDX Automotive segment uses the first-in, first-out (FIFO) method for
accounting for inventory costs for facilities acquired as part of the Draftex
acquisition and all other non-U.S. facilities and the last-in, first-out (LIFO)
method for all other GDX Automotive locations. The Aerospace and Defense segment
and AFC use the average cost method. Inventories are stated at the lower of cost
or market value. See also Note 3.

e. EQUITY-METHOD INVESTMENT

As of November 30, 2001, the Company effectively held a 31 percent
ownership interest in common stock of NextPharma's, parent company, NextPharma
Technologies, S.A. (NextPharma Technologies). The interest was originally
acquired in June 2000 and recorded at $6 million. The Company records its share
of NextPharma Technologies' net earnings on a periodic basis in other income.
Such amounts were not material in 2001 or 2000. As discussed in Note 16, the
Company relinquished its interest in NextPharma Technologies in December 2001.
See also Note 1(o) related to transactions with NextPharma and its parent
company.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

f. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Refurbishment costs are
capitalized in the property accounts, whereas ordinary maintenance and repair
costs are expensed as incurred. Depreciation is computed principally by the
straight-line method for the GDX Automotive and Fine Chemicals segments, and by
accelerated methods for the Aerospace and Defense segment. Depreciable lives on
buildings and improvements, and machinery and equipment, range from 5 years to
45 years, and 3 years to 15 years, respectively.

Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related groups
of assets, may not be recoverable. Under the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121), the Company recognizes an "impairment charge" when
the expected net undiscounted future cash flows from an asset's use and eventual
disposition are less than the asset's carrying value and the asset's carrying
value exceeds its fair value. Measurement of fair value for an asset or group of
assets may be based on appraisal, market values of similar assets or estimated
discounted future cash flows resulting from the use and ultimate disposition of
the asset or assets. See also Note 5.

g. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of purchase price over the estimated fair
value of net assets acquired and is amortized on a straight-line basis over 20
years. Identifiable intangible assets, such as "assembled workforce," patents,
trademarks and licenses, are recorded at cost or when acquired as part of a
business combination at estimated fair value. Identifiable intangible assets are
amortized over their estimated useful life using the straight-line method over
periods ranging from 3 to 20 years. As of November 30, 2001, goodwill, net of
related amortization totaled approximately $65 million, primarily from the
Company's December 2000 acquisition of Draftex. The goodwill resulting from the
Draftex acquisition is subject to certain purchase price adjustments (see Note
1(a)). As of November 30, 2001, other intangible assets totaled $24 million,
including $20 million for assembled workforce primarily from the Draftex
acquisition. Accumulated amortization of goodwill and other intangible assets
was $8 million and $4 million as of November 30, 2001 and 2000, respectively.

The Company periodically evaluates the period of amortization of its
goodwill and other intangible assets and determines if such assets are impaired
by comparing the carrying values with estimated future undiscounted cash flows.
This analysis is performed separately for the goodwill that resulted from each
acquisition and for the other intangibles. Based on the most recent analyses,
the Company believes that goodwill and other intangible assets were not impaired
as of November 30, 2001.

See also Note 15 related to the Company's adoption of new accounting
standards related to goodwill and other intangible assets.

h. PRE-PRODUCTION COSTS

The Company accounts for certain pre-production costs in accordance with
EITF Issue No. 99-5, "Accounting for Pre-Production Costs Related to Long-term
Supply Arrangements". This issue addresses the accounting treatment and
disclosure requirements for pre-production costs incurred by original equipment
manufacturers (OEM) suppliers to perform certain services related to the design
and development of the parts they will supply to the OEM as well as the design
and development costs to build molds dies and other tools that will be used in
producing parts. At November 30, 2001, the Company has recorded as a noncurrent
asset approximately $4 million of costs for tooling for which the customer
reimbursement is assured.

i. REVENUE RECOGNITION

The Company adopted the U.S. Securities and Exchange Commission's (SEC)
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," (SAB 101) as of December 1, 2000. In SAB 101, the SEC expressed its
view that revenue was realizable and earned when the following four criteria
were met: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or the service have been rendered; (3) the seller's price to the buyer
is fixed or determinable; and (4) collectibility is reasonably assured. SAB 101

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

also provides guidance for revenue recognition under circumstances when delivery
of a finished product occurs after the finished product has been invoiced. The
adoption of SAB 101 did not have a material affect on the Company's results of
operations, liquidity or financial condition.

Generally, sales are recorded when products are shipped or customer
acceptance has occurred, all other significant customer obligations have been
met and collection is reasonably assured. In certain limited circumstances, the
Company's Fine Chemicals segment records sales when products are shipped, before
customer acceptance has occurred, when adequate controls are in place to ensure
compliance with contractual product specifications and a substantial history of
performance has been established. In addition, the Fine Chemicals segment
recognizes revenue under two contracts before the finished product is delivered
to the customers. These customers have specifically requested that AFC invoice
for the finished product and hold the finished product in inventory until a
later date.

Sales and income under most government fixed-price and
fixed-price-incentive production type contracts are recorded as deliveries are
made. For contracts where relatively few deliverable units are produced over a
period of more than two years, revenue and income are recognized at the
completion of measurable tasks, rather than upon delivery of the individual
units. Sales under cost reimbursement contracts are recorded as costs are
incurred, and include estimated earned fees in the proportion that costs
incurred to date bear to total estimated costs.

Certain government contracts contain cost or performance incentive
provisions that provide for increased or decreased fees or profits based upon
actual performance against established targets or other criteria. Penalties and
cost incentives are considered in estimated sales and profit rates. Performance
incentives are recorded when earned or measurable. Provisions for estimated
losses on contracts are recorded when such losses become evident. The Company
uses the full absorption costing method for government contracts which includes
direct costs, allocated overhead and general and administrative expense.
Work-in-process on fixed-price contracts includes full cost absorption, less the
average estimated cost of units or items delivered.

j. RESEARCH AND DEVELOPMENT EXPENSES

Company-sponsored research and development (R&D) expenses were $24 million
in 2001 and $26 million in both 2000 and 1999. Company-sponsored R&D expenses
include the costs of technical activities that are useful in developing new
products, services, processes or techniques, as well as those expenses for
technical activities that may significantly improve existing products or
processes.

Customer-sponsored R&D expenditures, which are funded under government
contracts, totaled $215 million in 2001, $162 million in 2000 and $230 million
in 1999.

k. ENVIRONMENTAL COSTS

The Company accounts for identified or potential environmental remediation
liabilities in accordance with the American Institute of Certified Public
Accountants' Statement of Position 96-1, "Environmental Remediation Liabilities"
(SOP 96-1) and Staff Accounting Bulletin No. 92 "Accounting and Disclosures
Relating to Loss Contingencies". Under this guidance, the Company expenses, on a
current basis, recurring costs associated with managing hazardous substances and
pollution in ongoing operations. The Company accrues for costs associated with
the remediation of environmental pollution when it becomes probable that a
liability has been incurred, and its proportionate share of the amount can be
reasonably estimated. The Company recognizes amounts recoverable from insurance
carriers, the U.S. Government or other third parties, when the collection of
such amounts is probable. Pursuant to U.S. Government agreements or regulations,
the Company can recover a substantial portion of its environmental costs for its
Aerospace and Defense segment through the establishment of prices of the
Company's products and services sold to the U.S. Government. The ability of the
Company to continue recovering these costs from the U.S. Government depends on
Aerojet's sustained business volume under U.S. Government contracts and
programs. With the exception of applicable amounts representing current assets
and liabilities, recoverable amounts and accrued costs are included in other
long-term assets and liabilities. See also Notes 9(b) and 9(c).

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

l. STOCK-BASED COMPENSATION

The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," (APB 25) and related
interpretations to account for awards of stock-based compensation granted to
employees. See also Note 10(c).

m. DERIVATIVE FINANCIAL INSTRUMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which, for the Company, was
effective December 1, 2000. This statement established accounting and reporting
standards that require every derivative financial instrument, including certain
derivative financial instruments embedded in other contracts, to be recorded in
the balance sheet as either an asset or liability measured at fair value. This
statement also requires that changes in a derivative financial instrument's fair
value be recognized in results of operations unless specific hedge accounting
criteria are met. The adoption of SFAS 133 did not have a material effect on the
Company's results of operations, liquidity or financial condition, since the
Company does not generally enter into transactions involving derivative
financial instruments or routinely engage in hedging activities.

In 2000, the Company entered into a foreign currency option contract to
purchase a specified number of Euros at a specified exchange rate, in order to
hedge against market fluctuations during negotiations to acquire the Draftex
business. The Company recognized an expense of approximately $8 million in
connection with this contract, which expired on November 30, 2000. The Company
entered into several forward exchange contracts related to the Draftex
acquisition in December 2000. Settlement of these contracts, in December 2000,
resulted in a gain of $11 million. Besides these two transactions, the Company
has not entered into any significant foreign currency forward exchange contracts
or any other derivative financial instruments.

n. EARNINGS PER SHARE

A reconciliation of the numerator and denominator used in the basic and
diluted earnings per share of common stock (EPS) from continuing operations
computations is presented in the following table (dollars in millions, except
per share amounts; shares in thousands):

o. RELATED-PARTY TRANSACTIONS

In fiscal year 2001 and 2000, AFC incurred expenses totaling $5 million and
$2 million, respectively, for services performed by NextPharma on behalf of AFC.
These services included sales and marketing efforts, customer interface and
other related activities. From June 2000 through November 30, 2001, NextPharma
held a minority ownership interest in AFC and GenCorp held a minority ownership
interest in NextPharma's parent company. See Note 1(a) for additional
information. As discussed in Note 16, the Company relinquished its interest in
NextPharma Technologies in December 2001.
48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Following review and approval by the Audit Committee of the GenCorp Board
of Directors, GenCorp Chairman and Chief Executive Officer, Robert A. Wolfe,
subscribed for 25,000 Ordinary Shares of NextPharma's parent company, NextPharma
Technologies S.A., in August 2000 at an aggregate purchase price of $250,000.

2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

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

Set forth below is a comparison of the previously reported and restated
Consolidated Statements of Income for the years ended November 30, 2000 and
November 30, 1999. See Note 12 for a comparison of the previously reported and
restated Condensed Consolidated Statements of Income for each quarter in the
year ended November 30, 2000 and the first three quarters of the year ended
November 30, 2001 and for the restated Consolidated Balance Sheets for each of
the first three quarters of 2001 and 2000 (dollars in millions, except per share
amounts).

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The restatement of the Company's Consolidated Balance Sheets as of November
30, 2000 resulted in an increase in assets of $1 million and an increase in
liabilities of $10 million and, as of November 30, 1999, assets were increased
$2 million and liabilities increased $6 million.

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

The Company also restated the balance of retained earnings as of December
1, 1998. The revision, a decrease of $5 million, related to an oversight in
collecting data for the calculation of certain postretirement benefit
obligations at one of GDX Automotive's non-U.S. facilities in the year ended
November 30, 1996 with no material impact on fiscal years 1998 and 1997.

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

3. INVENTORIES

Inventories applicable to government contracts, primarily related to the
Company's Aerospace and Defense segment, include general and administrative
costs. The total of such costs incurred in 2001 and 2000 was $76 million and $48
million, respectively, and the amount in inventory at the end of those years is
estimated to be $36 million and $24 million at November 30, 2001 and 2000,
respectively.

In 2001, Aerojet recorded an inventory write-down of $46 million related to
its participation as a propulsion supplier to a commercial launch vehicle
program and also recorded a $2 million accrual for outstanding obligations
connected with this effort. Aerojet's inventory consists of program unique
rocket engines and propulsion systems primarily intended for use in a commercial
reusable launch vehicle. The inventory write-down reflects the following:
inability of a commercial customer to secure additional funding, no alternative
purchasers willing to acquire inventory held by Aerojet and no market value.

Inventories using the LIFO method represented 13 percent and 56 percent of
inventories at replacement cost as of November 30, 2001 and 2000, respectively.

4. INCOME TAXES

The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company files a consolidated federal income tax return with its
wholly-owned subsidiaries.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The components of the Company's provision for income taxes are as follows
(in millions):

A reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate is included in the following table:

The Company reduced its 2001 income tax expense by approximately $13
million due to the receipt of state income tax settlements.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities (in millions):

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The majority of the net operating losses and tax credit carryforwards,
which are primarily related to foreign operations, have an indefinite
carryforward period with the remaining portion expiring beginning in 2005.
Pre-tax income from continuing operations of foreign subsidiaries was $14
million in fiscal year 2001, $24 million in 2000 and $17 million in 1999. Cash
paid during the year for income taxes of continuing and discontinued operations
was $15 million in 2001, $10 million in 2000 and $58 million in 1999.

5. PROPERTY, PLANT AND EQUIPMENT

Depreciation expense for fiscal years 2001, 2000 and 1999 was $65 million,
$46 million and $42 million, respectively.

6. OTHER CURRENT LIABILITIES

7. LONG-TERM DEBT AND CREDIT FACILITY

As of November 30, 2000, the Company had a five year, $250 million
Revolving Credit Facility Agreement (Former Credit Facility) that was scheduled
to expire in 2004. The Former Credit Facility was paid-off on December 28, 2000.

On December 28, 2000, the Company entered into a new, five year, $500
million senior credit facility (Credit Facility). The Credit Facility was used
to finance the acquisition of the Draftex business (see Note 1(a)) and replaced
the Former Credit Facility. The Credit Facility consisted of a $150 million
revolving loan (Revolver)

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

and a $150 million term loan (Term Loan A), expiring December 28, 2005, and a
$200 million term loan (Term Loan B), expiring December 28, 2006. Effective
August 31, 2001 the Company executed Amendment Number 2 to the Credit Facility
providing for transfer of $13 million of the Revolver and $52 million of the
Term Loan A to Term Loan B. The outstanding balance of Term Loan B on October
19, 2001 of $264 million (balance of $265 million after transfer of $13 million
of the Revolver and $52 million of Term Loan A, less repayment of approximately
$1 million in September 2001) was repaid with the proceeds from the sale of
Aerojet's EIS business (see Note 1(a)). The Company obtained waivers in October
2001, November 2001, December 2001 and February 2002 waiving reduction of the
Revolver from $150 million to $137 million until March 8, 2002. On February 28,
2002 the Company executed Amendment Number 4 to the Credit Facility, which
provides an additional $25 million term loan (Term Loan C) with the ability to
request an additional $25 million under Term Loan C, subject to the satisfaction
of certain conditions and the Company issuing $35 million of equity or
subordinated debt prior to March 28, 2002. Amendment Number 4 also extended the
reduction of the Revolver from March 8, 2002 to March 28, 2002. The initial $25
million Term Loan C has a term which matures on December 28, 2002, but in the
event the Company obtains $35 million of equity or subordinated debt prior to
March 28, 2002, the term for the total Term Loan C matures December 28, 2004. As
of February 28, 2002 the Company did draw-down $25 million of Term Loan C, which
the Company intends to use to fund working capital requirements or to pay down
debt.

As of November 30, 2001 and February 28, 2002 the outstanding Term Loan A
balances were approximately $88 million and $86 million, respectively. Pursuant
to Amendment Number 2, the Term Loan A scheduled repayments remaining as of
February 28, 2002 are: twelve equal quarterly principal payments of
approximately $5 million through December 2004, and four equal quarterly
payments of approximately $7 million through December 2005. Term Loan C
scheduled repayments for the initial $25 million Term Loan C are quarterly
principal payments of $625,000, commencing June 2002, with a balloon payment of
approximately $24 million, if the maturity is December 28, 2002 and $19 million
if the maturity is December 28, 2004. In the event the additional $25 million
Term Loan C is funded, the repayment schedule on the total Term Loan C of $50
million commences June 2002, with ten equal quarterly principal payments of
$1.25 million and a balloon payment of $38 million on December 28, 2004. The
quarterly principal repayment dates for Term Loans A and C are: March 28, June
28, September 28, and December 28 along with associated interest payments.

The Company pays a commitment fee between 0.375 percent and 0.50 percent
(based on the most recent leverage ratio) on the unused balance. Borrowings
under the Credit Facility bear interest at the borrower's option, at various
rates of interest, based on an adjusted base rate (prime lending rate or federal
funds rate plus 0.50 percent) or Eurodollar rate, plus, in each case, an
incremental margin. For the Revolver and Term Loan A borrowings the incremental
margin is based on the most recent leverage ratio, for base rate loans the
margin ranges between 0.75 percent to 2.0 percent and for Eurodollar rate
borrowings the margin ranges between 1.75 percent to 3.00 percent. For Term Loan
C borrowings the initial margins for base rate loans and Eurodollar rate based
loans are 3.50 percent and 4.50 percent, respectively. The margins for Term Loan
C borrowings increase quarterly by 0.50 percent each quarter beginning after
June 28, 2002. Increases to the margins are cumulative, but shall not exceed, in
the aggregate, 4.00 percent. Cash paid for interest was $34 million in 2001, $17
million in 2000 and $20 million in 1999.

The Credit Facility, as executed on December 28, 2000, was secured by stock
of certain subsidiaries of the Company and certain real property of the GDX
Automotive segment of the Company. Execution of Amendment Number 4 to the Credit
Facility and the provision of Term Loan C required the Company to pledge
additional collateral consisting of: the assets of, and the Company's interest
in, AFC, non-Superfund property located in California, real estate in Nevada and
a $21 million note receivable.

As of November 30, 2001, the available borrowing limit under the Credit
Facility was $241 million, of which the Company had drawn-down $208 million
(excluding letters of credit), and the average interest rate on the outstanding
balance of the Credit Facility was 5.4 percent. The interest rates on the
Company's long-term debt reflect market rates and, therefore, the carrying value
of long-term debt approximates its fair value. At November 30, 2001, outstanding
letters of credit totaled $9 million.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Credit Facility contains certain restrictive covenants that require the
Company to meet specific financial ratios and restrict capital expenditures, the
ability to incur additional debt and certain other transactions. The Credit
Facility permits dividend payments as long as there is no event of default.

As of November 30, 2001, the Company's debt maturities (Revolver of $120
million, Term Loan A of $88 million and other debt of $6 million) are summarized
as follows (in millions):

Term Loan C in the amount of $25 million drawn as of February 28, 2002
currently matures on December 28, 2002 (see discussion above).

8. EMPLOYEE PENSION AND BENEFIT PLANS

a. DEFINED BENEFIT AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company has a number of defined benefit pension plans that cover
substantially all salaried and hourly employees. Normal retirement age is 65,
but certain plan provisions allow for earlier retirement. The Company's funding
policy is consistent with the funding requirements of federal law. The pension
plans provide for pension benefits, the amounts of which are calculated under
formulas principally based on average earnings and length of service for
salaried employees and under negotiated non-wage based formulas for hourly
employees. The majority of the pension plans' assets are invested in short-term
investments, listed stocks and bonds.

Effective August 31, 1999, the Company changed its measurement date for all
U.S. pension and postretirement health care and life insurance plans from
November 30 to August 31. The effect of the measurement date change was not
material.

In addition to providing pension benefits, the Company currently provides
certain health care and life insurance benefits to most retired employees in
North America with varied coverage by employee groups. The health care plans
generally provide for cost sharing in the form of employee contributions,
deductibles and coinsurance between the Company and its retirees. Retirees in
certain other countries are provided similar benefits by plans sponsored by
their governments. These postretirement benefits are unfunded. The costs of
postretirement benefits are accrued based on the date the employees become
eligible for the benefits.

The Company implemented a restructuring of its corporate headquarters in
late 2001. The program included a Voluntary Enhanced Retirement Program (VERP)
offered to eligible employees. The program resulted in a $10 million pre-tax
charge to expense.

The status of the Company's defined benefit pension plan and other
postretirement benefit plans is as follows:

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Components of the amounts recognized in the Company's Consolidated Balance
Sheets (in millions):

- ---------------

(1) As discussed in Note 1(a), the Company sold its EIS business in fiscal year
2001.

(2) Relate to certain restructuring activities undertaken by GDX Automotive, as
discussed in Note 13.

(3) Relate to the restructuring programs discussed above.

(4) Pension amounts included $19 million and $16 million in 2001 and 2000,
respectively, for unfunded plans.

(5) Pension amounts included $19 million and $15 million in 2001 and 2000,
respectively, for unfunded plans.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The following table presents the weighted average assumptions used to
determine the actuarial present value of pension benefits and other
postretirement benefits:

- ---------------

(1) The initial trend rate for health care costs declines by one percent per
year, to six percent for years after the year 2007.

* Not applicable.

A one percent increase in the assumed trend rate for health care costs
would have increased the accumulated benefit obligation by $2 million as of
November 30, 2001. A one percent increase in the assumed trend rate for health
care costs would not have significantly increased the cost of 2001
postretirement health care benefits.

Total periodic cost for pension benefits and other postretirement benefits
(in millions):

- ---------------

(1) Actual returns on plan assets were a loss of $164 million in 2001 and gains
of $266 million in 2000 and $224 million in 1999.

(2) Includes special termination benefits totaling $10 million in 2001 related
to the restructuring programs discussed above.

Effective December 1, 1999, the Company changed its methods for determining
the market-related value of plan assets used in determining the expected
return-on-assets component of annual net pension costs and the amortization of
gains and losses for both pension and postretirement benefit costs. Under the
previous accounting method, the market-related value of assets was determined by
smoothing assets over a five-year period. The new method shortens the smoothing
period for determining the market-related value of plan assets from a five-year
period to a three-year period. The changes result in a calculated market-related
value of plan assets that is closer to current value, while still mitigating the
effects of short-term market fluctuation. The new method also reduces the
substantial accumulation of unrecognized gains and losses created under the
previous method due to the disparity between fair value and market-related value
of plan assets. Under the previous accounting method all gains and losses were
subject to a ten percent corridor and amortized over the expected working
lifetime of active employees (approximately 11 years). The new method eliminates
the ten percent corridor and reduces the amortization period to five years.

The cumulative effect of this accounting change related to periods prior to
fiscal year 2000 of $123 million ($74 million after-tax, or $1.76 per share for
both basic and diluted EPS) is a one-time, non-cash credit to fiscal 2000
earnings. This accounting change also resulted in a reduction in benefit costs
for the year ended

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

November 30, 2000 that increased income allocable to continuing business
segments by $30 million and pre-tax income from continuing operations by $37
million ($22 million after-tax, or $0.52 per share for both basic and diluted
EPS).

Presented below is pro forma income from continuing operations and EPS for
the year ended November 30, 1999, showing the estimated effects as if the
accounting change were applied retroactively (dollars in millions except for per
share amounts):

b. DEFINED CONTRIBUTION PENSION PLANS

The Company also sponsors a number of defined contribution pension plans.
Participation in these plans is available to substantially all salaried
employees and to certain groups of hourly employees. Company contributions to
these plans generally are based on a percentage of employee contributions. The
cost of these plans was approximately $9 million in 2001, 2000 and 1999. The
Company funds its contribution to the salaried plan with GenCorp common stock.

c. POSTEMPLOYMENT BENEFITS

The Company provides certain postemployment benefits to its employees. Such
benefits include disability-related and workers' compensation benefits and
severance payments for certain employees. The Company accrues for the cost of
such benefit expenses once an appropriate triggering event has occurred.

9. COMMITMENTS AND CONTINGENCIES

a. LEASE COMMITMENTS

The Company and its subsidiaries lease certain facilities, machinery and
equipment and office buildings under long-term, noncancelable operating leases.
The leases generally provide for renewal options ranging from five to fifteen
years and require the Company to pay for utilities, insurance, taxes and
maintenance. Rent expense was $8 million in fiscal 2001, $6 million in fiscal
2000, and $4 million in fiscal 1999. The aggregate future minimum rental
commitments under all non-cancelable operating leases in effect as of November
30, 2001 was $63 million with annual amounts declining from $7 million in 2002,
to $5 million in 2006. The Company's obligations for leases after 2006 aggregate
approximately $35 million.

The Company also leases certain surplus facilities to third parties. The
Company recorded lease revenues of $6 million, in fiscal years 2001, 2000 and
1999, related to these arrangements. Future minimum lease payments to be
received in the next five fiscal years increase from $5 million in 2002 to $7
million in 2006.

b. LEGAL PROCEEDINGS

Groundwater Toxic Tort Cases

Aerojet, along with other industrial Potentially Responsible Parties (PRPs)
and area water purveyors, have been sued in 17 cases by approximately 1,700
private plaintiffs residing in the vicinity of the defendants' manufacturing
facilities in Sacramento, California, and the Company's former facility in
Azusa, California. Plaintiffs in most cases seek damage for illness, death, and
economic injury allegedly caused by their ingestion of groundwater contaminated
or served by defendants. Fourteen of the cases are in the Los Angeles area and
three are in the Sacramento area. The Company's facilities that are involved in
these suits are the subject of certain investigations under The Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) and the
Resource Conservation and Recovery Act (RCRA), as described in Note 9(c). The
other manufacturing defendants' facilities are also subject to these
investigations. All of these cases have been stayed for three years pending the
completion of a California Public Utilities Commission (PUC) investigation of
the

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

safety of the water served by regulated water purveyors. In December 2001, the
California Supreme Court heard argument in an appeal of the stays by plaintiffs.
A decision by the Court was issued on February 4, 2002. The Court found that PUC
regulated water purveyors may not be sued by the toxic tort plaintiffs if the
water they served complied with state and federal drinking water standards. The
Court further ruled that the claims against the PUC regulated defendants where
the federal and state standards had been exceeded, and the claims against all
defendants not subject to PUC regulation, were not preempted. Assuming the Court
does not reconsider its ruling, the stays in these cases will be rescinded and
discovery should begin in March or April, 2002. Aerojet and the other individual
defendants are evaluating their alternatives. Aerojet has notified its insurers
and plans a vigorous defense should the stays be rescinded.

Air Pollution Toxic Tort Cases

Aerojet and several other defendants have been sued by private homeowners
residing in the vicinity of Chino and Chino Hills, California. The three cases
were filed in State court but were removed at defendants' request to the United
States District Court where they were consolidated. Plaintiffs generally allege
that defendants released hazardous chemicals into the air at their manufacturing
facilities, which allegedly caused illness, death, and economic injury.
Discovery is proceeding in the cases. Aerojet has notified its insurers and is
vigorously defending the actions.

Water Entity Toxic Tort Cases

Between April 2000 and October 2001, Aerojet was sued by six local water
agencies and water purveyors to recover damages relating to alleged
contamination of drinking water wells in the Baldwin Park Operable Unit (BPOU)
of the San Gabriel Basin Superfund site by Aerojet. The initial suits were filed
by the San Gabriel Basin Water Quality Authority (WQA) and the Upper San Gabriel
Valley Municipal Water District (Upper District) for the funding of a treatment
plant at the La Puente Valley County Water District (La Puente) well field. In
January 2001, Aerojet and certain cooperating PRPs reimbursed these plaintiffs
and one other funding agency $4.13 million for the cost of the treatment plant.
Since that time, Aerojet and these PRPs have continued to pay all operating and
related costs for treatment at the La Puente site. In June 2001, La Puente
joined the WQA case as a plaintiff seeking certain past costs.

In June 2000, the WQA also sued for its past costs in placing treatment at
the Big Dalton well site in the San Gabriel Basin. Starting in October 2000 and
continuing through October 2001, Aerojet was sued by Valley County Water
District (Valley) and Aerojet and other PRPs were sued by Cal Domestic Water
Company and San Gabriel Valley Water Company for contamination of their drinking
water wells. The Valley case was served but has been inactive and the other two
have not been served. The primary claim in each of these cases is for the
recovery of past and future CERCLA response costs for treatment plants at their
well sites. In the WQA and Upper District cases, Aerojet has filed third party
claims against other PRPs, which claims have been severed by the trial court.
Aerojet will file similar claims in the Valley County case if it is activated.

If the Definitive Agreement for the remediation of the BPOU Project (see
Note 9(c) below) is executed, all of these actions will be dismissed without
prejudice and all the past cost claims in those actions will be settled and
released.

In October 1999, Aerojet was sued by American States Water Company, a local
water purveyor, and certain of its affiliates, to recover $50 million in
unspecified past costs and replacement water damages relating to contamination
of drinking water wells near Aerojet's Sacramento, California, manufacturing
facility. The plaintiffs also sued the State of California for inverse
condemnation and both cases were consolidated in July 2001. Discovery has been
ongoing and trial is scheduled in the fall of 2002. Aerojet, the State and the
plaintiffs have agreed to explore mediation that is planned for April 2002.
Aerojet has notified its insurers and is conducting a vigorous defense.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Vinyl Chloride Cases

Between the early 1950's and 1985, GenCorp produced PVC resin at its former
Ashtabula, Ohio facility. A building block compound of PVC is vinyl chloride
(VC), now listed as a known carcinogen by several governmental agencies. OSHA
has strictly regulated workplace exposure to VC since 1974.

Since 1996, GenCorp has been named in 11 toxic tort cases involving alleged
exposure to VC. With the exception of one case, brought by the family of a
former Ashtabula employee, GenCorp was alleged to be a civil co-conspirator with
other VC and PVC manufacturers, whereby the industry allegedly suppressed
information about the carcinogenic risk of VC to industry workers. Of these 11
cases, six have been settled on terms favorable to the Company during 2000 and
2001, including the case where GenCorp was the employer.

One case alleges VC exposure from various aerosol consumer products,
including hairspray. VC was allegedly used as an aerosol propellant during the
1960's, and the suit names numerous consumer product manufacturers, in addition
to more than 40 chemical manufacturers. GenCorp only used VC internally and
never sold VC for aerosol or any other use. The other four cases involve
employees at VC or PVC facilities which had no connection to GenCorp. GenCorp's
involvement in the alleged conspiracy in these cases stems from GenCorp's
participation in various trade associations. GenCorp is vigorously defending its
position in each of these cases.

TNS, Inc. v. NLRB et al.

TNS, Inc., now known as Aerojet Ordnance Tennessee, Inc., (AOT) has long
manufactured armor piercing projectiles and ordnance from depleted uranium (DU)
under contracts with the U.S. military. AOT is a wholly-owned subsidiary of
Aerojet-General Corporation.

In 1981, a labor strike occurred at the facility in Jonesborough,
Tennessee, during which the Oil, Chemical and Atomic Workers Union, now "PACE,"
claimed that the employees had the legal right to strike due to "abnormally
dangerous" working conditions under Section 502 of the National Labor Relations
Act. The "abnormally dangerous" conditions allegedly stemmed from the
radioactive nature of DU. The Union claimed this made the strike an "unfair
labor practice strike," which prevented permanent replacement of the 200
strikers. Nonetheless, the strikers were replaced, and unfair labor practice
charges were filed by the Union.

In 1992, the NLRB, in a consolidated unfair labor practice case (Case Nos.
10-CA-17709 and 18785), overruled the Administrative Law Judge and found that
TNS had not violated Section 502, and thus dismissed the complaint. The union
appealed the dismissal to the D.C. Circuit Court of Appeals (Case No. 93-1299),
which remanded the case to the NLRB in 1995 for reconsideration of the standards
to be applied in determining "abnormally dangerous" working conditions.

On September 30, 1999, the NLRB issued its Second Supplemental Decision and
Order, finding that TNS had committed an unfair labor practice when it refused
to reinstate those strikers who made an unconditional offer to return to work in
1982.

TNS has appealed the most recent ruling of the NLRB to the Sixth Circuit
Court of Appeals (Case No. 99-6379), where it has been consolidated with the
cross-appeal of the NLRB (Case No. 00-5433). The case presents significant
issues of first impression under Section 502 of the National Labor Relations
Act, as well as primary jurisdiction issues because the safe handling and use of
radioactive materials are comprehensively regulated by the Nuclear Regulatory
Commission and the Tennessee Department of Conservation and Environment, Bureau
of Environment, Division of Radiological Health.

The matter has been fully briefed, with numerous amicus briefs filed in
support of TNS' position, and oral argument was held in September 2001. A
decision is expected in early 2002.

A ruling adverse to TNS would likely result in a substantial backpay award
to the eligible strikers, all of whom have been offered reinstatement over the
past 18 years. The actual total backpay amount, however, would be subject to
various interest and off-set adjustments to be determined through compliance
proceedings before the NLRB.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Wotus, et al. v. GenCorp Inc. and OMNOVA Solutions Inc.

On October 12, 2000, a group of hourly retirees filed a class action
seeking recission of the current Hourly Retiree Medical Plan established in
spring, 1994 and reinstatement of pre-1994 benefit plan terms. Wotus, et al. v.
GenCorp Inc., et al., U.S.D.C., N.D. Ohio, (Case No. CV-2604). The crux of the
dispute relates to the payment of benefit contributions by retirees as a result
of the cost caps implemented in the fall, 1993. The caps were instituted to
alleviate the impact of Financial Accounting Standard Board Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). Benefit contributions
had been delayed until January 1, 2000 pursuant to a moratorium negotiated with
the United Rubber Workers of America (URW) and its successor, the United
Steelworkers of America (USWA), as well as from savings generated by Plan
sponsored networks. A failure to pay contributions results in a termination of
benefits.

The class representatives consist of three hourly retirees from the
Jeannette, Pennsylvania facility of OMNOVA, the company spun-off from GenCorp on
October 1, 1999, and one hourly retiree from GenCorp's former Akron tire plant.
The putative class encompasses all eligible hourly retirees formerly represented
by the URW or USWA. The Unions, however, are not party to the suit and have
agreed not to support such litigation pursuant to Memoranda of Agreement
negotiated with GenCorp.

The retirees also challenge the creation of the OMNOVA Plan, which has
terms identical to the prior GenCorp Plan, without retiree approval.

GenCorp prevailed in a similar class action filed in 1995, arising at its
Wabash, Indiana location. Divine, et al. v. GenCorp Inc., U.S.D.C., N.D. Ind.,
(Case No. 96-CV-0394-AS). The GenCorp and OMNOVA insurance carriers have been
advised of this litigation.

OMNOVA has requested indemnification from GenCorp should plaintiffs prevail
in this matter. GenCorp has denied this request; however, this claim could
ultimately be decided by binding arbitration pursuant to the OMNOVA spin-off
agreement.

Other Legal Matters

The Company and its subsidiaries are subject to various other legal
actions, governmental investigations, and proceedings relating to a wide range
of matters in addition to those discussed above. In the opinion of management,
after reviewing the information which is currently available with respect to
such matters and consulting with the Company's counsel, any liability which may
ultimately be incurred with respect to these additional matters will not
materially affect the consolidated financial condition of the Company. The
effect of resolution of these matters on results of operations cannot be
predicted because any such effect depends on both future results of operations
and the amount and timing of the resolution of such matters.

c. ENVIRONMENTAL MATTERS

Sacramento, California

In 1989, the United States District Court approved a Partial Consent Decree
(Decree) requiring Aerojet to conduct a Remedial Investigation/Feasibility Study
(RI/FS) of Aerojet's Sacramento, California site and to prepare a RI/FS report
on specific environmental conditions present at the site and alternatives
available to remedy such conditions. Aerojet also is required to pay for certain
governmental oversight costs associated with Decree compliance. The State of
California expanded surveillance of perchlorate and nitrosodimethylamine (NDMA)
under the RI/FS because these chemicals were detected in public water supply
wells near Aerojet's property at previously undetectable levels using new
testing protocols.

Aerojet has substantially completed its efforts under the Decree to
determine the nature and extent of contamination at the facility. Preliminarily,
Aerojet has identified the technologies that will likely be used to remediate
the site and estimated costs using generic remedial costs from databases of
Superfund remediation costs. Over the next several years, Aerojet will conduct
feasibility studies to refine technical approaches and costs to remediate the
site. The remediation costs are principally for design, construction,
enhancement and operation

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

of groundwater and soil treatment facilities, ongoing project management and
regulatory oversight, and are expected to be incurred over a period of
approximately 15 years. Aerojet is also addressing groundwater contamination off
of its facility through the development of an Operable Unit Feasibility Study.
This Study was completed and submitted as a draft to the governmental oversight
agencies in November 1999. In response to governmental agency comments, Aerojet
revised the draft report and it was resubmitted in May 2000. The agencies have
now accepted the report as complete. The Study enumerates various remedial
alternatives by which offsite groundwater can be addressed. The governmental
agencies selected the remedial action alternative to be implemented and issued a
Record of Decision (ROD) for the site on July 24, 2001. EPA will issue a
proposed consent agreement to Aerojet for the implementation of the ROD. A
discussion of Aerojet's efforts to estimate these costs is contained under the
heading "Aerojet's Reserve and Recovery Balances."

In September 2000, Aerojet filed a motion with the U.S. District Court
seeking court approval of a modification to the Decree carving out from the site
lands estimated (on the basis of AutoCad drawings) to total approximately 3,100
acres. The agencies opposed the motion. In November 2000, the court denied
Aerojet's motion on the basis that Aerojet knew that the carve-out property was
not contaminated at the time it was included in the Decree. Aerojet appealed
this decision but the appeal was stayed while Aerojet and the agencies met in an
effort to reach a negotiated agreement removing the carve-out property from the
Decree and from the National Priorities List. On September 14, 2001, Aerojet
reached agreement with the relevant agencies on a Stipulation to modify the
Decree. During the carve-out negotiations, the agencies required that some of
the original candidate lands be removed from carve-out consideration. After the
stipulation was signed, an official survey of the land indicated that the agreed
carve-out property totals approximately 2,600 acres. On September 25, 2001, the
Stipulation was lodged with the United States District Court and was followed by
a 30-day public comment period. Due to the anthrax attacks in Washington, DC and
subsequent delays in the federal mail system, the United States Department of
Justice continued to receive comments after the 30 day period. In addition,
three water purveyors and a public interest group have attempted to delay
carve-out until the agreed water replacement plan is revised. On February 13,
2002, two water purveyors filed a Writ of Mandamus in Sacramento Superior Court
seeking to enjoin the Regional Board's joinder in the Motion to Enter the Decree
Modification. The State of California, on February 14, 2002, removed the suits
to United States District Court. Assuming the matters are not remanded to state
court, the water purveyors' claims will be heard by the same court expected to
approve the Decree modification.

On March 1, 2002, the agencies filed the motion to approve the Decree
modification and management expects the United States District Court to approve
the modification in due course. Among other things, the Stipulation provides
that: (i) certain clean property will be removed from the Superfund site
designation; (ii) GenCorp will provide a $75 million guarantee to assure that
remediation activities at the Sacramento site are fully funded; (iii) Aerojet
will provide a short-term and long-term replacement plan for lost water
supplies; and (iv) the Superfund site will be divided into "Operable Units" to
allow Aerojet and the regulatory agencies to more quickly address and restore
priority areas.

On the basis of information presently available, management believes that
established environmental reserves for Sacramento groundwater remediation
efforts are adequate.

San Gabriel Valley Basin, California

Aerojet, through its former Azusa facility, has been named by the U.S.
Environmental Protection Agency (EPA) as a PRP in the portion of the San Gabriel
Valley Superfund Site known as the Baldwin Park Operable Unit (BPOU). A ROD
regarding regional groundwater remediation was issued and Aerojet and 18 other
PRPs received Special Notice Letters requiring groundwater remediation. All of
the Special Notice PRPs are alleged to have contributed volatile organic
compounds (VOCs). Aerojet's investigation demonstrated that the groundwater
contamination by VOCs is principally upgradient of Aerojet's property and that
lower concentrations of VOC contaminants are present in the soils of Aerojet's
presently and historically owned properties. The EPA contends that of the 19
PRPs identified by the EPA, Aerojet is one of the four largest sources of VOC
groundwater contamination at the BPOU. Aerojet contests the EPA's position
regarding the source of contamination and the number of responsible PRPs.
Aerojet has participated in a Steering Committee comprised of 14 of the PRPs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

In May 1997, as a result of the development of more sensitive measuring
methods, perchlorate was detected in wells in the BPOU. More recently, NDMA was
also detected using newly developed measuring methods. Suspected sources of
perchlorate include Aerojet's solid rocket development and manufacturing
activities in the 1940s and 1950s, military ordnance produced by a facility
adjacent to the Aerojet facilities in the 1940s, the burning of confiscated
fireworks by local fire departments, and fertilizer used in agriculture. NDMA is
a suspected byproduct of liquid rocket fuel activities by Aerojet in the same
time period. It is also a contaminant in cutting oils used by many businesses
and is found in many foods. In addition, new regulatory standards for a chemical
known as 1,4 dioxane require additional treatment. Aerojet may be a minor
contributor of this chemical. Aerojet is in the process of developing new, low
cost technologies for the treatment of perchlorate, NDMA and 1,4 dioxane.

On September 10, 1999, 11 of the 19 Special Notice PRPs, including Aerojet
(the Offering Parties), submitted a Good Faith Offer to the EPA to implement an
EPA-approved remedy, which was accepted by the agency as a basis for negotiating
a Consent Decree. The remedy, as proposed, would employ low cost treatment
technologies being developed by Aerojet to treat perchlorate, NDMA, and 1,4
dioxane, as well as traditional treatment for VOCs. The Offering Parties
continued negotiations with the court-appointed Watermaster and local water
purveyors regarding an agreement that would provide for use of the remediation
project's treated water. Due to lack of progress in the negotiations, on June
30, 2000, the EPA issued a Unilateral Administrative Order (UAO) ordering the
PRPs to implement a remedy consistent with the ROD, but still encouraging the
PRPs to attempt to negotiate an agreement with the local purveyors. The PRPs
agreed to comply. A discussion of Aerojet's efforts to estimate these costs is
contained under the heading "Aerojet's Reserve and Recovery Balances".

On November 23, 1999, the Regional Board issued an order to Aerojet and
other PRPs to conduct certain additional soil and groundwater sampling with
respect to new chemicals found in the groundwater since completion of an earlier
site investigation. That study, completed in 1994, concluded that no site
remediation was required. At this time, the State Regional Water Quality Control
Board (Regional Board) has ordered site remediation involving certain limited
soil gas extraction, which Aerojet is in the process of implementing. It is too
early to know whether any further remediation will be required. The Regional
Board Order also indicated that at some future time it may attempt to order
Aerojet to pay certain past and future costs of private and public purveyors who
have been affected by contamination. There is a substantial legal question as to
the Regional Board's legal authority to consider such action.

In January 2001, a Memorandum of Understanding (MOU) was executed by nine
of the Special Notice PRPs, including Aerojet, and the Watermaster and certain
local purveyors. The MOU provided that the nine PRPs would finance the
implementation by the Watermaster and local purveyors of an EPA approved remedy
for the BPOU. The MOU provided for an interim allocation agreement among the
nine PRPs pending completion of a final allocation procedure in 2002. The PRPs
will initially seek to mediate the allocation to be followed by litigation if
unsuccessful. Under the interim allocation agreement, Aerojet is responsible for
approximately two-thirds of all project costs pending completion of the
allocation proceeding. After the final allocation, all prior and future payments
will be re-allocated.

The basic structure of the proposed agreement with the Watermaster and
local purveyors is for the nine PRPs to put up financial assurance (in the form
of cash or letters of credit) for the cost of the three remaining treatment
plants and associated extraction facilities. Actual funding would be provided by
funds placed in escrow at the start of each three month period to cover
anticipated costs for the succeeding quarter with the financial assurance being
reduced accordingly until each project is completed. A fourth treatment plant
has already been completed at La Puente Valley Water District and went into
service in March 2001.

Once each of the plants is completed, the nine PRPs would be responsible to
fund operation and maintenance (O&M) of the treatment facilities, reduced by the
local purveyors normal operating expenses in the absence of any contamination.
The nine PRPs would maintain sufficient financial assurance to cover the
estimated O&M for two years. Actual O&M payments would be made at the start of
each three-month period to cover anticipated costs for the succeeding quarter.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Definitive Agreement will settle the past environmental claims of the
Water Quality Authority, Watermaster, Valley County Water District, La Puente
Valley Water District, San Gabriel Valley Water Company, Suburban Water Systems
and California Domestic Water Company. These payments would amount to
approximately $12 million with approximately $5 million due 60 days after the
effective date of the Definitive Agreement and the remainder in four equal
annual payments, with the addition of 4 percent simple interest. Aerojet's share
of the total payments would be approximately $8 million.

The Water Entities currently estimate the total capital cost of all the
projects, including La Puente, Suburban and Cal Domestic, at about $89 million.
It is anticipated that 25 percent reimbursement will be available from the
United States Bureau of Reclamation under existing law of approximately $10
million under current appropriations. In addition, legislation was recently
passed, and funds appropriated, for an additional $30 million of federal funds
to be contributed to the San Gabriel Basin Superfund sites as a whole, including
four other operable units. The Company believes that once certain issues have
been worked out on distribution, the WQA will provide a significant share of
this amount for the BPOU projects. To date, the PRPs have paid approximately $21
million in costs as they have been incurred on the BPOU Project. Aerojet has
paid approximately $15 million of this amount. Aerojet currently estimates that
required financial assurances will be in the neighborhood of approximately $73
million if a Definitive Agreement is reached during March 2002, of which
Aerojet's share would be approximately $50 million.

As part of the EIS sale to Northrop Grumman on September 25, 2001, EPA
approved a Prospective Purchaser Agreement with Northrop Grumman to absolve it
of pre-closing liability for contamination caused by the Azusa facility, which
liability will remain with Aerojet. As part of that agreement, Aerojet agreed to
put $40 million into an irrevocable escrow for the BPOU project to implement the
EPA UAO, and GenCorp agreed to provide a $25 million guarantee for Aerojet's
share of remediation costs in the BPOU. The $40 million escrow will satisfy the
major share of Aerojet's required financial assurance under the Definitive
Agreement, if executed. A separate $9 million payment was made by Aerojet to EPA
for its past costs (see discussion below). EPA will maintain these funds for
possible use on the BPOU project. These recoveries will be made for a
substantial number of years as provided in the APA and an advance agreement with
the U.S. Government.

Aerojet estimates that O&M will be approximately $7 million in 2002, about
$12 million for several years thereafter, but should reduce to approximately
$7.3 million by 2005 or 2006. The Definitive Agreement would also require the
nine PRPs to pay up to $7 million for existing facilities to be used in the
project, up to $3 million for certain contingency well and pipeline facilities,
and approximately $3 million for a $100 million environmental insurance policy
which the PRPs will provide under the terms of the Definitive Agreement. The
term of the Definitive Agreement would be 15 years.

A tentative agreement has been reached on the final draft of the Definitive
Agreement with the Water Entities and the parties are now engaged in completing
the many attachments to the Agreement. The nine PRPs are also completing the
agreement among themselves on the interim allocation of costs and on a process
by which to reach a final allocation. When the attachments are completed, each
of the parties will have to obtain authority to execute the Definitive Agreement
and the Main San Gabriel Basin Watermaster will have to obtain the approval of
the state court which oversees its activities. This process could take from 30
to 60 days. A condition to the Agreement becoming effective is the receipt of an
acceptable environmental insurance policy covering the operation of the Project,
the final terms of which are currently being negotiated with the insurer.

Aerojet has been conducting investigations for the identification of
additional PRPs related to perchlorate and NDMA. One such company was Day &
Night Manufacturing Company (Day & Night) which, during World War II,
manufactured photoflash bombs and flares which used perchlorate at a site
adjacent to Aerojet and whose property was later acquired by Aerojet. Day &
Night was acquired by Dresser Industries (Dresser) in April 1945 while it was
still using perchlorate at its Azusa site. Thereafter, the assets were sold to
Carrier Corporation and the corporate entity of Day & Night dissolved into
Dresser. Carrier was ultimately acquired by United Technologies Corporation. It
also appears that disposal practices at Day & Night for perchlorate were
directed and controlled by the U.S. War Department during World War II. There
may be other contributors to the new

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

contaminants of perchlorate, NDMA and 1,4 dioxane whom Aerojet will pursue for
recovery of project and other costs.

As part of the agreement to sell the EIS business to Northrop Grumman,
Aerojet has paid the EPA $9 million to be offset against Aerojet's share of
EPA's past costs of approximately $22 million. A very substantial share of EPA's
past costs related to the period prior to 1997 when the sole contamination being
considered involved VOCs. Aerojet believes that it is responsible for less than
10 percent of these costs. As a result, in the allocation with the other PRPs,
Aerojet will seek to recover a significant portion of the $9 million paid to EPA
from the other PRPs. Unresolved at this time is the issue of California's past
costs which were last estimated at approximately $4 million.

Aerojet intends to defend itself vigorously to assure that it is
appropriately treated with other PRPs and that costs of any remediation are
properly spread over all users of the San Gabriel Valley aquifer. In addition,
Aerojet is also pursuing its insurance remedies. On the basis of information
presently available, management believes that established environmental reserves
for San Gabriel Valley groundwater remediation efforts are adequate.

On November 9, 2001, more than ten years after the General Notice given to
its subsidiary (Aerojet-General Corporation), GenCorp received a General Notice
Letter from the U.S. EPA asserting that GenCorp is a PRP for the BPOU. EPA
alleged that in the 1940s and early 1950s GenCorp's predecessor, General Tire &
Rubber Company, participated in a joint venture with Aerojet Engineering
Corporation, a predecessor to Aerojet-General Corporation, sharing 50 percent of
the profits on certain U.S. Navy contracts for JATO rockets and that it had some
role in managing the joint venture at the Azusa facility. GenCorp strongly
disagrees with the EPA designation. EPA is factually incorrect; at all times,
Aerojet was the sole party that owned or operated the Azusa facility during the
early production of the JATO rockets. GenCorp strongly disagrees with the EPA's
PRP designation and plans to resist the designation at every level possible.

On February 28, 2002, EPA issued a unilateral First Amended Administrative
Order For Remedial Design and Remedial Action (Amended Order) for the BPOU. The
Amended Order does not materially alter the obligations of Aerojet under the
earlier UAO; however, the Amended Order names GenCorp as a Respondent on the
basis of the allegations made in the General Notice Letter. The Amended Order
does not require GenCorp to undertake any action unless Aerojet fails to perform
its obligations under the UAO. It states that GenCorp is being added to the
Amended Order "as a backup" to Aerojet's performance; and it provides that
GenCorp is deemed to be in compliance with the Amended Order on the effective
date of the Amended Order. Because GenCorp does not believe it was properly
designated a PRP at the site, the Company is evaluating an appropriate response
to the Amended Order.

El Monte, California

On December 21, 2000, Aerojet received an order from the Los Angeles Region
office of the California Regional Water Quality Control Board requiring a work
plan for investigation of Aerojet's former El Monte facility. On January 22,
2001, Aerojet filed an appeal of the order with the Board asserting selective
enforcement. The appeal is in abeyance pending negotiations with the Board. In
March 2001, Aerojet submitted a limited work plan to the Board in light of the
Board's failure to adequately seek similar investigations by lessees and owners
of the facility following Aerojet's ownership. On February 21, 2001, Aerojet
received a General Notice Letter from U.S. EPA Region IX naming Aerojet as a PRP
to the South El Monte Operable Unit of the San Gabriel Valley Superfund site.
Aerojet continues to negotiate with the Regional Board for a limited
investigation of this former facility. Aerojet has begun the process of
obtaining access agreements should the Regional Board approve Aerojet's work
plan.

Muskegon, Michigan

In a lawsuit filed by the EPA, the United States District Court ruled in
1992 that Aerojet and its two inactive Cordova Chemical subsidiaries (Cordova)
are liable for remediation of Cordova's Muskegon, Michigan site, along with a
former owner/operator of an earlier chemical plant at the site, who is the other
potentially responsible party (PRP). That decision was appealed to the United
States Court of Appeals.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

In May 1997, the United States Court of Appeals for the Sixth Circuit
issued an en banc decision reversing Aerojet's and the other PRP's liability
under the CERCLA statute. Petitions for certiorari to the United States Supreme
Court for its review of the appellate decision were filed on behalf of the State
of Michigan and the EPA and were granted in December 1997. On June 8, 1998, the
United States Supreme Court issued its opinion. The Court held that a parent
corporation could be directly liable as an operator under CERCLA if it can be
shown that the parent corporation operated the facility. The Supreme Court
vacated the Sixth Circuit's 1997 ruling and remanded the case back to the United
States District Court in Michigan for retrial. Aerojet did not expect that it
would be found liable on remand. Aerojet entered into settlement discussions
with the EPA and a proposed consent decree was filed with the District Court in
July 1999. After a May 8, 2000 hearing, the court requested additional briefing
by all parties to occur by July 2000. On August 24, 2000 the court approved the
consent decree effectively dismissing the action as against Aerojet and Cordova.
In November 2001, the United States District Court ruled that the other PRP was
not liable under CERCLA. The EPA and the state have not appealed the ruling thus
making Aerojet's and Cordova's dismissal final.

In a separate action, Aerojet and Cordova won indemnification for the
Muskegon site investigation and remediation costs from the State of Michigan in
the state Court of Claims. The Michigan Court of Appeals affirmed on appeal, and
the Michigan Supreme Court refused to hear the case. Further, the Michigan
Supreme Court also denied the State's motion for reconsideration. As a result,
the Company believes that most of the $50 million to $100 million in anticipated
remediation costs will be paid by the State of Michigan and the former PRP
owner/operator of the site. A settlement agreement with the State of Michigan,
related to the proposed consent decree discussed above, was finalized effective
upon the August 24, 2000 approval of the EPA consent decree. In September 2000,
Cordova received a settlement payment of $1.5 million from the State of
Michigan. In addition, Aerojet settled with one of its two insurers in August
1999 for $4 million.

Aerojet's Reserve and Recovery Balances

On January 12, 1999, having finally received all necessary U.S. Government
approvals, Aerojet and the U.S. Government implemented, with effect retroactive
to December 1, 1998, the October 1997 Agreement in Principle resolving certain
prior environmental and facility disagreements between the parties. Under this
agreement, a "global" settlement covering all environmental contamination
(including perchlorate) at the Sacramento and Azusa, California, sites was
achieved; the U.S. Government/Aerojet environmental cost sharing ratio was
raised to 88 percent/12 percent from the previous 65 percent/35 percent; the
cost allocation base for these costs was expanded to include all of Aerojet (in
lieu of the prior limitation to the Sacramento business base); and Aerojet
obtained title to all of the remaining U.S. Government facilities on its
Sacramento property, together with an advance agreement recognizing the
allowability of certain facility demolition costs. These recoveries will be made
for a substantial number of years as provided in the APA and an advance
agreement with the government.

During the year ended November 30, 1999, Aerojet entered into a settlement
agreement covering certain environmental claims with certain of its insurance
carriers and received settlement proceeds of approximately $92 million. Under
the terms of its agreements with the U.S. Government, Aerojet was obliged to
credit the U.S. Government a portion of the insurance recoveries for past costs
paid by the U.S. Government. On March 8, 2001, Aerojet entered into a settlement
agreement with the U.S. Government that resolved Aerojet's obligation to
allocate a portion of the insurance recoveries to the U.S. Government.

In the fourth quarter of 1999, Aerojet obtained sufficient information to
provide a reasonable basis for estimating the costs to address groundwater
contamination off its Sacramento facility and its probable share of the San
Gabriel Valley BPOU, and recorded those estimates in its reserve and recovery
balances. Estimates regarding the Sacramento Western Groundwater Remediation
were based on the Operable Unit Feasibility Study, previous references and
Aerojet's opinion as to which remediation alternative proposed by the study will
be approved by the EPA and the State. Estimates regarding the San Gabriel Valley
BPOU remediation were based on the Good Faith Offer/Administrative Consent Order
and Watermaster/purveyor negotiations referenced previously. Not resolved at
this time are whether Aerojet will have any additional liability for its
possible share of water purveyor past cost claims, as well as the EPA's past and
future oversight costs. In regard to the matter discussed above, management
believes, on the basis of presently available information, that resolution of
this
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

matter would not materially affect liquidity, capital resources, or the
consolidated financial condition of the Company.

As of November 30, 2001, Aerojet had total reserves of $252 million for
costs to remediate the Sacramento and San Gabriel Valley Basin sites and has
recognized $158 million for probable future recoveries. These estimates are
subject to change as work progresses, additional experience is gained and
environmental standards are revised. In addition, legal proceedings to obtain
reimbursements of environmental costs from insurers are continuing.

Lawrence, Massachusetts

The Company has studied remediation alternatives for its closed Lawrence,
Massachusetts facility, which was contaminated with PCBs, and has begun site
remediation and off-site disposal of debris. The Company has a remaining reserve
of $13 million as of November 30, 2001 for estimated decontamination and
long-term operating and maintenance costs of this site. The reserve represents
the Company's best estimate for the remaining remediation costs. Estimates of
future remediation costs could range as high as $37 million depending on the
results of future testing and the ultimate remediation alternatives undertaken
at the site. The time frame for remediation is currently estimated to range from
three to five years.

Olin Corporation

In August 1991, Olin Corporation (Olin) advised GenCorp that it believed
GenCorp to be jointly and severally liable for certain Superfund remediation
costs, estimated by Olin to be $70 million, associated with a former Olin
manufacturing facility and waste disposal sites in Ashtabula County, Ohio. In
1993, GenCorp sought declaratory judgment in the United States District Court
for the Northern District of Ohio that the Company is not responsible for
environmental remediation costs. Olin counterclaimed seeking a judgment that
GenCorp is jointly and severally liable for a share of remediation costs. In
late 1995, the Court hearing on the issue of joint and several liability was
completed, and in August 1996 the Court held hearings relative to allocation. At
its request, in 1998, the Court received an additional briefing regarding the
impact of the United States Supreme Court's decision in the Best Foods case
which the Company believes definitively addresses many issues in this case in
its favor. Another hearing relative to liability and allocation was held on
January 11, 1999. The Court rendered its interim decision on liability on August
16, 1999, finding GenCorp 30 percent liable for remediation costs at "Big D
Campground" landfill and 40 percent liable for remediation costs attributable to
the Olin TDI facility with regard to the Fields Brook site. Phase III
proceedings on the allowability of those remediation costs were completed in
July 2001, and a final order is expected in early to mid 2002. Upon issuance of
the final order, the matter will be ripe for appeal.

The Company continues to vigorously litigate this matter and believes that
it has meritorious defenses to Olin's claims. While there can be no certainty
regarding the outcome of any litigation, in the opinion of management, after
reviewing the information currently available with respect to this matter and
consulting with the Company's counsel, any liability which may ultimately be
incurred will not materially affect the consolidated financial condition of the
Company.

Other Sites

The Company is also currently involved, together with other companies, in
approximately 23 other Superfund and non-Superfund remediation sites. 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 costs are generally made
based on relative contributions of waste. Based on the Company's previous
experience, its allocated share has frequently been minimal, and in many
instances, has been less than one percent. The Company has reserves of
approximately $14 million as of November 30, 2001 which it believes are
sufficient to cover its best estimate of its share of the environmental
remediation costs at these other sites. Also, the Company is seeking recovery of
its costs from its insurers.

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Environmental Summary

A summary of the Company's environmental reserve activity is shown below
(in millions):

In regard to the sites discussed above, management believes, on the basis
of presently available information, that resolution of these matters will not
materially affect liquidity, capital resources or consolidated financial
condition. The effect of resolution of these matters on results of operations
cannot be predicted due to the uncertainty concerning both the amount and timing
of future expenditures and future results of operations.

d. GUARANTEES

As detailed in Note 9(c), the Company has guaranteed certain environmental
remediation obligations of Aerojet. At Aerojet's Sacramento facility, the
Company has agreed to provide a $75 million guarantee that remediation
activities are fully funded. Related to Aerojet's former Azusa, California,
facility, the Company has agreed to provide a $25 million guarantee for
Aerojet's share of the remediation costs at that site.

e. CONCENTRATION OF CREDIT RISK

The Company invests available cash in money market securities of various
banks, commercial paper and asset-backed securities of various financial
institutions, other companies with high credit ratings and securities backed by
the U.S. Government.

As of November 30, 2001 and 2000, the amount of commercial receivables was
$141 million and $82 million, respectively. Receivables for the GDX Automotive
segment of $117 million as of November 30, 2001 and $63 million as of November
30, 2000, are due primarily from General Motors and the Ford Motor Company. As
of November 30, 2001 and 2000, the amount of U.S. Government receivables was $48
million and $53 million, respectively. As of November 30, 2001 and 2000, the
U.S. Government receivables includes $18 million and $10 million, respectively,
for environmental remediation recovery (see Note 9(c)). The Company's accounts
receivables are generally unsecured and are not backed by collateral from its
customers.

As of November 30, 2001 and 2000, the U.S. Government receivables include
unbilled amounts of $5 million and $3 million, respectively, relating to
long-term contracts. Such amounts are billed either upon delivery of completed
units or settlements of contracts. The unbilled receivables amount as of
November 30, 2001 is expected to be collected in years subsequent to 2002.

10. SHAREHOLDERS' EQUITY

a. PREFERENCE STOCK AND PREFERRED SHARE PURCHASE RIGHTS

In January 1997, the Board of Directors extended for ten additional years
GenCorp's Shareholder Rights Plan (Plan), as amended. When the Plan was
originally adopted in 1987, the Directors declared a dividend of one Preferred
Share Purchase Right (Right) on each outstanding share of common stock, payable
to shareholders of record on February 27, 1987. Rights outstanding as of
November 30, 2001 and 2000 totaled 43.1 million and 42.4 million, respectively.
The Plan provides that under certain circumstances each Right will entitle
shareholders to buy one one-hundredth of a share of a new Series A Cumulative
Preference Stock at an exercise price of $100. The Rights are exercisable only
if a person or group acquires 20 percent or more of GenCorp's common stock or
announces a tender or exchange offer that will result in such person or group
acquiring 30 percent or more of the common stock. GenCorp is entitled to redeem
the Rights at two cents per Right at any time until ten days after a 20 percent
position has been acquired (unless the Board elects to extend such time period,
which in no event may exceed 30 days). If the Company is involved in certain
transactions after the Rights become exercisable, a holder

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

of Rights (other than Rights beneficially owned by a shareholder who has
acquired 20 percent or more of GenCorp's common stock, which Rights become void)
is entitled to buy a number of the acquiring company's common shares, or
GenCorp's common stock, as the case may be, having a market value of twice the
exercise price of each Right. A potential dilutive effect may exist upon the
exercise of the Rights. The Rights under the extended Plan expire on February
18, 2007. Until a Right is exercised, the holder has no rights as a stockholder
of the Company including, without limitation, the right to vote as a stockholder
or to receive dividends.

As of November 30, 2001, 575,000 shares of $1.00 par value Series A
Cumulative Preference Stock were reserved for issuance upon exercise of
Preferred Share Purchase Rights.

b. COMMON STOCK

As of November 30, 2001, the Company had 150.0 million authorized shares of
common stock, par value $0.10 per share (Common Stock), of which 42.9 million
shares were issued and 9.3 million shares were reserved for future issuance for
discretionary payments of the Company's portion of Retirement Savings Plan
contributions, exercise of stock options and payment of awards under stock-based
compensation plans.

During the years ended November 30, 2001 and 2000, the Company paid
quarterly dividends on its Common Stock of $0.03 per share (or $0.12 on an
annual basis).

c. STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation under APB 25 and related
interpretations. Under APB 25, stock options granted to employees by the Company
generate no expense as the exercise price of the stock options at the date of
grant equal the market value of the underlying common stock.

The 1999 Equity and Performance Incentive Plan (1999 Plan), which was
adopted in 2000, provides key employees stock options and restricted stock
generally based on the attainment of specified performance targets. Stock
options issued under the 1999 Plan are, in general, exercisable in one-third
increments at one year, two years, and three years from the date of grant. Under
this plan, key employees of the Company were granted a total of 728,000
restricted shares. Designated shares vest annually over a five-year period if
the Company meets EPS growth targets as specified in the Plan. Unvested
restricted shares are canceled upon the employee's termination of employment or
if earnings targets are not achieved. During fiscal 2001, 111,750 shares were
canceled due to terminations, and management estimates that no shares will vest
based on fiscal 2001 EPS. The Organization and Compensation Committee of the
Board has negative discretion over increasing or decreasing the actual number of
shares to vest in any period.

The Company's 1997 Stock Option Plan and 1993 Stock Option Plan each
provide for an aggregate of 2.5 million shares of the Company's Common Stock to
be purchased pursuant to stock options or to be subject to stock appreciation
rights (SARs) which may be granted to selected officers and key employees at
prices equal to the fair market value of a share of common stock on the date of
grant. Stock options issued under the 1997 and 1993 Stock Option Plans are, in
general, exercisable in 25 percent increments at six months, one year, two years
and three years from the date of grant. No stock appreciation rights have been
granted.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

A summary of the Company's stock option activity, and related information
for the years ended November 30 are as follows:

The weighted average grant-date fair value of stock options granted in 2001
was $4.01, $3.64 for stock options granted in 2000 and $3.12 for stock options
granted in 1999.

The following table summarizes the range of exercise prices and
weighted-average exercise prices for options outstanding and exercisable as of
November 30, 2001 under the Company's stock option plans:

SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
requires the use of fair value techniques to determine compensation expense
associated with stock-based compensation. Although the Company has opted to
continue to apply the provisions of APB 25 to determine compensation expense, as
permitted under SFAS 123, the Company is obligated to disclose certain
information including pro forma net income and earnings per share as if SFAS 123
had been adopted by the Company to measure compensation expense. Had
compensation cost been measured in accordance with SFAS 123, the Company's net
income, basic EPS and diluted EPS would have been reduced by $1.2 million, $0.03
per share, and $0.03 per share, respectively, for 2001; $1 million, $0.02 per
share, and $0.02 per share, respectively, for 2000, and; $3 million, $0.07 per
share, and $0.06 per share, respectively, for 1999. The fair value of stock
options was estimated at the date of grant using a Black-Scholes stock option
pricing model with the following weighted-average assumptions: risk free
interest rates of 3.5 percent for 2001, 6.0 percent for 2000, and 5.0 percent
for 1999; dividend yield of 1.0 percent for 2001, 1.4 percent for 2000, and 1.9
percent for 1999; volatility factor of the expected market price of the
Company's Common Stock of 0.39 for 2001, 0.40 for 2000, and 0.34 for 1999; and a
weighted-average expected life of the option of five years for 2001, 2000 and
1999.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

d. ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF INCOME TAXES

Comprehensive income encompasses net income and other comprehensive income
items, which includes all other non-owner transactions and events that change
shareholders' equity. The Company's other comprehensive loss includes the
effects of foreign currency translation adjustments.

The components of other comprehensive income and the related income tax
effects are presented in the following table (the Company did not recognize any
items of other comprehensive income in 1999):

11. OPERATING SEGMENTS AND RELATED DISCLOSURES

The Company's continuing operations are organized into three segments based
on different products and customer bases: GDX Automotive, Aerospace and Defense,
and Fine Chemicals. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (see Note 1).
Beginning with fiscal year 2001 reporting, the Fine Chemicals business is
presented as a distinct operating segment apart from the Company's Aerospace and
Defense segment. Prior period information has been restated to reflect this
change.

The Company evaluates segment performance based on several factors, of
which the primary financial measure is segment operating profit. Segment
operating profit represents net sales from continuing operations less applicable
costs, expenses and provisions for restructuring and unusual items relating to
operations. Segment operating profit excludes corporate income and expenses,
provisions for unusual items, interest expense, income taxes and the minority
interest in AFC. See Note 14 related to unusual items reflected in the Company's
financial results.

In November 2001, the Company's real estate business completed the sale of
approximately 1,100 acres of property in Eastern Sacramento County (California)
for $28 million. The consideration included cash of approximately $7 million and
a promissory note for the remainder of the sales price. The five-year promissory
note bears interest that is payable quarterly and includes annual minimum
principle payments of $550,000. The property lies outside of the Aerojet
Superfund site boundaries and is not a part of the approximate 2,600 acres of
land that have been carved out of the Superfund site designation under an
agreement with federal and state government regulators (see also Note 9(c)). The
$23 million pre-tax gain resulting from the sale of the land is included in the
activity for the Aerospace and Defense segment. The transaction was accounted
for under SFAS No. 66, "Accounting for Sales of Real Estate." The promissory
note portion of the consideration represents a material noncash investing
activity.

Sales in 2001, 2000 and 1999 to the U.S. Government and its agencies
(principally the DoD) totaled $574 million, $481 million and $519 million,
respectively, and were generated almost entirely by the Aerospace and Defense
segment. Sales to General Motors, by the GDX Automotive segment were $259
million in 2001, $267 million in 2000 and $250 million in 1999. Sales to Ford by
the GDX Automotive segment were $188 million in 2001, $125 million in 2000 and
$120 million in 1999. Intersegment sales were not material.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Company's operations are located primarily in the U.S., Europe and
Canada. Inter-area sales are not significant to the total sales of any
geographic area. Unusual items included in operating profit pertained only to
U.S. operations. Geographic segment information is presented in the table below
(in millions):

12. RESTATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following quarterly financial information for the Company's fiscal
years 2001 and 2000 is, by means of this filing, being restated, except for the
fourth quarter of fiscal year 2001, to reflect certain adjustments discussed in
Note 2. The sum of earnings per share for the four quarters may not equal the
totals for the year due to changes in the weighted average number of shares
outstanding.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

CONSOLIDATED STATEMENTS OF INCOME

- ---------------

Note: See Note 1(a) for information related to business acquisition and
disposition activities, Note 13 related to restructuring activities and
Note 14 related to certain unusual items included in the Company
financial results for the periods presented.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

CONSOLIDATED STATEMENTS OF INCOME

Note: See Note 1(a) for information related to business acquisition and
disposition activities, Note 13 related to restructuring activities, Note
14 related to certain unusual items included in the Company financial
results for the periods presented and Note 8(a) related to the cumulative
effect of a change in accounting principle.

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

CONSOLIDATED BALANCE SHEETS

As a result of the restatement, total assets decreased $2 million, $1
million and $2 million as of February 28, May 31 and August 31, respectively.
Total liabilities increased $10 million, $9 million and $10 million as of the
end of the first, second and third quarters, respectively.

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

CONSOLIDATED BALANCE SHEETS

As a result of the restatement total assets increased by $2 million as of
February 28, May 31 and August 31. Total liabilities increased $7 million, $8
million and $9 million as of the end of the first, second, and third quarters of
2000, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

13. RESTRUCTURING CHARGES

During 2001, the Company incurred certain restructuring charges (in
millions):

In 2001, the Company recorded an initial charge of $19 million related to a
restructuring and consolidation of its GDX Automotive segment. The restructuring
program included the closure of the Marion, Indiana and Ballina, Ireland
manufacturing facilities and resulted in the elimination of approximately 760
employee positions. The decision to close these facilities was precipitated by
excess capacity and deterioration of performance and losses at these sites. The
decision to close the Ballina, Ireland plant was also due to difficulty in
retaining plant personnel in light of record employment levels in the region.
Remaining programs from these facilities were transferred to other facilities.
Later in 2001, the Company recorded an additional charge of $10 million related
to this program primarily to reflect a change in estimate for the anticipated
disposition values of the idled facilities and assets and benefits costs. The
restructuring charge includes approximately $14 million in cash charges
primarily related to severance and employee benefit costs. The balance of the
charge related to non-cash employee benefit costs and asset write-downs. This
restructuring program was substantially complete by the end of the Company's
fiscal year 2001.

An additional restructuring program directed at the recently acquired
Draftex business was implemented in 2001. The restructuring program included the
closure of a manufacturing facility in Gruchet, France and the consolidation of
portions of manufacturing facilities in Chartres, France and Viersen, Germany.
The restructuring resulted in the elimination of more than 500 employee
positions. Restructuring costs totaling $17 million were recorded as an increase
to the goodwill recorded as part of the Draftex acquisition. The restructuring
charge includes approximately $15 million in cash charges primarily related to
severance and employee benefit costs. The balance of the restructuring charge
relates primarily to non-cash charges for the disposition of plant assets. As of
November 30, 2001, the remaining accrual was approximately $4 million,
substantially all of which related to severance costs paid in December 2001.

The Company implemented a restructuring of its corporate headquarters in
late 2001. The program included a Voluntary Enhanced Retirement Program (VERP)
which was offered to certain eligible employees. The program resulted in a $10
million pre-tax charge to expense, of which $8 million will be a cash charge to
the Company.

A restructuring plan implemented at AFC included the elimination of 50
employee positions and resulted in a charge to expense of $1 million. This
program was designed to "right-size" AFC's workforce.

14. UNUSUAL ITEMS

a. FISCAL YEAR 2001

Unusual items reflected in the Company's results for fiscal year 2001
include a pre-tax gain on the sale of the Company's EIS business of $206 million
(see Note 1(a)), and a pre-tax inventory write-down and accrual totaling $48
million related to Aerojet's participation in a commercial launch vehicle
program (see Note 3) and a gain of $2 million related to an insurance settlement
for an environmental claim related to a discontinued operation. Additionally,
during 2001, the Company settled outstanding claims with the Internal Revenue
Service and the State of California. The benefit of the tax refunds, $13 million
on an after tax basis, was recorded in the income tax provision. The portion of
the tax refunds that will be repaid to the Company's defense customers is
reflected as an unusual expense item of $9 million in segment income ($5 million
after tax). Accordingly, after repayment to the Company's defense customers, the
Company will retain $8 million of the claims settled.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

b. FISCAL YEAR 2000

During fiscal year 2000, the Company incurred unusual items resulting in a
net pre-tax gain of $4 million. Unusual items included a gain of $5 million from
the sale of an equity interest in Aerojet Fine Chemicals to NextPharma (see also
Note 1(a)) above; a $3 million gain from an environmental settlement related to
a discontinued operation; a $3 million charge related to the pension settlement
of a discontinued Canadian operation, and; a $1 million loss on the disposition
of property related to a discontinued operation.

c. FISCAL YEAR 1999

During fiscal year 1999, the Company incurred unusual items resulting in
net pre-tax income before taxes of $12 million. Unusual items included a gain of
$59 million on settlements covering certain environmental claims with certain of
the Company's insurance carriers; a provision of $33 million for environmental
remediation costs associated principally with the Company's initial estimate of
its probable share as a Potentially Responsible Party (PRP) in the portion of
the San Gabriel Valley Basin Superfund Site known as the Baldwin Park Operable
Unit (BPOU); a provision for environmental remediation costs at the Company's
Lawrence, Massachusetts site of $6 million; a provision for environmental
remediation costs associated with other Company sites of $2 million; a charge of
$4 million related to a pricing dispute with a major vehicle sealing customer; a
charge of $1 million for the write-down of certain GDX Automotive assets to net
realizable value; and a charge of $1 million related to relocation/retention
costs associated with the spin-off of OMNOVA.

15. NEW ACCOUNTING PRONOUNCEMENTS

Effective July 1, 2001, the Company adopted the provisions of SFAS No. 141,
"Business Combinations" (SFAS 141), which is effective for all business
combinations initiated after June 30, 2001. SFAS 141 prohibits the use of the
pooling-of-interest method for business combinations and establishes the
accounting and financial reporting requirements for business combinations
accounted for by the purchase method. SFAS 141 also changes the criteria to
recognize intangible assets apart from goodwill. The Company adopted the
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142)
effective December 1, 2001. Under SFAS 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually, or more
frequently if indications of possible impairment exist, for impairment. The
Company has performed the requisite transitional impairment tests for goodwill
and other intangible assets as of December 1, 2001 and has determined that these
assets are not impaired as of that date. The adoption of SFAS 142 results in a
reduction of annual amortization expenses of approximately $4 million related to
goodwill and other indefinite lived intangible assets. The adoption of these
standards will not have a material impact on the Company's results of
operations, liquidity or financial condition.

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143) that provides
accounting guidance for the costs of retiring long-lived assets. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. The Company is
currently assessing the impact adoption of this standard will have on its
financial statements, but a preliminary review indicates that it will not have a
material effect on the Company's results of operations, liquidity or financial
condition.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144) that provides accounting
guidance for financial accounting and reporting for the impairment or disposal
of long-lived assets. The statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed
Of." SFAS 144 also supersedes the accounting and reporting provisions of
Accounting Principal Board's Opinion No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
related to the disposal of a segment of a business. SFAS 144 is effective for
fiscal years beginning after December 15, 2001, with early adoption encouraged.
The Company has adopted the provisions of SFAS 144 as of December 1, 2001. The
adoption of SFAS 144 is not expected to have a material effect on the Company's
results of operations, liquidity or financial condition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

16. SUBSEQUENT EVENTS

On September 14, 2001, Aerojet reached agreement with the relevant agencies
on a Stipulation to modify the Partial Consent Decree (Decree) to carve out
approximately 2,600 acres from the Sacramento Superfund site designation. On
September 25, 2001, the Stipulation was lodged with the United States District
Court and was followed by a 30-day public comment period. Due to the anthrax
attacks in Washington DC and subsequent delays in the federal mail system, the
United States Department of Justice continued to receive comments after the 30
day period. In addition, three water purveyors and a public interest group have
attempted to delay carve-out until the Stipulation's water replacement plan is
revised. On February 14, 2002, the claims of two of the water purveyors were
removed to the same Unites States District Court where the Stipulation is
pending. On March 1, 2002, the agencies filed the motion to approve the Decree
modification and management expects the United Stated District Court to approve
the modification in due course. See also Note 9(c) for additional details.

On December 27, 2001, the Company reacquired NextPharma's 40 percent
ownership interest in AFC from NextPharma for approximately $25 million. The
consideration included cash of $13 million and the return of the common stock in
NextPharma's parent company held by GenCorp, which represented approximately 31
percent of the common stock interest in that entity. The cash component is due
in installments: $7 million paid on December 27, 2001; $2.0 million paid on
February 15, 2002; $2.0 million to be paid in May 2002, and; $2.0 million to be
paid in August 2002. As part of the transaction, other agreements between the
two companies were terminated, including a comprehensive sales and marketing
agreement. With the termination of these agreements, AFC reassumed
responsibility for sales, marketing and customer interface. The acquisition
agreement also contains a provision for a contingent payment of up to $12
million in the event of a disposition of AFC by GenCorp within the next two
years. As discussed in Note 1(a), NextPharma acquired the minority interest in
AFC in June 2000.

In February 2002 an independent arbitrator rendered a decision on the
dispute between The Laird Group and the Company involving certain adjustments to
the purchase price. However, there are further issues impacting the purchase
price including the effect of the arbitrator's decision, which have yet to be
resolved between the parties. Management believes that resolution of these
issues will not have a material effect on the Company's results of operations,
liquidity or financial condition.

On February 28, 2002 the Company executed an amendment to the Credit
Facility, which provides an additional $25 million term loan. See Note 7.

79

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to nominees who will stand for election as a
director of the Company at the March 27, 2002 Annual Meeting of Shareholders is
set forth on Pages 2 and 3 of the Company's 2002 Proxy Statement and is
incorporated herein by reference. Information with respect to directors of the
Company whose terms extend beyond the March 27, 2002 Annual Meeting of
Shareholders is set forth on pages 3 and 4 of the Company's 2002 Proxy Statement
and is incorporated herein by reference.

Based solely upon review of reports of ownership, reports of changes of
ownership and written representations under Section 16(a) of the Securities
Exchange Act of 1934 which were furnished to the Company during or with respect
to 2001 by persons who were, at any time during 2001, directors or officers of
the Company or beneficial owners of more than 10 percent of the outstanding
shares of Common Stock, no such person failed to file on a timely basis any
report required by such section during 2001, except J. Robert Anderson who had a
late filing of Form 3 due to international travel.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is set forth on Pages 9
through 23 of the Company's 2002 Proxy Statement and is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding the security ownership of certain beneficial owners
and management is set forth on Pages 5 and 6 of the Company's 2002 Proxy
Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain transactions and employment agreements with
management is set forth on Pages 16 through 19 of the Company's 2002 Proxy
Statement and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The following documents are filed as part of this report:

(a)(1) and (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

A listing of financial statements and financial statement schedules is set
forth in a separate section of this report beginning on GC-1.

(a)(3) EXHIBITS

An index of exhibits begins on page -i- of this report.

(b) REPORTS ON FORM 8-K

The Company filed a Report on Form 8-K on October 22, 2001 incorporating
its press release dated October 22, 2001 announcing that Aerojet had completed
the sale of EIS business to Northrop Grumman for $315 million in cash.

The Company filed a Report on Form 8-K on November 5, 2001 announcing
Aerojet had completed its October 19, 2001 sale of its EIS business to Northrop
Grumman for $315 million in cash, subject to certain working capital adjustments
as defined in the agreement. The Report on Form 8-K included copies of the Asset
Purchase Agreement and related agreements between Aerojet and Northrop Grumman,
as well the unaudited pro forma combined consolidated financial statements of
GenCorp.

The Company filed a Report on Form 8-K on November 26, 2001 incorporating
its press release dated November 23, 2001 announcing a definitive agreement to
reacquire a 40 percent ownership position in AFC from NextPharma for
approximately $13 million in cash, the return of GenCorp's interest in
NextPharma's parent and a provision for a contingent payment of up to $12
million in the event of a disposition of AFC within the next two years.
80

The Company filed a Report on Form 8-K on December 3, 2001 incorporating
its press release dated November 30, 2001 announcing the sale of approximately
1,100 acres of property in East Sacramento County to Elliott Homes Inc., for
approximately $28 million. The land lies outside of the Aerojet Superfund site
boundaries and is not a part of the approximate 2,600 acres of land that have
been declared clean and are proposed to be carved out of the Superfund site
designation under an agreement with federal and state regulators.

(c) EXHIBITS

The response to this portion of Item 14 is set forth in a separate section
of this report immediately following the exhibit index.

(d) FINANCIAL STATEMENT SCHEDULES

All financial statement schedules have been omitted because they are
inapplicable, not required by the instructions or because the required
information is either incorporated herein by reference or included in the
financial statements or notes thereto included in this report.

81

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

March 6, 2002 GENCORP INC.

By: /s/ WILLIAM R. PHILLIPS
------------------------------------
William R. Phillips
Senior Vice President, Law;
General Counsel and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

82

ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1)(2) AND (3), (c) AND (d)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
CERTAIN EXHIBITS
FISCAL YEAR ENDED NOVEMBER 30, 2001
GENCORP INC.
SACRAMENTO, CALIFORNIA 95853-7012

GENCORP INC

ITEM 14(a)(1) AND (2)

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

All financial statement schedules have been omitted because they are
inapplicable, not required by the instructions or because the required
information is either incorporated herein by reference or included in the
financial statements or notes thereto included in this report.

GC-1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in GenCorp Inc.'s Registration
Statement Nos. 333-91783, 333-35621, 33-61928, 33-28056 and 2-98730 on Form S-8,
Post Effective Amendment No. 1 to Registration Statement Nos. 2-80440 and
2-83133 on Form S-8, and Post Effective Amendment No. 4 to Registration
Statement No. 2-66840 on Form S-8 of our report dated February 28, 2002, with
respect to the consolidated financial statements of GenCorp Inc. included in the
Annual Report (Form 10-K) for the year ended November 30, 2001.

Ernst & Young LLP

Sacramento, California
February 28, 2002

GC-2

EXHIBIT INDEX

iii